(Registrant’s telephone number, including area code): (206) 674-3400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		EXPD		NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x ☒ No o

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x ☒ No o

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer	x ☒		Accelerated filer	o ☐

Non-accelerated filer	o ☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o ☐

Emerging growth company	o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.				o ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o☐ No x

☒

At ~~November 3, 2017,~~May 4, 2020, the number of shares outstanding of the issuer’s ~~Common Stock~~common stock was ~~177,702,850.~~

166,426,186.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

	March 31, 2020			December 31, 2019
Assets:
Current Assets:
Cash and cash equivalents	$	1,111,973		$	1,230,491
Accounts receivable, less allowance for credit loss of $3,578 at March 31, 2020 and $11,143 at December 31, 2019		1,268,798			1,315,091
Deferred contract costs		143,986			131,783
Other		94,060			92,558
Total current assets		2,618,817			2,769,923
Property and equipment, less accumulated depreciation and amortization of $481,490 at March 31, 2020 and $478,906 at December 31, 2019		484,588			499,344
Operating lease right-of-use assets		372,748			390,035
Goodwill		7,927			7,927
Deferred federal and state income taxes, net		9,680			8,034
Other assets, net		16,207			16,621
Total assets	$	3,509,967		$	3,691,884
Liabilities:
Current Liabilities:
Accounts payable	$	700,944		$	735,695
Accrued expenses, primarily salaries and related costs		201,756			189,446
Contract liabilities		170,866			154,183
Current portion of operating lease liabilities		63,748			65,367
Federal, state and foreign income taxes		21,864			23,627
Total current liabilities		1,159,178			1,168,318
Noncurrent portion of operating lease liabilities		313,644			326,347
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, NaN issued		—		—
Common stock, par value $0.01 per share. Issued and outstanding: 166,193 shares at March 31, 2020 and 169,622 shares at December 31, 2019		1,662			1,696
Additional paid-in capital		682			3,203
Retained earnings		2,202,208			2,321,316
Accumulated other comprehensive loss		(169,746	)		(131,187	)
Total shareholders’ equity		2,034,806			2,195,028
Noncontrolling interest		2,339			2,191
Total equity		2,037,145			2,197,219
Total liabilities and equity	$	3,509,967		$	3,691,884

~~(Unaudited)~~

September 30, 2017 December 31, 2016
Current Assets:
Cash and cash equivalents $ 1,033,444
$ 974,435
Accounts receivable, less allowance for doubtful accounts of $11,217 at September 30, 2017 and $9,247 at December 31, 2016 1,349,854
1,190,130
Other 135,623
54,014
Total current assets 2,518,921
2,218,579
Property and equipment, less accumulated depreciation and amortization of $413,219 at September 30, 2017 and $406,652 at December 31, 2016 513,070
536,572
Goodwill 7,927
7,927
Other assets, net 28,963
27,793
Total assets $ 3,068,881
$ 2,790,871
Current Liabilities:
Accounts payable $ 836,055
$ 726,571
Accrued expenses, primarily salaries and related costs 216,146
185,502
Federal, state and foreign income taxes 23,853
17,858
Total current liabilities 1,076,054
929,931
Deferred Federal and state income taxes 11,746
13,727

Commitments and contingencies

Shareholders’ Equity:
Preferred stock, none issued —
—
Common stock, par value $0.01 per share. Issued and outstanding 177,559 shares at September 30, 2017 and 179,857 shares at December 31, 2016 1,776
1,799
Additional paid-in capital 1,464
2,642
Retained earnings 2,053,723
1,944,789
Accumulated other comprehensive loss (78,960 ) (104,592 )
Total shareholders’ equity 1,978,003
1,844,638
Noncontrolling interest 3,078
2,575
Total equity 1,981,081
1,847,213
Total liabilities and equity $ 3,068,881
$ 2,790,871

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

	Three months ended March 31,
	2020		2019
Revenues:
Airfreight services	$	709,039	$	714,901
Ocean freight and ocean services		493,427		568,641
Customs brokerage and other services		699,398		736,509
Total revenues		1,901,864		2,020,051
Operating Expenses:
Airfreight services		520,169		509,210
Ocean freight and ocean services		366,483		420,331
Customs brokerage and other services		400,076		436,396
Salaries and related		342,040		356,910
Rent and occupancy		42,524		41,523
Depreciation and amortization		12,660		13,393
Selling and promotion		8,243		11,076
Other		50,614		43,611
Total operating expenses		1,742,809		1,832,450
Operating income		159,055		187,601
Other Income (Expense):
Interest income		4,807		6,106
Other, net		3,384		1,665
Other income, net		8,191		7,771
Earnings before income taxes		167,246		195,372
Income tax expense		44,464		55,261
Net earnings		122,782		140,111
Less net earnings attributable to the noncontrolling interest		438		412
Net earnings attributable to shareholders	$	122,344	$	139,699
Diluted earnings attributable to shareholders per share	$	0.71	$	0.80
Basic earnings attributable to shareholders per share	$	0.73	$	0.81
Weighted average diluted shares outstanding		171,450		175,388
Weighted average basic shares outstanding		168,735		171,818

~~(Unaudited)~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Revenues:
Airfreight services $ 735,164
$ 621,566
$ 2,022,577
$ 1,764,512
Ocean freight and ocean services 563,386
495,460
1,585,730
1,414,344
Customs brokerage and other services 503,616
445,368
1,411,270
1,277,174
Total revenues 1,802,166
1,562,394
5,019,577
4,456,030
Operating Expenses:
Airfreight services 547,595
444,359
1,490,417
1,236,555
Ocean freight and ocean services 411,061
359,991
1,163,051
1,006,710
Customs brokerage and other services 244,368
212,785
675,729
597,320
Salaries and related costs 319,050
291,204
930,159
868,091
Rent and occupancy costs 30,533
27,091
87,826
81,029
Depreciation and amortization 12,272
11,882
36,241
34,853
Selling and promotion 10,608
10,134
32,476
29,817
Other 39,784
37,685
102,429
103,702
Total operating expenses 1,615,271
1,395,131
4,518,328
3,958,077
Operating income 186,895
167,263
501,249
497,953
Other Income (Expense):
Interest income 3,444
2,924
9,565
8,593
Other, net 96
925
2,584
3,407
Other income (expense), net 3,540
3,849
12,149
12,000
Earnings before income taxes 190,435
171,112
513,398
509,953
Income tax expense 69,829
63,163
190,470
188,518
Net earnings 120,606
107,949
322,928
321,435
Less net earnings attributable to the noncontrolling interest 343
368
550
1,218
Net earnings attributable to shareholders $ 120,263
$ 107,581
$ 322,378
$ 320,217
Diluted earnings attributable to shareholders per share $ 0.66
$ 0.59
$ 1.77
$ 1.75
Basic earnings attributable to shareholders per share $ 0.67
$ 0.59
$ 1.79
$ 1.76
Dividends declared and paid per common share $ —
$ —
$ 0.42
$ 0.40
Weighted average diluted shares outstanding 181,788
182,692
181,951
182,958
Weighted average basic shares outstanding 179,416
181,177
179,827
181,645

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

	Three months ended March 31,
	2020			2019
Net earnings	$	122,782		$	140,111
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax expense of $1,174 and $521 for the three months ended March 31, 2020 and 2019		(38,849	)		1,365
Other comprehensive (loss) income		(38,849	)		1,365
Comprehensive income		83,933			141,476
Less comprehensive income attributable to the noncontrolling interest		148			282
Comprehensive income attributable to shareholders	$	83,785		$	141,194

~~(Unaudited)~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Net earnings $ 120,606
$ 107,949
$ 322,928
$ 321,435
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $4,128 and $202 for the three months ended September 30, 2017 and 2016 and $14,019 and $223 for the nine months ended September 30, 2017 and 2016 7,489
260
25,585
(457 )
Other comprehensive income (loss) 7,489
260
25,585
(457 )
Comprehensive income 128,095
108,209
348,513
320,978
Less comprehensive income attributable to the noncontrolling interest 285
260
503
1,167
Comprehensive income attributable to shareholders $ 127,810
$ 107,949
$ 348,010
$ 319,811

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three months ended March 31,
	2020			2019
Operating Activities:
Net earnings	$	122,782		$	140,111
Adjustments to reconcile net earnings to net cash from operating activities:
Provisions for losses (recoveries) on accounts receivable		1,820			(1,888	)
Deferred income tax (benefit) expense		(5,139	)		2,108
Stock compensation expense		11,156			13,382
Depreciation and amortization		12,660			13,393
Other, net		433			189
Changes in operating assets and liabilities:
Decrease in accounts receivable		16,680			230,477
Increase (decrease) in accounts payable and accrued expenses		917			(122,283	)
(Increase) decrease in deferred contract costs		(16,068	)		31,259
Increase (decrease) in contract liabilities		21,201			(36,725	)
Increase in income taxes payable, net		10,488			16,993
(Increase) decrease in other, net		(11,930	)		2,467
Net cash from operating activities		165,000			289,483
Investing Activities:
Purchase of property and equipment		(6,127	)		(9,435	)
Other, net		(143	)		255
Net cash from investing activities		(6,270	)		(9,180	)
Financing Activities:
Proceeds from issuance of common stock		23,399			27,190
Repurchases of common stock		(283,240	)		(44,334	)
Payments for taxes related to net share settlement of equity awards		(1,396	)		—
Net cash from financing activities		(261,237	)		(17,144	)
Effect of exchange rate changes on cash and cash equivalents		(16,011	)		2,535
Change in cash and cash equivalents		(118,518	)		265,694
Cash and cash equivalents at beginning of period		1,230,491			923,735
Cash and cash equivalents at end of period	$	1,111,973		$	1,189,429
Taxes Paid:
Income taxes	$	35,304		$	37,253

~~(Unaudited)~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Operating Activities:
Net earnings $ 120,606
$ 107,949
$ 322,928
$ 321,435
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses on accounts receivable 1,741
1,321
3,187
2,461
Deferred income tax (benefit) expense (28,854 ) (1,439 ) (16,000 ) 2,342
Stock compensation expense 11,210
10,476
39,036
34,264
Depreciation and amortization 12,272
11,882
36,241
34,853
Other, net 377
11
(148 ) 41
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (126,102 ) (58,279 ) (123,790 ) 6,087
Increase in accounts payable and accrued expenses 61,833
38,070
96,132
74,148
Increase (decrease) in income taxes payable, net 38,149
7,197
10,814
(16,612 )
Increase in other current assets (5,872 ) (1,395 ) (6,147 ) (2,089 )
Net cash from operating activities 85,360
115,793
362,253
456,930
Investing Activities:
Purchase of property and equipment (34,462 ) (12,659 ) (67,603 ) (39,973 )
Other, net (261 ) 1,617
(892 ) 5,472
Net cash from investing activities (34,723 ) (11,042 ) (68,495 ) (34,501 )
Financing Activities:
Proceeds from issuance of common stock 65,915
57,522
162,781
147,645
Repurchases of common stock (202,776 ) (101,690 ) (340,736 ) (268,097 )
Dividends paid —
—
(75,726 ) (73,000 )
Net cash from financing activities (136,861 ) (44,168 ) (253,681 ) (193,452 )
Effect of exchange rate changes on cash and cash equivalents 4,758
1,853
18,932
5,927
(Decrease) increase in cash and cash equivalents (81,466 ) 62,436
59,009
234,904
Cash and cash equivalents at beginning of period 1,114,910
980,264
974,435
807,796
Cash and cash equivalents at end of period $ 1,033,444
$ 1,042,700
$ 1,033,444
$ 1,042,700
Taxes Paid:
Income taxes $ 58,257
$ 58,696
$ 190,911
$ 205,049

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Condensed Consolidated Statements of Equity

(In thousands)

(Unaudited)

	Common Stock
For the three months ended March 31, 2020 and 2019	Shares			Par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
Balance at December 31, 2019		169,622		$	1,696		$	3,203		$	2,321,316		$	(131,187	)	$	2,195,028		$	2,191		$	2,197,219
Cumulative effect of accounting change		—			—			—			6,074			—			6,074			—			6,074
Shares issued under employee stock plans		571			6			21,997			—			—			22,003			—			22,003
Shares repurchased under provisions of stock repurchase plan		(4,000	)		(40	)		(35,799	)		(247,401	)		—			(283,240	)		—			(283,240	)
Stock compensation expense		—			—			11,156			—			—			11,156			—			11,156
Net earnings		—			—			—			122,344			—			122,344			438			122,782
Other comprehensive income (loss)		—			—			—			—			(38,559	)		(38,559	)		(290	)		(38,849	)
Dividends paid		—			—			125			(125	)		—			—			—			—
Balance at March 31, 2020		166,193		$	1,662		$	682		$	2,202,208		$	(169,746	)	$	2,034,806		$	2,339		$	2,037,145

Balance at December 31, 2018		171,582		$	1,716		$	1,896		$	2,088,707		$	(105,481	)	$	1,986,838		$	882		$	1,987,720
Shares issued under employee stock plans		654			6			27,184			—			—			27,190			—			27,190
Shares repurchased under provisions of stock repurchase plans		(588	)		(6	)		(38,484	)		(5,844	)		—			(44,334	)		—			(44,334	)
Stock compensation expense		—			—			13,382			—			—			13,382			—			13,382
Net earnings		—			—			—			139,699			—			139,699			412			140,111
Other comprehensive income (loss)		—			—			—			—			1,495			1,495			(130	)		1,365
Balance at March 31, 2019		171,648		$	1,716		$	3,978		$	2,222,562		$	(103,986	)	$	2,124,270		$	1,164		$	2,125,434

See accompanying notes to condensed consolidated financial statements.

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(In thousands, except per share data)

(Unaudited)

Note 1. Summary of Significant Accounting Policies


~~Note 1.~~ A.	~~Summary of Significant Accounting Policies~~


A.	Basis of Presentation

Expeditors International of Washington, Inc. (the Company) is a non-asset based provider of global logistics services operating through a worldwide network of offices and exclusive or non-exclusive agents. The Company’s customers include retailing and wholesaling, electronics, industrial and manufacturing companies around the world.

The condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are, in the opinion of management, necessary tofor a fair statement of the results for the interim periods presented. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Form 10-K as filed with the Securities and Exchange Commission on February ~~23, 2017.~~

21, 2020.

All significant intercompany accounts and transactions have been eliminated in consolidation. All dollar amounts in the notes are presented in thousands except for per share data or unless otherwise specified.

Revenue Recognition

The Company derives its revenues by entering into agreements that are generally comprised of a single performance obligation, which is that freight is shipped for and received by the customer. The Company's three principal services are the revenue categories presented in the condensed consolidated statements of earnings: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services.

The Company typically satisfies its performance obligations as services are rendered over time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed over the life of a shipment, including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one to two month-period and contracts with customers have an original expected duration of less than one year. The Company satisfied nearly all performance obligations for the contract liabilities recorded as of December 31, 2019.

Beginning in the second quarter 2019, the Company revised its presentation for revenue transfers between its geographic operating segments and services rendered at the destination, which moved certain revenues and directly related operating expenses for air and ocean transactions to destination services within customs brokerage and other services. These changes better align revenue reporting with the location where the services are performed, as well as the transactional reporting being developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact on consolidated or segment operating income. The impact on reported consolidated and segment total revenues and expenses for these changes was immaterial and first quarter 2019 presentation has not been revised.

Leases

The Company determines if an arrangement is a lease at inception. Right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. All ROU assets and lease liabilities are recognized at the commencement date at the present value of lease payments over the lease term. ROU assets are adjusted for lease incentives and initial direct costs. The lease term includes renewal options exercisable at the Company's sole discretion when the Company is reasonably certain to exercise that option. As the Company's leases generally do not have an implicit rate, the Company uses an estimated incremental borrowing rate based on market information available at the commencement date to determine the present value. Certain ~~prior year amounts have been reclassified to conform~~of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. The Company excludes variable payments from ROU assets and lease liabilities, to the ~~2017 presentation.~~extent not considered fixed, and instead expense variable payments as incurred. Lease expense is recognized on a straight-line basis over the lease term and is included in rent and occupancy expenses on the condensed consolidated statement of earnings.


B. D.	Accounts Receivable

Effective January 1, 2020, the Company adopted a new accounting standard update related to the measurement of credit losses on financial instruments. The adoption had an immaterial effect on the Company’s consolidated financial statements and disclosures. Under this new standard, the valuation allowance reduces a financial asset’s balance for credit losses expected to be incurred over the assets contractual term. The Company ~~maintains~~determined that this new guidance is applicable to its accounts receivable, which are short term and for which the Company has not historically experienced significant credit losses. The Company adopted this standard using the modified retrospective transition method resulting in a $6 millionadjustment to the opening balance of retained earnings and an $8 million reduction to the opening balance of allowance for ~~doubtful~~credit loss. The Company’s trade accounts ~~which~~receivable present similar credit risk characteristics and the allowance for credit loss is ~~reviewed at least monthly for~~ estimated ~~losses resulting from~~on a collective basis, using a credit loss-rate method leveraging historical credit loss information and including considerations of the ~~inability of its customers to make required payments for services and advances.~~current economic environment. Additional allowances may be necessary in the future if ~~the ability of customers~~changes in economic conditions are significant enough to ~~pay deteriorates.~~affect expected credit losses. The Company has recorded an allowance for ~~doubtful accounts~~credit loss in the amounts of $~~11,217~~3,578 as of ~~September 30, 2017~~March 31, 2020 and ~~$9,247~~$11,143 as of December 31, ~~2016.~~ 2019. Additions and write-offs have not been significant in the periods presented.


C. E.	Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The Company uses estimates primarily in the following areas: accounts receivable valuation, accrual of costs related to ancillary services the Company provides, accrual of liabilities for the portion of the related exposure that the Company has self-insured, accrual of various tax liabilities including estimates associated with the U.S. enacted Tax Cuts and Jobs Act (the 2017 Tax Act), accrual of loss contingencies, ~~and~~ calculation of share-based compensation ~~expense.~~expense and estimates related to determining the lease term and discount rate when measuring ROU assets and lease liabilities. Actual results could ~~differ~~be materially different from ~~those estimates.~~the estimated provisions and accruals recorded.

Recent Accounting Pronouncement

In December 2019, the FASB issued an ASU, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. This standard will become effective for the Company on January 1, 2021. The Company is currently evaluating the impact of this standard on its consolidated financial statements and disclosures.

Note 2. Share-Based Compensation

The Company has historically granted the majority of its share-based awards during the second quarter of each fiscal year. ~~On May 2, 2017, shareholders approved~~During the 2017 Omnibus Incentive Plan (2017 Plan), which made available 2,500 shares of the Company's common stock in aggregate to be issued under any award type allowed by the 2017 Plan. In the nine-month periodthree months ended ~~September 30, 2017,~~March 31, 2020 and 2019, the Company ~~awarded 583 restricted stock units (RSU) under the 2017 Plan to certain employees at a weighted-average~~did 0t grant date fair value of $54.04. The RSU vest annually over 3 years based on continued employment and are settled upon vesting in shares of the Company's common stock on a one-for-one basis. The value of an RSU grant is based on the Company's stock price on the date of grant. Additionally, in the second quarter of 2017 and 2016, respectively, 38 and 41 fully vested shares were granted to non-employee directors.

The Company also awarded 23 performance stock units (PSU) under the 2017 Plan. The PSU include performance conditions and a time-based vesting component. The final number of PSU will be determined using an adjustment factor of up to two times each PSU granted, depending on the degree of achievement of the designated performance targets. If the minimum performance thresholds are not achieved, no shares will be issued. Each PSU will convert to one share of the Company's common stock upon vesting.

RSU and PSU granted under the 2017 Plan have dividend equivalent rights, which entitle holders of RSU and PSU to the same dividend value per share as holders of common stock. Dividend equivalent rights are subject to the same vesting and other terms and conditions as the corresponding unvested RSU and PSU and are accumulated and paid in shares when the underlying awards vest.

Under the 2016 Stock Option Plan, 2,973 options were granted in the nine months ended September 30, 2016, vesting over 3 years from the date of grant. The Company does not plan to grant stock options in 2017.

any share-based awards.

The grant of employee stock purchase rights and the issuance of shares under the employee stock purchase plan are made in the third quarter of each fiscal ~~year and 682 and 703~~year. NaN shares were issued ~~in the nine-month periods ended September 30, 2017 and 2016, respectively. The fair value of~~under the employee stock purchase ~~rights granted was $11.69~~plan in the three months ended March 31, 2020 and ~~$10.99 per share for the quarters ended September 30, 2017 and 2016, respectively.~~

2019.

The Company recognizes stock compensation expense based on ~~an estimate of~~ the fair value of awards granted to employees and directors under the Company’s omnibus incentive, stock option ~~director restricted stock~~ and employee stock purchase rights plans. This expense, adjusted for expected forfeitures, is recognized in net earnings on a straight-line basis over the service periods as salaries and related ~~expenses. RSU awards~~costs on the condensed consolidated statements of earnings. Restricted stock units and performance share units awarded to certain employees meeting specific retirement eligibility criteria at the time of grant are expensed immediately as there is no substantive service period associated with those awards. ~~Approximately $4 million~~

Note 3. Income Taxes

During 2019, the Internal Revenue Service (IRS) and the U.S. Department of ~~stock compensation~~Treasury (Treasury) issued additional guidelines and clarifying regulations related to the implementation of the 2017 Tax Act. The Company expects that additional guidance will continue to be issued in future periods. As this guidance is issued, the Company will continue to evaluate the information to determine whether any additional adjustments to its tax provisions are required.

The 2017 Tax Act included provisions for Global Intangible Low-Taxed Income (GILTI) under which taxes on foreign income are imposed on the excess of a deemed return on tangible assets of certain foreign subsidiaries and for Base Erosion and Anti-Abuse Tax (BEAT) under which taxes are imposed on certain base eroding payments to affiliated foreign companies. The Company treats BEAT and GILTI as components of current income tax expense. For the three months ended March 31, 2020 and 2019, there was 0 BEAT expense and GILTI expense was ~~recognized~~insignificant.

The Company’s consolidated effective income tax rate was 26.6% for the three months ended March 31, 2020, as compared to 28.3%for the comparable period in 2019. The effect of higher average tax rates of our international subsidiaries, when compared to U.S. federal and state tax rates, were partially offset by U.S. foreign tax credits and U.S. income tax deductions for Foreign-derived intangible income (FDII).

The Company is subject to taxation in various states and many foreign jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. The Company believes that its tax positions, including intercompany transfer pricing policies, are reasonable and consistently applied. The Company is under, or may be subject to, audit or examination and assessments by the relevant authorities in respect to these and any other jurisdictions primarily for years 2009 and thereafter. Sometimes audits result in proposed assessments where the ultimate resolution could result in significant additional tax, penalties and interest payments being required. The Company establishes liabilities when, despite its belief that the tax return positions are appropriate and consistent with tax law, it concludes that it may not be successful in realizing the tax position. In evaluating a tax position, the Company determines whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position and in consultation with qualified tax advisors.

The total amount of the Company’s tax contingencies may increase in 2020. In addition, changes in state, federal, and foreign tax laws and changes in interpretations of these laws may increase the Company’s existing tax contingencies. The timing of the resolution of income tax examinations can be highly uncertain, and the amounts ultimately paid including interest and penalties, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts recorded. It is reasonably possible that within the next twelve months the Company may undergo further audits and examinations by various tax authorities and possibly may reach resolution related to income tax examinations in one or more jurisdictions. These assessments or settlements could result in changes to the Company’s contingencies related to positions on tax filings in future years. The estimate of any ultimate tax liability contains assumptions based on experiences, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the taxing jurisdiction. Any interest and penalties expensed in relation to the underpayment of income taxes were insignificant for the three months ended March 31, 2020 and 2019.

As discussed above, some elements of the recorded impacts of the 2017 Tax Act could be impacted by further legislative action as well as additional interpretations and guidance issued by the IRS or Treasury. As a result, the amount of income tax recorded in the ~~second quarter~~future may differ, possibly materially. For further information and discussion of the potential impact of the 2017 ~~for RSU grants meeting retirement eligibility criteria.~~

~~Beginning~~Tax Act, refer to Note 7 to the consolidated financial statements in the Company's 2019 Annual Report on January 1, 2017, the Company adopted accounting guidance requiring that, prospectively, excess tax benefits and deficiencies be recorded in income tax expense for vesting of RSU, stock option exercises, cancellations and disqualifying dispositions of employee stock purchase plan shares. Also, the Company has elected to continue to estimate forfeitures expected to occur in determining compensation cost to be recognized in each period.

~~Total stock compensation expense and the total related tax benefit recognized are as follows:~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Stock compensation expense $ 11,210
$ 10,476
$ 39,036
$ 34,264
Recognized tax benefit $ 2,311
$ 2,149
$ 8,187
$ 5,928

Form 10-K.

Note 3.4. Basic and Diluted Earnings per Share

Diluted earnings attributable to shareholders per share is computed using the weighted average number of common shares and dilutive potential common shares outstanding. Dilutive potential shares represent outstanding stock options, including purchase options under the Company's employee stock purchase plan, and unvested restricted stock units. Basic earnings attributable to shareholders per share is calculated using the weighted average number of common shares outstanding without taking into consideration dilutive potential common shares outstanding.

The following table reconciles the numerator and the denominator of the basic and diluted per share computations for earnings attributable to shareholders:

	Three months ended March 31,
��	Net earnings attributable to shareholders		Weighted average shares		Earnings per share
2020
Basic earnings attributable to shareholders	$	122,344		168,735	$	0.73
Effect of dilutive potential common shares		—		2,715		—
Diluted earnings attributable to shareholders	$	122,344		171,450	$	0.71
2019
Basic earnings attributable to shareholders	$	139,699		171,818	$	0.81
Effect of dilutive potential common shares		—		3,570		—
Diluted earnings attributable to shareholders	$	139,699		175,388	$	0.80

Three months ended
September 30,
(Amounts in thousands, except per share amounts)
Net earnings
attributable to
shareholders

Weighted average
shares
Earnings per share
2017
Basic earnings attributable to shareholders $ 120,263
179,416
$ 0.67
Effect of dilutive potential common shares —
2,372
—
Diluted earnings attributable to shareholders $ 120,263
181,788
$ 0.66
2016
Basic earnings attributable to shareholders $ 107,581
181,177
$ 0.59
Effect of dilutive potential common shares —
1,515
—
Diluted earnings attributable to shareholders $ 107,581
182,692
$ 0.59

Nine months ended
September 30,
(Amounts in thousands, except per share amounts)
Net earnings
attributable to
shareholders

Weighted average
shares
Earnings per share
2017
Basic earnings attributable to shareholders $ 322,378
179,827
$ 1.79
Effect of dilutive potential common shares —
2,124
—
Diluted earnings attributable to shareholders $ 322,378
181,951
$ 1.77
2016
Basic earnings attributable to shareholders $ 320,217
181,645
$ 1.76
Effect of dilutive potential common shares —
1,313
—
Diluted earnings attributable to shareholders $ 320,217
182,958
$ 1.75

~~The following~~

Substantially all outstanding potential common shares ~~have been excluded from the computation~~as of ~~diluted earnings per share because the effect would have been antidilutive:~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Shares 1
8,646
1,233
9,516

March 31, 2020 and 2019 were dilutive.

Note ~~4. Components of~~5. Shareholders' Equity

~~The components of equity for the~~ ~~nine~~ ~~months ended September 30,~~ ~~2017~~ ~~and~~ ~~2016~~ ~~are as follows:~~

Shareholders’
equity

Noncontrolling
interest

Total
equity
Balance at December 31, 2016 $ 1,844,638
2,575
1,847,213
Exercise of stock options 134,014
—
134,014
Issuance of shares under stock purchase plan 28,767
—
28,767
Shares repurchased under provisions of stock repurchase plans (340,736 ) —
(340,736 )
Stock compensation expense 39,036
—
39,036
Net earnings 322,378
550
322,928
Other comprehensive income (loss) 25,632
(47 ) 25,585
Dividends paid ($0.42 per share) (75,726 ) —
(75,726 )
Balance at September 30, 2017 $ 1,978,003
3,078
1,981,081

Balance at December 31, 2015 $ 1,691,993
2,683
1,694,676
Exercise of stock options 119,509
—
119,509
Issuance of shares under stock purchase plan 28,136
28,136
Shares repurchased under provisions of stock repurchase plans (268,097 ) —
(268,097 )
Stock compensation expense 34,264
—
34,264
Tax benefits from stock plans, net (2,533 ) —
(2,533 )
Net earnings 320,217
1,218
321,435
Other comprehensive loss (406 ) (51 ) (457 )
Dividends paid ($0.40 per share) (73,000 ) —
(73,000 )
Balance at September 30, 2016 $ 1,850,083
3,850
1,853,933

The Company has a Non-Discretionary Stock Repurchase Plan to repurchase shares from the proceeds of stock option exercises and employee stock purchases. During the nine-month periods ended September 30, 2017 and 2016, 2,902 and 2,822 shares were repurchased at an average price of $55.58 and $49.84 per share, respectively.

~~The Company also~~ has a Discretionary Stock Repurchase Plan approved by the Board of Directors that authorizes management to reduce issued and outstanding common stock down to ~~170 million shares of common stock.~~160,000 shares. During the ~~nine-month periods~~three months ended ~~September 30, 2017 and 2016, 3,189 and 2,579~~March 31, 2020, 4,000 shares were repurchased at an average price of ~~$56.26 and $49.41~~$70.81 per share, ~~respectively.~~

compared to 500 shares at an average price of $75.64 per share during the same period in 2019. In the first quarter of 2019, the Company also repurchased 88 shares at an average price of $74.03 under a Non-discretionary Stock Repurchase Plan that expired in 2019.

Accumulated other comprehensive loss consisted entirely of foreign currency translation adjustments, net of related income tax effects, for all the periods presented.

Subsequent to the end of first quarter 2020, on May ~~2, 2017,~~5, 2020, the Board of Directors declared a semi-annual dividend of ~~$0.42~~$0.52 per share payable on June 15, ~~2017~~2020 to shareholders of record as of June 1, ~~2017. On May 3, 2016, the Board of Directors declared a semi-annual dividend of $0.40 per share payable on June 15, 2016 to shareholders of record as of June 1, 2016.~~

Subsequent to the end of the third quarter, on November 7, 2017, the Board of Directors declared a semi-annual dividend of $0.42 per share payable on December 15, 2017 to shareholders of record as of December 1, 2017.

~~Note 5. Assets Held for Sale~~

In January 2017, the Company formally approved a plan to sell land and buildings located in Miami, Florida. The decision to sell these assets was largely based upon changes in local operational requirements and the Company's intended use of the property. The net book value of the property assets is $80 million, and is reported within the United States segment. The Company continues to market the land and buildings at a selling price which, after selling costs, is expected to exceed the net book value. As of September 30, 2017, these assets are being reported as held for sale and are classified in other current assets.

2020.

Note 6. Fair Value of Financial Instruments

The Company’s financial instruments, other than cash, consist primarily of cash equivalents, accounts receivable, accounts payable and accrued expenses. The carrying value of these financial instruments approximates their fair value. All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.

Cash and cash equivalents consist of the following:

	March 31, 2020				December 31, 2019
	Cost		Fair Value		Cost		Fair Value
Cash and Cash Equivalents:
Cash and overnight deposits	$	440,121	$	440,121	$	417,456	$	417,456
Corporate commercial paper		635,697		636,169		775,504		776,356
Time deposits		36,155		36,155		37,531		37,531
Total cash and cash equivalents	$	1,111,973	$	1,112,445	$	1,230,491	$	1,231,343

September 30, 2017 December 31, 2016
Cost Fair Value Cost Fair Value
Cash and Cash Equivalents:
Cash and overnight deposits $ 385,432
385,432
406,787
406,787
Corporate commercial paper 613,433
613,825
507,777
507,889
Time deposits 34,579
34,579
59,871
59,871
Total cash and cash equivalents $ 1,033,444
1,033,836
974,435
974,547

The fair value of corporate commercial paper and time deposits is based on the use of market interest rates for identical or similar assets (Level 2 fair value measurement).

Note 7. ~~Commitments~~

The Company generally enters into short-term, unconditional purchase obligations with asset-based providers reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. Historically, the Company has met these obligations in the normal course of business within one year. Purchase obligations outstanding as of September 30, 2017 totaled $62 million.

Additionally, the Company occupies offices and warehouse facilities under terms of operating leases expiring up to 2028. At September 30, 2017, future minimum annual lease payments under all noncancelable leases are as follows:

2017 $ 16,984
2018 65,813
2019 53,209
2020 41,565
2021 27,696
Thereafter 47,009
$ 252,276

~~Note 8.~~ Contingencies

The Company is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on the Company's operations, cash flows or financial position. As of ~~September 30, 2017,~~March 31, 2020, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to the Company's operations, cash flows or financial position. At this time, the Company is unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.

Note 9.8. Business Segment Information

The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, ~~net revenues~~¹,directly related cost of transportation and other expenses for each of the Company’s three primary sources of revenue, salaries and other operating expenses, operating income, identifiable assets, capital expenditures ~~depreciation and amortization~~ and equity generated in each of these geographical areas when evaluating the effectiveness of geographic management. Transactions among the Company’s various offices are conducted using the same arms-length pricing methodologies the Company uses when its offices transact business with independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin.

Financial information regarding the Company’s operations by geographic area is as follows:

	UNITED STATES		OTHER NORTH AMERICA		LATIN AMERICA		NORTH ASIA		SOUTH ASIA		EUROPE		MIDDLE EAST, AFRICA AND INDIA		ELIMI- NATIONS			CONSOLI- DATED
For the three months ended March 31, 2020:
Revenues¹	$	650,407		81,831		37,890		537,955		169,042		320,640		105,039		(940	)		1,901,864
Directly related cost of transportation and other expenses²	$	373,961		45,890		23,765		425,301		121,282		221,998		74,976		(445	)		1,286,728
Salaries and other operating expenses³	$	225,944		23,712		11,749		57,433		29,908		81,854		25,950		(469	)		456,081
Operating income	$	50,502		12,229		2,376		55,221		17,852		16,788		4,113		(26	)		159,055
Identifiable assets at period end	$	1,858,250		135,810		68,402		512,808		179,508		554,831		200,382		(24	)		3,509,967
Capital expenditures	$	4,497		61		102		325		188		645		309		—			6,127
Equity	$	1,369,580		63,378		28,020		237,255		102,001		159,222		113,349		(35,660	)		2,037,145
For the three months ended March 31, 2019:
Revenues¹	$	659,784		91,410		34,179		632,853		177,179		312,690		112,675		(719	)		2,020,051
Directly related cost of transportation and other expenses²	$	367,355		56,241		19,116		498,646		129,810		215,895		79,503		(629	)		1,365,937
Salaries and other operating expenses³	$	218,416		24,209		12,427		68,427		31,462		82,843		28,811		(82	)		466,513
Operating income	$	74,013		10,960		2,636		65,780		15,907		13,952		4,361		(8	)		187,601
Identifiable assets at period end	$	1,906,278		175,034		71,168		511,589		174,512		579,924		234,195		(9,788	)		3,642,912
Capital expenditures	$	6,915		228		93		344		176		982		697		—			9,435
Equity	$	1,401,450		82,170		28,581		238,518		114,290		165,718		126,953		(32,246	)		2,125,434

Beginning in the second quarter of 2019, the Company revised its process to record the transfer, between its geographic operating segments, of revenues and the directly related cost of transportation and other expenses for freight service transactions between Company origin and destination locations. This change better aligns revenue reporting with the location where the services are performed, as well as the transactional reporting being developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact on consolidated or segment operating income. The impact of these changes on reported segment revenues was immaterial and first quarter 2019 segment revenues have not been revised.

²	Directly related cost of transportation and other expenses totals operating expenses from airfreight services, ocean freight and ocean services and customs brokerage and other services as shown in the condensed consolidated statements of earnings.

(in thousands)
UNITED
STATES

OTHER
NORTH
AMERICA

LATIN
AMERICA
NORTH ASIA SOUTH ASIA EUROPE MIDDLE EAST, AFRICA AND INDIA
ELIMI-
NATIONS

CONSOLI-
DATED
Three months ended September 30, 2017:
Revenues from unaffiliated customers $ 476,575
65,544
24,181
686,915
170,225
273,606
105,120
—
1,802,166
Transfers between geographic areas 26,888
2,782
3,679
5,253
5,681
10,302
5,318
(59,903 ) —
Total revenues $ 503,463
68,326
27,860
692,168
175,906
283,908
110,438
(59,903 ) 1,802,166
Net revenues¹
$ 257,030
30,664
14,710
138,667
41,411
85,390
29,956
1,314
599,142
Operating income $ 74,645
9,215
2,652
72,070
11,697
11,124
5,495
(3 ) 186,895
Identifiable assets at period end $ 1,636,293
100,651
52,238
446,826
143,893
473,509
212,210
3,261
3,068,881
Capital expenditures $ 7,398
263
2,436
589
390
23,138
248
—
34,462
Depreciation and amortization $ 7,905
405
310
1,313
569
1,309
461
—
12,272
Equity $ 1,345,266
52,212
25,709
231,831
102,477
139,688
119,649
(35,751 ) 1,981,081
Three months ended September 30, 2016:
Revenues from unaffiliated customers $ 423,362
56,747
21,592
590,622
154,156
228,256
87,659
—
1,562,394
Transfers between geographic areas 24,610
2,770
3,724
5,368
6,206
9,938
5,551
(58,167 ) —
Total revenues $ 447,972
59,517
25,316
595,990
160,362
238,194
93,210
(58,167 ) 1,562,394
Net revenues¹
$ 229,773
30,211
14,063
124,251
42,711
74,888
29,363
(1 ) 545,259
Operating income $ 69,457
6,200
3,328
59,682
14,045
7,018
7,534
(1 ) 167,263
Identifiable assets at period end $ 1,410,287
95,390
56,192
480,587
117,333
388,543
237,104
8,788
2,794,224
Capital expenditures $ 8,319
720
139
739
319
2,127
296
—
12,659
Depreciation and amortization $ 7,566
369
328
1,404
594
1,116
505
—
11,882
Equity $ 1,145,293
41,542
37,765
293,383
87,926
129,989
150,395
(32,360 ) 1,853,933

³	Salaries and other operating expenses totals salaries and related, rent and occupancy, depreciation and amortization, selling and promotion and other as shown in the condensed consolidated statements of earnings.

(in thousands) UNITED
STATES
OTHER
NORTH
AMERICA
LATIN
AMERICA
NORTH ASIA
SOUTH ASIA
EUROPE
MIDDLE EAST, AFRICA AND INDIA
ELIMI-
NATIONS
CONSOLI-
DATED
Nine months ended September 30, 2017:

Revenues from unaffiliated customers $ 1,354,811

187,997

69,747

1,873,393

475,163

764,596

293,870

—

5,019,577
Transfers between geographic areas 79,356

8,246

11,073

15,139

16,520

29,288

15,316

(174,938 )
—
Total revenues $ 1,434,167

196,243

80,820

1,888,532

491,683

793,884

309,186

(174,938 )
5,019,577
Net revenues¹
$ 737,842

84,630

43,634

371,459

117,634

242,244

89,973

2,964

1,690,380
Operating income $ 191,256

26,583

8,349

183,515

37,434

36,189

17,928

(5 )
501,249
Identifiable assets at period end $ 1,636,293

100,651

52,238

446,826

143,893

473,509

212,210

3,261

3,068,881
Capital expenditures $ 19,492

1,066

3,648

2,492

1,172

38,717

1,016

—

67,603
Depreciation and amortization $ 23,389

1,163

930

3,995

1,656

3,707

1,401

—

36,241
Equity $ 1,345,266

52,212

25,709

231,831

102,477

139,688

119,649

(35,751 )
1,981,081
Nine months ended September 30, 2016:

Revenues from unaffiliated customers $ 1,248,923

165,527

62,825

1,605,343

442,464

680,035

250,913

—

4,456,030
Transfers between geographic areas 79,617

8,141

11,512

15,849

18,338

30,396

16,452

(180,305 )
—
Total revenues $ 1,328,540

173,668

74,337

1,621,192

460,802

710,431

267,365

(180,305 )
4,456,030
Net revenues¹
$ 683,331

88,404

42,264

357,159

128,486

227,068

88,745

(12 )
1,615,445
Operating income $ 184,876

23,091

11,016

176,621

48,090

31,109

23,162

(12 )
497,953
Identifiable assets at period end $ 1,410,287

95,390

56,192

480,587

117,333

388,543

237,104

8,788

2,794,224
Capital expenditures $ 25,234

1,476

941

2,502

1,325

6,386

2,109

—

39,973
Depreciation and amortization $ 22,264

1,113

869

4,111

1,649

3,402

1,445

—

34,853
Equity $ 1,145,293

41,542

37,765

293,383

87,926

129,989

150,395

(32,360 )
1,853,933

~~_______________________~~

¹~~Net revenues~~

The Company’s consolidated financial results in the first quarter 2020 were significantly impacted by the effects of the Novel Coronavirus (COVID-19) pandemic and are ~~a non-GAAP measure calculated as revenues less directly related operating expenses attributable~~expected to be further impacted in the remainder of 2020. In the first quarter of 2020, North Asia and United States experienced the most significant declines in results due to the ~~Company's principal services. The Company's management believes that net revenues are~~disruptions of trade to and from China, which impacted overall freight movement around the globe. Factories in China experienced extended closures and many airlines cancelled flights to and from China. Additionally, ocean carriers have reduced their capacity by anchoring vessels and skipping ports due to the decline in demand. As a ~~better measure than~~result, starting in January certain of the Company’s central China offices experienced temporary closures and limited operations and shipments were rerouted or delayed by customers and service providers taking their own precautionary measures. Also, available airfreight capacity was reduced affecting the ability to efficiently route customers’ freight. In the first quarter 2020 and 2019, the People's Republic of China, including Hong Kong, represented 23% and 27%, respectively, of the Company’s total revenues when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and ~~fees earned by the Company. Net revenue is one~~25% and 29%, respectively, of the Company's primary operational and financial measures and demonstrates the Company's ability to concentrate and leverage purchasing power through effective consolidation of shipments from customers utilizing a variety of transportation carriers and optimal routings.

Company’s total operating income.

~~The following table presents the calculation of consolidated net revenues:~~

Three months ended Nine months ended
September 30, September 30,
2017 2016 2017 2016
Total revenues $ 1,802,166
$ 1,562,394
$ 5,019,577
$ 4,456,030
Expenses:
Airfreight services 547,595
444,359
1,490,417
1,236,555
Ocean freight and ocean services 411,061
359,991
1,163,051
1,006,710
Customs brokerage and other services 244,368
212,785
675,729
597,320
Net revenues $ 599,142
$ 545,259
$ 1,690,380
$ 1,615,445

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995; CERTAIN CAUTIONARY STATEMENTS

Certain portions of this report on Form 10-Q including the sections entitled ~~“Overview,”~~"Overview," "Novel Coronavirus (COVID-19)," "Expeditors' Culture and Strategy," "International Trade and Competition," "Seasonality," ~~“Critical~~"Critical Accounting Estimates,~~” "Recent Accounting Pronouncements,~~" ~~“Results~~"Results of Operations,~~” “Currency~~" "Income tax expense," "Currency and Other Risk ~~Factors”~~Factors" and ~~“Liquidity~~"Liquidity and Capital ~~Resources”~~Resources" contain forward-looking statements. Words such as "will likely result," "expects", "are expected to," "would expect," "would not expect," "will continue," "is anticipated," "estimate," "project," "plan," "believe," "probable," "reasonably possible," "may," "could," "should," "intends," "foreseeable future" and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of future financial performance, our anticipated growth and trends in the Company's businesses, the anticipated impact and duration of COVID-19, and other characterizations of future events or circumstances are forward-looking statements. These statements must be considered in connection with the discussion of the important factors that could cause actual results to differ materially from the forward-looking statements. ~~Attention~~In addition to risk factors identified in Part II, Item 1A, Risk Factors of this report, attention should be given to the factors identified and discussed in the Company's annual report on Form 10-K filed on February ~~23, 2017.~~

21, 2020.

Overview

Expeditors International of Washington, Inc. (herein referred to as "Expeditors," the "Company," "we," "us," "our") isprovides a full suite of global logistics ~~company.~~services. Our services include air and ocean freight consolidation and forwarding, customs brokerage, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking, and other logistics solutions. We do not compete for overnight courier or small parcel business. As a non-asset based carrier, we do not own or operate transportation assets.

We derive our revenues by entering into agreements that are generally comprised of a single performance obligation, which is that freight is shipped for and received by our customer. Each performance obligation is comprised of one or more of the Company's services. We typically satisfy our performance obligations as services are rendered over time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight services from origin to destination port and destination services, such as customs clearance and final delivery. Our three principal ~~sources:~~services are the revenue categories presented in our financial statements: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services. ~~These are the revenue categories presented in our financial statements.~~

We generate the major portion of our air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct (asset-based) carriers and reselling those services to our customers on a retail basis. The difference between the rate billed to our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield” or “margin.” By consolidating shipments from multiple customers and concentrating our buying power, we are able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves. The most significant drivers of changes in gross revenues and related transportation expenses are volume, sell rates and buy rates. Volume has a similar effect on the change in both gross revenues and related transportation expenses in each of our three primary sources of revenue.

We generate the major portion of our air and ocean freight revenues by purchasing transportation services on a wholesale basis from direct (asset-based) carriers and then reselling those services to our customers on a retail basis. The rate billed to our customers (the sell rate) is recognized as revenues and the rate we pay to the carrier (the buy rate) is recognized in operating expenses as the directly related cost of transportation and other expenses. By consolidating shipments from multiple customers and concentrating our buying power, we are able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than customers would otherwise be able to negotiate themselves.

In most cases, we act as an indirect carrier. When acting as an indirect carrier, we issue a House Airway Bill (HAWB), a House Ocean Bill of Lading (HOBL) or a House Seaway Bill to customers as the contract of carriage. In turn, when the freight is physically tendered to a direct carrier, we receive a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments.

Customs brokerage and other services involve providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of customers as well as arranging for any required inspections by governmental agencies, and import services such as arranging for delivery. These are complicated functions requiring technical knowledge of customs rules and regulations in the multitude of countries in which we have offices. We also provide other value added services at destination, such as warehousing and distribution, time-definitive transportation services and consulting.

In these transactions, we evaluate whether it is appropriate to record the gross or net amount as revenue. Generally, revenue is recorded on a gross basis when we are primarily responsible for fulfilling the ~~primary obligor, are obligated~~promise to ~~compensate direct carriers for~~provide the services, ~~performed regardless~~when we assume risk of ~~whether customers accept the service, have latitude in establishing price,~~loss, when we have discretion in ~~selecting~~setting the prices for the services to the customers, and we have the ability to direct ~~carrier, have credit risk or have several but not all~~the use of ~~these indicators. Revenue~~the services provided by the third party. When revenue is ~~generally~~ recorded on a net basis, ~~where we are not primarily obligated and do not have latitude in establishing prices. Such~~the amounts earned are determined using a fixed fee, a per unit of activity fee or a combination thereof.

For revenues earned in other capacities, for instance, when we do not issue a HAWB, a HOBL or a House Seaway Bill or otherwise act solely as an agent for the shipper, only the commissions and fees earned for such services are included in revenues. In these transactions, we are not a principal and report only commissions and fees earned in revenue.

Customs brokerage and other services involve providing services at destination, such as helping customers clear shipments through customs by preparing and filing required documentation, calculating and providing for payment of duties and other taxes on behalf of customers as well as arranging for any required inspections by governmental agencies, and arranging for delivery. These are complicated functions requiring technical knowledge of customs rules and regulations in the multitude of countries in which we have offices.

We manage our company along five geographic areas of responsibility: Americas; North Asia; South Asia; Europe; and Middle East, Africa and India (MAIR). Each area is divided into sub-regions that are composed of operating units with individual profit and loss responsibility. Our business involves shipments between operating units and typically touches more than one geographic area. The nature of the international logistics business necessitates a high degree of communication and

cooperation among operating units. Because of this inter-relationship between operating units, it is very difficult to examine any one geographic area and draw meaningful conclusions as to its contribution to our overall success on a stand-alone basis.

Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit profitability, which includes shared revenues and allocated costs. Therefore, individual success is closely linked to cooperation with other operating units within our network.

The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. ~~In accordance with~~

Novel Coronavirus (COVID-19)

The COVID-19 pandemic has significantly affected our ~~revenue recognition policy (see Note 1. E.~~ business operations in the first quarter of 2020, and we expect these disruptive conditions to continue through the ~~consolidated financial statements~~remainder of the year. At this time, the main elements of its impact on our business are summarized below:

•

Governments have designated our operations as essential business in all regions where we operate because of our important role in supply chains operations worldwide. As such, our districts continue to serve our customers while operating within the regulations established in those countries.

•

We activated our business continuity plan, first regionally in China in January 2020, expanding to other regions worldwide in February and March 2020. Our business continuity plan includes measures to protect and safeguard the health of our employees and service providers, such as sanitization of our facilities, providing protective equipment to employees, restricting travel and requiring all employees to work remotely if they are able to. Our plan includes measures to minimize adverse impacts to our operations and those of our customers’ businesses. We have identified areas of the supply chain process that can be supported remotely and through automation, and those which require physical operations and handling. We continue to monitor the rapidly changing situation and may take additional actions based on recommendations from governments and local and national health authorities.

•

Travel restrictions, government mandated lockdowns and additional precautionary measures resulted in business and supply chain disruption, and limited operations first in China, and then worldwide with a sharp decrease in international trade. We have also seen a shift in the goods we handle with increased shipments of medical equipment and supplies to combat COVID-19 and technology products to support social distancing and working remotely. In contrast, we have seen a significant decline in shipments from our customers in retail, aerospace, automotive, oil and energy sectors. Overall, this has negatively impacted our results of operations in the first quarter of 2020 as our freight volumes have decreased.

•

These disruptions are threatening the financial stability of our service providers and our ability to efficiently route customer freight. Reduced passenger flight schedules and cancellations have significantly impacted available belly space, limiting our ability to utilize space under our existing capacity agreements with carriers and requiring us to buy space in a tight airfreight market and utilize chartered planes. Ocean carriers have continued to reduce their capacity by anchoring vessels and skipping ports due to the decline in demand. These freight market conditions create pricing volatility that further challenges Expeditors’ ability to maintain historical unitary profitability.

•

Many of our customers are experiencing disruptions in their revenue and cash flow, prompting these customers to attempt to renegotiate contractual terms and increasing our accounts receivable collection risk. We have continued to apply our established credit control procedures and collection monitoring that have historically been effective in limiting credit losses. These conditions could result in the loss of business and additional bad debt allowances in the future if our customers’ ability to pay further deteriorates.

These disruptive conditions continued in April 2020, and we expect them to continue through the remainder of the year. A prolonged slowdown in the global economy and trade would further negatively affect our ~~annual report on Form 10-K filed on February 23, 2017~~), almost all freight revenues and related expenses are recorded at origin and shipment profits are split between origin and destination offices by recording a commission fee or profit share revenue at destination and a corresponding commission or profit share expense as a component of origin consolidation costs.operations in the future.

Expeditors' Culture and Strategy

From the inception of our company, management has believed that the elements required for a successful global service organization can only be assured through recruiting, training, and ultimately retaining superior personnel. We believe that our greatest challenge is now and always has been perpetuating a consistent global corporate culture, ~~that~~which demands:

•

Total dedication to providing superior customer service;

~~Total dedication, first and foremost, to providing superior customer service;~~

•

Compliance with our policies and procedures and government regulations;

~~Compliance with our policies and procedures and government regulations;~~

•

Aggressive marketing of all of our service offerings;

~~Aggressive marketing of all of our service offerings;~~

•

A positive, safe work environment that is inclusive and free from discrimination and harassment;

~~A positive, safe work environment that is inclusive and free from discrimination and harassment;~~

•

Ongoing development of key employees and management personnel;

~~Ongoing development of key employees and management personnel via formal and informal means;~~

•

Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;

~~Creation of unlimited advancement opportunities for employees dedicated to hard work, personal growth and continuous improvement;~~

•

Individual commitment to the identification and mentoring of successors for every key position so that when change occurs, a qualified and well-trained internal candidate is ready to step forward; and

Individual commitment to the identification and mentoring of successors for every key position so that when inevitable change occurs, a qualified and well-trained internal candidate is ready to step forward;

•

Continuous identification, design and implementation of system solutions and differentiated service offerings, both technological and otherwise, to meet and exceed the needs of our customers while simultaneously delivering tools to make our employees more efficient and effective.

We reinforce these values with a compensation system that rewards employees for profitably managing the things they can control. This compensation system has been in place since we became a publicly traded company. There is no limit to how much a key manager can be compensated for success. We believe in a “real world” environment where the employees of our operating units are held accountable for the profit implications of their decisions. If these decisions result in operating losses, management generally must make up these losses with future operating profits, in the aggregate, before any cash incentive compensation can be earned. Executive management, in limited circumstances, makes exceptions at the branch operating unit level. At the same time, our policies, processes and relevant training focus on such things as cargo management, risk mitigation, ~~service provider management,~~ compliance, accounts receivable collection, cash flow and credit soundness in an attempt to help managers avoid the kinds of errors that might end a career.

We believe that ~~failure to perpetuate~~ our unique culture onis a ~~self-sustained basis throughout our organization may pose a greater threat~~critical component to our continued ~~success than any external force, which likely would be largely beyond our control.~~success. We strongly believe that it is nearly impossible to predict events that, individually or in the aggregate, could have a positive or a negative impact on our future operations. As a result, management's focus is on building and maintaining a global corporate culture and an environment ~~in which~~where well-trained employees and managers are prepared to identify and react to changes as they develop and thereby help us adapt and thrive as major trends emerge.

Our business growth strategy emphasizes a focus on the right markets and, within each market, on the right customers that lead to ~~drive~~ profitable business growth. Expeditors' teams are aligned on the specific markets; on the targeted accounts within those markets; and on ways that we can continue to differentiate ourselves from our competitors.

Our ability to provide services to customers is highly dependent on good working relationships with a variety of entities including airlines, ocean carriers, ground transportation providers and governmental agencies. The significance of maintaining acceptable working relationships with these entities has gained increased importance as a result of the effect of the COVID-19 pandemic, ongoing concern over terrorism, security, changes in governmental regulation and oversight of international trade. A good reputation helps to develop practical working understandings that will assist in meeting security requirements while minimizing potential international

trade obstacles, especially as governments rapidly promulgate new regulations in reaction to the COVID-19 pandemic and increase oversight and enforcement of new and existing laws. We consider our current working relationships with these entities to be satisfactory.

Our business is also highly dependent on the financial stability and operational capabilities of the carriers we utilize. ~~Many air and ocean carriers~~Carriers are highly leveraged with ~~debt. Moreover, certain ocean~~debt and incurring operating losses. As a result, carriers are facing ~~significant~~ liquidity ~~challenges.~~challenges exacerbated by COVID-19 pandemic and are seeking relief under various government support programs. This ~~situation~~environment requires that we be selective in determining which carriers to utilize. Further changes in the financial stability, operating capabilities and capacity of asset-based carriers, ~~space~~capacity allotments available from carriers, governmental regulations, and/or trade accords could adversely affect our business in unpredictable ways.

International Trade and Competition

We operate in over 60 countries in the competitive global logistics industry and our activities are closely tied to the global economy. The global economy is experiencing a rapid slowdown as a result of the COVID-19 pandemic and related precautionary measures including lockdown government mandates worldwide, shutdown of manufacturing and operations for non-essential businesses and travel restrictions. International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates, ~~and~~ laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to ~~current~~ tariffs and trade restrictions and accords. Currently, the United States and China have significantly increased tariffs on certain imports and are engaged in trade negotiations and changes to export regulations and tariffs for goods deemed essential to combating COVID-19. The United Kingdom and the European Union are negotiating the terms of the United Kingdom's exit from the European Union. We cannot predict ~~which, if any,~~the outcome of these proposals ~~may be adopted~~or negotiations, or the effects ~~the adoption of any such proposal~~they will have on our business. As governments implement higher tariffs on imports, manufacturers may accelerate, to the extent possible, shipments to avoid higher tariffs and, over time, may shift manufacturing to other countries. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade, oil prices and ~~oil prices.~~

security costs.

The global logistics services industry is intensely competitive and is expected to remain so for the foreseeable future. Our pricing and terms continue to be pressured by uncertainty in global trade and economic conditions, concerns over airfreight capacity availability, volatile ~~fuel costs,~~airfreight pricing, disruptions in port services, political unrest and fluctuating currency exchange rates. We expect these operating and competitive conditions to continue.

Air carriers are experiencing significant cash flow challenges as a result of travel restrictions resulting in cancellation of flights. Ocean carriers have incurred substantial operating losses in recent years, and many are highly leveraged with debt. These financial challenges have resulted in ~~the 2016 bankruptcy of a major carrier, as well as~~ multiple carrier acquisitions and carrier alliance formations. ~~Carriers continue to pursue scale and market share in an effort to reduce operating costs and improve their financial results.~~ Additionally, ~~while overall global demand has recently increased,~~ carriers continue to take delivery of new and larger ships, which ~~creates additional~~may increase capacity. Carriers also face new regulatory requirements that became effective in 2020 requiring reductions in the sulfur in marine fuel, which are increasing their operating and capital costs. When the market experiences seasonal peaks or any sort of disruption, the carriers ~~react by increasing~~often increase their pricing ~~as quickly as possible.~~suddenly. This carrier behavior creates pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.

There is uncertainty as to how new regulatory requirements and volatility in oil prices will continue to impact future buy rates. Because fuel is an integral part of carriers' costs and impacts both our buy rates and sell rates, we would expect our revenues and costs to be impacted as carriers adjust rates for the effect of changing fuel prices. To the extent that future fuel prices increase and we are unable to pass through the increases to our customers, this could adversely affect our operating income.

The global economic ~~environment~~ and trade ~~growth~~environments remain ~~uncertain.~~uncertain, including the impacts of COVID-19. We cannot predict ~~what~~the impact ~~this may have~~of future changes in global trade on our operating results, freight volumes, pricing, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior. Additionally, we cannot predict the direct or indirect impact that further changes in consumer purchasing behavior, such as online shopping, could have on our business.

In response to governments implementing higher tariffs on imports as well as responses to COVID-19 disruptions, some customers have begun shifting manufacturing to other countries which could negatively impact us.

Seasonality

Historically, our operating results have been subject to seasonal demand trends with the first quarter being the weakest and the third and fourth quarters being the strongest; however, there is no assurance this seasonal trend will occur in the ~~future.~~future or to what degree it will be impacted in 2020 by COVID-19. This pattern has been the result of, or influenced by, numerous factors, including weather patterns, national holidays, consumer demand, new product launches, economic conditions, pandemics, governmental policies and inter-governmental disputes and a myriad of other similar and subtle forces. In addition, this historical quarterly trend has been influenced by the growth and diversification of our international network and service offerings.

A significant portion of our revenues is derived from customers in the retail and ~~consumer~~ technology industries whose shipping patterns are tied closely to consumer demand, and from customers in industries whose shipping patterns are dependent upon just-in-time production schedules. Therefore, the timing of our revenues are, to a large degree, impacted by factors out of our control, such as a sudden change in consumer demand for retail goods, changes in trade tariffs,

product launches and/or manufacturing production delays. Additionally, many customers ship a significant portion of their goods at or near the end of a quarter and, therefore, we may not learn of a shortfall in revenues until late in a quarter.

To the extent that a shortfall in revenues or earnings was not expected by securities analysts or investors, any such shortfall from levels predicted by securities analysts or investors could have an immediate and adverse effect on the trading price of our stock. We cannot accurately forecast many of these factors, nor can we estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns will continue in future periods.

Critical Accounting Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and judgments. We base our estimates on historical experience and on assumptions that we believe are reasonable. Our critical accounting estimates are discussed in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our annual report on Form 10-K for the year ended December 31, ~~2016,~~2019, filed on February ~~23, 2017.~~21, 2020. There have been no material changes to the critical accounting estimates previously disclosed in that report.

~~Recent Accounting Pronouncements~~

~~Revenue recognition~~

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standard Update amending existing revenue recognition guidance and requiring related detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of our revenues and cash flows arising from contracts with customers. The standard is effective for us beginning on January 1, 2018. We formed a cross-functional project team that is in the process of evaluating the adoption impacts for each of our products and services.

Under the current standard, our transportation revenue is recognized at the point in time freight is tendered to the direct carrier at origin. Under the new standard, our transportation and related services revenue will be recognized over time as control is transferred to the customer. We expect to defer more revenues under the new standard. We are also evaluating whether we act as principal or an agent with regards to our promise to transfer services to the customer and we expect the presentation to change for certain of our services from net to gross revenue amounts.

We are developing and implementing systems solutions and process changes to facilitate revenue recognition under the new standard. We are also identifying and designing changes to our internal controls to support the adoption. We will adopt this standard using the modified retrospective transition method applied to those contracts that are not completed as of January 1, 2018. Upon adoption, we will recognize the cumulative effect of adopting as an adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively adjusted.

At this time, based on the nature of our operations and the short transit time of most of our transportation services, we do not believe that the adoption of the standard will have a material impact on our results of operations, financial position and cash flows once implemented. As we work towards completing our assessment, we continue to design and implement necessary process and system changes around gathering the data required to quantify the impact of the adoption and to comply with the new standard. We expect to complete our assessment of the impact towards the end of 2017.

~~Leases~~

In February 2016, the FASB issued an Accounting Standard Update changing the accounting for leases and includes a requirement to record all leases exceeding one year on the consolidated balance sheet as assets and liabilities. The new lease standard will be effective for us beginning on January 1, 2019 and will be adopted using a modified retrospective transition. Adoption will impact our consolidated balance sheets as future minimum lease payments under noncancelable leases totaled approximately $252 million as of September 30, 2017. We are currently evaluating our existing lease portfolios, including accumulating all of the necessary information required to properly evaluate and account for the leases under this new standard. Additionally, we are beginning the implementation of an enterprise-wide lease management system that, along with accompanying process changes, will assist us in the accounting and internal control changes necessary to meet the reporting and disclosure requirements of the new standard when it becomes effective.

Results of Operations

The following table shows the revenues, ~~and~~the directly related cost of transportation and other expenses for our principal services and ~~total net revenues (a non-GAAP measure calculated as revenues less directly related operating expenses attributable to~~ our ~~principal services) and our~~overhead expenses for the three months ended March 31, 2020 and ~~nine-month periods ended~~ ~~September 30, 2017~~2019, including the respective percentage changes comparing 2020 and ~~2016~~, expressed as percentages of net revenues. Management believes that net revenues are a better measure than total revenues when analyzing and discussing management's effectiveness in managing our principal services since total revenues earned by Expeditors as a freight consolidator include the carriers’ charges to us for carrying the shipment, whereas revenues earned by Expeditors in our other capacities include primarily the commissions and fees actually earned by us. Net revenue is one of our primary operational and financial measures and demonstrates our ability to manage sell rates to customers with our ability to concentrate and leverage our purchasing power through effective consolidation of shipments from multiple customers utilizing a variety of transportation carriers and optimal routings. Using net revenue also provides a commonality for comparison among various services.

2019.

The table and the accompanying discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes thereto in this quarterly report.

	Three months ended March 31,
(in thousands)	2020		2019		Percentage change
Airfreight services:
Revenues	$	709,039	$	714,901	(1)%
Expenses		520,169		509,210	2
Ocean freight services and ocean services:
Revenues		493,427		568,641	(13)
Expenses		366,483		420,331	(13)
Customs brokerage and other services:
Revenues		699,398		736,509	(5)
Expenses		400,076		436,396	(8)
Overhead expenses:
Salaries and related costs		342,040		356,910	(4)
Other		114,041		109,603	4
Total overhead expenses		456,081		466,513	(2)
Operating income		159,055		187,601	(15)
Other income, net		8,191		7,771	5
Earnings before income taxes		167,246		195,372	(14)
Income tax expense		44,464		55,261	(20)
Net earnings		122,782		140,111	(12)
Less net earnings attributable to the noncontrolling interest		438		412	6
Net earnings attributable to shareholders	$	122,344	$	139,699	(12)%

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Amount
Percent
of net
revenues
Amount
Percent
of net
revenues
Amount
Percent
of net
revenues
Amount
Percent
of net
revenues

(in thousands)
Airfreight services:
Revenues $ 735,164
$ 621,566
$ 2,022,577
$ 1,764,512

Expenses 547,595
444,359
1,490,417
1,236,555

Net revenues 187,569
31 % 177,207
32 % 532,160
31 % 527,957
33 %
Ocean freight services and ocean services:
Revenues 563,386
495,460
1,585,730
1,414,344

Expenses 411,061
359,991
1,163,051
1,006,710

Net revenues 152,325
26
135,469
25
422,679
25
407,634
25

Customs brokerage and other services:
Revenues 503,616
445,368
1,411,270
1,277,174

Expenses 244,368
212,785
675,729
597,320

Net revenues 259,248
43
232,583
43
735,541
44
679,854
42

Total net revenues 599,142
100
545,259
100
1,690,380
100
1,615,445
100

Overhead expenses:
Salaries and related costs 319,050
53
291,204
53
930,159
55
868,091
54

Other 93,197
16
86,792
16
258,972
15
249,401
15

Total overhead expenses 412,247
69
377,996
69
1,189,131
70
1,117,492
69

Operating income 186,895
31
167,263
31
501,249
30
497,953
31

Other income (expense), net 3,540
1
3,849
—
12,149
1
12,000
1

Earnings before income taxes 190,435
32
171,112
31
513,398
31
509,953
32

Income tax expense 69,829
12
63,163
11
190,470
12
188,518
12

Net earnings 120,606
20
107,949
20
322,928
19
321,435
20

Less net earnings attributable to the noncontrolling interest 343
—
368
—
550
—
1,218
—

Net earnings attributable to shareholders $ 120,263
20 % $ 107,581
20 % $ 322,378
19 % $ 320,217
20 %

Airfreight services:

Airfreight services revenues ~~increased 18% and 15%, respectively,~~ indecreased 1% during the three ~~and nine-month periods~~months ended ~~September 30, 2017~~, as compared with the same periods for 2016, primarily due to a 12% growth in tonnage in both periods and higher sell rates in response to increased buy rates resulting from higher overall market demand. Airfreight services expenses increased 23% and 21%, respectively, in the three and nine-month periods ended ~~September 30, 2017, principally as a result of the increase in tonnage and higher buy rates due to tighter carrier capacity.~~

~~Airfreight services net revenues increased 6% for the three-month period ended~~ ~~September 30, 2017~~,March 31, 2020 as compared with the same period for 2016. This was principally due to 12% tonnage growth, partially offset by a 5% decrease in net revenue per kilo. Europe, North America, and North Asia net revenues increased by 20%, 8%, and 7%, respectively, while tonnage increased 13%, 19%, and 6%. Europe's average net revenue per kilo improved2019, primarily due to ~~the increases~~a 7% decline in tonnage offset by 6% increase in average sell ~~rates. Average net revenue per kilo declined~~rates. Tonnage decreases in ~~North America primarily due to competitive market conditions, which resulted in lower~~all regions were mostly offset by on average higher sell rates. South Asia net revenues decreased 19% despite tonnage growth of 6%, primarily due to higher average buy rates. Carriers in South Asia increased pricing significantly as a result of higher demand relative to available capacity.

rates achieved.

Airfreight services ~~net revenues~~ expenses increased ~~1% for~~2% during the ~~nine-month period~~three months ended ~~September 30, 2017~~,March 31, 2020 as compared with the same period for ~~2016. This was~~2019, principally due to a 12% increase in tonnage, mostly offset by a 13% decrease in net revenue per kilo. Average net revenue per kilo declined in most regions primarily due to competitive market conditions and tight carrier capacity. Carriers in North Asia and South Asia increased pricing significantly as a result of ~~higher demand relative to available capacity.~~an 8% increase in average recorded buy rates, offset by a 7% decline in tonnage.

North Asia, South Asia and North America had decreases in tonnage of 9%, 11% and ~~Europe net revenues increased by~~ 4% ~~and 10%~~, respectively, ~~while~~for the three months ended March 31, 2020. The largest declines in tonnage were exports out of North Asia. After a significant decrease in January and February 2020, tonnage increased ~~13% and 11%, respectively.~~in March 2020 in North Asia ~~net revenues remained flat, despite~~while in other regions tonnage ~~growth of 11%, due principally to higher average buy rates. South Asia net revenues decreased 18% despite~~declined. The decrease in airfreight tonnage ~~growth of 10%~~was primarily due to the COVID-19 pandemic resulting in extended closures following Chinese New Year. As a result of COVID-19, the governments around the world have implemented travel restrictions and suspended non-essential services. Additionally, factories have experienced extended closures. This has caused supply chain disruptions to our domestic and international customers, which correspondingly decreased our airfreight volumes.

As a result of travel restrictions and lower ~~average sell rates and higher average buy rates.~~

~~The global airfreight market is experiencing~~passenger demand, airlines cancelled flights reducing available belly space for cargo at a time where demand for time-sensitive delivery of essential supplies was high, resulting in imbalances between carrier capacity and demand in certain ~~lanes,~~lanes. In order to accommodate the transportation of our customers’ shipments we increased our use of charter flights and purchases of capacity on the spot market, which ~~is resulting~~resulted in significantly higher ~~average~~ buy ~~rates. Customers remain focused on improving supply-chain efficiency, reducing overall logistics costs by negotiating lower rates~~ and utilizing ocean freight whenever possible. We expect these trends to continue in conjunction with carriers' efforts to manage available capacity. These conditions could be affected by new product launches during periods that have historically experienced higher demand. Historically, we have experienced lower airfreight margins in the fourth quarter as seasonal volumes increase and carriers correspondingly increase buysell rates. These conditions ~~should they continue to occur, could create~~created a ~~higher~~high degree of volatility in volumes, ~~and, ultimately,~~ buy and sell ~~rates.~~

rates and are expected to continue in the second quarter of 2020 and the remainder of the year.

Ocean freight and ocean services:

Ocean freight consolidation, direct ocean forwarding and order management are the three basic services that constitute and are collectively referred to as ocean freight and ocean services. Ocean freight and ocean services revenues ~~increased 14%~~ and ~~12%, respectively,~~ expenses decreased 13% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same ~~periods~~period in 2016, primarily due to 4% and 5% increases in container volume and higher average sell rates to customers. Ocean freight and ocean services expenses increased 14% and 16%, respectively, for the three and nine-month periods ended September 30, 2017, due to increased volumes and higher average buy rates as overall market demand increased and carriers managed available capacity.

~~Ocean freight and ocean services net revenues increased 12% and 4%, respectively, for the three and nine-month periods ended September 30, 2017, as compared with the same periods in 2016.~~2019. The largest component of our ocean freight ~~net~~and ocean services revenue was derived from ocean freight consolidation, which represented ~~46%~~63% and ~~48%~~68% of ocean freight ~~net~~and ocean services revenue for the ~~nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016,~~2019, respectively.

Ocean freight consolidation ~~net~~ revenues ~~increased 18% in~~and expenses decreased 20% and 19%, respectively, for the ~~third quarter of~~ ~~2017~~,three months ended March 31, 2020 as compared with the same period in ~~2016,~~2019, due ~~primarily~~ to a ~~15% increase~~10% decline in ~~net revenue per container~~containers shipped, primarily in North Asia, as well as a decrease in sell and buy rates. The changes in freight consolidation revenues and directly related expenses include a ~~4% increase~~revised presentation of destination services that started in ~~volume. In~~ the ~~third~~second quarter of ~~2016, net revenue per container was negatively affected by the bankruptcy of a large~~2019, which decreased revenues and directly related operating expenses in ocean ~~carrier, which resulted in a spike in buy rates. Ocean~~ freight consolidation ~~net~~but did not change consolidated operating income.

Direct ocean freight forwarding revenues ~~decreased 2%~~and expenses increased 9% and 18%, respectively, for the ~~nine-month period~~three months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same period in 2016. Decreases in net revenue per container in the first half of 2017 were largely offset by 5% volume growth and the increases in net revenue per container in the third quarter. Direct ocean freight forwarding net revenues decreased 3% in the third quarter of 2017,2019, primarily due to ~~increased costs, principally~~higher volumes and changes in customer mix. This was partially offset by a decrease in volumes in North Asia. Order management revenues and expenses decreased 8% and 11%, respectively, for the three months ended March 31, 2020 as compared to the same period in 2019, primarily due to lower volumes in North Asia, as well as a decrease in sell and buy rates. This was partially offset by higher volumes in South Asia.

North ~~America. Direct~~Asia ocean ~~forwarding net~~freight and ocean services revenues ~~increased 3%~~and expenses decreased 31% and 32%, respectively for the ~~nine-month period~~three months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same period in ~~2016,~~2019, primarily due to ~~higher volumes. Order management net revenues increased 19%~~decrease in container volume and ~~15%, respectively, for~~lower sell and buy rates. The decline in containers shipped from North Asia followed decreases in trade volumes starting in 2019 and were accelerated by the ~~three and nine-month periods ended September 30, 2017, mostly resulting from higher volumes with new and existing customers primarily~~COVID-19 pandemic. This was partially offset by an increase in ~~North Asia.~~

~~North America~~South Asia ocean freight and ocean services ~~net~~ revenues ~~increased~~and expenses of 9% ~~and remained flat, respectively, for~~for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same period in 2019, primarily due to an ~~improvement~~increase in ~~import margins during the third quarter that offset margin declines during the first half of 2017. Europe net revenues increased 8% in the third quarter due principally~~container volume.

Ocean carriers continue to ~~higher average sell rates. Europe net revenues decreased 3% in the first nine months of 2017 as the increases in average buy rates during the nine-month period of 2017 were partially offset~~reduce their capacity by ~~the improvement in average sell rates in the third quarter. South Asia net revenues increased 12%~~anchoring vessels and remained flat, respectively, for the three and nine-month periods ended September 30, 2017, due primarily to higher order management volumes and higher net revenue per container during the third quarter of 2017. North Asia net revenues increased 19% and 11% in the three and nine-month periods ended September 30, 2017, respectively,skipping ports due to ~~increases~~the decline in ~~order management and direct ocean forwarding, resulting from higher volumes, and a third quarter increase in ocean consolidation net revenues, driven by higher volumes and net revenue per container.~~

demand. We expect that pricing volatility will continue as customers solicit bids, react to governmental trade policies, adjust to the slowdown of the global economy from the COVID-19 pandemic and carriers continue to adapt to ~~changing~~changes in capacity, market ~~conditions,~~demand and merge or create alliances with other carriers. Carriers also face new ~~alliances~~regulatory requirements that became effective in 2020 to reduce the use of sulfur in marine fuel, which are increasing their operating and ~~liquidity challenges.~~capital costs, which could result in higher costs for us. These conditions could result in continued lower ~~margins.~~operating income.

Customs brokerage and other services:

Customs brokerage and other services revenues ~~increased 13%~~decreased 5% and ~~10%, respectively,~~expenses decreased 8% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same ~~periods~~period in ~~2016,~~2019, primarily ~~as a result of higher volumes~~due to decrease in both customs brokerage and road freight services. Customs brokerage and other services expenses increased 15% and 13%, respectively, for the three and nine-month periods ended September 30, 2017, as compared with the same periods in 2016, principally as a result of higher volumes.

Customs brokerage and other services net revenues increased 11% and 8%, respectively, for the three and nine-month periods ended September 30, 2017, as compared with the same periods in 2016, primarily as a result of an increase in customs brokerage and road freightshipments from existing customers. Slowdowns due to COVID-19 related closures affected volumes, particularly in ~~North America.~~the retail, aerospace, automotive, oil and energy sectors. Customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process. Customers seek ~~out~~knowledgeable customs brokers ~~such as Expeditors,~~ with sophisticated computerized capabilities critical to an overall logistics management program ~~including rapid responses~~that are necessary to rapidly respond to changes in the regulatory and security environment.

North America ~~net~~ revenues ~~increased 12%~~decreased 7% and directly related expenses decreased 10%~~, respectively,~~ for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2020 as compared with the same periods for ~~2016,~~ 2019, primarily as a result of ~~higher~~lower volumes in customs brokerage and road freight services. Europe net revenues increased 12% and 9%, respectively, in the third quarter and first nine months of 2017 primarily due to higher customs brokerage and road freight services net revenues.

freight.

Overhead expenses:

Salaries and related costs ~~increased 10% and 7%, respectively,~~ decreased by 4% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~ March 31, 2020as compared with the same ~~periods~~period in ~~2016,~~2019, principally due ~~principally~~ to ~~an increase~~reductions in ~~the number of employees, primarily in North America, Europe,~~commissions and ~~South Asia, higher base salaries~~bonuses earned from lower revenues and ~~benefits, higher share-based compensation expense and increased bonuses from higher~~ operating income. ~~The number of employees increased primarily to support the volume growth in our business operations and our continuing investments in information systems.~~

Historically, the relatively consistent relationship between salaries and ~~net revenues~~operating income has been the result of a compensation philosophy that has been maintained since the inception of our company: offer a modest base salary and the opportunity to share in a fixed and determinable percentage of the operating profit of the business unit controlled by each key employee. Using this compensation model, changes in individual incentive compensation occur in proportion to changes in our operating income, creating ~~a direct~~an alignment between branch and corporate performance and shareholder interests. Bonuses to field and executive management for the nine-month period ended September 30, 2017 were down 1% while operating income increased 1%. In 2017, we reduced senior executive management bonus pool allocations by 6% to help fund expansion of our strategic growth initiatives.

Our management compensation programs have always been incentive-based and performance driven. ~~Salaries and related costs as a percentage of revenues was 53% for both of the three-month periods ended September 30, 2017 and 2016 and increased 1%~~Bonuses to ~~55%~~field management for the ~~nine-month period~~three months ended ~~September 30, 2017, as~~March 31, 2020 were down 10% when compared to the same period in ~~2016~~2019. Bonuses under the executive incentive compensation plan were down 22%, primarily due a decrease in operating income and a reduction made to senior executive management bonus allocations, as well as unused bonus allocations available for future investments in the development of key personnel.

Because our management incentive compensation programs are also cumulative, generally no management bonuses can be paid unless the relevant business unit is, from inception, cumulatively profitable. Any operating losses must be offset in their entirety by operating profits before management is eligible for a bonus. Executive management, in limited circumstances, makes exceptions at the branch operating unit level. Since the most significant portion of management compensation comes from the incentive bonus programs, we believe that this cumulative feature is a disincentive to excessive risk taking by our managers. ~~Due to the nature of our services, it has a short operating cycle.~~ The outcome of any higher risk transactions, such as overriding established credit limits, would be known in a relatively short time frame. Management believes that when the potential and certain impact on the bonus is fully considered in light of ~~this~~the short operating cycle of our services, the potential for short-term gains that could be generated by engaging in risky business practices is sufficiently mitigated to discourage excessive and inappropriate risk taking. Management believes that both the stability and the long-term growth in revenues, ~~net revenues~~operating income and net earnings are a result of the incentives inherent in our compensation programs.

Other overhead expenses increased ~~7% and 4%, respectively,~~4% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2020, as compared with the same ~~periods~~period in ~~2016. We continue~~2019. The increase in expenses was due to ~~invest~~an increase in ~~additional~~bad debt expense, information technology consulting expense, claims and ~~facilities, which resulted in higher rent and facilities expenses, technology-related fees and consulting costs. These increases were~~legal expense, partially offset by ~~lower claims, the recovery of certain legal and related costs totaling $8 million for the year-to-date period ended September 30, 2017 compared to $5 million~~a decrease in ~~the same period in 2016 and the favorable resolution of an indirect tax contingency of $6 million in the second quarter of 2017.~~travel expense. We will continue to make important investments in people, processes and technology, as well as to invest in our strategic efforts to explore new areas for profitable growth. ~~Other overhead expenses as a percentage of net revenues for the three and nine-month periods ended September 30, 2017 remained comparable with the same periods in 2016.~~

Income tax expense:

~~We pay income taxes in the United States and other jurisdictions.~~

Our consolidated effective income tax rate was ~~36.7% and 37.1%, respectively,~~26.6% for the three ~~and nine-month periods~~months ended ~~September 30, 2017, and 36.9% and 37.0%~~March 31, 2020, as compared to 28.3% for the same ~~periods~~period in ~~2016. Our effective~~2019. The effect of higher average tax ~~rate is subject~~rates of our international subsidiaries, when compared to ~~variation~~U.S. federal and state tax rates, were partially offset by U.S. foreign tax credits and U.S. income tax deductions for Foreign-derived intangible income (FDII).

Some elements of the ~~rate can~~recorded impacts of the 2017 Tax Act could be ~~more~~impacted by further legislative action as well as additional interpretations and guidance issued by the IRS or ~~less volatile based on~~Treasury. See Note 3 to the ~~amount of pre-tax income or loss. For example, the impact of discrete items and non-deductible expenses on the effective tax rate is greater when pre-tax income is lower.~~

condensed consolidated financial statements for additional information.

Currency and Other Risk Factors

The nature of our worldwide operations necessitates dealing with a multitude of currencies other than the U.S. dollar. This results in our being exposed to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or agency relationships have strict currency control regulations, which influence our ability to hedge foreign currency exposure. We try to compensate for these exposures by accelerating international currency settlements among our offices and agents. We may enter into foreign currency hedging transactions where there are regulatory or commercial limitations on our ability to move money freely around the world or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. Any such hedging activity during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was insignificant. We had no foreign currency derivatives outstanding at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~.2019. During the three ~~and nine-month periods~~months ended ~~September 30, 2017, total~~March 31, 2020, net foreign currency gains were approximately $4 million. During the three months ended March 31, 2019, net foreign currency losses were approximately $3 million and $12 million, respectively. During the three and nine-month periods ended September 30, 2016, net foreign currency gains were less than $1 million and net foreign currency losses were $1 million, respectively.

million.

International air and ocean freight forwarding and customs brokerage are ~~intensively~~intensely competitive and are expected to remain so for the foreseeable future. There are a large number of entities competing in the international logistics industry, including new technology-based competitors entering the industry, many of which have significantly more resources than us; however, our primary competition is confined to a relatively small number of companies within this group. Expeditors must compete against both the niche players and larger entities. The industry continues to experience consolidations into larger firms striving for stronger and more complete multinational and multi-service networks. However, regional and local brokers and forwarders remain a competitive force.

The primary competitive factors in the international logistics industry continue to be price and quality of service, including reliability, responsiveness, expertise, convenience, and scope of operations. We emphasize quality customer service and believe that our prices are competitive with those of others in the industry. Customers regularly solicit bids from competitors in order to improve service, pricing and contractual terms such as seeking longer payment terms, higher or unlimited liability limits and performance penalties. Increased competition and competitors' acceptance of expanded contractual terms could result in reduced revenues, reduced ~~margins,~~operating income, higher operating costs, higher claims or loss of market share, any of which would damage our results of operations and financial condition.

Larger customers utilize more sophisticated and efficient procedures for the management of their logistics supply chains by embracing strategies such as just-in-time inventory management. We believe that this trend has resulted in customers using fewer service providers with greater technological capacity and more consistent global coverage. Accordingly, sophisticated computerized customer service capabilities and a stable worldwide network have become significant factors in attracting and retaining customers. Developing and maintaining these systems and a worldwide network has added a considerable indirect cost to the services provided to customers. Smaller and middle-tier competitors, in general, do not have the resources available to develop customized systems and a worldwide network.

Liquidity and Capital Resources

Our principal source of liquidity is cash and cash equivalents and cash generated from operating activities. Net cash provided by operating activities for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was ~~$85~~$165 million ~~and $362 million, respectively,~~ as compared with ~~$116 million~~ ~~and $457~~$289 million for the same ~~periods~~period in ~~2016.~~2019. The ~~decreases~~decrease of ~~$31 million and $95~~$124 million in the ~~third quarter and first nine~~three months ~~of 2017, respectively, are~~ended March 31, 2020 was primarily due to ~~increases~~changes in ~~accounts receivable from higher~~working capital, principally as a result of reduced customer collections when compared to the same period in 2019 due to lower revenues ~~partially offset by growth~~ in ~~accounts payable~~the fourth quarter 2019 and ~~accrued expenses and higher earnings.~~ the first quarter 2020. At ~~September 30, 2017,~~March 31, 2020, working capital was ~~$1,443~~$1,460 million, including cash and cash equivalents of ~~$1,033 million. We~~$1,112 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at ~~September 30, 2017~~.March 31, 2020. Management believes that our current cash position and operating cash flows will be sufficient to meet our capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.

As a customs broker, we make significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities in various countries throughout the world. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. As a result of these “pass through” billings, the conventional Days Sales Outstanding or DSO calculation does not directly measure collection efficiency. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures, and historically has experienced relatively insignificant collection problems.

Our business historically has been subject to seasonal fluctuations and this is expected to continue in the future. Cash flows fluctuate as a result of this seasonality. Historically, the first quarter shows an excess of customer collections over customer billings. This results in positive cash flow. The increased activity associated with periods of higher demand (typically commencing late second or early third quarter and continuing well into the fourth quarter) causes an excess of customer billings over customer collections. This cyclical growth in customer receivables consumes available cash.

Cash used in investing activities for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was ~~$35~~$6 million ~~and $68 million, respectively,~~ as compared with ~~$11 million and $35~~$9 million in the same ~~periods~~period of ~~2016. We had~~2019, primarily for capital ~~expenditures of~~ ~~$34 million~~ ~~and $68 million for the three and nine-month periods ended September 30, 2017, as compared with $13 million and $40 million for the same periods in 2016, respectively.~~expenditures. Capital expenditures in the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 were related primarily to ~~building construction and~~ continuing investments in ~~technology, office and warehouse furniture and equipment and~~ building and leasehold ~~improvements.~~improvements and technology and facilities equipment. Occasionally, we elect to purchase buildings to house staff and to facilitate the staging of customers’ freight. ~~In 2016, we completed a land acquisition in Europe. Additional expenditures are expected to be made in 2017 and 2018 in connection with the construction of a building on this land.~~ Total anticipated capital expenditures in ~~2017~~2020 are currently estimated to be ~~$100~~$50 million. This includes routine capital expenditures ~~including the construction of the building~~and investments in ~~Europe, plus additional real estate development.~~

technology.

Cash used in financing activities during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was ~~$137~~$261 million ~~and $254 million, respectively,~~ as compared with ~~$44 million~~ ~~and $193~~$17 million for the same ~~periods~~period in ~~2016~~.2019. We use the proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to limit the growth in issued and outstanding shares. During the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, we used cash to repurchase ~~3.6 million and 6.1~~4.0 million shares ~~respectively,~~of common stock to reduce the number of total outstanding shares, compared to ~~2.0~~0.6 million ~~and 5.4 million shares~~ in the same ~~periods~~period in ~~2016.~~

2019.

We follow established guidelines relating to credit quality, diversification and maturities of our investments to preserve principal and maintain liquidity. Historically, our investment portfolio has not been adversely impacted by disruptions occurring in the credit markets. However, there can be no assurance that our investment portfolio will not be adversely affected in the future.

We cannot predict what impact growing uncertainties in the global economy, political uncertainty nor the COVID-19 pandemic may have on our operating results, freight volumes, pricing, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or on changes in competitors' behavior.

We maintain international unsecured bank lines of credit. At ~~September 30, 2017~~,March 31, 2020, we were contingently liable for ~~$71~~$68 million from standby letters of credit and guarantees. The standby letters of credit and guarantees relate to obligations of our foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the ~~books~~accounting records of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.

~~At September 30, 2017, our contractual obligations are as follows:~~

Payments due by period
In thousands Total

Less than
1 year

1 - 3
years

3 - 5
years

After
5 years
Contractual Obligations:
Operating leases $ 252,276
77,266
92,184
49,135
33,691
Unconditional purchase obligations 62,481
62,481
—
—
—
Construction, equipment and technology purchase obligations 33,445
26,996
6,449
—
—
Total contractual cash obligations $ 348,202
166,743
98,633
49,135
33,691

We typically enter into short-term unconditional purchase obligations with asset-based providers reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. We only enter into agreements that management believes we can fulfill.

Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and ~~needs~~funds necessary to finance local capital expenditures. In some cases, our ability to repatriate funds from foreign operations may be subject to foreign exchange controls. At ~~September 30, 2017~~,March 31, 2020, cash and cash equivalent balances of ~~$436~~$419 millionwere held by our non-United States subsidiaries, of which ~~$50~~$6 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the United ~~States and, accordingly, a deferred tax liability has been accrued for all undistributed earnings, net of foreign related tax credits that are available to be repatriated.~~

States.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks are primarily related to foreign exchange risk and changes in short-term interest rates. The potential impact of our exposure to these risks is presented below:

Foreign Exchange Risk

We conduct business in many different countries and currencies. Our business often results in billings issued in a country and currency that differs from that where the expenses related to the service are incurred. In the ordinary course of business, we create numerous intercompany transactions and may have receivables, payables and currencies that are not denominated in the local functional currency. This brings foreign exchange risk to our earnings. The principal foreign exchange risks to which Expeditors is exposed ~~are in~~include Chinese Yuan, Euro, Mexican Peso, Canadian Dollar and British Pound.

Foreign exchange rate sensitivity analysis can be quantified by estimating the impact on our earnings as a result of hypothetical changes in the value of the U.S. dollar, our functional currency, relative to the other currencies in which we transact business. All other things being equal, an average 10% weakening of the U.S. dollar, throughout the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2020, would have had the effect of raising operating income by approximately ~~$35 million.~~$12 million. An average 10% strengthening of the U.S. dollar, for the same period, would have the effect of reducing operating income by approximately ~~$29~~$10 million. This analysis does not take into account changes in shipping patterns based upon this hypothetical currency fluctuation. For example, a weakening in the U.S. dollar would be expected to increase exports from the United States and decrease imports into the United States over some relevant period of time, but the exact effect of this change cannot be quantified without making speculative assumptions.

We currently do not use derivative financial instruments to manage foreign currency risk and only enter into foreign currency hedging transactions in limited locations where regulatory or commercial limitations restrict our ability to move money freely. Any such hedging activity throughout the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 was insignificant. During the three ~~and nine-month periods~~months ended ~~September 30, 2017, total net~~March 31, 2020, foreign currency gains were approximately $4 million. During the three months ended March 31, 2019, foreign currency losses were approximately $3 million and $12 million, respectively. During the three and nine-month periods ended September 30, 2016, net foreign currency gains were less than $1 million and net foreign currency losses were $1 million, respectively.million. We had no foreign currency derivatives outstanding at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016~~.2019. We instead follow a policy of accelerating international currency settlements to manage foreign exchange risk relative to intercompany billings. As of ~~September 30, 2017~~,March 31, 2020, we had approximately ~~$17~~$74 millionof net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.

Interest Rate Risk

At ~~September 30, 2017~~,March 31, 2020, we had cash and cash equivalents of ~~$1,033~~$1,112 million,, of which ~~$648~~$672 million was invested at various short-term market interest rates. WeOther than our recorded lease liabilities, we had no long-term obligations or debt at ~~September 30, 2017~~.March 31, 2020. A hypothetical change in the interest rate of 10 basis points at ~~September 30, 2017~~March 31, 2020 would not have a significant impact on our earnings. In management’s opinion, there has been no material change in our interest rate risk exposure in the ~~third~~first quarter of ~~2017~~.

2020.

Item 4. Controls and Procedures

~~Evaluation of Controls and Procedures~~

We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a result of COVID-19, many of our employees are working remotely and are able to do so within our established internal controls over financial reporting.

We are developing a new accounting system, which is being implemented on a worldwide basis over the next several years. This system is expected to improve the efficiency of certain financial and transactional processes and reporting. This transition affects the processes that constitute our internal control over financial reporting and requires testing for operating effectiveness.

In the next two fiscal years, we will adopt two significant new accounting standards related to revenue recognition and accounting for leases. The adoption of these accounting standards will require changes to existing processes and systems that are an integral part of our internal controls and will require testing for operating effectiveness.

Our management has confidence in our internal controls and procedures. Nevertheless, our management, including Expeditors’ Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all of our control issues and instances of fraud, if any, have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Expeditors is involved in claims, lawsuits, government investigations and other legal matters that arise in the ordinary course of business and are subject to inherent uncertainties. Currently, in management's opinion and based upon advice from legal advisors, none of these matters are expected to have a significant effect on our operations, cash flows or financial position. As of ~~September 30, 2017,~~March 31, 2020, the amounts accrued for these claims, lawsuits, government investigations and other legal matters are not significant to our operations, cash flows or financial position. At this time, we are unable to estimate any additional loss or range of reasonably possible losses, if any, beyond the amounts recorded, that might result from the resolution of these matters.

Item 1A. Risk Factors

In addition to the other information set forth in this report, careful consideration should be given to the risk factors under Item 1A Risk Factors in our Annual Report on Form 10-K filed on February 21, 2020. There have been no material changes in Expeditors' risk factors from those disclosed under Item 1A Risk Factors in our annual report on Form 10-K filed on February ~~23, 2017 other than~~21, 2020, except for the following:


Novel Coronavirus (COVID-19)
~~Network Continuity~~ COVID-19 significantly impacted worldwide economic conditions and ~~Cybersecurity~~		~~As Expeditors~~global trade and may continue to have an adverse effect on our operations, and the operations of our service providers and our customers, which may further impact our business. COVID-19 was declared as a global health emergency and later declared as a global pandemic by the World Health Organization. As a result, governments have implemented travel restrictions, mandated lockdowns and other precautionary measures that resulted in significant business and supply chain disruptions and a slowdown in international trade. This crisis has, and is expecting to continue affecting our business in many aspects. Governments have designated our operations as essential business and we activated our business continuity plan to ~~increase reliance on systems~~be able to conduct operations. Our facilities and asemployees are operating under the constraints of special protective measures and many are working remotely. These disruptions are also threatening the financial stability of our service providers and the ability to efficiently and profitably route our customers’ freight. Reduced flight schedules and cancellations have significantly reduced available space for airfreight, while ocean carriers have continued to reduce their operating capacity. These freight market conditions create pricing volatility that challenges Expeditors’ ability to maintain historical unitary profitability. Many of our customers are experiencing disruptions in their revenue and cash flow, prompting these customers to renegotiate contractual terms and increasing our accounts receivable collection risks. Such conditions could result in the loss of business and additional ~~features~~bad debt allowances in the future if our customers’ ability to pay deteriorates. Although we are ~~added,~~monitoring the ~~risks also increase.~~situation, we cannot predict for how long, or the ultimate extent to which the pandemic and related precautionary measures may disrupt our operations. Any significant ~~disruptions to~~disruption resulting from this on a large scale or over an extended period of time would negatively affect our business and our financial results.

Service Providers		As a non-asset based provider of global ~~systems, significant~~logistics services, Expeditors depends on a variety of asset-based service providers, including air, ocean and ground freight carriers. The quality and profitability of our services depend upon effective selection, management and discipline of service providers. COVID-19 is expected to place significant stress on our air, ocean and freight ground carriers, which may result in reduced carrier capacity or ~~the Internet for any reason,~~availability, pricing volatility or more limited carrier transportation schedules which could ~~include equipment~~adversely impact our operations and financial results. During the COVID-19 pandemic, air carriers have been particularly affected having to cancel flights due to travel restrictions resulting in dramatic drops in revenues, historical losses and liquidity challenges. Ocean carriers have incurred significant operating losses in recent years, further exacerbated by trade reductions from COVID-19 measures, and are highly leveraged with debt. Additionally, several ocean carriers have consolidated, with the potential for more to occur in the future. Changes in the financial stability, operating capabilities and capacity of asset-based carriers and capacity allotment made available to Expeditors by asset-based carriers affects us in unpredictable ways. Any combination of reduced carrier capacity or ~~network failures; co-location facility failures; power outages; sabotage; employee error~~availability, pricing volatility or ~~other actions; cyber-attacks (such~~more limited carrier transportation schedules, such as those ~~recently experienced~~caused by COVID-19, could further negatively affect our ability to execute services and maintain profitability. Expeditors cannot predict if relief measures extended by certain governments will be effective in ~~our industry)~~supporting the financial viability of carriers nor can we predict the long-term effects of this crisis on carriers’ financial stability and ability to provide services. Additionally, Expeditors' carriers are subject to increasingly stringent laws, which could, directly or ~~other security breaches; reliance on third party technology; geo-political activity or natural disasters; all of which could~~indirectly, have a material ~~negative~~adverse effect on our ~~results. This~~business. Future regulatory developments in the U.S. and abroad could ~~include loss of revenue; customers; business disruptions (such as~~adversely affect operations and increase operating costs in the ~~inability~~transportation industry, which in turn could increase our purchased transportation costs. If we are unable to process shipments); loss of property, including trade secrets and confidential information; legal claims and proceedings; reporting delays or errors; service provider disruptions; interference with regulatory reporting; significant remediation costs; an increase inpass such costs ~~to protect our systems and technology; or damage~~on to our ~~reputation.~~customers, our business and results of operations could be materially adversely affected.

Economic Conditions

The global economy is experiencing a rapid slowdown as a result of the COVID-19 pandemic, which has affected trade and could further affect demand for our services. Continued unfavorable economic conditions will result in lower freight volumes and adversely affects Expeditors' revenues, operating results and cash flows. These conditions should they continue for extended period of time would further adversely affect our customers and service providers. Should our customers’ ability to pay deteriorate, additional bad debts may be incurred.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans		Maximum number of shares that may yet be purchased under the plans
January 1-31, 2020		—	$	—		—		9,748,977
February 1-29, 2020		2,000,000		74.09		2,000,000		8,283,602
March 1-31, 2020		2,000,000		67.53		2,000,000		6,192,763
Total		4,000,000	$	70.81		4,000,000		6,192,763

Period
Total number of
shares purchased

Average price
paid per share

Total number of shares
purchased as part of
publicly announced
plans or programs

Maximum number
of shares that may yet be
purchased under the
plans or programs
July 1-31, 2017 —
$ —
—
14,683,556
August 1-31, 2017 1,552,335
55.34
1,552,335
13,101,686
September 1-30, 2017 2,057,379
56.80
2,057,379
10,982,748
Total 3,609,714
$ 56.18
3,609,714
10,982,748

In November ~~1993,~~2001, Expeditors' Board of Directors authorized a ~~Non-Discretionary~~Discretionary Stock Repurchase Plan for the purpose of repurchasing our common stock in the open market with the proceeds received from the exercise of stock options. On February 9, 2009, the Plan was amended to increase the authorization to repurchase up to 40 million shares of our common stock. This authorization has no expiration date. This plan was initially disclosed in our annual report on Form 10-K filed on March 31, 1995. In the ~~third~~ ~~quarter of~~ ~~2017~~, ~~1,251,635~~ ~~shares of common stock were repurchased under the Non-Discretionary Stock Repurchase Plan.~~

~~In November 2001, under a Discretionary Stock Repurchase Plan, Expeditors' Board of Directors authorized the repurchase of~~ our common stock in the open market to reduce the issued and outstanding stock down to 200 million shares. ~~In February 2014,~~Subsequently, the Board of Directors has from time to time increased the amount of our common stock that may be repurchased. The Board of Directors last authorized repurchases down to ~~190~~160 million shares of common ~~stock. In February and August 2015 and May 2016, the Board of Directors further authorized repurchases down to 188 million, 180 million and 170 million, respectively.~~ stock in November 2018. The maximum number of shares available for repurchase under this plan will increase as the total number of outstanding shares increases. This authorization has no expiration date. ~~In the~~ ~~third~~ ~~quarter of~~ ~~2017~~, ~~2,358,079~~ ~~shares of common stock were repurchased under the Discretionary Stock Repurchase Plan.~~

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

(a)
~~(a)~~	Not ~~applicable~~applicable.

(b)
~~(b)~~	Not ~~applicable~~applicable.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K.

Exhibit Number		Description
31.1
~~Exhibit Number~~		~~Description~~

~~31.1~~		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, has been formatted in Inline XBRL.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

~~November~~ May 7, ~~2017~~2020		/s/ JEFFREY S. MUSSER
		Jeffrey S. Musser, President, Chief Executive Officer and Director

~~November~~ May 7, ~~2017~~2020		/s/ BRADLEY S. POWELL
		Bradley S. Powell, Senior Vice President and Chief Financial Officer

Washington		91-1069248

~~Washington~~		~~91-1069248~~
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

1015 Third Avenue, 12^th~~Floor,~~ Seattle, Washington		98104
(Address of principal executive offices)		(Zip Code)



x ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	September 30, 2017			December 31, 2016
Current Assets:
Cash and cash equivalents	$	1,033,444		$	974,435
Accounts receivable, less allowance for doubtful accounts of $11,217 at September 30, 2017 and $9,247 at December 31, 2016	1,349,854			1,190,130
Other	135,623			54,014
Total current assets	2,518,921			2,218,579
Property and equipment, less accumulated depreciation and amortization of $413,219 at September 30, 2017 and $406,652 at December 31, 2016	513,070			536,572
Goodwill	7,927			7,927
Other assets, net	28,963			27,793
Total assets	$	3,068,881		$	2,790,871
Current Liabilities:
Accounts payable	$	836,055		$	726,571
Accrued expenses, primarily salaries and related costs	216,146			185,502
Federal, state and foreign income taxes	23,853			17,858
Total current liabilities	1,076,054			929,931
Deferred Federal and state income taxes	11,746			13,727

Commitments and contingencies

Shareholders’ Equity:
Preferred stock, none issued	—			—
Common stock, par value $0.01 per share. Issued and outstanding 177,559 shares at September 30, 2017 and 179,857 shares at December 31, 2016	1,776			1,799
Additional paid-in capital	1,464			2,642
Retained earnings	2,053,723			1,944,789
Accumulated other comprehensive loss	(78,960		)	(104,592		)
Total shareholders’ equity	1,978,003			1,844,638
Noncontrolling interest	3,078			2,575
Total equity	1,981,081			1,847,213
Total liabilities and equity	$	3,068,881		$	2,790,871



	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Revenues:
Airfreight services	$	735,164	$	621,566	$	2,022,577	$	1,764,512
Ocean freight and ocean services	563,386		495,460		1,585,730		1,414,344
Customs brokerage and other services	503,616		445,368		1,411,270		1,277,174
Total revenues	1,802,166		1,562,394		5,019,577		4,456,030
Operating Expenses:
Airfreight services	547,595		444,359		1,490,417		1,236,555
Ocean freight and ocean services	411,061		359,991		1,163,051		1,006,710
Customs brokerage and other services	244,368		212,785		675,729		597,320
Salaries and related costs	319,050		291,204		930,159		868,091
Rent and occupancy costs	30,533		27,091		87,826		81,029
Depreciation and amortization	12,272		11,882		36,241		34,853
Selling and promotion	10,608		10,134		32,476		29,817
Other	39,784		37,685		102,429		103,702
Total operating expenses	1,615,271		1,395,131		4,518,328		3,958,077
Operating income	186,895		167,263		501,249		497,953
Other Income (Expense):
Interest income	3,444		2,924		9,565		8,593
Other, net	96		925		2,584		3,407
Other income (expense), net	3,540		3,849		12,149		12,000
Earnings before income taxes	190,435		171,112		513,398		509,953
Income tax expense	69,829		63,163		190,470		188,518
Net earnings	120,606		107,949		322,928		321,435
Less net earnings attributable to the noncontrolling interest	343		368		550		1,218
Net earnings attributable to shareholders	$	120,263	$	107,581	$	322,378	$	320,217
Diluted earnings attributable to shareholders per share	$	0.66	$	0.59	$	1.77	$	1.75
Basic earnings attributable to shareholders per share	$	0.67	$	0.59	$	1.79	$	1.76
Dividends declared and paid per common share	$	—	$	—	$	0.42	$	0.40
Weighted average diluted shares outstanding	181,788		182,692		181,951		182,958
Weighted average basic shares outstanding	179,416		181,177		179,827		181,645



	Three months ended
	September 30,
(Amounts in thousands, except per share amounts)	Net earnings attributable to shareholders		Weighted average shares	Earnings per share
2017
Basic earnings attributable to shareholders	$	120,263	179,416	$	0.67
Effect of dilutive potential common shares	—		2,372	—
Diluted earnings attributable to shareholders	$	120,263	181,788	$	0.66
2016
Basic earnings attributable to shareholders	$	107,581	181,177	$	0.59
Effect of dilutive potential common shares	—		1,515	—
Diluted earnings attributable to shareholders	$	107,581	182,692	$	0.59



	Shareholders’ equity			Noncontrolling interest		Total equity
Balance at December 31, 2016	$	1,844,638		2,575		1,847,213
Exercise of stock options	134,014			—		134,014
Issuance of shares under stock purchase plan	28,767			—		28,767
Shares repurchased under provisions of stock repurchase plans	(340,736		)	—		(340,736	)
Stock compensation expense	39,036			—		39,036
Net earnings	322,378			550		322,928
Other comprehensive income (loss)	25,632			(47	)	25,585
Dividends paid ($0.42 per share)	(75,726		)	—		(75,726	)
Balance at September 30, 2017	$	1,978,003		3,078		1,981,081

Balance at December 31, 2015	$	1,691,993		2,683		1,694,676
Exercise of stock options	119,509			—		119,509
Issuance of shares under stock purchase plan	28,136					28,136
Shares repurchased under provisions of stock repurchase plans	(268,097		)	—		(268,097	)
Stock compensation expense	34,264			—		34,264
Tax benefits from stock plans, net	(2,533		)	—		(2,533	)
Net earnings	320,217			1,218		321,435
Other comprehensive loss	(406		)	(51	)	(457	)
Dividends paid ($0.40 per share)	(73,000		)	—		(73,000	)
Balance at September 30, 2016	$	1,850,083		3,850		1,853,933



2017	$	16,984
2018	65,813
2019	53,209
2020	41,565
2021	27,696
Thereafter	47,009
	$	252,276



	Three months ended September 30,								Nine months ended September 30,
	2017				2016				2017				2016
	Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues		Amount		Percent of net revenues
(in thousands)
Airfreight services:
Revenues	$	735,164			$	621,566			$	2,022,577			$	1,764,512
Expenses	547,595				444,359				1,490,417				1,236,555
Net revenues	187,569		31	%	177,207		32	%	532,160		31	%	527,957		33	%
Ocean freight services and ocean services:
Revenues	563,386				495,460				1,585,730				1,414,344
Expenses	411,061				359,991				1,163,051				1,006,710
Net revenues	152,325		26		135,469		25		422,679		25		407,634		25
Customs brokerage and other services:
Revenues	503,616				445,368				1,411,270				1,277,174
Expenses	244,368				212,785				675,729				597,320
Net revenues	259,248		43		232,583		43		735,541		44		679,854		42
Total net revenues	599,142		100		545,259		100		1,690,380		100		1,615,445		100
Overhead expenses:
Salaries and related costs	319,050		53		291,204		53		930,159		55		868,091		54
Other	93,197		16		86,792		16		258,972		15		249,401		15
Total overhead expenses	412,247		69		377,996		69		1,189,131		70		1,117,492		69
Operating income	186,895		31		167,263		31		501,249		30		497,953		31
Other income (expense), net	3,540		1		3,849		—		12,149		1		12,000		1
Earnings before income taxes	190,435		32		171,112		31		513,398		31		509,953		32
Income tax expense	69,829		12		63,163		11		190,470		12		188,518		12
Net earnings	120,606		20		107,949		20		322,928		19		321,435		20
Less net earnings attributable to the noncontrolling interest	343		—		368		—		550		—		1,218		—
Net earnings attributable to shareholders	$	120,263	20	%	$	107,581	20	%	$	322,378	19	%	$	320,217	20	%



			Payments due by period
In thousands	Total		Less than 1 year	1 - 3 years	3 - 5 years	After 5 years
Contractual Obligations:
Operating leases	$	252,276	77,266	92,184	49,135	33,691
Unconditional purchase obligations	62,481		62,481	—	—	—
Construction, equipment and technology purchase obligations	33,445		26,996	6,449	—	—
Total contractual cash obligations	$	348,202	166,743	98,633	49,135	33,691



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
July 1-31, 2017	—	$	—	—	14,683,556
August 1-31, 2017	1,552,335	55.34		1,552,335	13,101,686
September 1-30, 2017	2,057,379	56.80		2,057,379	10,982,748
Total	3,609,714	$	56.18	3,609,714	10,982,748