(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~~May 3, ~~2017,~~2021, the number of shares outstanding of the issuer’s ~~Common Stock~~common stock was ~~177,702,850.~~

168,885,812.

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, 2021			December 31, 2020
Assets:
Current Assets:
Cash and cash equivalents	$	1,793,393		$	1,527,791
Accounts receivable, less allowance for credit loss of $5,941 at March 31, 2021 and $5,579 at December 31, 2020		2,227,039			1,998,055
Deferred contract costs		387,845			327,448
Other		85,918			110,250
Total current assets		4,494,195			3,963,544
Property and equipment, less accumulated depreciation and amortization of $523,829 at March 31, 2021 and $516,988 at December 31, 2020		497,376			506,425
Operating lease right-of-use assets		438,667			432,723
Goodwill		7,927			7,927
Other assets, net		16,832			16,884
Total assets	$	5,454,997		$	4,927,503
Liabilities:
Current Liabilities:
Accounts payable	$	1,295,178		$	1,136,859
Accrued expenses, primarily salaries and related costs		311,767			257,021
Contract liabilities		447,779			379,722
Current portion of operating lease liabilities		76,128			74,004
Federal, state and foreign income taxes		64,170			45,437
Total current liabilities		2,195,022			1,893,043
Noncurrent portion of operating lease liabilities		369,286			364,185
Deferred federal and state income taxes, net		12,039			7,048
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, NaN issued		0			0
Common stock, par value $0.01 per share. Issued and outstanding: 168,808 shares at March 31, 2021 and 169,294 shares at December 31, 2020		1,688			1,693
Additional paid-in capital		101,269			157,496
Retained earnings		2,887,323			2,600,201
Accumulated other comprehensive loss		(115,486	)		(99,753	)
Total shareholders’ equity		2,874,794			2,659,637
Noncontrolling interest		3,856			3,590
Total equity		2,878,650			2,663,227
Total liabilities and equity	$	5,454,997		$	4,927,503

~~(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,
	2021		2020
Revenues:
Airfreight services	$	1,476,961	$	709,039
Ocean freight and ocean services		958,178		493,427
Customs brokerage and other services		922,401		699,398
Total revenues		3,357,540		1,901,864
Operating Expenses:
Airfreight services		1,105,590		520,169
Ocean freight and ocean services		746,701		366,483
Customs brokerage and other services		553,713		400,076
Salaries and related		452,105		342,040
Rent and occupancy		45,280		42,524
Depreciation and amortization		12,987		12,660
Selling and promotion		3,070		8,243
Other		52,579		50,614
Total operating expenses		2,972,025		1,742,809
Operating income		385,515		159,055
Other Income (Expense):
Interest income		1,946		4,807
Other, net		3,000		3,384
Other income, net		4,946		8,191
Earnings before income taxes		390,461		167,246
Income tax expense		102,511		44,464
Net earnings		287,950		122,782
Less net earnings attributable to the noncontrolling interest		730		438
Net earnings attributable to shareholders	$	287,220	$	122,344
Diluted earnings attributable to shareholders per share	$	1.67	$	0.71
Basic earnings attributable to shareholders per share	$	1.70	$	0.73
Weighted average diluted shares outstanding		171,551		171,450
Weighted average basic shares outstanding		169,214		168,735

~~(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,
	2021			2020
Net earnings	$	287,950		$	122,782
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax (benefit) expense of $(3,393) and $1,174 for the three months ended March 31, 2021 and 2020		(16,197	)		(38,849	)
Other comprehensive loss		(16,197	)		(38,849	)
Comprehensive income		271,753			83,933
Less comprehensive income attributable to the noncontrolling interest		266			148
Comprehensive income attributable to shareholders	$	271,487		$	83,785

~~(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,
	2021			2020
Operating Activities:
Net earnings	$	287,950		$	122,782
Adjustments to reconcile net earnings to net cash from operating activities:
Provisions for losses on accounts receivable		1,199			1,820
Deferred income tax expense (benefit)		8,151			(5,139	)
Stock compensation expense		11,185			11,156
Depreciation and amortization		12,987			12,660
Other, net		551			433
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(252,914	)		16,680
Increase in accounts payable and accrued expenses		233,153			917
Increase in deferred contract costs		(71,258	)		(16,068	)
Increase in contract liabilities		79,590			21,201
Increase in income taxes payable, net		46,638			10,488
Increase in other, net		(1,488	)		(11,930	)
Net cash from operating activities		355,744			165,000
Investing Activities:
Purchase of property and equipment		(8,391	)		(6,127	)
Other, net		(34	)		(143	)
Net cash from investing activities		(8,425	)		(6,270	)
Financing Activities:
Proceeds from issuance of common stock		19,757			23,399
Repurchases of common stock		(85,997	)		(283,240	)
Payments for taxes related to net share settlement of equity awards		(1,275	)		(1,396	)
Net cash from financing activities		(67,515	)		(261,237	)
Effect of exchange rate changes on cash and cash equivalents		(14,202	)		(16,011	)
Change in cash and cash equivalents		265,602			(118,518	)
Cash and cash equivalents at beginning of period		1,527,791			1,230,491
Cash and cash equivalents at end of period	$	1,793,393		$	1,111,973
Taxes Paid:
Income taxes	$	46,607		$	35,304

~~(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, 2021 and 2020	Shares			Par value			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
Balance at December 31, 2020		169,294		$	1,693		$	157,496		$	2,600,201		$	(99,753	)	$	2,659,637		$	3,590		$	2,663,227
Shares issued under employee stock plans		439			4			18,478			—			—			18,482			—			18,482
Shares repurchased under provisions of stock repurchase plan		(925	)		(9	)		(85,988	)		—			—			(85,997	)		—			(85,997	)
Stock compensation expense		—			—			11,185			—			—			11,185			—			11,185
Net earnings		—			—			—			287,220			—			287,220			730			287,950
Other comprehensive income loss		—			—			—			—			(15,733	)		(15,733	)		(464	)		(16,197	)
Dividends paid		—			—			98			(98	)		—			—			—			—
Balance at March 31, 2021		168,808		$	1,688		$	101,269		$	2,887,323		$	(115,486	)	$	2,874,794		$	3,856		$	2,878,650

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

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,~~technology, 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.~~

19, 2021.

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, 2020.

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 expenses 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 in the condensed consolidated statement of earnings.


B. D.	Accounts Receivable

The ~~Company maintains an~~Company’s trade accounts receivable present similar credit risk characteristics and the allowance for ~~doubtful accounts, which~~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~~5,941 as of ~~September 30, 2017~~March 31, 2021 and ~~$9,247~~$5,579 as of December 31, ~~2016.~~ 2020. 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~~disclosure 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~~self-insured 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.

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, 2021 and 2020, 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~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively. ~~The fair value of the employee stock purchase rights granted was $11.69 and $10.99 per share for the quarters ended September 30, 2017 and 2016, respectively.~~

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~~Amended 2017 Plan and employee stock purchase rights plans. This expense, adjusted for expected performance and 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 (RSUs) and performance share units (PSUs) 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 2020 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. It is possible that additional guidance could be issued in future periods. As this guidance is issued, the Company will 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, 2021 and 2020, there was 0 BEAT expense and GILTI expense was ~~recognized~~insignificant.

The Company’s consolidated effective income tax rate was 26.3% for the three months ended March 31, 2021, respectively, as compared to 26.6%for the comparable period in 2020. The effect of higher average tax rates related to 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 tax jurisdictions including the ~~second quarter~~People’s Republic of ~~2017~~China, 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 ~~RSU grants meeting retirement eligibility criteria.~~

~~Beginning on January 1, 2017,~~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 ~~adopted accounting guidance requiring~~determines whether it is more likely than not that ~~prospectively, excess~~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 ~~benefits~~advisors.

The total amount of the Company’s tax contingencies may increase in 2021. In addition, changes in state, federal, and ~~deficiencies be recorded~~foreign tax laws, including transfer pricing and changes in interpretations of these laws may increase the Company’s existing tax contingencies. The timing of the resolution of income tax ~~expense for vesting~~examinations can be highly uncertain, and the amounts ultimately paid including interest and penalties, if any, upon resolution of ~~RSU, stock option exercises, cancellations and disqualifying dispositions of employee stock purchase plan shares. Also,~~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 ~~has elected~~may undergo further audits and examinations by various tax authorities and possibly may reach resolution related to ~~continue~~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 ~~forfeitures expected~~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 ~~occur in determining compensation cost to be recognized in each period.~~

~~Total stock compensation expense~~the underpayment of income taxes were insignificant for the three months ended March 31, 2021 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

2020.

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
2021
Basic earnings attributable to shareholders	$	287,220		169,214	$	1.70
Effect of dilutive potential common shares		—		2,337		—
Diluted earnings attributable to shareholders	$	287,220		171,551	$	1.67
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

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, 2021 and 2020 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, 2021, 925 shares were repurchased at an average price of ~~$56.26 and $49.41~~$92.98 per share, ~~respectively.~~

compared to 4,000 shares at an average price of $70.81 per share during the same period in 2020.

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 the first quarter of 2021, on May ~~2, 2017,~~4, 2021, the Board of Directors declared a semi-annual dividend of ~~$0.42~~$0.58 per share payable on June 15, ~~2017~~2021 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.

2021.

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, 2021				December 31, 2020
	Cost		Fair Value		Cost		Fair Value
Cash and Cash Equivalents:
Cash and overnight deposits	$	792,947	$	792,947	$	602,112	$	602,112
Corporate commercial paper		938,412		938,471		872,287		872,350
Time deposits		62,034		62,034		53,392		53,392
Total cash and cash equivalents	$	1,793,393	$	1,793,452	$	1,527,791	$	1,527,854

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, 2021, 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.~~

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, 2021:
Revenues	$	875,392		94,858		44,864		1,325,621		363,682		493,718		160,609		(1,204	)		3,357,540
Directly related cost of transportation and other expenses¹	$	502,637		53,791		26,700		1,084,102		283,860		334,294		121,212		(592	)		2,406,004
Salaries and other operating expenses²	$	238,698		25,737		12,377		106,920		43,165		109,455		30,275		(606	)		566,021
Operating income	$	134,057		15,330		5,787		134,599		36,657		49,969		9,122		(6	)		385,515
Identifiable assets at period end	$	2,747,984		194,050		93,072		988,954		331,271		853,944		265,495		(19,773	)		5,454,997
Capital expenditures	$	3,025		122		53		357		579		3,554		701		—			8,391
Equity	$	1,985,265		73,066		32,632		342,233		148,293		218,198		121,040		(42,077	)		2,878,650
For the three months ended March 31, 2020:
Revenues	$	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 expenses¹	$	373,961		45,890		23,765		425,301		121,282		221,998		74,976		(445	)		1,286,728
Salaries and other operating expenses²	$	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

¹	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

²	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 three months ended March 31, 2021 and 2020 were each significantly impacted by the effects of the global pandemic in divergent ways. In the first quarter of 2021, the Company experienced strong volumes and high sell and buy rates as a result of imbalances between demand and carrier capacity and continuing effects of disruptions in supply chains originating in measures to combat the pandemic in 2020. This is in contrast with slower activity in North Asia in the first quarter of 2020 as the pandemic resulted in temporary closures and limited operations in the Company’s China offices. Shipments were also rerouted or delayed by customers and service providers as they were taking their own precautionary measures. These impacts are ~~a non-GAAP measure calculated as revenues less directly related operating expenses attributable to~~affecting all of the ~~Company's principal services. The Company's management believes that net revenues are a better measure than~~Company’s geographical segments and most notably the year-over-year comparability of the North Asia segment. In the first quarter of 2021, the People's Republic of China, including Hong Kong, represented 32% and 27%, respectively, of the Company’s total revenues ~~when evaluating~~and total operating income, whereas in 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 commissionsfirst quarter of 2020 it represented 23% and fees earned by the Company. Net revenue is one 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.

25%, respectively.

~~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," "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 Novel Coronavirus (COVID-19) pandemic, and other characterizations of future events or circumstances are forward-looking statements. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. 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 should be given to the risk factors identified and discussed in Part I, Item 1A in the Company's annual report on Form 10-K filed on February ~~23, 2017.~~

19, 2021. Management believes that these forward-looking statements are reasonable as of this filing date and we do not assume any obligations to update these statements except as required by law.

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~~supply chain 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~~The most significant drivers of changes in revenues and related transportation expenses are volume, sell rates and buy rates. Volume has a similar effect on the ~~revenue categories presented~~change in both revenues and related transportation expenses in each of our ~~financial statements.~~

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 ~~difference between 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 ~~termed “net revenue” (a non-GAAP measure), “yield” or “margin.”~~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. 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.

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 our revenue recognition policy (see Note ~~1. E.~~ 1.B to the condensed consolidated financial statements in ~~our annual report on Form 10-K filed on February 23, 2017), almost all~~this report) freight ~~revenues~~revenue and related expenses are recorded ~~at origin and shipment~~by the office that performs the transportation service. Shipment profits are split between origin and destination offices by recording a commission fee or profit share of revenue at ~~destination~~the destination.

The disruptions on supply chains and ~~a corresponding commission~~transportation caused by the ongoing COVID-19 pandemic have significantly affected our business operations and operating results for the three months ended March 31, 2021. Continued imbalance between demand and available capacity for all transportation modes have resulted in historically high average buy and sell rates and creates challenging conditions for our districts to meet our customers’ needs. We expect that these disruptive conditions may continue through the remainder of the year. We are unable to predict how these uncertainties will affect our future operations or ~~profit share expense as a component~~financial results. In an effort to protect the health and safety of ~~origin consolidation costs.~~

our employees, we continue to operate under our global business continuity plan that we implemented in the first quarter of 2020. See Part I, Item 1A: “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2020 for additional details.

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~~unique culture, ~~that demands:~~

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

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

~~Aggressive marketing~~at the center of ~~all of our service offerings;~~

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

~~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;~~

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; and

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 makewhich are our employees, ~~more efficient and more effective.~~

~~We reinforce these values with~~is 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 on 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.

Global consistency and compliance is fundamental to preserving our culture and network of people, processes, technology and locations.

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.~~growth through the aggressive marketing of our service offerings. Innovative solutions, integrated platforms and data quality are vital to achieving a competitive advantage. 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 ongoing concern over supply-chain disruptions, 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 promulgate new regulations in reaction to the 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 carriers~~debt and many are ~~facing significant liquidity challenges.~~incurring, or have recently incurred, operating losses. 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.

As a knowledge-based global provider of logistics services, we have often concluded over the course of our history that it is better to grow organically rather than by acquisition. However, when we have made acquisitions, it has generally been to obtain technology, geographic coverage or specialized industry expertise that could be leveraged to benefit our entire network.

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 entered into a recession as a result of the pandemic and ongoing related precautionary measures including government mandated lockdowns, 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. We cannot predict ~~which, if any,~~the outcome of ~~these proposals may be adopted~~changes in tariffs, or interpretations, and trade restrictions and accords and 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. The pandemic’s significant impact on supply chains along with other geo-political considerations may also drive manufacturers to relocate their operations or make changes to how they manage their supply chains and inventories in order to reduce their exposure to such disruptions in the future. 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.

In 2020, the United Kingdom and the European Union negotiated the terms of the United Kingdom's exit from the European Union (Brexit), which were effective on January 1, 2021. The full long-term impact of the United Kingdom’s departure, and impact to international trade, is still uncertain.

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 availability of airfreight, ocean freight and trucking capacity, volatile ~~fuel costs,~~carrier pricing, disruptions in port services, political unrest and fluctuating currency exchange rates. We expect these operating and competitive conditions to continue.

~~Ocean~~

Air carriers are experiencing significant cash flow challenges as a result of travel restrictions resulting in cancellation of flights and have incurred record operating losses in 2020 and 2021. Uncertainty over recovery of demand for passenger air travel, in particular business travel, compared to pre-pandemic levels may impact air carriers’ operations and financial stability long term. Prior to 2020, many ocean carriers incurred substantial operating losses, ~~in recent years,~~ and ~~many~~ are highly leveraged with debt. These financial challenges 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 capacity. 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 increases 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 ongoing impacts of the pandemic. 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 the pandemic’s 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 that this seasonal trend will occur in the ~~future.~~future or to what degree it will continue to be impacted in 2021 by the pandemic. This historical 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, disruptions in supply-chains 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,~~2020, filed on February ~~23, 2017.~~19, 2021. 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, 2021 and ~~nine-month periods ended~~ ~~September 30, 2017~~2020, including the respective percentage changes comparing 2021 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.2020.

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)	2021		2020		Percentage change
Airfreight services:
Revenues	$	1,476,961	$	709,039	108%
Expenses		1,105,590		520,169	113
Ocean freight services and ocean services:
Revenues		958,178		493,427	94
Expenses		746,701		366,483	104
Customs brokerage and other services:
Revenues		922,401		699,398	32
Expenses		553,713		400,076	38
Overhead expenses:
Salaries and related costs		452,105		342,040	32
Other		113,916		114,041	—
Total overhead expenses		566,021		456,081	24
Operating income		385,515		159,055	142
Other income, net		4,946		8,191	(40)
Earnings before income taxes		390,461		167,246	133
Income tax expense		102,511		44,464	131
Net earnings		287,950		122,782	135
Less net earnings attributable to the noncontrolling interest		730		438	67
Net earnings attributable to shareholders	$	287,220	$	122,344	135%

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:

In 2020 and continuing in the first quarter of 2021, airfreight services experienced unprecedented events in response to the global pandemic. As a result of travel restrictions and lower passenger demand, airlines significantly reduced flight schedules which limited available belly space for cargo at a time where global demand remained high. Demand grew in the fourth quarter of 2020 and continued to remain high in the first quarter of 2021, amplified by customers converting to air shipments due to disruptions in ocean transportation, placing further constraints on available capacity. These conditions have caused extreme imbalances between carrier capacity and demand, principally on exports out of North Asia. In order to execute and meet the transportation needs of our customers we heavily utilized charter flights and purchased capacity in advance and on the spot market, which resulted in sustained high average buy and sell rates.

Airfreight services revenues and expenses increased ~~18%~~108% and ~~15%~~113%, respectively, induring 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, 2021, 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 improved primarily due to the increases in average sell rates. Average net revenue per kilo declined in North America primarily due to competitive market conditions, which resulted in lower average 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.

~~Airfreight services net revenues increased 1% for the nine-month period ended~~ ~~September 30, 2017, as compared with the same period for 2016. This was principally~~2020, due to a ~~12%~~29% increase in tonnage ~~mostly offset by~~and a ~~13% decrease~~70% increase in ~~net revenue per kilo. Average net revenue per kilo declined~~both average sell and buy rates, respectively. Sell and buy rates increased in ~~most~~all regions ~~primarily due to competitive market conditions and tight carrier capacity. Carriers~~with the largest impacts in North Asia, ~~and~~ South Asia and Europe.Tonnage increased ~~pricing significantly as a result~~in all regions with the largest increase coming from exports out of ~~higher demand relative to available capacity. North America and Europe net revenues increased by 4% and 10%, respectively, while tonnage increased 13% and 11%, respectively.~~ North Asia ~~net revenues remained flat, despite tonnage growth~~compared to low levels of ~~11%, due principally to higher average buy rates. South Asia net revenues decreased 18% despite tonnage growth~~activity in the first quarter of ~~10% primarily~~2020 due to ~~lower average sell rates~~pandemic related closures in China. North Asia airfreight services revenue represented 21% and ~~higher average buy rates.~~

~~The global airfreight market is experiencing imbalances between carrier capacity~~14% of total Company consolidated revenues for the three months ended March 31, 2021 and demand in certain lanes, which is resulting in 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. 2020, respectively.

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 buy rates. These conditions, should they continue to occur, could create a ~~higher~~high degree of volatility in volumes, buy rates and ~~ultimately,~~sell rates and are expected to continue for the remainder of the year as international passenger flights are not expected to return to pre-pandemic levels and additional capacity from freighters is limited. The historically high buy and sell ~~rates.~~rates have significantly contributed to the growth in our expenses and revenues and financial results in the first quarter of 2021. These unprecedented operating conditions are not expected to be sustained long-term. We are unable to predict how these uncertainties and any future disruptions will affect our future operations or financial results.

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%~~expenses increased 94% and 104%, respectively, for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2021 as compared ~~with~~to 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.~~ 2020. The largest component of our ocean freight ~~net~~and ocean services revenue was derived from ocean freight consolidation, which represented ~~46%~~77% and ~~48%~~63% of ocean freight ~~net~~and ocean services revenue for the ~~nine-month periods~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively.

Ocean freight consolidation ~~net~~ revenues and expenses both increased ~~18% in~~135% for the ~~third quarter of~~ ~~2017~~,three months ended March 31, 2021 as compared with the same period in ~~2016,~~2020, primarily due ~~primarily~~ to ~~a 15%~~an 84% and 82% increase in ~~net revenue per container~~average sell and buy rates, respectively, and a 4%29% increase in ~~volume. In~~containers shipped. Demand started increasing in the ~~third~~second half of 2020 and continued to increase through the first quarter of ~~2016, net revenue per container was negatively~~2021 due to backlogs in supply chains and low customer inventory levels, creating a severe imbalance between demand and capacity in particular on exports from North Asia and South Asia. The deficiency in available capacity continues to be affected by ~~the bankruptcy of a large ocean carrier,~~congestion at ports due to labor and equipment shortages, which disrupted sailing schedules, and resulted in ~~a spike in~~record high average buy rates. ~~Ocean freight consolidation net revenues decreased 2% for the nine-month period ended September 30, 2017, as~~Average sell rates and volumes increased in first quarter of 2021, compared ~~with the same period in 2016. Decreases in net revenue per container~~to low levels of activity in the first ~~half~~quarter of ~~2017~~2020 due to pandemic closures in China. We were ~~largely offset by 5% volume growth~~able to timely adjust to market conditions and ~~the increases~~leverage our capacity agreements with ocean carriers as global demand increased.

Containers shipped were up in ~~net revenue per container in the third quarter. Direct~~all regions except for North America where they declined 11%. North Asia ocean freight ~~forwarding net~~and ocean services revenues ~~decreased 3% in the third quarter of 2017, primarily due to~~and directly related expenses increased ~~costs, principally in North Asia~~152% and North America. Direct ocean forwarding net revenues increased 3% for the nine-month period ended September 30, 2017, as compared with the same period in 2016, due to higher volumes. Order management net revenues increased 19% and 15%168%, respectively, for the three months ended March 31, 2021, primarily due to higher sell rates and ~~nine-month periods ended September 30, 2017, mostly resulting from higher volumes with new~~buy rates and ~~existing customers primarily~~a 51% increase in ~~North Asia.~~

~~North America~~containers shipped.

Direct ocean freight forwarding revenues and ~~ocean services net revenues~~ expenses increased 9%18% and ~~remained flat,~~22%, respectively, for the three ~~and nine-month periods~~months ended ~~September 30, 2017, primarily~~March 31, 2021, principally due to ~~an improvement~~higher volumes and increased ancillary services provided primarily in ~~import margins during the third quarter that offset margin declines during the first half of 2017. Europe net~~North Asia and Europe. Order management revenues and expenses increased 8% in the third quarter due principally 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 by the improvement in average sell rates in the third quarter. South Asia net revenues increased 12%32% and ~~remained flat,~~33%, respectively, for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2021, due ~~primarily~~ to higher ~~order management~~ volumes ~~and higher net revenue per container during~~particularly from the ~~third quarter of 2017. North Asia net revenues increased 19% and 11%~~retail industry.

Most ocean carriers experienced significant increase in market demand starting in the ~~three~~second half of 2020 and ~~nine-month periods ended September 30, 2017, respectively, due~~we expect this demand to ~~increases~~continue throughout 2021. Until port congestion and equipment shortages subside, we believe there will be continued pressure on buy rates, which includes the recent disruption 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.~~

transit that occurred through the Suez Canal. We also expect that pricing volatility will continue as customers solicit bids, react to governmental trade policies, and adjust to the continued disruptions of the global economy from the pandemic, and carriers continue to adapt to ~~changing~~changes in capacity and market ~~conditions, new alliances and liquidity challenges.~~demand. These conditions could result in lower ~~margins.~~

operating income. The historically high buy and sell rates have significantly contributed to the growth in our expenses and revenues in the first quarter of 2021. These unprecedented operating conditions are not expected to be sustained long-term.

Customs brokerage and other services:

Customs brokerage and other services revenues increased ~~13%~~32% and ~~10%, respectively,~~expenses increased 38% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2021, respectively, as compared with the same ~~periods~~period in ~~2016,~~2020, primarily due to an increase in shipments from existing and new customers, an increase in demand for brokerage services, in part due to Brexit and higher charges on import services due to ports’ congestion. Road freight and distribution services also grew as a result of higher ~~volumes in both customs brokerage and road freight services. Customs brokerage and other services expenses increased 15% and 13%, respectively, for~~volumes. Slowdowns due to 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 freightpandemic related closures affected volumes, particularly in ~~North America.~~aerospace, automotive, oil and energy and certain portions of the retail sectors in 2020 creating a backlog in supply chains that resulted in higher demand for services in the first quarter of 2021. 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~~and Europe revenues increased ~~12%~~32% and ~~10%~~38%, respectively, and directly related expenses increased 44% and 31%, respectively, for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2021, as compared with the same ~~periods~~period for ~~2016,~~ 2020, primarily as a result of higher 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~~higher charges on import services due to ~~higher customs brokerage and road freight services net revenues.~~port congestion.

Overhead expenses:

Salaries and related costs increased ~~10% and 7%, respectively,~~ by 32% for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~ March 31, 2021,as compared with the same ~~periods~~period in ~~2016,~~2020, principally due ~~principally~~ to ~~an increase~~increases in ~~the number of employees, primarily in North America, Europe,~~commissions and ~~South Asia, higher base salaries and benefits, higher share-based compensation expense and increased~~ bonuses earned from higher revenues and 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~~Bonuses to field 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% to 55%~~executive management for the ~~nine-month period~~three months ended ~~September 30, 2017, as~~March 31, 2021 were up 112% when compared to the same period in ~~2016~~2020, primarily due to a 142% increase in operating income offset by 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,~~ remained constant for the three ~~and nine-month periods~~months ended ~~September 30, 2017,~~March 31, 2021, as compared with the same ~~periods~~period in ~~2016. We continue~~2020. There was a significant decrease in travel and entertainment expenses due to ~~invest in additional technology and facilities, which resulted in higher rent and facilities expenses, technology-related fees and consulting costs. These increases were~~travel restrictions offset by ~~lower claims, the recovery of certain legal~~an increase in expense for renting additional space, higher local tax expenses and technology related costs totaling $8 million for the year-to-date period ended September 30, 2017 compared to $5 million in the same period in 2016 and the favorable resolution of an indirect tax contingency of $6 million in the second quarter of 2017. costs. 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,~~26.3% for the three ~~and nine-month periods~~months ended ~~September 30, 2017, and 36.9% and 37.0%~~March 31, 2021, as compared to 26.6% for the same ~~periods~~period in ~~2016. Our effective~~2020. The effect of higher average tax ~~rate is subject~~rates related to ~~variation~~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). 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, 2021 and ~~2016~~2020 was insignificant. We had no foreign currency derivatives outstanding at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~.2020. During the three months ended March 31, 2021 and ~~nine-month periods ended September 30, 2017, total~~2020 net foreign currency ~~losses~~gains were approximately $3 million and ~~$12~~$4 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.~~

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, 2021 was ~~$85~~$356 million ~~and $362 million, respectively,~~ as compared with ~~$116 million~~ ~~and $457~~$165 million for the same ~~periods~~period in ~~2016.~~2020. The ~~decreases of $31~~$191 million ~~and $95 million in~~increase for the ~~third quarter and first nine~~three months ~~of 2017, respectively, are~~ended March 31, 2021 was primarily due to ~~increases~~higher airfreight and ocean revenues and changes in ~~accounts receivable from higher revenues, partially offset by growth in accounts payable and accrued expenses and higher earnings.~~working capital. At ~~September 30, 2017,~~March 31, 2021, working capital was ~~$1,443~~$2,299 million, including cash and cash equivalents of ~~$1,033 million. We~~$1,793 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at ~~September 30, 2017~~.March 31, 2021. 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.~~

future.

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. However, there is no assurance that this seasonal trend will occur in the future or to what degree it will continue to be impacted in 2021 by the pandemic.

Cash used in investing activities for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 was ~~$35~~$8 million ~~and $68 million, respectively,~~ as compared with ~~$11 million and $35~~$6 million in the same ~~periods~~period of ~~2016. We had~~2020, 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, 2021 was primarily related ~~primarily~~ to ~~building construction and~~ continuing investments in ~~technology, office and warehouse furniture and equipment and~~ building and leasehold ~~improvements. Occasionally, we elect to purchase buildings to house staff~~improvements 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~~technology and ~~2018 in connection with the construction of a building on this land.~~facilities equipment. Total anticipated capital expenditures in ~~2017~~2021 are currently estimated to be ~~$100~~$45 million. This includes routine capital expenditures ~~including~~and investments in technology.

Cash from financing activities during the ~~construction of the building in Europe, plus additional real estate development.~~

~~Cash~~three months ended March 31, 2021 was $68 million as compared with cash used in financing activities ~~during the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~was~~ of $~~137 million~~ ~~and $254~~261 million ~~respectively, as compared with~~ ~~$44 million~~ ~~and $193 million for~~in the same ~~periods~~period in ~~2016~~.2020. 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, 2021 and 2020, we used cash to repurchase ~~3.6~~0.9 million and ~~6.1~~4.0 million shares ~~respectively, to reduce the number~~ of ~~total outstanding shares, compared to 2.0 million and 5.4 million shares in the same periods in 2016.~~

common stock, respectively.

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 further 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, 2021, we were contingently liable for $71 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, 2021, cash and cash equivalent balances of ~~$436~~$745 millionwere held by our non-United States subsidiaries, of which ~~$50~~$28 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, 2021, would have had the effect of raising operating income by approximately ~~$35 million.~~$28 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~~$23 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, 2021 and ~~2016~~2020 was insignificant. During the three months ended March 31, 2021 and ~~nine-month periods ended September 30, 2017, total~~2020 net foreign currency ~~losses~~ gains 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~~$4 million, respectively. We had no foreign currency derivatives outstanding at ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~.2020. 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, 2021, we had approximately ~~$17~~$150 millionof net unsettled intercompany transactions. The majority of intercompany billings are resolved within 30 days.

Interest Rate Risk

At ~~September 30, 2017~~,March 31, 2021, we had cash and cash equivalents of ~~$1,033~~$1,793 million, of which ~~$648~~$1,000 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, 2021. A hypothetical change in the interest rate of 10 basis points at ~~September 30, 2017~~March 31, 2021 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~~.

2021.

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 the pandemic, 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, 2021, 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

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 the following:~~



~~Network Continuity and Cybersecurity~~		As Expeditors and our customers continue to increase reliance on systems and as additional features are added, the risks also increase. Any significant disruptions to our global systems, significant service providers or the Internet for any reason, which could include equipment or network failures; co-location facility failures; power outages; sabotage; employee error or other actions; cyber-attacks (such as those recently experienced in our industry) or other security breaches; reliance on third party technology; geo-political activity or natural disasters; all of which could have a material negative effect on our results. This could include loss of revenue; customers; business disruptions (such as the inability 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 in costs to protect our systems and technology; or damage to our reputation.

19, 2021.

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, 2021		—	$	—		—		9,343,149
February 1-28, 2021		924,913		92.98		924,913		8,774,212
March 1-31, 2021		—		—		—		8,807,642
Total		924,913	$	92.98		924,913		8,807,642

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, 2021, 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 7, 2017~~ May 6, 2021		/s/ JEFFREY S. MUSSER
		Jeffrey S. Musser, President, Chief Executive Officer and Director

~~November 7, 2017~~ May 6, 2021		/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