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 22, 2019

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 22, 2019.

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/ 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, 2018, 2017, AND 2016

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, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2018, 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, 2018, 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 22, 2019 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 22, 2019

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, 2018, 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, 2018, 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, 2018 and 2017, 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, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated February 22, 2019 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 22, 2019

F-2

Consolidated Balance Sheets

In thousands, except per share data

December 31,	2018				2017
Current Assets:
Cash and cash equivalents	$	923,735			1,051,099
Accounts receivable, less allowance for doubtful accounts of $15,345 in 2018 and $12,858 in 2017	1,581,530				1,414,741
Deferred contract costs	159,510				—
Other	70,041				75,612
Total current assets	2,734,816				2,541,452
Property and equipment, net	504,105				525,203
Goodwill	7,927				7,927
Deferred Federal and state income taxes, net	40,465				13,207
Other assets, net	27,246				29,219
Total assets	$	3,314,559			3,117,008
Current Liabilities:
Accounts payable	$	902,259			866,305
Accrued expenses, primarily salaries and related costs	215,813				206,320
Contract liabilities	190,343				—
Federal, state and foreign income taxes	18,424				20,494
Total current liabilities	1,326,839				1,093,119
Noncurrent Federal income tax payable	—				29,516
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 171,582 shares at December 31, 2018
and 176,374 shares at December 31, 2017	1,716				1,764
Additional paid-in capital	1,896				546
Retained earnings	2,088,707				2,063,512
Accumulated other comprehensive loss	(105,481		)		(73,964	)
Total shareholders’ equity	1,986,838				1,991,858
Noncontrolling interest	882				2,515
Total equity	1,987,720				1,994,373
Total liabilities and equity	$	3,314,559			3,117,008

See accompanying notes to consolidated financial statements.

F-3.

Consolidated Statements of Earnings

In thousands, except per share data

Years ended December 31,		2018				2017			2016
Revenues:
Airfreight services		$	3,271,932			2,877,032			2,453,347
Ocean freight and ocean services		2,251,754				2,107,045			1,917,494
Customs brokerage and other services		2,614,679				1,936,871			1,727,196
Total revenues		8,138,365				6,920,948			6,098,037
Operating Expenses:
Airfreight services		2,410,793				2,126,761			1,752,167
Ocean freight and ocean services		1,664,168				1,543,740			1,378,699
Customs brokerage and other services		1,443,031				931,258			803,135
Salaries and related costs		1,393,259				1,267,120			1,157,635
Rent and occupancy costs		152,813				119,732			108,812
Depreciation and amortization		54,019				49,310			46,796
Selling and promotion		45,346				44,290			41,763
Other		178,373				138,477			138,867
Total operating expenses		7,341,802				6,220,688			5,427,874
Operating income		796,563				700,260			670,163
Other Income (Expense):
Interest income		19,153				13,204			11,580
Other, net		2,613				5,131			5,113
Other income, net		21,766				18,335			16,693
Earnings before income taxes		818,329				718,595			686,856
Income tax expense		198,539				228,212			254,323
Net earnings		619,790				490,383			432,533
Less net earnings attributable to the noncontrolling interest		1,591				1,038			1,726
Net earnings attributable to shareholders		$	618,199			489,345			430,807
Diluted earnings attributable to shareholders per share		$	3.48			2.69			2.36
Basic earnings attributable to shareholders per share		$	3.55			2.73			2.38
Weighted average diluted shares outstanding		177,833				181,666			182,704
Weighted average basic shares outstanding		174,133				179,247			181,282

See accompanying notes to consolidated financial statements.

F-4.

Consolidated Statements of Comprehensive Income

In thousands

Years ended December 31,		2018				2017			2016
Net earnings		$	619,790			490,383			432,533
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax of $13,364 in 2018, $16,761 in 2017 and $12,867 in 2016		(32,390		)		30,434			(23,743	)
Other comprehensive (loss) income		(32,390		)		30,434			(23,743	)
Comprehensive income		587,400				520,817			408,790
Less comprehensive income attributable to the noncontrolling interest		718				844			1,337
Comprehensive income attributable to shareholders		$	586,682			519,973			407,453

See accompanying notes to consolidated financial statements.

F-5.

Consolidated Statements of Equity

In thousands, except per share data

Years ended December 31, 2018, 2017 and 2016

	Common Stock
	Shares			Par Value
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
Cumulative effect of accounting change	—			—
Exercise of stock options and release of restricted shares	3,589			36
Issuance of shares under stock purchase plan	666			6
Shares repurchased under provisions of stock repurchase plans	(9,047	)		(90		)
Stock compensation expense	—			—
Net earnings	—			—
Other comprehensive loss	—			—
Dividends paid ($0.90 per share)	—			—
Purchase of noncontrolling interest	—			—
Distributions of dividends to noncontrolling interest	—			—
Balance at December 31, 2018	171,582			$	1,716

F-6.

	Additional paid-in capital				Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity			Noncontrolling interest			Total equity
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
Cumulative effect of accounting change	—				(22,357	)		—			(22,357	)		(105	)		(22,462	)
Exercise of stock options and release of restricted shares	146,157				—			—			146,193			—			146,193
Issuance of shares under stock purchase plan	33,285				—			—			33,291			—			33,291
Shares repurchased under provisions of stock repurchase plans	(234,160		)		(413,648	)		—			(647,898	)		—			(647,898	)
Stock compensation expense	56,147				—			—			56,147			—			56,147
Net earnings	—				618,199			—			618,199			1,591			619,790
Other comprehensive loss	—				—			(31,517	)		(31,517	)		(873	)		(32,390	)
Dividends paid ($0.90 per share)	159				(156,999	)		—			(156,840	)		—			(156,840	)
Purchase of noncontrolling interest	(238		)		—			—			(238	)		(450	)		(688	)
Distributions of dividends to noncontrolling interest	—				—			—			—			(1,796	)		(1,796	)
Balance at December 31, 2018	$	1,896			2,088,707			(105,481	)		1,986,838			882			1,987,720

See accompanying notes to consolidated financial statements.

F-7.

Consolidated Statements of Cash Flows

In thousands

Years ended December 31,		2018				2017			2016
Operating Activities:
Net earnings		$	619,790			490,383			432,533
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for losses on accounts receivable		3,808				5,356			2,607
Deferred income tax (benefit) expense		(12,031		)		(43,695	)		15,835
Stock compensation expense		56,147				50,908			45,217
Depreciation and amortization		54,019				49,310			46,796
Other		647				(4,382	)		(3,540	)
Changes in operating assets and liabilities:
Increase in accounts receivable		(214,971		)		(184,771	)		(102,297	)
Increase in accounts payable and accrued expenses		86,036				114,631			102,716
Increase in deferred contract costs		(42,097		)		—			—
Increase in contract liabilities		43,928				—			—
(Decrease) increase in income taxes payable, net		(19,691		)		16,264			(12,370	)
(Increase) decrease in other current assets		(2,781		)		(5,365	)		1,988
Net cash from operating activities		572,804				488,639			529,485
Investing Activities:
Purchase of short-term investments		(27		)		(12	)		(54	)
Proceeds from maturities of short-term investments		59				12			17
Purchase of property and equipment		(47,474		)		(95,016	)		(59,316	)
Proceeds from sale of property and equipment		215				84,405			229
Other, net		(1,172		)		(1,074	)		5,928
Net cash from investing activities		(48,399		)		(11,685	)		(53,196	)
Financing Activities:
Proceeds from issuance of common stock		182,732				205,092			185,313
Repurchases of common stock		(647,898		)		(478,258	)		(337,658	)
Dividends paid		(156,840		)		(150,495	)		(145,123	)
Payments for taxes related to net share settlement of equity awards		(3,248		)		—			—
Purchase of noncontrolling interest		(688		)		—			—
Distributions to noncontrolling interest		(1,796		)		(904	)		(1,335	)
Net cash from financing activities		(627,738		)		(424,565	)		(298,803	)
Effect of exchange rate changes on cash and cash equivalents		(24,031		)		24,275			(10,847	)
(Decrease) increase in cash and cash equivalents		(127,364		)		76,664			166,639
Cash and cash equivalents at beginning of year		1,051,099				974,435			807,796
Cash and cash equivalents at end of year		$	923,735			1,051,099			974,435
Supplemental Cash Flow Information:
Cash paid for income taxes		$	239,255			249,704			254,312

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.

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 $15,345, $12,858 and $9,247 as of December 31, 2018, 2017 and 2016, 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, 2018 and 2017, the Company performed the required goodwill annual impairment test during the fourth quarter and determined that no impairment had occurred.

F-9.

E. | Revenues and Revenue Recognition

The Company provides global logistics services, including air and ocean freight consolidation and forwarding, customs brokerage, warehousing and distribution, purchase order management, vendor consolidation, time-definite transportation services, temperature-controlled transit, cargo insurance, specialized cargo monitoring and tracking and other logistics solutions. As a non-asset based carrier, the Company does not own transportation assets.

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 Consolidated Statements of Earnings: 1) airfreight services, 2) ocean freight and ocean services, and 3) customs brokerage and other services. 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 the Company's three primary sources of revenue.

The major portion of the Company's air and ocean freight revenues are generated by purchasing transportation services on a wholesale basis from direct (asset-based) carriers and then reselling those services to customers on a retail basis. The difference between the rate the Company bills its customers (the sell rate) and rate the Company pays the carrier (the buy rate) is termed "net revenue" (a non-GAAP measure), "yield" or "margin."

Effective January 1, 2018, revenue is recognized upon transfer of control of promised services to customers, which occurs over time. The Company has determined that in general each shipment transaction or service order constitutes a separate contract with the customer. However, when the Company provides multiple services to a customer, different contracts may be present for different services. The Company combines the contracts, which form a single performance obligation, and accounts for the contracts as a single contract when certain criteria are met.

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.

This method of measurement of progress depicts the pattern of the Company's actual performance under the contracts with the customer. There are no significant judgments involved in measuring the progress of the performance obligations. Amounts allocated to the services for each performance obligation are typically based on standalone selling prices. The Company does not have significant variable consideration in its contracts. Taxes assessed concurrently with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.

Typically, the transaction price for each of the Company's 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 transaction price is allocated to each service on a relative selling price basis.

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 generally has an unconditional right to consideration when the services are initiated or soon thereafter. The amount due from the customer is recorded as accounts receivable. The amounts related to services that are not yet completed at the reporting date are presented as contract liabilities, with corresponding direct costs to fulfill the performance obligation that will be satisfied in the future presented as deferred contract costs. The Company generally does not incur incremental costs to obtain the contract with the customer. The Company may incur costs to fulfill the contract with the customers, such as set-up costs. However, the amount incurred is insignificant to the Company’s consolidated financial statements.

The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise to provide the services, when it assumes risk of loss, when it has discretion in setting the prices for the services to the customers, and when the Company has the ability to direct the use of the services provided by the third party.

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. Accordingly, prior to the implementation

F-10.

of the requirements of U.S. tax reform under the Tax Cuts and Jobs Act (2017 Tax Act) in December of 2017, U.S. Federal and State income taxes were provided for all undistributed earnings net of related foreign tax credits. See Note 5 for impacts associated with U.S. tax reform under the 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 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.

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 (PSU) 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 PSU awards 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 customs brokerage and other services costs. Net foreign currency losses in 2018 and 2017 were $1,853 and $13,315, respectively, and net foreign currency gains in 2016 were $7,955.

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 2018, 2017, and 2016 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2018 and 2017.

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, 2018 and 2017.

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.

F-11.

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 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

Effective January 1, 2018, the Company adopted Topic 606 Revenue from Contracts with Customers (Topic 606). The adoption of Topic 606 did not materially impact the Company's revenue recognition policy. The Company adopted the standard using the modified retrospective transition method applied to those contracts not completed as of January 1, 2018, resulting in a $22 million adjustment to the opening balance of retained earnings and the recording of deferred contract costs and contract liabilities of $135 million and $165 million, respectively. The Company satisfied nearly all performance obligations for the contract liabilities recorded upon adoption at January 1, 2018, and recognized the corresponding revenues and costs during the first quarter. In conjunction with the adoption of Topic 606, the Company also changed its presentation of certain warehouse and distribution revenues from a net to a gross basis, which increased customs brokerage and other services revenues and operating expenses by approximately $225 million in 2018.

Comparative prior year information has not been adjusted and continues to be reported under the Company's historical revenue recognition policies.

The Company disaggregates its revenues by its three primary service categories in the consolidated financial statements: airfreight, ocean freight and ocean services and customs brokerage and other. Revenues by geographic location are presented within business segment information in Note 10.

Leases

In February 2016, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (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. Effective January 1, 2019, the Company will adopt the standard using a modified retrospective transition method and anticipates recording an initial right-of-use asset and lease liability of approximately $370 million, primarily related to the Company's operating leases for office and warehouse space. Upon adoption, the Company has elected to apply practical expedients, which allow the Company to carry forward its historical lease classification, determination of whether a contract contains a lease, not reassess the accounting treatment of initial direct costs and use hindsight in determining lease terms.

Additionally, the Company has implemented 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 provided the option to reclassify stranded tax effects resulting from the 2017 Tax Act within accumulated other comprehensive income (AOCI) to retained earnings. The Company elected to not reclassify stranded income tax effects from AOCI to retained earnings, including those related to implementation of the 2017 Tax Act. New disclosures may be required upon adoption on the effective date of the ASU on January 1, 2019,

Credit losses on financial instruments

In June 2016, the FASB issued an ASU, which amends existing guidance for the accounting of credit losses on financial instruments. Under the ASU, the Company will record a valuation allowance for credit losses that are expected to be incurred over the financial asset’s contractual term. This standard will be effective for the Company on January 1, 2020 and is not expected to have a material effect on the consolidated financial statements as the new credit loss model will primarily apply to the Company's accounts receivable, which are of short duration and for which the Company has not historically experienced significant credit losses. However, the Company is still evaluating the impact of the new prescribed model compared to its current methodology.

F-12.

NOTE 2.	PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

		2018				2017
Land		$	144,521			147,261
Buildings and leasehold improvements		473,663				416,597
Furniture, fixtures, equipment and purchased software		330,316				320,544
Construction in progress		2,582				61,083
Property and equipment, at cost		951,082				945,485
Less accumulated depreciation and amortization		446,977				420,282
Property and equipment, net		$	504,105			525,203

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 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, 2018 is authorized to repurchase shares down to 160,000 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 2018)		39,912			$	35.20
Discretionary Plan (2001 through 2018)		68,743			$	44.66

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 2018 and 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.

The following table summarizes information about RSU:

		Number of shares			Weighted average grant date fair value
Outstanding at December 31, 2017		581			$	54.11
RSU granted		466			$	69.58
RSU vested		(193	)		$	54.17
RSU forfeited		(20	)		$	60.78
Outstanding at December 31, 2018		834			$	62.51

In 2018 and 2017, the Company also awarded 18 and 23 PSU, respectively, under the 2017 Plan. The PSU include performance conditions to be finally measured based on the financial results in 2020 and 2019, respectively. 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

F-13.

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, 2018, assuming target levels are achieved for PSU, there are 1,431 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 in 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.

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, 2017		12,961			$	44.36
Options granted		—			$	—
Options exercised		(3,422	)		$	43.68
Options forfeited		(152	)		$	45.68
Options canceled		(34	)		$	43.36
Outstanding at December 31, 2018		9,353			$	44.60			5.13		$	219,719
Exercisable at December 31, 2018		6,570			$	43.89			4.55		$	158,995

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. 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 11,562 shares have been issued under the 2002 Plan since inception and $18,646 has been withheld from employees at December 31, 2018 in connection with the plan year ending July 31, 2019.

F-14.

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 May 20 of each year. There are 81 shares available for grant under this plan as of December 31, 2018, and no shares can be granted under this plan after June 1, 2019. 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, 2017 and 2018 vested at the time of grant and there were no unvested restricted shares as of December 31, 2018. In 2018, restricted shares totaling 25 were granted with a fair value per share of $72.19. Restricted shares entitle the grantees to all shareholder rights, including cash dividends and transfer rights once vested.

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,
		2018				2017				2016
Dividend yield		1.30		%		1.50		%		1.70		%
Volatility – stock option plans		—				—				24 - 25%
Volatility – stock purchase rights plans		22		%		14		%		20		%
Risk-free interest rates		1.30		%		1.22		%		0.51 - 1.42%
Expected life (years) – stock option plans		—				—				5.5 - 6.5
Expected life (years) – stock purchase rights plans		1				1				1
Weighted average fair value of stock options granted during the period		$	—			$	—			$	9.57
Weighted average fair value of stock purchase rights granted during the period		$	17.49			$	11.69			$	10.99

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.

The compensation expense for RSU and PSU is based on the fair market value of the Company’s share of common stock on the date of grant. RSU and PSU awarded in 2018 and 2017 were granted at a weighted-average grant date fair value of $69.58 and $54.11, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was approximately $92 million, $55 million and $29 million, respectively.

As of December 31, 2018, the total unrecognized compensation cost related to stock awards is $56 million and the weighted average period over which that cost is expected to be recognized is 1.6 years.

Shares issued as a result of stock option exercises, restricted stock awards, vested RSU, vested PSU and employee stock plan purchases are issued as new shares outstanding by the Company.

F-15.

NOTE 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 RSU. 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.

		Net earnings attributable to shareholders				Weighted average shares			Earnings per share
2018
Basic earnings attributable to shareholders		$	618,199			174,133			$	3.55
Effect of dilutive potential common shares		—				3,700			—
Diluted earnings attributable to shareholders		$	618,199			177,833			$	3.48
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

Substantially all outstanding potential common shares shares in 2018 and 2017 were dilutive. In 2016, 9.2 million of potential common shares were excluded from the computation of diluted earnings per share because the effect would have been antidilutive.

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, consisted of three components:

i.$116.2 million of deferred income tax benefit resulting from 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 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 (Transition Tax) on undistributed earnings of the Company's 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 were lower than the 2017 U.S. corporate income tax rate of 35%.

Given the significance of the legislation, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (SAB 118), which allowed registrants to record provisional amounts of income tax during a one-year “measurement period.” Provisional amounts included any changes as a result of further guidance and interpretations issued in the future and also included any indirect impacts required to be recorded, including for example amounts recorded for state income taxes.

F-16.

December 2018 marked the end of the provisional measurement period for purposes of SAB 118. As such, the Company has completed the analysis based on current legislative updates relating to the 2017 Tax Act, which resulted in an increase of $1 million to the Transition Tax obligation initially recorded in 2017. In 2018 the Company reclassified its provisional liability from a long-term liability to a current obligation, offsetting its prepaid income tax balance, as a result of guidance issued by the IRS. The Company also decreased its provisional foreign tax credits on repatriated earnings initially recorded at December 31, 2017, by $3.6 million during 2018 based on additional guidance and clarifications issued.

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 discrete adjustments to the income tax provision when incurred.

Income tax expense (benefit) includes the following components:

		Federal				State			Foreign			Total
2018
Current		$	45,996			13,262			151,312			210,570
Deferred		(9,759		)		(2,272	)		—			(12,031	)
		$	36,237			10,990			151,312			198,539
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

Income tax expense differs from amounts computed by applying the United States Federal income tax rate of 21% in 2018 and 35% in 2017 and 2016 when compared to earnings before income taxes as a result of the following:

		2018				2017			2016
Computed “expected” tax expense		$	171,849			251,508			240,400
Increase (decrease) in income taxes resulting from:
Effect of foreign taxes		19,008				(25,374	)		—
State income taxes, net of Federal income tax benefit		8,682				12,525			9,759
Nondeductible executive compensation		3,126				—			—
Stock compensation expense, net		(3,860		)		63			3,629
Enactment of 2017 Tax Act		—				(13,894	)		—
Other, net		(266		)		3,384			535
		$	198,539			228,212			254,323

F-17.

In addition to the lower US federal tax rate that resulted from the 2017 Tax Act, the Company's effective tax rate in 2018 benefited from significant share-based compensation deductions, US Federal tax credits totaling $20.3 million, principally as a result of withholding taxes related to the Company's foreign operations, and US income tax deductions for Foreign-derived intangible income (FDII) of $4.8 million. These amounts were partially offset by the effect of higher foreign tax rates of the Company's international subsidiaries, when compared to the US Federal income tax rate of 21%, as well as certain expenses that are no longer deductible under the 2017 Tax Act, including certain executive compensation in excess of amounts allowed.

The components of earnings before income taxes are as follows:

		2018				2017			2016
United States		$	313,178			276,714			243,754
Foreign		505,151				441,881			443,102
		$	818,329			718,595			686,856

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,		2018				2017
Deferred Tax Assets:
Accrued third party obligations, deductible for taxes upon economic performance		$	7,726			8,075
Provision for doubtful accounts receivable		1,443				628
Excess of financial statement over tax depreciation		5,134				4,804
Deductible stock compensation expense, net		19,011				17,326
Foreign currency translation adjustments		37,299				24,448
Retained liability for cargo claims		1,025				1,062
Total gross deferred tax assets		71,638				56,343
Deferred Tax Liabilities:
Unremitted foreign earnings, net of related foreign tax credits		31,173				43,136
Total gross deferred tax liabilities		31,173				43,136
Net deferred tax assets		$	40,465			13,207

Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of December 31, 2018 and 2017.

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 2015. 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, 2018, 2017 and 2016.

F-18.

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, 2018							December 31, 2017
		Cost				Fair Value			Cost			Fair Value
Cash and cash equivalents:
Cash and overnight deposits		$	427,307			427,307			383,021			383,021
Corporate commercial paper		467,300				467,760			635,345			635,919
Time deposits		29,128				29,128			32,733			32,733
Total cash and cash equivalents		923,735				924,195			1,051,099			1,051,673

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).

F-19.

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, 2018, the Company was contingently liable for approximately $67,579 under outstanding standby letters of credit and guarantees. At December 31, 2018, the Company was in compliance with all restrictive covenants of these credit lines and the associated credit facilities.

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 2032. 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 2018, 2017 and 2016 was $89,377, $68,920 and $62,294, respectively.

At December 31, 2018, future minimum annual lease payments under all noncancelable leases are as follows:

2019	$	75,227
2020	62,974
2021	47,552
2022	38,352
2023	26,580
Thereafter	67,140
	$	317,825

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, 2018 totaled $49,912. In the regular course of business, the Company also enters into agreements with service providers to maintain or operate equipment, facilities or software that can be longer than one year. We also regularly have contractual obligations for specific projects related to improvements of our owned or leased facilities and information technology infrastructure.

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 2018, 2017 and 2016, the Company’s contributions under the plans were $19,600, $18,210, and $9,681, 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, 2018, 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 2018, 2017 and 2016 operations by the Company’s designated geographic areas is as follows:

	United States				Other North America
2018
Revenues from unaffiliated customers	$	2,336,681			340,122
Transfers between geographic areas	143,131				15,680
Total revenues	$	2,479,812			355,802
Net revenues1	$	1,126,888			139,049
Operating income	$	310,071			44,099
Identifiable assets at year end	$	1,689,950			161,604
Capital expenditures	$	21,732			4,259
Depreciation and amortization	$	33,511			1,847
Equity	$	1,339,673			72,941
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

F-21.

		Latin America			North Asia			South Asia			Europe			Middle East, Africa and India			Elimi- nations			Consoli- dated
2018
Revenues from unaffiliated customers		141,196			2,860,876			748,858			1,268,757			441,875			—			8,138,365
Transfers between geographic areas		15,658			25,446			29,005			61,608			22,196			(312,724	)		—
Total revenues		156,854			2,886,322			777,863			1,330,365			464,071			(312,724	)		8,138,365
Net revenues1		62,813			570,496			185,938			403,416			133,862			(2,089	)		2,620,373
Operating income		8,843			281,481			60,882			65,446			25,731			10			796,563
Identifiable assets at year end		53,542			533,071			152,646			513,744			206,367			3,635			3,314,559
Capital expenditures		1,042			3,057			2,182			10,815			4,387			—			47,474
Depreciation and amortization		1,508			5,309			2,257			7,727			1,860			—			54,019
Equity		26,007			200,371			100,706			157,003			123,228			(32,209	)		1,987,720
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

---

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,		2018				2017			2016
Revenues:
Total revenues		$	8,138,365			6,920,948			6,098,037
Expenses:
Airfreight services		2,410,793				2,126,761			1,752,167
Ocean freight and ocean services		1,664,168				1,543,740			1,378,699
Customs brokerage and other services		1,443,031				931,258			803,135
Net revenues		$	2,620,373			2,319,189			2,164,036

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.

		2018			2017			2016
Total revenues		29	%		31	%		31	%
Net revenues		18	%		18	%		18	%
Identifiable assets at year end		14	%		11	%		15	%
Equity		8	%		8	%		13	%

NOTE 11.	QUARTERLY RESULTS (UNAUDITED)

		1st				2nd			3rd			4th
2018
Revenues		$	1,854,262			1,957,559			2,090,947			2,235,597
Net revenues		635,838				642,546			661,314			680,675
Net earnings		136,200				140,946			163,067			179,577
Net earnings attributable to shareholders		135,692				140,605			162,692			179,210
Diluted earnings attributable to shareholders per share		0.76				0.79			0.92			1.02
Basic earnings attributable to shareholders per share		0.77				0.80			0.94			1.04
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

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. 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, 2018

EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.

EXHIBITS

Exhibit Number		Description
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