EXPEDITORS INTERNATIONAL OF WASHINGTON INC

Previous wording

Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit profitability, which includes shared revenues and allocated costs. Therefore, individual success is closely linked to cooperation with other operating units within our network. The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. North Asia is our largest export-oriented region and accounted for 28% of revenues, 33% of directly related cost of transportation and other expenses and 23% of operating income for the year ended December 31, 2024.

Current wording

Our operating units share revenue using the same arms-length pricing methodologies that we use when our offices transact business with independent agents. Certain costs are allocated among the segments based on the relative value of the underlying services, which can include allocation based on actual costs incurred or estimated cost plus a profit margin. Our strategy closely links compensation with operating unit profitability, which includes shared revenues and allocated costs. Therefore, individual success is closely linked to cooperation with other operating units within our network. The mix of services varies by segment based primarily on the import or export orientation of local operations in each of our regions. North Asia is our largest export-oriented region and accounted for 25% of revenues, 30% of directly related cost of transportation and other expenses and 21% of operating income for the year ended December 31, 2025.

Previous wording

We returned $1,059 million to shareholders through common stock repurchases and dividends.

Current wording

We returned $875 million to shareholders through common stock repurchases and dividends.

Previous wording

We operate in over 60 countries in the competitive global logistics industry and our activities are closely tied to the global economy. 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 investment, and taxation. Periodically, governments consider various changes to tariffs and impose trade restrictions and accords. The United States has imposed increased tariffs on China, and is considering imposing increased tariffs on imports from Canada, Mexico, and other countries. These measures will likely face retaliatory tariffs from these countries. The potential for further tariff increases and trade restrictions remains high, creating an unpredictable environment for international trade. Additionally, changes to import and export regulations may impact the flow of trade. We cannot predict how changes in tariffs, trade restrictions, and accords will affect our business. As governments impose import and export restrictions, shippers may adjust their sourcing patterns and potentially shift manufacturing to other countries over time. Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping lanes in which we conduct business and the future impact that these events may have on international trade, oil prices and security costs. We do not have employees, assets, or operations in Russia, Ukraine, Israel, the Gaza Strip or the West Bank. While limited, any shipment activity is conducted with independent agents in those countries in compliance with all applicable trade sanctions, laws and regulations. We have a branch and employees in Lebanon but no significant assets.

Current wording

Doing business in foreign locations also subjects us to a variety of risks and considerations not normally encountered by domestic enterprises. In addition to being influenced by governmental policies and inter-governmental disputes concerning international trade, our business may also be negatively affected by political developments and changes in government personnel or policies in the United States and other countries, as well as economic turbulence, political unrest and security concerns in the nations and on the trade shipping routes in which we conduct business. The future impact that these events may have on international trade, oil prices and security costs is uncertain. We do not have employees, assets, or operations in Russia, Ukraine, Israel, the Gaza Strip or the West Bank. While limited, any shipment activity is conducted with independent agents in those countries in compliance with all applicable trade sanctions, laws and regulations. We have a branch and employees in Lebanon but no significant assets.

Previous wording

Our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including airlines; ocean carrier lines and ground transportation providers, as well as governmental agencies. We select and engage with best-in-class, compliance-focused, efficiently run, growth-oriented partners, based upon defined value elements and are intentional in our relationship and performance management activity, reinforcing success by awarding service providers who consistently achieve at the highest levels with additional business. We consider our current working relationships with these entities to be satisfactory. However, changes in the financial stability and operating capabilities and capacity of asset-based carriers, capacity allotments available from carriers, governmental regulation or deregulation efforts, modernization of the regulations governing customs brokerage, and/or changes in governmental restrictions, quota restrictions or trade accords could affect our business in unpredictable ways. When the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.

Current wording

Our ability to provide services to our customers is highly dependent on good working relationships with a variety of entities, including airlines, ocean carrier lines and ground transportation providers, as well as governmental agencies. We select and engage with best-in-class, compliance-focused, efficiently run, growth-oriented partners, based upon defined value elements and are intentional in our relationship and performance management activity. We consider our current working relationships with these entities to be satisfactory. However, changes in the financial stability; operating capabilities, and the capacity of asset-based carriers; capacity allotments available from carriers; governmental regulation or deregulation efforts; modernization of the regulations governing customs brokerage; and/or changes in governmental restrictions, quota restrictions or trade accords could affect our business in unpredictable ways. When the market experiences seasonal peaks or any sort of disruption, the carriers often increase their pricing suddenly. This carrier behavior creates pricing volatility that could impact Expeditors' ability to maintain historical unitary profitability.

Previous wording

The global economic and trade environments remain uncertain, including inflation remaining higher than historical levels, volatility in oil prices, high interest rates and the conflicts in the Middle East and Ukraine. In the second and the third quarter of 2024, we saw capacity constraints on exports out of Asia resulting in increases in average buy and sell rates. However, if demand softens or safe passage through the Red Sea resumes, then additional ocean transportation capacity will become available. These conditions could result in declines in average sell and buy rates. We also expect that pricing volatility will continue as carriers adapt to changes in demand, changing fuel prices, security risks and react to governmental trade policies and other regulations. Additionally, we cannot predict the direct or indirect impact that further changes in and purchasing behavior, such as the evolution of international direct e-commerce platforms, could have on our business. Some customers are relocating their manufacturing to other countries to mitigate the impact of higher tariffs on imports, reduce supply chain risks, and address disruptions caused by pandemics and geopolitical issues. These changes could negatively affect our business.

Current wording

The global economic and trade environments remain highly uncertain; including inflation remaining higher than historical levels, volatility in oil prices, high interest rates and the conflicts in the Middle East and Ukraine. In the first quarter of 2025, we saw high demand on exports out of Asia and continued to see high demand on exports out of South Asia in the second quarter 2025, resulting in high average sell and buy rates where demand exceeded carrier capacity. However, softening demand and additional available capacity for ocean freight resulted in declines in ocean sell and buy rates starting in the second quarter. Additional ocean and air transportation capacity will become available as demand softens due to uncertainty in economic and trade regulations and safe passage through the Red Sea resumes. These conditions could result in declines in average sell and buy rates. We also expect that pricing volatility will continue as carriers adapt to changes in demand, changing fuel prices, available capacity, security risks and react to governmental trade policies and other regulations. Additionally, we cannot predict the direct or indirect impact that further changes in purchasing behavior, such as the evolution of international direct e-commerce platforms, could have on our business. Some customers are relocating manufacturing to other countries to mitigate the impact of higher tariffs on imports, reduce their supply chain risks, address disruptions caused by pandemics and geopolitical issues. These changes could negatively affect our business.

Previous wording

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). Preparing our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses. A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements in this report. Management believes that the nature of our business is such that there are few complex challenges in accounting for operations. While judgments and estimates are a necessary component of any system of accounting, the use of estimates is limited primarily to accrual of loss contingencies, accrual of various tax liabilities and contingencies, accrual of insurance liabilities for the portion of the related exposure that we have self-insured, and accounts receivable valuation.

Current wording

Our consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). Preparing our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies can be found in Note 1 to the consolidated financial statements in this report. Management believes that the nature of our business is such that there are few complex challenges in accounting for operations. While judgments and estimates are a necessary component of any system of accounting, the use of estimates is limited primarily to accrual of loss contingencies, accrual of various tax liabilities and contingencies, accrual of insurance liabilities for the portion of the related exposure that we have self-insured, and accounts receivable valuation.

Previous wording

The following table shows the revenues, the directly related cost of transportation and other expenses for our principal services and our overhead expenses for 2024, 2023 and 2022. The table, chart and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto in Part II, Item 8 of this report.

Current wording

The following table shows the revenues, directly related cost of transportation and other expenses for our principal services and our overhead expenses for 2025, 2024 and 2023. The table, chart and the accompanying discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto in Part II, Item 8 of this report.

Previous wording

Airfreight services revenues and expenses increased 13% and 16%, respectively, in 2024, as compared with 2023, due to a 12% increase in tonnage and 2% and 5% increase in average sell and buy rates, respectively. Tonnage increased in all regions, with the largest increase coming from exports out of South Asia and North Asia. Average sell rates increased in South Asia, North Asia and MAIR as a result of higher buy rates while they decreased in North America and Europe as a result of lower buy rates. Tonnage increased in all regions as a result of increased market demand driven by the technology sector compared to a soft 2023.

Current wording

Airfreight services revenues and expenses both increased 9% in 2025, as compared with 2024, due to a 6% increase in tonnage and 2% and 3% increases in average sell and buy rates, respectively. Tonnage increased in all regions, with the largest increases coming from exports out of South Asia and North Asia due to strong demand in the first half of 2025 in anticipation of higher tariffs going into effect and demand from technology customers in the second half of the year. Average sell rates increased most significantly in South Asia and Europe due to shifts in demand and limited capacity in those regions during part of the year, driven by tariff-related trade impacts.

Previous wording

South Asia revenues and expenses increased 66% and 82%, respectively, in 2024 as compared with 2023 due to a 40% increase in tonnage and significant increases in average sell and buy rates. This was driven by elevated demand for airfreight as a result of manufacturing relocations into the region and shippers shifting to airfreight due to the conflicts in the Middle East. North Asia revenues and expenses increased 16% and 17%, respectively, in 2024 as compared with 2023 due to a 9% increase in tonnage driven by demand in technology sectors and higher average sell and buy rates driven by high demand from international direct e-commerce. Average sell and buy rates decreased on exports out of North America and Europe due to excess available capacity relative to soft demand.

Current wording

South Asia revenues and expenses increased 20% and 21%, respectively, in 2025 as compared with 2024 due to a 15% increase in tonnage and higher average sell and buy rates. Demand in South Asia remained strong as a result of manufacturing relocations in that region. North Asia revenues and expenses increased 11% and 12%, respectively, in 2025 as compared with 2024 due to a 10% increase in tonnage and higher average sell and buy rates driven by high demand from international direct e-commerce in the first quarter and increased market demand, in part from technology customers investing in artificial intelligence infrastructure. While the elimination of low-value de minimis exemption on shipments from China to the U.S. resulted in a decrease in demand for airfreight in the second half of 2025, the expected downward pressure on average buy rates was largely mitigated by carriers redistributing capacity to other lanes and high demand from the technology sector.

Previous wording

Seasonal changes in demand, impact from disruptions in the ocean market due to security and port congestion concerns and variable demand for airfreight capacity from direct e-commerce business cause volatility in average buy rates on certain lanes. Additionally, continued uncertainty in the economy, geopolitical concerns, as well as potential inter-governmental trade disputes and tariff changes could negatively affect demand for airfreight services which could reduce our volumes and average sell rates. These conditions could result in decreases in our revenues, expenses and operating income. We are unable to predict how these uncertainties and any future disruptions will affect our operations or financial results prospectively.

Current wording

Seasonal changes in demand, impact from disruptions in the ocean market due to security concerns and variable demand for airfreight capacity from direct e-commerce business cause volatility in average buy rates on certain routes. Additionally, geopolitical concerns, inter-governmental trade disputes, new tariffs on imports into the U.S. and retaliatory actions from other countries create uncertainty in the economy and the trade environment. As shippers and carriers react to these volatile conditions, it may negatively affect demand for airfreight services which could significantly reduce our volumes and average sell and buy rates in the future. Though we are unable to predict how these uncertainties and any future disruptions may affect our operations or financial results prospectively, these conditions could result in decreases in our revenues, expenses and operating income.

Previous wording

Ocean freight consolidation, direct ocean forwarding, and order management are the three basic services that constitute and are collectively referred to as ocean freight and ocean services. Ocean freight and ocean services revenues and expenses increased 33% and 44%, respectively, in 2024, as compared with 2023. The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 71% and 65% of ocean freight and ocean services revenue in 2024 and 2023, respectively.

Current wording

Ocean freight consolidation, direct ocean forwarding, and order management are the three basic services that constitute and are collectively referred to as ocean freight and ocean services. Ocean freight and ocean services revenues and expenses decreased 11% and 14%, respectively, in 2025, as compared with 2024. The largest component of our ocean freight and ocean services revenue is derived from ocean freight consolidation, which represented 66% and 71% of ocean freight and ocean services revenue in 2025 and 2024, respectively.

Previous wording

Order management revenues increased 29% and expenses increased 32% in 2024, due to higher volumes from new and existing customers. Direct ocean freight forwarding revenues decreased 2% while expenses remained flat in 2024, principally due to lower volumes and rates for ancillary services.

Current wording

Order management revenues and expenses increased 5% and 4%, respectively, in 2025, due to higher volumes from new and existing customers. Direct ocean freight forwarding revenues and expenses increased 4% and 5%, respectively, due to higher forwarding volumes and increased ancillary services, mostly in the United States and South Asia.

Previous wording

Customs brokerage and other services revenues and expenses increased 2% and 1%, respectively, in 2024 as compared with 2023, primarily due to increases in customs clearances, import services and road freight from higher shipment volumes, principally in Europe and MAIR offset by decreases in warehousing and distribution primarily in North America.

Current wording

Customs brokerage and other services revenues and expenses increased 13% and 14%, respectively, in 2025 as compared with 2024, primarily due to double-digit growth rates in customs clearances, import services, road freight and warehousing and distribution from higher shipment volumes, principally from shipments into North America and Europe.

Previous wording

Europe and MAIR revenues increased 5% and 15%, respectively, and expenses increased 2% and 15%, respectively, in 2024 as compared with 2023, primarily as a result of higher shipment volumes.

Current wording

North America and Europe revenues increased 14% and 13%, respectively, and expenses increased 14% and 15%, respectively, in 2025 as compared with 2024, primarily as a result of higher shipment volumes.

Previous wording

While customers continue to value our brokerage services due to changing tariffs and increasing complexity in the declaration process, some customers are opting to use back up customs brokerage service providers as a risk reduction strategy. Customers continue to seek knowledgeable customs brokers with sophisticated computerized capabilities critical to an overall logistics management program that are necessary to rapidly respond to changes in the regulatory and security environment. Should international trade slow, volumes shipped and pricing could negatively impact our revenues and expenses.

Current wording

Customers value our brokerage services due to an increasingly dynamic and complex trade environment and its impact on the declaration process. They seek knowledgeable customs brokers with operational capacity and sophisticated systems capabilities critical to an overall logistics management program that are necessary to rapidly respond to changes in the regulatory and security environment. Should international trade slow or there is substantial removal of tariffs, our revenues and operating income could be negatively impacted.

Previous wording

Our management compensation programs have always been incentive-based and performance driven. Bonuses to field and executive management in 2024 increased 7% when compared to 2023 primarily due to a 11% increase in operating income.

Current wording

Our management compensation programs have always been incentive-based and performance driven. Bonuses to field and executive management in 2025 increased 5% when compared to 2024 primarily due to growth in operating income at individual business units.

Previous wording

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

Current wording

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

Previous wording

Other overhead expenses increased 1% in 2024, as compared with 2023. The increase in 2024 is primarily due to higher rental and occupancy expenses, travel, and technology related expenses partially offset by a $24 million decrease in expenses related to indirect tax and other contingencies and lower depreciation expense.

Current wording

Other overhead expenses increased 15% in 2025, as compared with 2024. The increase in 2025 is primarily due to higher rental and occupancy expenses, technology related expenses as well as consulting, and travel, and indirect taxes.

Previous wording

So long as the economic environment remains uncertain, we will be focused on aligning operational headcount and our overhead expenses commensurate with our transactional volumes. In 2025, we expect to increase spending on: cybersecurity; internal controls over our technology and systems; upgrading our IT infrastructure; and deploying new and enhanced solutions. We will also continue to make important investments in people, processes and technology, as well as to invest in our strategic efforts to explore new areas for profitable growth.

Current wording

We expect to continue to enhance security and internal controls over our technology and systems and plan to deploy additional solutions which will result in increased expenses in the future. We will also continue to make important investments in people, processes and technology, as well as to invest in our strategic efforts to drive organic growth.

Previous wording

The decrease in other income and expense is primarily the result of lower interest income due to lower invested balances.

Current wording

The decrease in other income and expense is primarily the result of lower interest income due to a decline in interest rates.

Previous wording

Our consolidated effective income tax rate was 25.9% in both 2024 and 2023. In 2024 and 2023, we benefited from U.S. Federal tax credits totaling $32.5 million and $24.1 million, respectively principally because of withholding taxes related to our foreign operations, as well as U.S. income tax benefits for FDII of $21.6 million and $16.2 million, respectively. These amounts were 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.

Current wording

Our consolidated effective income tax rate was 25.8% and 25.9% in 2025 and 2024. In 2025 and 2024, we benefited from U.S. Federal tax credits totaling $31.0 million and $32.5 million, respectively principally because of withholding taxes related to our foreign operations, as well as U.S. income tax benefits for FDII of $21.1 million and $21.6 million, respectively. These amounts were 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%. We have not incurred any significant expenses for any period presented for either the 15% corporate alternative minimum tax (CAMT) nor for the global minimum tax regime (also known as Pillar Two).

Previous wording

Some elements of the recorded impacts of enacted tax laws and regulation could be impacted by further legislative action as well as additional interpretations and guidance issued by the Internal Revenue Service or Treasury in the U.S. and by similar governmental bodies in jurisdictions outside of the U.S. See Note 7 to the consolidated financial statements for additional information.

Current wording

Elements of enacted tax laws and regulations could be impacted by further legislative action as well as additional interpretations and guidance issued by the Internal Revenue Service or the U.S. Department of the Treasury and by similar governmental bodies in jurisdictions outside of the U.S. Such changes could impact the estimates of the amounts the Company has recorded.

Previous wording

Our effective tax rate is subject to variation and the effective tax rate may be more or less volatile based on the amounts of pre-tax income. For example, the impact of discrete items and non-deductible expenses on the effective rate is greater when pre-tax income is lower. Total consolidated foreign income tax expense is composed of the income tax expense of our non-U.S. subsidiaries as well as income based withholding taxes paid by our non-U.S. subsidiaries on behalf of its parent for intercompany payments, including the remittance of dividends, some of which do not qualify for tax credits under U.S. income tax laws and regulations. The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related compensation expense is recorded (excess tax benefits are recorded upon the exercise of non-qualified stock options and vesting of restricted stock units and performance share units), while the tax benefit received for employee stock purchase plan shares cannot be anticipated and are therefore recognized if and when a disqualifying disposition occurs.

Current wording

Our effective tax rate is subject to variation and the effective tax rate may be more or less volatile based on the amounts of pre-tax income. Total consolidated foreign income tax expense is composed of the income tax expense of our non-U.S. subsidiaries as well as income based withholding taxes paid by our non-U.S. subsidiaries on behalf of its parent for intercompany payments, including the remittance of dividends, some of which do not qualify for tax credits under U.S. income tax laws and regulations. The tax benefit associated with non-qualified stock option and restricted stock unit grants is recorded when the related compensation expense is recorded (excess tax benefits are recorded upon the exercise of non-qualified stock options and vesting of restricted stock units and performance share units), while the tax benefit received for employee stock purchase plan shares cannot be anticipated and are therefore recognized if and when a disqualifying disposition occurs.

Previous wording

The nature of our worldwide operations necessitates transacting in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. Historically, derivative financial instruments have not been used to manage foreign currency risk. In lieu of the use of foreign currency derivatives we instead try to compensate for these exposures by accelerating international currency settlements among our offices and agents. In the future, we may enter into foreign currency hedging transactions where there are regulatory or commercial limitations on our ability to move money freely around the world or the short-term financial outlook in any country is such that hedging is the most time-sensitive way to mitigate short-term exchange losses. We had no foreign currency derivatives outstanding at years ended December 31, 2024 and 2023. Net foreign currency gains were approximately $12 million in 2024, and net foreign currency losses were approximately $15 million in 2023.

Current wording

The nature of our worldwide operations necessitates transacting in a multitude of currencies other than the U.S. dollar. That exposes us to the inherent risks of volatile international currency markets and governmental interference. Some of the countries where we maintain offices and/or have agency relationships maintain strict currency control regulations that influence our ability to hedge foreign currency exposure. Historically, derivative financial instruments have not been used to manage foreign currency risk. In lieu of the use of foreign currency derivatives we instead try to compensate for these exposures by accelerating international currency settlements among our offices and agents. In the future, we may enter into foreign currency hedging transactions to manage our foreign currency risk. There are also regulatory or commercial limitations on our ability to move money freely which could be impacted by inter-governmental disputes or new trade restrictions. We had no foreign currency derivatives outstanding at years ended December 31, 2025 and 2024. Net foreign currency transactional losses were approximately $28 million in 2025, and net foreign currency transactional gains were approximately $12 million in 2024. The net impact of foreign exchange rate fluctuation on the translation of our foreign operations, as included in other comprehensive income, was an income of $49 million in 2025 and a loss of $41 million in 2024, net of taxes.

Previous wording

Historically, our business has not been adversely affected by inflation. Beginning in 2021 and continuing through 2024, many countries including the United States experienced increasing levels of inflation. As a result, our business continues to experience rising labor costs, service provider rate increases, higher rent and occupancy and other expenses. While buy rates for freight transportation capacity started declining in the second half of 2022, purchase prices for labor and other expenditures have continued to increase. Due to the high degree of competition in the marketplace we may not be able to increase our prices to our customers to offset this inflationary pressure, which could lead to an erosion in our margins and operating income in the future. Conversely, raising our prices to keep pace with inflationary pressure may result in a decrease in volume and customer demand for our services. As we are not required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive indebtedness, we currently have limited direct exposure to increased costs resulting from increases in interest rates.

Current wording

Historically, our business has not been adversely affected by inflation. Beginning in 2021 and continuing through 2025, many countries including the United States experienced increasing levels of inflation. As a result, our business continues to experience rising labor costs, service provider rate increases, higher rent and occupancy and other expenses. Due to the high degree of competition in the marketplace we may not be able to increase our prices to our customers to offset this inflationary pressure, which could lead to an erosion in our margins and operating income in the future. Conversely, raising our prices to keep pace with inflationary pressure may result in a decrease in volume and customer demand for our services. As we are not required to purchase or maintain extensive property and equipment and have not otherwise incurred substantial interest rate-sensitive indebtedness, we currently have limited direct exposure to increased interest expense resulting from increases in interest rates.

Previous wording

Our principal source of liquidity is cash and cash equivalents and cash generated from operating activities. Net cash provided by operating activities for the year ended December 31, 2024 was $723 million, as compared with $1,053 million for 2023. This $330 million decrease is primarily due to changes in working capital as we made investments to finance our business growth in the second half of 2024. At December 31, 2024, working capital was $1,593 million, including cash and cash equivalents of $1,148 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at December 31, 2024. Management believes that our current cash position and operating cash flows will be sufficient to meet our capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.

Current wording

Our principal source of liquidity is cash and cash equivalents and cash generated from operating activities. Net cash provided by operating activities for the year ended December 31, 2025 was $1.0 billion, as compared with $723 million for 2024. This $284 million increase is primarily due to collection of accounts receivable when compared to 2024. At December 31, 2025, working capital was $1,683 million, including cash and cash equivalents of $1,314 million. Other than our recorded lease liabilities, we had no long-term obligations or debt at December 31, 2025. Management believes that our current cash position and operating cash flows will be sufficient to meet our capital and liquidity requirements for at least the next 12 months and thereafter for the foreseeable future, including meeting any contingent liabilities related to standby letters of credit and other obligations.

Previous wording

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

Current wording

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

Previous wording

Cash used in investing activities for the year ended December 31, 2024 was $41 million, as compared with $39 million in 2023. Capital expenditures were $40 million in 2024 compared to $39 million in 2023. Capital expenditures in 2024 were primarily related to continuing investments in building and leasehold improvements and technology and facilities equipment. Total anticipated capital expenditures in 2025 are currently estimated to be $50 million. This includes routine capital expenditures, leasehold and building improvements and investments in technology.

Current wording

Cash used in investing activities for the year ended December 31, 2025 was $45 million, as compared with $41 million in 2024. Capital expenditures were $53 million in 2025 compared to $40 million in 2024. Capital expenditures in 2025 were primarily related to continuing investments in building and leasehold improvements and technology and facilities equipment. Total anticipated capital expenditures in 2026 are currently estimated to be approximately $100 million. This includes investments in technology infrastructure, leasehold and building improvements and routine capital expenditures.

Previous wording

Cash used in financing activities for the year ended December 31, 2024 was $1,025 million as compared with $1,537 million in 2023. We have a Discretionary Stock Repurchase Plan under which management is allowed to repurchase shares to reduce the issued and outstanding stock to 130 million shares of common stock, down from 140 million at December 31, 2023, as authorized by the Board of Directors in February 2024. We used the proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to reduce outstanding shares. During 2024 and 2023, we used cash to repurchase 7.1 million shares of common stock at an average price of $119.47 per share and 12.1 million shares of common stock at an average price of $114.68 per share, respectively. In addition, during 2024 and 2023, we paid cash dividends of $1.46 and $1.38 per share, respectively.

Current wording

Cash used in financing activities during the year ended December 31, 2025 was $802 million as compared with $1,025 million in 2024. We have a Discretionary Stock Repurchase Plan under which management is allowed to repurchase shares to reduce the issued and outstanding stock to 130 million shares of common stock. A new repurchase program has been adopted as authorized by the Board of Directors in February 2026, as described in Part II, Item 5 of this report. We use the proceeds from stock option exercises, employee stock purchases and available cash to repurchase our common stock on the open market to reduce outstanding shares. During 2025 and 2024, we used cash to repurchase 5.6 million shares of common stock at an average price of $118.01 per share and 7.1 million shares of common stock at an average price of $119.47 per share, respectively. In addition, during 2025 and 2024, we paid cash dividends of $1.54 and $1.46 per share, respectively.

Previous wording

We cannot predict what further impact ongoing uncertainties in the global economy, inflation, future interest rates, and political conflicts and uncertainties may have on our operating results, freight volumes, pricing, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or changes in competitors' behavior.

Current wording

We cannot predict what further impact ongoing uncertainties in the global economy, inflation, future interest rates, and political conflicts and uncertainty may have on our operating results, freight volumes, pricing, amounts advanced on behalf of our customers, changes in consumer demand, carrier stability and capacity, customers’ abilities to pay or changes in competitors' behavior.

Previous wording

We maintain international unsecured 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, 2024, borrowings under these credit lines were $31 million and we were contingently liable for $68 million from standby letters of credit and guarantees. The standby letters of credit and guarantees primarily relate to obligations of our foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the accounting records of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.

Current wording

We maintain international unsecured 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, 2025, borrowings under these credit lines were $30 million and we were contingently liable for $81 million from standby letters of credit and guarantees. The standby letters of credit and guarantees primarily relate to obligations of our foreign subsidiaries for credit extended in the ordinary course of business by direct carriers, primarily airlines, and for duty and tax deferrals available from governmental entities responsible for customs and value-added-tax (VAT) taxation. The total underlying amounts due and payable for transportation and governmental excises are properly recorded as obligations in the accounting records of the respective foreign subsidiaries, and there would be no need to record additional expense in the unlikely event the parent company is required to perform.

Previous wording

We typically enter into unconditional purchase obligations with asset-based providers (generally short-term in nature) reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. We only enter into agreements that management believes we can fulfill. In the regular course of business, we also enter 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, 2024 totaled $160 million.

Current wording

We typically enter into unconditional purchase obligations with asset-based providers (generally short-term in nature) reserving space on a guaranteed basis. The pricing of these obligations varies to some degree with market conditions. We only enter into agreements that management believes we can fulfill. In the regular course of business, we also enter 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, 2025 totaled $192 million.

Previous wording

Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and funds necessary to finance local capital expenditures. In some cases, our ability to timely repatriate funds from foreign operations may be subject to foreign exchange controls. At December 31, 2024, cash and cash equivalent balances of $509 million were held by our non-United States subsidiaries, of which $3 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States.

Current wording

Our foreign subsidiaries regularly remit dividends to the U.S. parent company after evaluating their working capital requirements and funds necessary to finance local capital expenditures. In some cases, our ability to repatriate funds from foreign operations may be subject to foreign exchange controls, or could be impacted by inter-governmental disputes or new trade restrictions. At December 31, 2025, cash and cash equivalent balances of $515 million were held by our non-United States subsidiaries, of which $5 million was held in banks in the United States. Earnings of our foreign subsidiaries are not considered to be indefinitely reinvested outside of the United States.