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 19, 2021

	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 16, 2021.

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/ Robert P. Carlile		Director
(Robert P. Carlile)
/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/ Liane J. Pelletier		Director
(Liane J. Pelletier)

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, 2020, 2019, AND 2018

Report of Independent Registered Public Accounting Firm

To the Shareholders 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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, 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, 2020, 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 19, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 1E and 4 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification Topic 842.

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of gross unrecognized tax benefits

As discussed in Note 7 to the consolidated financial statements, the Company is subject to examination by taxing authorities throughout the world in the normal course of business. The Company estimates additional tax expense, as well as interest and penalties that could arise from certain tax audits.

We identified the assessment of gross unrecognized tax benefits as a critical audit matter. Complex auditor judgment was required in evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of tax positions.

F-1.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s unrecognized tax benefit process. This included controls related to the interpretation of tax law and its application in the liability estimation process. Since tax law is complex and often subject to interpretations, we involved tax professionals with specialized skills and knowledge, who assisted in:

	•	evaluating the Company’s interpretation of tax laws,

	•	assessing transfer pricing positions for compliance with applicable laws and regulations,

	•	inspecting settlement documents with applicable taxing authorities and appeals documents with applicable tax courts,

	•	assessing the expiration of statutes of limitations,

	•	comparing historical gross unrecognized tax benefits to actual results upon conclusion of tax audits or expiration of the statute of limitations, and

	•	performing an independent assessment of the Company’s tax positions and comparing the results to the Company’s assessment.

In addition, we assessed the responses received directly from the Company’s external legal counsel regarding tax positions for which they had been engaged.

/s/ KPMG LLP
We have served as the Company's auditor since 1982.
Seattle, Washington
February 19, 2021

F-2.

Report of Independent Registered Public Accounting Firm

To the Shareholders 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, 2020, 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, 2020, 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, 2020 and 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 19, 2021 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 19, 2021

F-3.

Consolidated Balance Sheets

In thousands, except per share data

December 31,		2020				2019
Assets:
Current Assets:
Cash and cash equivalents		$	1,527,791			$	1,230,491
Accounts receivable, net			1,998,055				1,315,091
Deferred contract costs			327,448				131,783
Other			110,250				92,558
Total current assets			3,963,544				2,769,923
Property and equipment, net			506,425				499,344
Operating lease right-of-use assets			432,723				390,035
Goodwill			7,927				7,927
Deferred federal and state income taxes, net			—				8,034
Other assets, net			16,884				16,621
Total assets		$	4,927,503			$	3,691,884
Liabilities:
Current Liabilities:
Accounts payable		$	1,136,859			$	735,695
Accrued expenses, primarily salaries and related costs			257,021				189,446
Contract liabilities			379,722				154,183
Current portion of operating lease liabilities			74,004				65,367
Federal, state and foreign income taxes			45,437				23,627
Total current liabilities			1,893,043				1,168,318
Noncurrent portion of operating lease liabilities			364,185				326,347
Deferred federal and state income taxes, net			7,048				—
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. Issued and outstanding:169,294 shares at December 31, 2020 and 169,622 shares at December 31, 2019			1,693				1,696
Additional paid-in capital			157,496				3,203
Retained earnings			2,600,201				2,321,316
Accumulated other comprehensive loss			(99,753	)			(131,187	)
Total shareholders’ equity			2,659,637				2,195,028
Noncontrolling interest			3,590				2,191
Total equity			2,663,227				2,197,219
Total liabilities and equity		$	4,927,503			$	3,691,884

See accompanying notes to consolidated financial statements.

F-4.

Consolidated Statements of Earnings

In thousands, except per share data

Years ended December 31,		2020				2019				2018
Revenues:
Airfreight services		$	4,784,402			$	2,929,882			$	3,271,932
Ocean freight and ocean services			2,353,247				2,217,554				2,251,754
Customs brokerage and other services			2,978,832				3,027,990				2,614,679
Total revenues			10,116,481				8,175,426				8,138,365
Operating Expenses:
Airfreight services			3,679,185				2,143,999				2,410,793
Ocean freight and ocean services			1,762,754				1,613,646				1,664,168
Customs brokerage and other services			1,746,851				1,781,313				1,443,031
Salaries and related costs			1,538,104				1,422,315				1,393,259
Rent and occupancy costs			169,863				166,182				152,813
Depreciation and amortization			56,959				50,950				54,019
Selling and promotion			18,436				44,002				45,346
Other			203,892				186,327				178,373
Total operating expenses			9,176,044				7,408,734				7,341,802
Operating income			940,437				766,692				796,563
Other Income (Expense):
Interest income			10,415				22,803				19,153
Other, net			5,712				6,299				2,613
Other income, net			16,127				29,102				21,766
Earnings before income taxes			956,564				795,794				818,329
Income tax expense			258,350				203,778				198,539
Net earnings			698,214				592,016				619,790
Less net earnings attributable to the noncontrolling interest			2,074				1,621				1,591
Net earnings attributable to shareholders		$	696,140			$	590,395			$	618,199
Diluted earnings attributable to shareholders per share		$	4.07			$	3.39			$	3.48
Basic earnings attributable to shareholders per share		$	4.14			$	3.45			$	3.55
Weighted average diluted shares outstanding			170,896				174,209				177,833
Weighted average basic shares outstanding			168,333				170,899				174,133

See accompanying notes to consolidated financial statements.

F-5.

Consolidated Statements of Comprehensive Income

In thousands

Years ended December 31,		2020				2019				2018
Net earnings		$	698,214			$	592,016			$	619,790
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax expense (benefit) of $4,254 in 2020, $25,731 in 2019 and $(13,364) in 2018			30,759				(26,553	)			(32,390	)
Reclassification adjustment for foreign currency realized losses, net of tax of $145 in 2019			—				535				—
Other comprehensive income (loss)			30,759				(26,018	)			(32,390	)
Comprehensive income			728,973				565,998				587,400
Less comprehensive income attributable to the noncontrolling interest			1,399				1,309				718
Comprehensive income attributable to shareholders		$	727,574			$	564,689			$	586,682

See accompanying notes to consolidated financial statements.

F-6.

Consolidated Statements of Equity

In thousands, except per share data

Years ended December 31, 2020, 2019 and 2018

		Common Stock
		Shares				Par value				Additional paid-in capital				Retained earnings				Accumulated other comprehensive loss				Total shareholders’ equity				Noncontrolling interest				Total equity
Balance at December 31, 2017			176,374			$	1,764			$	546			$	2,063,512			$	(73,964	)		$	1,991,858			$	2,515			$	1,994,373
Cumulative adjustment for adoption of new accounting pronouncement			—				—				—				(22,357	)			—				(22,357	)			(105	)			(22,462	)
Shares issued under employee stock plans			4,255				42				179,442				—				—				179,484				—				179,484
Share repurchased under provisions of stock repurchase plan			(9,047	)			(90	)			(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)			—				—				159				(156,999	)			—				(156,840	)			—				(156,840	)
Purchase of noncontrolling interest			—				—				(238	)			—				—				(238	)			(450	)			(688	)
Distributions to noncontrolling interest			—				—				—				—				—				—				(1,796	)			(1,796	)
Balance at December 31, 2018			171,582			$	1,716			$	1,896			$	2,088,707			$	(105,481	)		$	1,986,838			$	882			$	1,987,720
Shares issued under employee stock plans			3,377				34				141,537				—				—				141,571				—				141,571
Share repurchased under provisions of stock repurchase plan			(5,337	)			(54	)			(202,176	)			(186,830	)			—				(389,060	)			—				(389,060	)
Stock compensation expense			—				—				61,543				—				—				61,543				—				61,543
Net earnings			—				—				—				590,395				—				590,395				1,621				592,016
Other comprehensive loss			—				—				—				—				(25,706	)			(25,706	)			(312	)			(26,018	)
Dividends paid ($1.00)			—				—				403				(170,956	)			—				(170,553	)			—				(170,553	)
Balance at December 31, 2019			169,622			$	1,696			$	3,203			$	2,321,316			$	(131,187	)		$	2,195,028			$	2,191			$	2,197,219
Cumulative adjustment for adoption of new accounting pronouncement			—				—				—				6,074				—				6,074				—				6,074
Shares issued under employee stock plans			4,272				43				175,736				—				—				175,779				—				175,779
Share repurchased under provisions of stock repurchase plan			(4,600	)			(46	)			(84,941	)			(247,400	)			—				(332,387	)			—				(332,387	)
Stock compensation expense			—				—				62,498				—				—				62,498				—				62,498
Net earnings			—				—				—				696,140				—				696,140				2,074				698,214
Other comprehensive income (loss)			—				—				—				—				31,434				31,434				(675	)			30,759
Dividends paid ($1.04)			—				—				1,000				(175,929	)			—				(174,929	)			—				(174,929	)
Balance at December 31, 2020			169,294				1,693				157,496				2,600,201				(99,753	)			2,659,637				3,590				2,663,227

See accompanying notes to consolidated financial statements.

F-7.

Consolidated Statements of Cash Flows

In thousands

Years ended December 31,		2020				2019				2018
Operating Activities:
Net earnings		$	698,214			$	592,016			$	619,790
Adjustments to reconcile net earnings to net cash from operating activities:
Provisions for losses (recoveries) on accounts receivable			5,584				(1	)			3,808
Deferred income tax expense (benefit)			8,371				4,482				(12,031	)
Stock compensation expense			62,498				61,543				56,147
Depreciation and amortization			56,959				50,950				54,019
Other, net			3,960				941				647
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable			(647,193	)			265,919				(214,971	)
Increase (decrease) in accounts payable and accrued expenses			430,495				(181,987	)			86,036
(Increase) decrease in deferred contract costs			(189,447	)			28,811				(42,097	)
Increase (decrease) in contract liabilities			217,699				(37,097	)			43,928
Increase (decrease) in income taxes payable, net			8,502				(18,472	)			(19,691	)
(Increase) decrease in other, net			(630	)			4,830				(2,781	)
Net cash from operating activities			655,012				771,935				572,804
Investing Activities:
Purchase of property and equipment			(47,543	)			(47,022	)			(47,474	)
Other, net			1,516				1,007				(925	)
Net cash from investing activities			(46,027	)			(46,015	)			(48,399	)
Financing Activities:
Proceeds from issuance of common stock			186,345				148,245				182,732
Repurchases of common stock			(332,387	)			(389,060	)			(647,898	)
Dividends Paid			(174,929	)			(170,553	)			(156,840	)
Payments for taxes related to net share settlement of equity awards			(10,566	)			(6,674	)			(3,248	)
Purchase of noncontrolling interest			—				—				(688	)
Distributions to noncontrolling interest			—				—				(1,796	)
Net cash from financing activities			(331,537	)			(418,042	)			(627,738	)
Effect of exchange rate changes on cash and cash equivalents			19,852				(1,122	)			(24,031	)
Change in cash and cash equivalents			297,300				306,756				(127,364	)
Cash and cash equivalents at beginning of period			1,230,491				923,735				1,051,099
Cash and cash equivalents at end of period		$	1,527,791			$	1,230,491			$	923,735
Supplemental Cash Flow Information:
Cash paid for income taxes		$	239,849			$	222,083			$	239,255

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, high technology, 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, laws and policies relating to tariffs, trade restrictions, foreign investments and taxation. Periodically, governments consider a variety of changes to tariffs and trade restrictions and accords. The Company cannot predict the outcome of ongoing proposals or negotiations, 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 and inter-governmental disputes concerning international trade, the Company’s business may also be affected by political developments and changes in government personnel or policies as well as economic turbulence, natural disasters and pandemics, political unrest and security concerns in the nations and on the shipping lanes in which it does business and the future impact that these events may have on international trade, oil prices and security costs.

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 in the notes to the consolidated financial statements have been revised to conform to the 2020 presentation. See Note 10 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’s trade accounts receivable present similar credit risk characteristics and the allowance for credit loss is estimated on a collective basis, using a credit loss-rate method leveraging historical credit loss information and including considerations of the current economic environment. Additional allowances may be necessary in the future if changes in economic conditions are significant enough to affect expected credit losses. Effective January 1, 2020 the Company adopted a new accounting standard for measurement of credit losses on financial instruments and made a reduction to the opening balance of allowance for credit loss of $8 million. See Note 1.N below for further information. The Company has recorded an allowance for credit loss in the amounts of $5,579, $11,143 and $15,345 as of December 31, 2020, 2019 and 2018, respectively. Additions and write-offs have not been significant in the periods presented.

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

F-9.

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, 2020 and 2019, the Company performed the required goodwill annual impairment test during the fourth quarter and determined that no impairment had occurred.

E. | Leases

Effective January 1, 2019, the Company adopted new lease accounting guidance using a modified retrospective approach and recognizing a right-of-use (ROU) asset and lease liability on the balance sheet. On January 1, 2019, ROU assets and lease liabilities were recorded for all existing leases exceeding one-year terms and were measured at the present value of lease payments over the remaining lease term. The adoption of this accounting standard resulted in recording ROU assets and lease liabilities for operating leases of $343 million and $340 million, respectively, as of January 1, 2019. The adoption of this standard had no impact on retained earnings in the consolidated balance sheets.

In recording the ROU asset and lease liability, the Company elected to apply the following practical expedients:

	•	Package of practical expedients not to reassess:

	◦	Whether a contract is or contains a lease,

	◦	Historical lease classification and

	◦	Initial direct costs.

	•	Use of hindsight when determining the lease term.

Additionally, the Company has elected to apply the short-term lease exemption for leases with a non-cancelable period of twelve months or less and has chosen not to separate nonlease components from lease components and instead to account for each as a single lease component.

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

F. | Revenues and 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 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

F-10.

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 rate billed to our customers (the sell rate) is recognized as revenues and the rate we pay to the carrier (the buy rate) is recognized in operating expenses as the directly related cost of transportation and other expenses.

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.

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. In 2019, the Company revised its presentation for revenue transfers between its geographic operating segments and services rendered at the destination, which moved certain revenues and directly related operating expenses for air and ocean transactions to destination services within customs brokerage and other services. These changes better align revenue reporting with the location where the services are performed, as well as the transactional reporting being developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact on consolidated or segment operating income. The 2019 results also include the effect of changing the presentation of certain import services from a net to a gross basis, which increased revenues and directly related operating expenses in customs brokerage and other services but did not change operating income. The impact on reported consolidated and segment total revenues and expenses for these changes was immaterial and the prior year presentation has not been revised.

F-11.

G. | 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. 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.

The Tax Cuts and Jobs Act (2017 Tax Act) includes 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 as components of current income tax expense.

In February 2018, the Financial Accounting Standards Board (FASB) issued amended guidance for reporting comprehensive income to reflect changes resulting from the 2017 Tax Act. The amendment, which had an effective date of January 1, 2019, 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.

H | 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.

I. | Stock Plans

The Company maintains several equity incentive plans under which the Company has granted stock options, director restricted stock, restricted stock units (RSUs), performance stock units (PSUs) 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. Expense for PSU awards is recognized over the service period when it is probable the performance goal will be achieved and based on the most probable outcome of performance conditions at the reporting date. RSUs and PSUs awarded to certain employees meeting specific retirement eligibility criteria at the time of grant are expensed immediately, as there is no substantive service period associated with those awards.

J. | 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 2020, 2019 and 2018 were $25,398, $9,251 and $1,853, 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

F-12.

regulatory or commercial limitations on the Company’s ability to move money freely. Such hedging activity during 2020, 2019 and 2018 was insignificant. The Company had no foreign currency derivatives outstanding at December 31, 2020 and 2019.

K. | 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, 2020 and 2019.

L. | Segment Reporting

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

M. | 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, self-insured liabilities, accrual of various tax liabilities including estimates associated with the 2017 Tax Act, accrual of loss contingencies, the allocation of the purchase price in a business combination, calculation of share-based compensation expense and estimates related to determining the lease term and discount rate when measuring ROU assets and lease liabilities. Actual results could be materially different from the estimated provisions and accruals recorded.

N. | Recent Accounting Pronouncements

Credit Losses on Financial Instruments

Effective January 1, 2020, the Company adopted a new accounting standard update related to the measurement of credit losses on financial instruments. The adoption had an immaterial effect on the Company’s consolidated financial statements and disclosures. Under this new standard, the valuation allowance reduces a financial asset’s balance for credit losses expected to be incurred over the assets contractual term. The Company determined that this new guidance is applicable to its accounts receivable, which are short term and for which the Company has not historically experienced significant credit losses. The Company adopted this standard using the modified retrospective transition method resulting in a $6 million adjustment to the opening balance of retained earnings and an $8 million reduction to the opening balance of allowance for credit loss.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued an ASU, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. This standard will become effective for the Company on January 1, 2021. The Company evaluated the impact of this standard and determined that it does not have a material effect on the Company’s consolidated financial statements and related disclosures.

F-13.

NOTE 2.	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, 2020								December 31, 2019
			Cost				Fair Value				Cost				Fair Value
	Cash and cash equivalents:
	Cash and overnight deposits		$	602,112			$	602,112			$	417,456			$	417,456
	Corporate commercial paper			872,287				872,350				775,504				776,356
	Time deposits			53,392				53,392				37,531				37,531
	Total cash and cash equivalents		$	1,527,791			$	1,527,854			$	1,230,491			$	1,231,343

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 3.	PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

			2020				2019
	Land		$	150,030			$	145,172
	Buildings and leasehold improvements			492,747				478,361
	Furniture, fixtures, equipment and purchased software			379,344				353,923
	Construction in progress			1,292				794
	Property and equipment, at cost			1,023,413				978,250
	Less accumulated depreciation and amortization			516,988				478,906
	Property and equipment, net		$	506,425			$	499,344

NOTE 4.	LEASES

The Company enters into lease agreements primarily for office and warehouse space in all districts where it conducts business. As of December 31, 2020, all of the Company's leases are operating leases. Lease terms are either on a month-to-month basis or terminate at various times through 2040. 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.

Lease cost for the years ended December 31, 2020 and 2019 is recorded under rent and occupancy expenses in the consolidated statements of earnings and is comprised of the following:

			2020				2019
	Operating lease cost		$	91,436			$	81,912
	Variable lease cost			26,857				25,843
	Total lease cost		$	118,293			$	107,755

F-14.

Variable lease cost includes short-term lease expenses, which are insignificant.

Maturities of lease liabilities as of December 31, 2020 are as follows:

	2021		$	89,317
	2022			82,920
	2023			70,654
	2024			55,981
	2025			50,006
	Thereafter			157,576
	Total minimum lease payments			506,454
	Less imputed interest			68,265
	Lease liability		$	438,189

The weighted-average remaining lease term and weighted-average discount rate are as follows:

			2020				2019
	Weighted-average remaining lease term (in years)			7.86				7.37
	Weighted-average discount rate			4.08	%			4.78	%

Other information related to the Company's operating leases are as follows:

			2020				2019
	Right-of-use assets obtained in exchange for new operating lease liabilities		$	109,515			$	103,788
	Cash paid for amounts included in the measurement of lease liabilities		$	90,101			$	79,040

Supplemental Information for Comparative Periods

The Company recorded rent expense under operating leases of $89,377 for the year ended December 31, 2018.

	NOTE 5.	SHAREHOLDERS’ EQUITY

A. | Stock Repurchase Plans

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, 2020 is authorized to repurchase shares down to 160,000 shares of common stock outstanding.

The Company had a Non-Discretionary Stock Repurchase Plan, originally approved by the Board of Directors in November 1993, under which management was 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. Since March 31, 2019, all shares authorized under this plan have been repurchased and no further shares are available for future repurchases.

Cumulative shares repurchased since inception of the plans were 118,591 at an average price of $43.82.

B. | Omnibus Incentive Plan

On May 5, 2020, the shareholders approved the Company's Amended and Restated 2017 Omnibus Incentive Plan (Amended 2017 Plan), which made available 5,500 shares of the Company's common stock in aggregate to be issued under any award type allowed by the Amended 2017 Plan. The RSUs granted in 2020, 2019 and 2018 generally 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 Amended 2017 Plan also provides for annual equity awards to non-employee directors. The Amended 2017 Plan provides for an annual grant of equity awards to each participant with a fair market value that may not exceed $600, or $800 with respect

F-15.

to the Chairman of the Board. Restricted shares granted to non-employee directors in 2020, 2019 and 2018 vest at the time of grant and there were no unvested restricted shares as of December 31, 2020. In 2020, restricted shares totaling 19 were granted with a fair value per share of $72.90.

The following table summarizes information about RSUs and restricted shares:

			Number of shares				Weighted average grant date fair value
	Outstanding at December 31, 2019			946			$	69.54
	RSUs granted			543			$	74.13
	RSUs vested			(505	)		$	61.25
	RSUs forfeited			(19	)		$	74.70
	Outstanding at December 31, 2020			965			$	73.92

In 2020, 2019 and 2018, the Company also awarded 95, 96 and 18 PSUs, respectively, under the Amended 2017 Plan. Outstanding PSUs include performance conditions to be finally measured based on financial results at December 31, 2020, 2021 and 2022. The final number of PSUs 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.

At December 31, 2020, there were 210 shares of PSUs unvested at target levels, with a weighted-average grant date fair value of $73.92.

RSUs and PSUs granted under the Amended 2017 Plan have dividend equivalent rights, which entitle holders of RSUs and PSUs 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 RSUs and PSUs and are accumulated and paid in shares when the underlying awards vest.

At December 31, 2020, there are approximately 3,028 shares available for grant under the Amended 2017 Plan.

When restrictions on employee RSUs or PSUs lapse the Company derives a tax deduction in certain countries based on the fair market value of the award upon vesting and subject to the limits allowed under each jurisdiction’s tax regulations. 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 Amended 2017 Plan and there was no remaining unamortized expense for stock options as of December 31, 2020.

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.

F-16.

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, 2019			6,763			$	44.85
	Options granted			—			$	—
	Options exercised			(3,189	)		$	45.26
	Options forfeited			(4	)		$	47.27
	Options canceled			(17	)		$	43.63
	Outstanding at December 31, 2020			3,553			$	44.49				3.59			$	179,836
	Exercisable at December 31, 2020			3,553			$	44.49				3.59			$	179,836

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. As last amended in May 2019, the Company’s 2002 Plan provides for 15,305 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 12,824 shares have been issued under the 2002 Plan since inception and $23,552 has been withheld from employees at December 31, 2020 in connection with the plan year ending July 31, 2021.

E. | Share-Based Compensation Expense

The fair value of employee stock purchase rights granted under the 2002 Plan is estimated on the date of grant using the Black-Scholes Model with the following assumptions:

			For the years ended December 31,
			2020				2019				2018
	Dividend yield			1.40	%			1.40	%			1.30	%
	Volatility			32	%			23	%			22	%
	Risk-free interest rates			0.15	%			1.96	%			2.39	%
	Expected life (years)			1				1				1
	Weighted average fair value		$	23.26			$	17.03			$	17.49

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 based on the one-year offering period. 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 employee RSUs and PSUs is based on the fair market value of the Company’s share of common stock on the date of grant. RSUs and PSUs awarded in 2020, 2019 and 2018 were granted at a weighted-average grant date fair value of $74.00, $75.73 and $69.58, respectively.

The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was approximately $117 million, $79 million and $92 million, respectively.

As of December 31, 2020, the total unrecognized compensation cost related to stock awards is $54 million and the weighted average period over which that cost is expected to be recognized is 1.7 years.

F-17.

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

NOTE 6.	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 RSUs. 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
	2020
	Basic earnings attributable to shareholders		$	696,140				168,333			$	4.14
	Effect of dilutive potential common shares			—				2,563				—
	Diluted earnings attributable to shareholders		$	696,140				170,896			$	4.07
	2019
	Basic earnings attributable to shareholders		$	590,395				170,899			$	3.45
	Effect of dilutive potential common shares			—				3,310				—
	Diluted earnings attributable to shareholders		$	590,395				174,209			$	3.39
	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

Substantially all outstanding potential common shares in 2020, 2019 and 2018 were dilutive.

NOTE 7.	INCOME TAXES

The 2017 Tax Act, which is also commonly referred to as “U.S. tax reform”, significantly changed 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 created a territorial tax system with a one-time mandatory tax on the undistributed foreign earnings of the Company's non-U.S. subsidiaries.

Income tax expense (benefit) includes the following components:

			Federal				State				Foreign				Total
	2020
	Current		$	37,551			$	18,432			$	193,996			$	249,979
	Deferred			8,440				(69	)			—				8,371
			$	45,991			$	18,363			$	193,996			$	258,350
	2019
	Current		$	35,324			$	13,711			$	150,261			$	199,296
	Deferred			3,149				1,333				—				4,482
			$	38,473			$	15,044			$	150,261			$	203,778
	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

F-18.

The components of earnings before income taxes are as follows:

			2020				2019				2018
	United States		$	325,009			$	327,878			$	313,178
	Foreign			631,555				467,916				505,151
			$	956,564			$	795,794			$	818,329

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

			2020				2019				2018
	Computed “expected” tax expense		$	200,879			$	167,117			$	171,849
	Increase (decrease) in income taxes resulting from:
	Effect of foreign taxes			48,584				26,599				16,445
	State income taxes, net of Federal income tax benefit			14,507				11,885				8,682
	Nondeductible executive compensation			4,324				2,838				3,126
	Stock compensation expense, net			(8,461	)			(2,689	)			(3,860	)
	Other, net			(1,483	)			(1,972	)			2,297
			$	258,350			$	203,778			$	198,539

The Company's effective tax rate in 2020, 2019 and 2018 benefited from significant share-based compensation deductions. In 2020, 2019 and 2018, the Company also benefited from U.S. Federal tax credits totaling $16.7 million, $15.7 million and $20.3 million, respectively, principally because of withholding taxes related to the Company's foreign operations, as well as U.S. income tax deductions for Foreign-derived intangible income (FDII) of $10.0 million, $9.0 million and $4.8 million, respectively. These amounts were partially offset by the effect of higher foreign tax rates of the Company's international subsidiaries, when compared to the U.S. 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 Company treats BEAT and GILTI as components of current income tax expense. For the years 2020, 2019 and 2018, there was no BEAT expense and GILTI expense was insignificant. In both 2019 and 2018, the Company received state income tax refunds totaling approximately $4 million.

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,		2020				2019
	Deferred Tax Assets:
	Deductible stock compensation expense, net		$	14,265			$	18,569
	Operating lease liabilities			52,223				52,966
	Accrued third party obligations, deductible for taxes upon economic performance			6,242				5,333
	Excess of financial statement over tax depreciation			8,123				5,802
	Foreign currency translation adjustments			4,604				9,248
	Retained liability for cargo claims			1,128				1,006
	Provision for credit losses on accounts receivable			954				916
	Total gross deferred tax assets			87,539				93,840
	Deferred Tax Liabilities:
	Unremitted foreign earnings, net of related foreign tax credits			43,805				31,615
	Operating lease assets			49,865				52,351
	Deferred contract costs			917				1,840
	Total gross deferred tax liabilities			94,587				85,806
	Net deferred tax (liabilities) assets		$	(7,048	)		$	8,034

Based on management’s review of the Company’s tax positions, the Company had no significant unrecognized tax benefits as of December 31, 2020 and 2019.

The Company is subject to taxation in various states and many foreign jurisdictions including the People’s Republic of China, including Hong Kong, Taiwan, Vietnam, India, Mexico, Canada, Netherlands and the United Kingdom. The Company believes that its tax positions, including intercompany transfer pricing policies, are reasonable and consistently applied. The Company is

F-19.

under, or may be subject to, audit or examination and assessments by the relevant authorities in respect to these and any other jurisdictions primarily for years 2009 and thereafter. Sometimes audits result in proposed assessments where the ultimate resolution could result in significant additional tax, penalties and interest payments being required. The Company establishes liabilities when, despite its belief that the tax return positions are appropriate and consistent with tax law, it concludes that it may not be successful in realizing the tax position. In evaluating a tax position, the Company determines whether it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position and in consultation with qualified tax advisors.

The total amount of the Company’s tax contingencies may increase in 2021. In addition, changes in state, federal, and foreign tax laws and changes, including transfer pricing and changes in interpretations of these laws may increase the Company’s existing tax contingencies. The timing of the resolution of income tax examinations can be highly uncertain, and the amounts ultimately paid including interest and penalties, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts recorded. It is reasonably possible that within the next twelve months the Company may undergo further audits and examinations by various tax authorities and possibly may reach resolution related to income tax examinations in one or more jurisdictions. These assessments or settlements could result in changes to the Company’s contingencies related to positions on tax filings in future years. The estimate of any ultimate tax liability contains assumptions based on experiences, judgments about potential actions by taxing jurisdictions as well as judgments about the likely outcome of issues that have been raised by the taxing jurisdiction. Any interest and penalties expensed in relation to the underpayment of income taxes were insignificant for the years ended December 31, 2020, 2019 and 2018.

F-20.

NOTE 8.	COMMITMENTS

A. | 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. 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. Purchase obligations outstanding as of December 31, 2020 totaled $118,671.

B. | Employee Benefits

The Company has employee savings plans under which the Company provides a discretionary matching contribution. In 2020, 2019 and 2018, the Company’s contributions under the plans were $20,713, $19,624, and $19,600, respectively.

C. | 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, 2020, the Company was contingently liable for approximately $71,937 under outstanding standby letters of credit and guarantees. At December 31, 2020, 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 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, 2020, the amounts recorded 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-21.

NOTE 10.	BUSINESS SEGMENT INFORMATION

Financial information regarding 2020, 2019 and 2018 operations by the Company’s designated geographic areas is as follows:

		UNITED STATES				OTHER NORTH AMERICA				LATIN AMERICA				NORTH ASIA				SOUTH ASIA				EUROPE				MIDDLE EAST, AFRICA AND INDIA				ELIMINATIONS				CONSOLIDATED
2020
Revenues1		$	2,776,546				328,427				156,163				3,838,332				989,633				1,544,130				487,011				(3,761	)			10,116,481
Directly related cost of transportation and other expenses2		$	1,568,461				192,875				93,249				3,157,086				738,648				1,080,741				359,682				(1,952	)			7,188,790
Salaries and other operating expenses3		$	877,117				100,687				48,114				332,978				149,269				375,900				104,968				(1,779	)			1,987,254
Operating income		$	330,968				34,865				14,800				348,268				101,716				87,489				22,361				(30	)			940,437
Identifiable assets at period end		$	2,532,324				186,204				85,085				876,856				272,106				752,589				240,984				(18,645	)			4,927,503
Capital expenditures		$	31,604				1,886				564				2,202				2,264				6,394				2,629				—				47,543
Depreciation and amortization		$	37,081				1,946				1,194				4,961				1,876				8,029				1,872				—				56,959
Equity		$	1,928,945				67,243				32,273				241,155				121,411				196,637				114,369				(38,806	)			2,663,227
2019
Revenues1		$	2,712,067				354,405				150,202				2,494,556				743,406				1,280,669				443,487				(3,366	)			8,175,426
Directly related cost of transportation and other expenses2		$	1,528,815				212,369				87,297				1,970,662				544,873				884,968				311,997				(2,023	)			5,538,958
Salaries and other operating expenses3		$	859,946				101,654				55,512				271,594				127,478				342,073				112,844				(1,325	)			1,869,776
Operating income		$	323,306				40,382				7,393				252,300				71,055				53,628				18,646				(18	)			766,692
Identifiable assets at period end		$	1,978,307				153,813				72,677				538,526				178,336				551,576				219,953				(1,304	)			3,691,884
Capital expenditures		$	28,666				2,353				1,556				1,767				1,558				9,231				1,891				—				47,022
Depreciation and amortization		$	31,049				1,881				1,489				5,263				1,912				7,398				1,958				—				50,950
Equity		$	1,521,059				65,100				29,148				247,725				94,727				159,308				114,726				(34,574	)			2,197,219
2018
Revenues1		$	2,479,812				355,802				156,854				2,886,322				777,863				1,330,365				464,071				(312,724	)			8,138,365
Directly related cost of transportation and other expenses2		$	1,352,924				216,753				94,041				2,315,826				591,925				926,949				330,209				(310,635	)			5,517,992
Salaries and other operating expenses3		$	816,817				94,950				53,970				289,015				125,056				337,970				108,131				(2,099	)			1,823,810
Operating income		$	310,071				44,099				8,843				281,481				60,882				65,446				25,731				10				796,563
Identifiable assets at period end		$	1,689,950				161,604				53,542				533,071				152,646				513,744				206,367				3,635				3,314,559
Capital expenditures		$	21,732				4,259				1,042				3,057				2,182				10,815				4,387				—				47,474
Depreciation and amortization		$	33,511				1,847				1,508				5,309				2,257				7,727				1,860				—				54,019
Equity		$	1,339,673				72,941				26,007				200,371				100,706				157,003				123,228				(32,209	)			1,987,720

1

In 2019, the Company revised its process to record the transfer, between its geographic operating segments, of revenues and the directly related cost of transportation and other expenses for freight service transactions between Company origin and destination locations. This change better aligns revenue reporting with the location where the services are performed, as well as the transactional reporting being developed as part of the Company’s new accounting systems and processes. The change in presentation had no impact on consolidated or segment operating income. The 2019 results also include the effect of changing the presentation of certain import services from a net to a gross basis, which increased segment revenues and directly related operating expenses but did not change operating income. The impact of these changes on reported segment revenues was immaterial and prior year segment revenues have not been revised.

F-22.

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

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

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, total operating income, total identifiable assets or equity in any period presented as noted in the table below.

			2020				2019				2018
	Revenues			32	%			26	%			29	%
	Operating income			29	%			27	%			30	%
	Identifiable assets at year end			14	%			12	%			14	%
	Equity			6	%			9	%			8	%

NOTE 11.	QUARTERLY RESULTS (UNAUDITED)

			1st				2nd				3rd				4th
	2020
	Revenues1		$	1,901,864				2,580,632				2,464,797				3,169,188
	Operating income1			159,055				247,626				251,945				281,811
	Net earnings			122,782				184,188				191,719				199,525
	Net earnings attributable to shareholders			122,344				183,869				191,307				198,620
	Diluted earnings attributable to shareholders per share			0.71				1.09				1.12				1.16
	Basic earnings attributable to shareholders per share			0.73				1.10				1.14				1.17
	2019
	Revenues2		$	2,020,051				2,035,579				2,074,855				2,044,941
	Operating income2			187,601				192,201				206,550				180,340
	Net earnings			140,111				153,530				160,627				137,748
	Net earnings attributable to shareholders			139,699				153,149				160,221				137,326
	Diluted earnings attributable to shareholders per share			0.80				0.88				0.92				0.79
	Basic earnings attributable to shareholders per share			0.81				0.90				0.94				0.81

The sum of quarterly per share data may not equal the per share total reported for the year.

	1	During the fourth quarter of 2020, the Company’s services experienced record high airfreight tonnage and ocean volumes and high average sell rates and buy rates, when compared to the third quarter of 2020 and the prior year, as demand grew while capacity shortages persisted in particular on exports from North Asia. In the fourth quarter of 2020, the People's Republic of China, including Hong Kong, represented 34% of the Company’s total revenues and 27% of the Company’s total operating income. Airfreight services revenues accounted for the largest increase at 41% from the third quarter of 2020 to the fourth quarter of 2020 and represented 49% of the Company’s total revenues in the fourth quarter of 2020.

	2	The fourth quarter of 2019 was significantly impacted by declines in results in our China operations due to the slowing of trade to and from China, which impacted overall freight movement around the globe. In the fourth quarter of 2019, the People's Republic of China, including Hong Kong, represented 25% of the Company’s total revenues and the Company’s total operating income.

F-23.

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

ANNUAL REPORT

ON

FORM 10-K

FOR FISCAL YEAR ENDED

December 31, 2020

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		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company’s Yearly Report on Form 10-K for the year ended December 31, 2020, has been formatted in Inline XBRL