Item 16. FORM 10-K SUMMARY

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: February 23, 2018

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.
	By:	/s/ Bradley S. Powell
		Bradley S. Powell
		Senior Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 23, 2018.

Signature		Title
/s/ Jeffrey S. Musser		President, Chief Executive Officer and Director
(Jeffrey S. Musser)		(Principal Executive Officer)
/s/ Bradley S. Powell		Senior Vice President and Chief Financial Officer
(Bradley S. Powell)		(Principal Financial and Accounting Officer)
/s/ Robert R. Wright		Chairman of the Board and Director
(Robert R. Wright)
/s/ Glenn M. Alger		Director
(Glenn M. Alger)
/s/ James M. DuBois		Director
(James M. DuBois)
/s/ Mark A. Emmert		Director
(Mark A. Emmert)
/s/ Diane H. Gulyas		Director
(Diane H. Gulyas)
/s/ Dan P. Kourkoumelis		Director
(Dan P. Kourkoumelis)
/s/ Richard B. McCune		Director
(Richard B. McCune)
/s/ Alain Monié		Director
(Alain Monié)
/s/ Liane J. Pelletier		Director
(Liane J. Pelletier)
/s/ Tay Yoshitani		Director
(Tay Yoshitani)

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

COMPRISING ITEM 8

ANNUAL REPORT ON FORM 10-K

TO SECURITIES AND EXCHANGE COMMISSION FOR THE

YEARS ENDED DECEMBER 31, 2017, 2016, AND 2015

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Expeditors International of Washington, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Expeditors International of Washington, Inc. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP
We have served as the Company's auditor since 1982.
Seattle, Washington
February 23, 2018

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Expeditors International of Washington, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Expeditors International of Washington, Inc.’s and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of earnings, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP
Seattle, Washington
February 23, 2018

F-2

Consolidated Balance Sheets

In thousands, except per share data

December 31,	2017				2016
Current Assets:
Cash and cash equivalents	$	1,051,099			974,435
Accounts receivable, less allowance for doubtful accounts of $12,858 in 2017 and $9,247 in 2016	1,414,741				1,190,130
Other	75,612				54,014
Total current assets	2,541,452				2,218,579
Property and equipment, net	525,203				536,572
Goodwill	7,927				7,927
Deferred Federal and state income taxes, net	13,207				—
Other assets, net	29,219				27,793
Total assets	$	3,117,008			2,790,871
Current Liabilities:
Accounts payable	$	866,305			726,571
Accrued expenses, primarily salaries and related costs	206,320				185,502
Federal, state and foreign income taxes	20,494				17,858
Total current liabilities	1,093,119				929,931
Noncurrent Federal income tax payable	29,516				—
Deferred Federal and state income taxes, net	—				13,727
Commitments and contingencies
Shareholders’ Equity:
Preferred stock, par value $0.01 per share, authorized 2,000 shares; none issued	—				—
Common stock, par value $0.01 per share, authorized 640,000 shares;
issued and outstanding 176,374 shares at December 31, 2017
and 179,857 shares at December 31, 2016	1,764				1,799
Additional paid-in capital	546				2,642
Retained earnings	2,063,512				1,944,789
Accumulated other comprehensive loss	(73,964		)		(104,592	)
Total shareholders’ equity	1,991,858				1,844,638
Noncontrolling interest	2,515				2,575
Total equity	1,994,373				1,847,213
Total liabilities and equity	$	3,117,008			2,790,871

See accompanying notes to consolidated financial statements.

F-3.

Consolidated Statements of Earnings

In thousands, except per share data

Years ended December 31,		2017				2016			2015
Revenues:
Airfreight services		$	2,877,032			2,453,347			2,740,583
Ocean freight and ocean services		2,107,045				1,917,494			2,194,004
Customs brokerage and other services		1,936,871				1,727,196			1,682,045
Total revenues		6,920,948				6,098,037			6,616,632
Operating Expenses:
Airfreight services		2,126,761				1,752,167			1,987,690
Ocean freight and ocean services		1,543,740				1,378,699			1,648,993
Customs brokerage and other services		931,258				803,135			792,172
Salaries and related costs		1,267,120				1,157,635			1,143,511
Rent and occupancy costs		119,732				108,812			102,470
Depreciation and amortization		49,310				46,796			46,012
Selling and promotion		44,290				41,763			41,990
Other		138,477				138,867			132,310
Total operating expenses		6,220,688				5,427,874			5,895,148
Operating income		700,260				670,163			721,484
Other Income (Expense):
Interest income		13,204				11,580			10,421
Other, net		5,131				5,113			4,784
Other income, net		18,335				16,693			15,205
Earnings before income taxes		718,595				686,856			736,689
Income tax expense		228,212				254,323			277,192
Net earnings		490,383				432,533			459,497
Less net earnings attributable to the noncontrolling interest		1,038				1,726			2,274
Net earnings attributable to shareholders		$	489,345			430,807			457,223
Diluted earnings attributable to shareholders per share		$	2.69			2.36			2.40
Basic earnings attributable to shareholders per share		$	2.73			2.38			2.42
Weighted average diluted shares outstanding		181,666				182,704			190,223
Weighted average basic shares outstanding		179,247				181,282			188,941

See accompanying notes to consolidated financial statements.

F-4.

Consolidated Statements of Comprehensive Income

In thousands

Years ended December 31,		2017				2016			2015
Net earnings		$	490,383			432,533			459,497
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax of $16,761 in 2017, $12,687 in 2016 and $23,801 in 2015		30,434				(23,743	)		(44,090	)
Other comprehensive income (loss)		30,434				(23,743	)		(44,090	)
Comprehensive income		520,817				408,790			415,407
Less comprehensive income attributable to the noncontrolling interest		844				1,337			1,605
Comprehensive income attributable to shareholders		$	519,973			407,453			413,802

See accompanying notes to consolidated financial statements.

F-5.

Consolidated Statements of Equity

In thousands, except per share data

Years ended December 31, 2017, 2016 and 2015

	Common Stock
	Shares			Par Value
Balance at December 31, 2014	191,656			$	1,916
Exercise of stock options and release of restricted shares	2,851			29
Issuance of shares under stock purchase plan	699			7
Shares repurchased under provisions of stock repurchase plans	(13,139	)		(131		)
Stock compensation expense	—			—
Tax benefits from stock plans, net	—			—
Net earnings	—			—
Other comprehensive loss	—			—
Dividends paid ($0.72 per share)	—			—
Distributions of dividends to noncontrolling interest	—			—
Balance at December 31, 2015	182,067			1,821
Exercise of stock options and release of restricted shares	3,769			38
Issuance of shares under stock purchase plan	703			7
Shares repurchased under provisions of stock repurchase plans	(6,682	)		(67		)
Stock compensation expense	—			—
Tax benefits from stock plans, net	—			—
Net earnings	—			—
Other comprehensive loss	—			—
Dividends paid ($0.80 per share)	—			—
Purchase of noncontrolling interest	—			—
Distributions of dividends to noncontrolling interest	—			—
Balance at December 31, 2016	179,857			1,799
Exercise of stock options and release of restricted shares	4,058			40
Issuance of shares under stock purchase plan	682			7
Shares repurchased under provisions of stock repurchase plans	(8,223	)		(82		)
Stock compensation expense	—			—
Net earnings	—			—
Other comprehensive income (loss)	—			—
Dividends paid ($0.84 per share)	—			—
Distributions of dividends to noncontrolling interest	—			—
Balance at December 31, 2017	176,374			$	1,764

F-6.

	Additional paid-in capital				Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
Balance at December 31, 2014	$	1,113			1,903,196			(37,817	)		1,868,408			3,200			1,871,608
Exercise of stock options and release of restricted shares	105,085				—			—			105,114			—			105,114
Issuance of shares under stock purchase plan	25,843				—			—			25,850			—			25,850
Shares repurchased under provisions of stock repurchase plans	(176,493		)		(453,367	)		—			(629,991	)		—			(629,991	)
Stock compensation expense	43,415				—			—			43,415			—			43,415
Tax benefits from stock plans, net	1,068				—			—			1,068			—			1,068
Net earnings	—				457,223			—			457,223			2,274			459,497
Other comprehensive loss	—				—			(43,421	)		(43,421	)		(669	)		(44,090	)
Dividends paid ($0.72 per share)	—				(135,673	)		—			(135,673	)		—			(135,673	)
Distributions of dividends to noncontrolling interest	—				—			—			—			(2,122	)		(2,122	)
Balance at December 31, 2015	31				1,771,379			(81,238	)		1,691,993			2,683			1,694,676
Exercise of stock options and release of restricted shares	157,139				—			—			157,177			—			157,177
Issuance of shares under stock purchase plan	28,129				—			—			28,136			—			28,136
Shares repurchased under provisions of stock repurchase plans	(225,317		)		(112,274	)		—			(337,658	)		—			(337,658	)
Stock compensation expense	45,217				—			—			45,217			—			45,217
Tax benefits from stock plans, net	(2,664		)		—			—			(2,664	)		—			(2,664	)
Net earnings	—				430,807			—			430,807			1,726			432,533
Other comprehensive loss	—				—			(23,354	)		(23,354	)		(389	)		(23,743	)
Dividends paid ($0.80 per share)	—				(145,123	)		—			(145,123	)		—			(145,123	)
Purchase of noncontrolling interest	107										107			(110	)		(3	)
Distributions of dividends to noncontrolling interest	—				—			—			—			(1,335	)		(1,335	)
Balance at December 31, 2016	2,642				1,944,789			(104,592	)		1,844,638			2,575			1,847,213
Exercise of stock options and release of restricted shares	176,285				—			—			176,325			—			176,325
Issuance of shares under stock purchase plan	28,760				—			—			28,767			—			28,767
Shares repurchased under provisions of stock repurchase plans	(258,049		)		(220,127	)		—			(478,258	)		—			(478,258	)
Stock compensation expense	50,908				—			—			50,908			—			50,908
Net earnings	—				489,345			—			489,345			1,038			490,383
Other comprehensive income (loss)	—				—			30,628			30,628			(194	)		30,434
Dividends paid ($0.84 per share)	—				(150,495	)		—			(150,495	)		—			(150,495	)
Distributions of dividends to noncontrolling interest	—				—			—			—			(904	)		(904	)
Balance at December 31, 2017	$	546			2,063,512			(73,964	)		1,991,858			2,515			1,994,373

See accompanying notes to consolidated financial statements.

F-7.

Consolidated Statements of Cash Flows

In thousands

Years ended December 31,		2017				2016			2015
Operating Activities:
Net earnings		$	490,383			432,533			459,497
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses on accounts receivable		5,356				2,607			2,173
Deferred income tax (benefit) expense		(43,695		)		15,835			17,999
Stock compensation expense		50,908				45,217			43,415
Depreciation and amortization		49,310				46,796			46,012
Other		(4,382		)		(3,540	)		(24	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(184,771		)		(102,297	)		62,619
Increase (decrease) in accounts payable and accrued expenses		114,631				102,716			(84,164	)
Increase (decrease) in income taxes payable, net		16,264				(12,370	)		18,382
(Increase) decrease in other current assets		(5,365		)		1,988			653
Net cash from operating activities		488,639				529,485			566,562
Investing Activities:
Purchase of short-term investments		(12		)		(54	)		(47,026	)
Proceeds from maturities of short-term investments		12				17			87,320
Purchase of property and equipment		(95,016		)		(59,316	)		(44,383	)
Proceeds from sale of property and equipment		84,405				229			258
Other, net		(1,074		)		5,928			(3,595	)
Net cash from investing activities		(11,685		)		(53,196	)		(7,426	)
Financing Activities:
Proceeds from issuance of common stock		205,092				185,313			130,964
Repurchases of common stock		(478,258		)		(337,658	)		(629,991	)
Dividends paid		(150,495		)		(145,123	)		(135,673	)
Distributions to noncontrolling interest		(904		)		(1,335	)		(2,122	)
Net cash from financing activities		(424,565		)		(298,803	)		(636,822	)
Effect of exchange rate changes on cash and cash equivalents		24,275				(10,847	)		(41,625	)
Increase (decrease) in cash and cash equivalents		76,664				166,639			(119,311	)
Cash and cash equivalents at beginning of year		974,435				807,796			927,107
Cash and cash equivalents at end of year		$	1,051,099			974,435			807,796
Supplemental Cash Flow Information:
Cash paid for income taxes		$	249,704			254,312			239,367

See accompanying notes to consolidated financial statements

F-8.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. | Basis of Presentation

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

International trade is influenced by many factors, including economic and political conditions in the United States and abroad, currency exchange rates and currency control regulations, regulatory environments, cargo and other security concerns, laws and policies relating to tariffs, trade and quota restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to current tariffs and trade restrictions and accords. The Company cannot predict which, if any, of these proposals may be adopted, nor can the Company predict the effects adoption of any such proposal will have on the Company’s business. Doing business in foreign locations also subjects the Company to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies concerning international trade and commerce, the Company’s business may also be affected by political developments and changes in government personnel or policies as well as economic turbulence, political unrest and security concerns in the nations in which it does business and the future impact that these events may have on international trade including impact on oil prices.

The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The consolidated financial statements include the accounts of the Company and its subsidiaries stated in U.S. dollars, the Company’s reporting currency. In addition, the consolidated financial statements also include the accounts of operating entities where the Company maintains a parent-subsidiary relationship through unilateral control over assets and operations together with responsibility for payment of all liabilities, notwithstanding a lack of technical majority ownership of the subsidiary's common stock.

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. Certain prior year amounts have been reclassified to conform to the 2017 presentation. See Note 1.F below for further information.

B. | Cash Equivalents

All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.

C. | Accounts Receivable

The Company maintains an allowance for doubtful accounts, which is reviewed at least monthly for estimated losses resulting from the inability of its customers to make required payments for services and advances. Additional allowances may be necessary in the future if the ability of its customers to pay deteriorates. The Company has recorded an allowance for doubtful accounts in the amounts of $12,858, $9,247 and $7,820 as of December 31, 2017, 2016 and 2015, respectively. Additions and write-offs have not been significant in any of these years.

D. | Long-Lived Assets, Depreciation and Amortization

Property and equipment are recorded at cost and are depreciated or amortized on the straight-line method over the shorter of the assets’ estimated useful lives or lease terms. Useful lives for major categories of property and equipment are as follows:

Buildings and land improvements	30 to 40 years
Building improvements	3 to 10 years
Furniture, fixtures, equipment and purchased software	3 to 10 years

Expenditures for maintenance, repairs, and replacements of minor items are charged to earnings as incurred. Major upgrades and improvements that extend the life of the asset are capitalized. Upon disposition, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income for the period.

For the years ended December 31, 2017 and 2016, the Company performed the required goodwill annual impairment test during the fourth quarter and determined that no impairment had occurred.

E. | Revenues and Revenue Recognition

The Company derives its revenues from three principal sources: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services. These are the revenue categories presented in the financial statements.

F-9.

As a non-asset based carrier, the Company does not own transportation assets. Rather, the Company generates the major portion of its air and ocean freight revenues by purchasing transportation services from direct (asset-based) carriers and reselling those services to its customers. The difference between the rate billed to customers (the sell rate) and the rate paid to the carrier (the buy rate) is termed “net revenue” (a non-GAAP measure), “yield” or "margin." By consolidating shipments from multiple customers and concentrating its buying power, the Company is able to negotiate favorable buy rates from the direct carriers, while at the same time offering lower sell rates than most customers would otherwise be able to negotiate themselves.

Airfreight services revenues include the charges to the Company for carrying the shipments when the Company acts as a freight consolidator. Ocean freight services revenues include the charges to the Company for carrying the shipments when the Company acts as a Non-Vessel Operating Common Carrier (NVOCC). In each case the Company is acting as an indirect carrier. When acting as an indirect carrier, the Company will 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, the Company receives a contract of carriage known as a Master Airway Bill for airfreight shipments and a Master Ocean Bill of Lading for ocean shipments. At this point, the risk of loss passes to the carrier, however, in order to claim for any such loss, the customer is first obligated to pay the freight charges. In these transactions, the Company evaluates whether it is appropriate to record the gross or net amount as revenue. Generally, when the Company is the primary obligor, it is obligated to compensate direct carriers for services performed regardless of whether customers accept the service, has latitude in establishing price, has discretion in selecting the direct carrier, has credit risk or has several but not all of these indicators, revenue is recorded on a gross basis. Revenue is generally recorded on a net basis where the Company is not primarily obligated and does not have latitude in establishing prices. Such amounts earned are determined using a fixed fee, a per unit of activity fee or a combination thereof.

Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a HAWB, a HOBL or a House Seaway Bill are recognized at the time the freight is tendered to the direct carrier at origin. Costs related to the shipments are also recognized at this same time.

Revenues earned in other capacities, for instance, when the Company acts as an agent for the shipper, and does not issue a HAWB, a HOBL or a House Seaway Bill, include only the commissions and fees earned for the services performed. In these transactions, the Company is not a principal and reports only commissions and fees earned in revenue. These revenues are recognized upon completion of the services.

Customs brokerage and other services involves providing services at destination, such as helping customers clear shipments through customs by preparing required documentation, calculating and providing for payment of duties and other taxes on behalf of the customers as well as arranging for any required inspections by governmental agencies, and arranging for delivery. This is a complicated function requiring technical knowledge of customs rules and regulations in the multitude of countries in which the Company has offices. Revenues related to customs brokerage and other services are recognized upon completion of the services. Arranging international shipments is a complex task. Each actual movement can require multiple services. In some instances, the Company is asked to perform only one of these services. However, in most instances, the Company performs multiple services. These services include ancillary services such as local transportation, export customs formalities, distribution services and logistics management. Each of these services has an associated fee which is recognized as revenue upon completion of the service.

Typically, the fees for each of these services are quoted as separate components; however, customers on occasion will request an all-inclusive rate for a set of services known in the industry as “door-to-door service.” This means that the customer is billed a single rate for all services from pickup at origin to delivery at destination. In these instances, the revenue for origin and destination services, as well as revenue that will be characterized as freight charges, is allocated to branches as set by preexisting Company policy modified as agreed upon by customer specific negotiations between the offices involved. Each of the Company’s branches are separate profit centers and the primary compensation for the branch management group comes in the form of incentive-based compensation calculated directly from the operating income of that branch. This compensation structure ensures that the allocation of revenue and expense among components of services, when provided under an all-inclusive rate, is done in an objective manner on a relative selling price basis.

The Company presents revenues net of sales and value-added taxes.

F. | Income Taxes

Income taxes are accounted for under the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, the tax effect of loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings of the Company's foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States and, accordingly, U.S. Federal and State income taxes have historically been provided for all undistributed earnings net of related foreign tax credits. See Note 5 for impacts associated with U.S. tax reform under the Tax Cuts and Jobs Act (2017 Tax Act). A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized. The Company recognizes interest expense related to unrecognized

F-10.

tax benefits or underpayment of income taxes in interest expense and recognizes penalties in operating expenses. Beginning on January 1, 2017, the Company adopted accounting guidance requiring that, prospectively, excess tax benefits and deficiencies be recorded in income tax expense for stock option exercises, cancellations and disqualifying dispositions of employee stock purchase plan shares. Adoption also resulted in the retroactive reclassification of excess tax benefits on the statement of cash flows.

G | Net Earnings Attributable to Shareholders per Common 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 common shares represent outstanding stock options, stock purchase rights 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.

H. | Stock Plans

The Company maintains several equity incentive plans under which the Company has granted stock options, director restricted stocks, restricted stock units (RSU), performance stock units and employee stock purchase rights to employees or directors. The Company recognizes stock compensation expense based on the fair value of awards at the grant date. This expense, adjusted for expected forfeitures, is recognized in net earnings on a straight-line basis over the service periods as a component of salaries and related costs. RSU awards 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. Expense for performance stock units is recognized over the service period when it is probable the performance goal will be achieved.

I. | Foreign Currency

Foreign currency amounts attributable to foreign operations have been translated into U.S. dollars using year-end exchange rates for assets and liabilities, historical rates for equity, and weighted average rates for revenues and expenses. Translation adjustments resulting from this process are recorded as components of other comprehensive income until complete or substantially complete liquidation by the Company of its investment in a foreign entity. Currency fluctuations are a normal operating factor in the conduct of the Company’s business and foreign exchange transaction gains and losses are included in revenues and operating expenses. Also, the Company is exposed to foreign currency exchange fluctuations on monetary assets and liabilities denominated in currencies that are not the local functional currency. Foreign exchange gains and losses on such balances are recognized in net earnings within airfreight services costs, customs brokerage and other services costs and other income, net. Net foreign currency losses in 2017 were $13,315, and net foreign currency gains in 2016 and 2015 were $7,955 and $7,820, respectively.

The Company follows a policy of accelerating international currency settlements to manage its foreign exchange exposure. Accordingly, the Company enters into foreign currency hedging transactions only in limited locations where there are regulatory or commercial limitations on the Company’s ability to move money freely. Such hedging activity during 2017, 2016, and 2015 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2017 and 2016.

J. | Comprehensive Income

Comprehensive income consists of net earnings and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net earnings. For the Company, these consist of foreign currency translation gains and losses, net of related income tax effects and comprehensive income or loss attributable to the noncontrolling interests. Upon the complete or substantially complete liquidation of the Company's investment in a foreign entity, cumulative translation adjustments are recorded as reclassification adjustments in other comprehensive income and recognized in net earnings.

Accumulated other comprehensive loss consisted entirely of foreign currency translation adjustments, net of related income tax effects, as of December 31, 2017 and 2016.

K. | Segment Reporting

The Company is organized functionally in geographic operating segments. Accordingly, management focuses its attention on revenues, net revenues, 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.

L. | 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 disclosure of contingent assets and liabilities at the date of the

F-11.

financial statements and the reported amounts of revenues and expenses during the period. The Company uses estimates primarily in the following areas: accounts receivable valuation, accrual of costs related to ancillary services the Company provides, accrual of liabilities for the portion of the related exposure that the Company has self-insured, accrual of various tax liabilities including estimates associated with the 2017 Tax Act, accrual of loss contingencies and calculation of share-based compensation expense. Actual results could be materially different from the estimated provisions and accruals recorded.

M. | Recent Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 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. This standard is effective for the Company beginning on January 1, 2018. The Company formed a cross-functional project team to evaluate the adoption impacts for each of its services.

Under the standard used through the end of 2017, the Company's transportation revenue was recognized at the point in time freight was tendered to the direct carrier at origin. Under the new standard, transportation and related services revenue is recognized over time as control is transferred to the customer. The Company expects to defer more revenues under the new standard. The Company has also evaluated whether it acts as principal or agent with regards to its promise to transfer services to the customer and it expects the presentation to change for certain of its services from a net to gross presentation.

The Company has developed and implemented systems solutions and process changes to facilitate revenue recognition under the new standard. The Company has also identified and designed changes to its internal controls to support the adoption. The Company 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, the Company will recognize the cumulative effect of adopting as an adjustment currently estimated to be less than a $35 million decrease to its opening balance of retained earnings. Prior periods will not be retrospectively adjusted.

Leases

In February 2016, the FASB issued an ASU changing the accounting for leases and including a requirement to record all leases exceeding one year on the consolidated balance sheet as assets and liabilities. As currently issued, the new lease standard requires adoption using a modified retrospective transition and will be effective for the Company beginning on January 1, 2019. Adoption will impact the consolidated balance sheets as future minimum lease payments under noncancelable leases totaled $260 million as of December 31, 2017. The Company is currently evaluating its existing lease portfolios, including accumulating all of the necessary information required to properly evaluate and account for leases under the new standard. Additionally, the Company has begun the implementation of an enterprise-wide lease management system that, along with accompanying process changes, will assist it in the accounting and internal control changes necessary to meet the reporting and disclosure requirements of the new standard when it becomes effective.

Taxes

In February 2018, the FASB issued an ASU, which amends existing guidance for reporting comprehensive income to reflect changes resulting from the 2017 Tax Act. The amendment provides the option to reclassify stranded tax effects resulting from the 2017 Tax Act and within accumulated other comprehensive income (AOCI) to retained earnings. New disclosures will be required upon adoption, including the accounting policy for releasing income tax effects from AOCI, whether reclassification of stranded income tax effects is elected, and information about other income tax effect reclassifications. The amendment will become effective for the Company on January 1, 2019, though early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements and disclosures.

F-12.

NOTE 2.	PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

		2017				2016
Land		$	147,261			172,310
Buildings and leasehold improvements		416,597				467,096
Furniture, fixtures, equipment and purchased software		320,544				296,214
Construction in progress		61,083				7,604
Property and equipment, at cost		945,485				943,224
Less accumulated depreciation and amortization		420,282				406,652
Property and equipment, net		$	525,203			536,572

In 2016, the Company completed a land acquisition in Europe, utilizing funds that had been placed in escrow in 2014. Construction of a building on that land was completed in January of 2018. In January 2017, the Company formally approved a plan to sell land and buildings 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 property, which had a net book value of $80 million, was sold in December 2017 for a $4 million gain, which is reported in the United States segment within other operating expenses.

NOTE 3.	SHAREHOLDERS’ EQUITY

A. | Stock Repurchase Plans

The Company has a Non-Discretionary Stock Repurchase Plan, originally approved by the Board of Directors in November 1993, under which management is authorized to repurchase up to 40,000 shares of the Company’s common stock in the open market with the proceeds received from the exercise of employee stock options, directors' restricted stock awards and the Employee Stock Purchase Plan.

The Company has a Discretionary Stock Repurchase Plan originally approved by the Board of Directors in November 2001, and amended from time to time under which management as of December 31, 2017 is authorized to repurchase shares down to 170,000 shares of common stock outstanding.

The following table summarizes by plan the Company’s repurchasing activity:

		Cumulative shares repurchased			Average price per share
Non-Discretionary Plan (1994 through 2017)		37,356			$	32.63
Discretionary Plan (2001 through 2017)		62,252			$	41.90

B. | Omnibus Incentive Plan

On May 2, 2017, the shareholders approved the Company's 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. The RSU granted in 2017 vest annually over three years based on continued employment and are settled upon vesting in shares of the Company's common stock on a one-for-one basis.

F-13.

The following table summarizes information about RSU:

		Number of shares			Weighted average grant date fair value
Outstanding at December 31, 2016		—			$	—
RSU granted		593			$	54.11
RSU vested		—			$	—
RSU forfeited		(12	)		$	54.04
Outstanding at December 31, 2017		581			$	54.11

In 2017, the Company also awarded 23 Performance Stock Units (PSU) under the 2017 Plan. The PSU include performance conditions to be finally measured in 2019. The final number of PSU will be determined using an adjustment factor of up to 2 times or down to 0.5 of the targeted PSU grant, 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.

At December 31, 2017, assuming target levels are achieved for PSU, there are 1,896 shares available for grant under the 2017 plan.

When restrictions on RSU or PSU lapse the Company derives a tax deduction in certain countries based on the fair market value of the award upon vesting. Until vesting, a deferred tax asset is recognized and measured based on the fair value of the award at the date of grant (consistent with measurement for stock compensation expense). Any excess or shortfall in the tax deduction resulting from the difference between fair market value of the award between the date of grant and the date of vesting is recognized to income tax expense upon vesting.

C. | Stock Option Plans

Historically, the Company granted stock options under stock option plans approved annually by shareholders. Those plans generally allowed for the grant of qualified and non-qualified grants and outstanding options expire no more than ten years from the date of grant. Stock options granted in 2016 vest over three years from the date of grant as compared to five years for options granted in prior years. Stock options were last granted in 2016 under the Company's 2016 stock options plan. No additional shares can be granted under any of the Company's stock option plans other than the 2017 Plan.

Upon the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options, the Company derives a tax deduction measured by the excess of the market value over the option price at the date of exercise or disqualifying disposition. The portion of the benefit from the deduction, which equals the estimated fair value of the options (previously recognized as compensation expense) is recorded as a credit to the deferred tax asset for non-qualified stock options and is recorded as a credit to current tax expense for any disqualified dispositions of incentive stock options. For disqualifying dispositions, when the amount of the tax deduction is less than the cumulative amount of compensation expense recognized for the award, the amount credited to current tax expense is limited to the tax benefit associated with the tax deduction. All of the tax benefit received upon option exercise for the tax deduction in excess of the estimated fair value of the options was credited to additional paid-in capital prior to 2017. Commencing in 2017, in connection with the new requirements and adoption of accounting guidance issued in March 2016, these tax amounts are no longer recorded in additional paid-in capital and instead are reflected as components of income tax expense.

F-14.

The following table summarizes information about stock options:

		Number of shares			Weighted average exercise price per share				Weighted average remaining contractual life		Aggregate intrinsic value
Outstanding at December 31, 2016		17,374			$	44.25
Options granted		—			$	—
Options exercised		(4,020	)		$	43.86
Options forfeited		(328	)		$	44.23
Options canceled		(65	)		$	46.27
Outstanding at December 31, 2017		12,961			$	44.36			5.78		$	263,431
Exercisable at December 31, 2017		6,615			$	43.44			4.30		$	140,569

D. | Stock Purchase Plan

In May 2002, the shareholders approved the Company’s 2002 Employee Stock Purchase Plan (the 2002 Plan), which became effective August 1, 2002. On May 7, 2014, the shareholders approved an amendment to the 2002 Plan to increase the Company's common stock available for purchase under that plan by 3 million shares. The Company’s amended 2002 Plan provides for 12,305 shares of the Company’s common stock to be reserved for issuance upon exercise of purchase rights granted to employees who elect to participate through regular payroll deductions beginning August 1 of each year. The purchase rights are exercisable on July 31 of the following year at a price equal to the lesser of (1) 85% of the fair market value of the Company’s stock on the last trading day in July or (2) 85% of the fair market value of the Company’s stock on the first trading day in August of the preceding year. A total of 10,896 shares have been issued under the 2002 Plan since inception and $16,400 has been withheld from employees at December 31, 2017 in connection with the plan year ending July 31, 2018.

E. | Director Restricted Stock Plan

On May 7, 2014, the shareholders approved the Company’s 2014 Directors’ Restricted Stock Plan (the 2014 Directors’ Plan), which provides for annual awards of restricted stock to non-employee directors and makes 250 shares of the Company’s common stock available for grant. The plan provides for an annual grant of restricted stock awards with a fair market value equal to $200 to each participant on June 1 of each year. There are 106 shares available for grant under this plan as of December 31, 2017. Each restricted stock award under the 2014 Directors’ Plan vests either at the time of grant or with a vesting schedule, as determined by the Compensation Committee of the Board of Directors. Restricted shares granted in 2016 and 2017 vested at the time of grant and there were no unvested restricted shares as of December 31, 2017. In 2017, restricted shares totaling 38 were granted with a fair value per share of $52.75. Restricted shares entitle the grantees to all shareholder rights, including cash dividends and transfer rights once vested. If a non-employee director’s service is terminated, any unvested portion of an award would be forfeited.

F. | Share-Based Compensation Expense

The fair value of each option grant is estimated on the date of grant using the Black-Scholes Model with the following assumptions:

		For the years ended December 31,
		2017				2016				2015
Dividend yield		1.50		%		1.70		%		1.60		%
Volatility – stock option plans		-				24 - 25%				29 - 34%
Volatility – stock purchase rights plans		14		%		20		%		20		%
Risk-free interest rates		1.22		%		0.51 - 1.42%				0.30 - 2.04%
Expected life (years) – stock option plans		-				5.5 - 6.5				6.41 - 7.47
Expected life (years) – stock purchase rights plans		1				1				1
Weighted average fair value of stock options granted during the period		-				$	9.57			$	13.44
Weighted average fair value of stock purchase rights granted during the period		$	11.69			$	10.99			$	10.45

The Company’s expected volatility assumptions are based on the historical volatility of the Company’s stock over a period of time commensurate to the expected life. The expected life assumption is primarily based on historical employee exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the corresponding yield curve in effect at the time of grant for U.S. Treasury bonds having the same term as the expected life of the option. The expected dividend yield is based on the Company’s historical experience. The forfeiture assumption used to calculate compensation expense is primarily based on historical pre-vesting employee forfeiture patterns.

F-15.

The compensation for restricted stock awards and RSU is based on the fair market value of the Company’s share of common stock on the date of grant.

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was approximately $55 million, $29 million and $31 million, respectively.

As of December 31, 2017, the total unrecognized compensation cost related to stock awards is $69 million and the weighted average period over which that cost is expected to be recognized is 1.9 years.

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

		For the years ended December 31,
		2017				2016			2015
Stock compensation expense		$	50,908			45,217			43,415
Recognized tax benefit		$	7,029			8,178			6,010

Approximately $4 million of stock compensation expense was recognized in 2017 for RSU grants meeting retirement eligibility criteria. Shares issued as a result of stock option exercises, restricted stock awards, vested restricted stock units, vested performance stock units and employee stock plan purchases are issued as new shares outstanding by the Company.

F-16.

NOTE 4.	BASIC AND DILUTED EARNINGS PER SHARE

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

		Net earnings attributable to shareholders				Weighted average shares			Earnings per share
2017
Basic earnings attributable to shareholders		$	489,345			179,247			$	2.73
Effect of dilutive potential common shares		—				2,419			—
Diluted earnings attributable to shareholders		$	489,345			181,666			$	2.69
2016
Basic earnings attributable to shareholders		$	430,807			181,282			$	2.38
Effect of dilutive potential common shares		—				1,422			—
Diluted earnings attributable to shareholders		$	430,807			182,704			$	2.36
2015
Basic earnings attributable to shareholders		$	457,223			188,941			$	2.42
Effect of dilutive potential common shares		—				1,282			—
Diluted earnings attributable to shareholders		$	457,223			190,223			$	2.40

The following potential common shares have been excluded from the computation of diluted earnings per share because the effect would have been antidilutive:

Years ended December 31,		2017			2016			2015
Shares		19			9,211			8,330

NOTE 5.	INCOME TAXES

On December 22, 2017, the United States enacted the 2017 Tax Act. The 2017 Tax Act, which is also commonly referred to as “U.S. tax reform”, significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate from 35% to 21% starting in 2018 and creates a territorial tax system with a one-time mandatory tax on the undistributed foreign earnings of the Company's non-U.S. subsidiaries. As a result, the Company recorded a net income tax benefit of $13.9 million during the fourth quarter of 2017. This amount, which reduced income tax expense in the consolidated statements of earnings, consists of three components:

i.$116.2 million of deferred income tax benefit resulting from completion of the remeasurement of net deferred tax liabilities based on the new lower U.S. income tax rate,

ii.$70.2 million provisional estimate of deferred income tax expense for the reversal of net deferred tax asset provided for its foreign income tax credits in excess of unremitted foreign earnings (after adjustment of the unremitted foreign earnings liability to reflect the lower U.S. tax rate) to transition to the territorial tax system, and

iii.$32.1 million of current income tax expense relating to the provisional estimate of the one-time mandatory tax on undistributed earnings of non-U.S. subsidiaries.

In addition, as a result of the transition to a territorial tax system in the U.S., the effective tax rate for the year ended December 31, 2017 included a $25.4 million income tax benefit as foreign tax rates are lower than the 2017 U.S. corporate income tax rate of 35%. Although the $13.9 million and $25.4 million net income tax benefits represent what the Company believes are reasonable estimates of the impact of the 2017 Tax Act on the Company's consolidated financial statements as of December 31, 2017, they should be considered provisional.

Given the significance of the legislation, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allows registrants to record provisional amounts during a one year “measurement period”. However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared and analyzed the information necessary to finalize its accounting. During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared or analyzed.

F-17.

SAB 118 summarizes a three-step process to be applied at each reporting period to account for and qualitatively disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional amounts) for the effects of the tax law where accounting is not complete, but that a reasonable estimate has been determined; and (3) a reasonable estimate cannot yet be made and therefore taxes are reflected in accordance with law prior to the enactment of the 2017 Tax Act.

Provisional amounts include any changes as a result of future guidance and interpretations to be issued and also includes any indirect impacts required to be recorded, including for example amounts recorded for state income taxes. The Company will finalize its tax positions and calculations when it files its 2017 U.S. tax returns. At that time, the Company will be able to conclude finally whether any further adjustments are required to its net current and deferred tax accounts in the U.S. as of December 31, 2017, as well as to the provisional liability associated with the one-time mandatory tax. Any adjustments to these provisional amounts will be reported as a component of income tax expense in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

Significant provisions that are not yet effective but may impact income taxes in future years include an incremental tax (base erosion anti-abuse tax or BEAT) on excessive amounts paid to foreign related parties, and a minimum tax on certain foreign earnings in excess of 10 percent of the foreign subsidiaries tangible assets (i.e., global intangible low-taxed income or GILTI). The Company is still evaluating whether to make a policy election to treat the GILTI tax as a period expense or to provide U.S. deferred taxes on foreign temporary differences that are expected to generate GILTI income when they reverse in future years.

Income tax expense (benefit) includes the following components:

		Federal				State			Foreign			Total
2017
Current		$	101,821			20,490			149,596			271,907
Deferred		(42,474		)		(1,221	)		—			(43,695	)
		$	59,347			19,269			149,596			228,212
2016
Current		$	85,330			16,082			137,076			238,488
Deferred		16,903				(1,068	)		—			15,835
		$	102,233			15,014			137,076			254,323
2015
Current		$	95,046			16,973			147,174			259,193
Deferred		17,631				368			—			17,999
		$	112,677			17,341			147,174			277,192

Income tax expense differs from amounts computed by applying the United States Federal income tax rate of 35% to earnings before income taxes as a result of the following:

		2017				2016			2015
Computed “expected” tax expense		$	251,508			240,400			257,841
Increase in income taxes resulting from:
State income taxes, net of Federal income tax benefit		12,525				9,759			11,272
Nondeductible stock compensation expense, net		63				3,629			5,241
Enactment of 2017 Tax Act		(13,894		)		—			—
Effect of lower foreign tax rates		(25,374		)		—			—
Other, net		3,384				535			2,838
		$	228,212			254,323			277,192

The components of earnings before income taxes are as follows:

		2017				2016			2015
United States		$	276,714			243,754			236,932
Foreign		441,881				443,102			499,757
		$	718,595			686,856			736,689

F-18.

The tax effects of temporary differences and tax credits that give rise to significant portions of deferred tax assets and deferred tax liabilities are as follows:

Years ended December 31,		2017				2016
Deferred Tax Assets:
Accrued third party obligations, deductible for taxes upon economic performance		$	8,075			15,153
Provision for doubtful accounts receivable		628				497
Excess of financial statement over tax depreciation		4,804				10,650
Deductible stock compensation expense, net		17,326				21,758
Foreign currency translation adjustment		24,448				57,207
Retained liability for cargo claims		1,062				1,178
Total gross deferred tax assets		56,343				106,443
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits		43,136				120,170
Total gross deferred tax liabilities		43,136				120,170
Net deferred tax assets (liabilities)		$	13,207			(13,727	)

Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of December 31, 2017 and 2016.

The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years prior to 2014. With respect to state and local jurisdictions and countries outside of the United States, with limited exceptions, the Company and its subsidiaries are no longer subject to income tax audits for years prior to 2001. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The outcome of a tax audit is always uncertain. Although the Company records estimates for additional tax expense, as well as interest and penalties that could arise from certain tax audits, the final resolution of these audits could differ materially from the estimates recorded by the Company. Any interest and penalties expensed in relation to the underpayment of income taxes were insignificant for the years ended December 31, 2017, 2016 and 2015.

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. Cash and cash equivalents consist of the following:

		December 31, 2017							December 31, 2016
		Cost				Fair Value			Cost			Fair Value
Cash and cash equivalents:
Cash and overnight deposits		$	383,021			383,021			406,787			406,787
Corporate commercial paper		635,345				635,919			507,777			507,889
Time deposits		32,733				32,733			59,871			59,871
Total cash and cash equivalents		1,051,099				1,051,673			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.	CREDIT ARRANGEMENTS

Certain of the Company’s foreign subsidiaries maintain bank lines of credit for short-term working capital purposes. A few of these credit lines are supported by standby letters of credit issued by a United States bank, or guarantees issued by the Company to the foreign banks issuing the credit line. At December 31, 2017, the Company was contingently liable for approximately $75,311 under outstanding standby letters of credit and guarantees. At December 31, 2017, the Company was in compliance with all restrictive covenants of these credit lines and the associated credit facilities.

F-19.

The standby letters of credit and guarantees relate to obligations of the Company’s 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 excise taxes are properly recorded as obligations in the books of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company were to be required to perform.

NOTE 8.	COMMITMENTS

A. | Leases

The Company occupies office and warehouse facilities under terms of operating leases expiring up to 2028. The Company also has two long-term operating lease arrangements to use land, for which the usage rights were entirely prepaid. Usage rights for those arrangements are recognized in rent expense over the lease terms up to 2057. Total rent expense for all operating leases in 2017, 2016 and 2015 was $68,920, $62,294 and $58,133, respectively.

At December 31, 2017, future minimum annual lease payments under all noncancelable leases are as follows:

2018	$	72,148
2019	57,776
2020	45,466
2021	30,925
2022	19,024
Thereafter	34,556
	$	259,895

B. | Unconditional Purchase Obligations

The Company 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 December 31, 2017 totaled $56,116.

C. | Employee Benefits

The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2017, the Company increased its 401(k) matching contribution. In 2017, 2016 and 2015, the Company’s contributions under the plans were $18,210, $9,681, and $8,658, respectively.

NOTE 9.	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 December 31, 2017, 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.

F-20.

NOTE 10.	BUSINESS SEGMENT INFORMATION

Financial information regarding 2017, 2016 and 2015 operations by the Company’s designated geographic areas is as follows:

	United States				Other North America
2017
Revenues from unaffiliated customers	$	1,851,395			256,359
Transfers between geographic areas	111,163				11,827
Total revenues	$	1,962,558			268,186
Net revenues1	$	1,008,841			119,071
Operating income	$	277,821			38,131
Identifiable assets at year end	$	1,595,140			151,181
Capital expenditures	$	28,212			1,563
Depreciation and amortization	$	32,017			1,546
Equity	$	1,337,568			60,705
2016
Revenues from unaffiliated customers	$	1,683,006			226,561
Transfers between geographic areas	106,076				10,778
Total revenues	$	1,789,082			237,339
Net revenues1	$	918,110			119,492
Operating income	$	250,715			32,530
Identifiable assets at year end	$	1,455,722			104,804
Capital expenditures	$	39,531			1,727
Depreciation and amortization	$	29,939			1,479
Equity	$	1,166,582			46,448
2015
Revenues from unaffiliated customers	$	1,763,361			226,284
Transfers between geographic areas	118,884				13,383
Total revenues	$	1,882,245			239,667
Net revenues1	$	906,780			124,381
Operating income	$	245,257			46,846
Identifiable assets at year end	$	1,185,671			111,549
Capital expenditures	$	26,807			3,915
Depreciation and amortization	$	29,532			1,331
Equity	$	986,330			70,932

F-21.

		Latin America			North Asia			South Asia			Europe			Middle East, Africa and India			Elimi- nations			Consoli- dated
2017
Revenues from unaffiliated customers		97,096			2,576,971			661,878			1,072,028			405,221			—			6,920,948
Transfers between geographic areas		14,766			21,405			22,999			43,296			20,848			(246,304	)		—
Total revenues		111,862			2,598,376			684,877			1,115,324			426,069			(246,304	)		6,920,948
Net revenues1		58,199			509,235			163,450			335,702			121,267			3,424			2,319,189
Operating income		9,964			248,422			53,057			48,491			24,365			9			700,260
Identifiable assets at year end		55,431			458,152			137,279			501,711			215,495			2,619			3,117,008
Capital expenditures		4,612			3,756			1,688			53,954			1,231			—			95,016
Depreciation and amortization		1,277			5,326			2,215			5,068			1,861			—			49,310
Equity		26,546			240,721			94,516			142,971			123,600			(32,254	)		1,994,373
2016
Revenues from unaffiliated customers		84,665			2,242,670			603,980			918,561			338,594			—			6,098,037
Transfers between geographic areas		15,037			21,212			24,251			41,102			21,876			(240,332	)		—
Total revenues		99,702			2,263,882			628,231			959,663			360,470			(240,332	)		6,098,037
Net revenues1		56,066			471,275			171,033			304,429			123,335			296			2,164,036
Operating income		13,321			230,777			64,967			42,195			35,672			(14	)		670,163
Identifiable assets at year end		49,231			511,851			120,300			351,960			190,902			6,101			2,790,871
Capital expenditures		1,038			3,889			3,038			7,554			2,539			—			59,316
Depreciation and amortization		1,187			5,455			2,177			4,576			1,983			—			46,796
Equity		27,164			327,672			91,983			108,430			112,633			(33,699	)		1,847,213
2015
Revenues from unaffiliated customers		94,229			2,557,398			677,628			958,827			338,905			—			6,616,632
Transfers between geographic areas		19,158			21,722			25,018			42,787			21,322			(262,274	)		—
Total revenues		113,387			2,579,120			702,646			1,001,614			360,227			(262,274	)		6,616,632
Net revenues1		65,017			493,235			179,110			308,301			110,953			—			2,187,777
Operating income		19,656			245,854			69,643			65,024			29,204			—			721,484
Identifiable assets at year end		48,678			446,914			127,014			421,590			221,835			2,326			2,565,577
Capital expenditures		1,756			2,203			2,383			5,222			2,097			—			44,383
Depreciation and amortization		1,041			5,425			2,110			4,931			1,642			—			46,012
Equity		33,161			253,097			99,220			154,174			130,105			(32,343	)		1,694,676

---

1Net revenues are a non-GAAP measure calculated as revenues less directly related operating expenses attributable to the Company's principal services. The Company's management believes that net revenues are a better measure than total revenues when evaluating the Company's operating segment performance since total revenues earned as a freight consolidator include the carriers' charges for carrying the shipment, whereas revenues earned in other capacities include primarily the commissions and fees earned by the Company. Net revenue is one 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.

F-22.

The following table presents the calculation of net revenues:

Years ended December 31,		2017				2016			2015
Revenues:
Total revenues		$	6,920,948			6,098,037			6,616,632
Expenses:
Airfreight services		2,126,761				1,752,167			1,987,690
Ocean freight and ocean services		1,543,740				1,378,699			1,648,993
Customs brokerage and other services		931,258				803,135			792,172
Net revenues		$	2,319,189			2,164,036			2,187,777

Other than the United States, only the People’s Republic of China, including Hong Kong, represented more than 10% of the Company’s total revenue, net revenue, total identifiable assets or equity in any period presented as noted in the table below.

		2017			2016			2015
Total revenues		31	%		31	%		32	%
Net revenues		18	%		18	%		19	%
Identifiable assets at year end		11	%		15	%		13	%
Equity		8	%		13	%		10	%

NOTE 11.	QUARTERLY RESULTS (UNAUDITED)

		1st				2nd			3rd			4th
2017
Revenues		$	1,545,132			1,672,279			1,802,166			1,901,371
Net revenues		527,605				563,633			599,142			628,809
Net earnings		93,567				108,755			120,606			167,455
Net earnings attributable to shareholders		93,264				108,851			120,263			166,967
Diluted earnings attributable to shareholders per share		0.51				0.60			0.66			0.92
Basic earnings attributable to shareholders per share		0.52				0.60			0.67			0.94
2016
Revenues		$	1,418,472			1,475,164			1,562,394			1,642,007
Net revenues		517,069				553,117			545,259			548,591
Net earnings		97,047				116,439			107,949			111,098
Net earnings attributable to shareholders		96,584				116,052			107,581			110,590
Diluted earnings attributable to shareholders per share		0.53				0.63			0.59			0.61
Basic earnings attributable to shareholders per share		0.53				0.64			0.59			0.61

Net earnings in the fourth quarter of 2017 include a $39 million net income tax benefit that resulted from the effect of the 2017 Tax Act as described in Note 5. This amount is composed of the remeasurement of net deferred tax liabilities and assets based on the new lower U.S. corporate tax rate, the recording of a provisional estimate of the one-time mandatory tax on the undistributed earnings of the Company's non-U.S. subsidiaries and the provisional effects of the transition to a territorial tax system in the U.S. Net earnings in the fourth quarter of 2016 include a $6 million foreign exchange gain recorded in customs brokerage and other services expenses that resulted from the devaluation of Egyptian pound. The sum of quarterly per share data may not equal the per share total reported for the year.

F-23.

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

ANNUAL REPORT

ON

FORM 10-K

FOR FISCAL YEAR ENDED

December 31, 2017

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

EXHIBITS

Exhibit Number		Description
3.1		Expeditors' Restated Articles of Incorporation and the Articles of Amendment thereto
21.1		Subsidiaries of the Registrant
23.1		Consent of Independent Registered Public Accounting Firm
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		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document