UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20182021
or
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32172
XPO Logistics, Inc.
(Exact name of registrant as specified in its charter)
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| Delaware | | 03-0450326 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
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Five American Lane Greenwich, CT
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| Greenwich, | CT | | 06831 |
| (Address of principal executive offices) | | (Zip Code) |
(855) 976-6951
(Registrant’s telephone number, including area code)code (855) 976-6951
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class:each class | | Trading symbol(s) | | Name of Each Exchangeeach exchange on Which Registered:which registered |
Common Stock,stock, par value $.001$0.001 per share | | XPO | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No ý☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨
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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý☒ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
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Large accelerated filer | | ý | | Accelerated filer | | ¨ |
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| Non-accelerated filer | | ¨☐ | | Smaller reporting company | | ¨☐ |
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| | | | Emerging growth company | | ¨☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No ý☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $12.0$12.9 billion as of June 30, 2018,2021, based upon the closing price of the common stock on that date.
As of February 8, 2019,11, 2022, there were 109,194,970114,793,197 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20192022 Annual Meeting of Stockholders (the “Proxy Statement”), are incorporated by reference into Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement is not deemed to be filed as part hereof.
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XPO LOGISTICS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20182021
TABLE OF CONTENTS
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| PART I | Page No. |
| Item 1 | | |
| Item 1A | | |
| Item 1B | | |
| Item 2 | | |
| Item 3 | | |
| Item 4 | | |
| PART II | |
| Item 5 | | |
| Item 6 | | |
| Item 7 | | |
| Item 7A | | |
| Item 8 | | |
| Item 9 | | |
| Item 9A | | |
| Item 9B | | |
| Item 9C | PART III | |
| PART III | |
| Item 10 | | |
| Item 11 | | |
| Item 12 | | |
| Item 13 | | |
| Item 14 | | |
| PART IV | |
| Item 15 | | |
| Item 16 | | |
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PART I
In this Annual Report on Form 10-K (this “Annual Report”) , "we," "our," "us," "XPO Logistics, Inc.," and "the Company" refer to XPO Logistics, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Annual Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and related Notesnotes thereto included elsewhere in this Annual Report. Forward-looking statements set forth in this Annual Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except asto the extent required by law.
ITEM 1. BUSINESS
Company Overview
XPO Logistics, Inc., a Delaware corporation, together with its subsidiaries, (“XPO,” “XPO Logistics,” the “Company,” “we” or “our”), is a top ten globalleading provider of cutting-edge supply chain solutions to the most successful companies in the world. The Company operates as a highly integrated network of people, technology and physical assets.freight transportation services. We use our networkproprietary technology to help our customers manage theirmove goods most efficiently through theirour customers’ supply chains. chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services. These two core lines of business generated the majority of our 2021 revenue and operating income.
Our revenue derives fromcompany has two reportable segments — (i) North American LTL and (ii) Brokerage and Other Services — and within each segment, we are a mix of key verticals, such as retail and e-commerce, food and beverage, consumer packaged goods and industrial.leading provider in vast, fragmented transportation sectors with growing penetration. As of December 31, 2018,2021, we operated with more than 100,000had approximately 42,000 employees and 1,535771 locations in 3220 countries and servedserving over 50,000 multinational, national, regional and local customers. In addition to our scale, we believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.
We runcontinue to closely monitor the impact of the COVID-19 pandemic and supply chain challenges on all aspects of our business, on a global basis, with two reporting segments: Transportationincluding how they affect our employees, customers and Logistics. In 2018, approximately 65%business partners. See “Impacts of our revenue came from Transportation; the other 35% came from Logistics. Within each segment, we have robust service offerings that are positioned to capitalize on fast-growing areasCOVID-19 and Supply Chain Challenges” in Part II, Item 7, “Management’s Discussion and Analysis of customer demand. Substantially allFinancial Condition and Results of our services operate under the single brand of XPO Logistics.
Transportation Segment
We offer customers an unmatched transportation network of multiple modes, flexible capacity and route density to transport freight quickly and cost effectively from origin to destination. Our scale and service range are significant advantages — both for XPO, as competitive differentiators, and for our customers, who depend on us to provide reliable capacity under all market conditions.
Within our Transportation segment, as of December 31, 2018, our largest service offerings were freight brokerage and truckload, and less-than-truckload (“LTL”), which contributed 27% and 28%, respectively, to our consolidated revenue in 2018. By comparison, in 2017, freight brokerage and truckload and LTL contributed approximately 27%
Operations.”
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Spin-off of the Logistics Segment
On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to XPO and 29%, respectively,our stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc. (“GXO”) to our consolidated revenue. In 2016, freight brokerage and truckload and LTL contributed approximately 25% and 29%, respectively, to our consolidated revenue.
Globally, we areXPO stockholders. XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the second largest freight brokerage provider, and a top five providerclose of managed transportation basedbusiness on July 23, 2021, the record date for the distribution. XPO does not beneficially own any shares of GXO’s common stock following the spin-off. GXO is an independent public company trading under the symbol “GXO” on the valueNew York Stock Exchange. The historical results of freight under management. Many of our transportation services hold market-leading positionsGXO are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Unless otherwise indicated, all amounts in this Annual Report refer to continuing operations, including comparisons to the prior year.
North America and Europe. In North America, we are the largest provider of last mile logistics for heavy goods; the largest manager of expedited shipments;American Less-Than-Truckload Segment
XPO is a top three provider of LTL transportation; and a top three provider of intermodal services, with a national drayage network. We are also a freight forwarder with a global network of ocean, air, ground and cross-border services.
In Europe, we provide full truckload transportation as dedicated and non-dedicated services using the Company’s fleet, which is the largest owned road fleet in Europe, and as a brokered service using independent carriers. Our other transportation offerings in Europe are LTL transportation, which we provide through one of the largest LTL networks in Western Europe, and last mile logistics. Our total lane density in Europe covers the regions that produce approximately 90% of the eurozone’s gross domestic product.
We use a blended model of owned, contracted and brokered capacity for truck transportation. This gives us extensive flexibility to provide solutions that best serve the interests of our customers and the Company. The non-asset portion of our model is predominately variable cost and includes our brokerage operations, as well as contracted capacity with independent providers. As of December 31, 2018, globally, we had approximately 12,000 independent carriers and owner-operators under contract to provide drayage, expedite, last mile and LTL services to our customers, and more than 50,000 independent brokered carriers representing over 1,000,000 trucks on the road.
We employ professional drivers that transport goods for customers using our fleet of owned and leased trucks and trailers. Globally, our road fleet encompasses approximately 16,000 tractors and approximately 39,000 trailers, primarily related to our LTL operations in North America and our full truckload operations in Europe. These assets also provide supplemental capacity for our freight brokerage operations as needed. Our company overall is asset-light, with the revenue generated by activities directly associated with our owned assets accounting for less than a third of our revenue in 2018.
Logistics Segment
In our Logistics segment, which we sometimes refer to as supply chain or contract logistics, we have deep expertise in key verticals, and strong positions in fast-growing sectors, such as e-fulfillment, returns management and temperature-controlled warehousing. We provide a range of contract logistics services for customers, including value-added warehousing and distribution, omnichannel and e-commerce fulfillment, cold chain solutions, reverse logistics and surge management. In addition, our Logistics segment provides highly engineered, customized solutions and supply chain optimization services, such as volume flow management. Once we secure a logistics contract, the average tenure is approximately five years and the relationship can lead to a wider use of our services, such as inbound and outbound logistics. Our Logistics segment contributed approximately 35%, 34% and 32% to our consolidated revenue in each of the years ended December 31, 2018, 2017 and 2016, respectively.
We operate 190 million square feet (18 million square meters) of contract logistics facility space worldwide, making XPO the second largest contract logistics provider. Approximately 91 million square feet (8 million square meters) of our logistics space is in the United States, where we are a market leader in logistics capacity. Our expansive footprint makes us particularly attractive to large customers with multinational operations. Our logistics customers include many of the preeminent names in retail and e-commerce, food and beverage, technology, aerospace, wireless, industrial and manufacturing, chemical, agribusiness, life sciences and healthcare.
We also benefit from a strong position in the high-growth e-commerce sector. E-commerce is predicted to continue to grow globally at a double-digit rate through at least 2020, making it difficult for many companies to handle fulfillment in-house while providing a high level of service. Demand in the e-commerce sector is characterized by strong seasonal surges in activity; the fourth quarter peak is typically the most dramatic, when holiday orders are placed online.
We are the largest outsourced e-fulfillment provider in Europe, and we have a major platform for e-fulfillment in North America, where we provide highly customized solutions that include reverse logistics and omnichannel services. Our experience with fast-growing e-commerce categories makes us a valuable partner to customers who
want to outsource order fulfillment, product returns, testing, refurbishment, warranty management, refunding, order personalization and other value-added services. Together with our last mile expertise with heavy goods, our logistics capabilities provide e-commerce companies with superior control, flexible warehousing options and labor, advanced automation and a national network of home delivery hubs.
Operating Philosophy
We believe that our ability to provide customers with integrated, end-to-end supply chain solutions gives us a significant competitive advantage. Many customers, particularly large companies, prefer to use large, multimodal service providers to manage more than one aspect of the supply chain. Additionally, we have positioned the Company to capitalize on the ongoing growth in e-commerce, and on secular trends in demand, such as outsourcing and just-in-time inventory practices.
Two hallmarks of our operations are technology and sustainability.
We prioritize innovation because we believe that advanced technology is critical to continuously improving customer service, controlling costs and leveraging our scale. Our 2018 investment in technology was approximately $500 million, among the highest in our industry.
We concentrate our efforts in four areas of innovation: automation and intelligent machines, dynamic data science, the digital freight marketplace, and visibility and customer service, specifically in the e-commerce supply chain. Our global team of approximately 1,700 technology professionals can deploy proprietary software very rapidly on our cloud-based platform. Our focus is on developing innovations that differentiate our services, create benefits for our customers and value for our shareholders. For example, we have the ability to share data with our customers in real time, including visibility of orders moving through fulfillment and shipments in transit. Our technology gives us a birds-eye view of real-time market conditions and pricing for truckload, intermodal and LTL, and facilitates load assignments with our independent contractors, all of which greatly enhances customer service.
In addition, we have a strong commitment to sustainability. We own the largest natural gas truck fleet in Europe and we launched government-approved mega-trucks in Spain as two of numerous initiatives to reduce our carbon footprint. In 2018, we made substantial investments in fuel-efficient Freightliner Cascadia tractors in North America; these use EPA 2013-compliant and GHG14-compliant Selective Catalytic Reduction (“SCR”) technology. In Europe, our tractors are approximately 98% compliant with Euro V, EEV and Euro VI standards, making our fleet one of the most modern in the industry. Our Company has been awarded the label “Objectif CO2” for outstanding environmental performance of transport operations in Europe by the French Ministry of the Environment and the French Environment and Energy Agency.
A number of our logistics facilities are ISO 14001-certified, which ensures environmental and other regulatory compliances. We monitor fuel emissions from forklifts, with protocols in place to take immediate corrective action if needed. Company packaging engineers ensure that the optimal carton size is used for each product slated for distribution and, as a byproduct of reverse logistics, we recycle millions of electronic components and batteries each year. We are committed to operating in a progressive and environmentally sound manner, with the greatest efficiency and the least waste possible.
Transportation Services
The Company’s Transportation segment includes freight brokerage (which encompasses truck brokerage, intermodal, drayage and expedite), last mile, LTL, full truckload, global forwarding and managed transportation services led by highly experienced operators.
Freight Brokerage
Our truck brokerage operations are non-asset-based: we place shippers’ freight with qualified carriers, primarily trucking companies. Customers offer loads to us via electronic data interchange, email, telephone and the internet on a daily basis. Truck brokerage services are priced on either a spot market or contract basis for shippers. We collect payments from our customers and pay the carriers for transporting customer loads. Our proprietary, cloud-based brokerage platform, Freight Optimizer, gives us real-time visibility into truckload supply and demand. Freight Optimizer is also the technology behind XPO Connect, our digital freight marketplace, which connects shippers and carriers in a virtual environment.
Our intermodal operations are asset-light: we provide customers with container capacity, brokered rail transportation, drayage transportation via independent contractors, and on-site operational services. We lease or own approximately 9,500 53-ft. containers and approximately 5,000 chassis. We utilize this equipment, together with access to supplemental capacity, to meet our customers’ intermodal requirements.
We have a sophisticated infrastructure in place to work with the railroads in providing the long-haul portion of freight shipments in containers, and we contract with independent drayage trucking companies for local pickup and delivery. We also provide customized electronic tracking and analysis of market prices and negotiated rates through our proprietary Rail Optimizer technology, which we use to determine the optimal configurations of truck and rail.
We offer our door-to-door intermodal services to a wide range of customers in North America, including large industrial and retail shippers, transportation intermediaries, such as intermodal marketing companies, and steamship lines. As of December 31, 2018, XPO was the third largest provider of intermodal services in North America with— we have one of the industry’s largest U.S. drayageasset-based networks of tractors, trailers, drivers and a leading providerterminals, and approximately 8% share of intermodal services in the cross-border Mexico sector.
Our expedite operations are predominantly non-asset-based — we use a network of contracted owner-operators for expedited ground transportation, and an electronic bid platform for air charter loads. Another large component of our expedite offering is our proprietary transportation management platform, which awards loads electronically based on online bids by carriers. These transactions primarily happen on a machine-to-machine basis. Our technology initiates a new auction on the internet, and we take a fee for facilitating the process.
Our expedite services can be characterized$42 billion LTL market as time-critical, time-sensitive or high priority freight shipments, many of which have special handling needs. Urgent needs for expedited transportation typically arise due to tight tolerances in a customer’s supply chain, or some kind of disruption to the supply chain.
Expedite customers most often request our services on a per-load transactional basis through our offices or via our proprietary online portals. Only a small percentage of loads are scheduled for future delivery dates. We operate an ISO 9001:2008-certified call center that gives our customers on-demand status updates related to their expedited shipments. As of December 31, 2018, XPO was the largest manager of expedited freight shipments in North America.
Last Mile Logistics
Our last mile operations in North America and Europe primarily specialize in heavy goods, including appliances, furniture, large electronics and other items that are larger-than-parcel. As of December 31, 2018, XPO was the largest provider of last mile logistics for heavy goods in North America, having arranged approximately 40,000 deliveries a day on average in 2018.
Our last mile services are predominantly asset-light; we utilize independent contractors to perform transportation and over-the-threshold deliveries and installations. In North America, these services are facilitated through a large network of XPO last mile hubs. As of December 31, 2018, we had 85 hubs operating in North America, extending our footprint to within 125 miles of approximately 90% of the U.S. population and further reducing transit times for goods. We also have a small last mile business in Europe.
Last mile comprises the final stage of the delivery from a local distribution center or retail store to the end-customer’s home or business, where additional services are often required. It is a fast-growing industry sector that serves blue chip retailers, e-commerce companies and smaller retailers that have limited in-house capabilities for deliveries and installations. Important aspects of last mile service are responsiveness to seasonal demand, economies of scale, advanced technology and an ability to maintain a consistently high quality of customer experience.
The last mile process often requires incremental services, such as unpacking, assembly, utility connection, installation and testing, as well as the removal of an old product. These additional services are commonly referred to as white-glove services. We use our proprietary technology platform to collect customer feedback, monitor carrier performance, manage capacity and encourage communication to protect the brands of the retailers, e-tailers and manufacturers we serve.
Less-Than-Truckload (LTL)
In North America, our LTL operations are asset-based. We employ professional drivers, own a leading fleet of tractors and trailers for line-haul, pickup and delivery, and have a large network of terminals.2020. We provide our customers with criticalgeographic density and day-definite regional, inter-regional and transcontinental LTL freight services. Our services include cross-border U.S. freight movements to and from Mexico and Canada, as well as intra-Canada service.
We have relationships with approximately 25,000 LTL customers in North America, the majority of which are local accounts. For the year ended December 31, 2021, we delivered approximately 13 million LTL shipments.
In addition to reliable national capacity, the other key factors driving our LTL growth and margin expansion are our proprietary technology and the industry’s favorable fundamentals: limited commoditization, rational pricing dynamics, rising industrial demand and the continued growth of e-commerce, which is driving frequent shipments of freight that doesn’t require an entire truck.
Specific to XPO, we believe that we have a significant opportunity to leverage our technology to improve LTL profitability beyond the sizable margin gains we have already achieved. We use intelligent route-building to move LTL freight across North America, and proprietary visualization tools to help reduce the cost of pickups and deliveries. Our XPO Smart™ productivity tools are deployed in our LTL yards and cross-dock operations, and we have developed a pricing platform that enables our pricing experts to be much more productive and will enhance our ability to price in a dynamic marketplace.
We are taking action in the five areas of our previously announced action plan to drive growth and enhance network efficiencies in our LTL business. We began executing the plan in October 2021. The five areas of our plan are:
•Improve network flow. Our targeted fourth quarter 2021 initiatives have significantly improved network fluidity, while generating stronger service metrics in areas such as on-time transit and freight handling as the quarter progressed;
•Drive pricing. We pulled our typical January 2022 general rate increase forward to November 2021 and instituted accessorial charges for detained trailers, oversized freight and special handling, contributing to record 11% growth in yield, excluding fuel, in the fourth quarter;
•Expand the driver base. We graduated approximately 900 professional drivers from our driver training schools in 2021, exceeding our goal, and intend to double the number of 2021 graduates in 2022;
•Increase trailer production. In January 2022, we added a second production line at our Searcy, Arkansas trailer manufacturing facility. We expect to double the number of units produced in 2022 year-over-year; and
•Expand footprint by 900 net new doors (approximately 6%) by year-end 2023. We added a total 149 net doors to the network from October 2021 through January 2022 with the opening of three new terminals: Chicago Heights, Illinois; Sheboygan, Wisconsin; and Texarkana, Arkansas. Additionally, we plan to open new fleet maintenance shops in Ohio, Florida, New York and Nevada in the first quarter of 2022.
Brokerage and Other Services Segment
XPO is the second largest truck broker worldwide, and one of the largest in North America, with approximately 3% share of the $80 billion North American market as of December 31, 2021. Shippers create truckload demand and we place their freight with qualified carriers, pricing our service on either a spot or contract basis. Our truck brokerage business has an agile, non-asset model with a variable labor structure that generates a high return on invested capital and free cash flow conversion.
The key factors driving growth and margin expansion in our truck brokerage business are massive capacity, cutting-edge technology and favorable industry tailwinds. The demand for truckload capacity in the e-commerce and omnichannel retail sectors is growing rapidly. At the same time, more and more shippers are outsourcing to brokers and increasingly preferring brokers like XPO that offer digital capabilities.
As of December 31, 2018,2021, we had approximately 98,000 independent truckload carriers in our global brokerage network, representing more than a million trucks. We provide our customers with digital access to truckload capacity through our XPO wasConnect® brokerage technology. This proprietary platform is a top threemajor differentiator for our business and, together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels.
Our Brokerage and Other Services segment also includes exposure to a fast-growing brokerage subsector — last mile logistics for heavy goods sold through e-commerce, omnichannel retail and direct-to-consumer channels. XPO is the largest last mile provider of LTL servicesfor heavy goods in North America, offering more than 75,000 next-day and two-day lanes. Our coverage area in North America encompasses approximately 99% of all U.S. zip codes, with service within Canada, and cross-border with Mexico and Canada.America.
In Europe, our LTL operations utilize a blend of asset-based and asset-light capacity — both Company fleet and contracted carriers, with a network of terminals. We provide LTL services domestically in France, the United Kingdom and Spain. We also offer multinational LTL distribution throughout Europe.
Full Truckload
Our asset-based full truckload services operate almost entirely in Europe. For many customers, we function as a dedicated contract carrier, providing truckload capacity by utilizing our fleet of tractors and trailers, and our drivers. In addition, we provide transactional transportation of packaged goods, high cube products and bulk goods. We provide full truckload services domestically in France, the United Kingdom, Spain, Poland, Romania, Italy, Portugal and Slovakia, and internationally throughout Europe. As of December 31, 2018, XPO was a leading provider of full truckload transportation in Europe.
Global Forwarding
Our global forwarding operations are asset-light; we provide logistics services for domestic, cross-border and international shipments through our relationships with ground, air and ocean carriers and a network of Company and agent-owned offices. OurSeveral other non-core brokered freight forwarding capabilities are not restricted by size, weight, mode or location, and therefore are potentially attractive to a wide market base.
As part of our global forwarding network, we operate subsidiaries as non-vessel-operating common carriers (“NVOCC”) to transport our customers’ freight by contracting with vessel operators. We are also a customs broker licensed by the U.S. Customs and Border Protection Service. This enables us to provide customs brokerage services to direct domestic importers, other freight forwarders and NVOCCs, and vessel-operating common carriers.
Managed Transportation
The Company is a top five global provider of managed transportation based on the value of freight under management. Our managed transportation offering includes a range of services provided to shippers who want to outsource some or all of their transportation modes together with associated activities. These activities can include freight handling, such as consolidation and deconsolidation, labor planning, the facilitation of inbound and outbound shipments, cross-border customs management and documentation, claims processing, and third-party logistics supplier management,are included in this segment, as well as other services.our European service offering. XPO holds leading positions in key geographies in Europe: we are the No. 1 truck broker and the No. 1 LTL provider in France and Iberia (Spain / Portugal), and the No. 3 truck broker in the U.K., where we also have the largest single-owner LTL network.
Innovation and Sustainability
Our first-mover advantage as an industry innovator is rooted in the more than $3 billion we have spent on technology on all operations since 2011. We categorizeconcentrate our managedefforts on creating “smart” supply chains that create meaningful value for our shareholders and our customers.
Technology is a major competitive differentiator for us. We use it to serve our customers better and make the most of the talent and assets within our organization. Our cloud-based ecosystem speeds the deployment of new ways to deliver transportation services to customer sectors that are increasingly interested in digitization and automation.
Environmental sustainability is another significant priority for us, and one that is increasingly connected to our technology. Our entire business model is based on transporting freight as control tower solutions, managed expediteefficiently as possible. This fosters our ability to improve our carbon footprint over time by reducing empty miles, maintaining a modern fleet and dedicated capacity.executing company-specific initiatives, such as training our drivers in eco-friendly techniques.
Logistics Services
Our Logistics segment, which we also referWe’re committed to as Supply Chain, encompasses a rangereducing the impact of services forour operations on the purpose ofenvironment, especially with respect to climate change and biodiversity, while helping our customers control costsdo the same. In 2020, we developed a scorecard to provide a progressive means of evaluating the management of our Environmental, Social and increase efficiency. We provide differentiatedGovernance (“ESG”) initiatives and data-intensive contract logistics services for customers, including value-added warehousingincentivizing long-term, successive achievements. Our ESG scorecard tracks measurable progress with our environmental initiatives over four years, taking into account lead time requirements, category weighting and distribution, e-commerce fulfillment, cold chain solutions, reverse logistics, packagingtarget variances.
The environmental initiatives within the scorecard encompass strategic objectives of reducing fossil fuel dependency, carbon emissions and labeling, factory support, aftermarket support, inventory managementcarbon footprint, nitrogen oxide emissions and personalization services, such as laser etching. In addition, our Logistics segment provides highly engineered, customized solutions and supply chain optimization services, such as volume flow management, predictive analytics and advanced automation. Our Logistics operationswaste. These objectives are led by seasoned executives in North America and Europe who collaborate on multinational opportunities. As of December 31, 2018, XPO was the second largest global provider of contract logistics based on facility space, with one of the largest e-fulfillment platforms in Europe.
We utilize our technology and expertise to solve complex supply chain challenges and create transformative solutions for our customers. Examples include intelligent robots that support our warehouse employees, and
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underpinned by specific goals — for example, we’re working to achieve greater fuel efficiency in our managed transportation business, with an annual goal of averaging at least seven miles per gallon every year for four years. We also set a goal to reduce carbon emissions in our LTL business by increasing the load factor rate by at least 2% over the performance period. Together with five other categories of ESG-related targets, the environmental initiatives in our ESG scorecard provide a roadmap for XPO.
sophisticatedAs we execute our sustainability strategy, we’re focusing on three critical areas: our transportation fleet, technology and facilities.
Transportation Fleet
Our business relies heavily on the availability and pricing of diesel fuel to provide our transportation services. In 2021, we switched to 100% premium diesel for our fleet. Because premium diesel is higher in cetane — analogous to octane in gasoline — it burns cleaner, lubricates better and runs more smoothly. On the road, this translates to fuel savings in the range of 1.8% to 2.5%, with commensurate reductions in carbon emissions.
Our ongoing fleet initiatives include modernizing our tractors and trailers; deploying cleaner fuels where practical, such as natural gas, biogas and electricity; expanding our use of data and software analytics to improve the efficiency of routing, loading and handling freight; and exploring the use of lighter vehicles with a smaller environmental footprint. Our scale gives us the ability to explore options locally and replicate improvements across our company.
In North American LTL, we’re investing in replacing many of our older tractors and trailers, including more than $100 million allocated to buy approximately 1,000 new tractors in 2022. The supply chain challenges related to the COVID-19 pandemic delayed the retirement of older tractors and limited our ability to secure new models in 2021. As newer vehicles become available, we will continue to introduce trucks with 15-liter engines and automatic transmissions that improve reliability and fuel economy, while lowering emissions and extending engine life.
In Europe, over 90% of our diesel road fleet is compliant with Euro VI standards, and we have a natural gas-powered fleet of more than 250 total trucks in France, the U.K., Spain and Portugal. We also use government-approved mega-trucks in Spain to transport more freight with fewer trips. We’re currently testing the use of longer, duo-trailer vehicles that have the potential to reduce CO2 emissions by an estimated 25% to 30% per trip, compared with the same freight moved on traditional trucks. In 2021, we piloted the first fully electric commercial trucks in our fleets in Spain and France, and our last mile business uses electric vehicles for demand forecasting.certain deliveries, reducing those emissions to zero.
Electric vehicles show promise in commercial transport applications, particularly as a zero-emission alternative to diesel for urban service. Our proprietary algorithms can predictfleet experts are working with manufacturers to test the flowcommercial viability of larger electric vehicles, and we put our first electric truck into service in 2021. This initiative is serving as a valuable pilot to advance our understanding of how and where to best use electric vehicles.
Technology
For many of our customers, the transportation components of their supply chain account for a significant portion of their CO2 footprint. We use machine learning and other technologies, leveraged by our scale, to coordinate the movement of goods in ways that are greener, safer, more efficient and future returns, helping our e-commerce customers plan for peak inventory, capacity and labor levels.more cost-effective.
Our logistics customers primarily operate in industriesfour key priorities are:
•Improved utilization of truck capacity. In our LTL business, our routing algorithms are designed to keep our trucks fuller over more miles, thus reducing “empty miles.” In our truck brokerage business, our XPO Connect® digital platform matches shippers with high-growth outsourcing opportunities,carriers for the optimal movements of freight, reducing inefficiencies and sourcing backhauls for carriers with empty trucks following deliveries.
•Enhanced driver performance. XPO drivers receive eco-training to reinforce techniques for fuel efficiency, and we digitally track drivers’ habits on the road. This helps us improve their individual driving efficiency and safety.
•Data-driven visibility. Our technology follows a shipment from pickup to delivery, with real-time visibility into where goods are and when they will be delivered. Digital tracking mitigates inefficiencies and allows us to assimilate data into future planning models to improve accuracy and performance.
•Emissions reduction. We use big data to predict freight volumes and plan capacity, which helps us determine the optimal vehicle or mode of transportation. In some cases, we can shift non-urgent loads to reliable, lower-carbon options, such as retail and e-commerce, food and beverage, technology, aerospace, wireless, industrial and manufacturing, chemical, agribusiness, life sciences and healthcare. They have demanding requirements for quality standards, real-time data visibility, special handling, security,rail. In 2021, XPO moved 217,000 rail shipments in the management of large numbers of stock-keeping units, time-assured deliveries and management of seasonal surgesU.S., which reduced greenhouse gas emissions by over 540,000 metric tons, compared with moving the same freight by truck.
Facilities
Our expertise in certain sectors, such as retail and e-commerce.
XPO Direct
XPO Direct is a shared-space distribution network that capitalizes on the strengthscircular economy continues to enhance the eco-profile of our Logisticsfacilities and Transportation segmentsoperating practices. We have ongoing initiatives underway to install LED lighting in combination. This networkour buildings, reuse pallets, right-size packaging and incorporate other environmentally friendly processes into our operations. We cut waste by reusing materials where feasible and recycling a growing share of logistics warehouseswaste.
Additional Information
For more information on how XPO is working to improve sustainability through operational excellence, innovation and last mile hubs gives our customers flexible capacity and helps them speed order fulfillment and delivery. Our facilities serve as stockholding sites and cross-docks that can be utilized by multiple customers at the same time. Transportation needs are supported by our brokered, contracted and owned capacity.a progressive employment environment, see sustainability.xpo.com.
XPO Direct gives companies a way to manage Business-to-Consumer and Business-to-Business fulfillment using our scale and capacity, without the capital investment of adding high-fixed-cost distribution centers. Our North American footprint positions goods within one-day and two-day ground transportation range of approximately 90% of the U.S. population and in close proximity to retail stores for inventory replenishment.
Our Strategy
Our strategy is to help customers managemove their goods most efficiently through their supply chains, using our highly integrated network of people, technology and physical assets.chains. We deliver value to customers in the form of technological innovations, process efficiencies, cost efficiencies and reliable outcomes, technological innovations and service that isoutcomes. Our services are both highly responsive to customer goals, such as mitigating environmental impacts over time, and proactive.
As part of our strategy, we continuously seek to become more efficientproactive in our own operations. We do this by looking for ways to leverage our strengths and serve customers as comprehensively as possible — our existing customers, and also companies in high-growth verticals where there is a need for multiple XPO services. As of December 31, 2018, 90 of our top 100 customers were using two or more of our service lines.
In addition, we have a comprehensive framework of processes for recruiting, training and mentoring our employees, and for marketing to the hundreds of thousands of prospective customers that can use our services.identifying potential improvements. Most important, to our growth, we have instilled a culture of collaboration that focuses our efforts on deliveringdefines success as mutually beneficial results for our customerscompany and our Company.
We will continue to grow the business in a disciplined manner, and with a compelling value proposition: XPO can provide innovative solutions for any company, of any size, with any combination of supply chain needs.customers.
Management’s growth and optimization strategy for the Transportation segment is to:
•Market our diversified, multimodal offeringsolutions and vertical expertise to new and existing customers of all sizes, both newusing a partnership approach that creates enduring relationships;
•Leverage our positioning to increasingly capitalize on secular trends in demand, such as the rapid growth of e-commerce and existing accounts;the heightened customer interest in outsourcing freight transportation;
Cross-sell our Transportation segment solutions to customers of our Logistics segment;
Provide world-class solutions that satisfy our customers’ transportation-related supply chain goals;
•Recruit and retain quality drivers, and best utilize our driver and equipment capacities;
Attract and retain quality independent owner-operators and independent brokered carriers for our carrier network;
Recruit and retain qualitytalented sales and customer service representatives, and continuously improve employeetheir productivity with state-of-the-art training and technology;
Continue to develop cutting-edge transportation applications•Attract and retain high-caliber independent contracted carriers and independent brokered carriers for our proprietary technology platformnon-asset services; and make meaningful use of data; and
•Integrate industry-bestindustry best practices into our operations, with a focus on utilizingautomation and analytics that drive productivity and market share gains.
Additionally, each of our core businesses executes a strategy of competitive differentiation:
•In North American LTL — recruit and retain quality drivers for our fleet, and best utilize our capacities of drivers, equipment, terminals and technology for a superior customer experience; and
•In truck brokerage — leverage the advantages of scaleour proprietary XPO Connect® digital marketplace to servegrow our customers efficiently and lower our administrative overhead.
Management’s growth and optimization strategy for the Logistics segment is to:
Develop additional business in verticals where the Company already has deep logistics expertise and a strong track record of successful relationships;
Capture more share of spend with existing customers that could use our solutions for morethe brokerage sector and penetrate the for-hire trucking industry.
Expand our relationships with existing customers that have multinational business interests in North America, Europe and Asia;
Cross-sell our Logistics segment solutions to customers of our Transportation segment;
Market the significant advantages of XPO’s proprietary logistics technology;
Market the ability of XPO to produce reliable, business-specific results across our global logistics network in a consistent manner;
Provide world-class solutions that meet our customers’ goals for supply chain performance, growth management and stakeholder satisfaction; and
Integrate industry-best practices, with a focus on utilizing our advantages of scale to serve our customers efficiently and lower our administrative overhead.
Proprietary Technology and Intellectual Property
One of the ways in which we empowerstrengthen our relationships with customers is by empowering our employees to deliver superior service through our technology. Our industry is evolving, and customers want to de-risk their supply chains through robust visibility and digitization. We are already well-positioned to provide this value to customers, because we prioritized visibility, control and automation early in the development of our proprietary technology.
We have built a highly scalable platform on the cloud that enables us to deploy innovations across multiple geographies in a relatively short time, and also take an innovation developed for one of our services and apply it to other services. This differentiates the value we offer and gives our larger accounts an added incentive to use us.
We believe that our investment in technology is a compelling differentiatoramong the highest in our industry. It represents oneindustry at an annual average of the Company’s largest categories of investment, reflecting our belief that the continual enhancementapproximately $300 million. The most significant impacts of our technology is critical to our success.date are in these areas:
In 2018, we introduced numerous innovations, some of which are described here:
In our Logistics segment, we launchedXPO Connect® is our proprietary cloud-based warehouse management platform to integrate robotics and other advanced automation very rapidly into our operations. This is particularly advantageous in multi-site and multichannel environments. Our technology facilitates omnichannel distribution, lean manufacturing support, aftermarket support, supply chain optimization and transportation management. It links our XPO Direct distribution network and can predict where stock should be positioned in the network for the greatest efficiency.
We announced a partnership with a world leader in consumer packaged goods to co-create a 638,000-square-foot logistics center in the U.K. The site is scheduled to open in 2020 and will feature advanced sortation systems and robotics, as well as other state-of-the-art automation and an XPO technology laboratory. A digital ecosystem will integrate predictive data and intelligent machines, operating as both a think tank and a launch pad for our innovations.
We’re deploying 5,000 additional robots throughout our logistics sites in North America and Europe. These are intelligent robots that collaborate with humans; the solution is designed to supplement our existing workforce and support future growth. These robots shorten order-to-shipment times, support same-day and next-day deliveries and help workers minimize walk-time and manual errors. As a separate initiative, we are using data-driven workforce planning tools in our warehouses to optimize productivity shift by shift.
In our Transportation segment, our XPO Connect digital freight marketplace operates as amarketplace; it encompasses our core Freight Optimizer system, shipper interface, API integration, pricing engine, tracking engine, carrier interface and our carrier mobile app, called Drive XPO®. This fully automated, self-learning digital freight platform that connectsgives us a scalable framework to continually improve our service, capture share and reduce costs.
XPO Connect® gives shippers with carriers, both directly and through the Company. This technology gives customers direct access to our carrier transportation network and its predictivemarket data, while freight carriers connecttransact to secure loads through our Drive XPO mobilethe app. As of December 31, 2018,2021, we had more than 14,000 carrier signupsapproximately 98,000 carriers registered for XPO Connect access.
Connect® globally and over 600,000 cumulative truck driver downloads of the app. In last mile, our technology delivers a consistent consumer experience with superior satisfaction levels. The system gathers real-time feedback post-delivery to help our customers build loyalty. This protects the brandsfourth quarter of 2021, 70% of our e-tail
and retail customers. We also use our proprietary applications to engage consumers in the delivery process for their heavy goods. Shoppers who buy large items from our customers online can track thosebrokerage orders in real time using our web portal, Google Home, Amazon EchoNorth America were created or Google Search. They can request personalized alerts, reschedule delivery times electronically and use our augmented reality tool to visualize the item inside their home.covered digitally.
In LTL, our technology focuses on optimizing the main components of the service we launchedprovide: linehaul, pickup-and-delivery and pricing. Our North American LTL linehaul network moved freight approximately 2.5 million miles a next-generation web integration that gives shippers accessday on average in 2021. In total, we moved 18 billion pounds of LTL freight 758 million miles in 2021.
With intelligent route-building, we can reduce empty miles in our linehaul network, improve load factor and mitigate cargo damage. Our proprietary bypass models assimilate massive amounts of data to more capabilities without custom programming, including deliveryarrive at recommendations based on volume and pickupdensity, taking freight dimensions into account to identify gaps in trailer utilization. With pickup-and-delivery, we are focused on optimizing routing, pricing management, tools, pricingtrailer utilization, exception management and planningdock productivity through our technology.
XPO Smart™ is our proprietary suite of intelligent tools and electronic document handling.analytics that self-adjusts site by site to drive productivity across our LTL terminal operations. Our software incorporates dynamic data science, predictive analytics and machine learning to aid our managers in workflow decision-making. We also developed proposaluse XPO Smart™ to improve our labor in a safe, disciplined and pricing systems for LTL, with robust algorithms and profitability monitoring. Overall, we have improved the business intelligence we use internally for LTL pricing, workforce planning and network optimization.cost-effective manner.
The supply chain industry is wide open for disruptive thinking like this. Our position as a technology leader has led to important new advantages for our customers.
Customers and Markets
Our Company providesWe provide services to a variety ofmore than 50,000 customers ranging in size from small, entrepreneurial organizations to Fortune 500 companies and global leaders. We have a diversifiedThe diversification of our customer base of more than 50,000 customers that minimizes our concentration risk: in 2018,2021, our top five customers combined accounted for approximately 11%9% of our revenue, was attributable towith our top five customers.largest customer accounting for approximately 3% of revenue.
In addition, ourOur markets are also highly diversified. The customers we serve span every major industry and touch every part of the economy. Our revenue derives from a mix of key verticals, such as industrial and manufacturing, retail and e-commerce, food and beverage, logistics and transportation and consumer packaged goodsgoods.
We market our services to customers with domestic and industrial.
Our transportationinternational supply chains, and primarily perform these services are primarily marketed in North America and Europe, whereasEurope. In 2021, approximately 72% of our logistics and global forwarding networks serve global markets with concentrations in North America, Europe and Asia. For the full year 2018, approximately 59% of ourtotal revenue was generated in the United States, 13% came fromU.S., 11% in France, 7% in the U.K. and 6% in Europe (excluding France and 12% from the United Kingdom.U.K.).
Competition
Transportation and logistics areXPO operates in highly competitive and fragmented marketplaces along with thousands of companies competing domestically and internationally. XPO competesWe compete on quality of service, reliability, scope and scale of operations, technological capabilities, expertise and price.
Our competitors include local, regional, national and international companies that offer the same services we provide, — some with larger customer bases,including C.H. Robinson, FedEx, Old Dominion Freight Line and Saia. Some of our competitors have significantly more customers, resources and more experience than we have. Additionally,have, and some of our customers have sufficient internal resources that canto perform the services we offer. Due in part to the fragmentedcompetitive nature of the industry,our marketplaces, we must strive daily to retainstrengthen existing business relationships and forge new relationships.
The health of the freight transportation and logistics industry overall will continue to be a function of domestic and global economic growth. However, we believe that we have positioned the CompanyXPO in fast-growing sectors to benefit from secular trends, in demand, such as the demand for e-commerce, omnichannel retail and supply chain outsourcing. Together with our scale, technology and company-specific initiatives, we believe that our positioning should keep us growing faster than the macro environment.
Regulation
Our operations are regulated and licensed by various governmental agencies in the United StatesU.S. and in the other countries where we conduct business. These regulations impact us directly and also indirectly by regulatingwhen they regulate third-party transportation providers we usearrange and/or contract with to transport freight for our customers.
RegulationRegulations Affecting Motor Carriers, Owner-Operators and Transportation Brokers. In the United States,U.S., our subsidiaries that operate as motor carriers, have motor carrier licenses issuedfreight forwarders, and freight transportation brokers are licensed by the Federal Motor Carrier Safety Administration (“FMCSA”) of the U.S. Department of Transportation (“DOT”). In addition, our subsidiaries acting as property brokers have property broker licenses issued by the FMCSA. Our motor carrier subsidiaries and the third-party motor carriers we engagecontract with in the United StatesU.S. must comply with the safety and fitness regulations of the DOT, including those related to, drug-testing, alcohol-testing,without limitation, controlled substances and alcohol, hours-of-service records retention,compliance, vehicle inspection,maintenance, hazardous materials compliance, driver qualificationfitness, unsafe driving, and minimum insurance requirements. Weightrequirements, as well as the Compliance Safety Accountability (“CSA”) program, which uses a Safety Measurement System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories (“BASICs”).
Other federal agencies, such as the U.S. Environmental Protection Agency (“EPA”), the U.S. Food and Drug Administration (“FDA”), the California Air Resources Board (“CARB”) and the U.S. Department of Homeland Security (“DHS”), also regulate our equipment, dimensionsoperations, cargo and independent contractor drivers. We are also are subject to
government regulations.vehicle registration and licensing requirements in certain states and local jurisdictions where we operate, as are the third-party carriers with which we contract. In foreign jurisdictions where we operate, our operations are regulated by the appropriate governmental authorities. We also may become subject to new or more restrictive regulations relating to emissions, drivers’ hours-of-service, independent contractor eligibility requirements, onboard reporting of operations, air cargo security and other matters affecting safety or operating methods. Other agencies, such as the U.S. Environmental Protection Agency (“EPA”), the Food and Drug Administration (“FDA”), the California Air Resources Board and the U.S. Department of Homeland Security (“DHS”), also regulate our equipment, operations and independent contractor drivers. Like our third-party support carriers, we are subject to a variety of vehicle registration and licensing requirements in certain states and local jurisdictions where we operate. In foreign jurisdictions where we operate, our operations are regulated by the appropriate governmental authorities.
In 2010, the FMCSA introduced the Compliance Safety Accountability program (“CSA”), which uses a Safety Management System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories, or “BASICs.”
Although the CSA scores are not currently publicly available, this development is likely to be temporary. As a result, our fleet could be ranked worse or better than our competitors, and the safety ratings of our motor carrier operations could be impacted. Our network of third-party transportation providers may experience a similar result. A reduction in safety and fitness ratings may result in difficulty attracting and retaining qualified independent contractors and could cause our customers to direct their business away from XPO and to carriers with more favorable CSA scores, which would adversely affect our results of operations.
In addition, nearly all carriers and drivers that are required to maintain records of duty status, including certain of XPO’s motor carrier subsidiaries and drivers, have been required to install and use electronic logging devices (“ELDs”). ELD installation and use may increase costs for independent contractors and other third-party support carriers who provide services to XPO and may impact driver recruitment.
Regulations Affecting ourOur Subsidiaries Providing Ocean and Air Transportation. One of our subsidiaries, XPO Customs Clearance Solutions, LLC (“XCCS”) and XPO GF America, Inc. (“XGFA”), two of the Company’s subsidiaries, areis licensed as a U.S. Customs brokersbroker by the U.S. Customs and Border Protection (“the CBP”(the “CBP”) of the DHS in each U.S. district where they performit performs services. All U.S. Customs brokers are requiredrequired to maintain prescribed records and are subject to periodic audits by the CBP. In othernon-U.S. jurisdictions where we perform customs brokerage services, our operations are licensed, where necessary, by the appropriate governmental authority.authorities.
Our subsidiaries offeringthat offer expedited air charter transportation are subject to regulation by the Transportation Security Administration (“TSA”) of the DHS regardinggoverning air cargo security for all loads, regardless of origin andor destination. XPO Global Forwarding, Inc. (“XGF”), XGFA and XPO Air Charter, LLCSome of our subsidiaries are regulated as “indirect air carriers” by the DHSTSA. The CBP, TSA and the TSA. Theserelevant non-U.S. governmental agencies provide requirements and guidance and, in some cases, administer licensing requirements and processes applicable to the freight forwarding industry.
To facilitate our international operations, XGF and XGFA are membersXPO is a member of the International Air Transportation Association (“IATA”), a voluntary association of airlines and freight forwarders that outlines operating procedures for forwarders acting as agents or third-party intermediaries for IATA members. A substantial portion of XPO’sour international air freight business is transacted with other IATA members.
Additionally, XGF, XGFA and XCCSsome of our subsidiaries are each registeredlicensed as an Ocean Transportation Intermediary (“OTI”) and ocean freight forwarders, since they operate as a non-vessel-operating common carrier (“NVOCC”), and/or as an Ocean Freight Forwarder (“OFF”) licensed by the U.S. Federal Maritime Commission (“FMC”), which establishes the qualifications, regulations, licensing and bonding requirements for arranging international transportation to operateor from the U.S. as an OTI and ocean freight forwarder for businesses originating and terminating in the United States. XGF and XGFA are also licensed NVOCCs.OTI.
Our international freight forwardingOTI operations make usare subject to regulations of the U.S. Department of State, the U.S. Department of Commerce, and the U.S. Department of Treasury, the U.S. Department of Justice, and the Securities and Exchange Commission and to various laws and regulations of the other countries where we operate. These laws and regulations cover matters, such asgovern what commodities may be shipped to whatcertain destinations and to what end-users, unfair international trade practices, and limitations on entities with which we may conduct business.business and related matters.
Other Regulations. The Company is We are subject to a variety of other U.S. and foreign laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption statutes.statutes, and export sanction laws. We are also subject to state and U.S. federal laws and regulations addressing some types of cargo transported or stored by our subsidiaries, or transported pursuant to a government contract or subcontract.
Classification of Independent Contractors. Tax U.S. tax and other federal and state regulatory authorities, as well as private litigants, continue to assert that independent contractor drivers in the trucking industry are employees rather than
standards in their determinations of independent contractors.contractor status. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements and heighten the penalties for companies whothat misclassify workers and are found to have violated overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor, allowingwhich allows taxpayers that meet certain criteria to treat individuals as independent contractors if they are following a longstanding, recognized practice. Federal legislators also sought to expand the Fair Labor Standards Act to cover “non-employees” who perform labor or services for businesses, even if said non-employees are properly classified as independent contractors; require taxpayers to provide written notice to workers based upon their classification as either an employee or a non-employee; and impose penalties and fines for violations of the notice requirement and/or for misclassifications. Some states have launched initiatives to increase tax revenues from items such as unemployment, workers’ compensation and income taxes, and the reclassification of independent contractors as employees could help states with those initiatives. Taxingincrease these revenues. In addition to these possible legislative changes, the National Labor Relations Board (“NLRB”) and other regulatory authorities and courts applyNLRB's general counsel have signaled the desire to reverse several pro-employer precedents, to make it more difficult for a variety of standards in their determinations ofworker to be classified as an independent contractor status.by changing the factors used in determining worker classification. The NLRB has also entered into a Memorandum Of Understanding with the U.S. Department of Labor regarding the exchange of information and cooperation in enforcement activities regarding the misclassification of employees as independent contractors. If XPO’sthe independent contractor drivers that provide services to XPO are determined to be our employees, we wouldcould incur additional exposure under some or all of the following: federal and state tax,employer taxes, workers’ compensation, unemployment benefits, and labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
Environmental Regulations. Our facilities and operations and our independent contractors are subject to various environmental laws and regulations dealingin the jurisdictions where we operate. In the U.S., these laws and regulations deal with the hauling, handling and disposal of hazardous materials, emissions from vehicles, engine-idling, fuel tanks and related fuel spillage and seepage, discharge and retention of storm water, and other environmental matters that involve inherent environmental risks. Similar laws and regulations may apply in many of the foreign jurisdictions in which we operate. We have instituted programs to monitor and control environmental risks and maintain compliance with applicable environmental laws and regulations. We may be responsible for the cleanup of any spill or other incident involving hazardous materials caused by our operations or business. In the past, we have been responsible for the costs of cleanup ofcost to clean up diesel fuel spills caused by traffic accidents or other events, and none of these incidents materially affected our business or operations. We generally transport only hazardous materials rated as low-to-medium-risk, and only a small percentage of our total shipments containsloads contain hazardous materials.
We believe that our operations are in substantial compliance with current laws and regulations, and we do not know of any existing environmental condition that reasonably would be expected to have a material adverse effect on our business or operating results. Future changes in environmental regulations or liabilities from newly discovered environmental conditions or violations (and any associated fines and penalties) could have a material adverse effect on our business, competitive position, results of operations, financial condition or cash flows. U.S. federal and state governments, as well as governments in certain foreign jurisdictions where we operate, have also proposed environmental legislation that could, among other things, potentially limit carbon, exhaust and greenhouse gas emissions. If enacted, such legislation could result in higher costs for new tractors and trailers, reduced productivity and efficiency, and increased operating expenses, all of which could adversely affect our results of operations.
Risk Management and Insurance
We maintain insurance for commercial automobile liability, truckers’ commercial automobileand trucker’s liability, commercial general liability, cargo/warehousecargo legal liability, workers’ compensation and employers’ liability, and umbrella and excess umbrella liability, cyber risk, and property coverage with coverage limits, deductibles and self-insured retention levels that we believe are reasonable given the varying historical frequency, severity and timing of claims. Certain actuarial assumptions and managementmanagerial judgments are made for insurance reserves and are subject to a degree of variability.
Seasonality
Our revenue and profitability are typically lower for the first quarter of the calendar year relative to the other quarters. We believe this is due in part to the post-holiday reduction in demand experienced by many of our customers, which leads to more capacity in the non-expedited and service-critical markets and, in turn, less demand for expedited and premium shippinguse of our services. In addition, the
The productivity of our tractors and trailers, independent contractors and other transportation providers generally decreases during the winter season because inclement weather impedes operations. It is not possible to reliably predict whether the Company’sour historical revenue and profitability trends will continue to occur in future periods.
Human Capital Management
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At XPO, every action we take is based on our values – we are safe, entrepreneurial, respectful, innovative and inclusive. Our values shape our approach to human capital management and ensure we provide an excellent work environment for our employees. Our success relies heavily on our strong governance structure, Code of Business Ethics, good corporate citizenship and commitment to employee engagement. choice. This requires an unwavering commitment to workplace inclusion and safety, professional growth opportunities and competitive total compensation that meets the needs of our employees and their families.
Employee Base Profile
EmployeesWe had approximately 42,000 employees in locations spanning 20 countries as of December 31, 2021, with approximately 21,000 employees in North American LTL and approximately 21,000 employees in Brokerage and Other Services, including corporate. Our workforce is supplemented with approximately 5,400 temporary workers.
By geography, approximately 66% of our employees are based in North America, approximately 33% are in Europe and approximately 1% are in Latin America and Asia combined. By job description, approximately 57% of our employees work as drivers and dockworkers, approximately 25% work as operations and warehouse workers and approximately 9% work in field supervisory and management positions with the remainder in support and other positions. In North America, approximately 78% of our employees occupy hourly roles and approximately 22% are in salaried positions. By gender, approximately 18% of our global employees are female and approximately 23% of global managerial positions (manager or supervisor and above) are occupied by women. Women also comprise approximately 45% of our global salaried field and non-field professionals, and approximately 22% of all U.S. employees at vice president level and above, an increase of more than three percentage points from 2020. By ethnicity, almost 40% of our U.S. employees are ethnically or racially diverse, with representation of Black and African American colleagues surpassing the U.S. census by seven percentage points. Approximately 30% of colleagues in U.S. managerial positions (manager or supervisor and above) identify as ethnically or racially diverse.
As of December 31, 2018,2021, approximately 88% of our employees in Europe were represented by unions or other employee representative bodies. In the Company hadU.S., less than 1% of our employees are represented by a union.
Throughout 2021, we made significant investments in the safety, well-being and satisfaction of our employees in the following areas, among others:
Diversity, Equity and Inclusion (“DE&I”)
We take pride in having an inclusive workplace that encourages a diversity of talents and perspectives. We welcome employees of every gender identity, sexual orientation, race, ethnicity, national origin, religion, life experience and disability. Led by our chief diversity officer, we celebrate diversity through our heritage month celebrations, including Black history, women’s history, LGBTQ+ pride, Hispanic heritage, Native American heritage, Asian American heritage and military veterans. We offer inclusivity courses through our XPO University e-learning portal. We also engage in academic partnerships that advance diversity in higher education, including our collaboration with Historically Black Colleges and Universities (“HBCUs”) and the Hispanic Association of Colleges and Universities. We sponsor inclusion programs and employee resource groups that support employee heritage, women, veterans, the LGBTQ+ community, people with disabilities and other multicultural groups. Commitments added in 2021 include a partnership with Hiring our Heroes, a DE&I global employee portal and “Table Talk” conversations on DE&I topics with XPO leaders.
ESG Initiatives in Long-Term Incentives. Our commitment to long-term and successive ESG achievements is demonstrated through our ESG scorecard, which we introduced in 2020 with more than 100,000 full-time40 defined ESG targets and part-time employees.initiatives that span a four-year period through 2023. Our ESG scorecard deliverables are organized into six categories that are tied to performance on: (1) employee base is onesafety; (2) sustainability; (3) information security; (4) diversity and human capital management, among other areas of ESG. Goals include targets for turnover rates, gender and ethnic diversity growth in managerial positions and DOT recordable preventable accident frequency in both managed transportation and LTL. These ESG performance targets and initiatives, including deliverables for diversity and inclusion, are linked to 25% of our most critical resources,top executives’ long-term incentive compensation.
Health and Safety
The physical and emotional safety of our employees is our top priority, and we viewhave numerous protocols in place to ensure a safe work environment. In the U.S., we aim to maintain an Occupational Safety and Health Administration total recordable incident rate (“TRIR”) that is less than half the published rate for the Truck Transportation industry based on the “Industry Injury and Illness Data” from the U.S. Bureau of Labor Statistics (“BLS”). In 2021, our North American Transport business unit exceeded our target expectation with a TRIR 2.63 points lower than the BLS national benchmark.
Another way we work to decrease occupational injuries and illnesses is through our global Road to Zero program. Road to Zero instills safety and compliance awareness through education, mentoring, communication and on-the-job training. In addition to physical well-being, we also consider emotional well-being to be an important part of workplace safety. Our Code of Business Ethics mandates zero tolerance of discrimination, harassment, retaliation, bullying and other unacceptable behaviors to ensure all employees feel welcome at work. Our open-door policy provides multiple channels for employees to report any incidents, including our anonymous Ethics Point hotline and website, along with any supervisor, manager or member of the HR team.
Throughout the COVID-19 pandemic, we’ve continued to prioritize employee physical and mental health and have aimed to balance protecting employee health while creating a comfortable work environment. We remain diligent in upholding XPO’s COVID-19 safety protocols, including daily health attestations, a contactless delivery policy for our drivers and customers and access to mental health counseling services for employees and their dependents. We continue to offer pandemic paid sick leave to provide U.S. and Canadian employees up to an additional two weeks of fully-paid sick leave.
Talent Development and Engagement
Employee Engagement. At XPO, we regularly solicit feedback from employees to gauge our progress, assess satisfaction and encourage constructive suggestions. Each quarter, we solicit feedback from our global “wired” employees through an online satisfaction survey. In the U.S., we also conduct an annual satisfaction survey among our “non-wired” frontline employee audience in addition to regular roundtables and town halls. Based on employee
feedback, we identify improvement areas and develop action plans at the business unit and facility level to implement improvements.
We also foster career development at all levels and seek to recruit and retain the best talent available. Our talent development infrastructure includes these activities and programs, among others:
Recruitment. We tailor our recruitment efforts by geography and job function using an array of channels. We proactively recruit through advertisements tailored for individual roles, and we use a range of different sources to search for potential candidates. For example, through our recruiting partnerships, we advertise open positions on recruitment websites targeted toward women, LGBTQ+ individuals, Blacks and African-Americans, Hispanics, veterans and those who are disabled. Our goal is to identify candidates who have the skills our customers need – or the desire to learn those skills. Specifically, we partner with Hiring our Heroes to attract military veterans and WorkFit, the Down’s Syndrome Association’s employment program.
Modern Hire. Our integrated approach to talent development begins with the recruitment platform we launched this year. It includes job previews, on-demand interviewing and scheduling and pre-employment assessments to improve and personalize the candidate experience, allowing candidates to choose opportunities with XPO that best match their skills and interests. These features also reduce time demands of the candidate and improve employee retention by allowing candidates to learn about XPO and the role for which they’re applying prior to joining XPO.
Grow at XPO. This program offers tailored skills development, training and mentoring for employees who aspire to grow into higher-paying positions with more responsibility at XPO. Grow at XPO is intended primarily to create opportunities for employees from minority populations or underrepresented communities.
Driver School. XPO’s driver training schools are instrumental in our driver recruitment efforts, enabling us to teach new drivers. We have 130 driver training schools in our network and graduated approximately 900 students in 2021. Our driver training program is also a critical component of our driver retention strategy, as our retention rate on average over the past two years for internal driver school graduates is more than 30 percentage points higher than that of qualifiedexternal driver hires. Our recent enhancements to student compensation and training options are industry-leading and include free tuition, guaranteed wages for instruction hours, on-the-job training and other benefits. In contrast to the BLS-reported national average age of 46 years old for employees as being essentialin the Truck Transportation industry, approximately 80% of our 2021 student driver hired population is below 40 years of age with nearly half of students between the ages of 25-34 years old. We plan to expand our ongoing success.graduate count in 2022 to double our graduates in 2021.
XPO Graduate Program (LTL). We believe that we have good relationsmaintain a robust “ready now” pipeline of future operations leaders by using structured sponsorships and incidental learning techniques. These programs are designed to develop internal candidates who demonstrate high potential in supervisory roles, preparing them to become site leaders. The programs also help retain top talent by defining personalized development paths, and they attract new talent by differentiating XPO from its competitors.
XPO RISE. Our executive training program for high-potential managers launched in the U.S. in 2021 and will launch in Europe in 2022. This program emphasizes our commitment to promote from within and increase gender diversity in executive management roles by providing cross-functional leadership experience via special projects, collaboration with peers and mentoring from XPO executives.
XPO University. Our learning and development platform encompasses online and in-person programs, including JumpStart onboarding, management training and skills development. In 2021, more than one million training hours were completed by our employees worldwide.
Expansive Total Rewards
We appreciate that our employees choose to work for XPO from among many options inside and outside our industry. We offer a total compensation package that is both competitive and progressive to attract and retain outstanding talent.
Competitive Wages. In 2021, total compensation expense for employees (i.e., excluding contingent workers) rose by 13%, or $389 million, reflecting both concentrated and broad-based investments in wage increases for more than 22,000 hourly workers throughout the year, and annual merit-based and promotional increases for our salaried employees. In addition, we hired nearly 15,000 employees globally at competitive rates as we continued to invest in the company’s growth, innovation and commitment to deliver relentlessly for our customers.
Comprehensive Benefits. We offer a comprehensive suite of health and welfare benefit programs to support employees and their families. Many of these benefits are offered because of employee feedback. In the U.S., examples include:
•Pregnancy Care Policy: guarantees up to 80 hours of paid prenatal leave and certain automatic accommodations, plus consideration of more significant accommodations.
•Family Bonding Policy: provides 100% paid time off for six weeks for the primary caregiver of a newborn or newly adopted child, and 100% paid time off for two weeks for a secondary caregiver.
•Tuition Reimbursement: provides up to $5,250 annually for continuing education, tuition-free commercial driver training and education discounts for more than 80 fields of online study.
•Additional Benefits: including access to a Total Rewards Statement, assistance with strongdiabetes management, supplemental insurance and short-term loans.
In Europe, XPO’s benefit programs vary by country and are tailored to the needs of local markets. Examples include comprehensive healthcare and risk insurances, employee assistance programs covering mental, physical and financial well-being, commercial driver training, vocational coaching and training and a full flexible benefits program in place for communicationthe U.K.
Community Involvement
In 2021, there were hundreds of examples of our company and professional development.
Executive Officersemployees giving back, including our support of the RegistrantSusan G. Komen Foundation, Truckers Against Trafficking, Soles4Souls, Girls With Impact, Toys for Tots, Elves & More and the Make-A-Wish Foundation, among others.
Information about our Executive Officers
The following information relates to each of our executive officers:
|
| | | | | | | | | | | | | |
| Name | | Age | | Position |
Bradley S.Brad Jacobs | | 6265 | | Chairman of the Board and Chief Executive Officer |
Troy A. CooperMario Harik | | 4941 | | Chief Information Officer; Acting President, Less-Than-Truckload |
Kenneth R. Wagers IIIRavi Tulsyan | | 4753 | | Chief Operating Officer and Interim President, LTL–North America |
Sarah J.S. Glickman | | 49 | | Acting Chief Financial Officer |
Mario A. Harik | | 38 | | Chief Information Officer |
Bradley S.Brad Jacobs has served as XPO’s chief executive officer and chairman of the Board of Directors and chief executive officer since September 2011. Mr. Jacobs also has served as the non-executive chairman of the Board of Directors of GXO Logistics, Inc. since August 2, 2021. He is also the managing directormember of Jacobs Private Equity, LLC, which is the Company’s secondone of XPO’s largest stockholder. Prior to XPO, hestockholders. Mr. Jacobs led two other public companies:companies prior to XPO: United Rentals, Inc. (NYSE: URI), which he co-foundedfounded in 1997, and United Waste Systems, Inc., which he founded in 1989. Mr. Jacobs served as chairman of United Rentals from 1997 to 2007, and as chief executive officer from 1997 to 2003. He served as chairman and chief executive officer of United Rentals for its first six years, and as executive chairman for an additional four years. With United Waste Systems he served eight years as chairman and chief executive officer. Previously, Mr. Jacobs founded Hamilton Resources (UK) Ltd. and served as its chairman and chief operating officer. This followed the co-founding of his first venture, Amerex Oil Associates, Inc., where he was chief executive officer.from 1989 to 1997.
Troy A. Cooper has served as XPO’s president since April 2018, after formerly serving as XPO’s chief operating officer from 2014 to 2018, and as Transportation segment leader. From September 2015 to September 2017 he also served as chief executive officer and chairman of XPO Logistics Europe. Mr. Cooper joined the Company in September 2011 as vice president of finance. Prior to XPO, Mr. Cooper served as vice president and group controller with United Rentals, Inc., where he was responsible for field finance functions and helped to integrate over 200 acquisitions in the United States, Canada and Mexico. Earlier, he held controller positions with United Waste Systems, Inc. and OSI Specialties, Inc. (formerly a division of Union Carbide, Inc.). He began his career in public accounting with Arthur Andersen and Co. and has a degree in accounting from Marietta College.
Kenneth R. Wagers has served as XPO’s chief operating officer since April 2018, and additionally serves as interim president of the Company’s North American less-than-truckload business unit. Mr. Wagers has more than two decades of experience in the supply chain sector, including senior positions with Amazon.com, Dr Pepper Snapple Group and UPS. From 2013 until he joined the Company, he served as Amazon’s head of finance, worldwide transportation and logistics. For Dr Pepper Snapple Group, he held supply chain leadership positions in consumer packaged goods. Over 17 years with UPS, he was instrumental in the expansion of 3PL services, including UPS Supply Chain Solutions. Mr. Wagers holds a master’s degree in finance from Georgia State University.
Sarah J.S. Glickman has served as XPO’s acting chief financial officer since August 2018. Ms. Glickman served as XPO’s Senior Vice President, Corporate Finance from June 2018 to August 2018. Ms. Glickman’s more than 25 years of senior finance experience include her position as chief financial officer of business services for Novartis from January 2017 to May 2018, executive roles with Honeywell International from March 2006 to November 2016 and, prior to Honeywell, Bristol-Myers Squibb. During her 11 years with Honeywell, she served as chief financial officer of the fluorine products business, and as head of internal audit and director of finance operations. With Honeywell and Bristol-Myers Squibb, she held senior positions in corporate controllership and accounting, financial controls and compliance. Ms. Glickman began her career at PricewaterhouseCoopers. She is a CPA and a Chartered Accountant with a degree in economics from the University of York (UK).
Mario A. Harik has served as XPO’s chief information officer since November 2011.2011 and acting president, Less-Than-Truckload since October 2021. Mr. Harik has led numerous technological developments for transportation and logistics industries, built comprehensive ITtechnology organizations, overseen the implementation of extensive proprietary platforms, and consulted to
Fortune 100 companies. His prior positions include chief information officer and senior vice president of research and development with Oakleaf Waste Management; chief technology officer with Tallan, Inc.; co-founder of G3 Analyst, where he served as chief architect of web and voice applications; and solutions architect and consultant with Adea Solutions. Mr. Harik holds a master’s degree in engineering, information technology from Massachusetts Institute of Technology, and a degree in engineering – computer and communications from the American University of Beirut, Lebanon.
Ravi Tulsyan has served as XPO’s chief financial officer since September 2021, after formerly serving as the company’s deputy chief financial officer since February 2021 and treasurer since 2016. Prior to XPO, Mr. Tulsyan served as treasurer and senior vice president, M&A with ADT Corporation following ADT’s 2012 spin off from Tyco International. Mr. Tulsyan previously served as Tyco’s vice president of global capital markets and head of financial planning and analysis at the time of the separation, and led all treasury activities related to the transaction. Earlier, Mr. Tulsyan held executive positions as senior treasury manager with PepsiCo, and manager of derivatives strategy and trading with Xerox Corporation. He holds a master’s degree in finance from the University of Rochester, a master’s degree in mechanical engineering from the Ohio State University, and a bachelor’s degree from the Indian Institute of Technology Madras. Corporate
Available Information and Availability of Reports
XPO Logistics, Inc. was incorporated in Delaware on May 8, 2000. Our executive office is located in the United States at Five American Lane, Greenwich, Connecticut 06831. Our telephone number is (855) 976-6951. Our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol XPO.
Our corporate website is www.xpo.com. We make available onOn this website, you can access, free of charge, access to our Annual Reportsreports on FormForms 10-K, Quarterly Reports on Form 10-Q Current Reports on Formand 8-K, as well as specialized disclosure reports on Form SD, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),these materials. Materials are available online as soon as reasonably practicable after we electronically submit such materialthem to the SEC. WeYou can also make availableaccess materials on our website copies of materials regarding our corporate governance policies and practices, including the XPO Logistics, Inc.our Corporate Governance Guidelines, Code of Business Ethics and the charters relating to the committees of our Board of Directors. You also may obtainrequest a printed copy of the foregoingthese materials without charge by sending a written requestwriting to: Investor Relations, XPO Logistics, Inc., Five American Lane, Greenwich, Connecticut 06831.
ITEM 1A. RISK FACTORS
The following are important factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Annual Report on Form 10-K or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public. You should carefully consider the following factors and consider these in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item7 and our Consolidated Financial Statements and related Notes in Item8.
COMPANY RISK
Risks related to our business model and the COVID-19 pandemic
Economic recessions and other factors that reduce freight volumes, both in North America and Europe, could have a material adverse impact on our business.
The transportation industry in North America and Europe historically has experienced cyclical fluctuations in financial results due to economic recession,recessions, downturns in the business cycles of our customers, increases in the prices charged by third-party carriers, interest rate fluctuations, changes in international trade policies and other U.S. and global economic factors beyond our control. During economic downturns, a reduction in overall demand for transportation services will likely reduce demand for our services and exert downward pressures on our rates and margins. In addition, in periods of strong economic growth, overall demand for limitedmay exceed the available supply of transportation resources, can resultresulting in increased network congestion and operating inefficiencies. In addition, any deteriorationAdditional changes in international trade policies could significantly reduce the economic environment subjectsvolume of goods transported globally and adversely affect our business and results of operations. These factors subject our business to various risks that may have a material impact on our operating results and future prospects. These risks may include the following:
•A reduction in overall freight volumesvolume reduces our opportunities for growth. In addition, if a downturn in our customers’ business cycles causes a reduction in the volume of freight shipped by those customers, our operating results could be adversely affected;
•Some of our customers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their business and may not be ableunable to pay us. In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase;
•A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment capacity or services to meet our commitments to our customers; and
•We may not be able to appropriately adjust our expenses to changingrapid changes in market demands.demand. In order to maintain high variability in our business model, it is necessary to adjust staffing levels when market demand
changes. In periods of rapid change, it is more difficult to match our staffing levels to our business needs. In addition, we have other expenses that are primarily variable but are fixed for a period of time, as well as certain significant fixed expenses; we may be unable to adequately adjust these expenses to match a rapid change in demand; and
•The U.S. government has made significant changes in U.S. trade policy and has taken certain actions that have negatively impacted U.S. trade, including imposing tariffs on certain goods imported into the U.S. To date, several governments, including the European Union (“EU”) have imposed tariffs on certain goods imported from the U.S. These actions may contribute to weakness in the global economy that could adversely affect our results of operations. Any further changes in U.S. or international trade policy could trigger additional retaliatory actions by affected countries, resulting in “trade wars” and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with countries that impose anti-trade measures. Such conditions could have an adverse effect on our business, results of operations and financial condition, as well as on the price of our common stock.
If we continue to face unfavorable market conditions arising from the COVID-19 pandemic, our business, prospects, financial condition and operating results may be negatively impacted.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our employees, customers and business partners. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.
Our operations and those of our customers have been subject to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors, which may be beyond our control. The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters. Labor shortages, particularly of truck drivers, have led and may continue to lead to difficult conditions for hiring and retention of drivers as well as mechanics, dock workers and others, and increased labor costs, and along with equipment shortages, can result in lower levels of service, including timeliness, productivity and quality of service. If we continue to face unfavorable market conditions, our business, prospects, financial condition and operating results may be negatively impacted.
During the COVID-19 pandemic, we have incurred additional costs to meet the needs of our customers and employees. We expect to continue to incur additional costs, which may be significant, as we implement operational changes in response to the pandemic. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The impacts of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict. Due to the largely unprecedented and evolving nature of the COVID-19 pandemic, it remains very difficult to predict the extent of the impact on our industry generally and our business in particular. Furthermore, the extent and pace of a recovery remains uncertain and may differ significantly among the countries in which we operate. As a result, the pandemic and related supply chain disruptions could have a material impact on our results of operations and heighten many of our other known risks described in this Annual Report.
Risks related to Our Strategy, Operations, Legal and Compliance and Finance
Our company-specific action plan to enhance network efficiencies and drive growth in our North American LTL business, and other management actions to improve our North American LTL business, may not be able to adequately adjust them in a periodeffective or timely, and may not improve our results of rapid change in market demand.operations or cash flow from operations as planned.
We operate inhave undertaken a highly competitive industrycompany-specific action plan to enhance network operating efficiencies and if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
Competition in the transportation services industry is intense. Increased competition may lead to a reduction in revenues, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our profitability, including the following:
Competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do;
A reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significantdrive growth in our business;
Shippers soliciting bids from multiple transportation providers for their shipping needs,North American LTL business, including among other actions, selectively imposing freight embargoes, increasing prices, expanding our driver school enrollment, increasing production capacity of our trailer manufacturing facility, and investing in the door count in our network of terminal facilities. The effectiveness and timeliness of these actions, which are and will be costly, and other management actions to improve our North American LTL business, may not result in the depression of freight rates or loss of business to competitors;
The establishment by our competitors of cooperative relationships to increase their ability to address shipper needs;
Decisions by our current or prospective customers to develop or expand internal capabilities for some of the services we provide; and
The development of new technologies or business models that could resultexpected improvements in our disintermediationresults of operations or cash flow from operations in certain businesses, such as freight brokerage.our North American LTL business.
Our profitability may be materially adversely impacted if our investments in equipment and service centers and warehouses do not match customer demand for these resources or if there is a decline in the availability of funding sources for these investments.
Our LTL and full truckload operations require significant investments in equipment and freight service centers. The amount and timing of our capital investments depend on various factors, including anticipated freight volume levels and the price and availability of appropriate property for service centers and newly-manufacturednewly manufactured tractors. If our anticipated requirements for service center and/centers or fleet requirements differ materially from actual usage, our capital-intensive business units,operations, specifically LTL and full truckload, may have too muchmore or too little capacity.less capacity than is optimal.
Our contract logistics operations can require a significant commitment
Our investments in equipment and service centers depend on our ability to generate cash flow from operations and our access to credit, debt and equity capital markets. A decline in the availability of these funding sources could adversely affect our financial condition and results of operations.
Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.
We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, our digital freight platform, our shared distribution network, cross-selling to strategic accounts, LTL process improvements, workforce productivity, European margin expansion, global procurement and further back-office optimization. If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on growth, including organic growth through new customer wins and increased business with existing customers, as well as additional acquisitions. We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entry into new geographic areas and increased pressure on our existing infrastructure and information technology systems from multiple customer project implementations.
Our growth may place a significant strain on our management, operational, financial and information technology resources. We seek to continually improve existing procedures and controls, as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs may continue to increase as our operations grow. Failure to manage our growth effectively, or obtain necessary working capital, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We may sell, spin off or otherwise divest one or more of our business units, which may have an adverse effect on our remaining businesses and the market price of our common stock, and we would anticipate incurring material compensation and other expenses, including expenses related to the acceleration of equity awards, in connection with substantial dispositions.
We may sell, spin off or otherwise divest, in whole or in part, one or more of our business units, which may have an adverse effect on our remaining businesses and the market price of our common stock, and we would anticipate incurring material compensation and other expenses, including expenses related to the acceleration of equity awards, in connection with entering into and/or completing substantial dispositions. We may not realize the price we expect to receive when divesting a business unit, we may incur a loss in connection with a sale, spin-off or other divestiture of a business unit, the market price of our common stock and the multiples at which our common stock trades may not increase following a business unit sale, spin-off or other divestiture, and/or we may incur ongoing transition obligations and costs that adversely impact our operations following a business unit sale, spin-off or other divestiture. Certain of these factors could have an adverse effect on our results of operations and cash flows.
In addition, a sale, spin-off or other divestiture of one or more of our business units will result in us being a smaller, less diversified company with a more concentrated area of focus. Following a potential sale, spin-off or other divestiture, we will be reliant on our remaining business units. As a result, we may become more vulnerable to changing market conditions, which could have a material adverse effect on our business, financial condition and results of operations. The diversification of our revenues, costs and cash flows will diminish as a result of a sale, spin-off or other divestiture, such that our results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility and our ability to fund capital expenditures, investments and service our debt may be diminished. We may also incur ongoing costs and retain certain liabilities that were previously allocated to entities that were sold, spun off or otherwise divested. Those costs may exceed our estimates or could diminish the benefits we expect to realize.
Further, a sale, spin-off or other divestiture of one or more of our business units may subject us to litigation. An unfavorable outcome of such litigation may result in a material adverse impact on our business, financial condition,
cash flows or results of operations. In addition, regardless of the outcome, litigation proceedings can be costly, time-consuming, disruptive to our operations, and distracting to management.
Our past acquisitions, as well as any acquisitions that we may complete in the future, may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.
While we intend for our acquisitions to improveenhance our competitiveness and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations. Acquisitions involve specialSpecial risks, including accounting, regulatory, compliance, information technology or human resources issues, that couldmay arise in connection with, or as a result of, the acquisition of the acquiredan existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses, possible management distraction, anddistractions, or the inability of the acquired businessesbusiness to achieve the levels of revenue, profit,
productivity or synergies we anticipate or otherwise perform as we expect on the timeline contemplated. We are unable to predict all of the risks that could arise as a result of our acquisitions.
IfIn addition, if the performance of our reporting unitssegments or an acquired business varies from our projections or assumptions, or if estimates about the future profitability of our reporting unitssegments or an acquired business change, our revenues, earnings or other aspects of our financial condition could be adversely affected.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
At December 31, 2021, we had $2.5 billion of goodwill on our consolidated balance sheet. Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. We assess potential impairment of our goodwill annually, or more frequently if an event or circumstance indicates an impairment loss may also experience difficultieshave been incurred. Impairment may result from significant changes in the manner or use of the acquired assets, in connection with integrating any acquired companies intothe sale, spin off or other divestiture of a business unit, negative industry or economic trends and/or significant underperformance relative to historic or projected operating results. For a discussion of our existing businessesgoodwill impairment testing, see “Critical Accounting Policies and operations, including our existing infrastructureEstimates - Evaluation of Goodwill” in Part II, Item 7, “Management’s Discussion and information technology systems. The infrastructureAnalysis of Financial Condition and information technology systemsResults of acquired businesses could present issues that we were not able to identify priorOperations.”
Issues related to the acquisition and that could adversely affectintellectual property rights on which our financial condition and results; we have experienced challenges of this nature relating to the infrastructure and systems of our businesses that we recently acquired. Also, we may not realize all synergies we anticipate from past and potential future acquisitions. Among the synergies that we currently expect to realize are cross-selling opportunitiesbusiness depends, whether related to our existing customers, network synergies and other operational synergies. Any of these events could adversely affectfailure to enforce our financial condition and results of operations.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, includingown rights or infringement claims brought by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on rapid growth, including organic growth and additional acquisitions. We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entering into new geographic areas and increased pressure on our existing infrastructure and information technology systems.
Our growth will place a significant strain on our management, operational, financial and information technology resources. We will need to continually improve existing procedures and controls, as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs will continue to increase as our operations grow. Failure to manage our growth effectively, or obtain necessary working capital,others, could have a material adverse effect on our business, financial condition and results of operations.
We use both internally developed and purchased technologies in conducting our business. Whether internally developed or purchased, it is possible that users of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties. In the event that a claim is made against us by a third party for the infringement of intellectual property rights, a settlement or adverse judgment against us could result in increased costs to license the technology or a legal prohibition against our using the technology. Thus, our failure to obtain, maintain or enforce our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We rely on a combination of intellectual property rights, including patents, copyrights, trademarks, domain names, trade secrets, intellectual property licenses and other contractual rights, to protect our intellectual property and technology. Any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated; our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties; or we may fail to secure the rights to intellectual property developed by our employees, contractors and others. Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention and divert our resources, and ultimately be unsuccessful. Moreover, should we fail to develop and properly manage future intellectual property, this could adversely affect our market positions and business opportunities.
Our overseas operations cash flows, stock priceare subject to various operational and financial risks that could adversely affect our business.
The services we provide outside the U.S. are subject to risks resulting from changes in tariffs, trade restrictions, trade agreements, tax policies, difficulties in managing or overseeing foreign operations and agents, different liability standards, issues related to compliance with anti-corruption laws, such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, data protection, trade compliance, and intellectual property laws of countries that do not protect our rights relating to our intellectual property, including our proprietary information systems, to the same extent as do U.S. laws. The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region or decrease the profitability of our operations in that region. In addition, as we expand our business in foreign countries, we will be exposed to increased risk of loss from foreign currency fluctuations and exchange controls.
We are exposed to currency exchange rate fluctuations because a significant proportion of our assets, liabilities and earnings are denominated in foreign currencies.
We present our financial statements in U.S. dollars, but we have a significant proportion of our net assets and income in non-U.S. dollar currencies, primarily the euro and British pound sterling. Consequently, a depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have an adverse impact on our financial results as further discussed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”
Volatility in fuel prices impacts our fuel surcharge revenue and may impact our profitability.
We are subject to risks associated with the availability and price of fuel, all of which are subject to political, economic and market factors that are outside of our control.
Fuel expense constitutes one of the greatest costs to our LTL and full truckload carrier operations, as well as to the independent contractor drivers and third-party transportation providers who transport freight arranged by our other operations. Accordingly, we may be adversely affected by the timing and degree of fuel price fluctuations. As is customary in our industry, most of our customer contracts include fuel surcharge programs or other cost-recovery mechanisms to mitigate the effect of any fuel price increases over base amounts established in the contract. However, these mechanisms may not fully capture an increase in fuel price. Furthermore, market pressures may limit our ability to assess fuel surcharges in the future. The extent to which we are able to recover increases in fuel costs may be impacted by the amount of empty or out-of-route truck miles or engine idling time.
Decreases in fuel prices reduce the cost of transportation services and accordingly, will reduce our revenues and may reduce margins for certain lines of business. Significant changes in the price or availability of fuel in future periods, or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a material adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.
Extreme or unusual weather conditions whether due to climate change or otherwise, can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
Our business depends, in part, on predictable temperate weather patterns. Certain seasonal weather conditions and isolated weather events can disrupt our operations. We frequently incur costs related to snow and ice removal, towing and other maintenance activities during winter months. At least some of our operations are constantly at risk of extreme adverse weather conditions. Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate change or otherwise, can temporarily impact freight volumes and increase our costs.
Also, concerns relating to climate change have led to a range of local, state, federal, and international regulatory and policy efforts to seek to address greenhouse gas (“GHG”) emissions. In the U.S., various approaches are being proposed or adopted at the federal, state, and local government levels. These efforts could lead to additional costs on the Company now or in the future, including increased fuel and other capital or operational costs, or additional legal requirements on the Company. In addition to the potential for additional GHG regulation or incentives, enhanced corporate, public, and stakeholder awareness of climate change could affect the Company's reputation or customer
demand. Climate change concerns and GHG regulatory efforts could also affect the Company's customers themselves. Any of these factors, individually or combined with one or more factors, or other unforeseen factors or other impacts of climate change, could affect the Company and have an effect on our business, operations, or financial condition.
Risks related to Our Use of Technology
Our business will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems, including those systems of any businesses that we acquire.
We rely heavily on our information technology systems to efficiently runin managing our business; they are a key component of our customer-facing services and internal growth strategy. In general, we expect our customers to continue to demand more sophisticated, fully integrated information systemstechnology from their transportation and logistics providers. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends. This process of continuous enhancement may lead to significant ongoing software development costs, which will continue to increase if we pursue new acquisitions of companies and their current systems. In addition, we may fail to accurately determine the needs of our customers or trends in the transportation services and logistics industriesindustry, or we may fail to design and implement the appropriate responsive features andrespond appropriately by implementing functionality for our technology platform in a timely andor cost-effective manner. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.
We must maintain and enhance the reliability and speed ofensure that our information technology systems to remain competitive and effectively handle higher volumes of freight through our network and the various service modes we offer.competitive. If our information technology systems are unable to manage additional volume for our operationshigh volumes with reliability, accuracy and speed as our business grows,we grow, or if such systems are not suited to manage the various service modesservices we offer, our service levels and operating efficiency could decline. In addition, if we fail to hire and retain qualified personnel to implement, protect and maintain our information technology systems, or if we fail to upgradeenhance our systems to meet our customers’ demands,needs, our business and results of operations could be seriously harmed. This could result in a loss of customers or a decline in the volume of freight we receive from customers.
We are developing proprietary information technology for all of our business segments.technology. Our technology may not be successful or may not achieve the desired results and we may require additional training or different personnel to
successfully implement this technology. Our technology development process may be subject to cost overruns or delays in obtaining the expected results, which may result in disruptions to our operations.
A failure of our information technology infrastructure or a breach of our information security systems, networks or processes may materially adversely affect our business.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our sales and marketing, accounting and financial, and legal and compliance functions, engineering and product development tasks, research and development data, communications, supply chain, order entry and fulfillment and other business processes. We also rely on third parties and virtualized infrastructure to operate and support our information technology systems. Despite significant testing, external and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error, pose a direct threat to the stability or effectiveness of our information technology systems and operations. The failure of our information technology systems to perform as we anticipate has in the past, and could in the future, adversely affect our business through transaction errors, billing and invoicing errors, internal recordkeeping and reporting errors, processing inefficiencies and loss of sales, receivables collection and customers, in each case, whichor customers. Any such failure could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failures have been remedied. Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.
We may also be subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our
reputation andor increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to the resulting claims or liability could similarly involve substantial cost. In addition, recently,
Also, due to recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, customer and employee data, which, if released, could adversely impact our customer relationships, our reputation, and even violate privacy laws. Recently, regulatory and enforcement focus on data protection has heightened in the U.S. and abroad, (particularlyparticularly in the European Union), and failureEU. Failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our business, reputation, and adversely impact our business, results of operations and financial condition.
Risks related to Our substantialCredit and Liquidity
Our indebtedness could adversely affect our financial condition.
We have substantial outstanding indebtedness, which could:
Negatively negatively affect our ability to pay principal and interest on our debt or dividends on our Series A Preferred Stock;
Increasedebt; increase our vulnerability to general adverse economic and industry conditions;
Limit limit our ability to fund future capital expenditures and working capital, to engage in future acquisitions or development activities, or to otherwise realize the value of our assets and opportunities fully because of the need to dedicate a substantial portion of our cash flow from operations to payments of interest and principal or to comply with any restrictive terms of our debt;
Limit limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
Impair impair our ability to obtain additional financing or to refinance our indebtedness in the future; and
Place place us at a competitive disadvantage compared to our competitors that may have proportionately less debt.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could materially and adversely affect our financial position and results of operations. Further, failure to comply with the covenants under our indebtedness may have a material adverse impact on our operations. If we fail to comply with any of the covenants under any of our indebtedness, and are unable to obtain a waiver or amendment, such failure may result in an event of default under our indebtedness. We may not have sufficient liquidity to repay or refinance our indebtedness if such indebtedness were accelerated upon an event of default.
Under the terms of our outstanding indebtedness, we may not be able to incur substantial additional indebtedness in the future, which could further exacerbate the risks described above.
The execution of our strategy could depend on our ability to raise capital in the future, and our inability to do so could prevent us from achieving our growth objectives.
We may in the future be required to raise capital through public or private financing or other arrangements in order to pursue our growth strategy or operate our businesses. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business and/or our ability to execute our strategy. Further debt financing may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
We may be adversely affected by interest rate changes because of our floating rate credit facilities.
The Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”) and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on London Interbank Offered Rate (“LIBOR”) or a Base Rate, as defined in the agreements, plus an applicable margin. Our European trade receivables securitization program (the “Receivables Securitization Program”) provides for an interest rate at lenders’ cost of funds plus an applicable margin. Our financial position may be affected by fluctuations in interest rates since the ABL Facility, Term Loan Facility and Receivables Securitization Program are subject to floating interest rates. Refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for the impact on interest expense of a hypothetical 1% increase in the interest rate. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increase in interest rates could have an adverse effect on our financial position and results of operations. Additionally, the interest rates on some of our debt is tied to
LIBOR. In July 2017, the head of the U.K.’s Financial Conduct Authority announced its intention to phase out the use of LIBOR by the end of 2021. However, for U.S. dollar-denominated (“USD”) LIBOR, only one-week and two-month USD LIBOR will cease to be published after 2021, and all remaining USD LIBOR tenors will continue being published until June 2023. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to another benchmark rate or rates, could have adverse impacts on our outstanding debt that currently uses LIBOR as a benchmark rate, and ultimately, adversely affect our financial condition and results of operations.
Risks related to Third-Party Relationships
We depend on third parties in the operation of our business.
In our global forwarding,intermodal drayage, expedite, last mile and freight brokerageglobal forwarding operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering this freight. In addition, in our freight brokerage businesses (particularly our over-the-road expedite operations and intermodal drayage, operations)expedite and in our last mile business,businesses, we engage independent contractors who own and operate their own equipment. Accordingly, we are dependent on third parties to provide truck, rail, ocean, air and other transportation services and to report certain events to us, including delivery information and cargo claims. This reliance on third parties could cause delays in reporting certain events, includingimpacting our ability to recognize revenue and claims in a timely manner.
Our inability to maintain positive relationships with independent transportation providers could significantly limit our ability to serve our customers on competitive terms. If we are unable to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms, our operating results could be materially and adversely affected, and our customers could shift their business to our competitors temporarily or permanently. Our ability to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms is subject to inherent risks, many of which are beyond our control, including the following:
Equipmentincluding: equipment shortages in the transportation industry, particularly among contracted truckload carriers and railroads;
Interruptions driver shortages in the transportation industry and/or resulting increases in the cost of procuring transportation services; interruptions or stoppages in transportation services as a result of labor disputes, seaport strikes, network congestion, weather-related issues, “Acts of God” or acts of terrorism;
Changes changes in regulations impacting transportation;
Increases increases in operating expenses for carriers, such as fuel costs, insurance premiums and licensing expenses, that result in a reduction in available carriers; and
Changes changes in transportation rates.
In addition, our European business heavily relies on subcontracting and we use a large number of temporary employees in these operations. As a result, we are exposed to various risks related to managing our subcontractors, such as the risk that they do not fulfill their assignments in a satisfactory manner or within the specified deadlines. Moreover, we cannot guarantee that temporary employees are as well-trained as our other employees. Specifically, we may be exposed to the risk that temporary employees may not perform their assignments in a satisfactory manner or may not comply with our safety rules in an appropriate manner, whether as a result of their lack of experience or otherwise. Such failures could compromise our ability to fulfill our commitments to our customers, comply with applicable regulations or otherwise meet our customers’ expectations. Such failures could also harm our reputation and ability to win new business and could lead to our being liable for contractual damages. Furthermore, in the event of a failure by our subcontractors or temporary employees to fulfill their assignments in a satisfactory manner, we could be required to perform unplanned work or additional services in line with the contracted service, without receiving any additional compensation. As a result, any failure to properly manage our subcontractors or temporary employees in Europe or elsewhere could have a material adverse impact on our revenues, earnings, financial position and outlook.
Increases in driver compensation and difficulties with attracting and retaining drivers could adversely affect our revenues and profitability.
Our LTL services in North America and Europe and our full truckload services in Europe are conducted primarily with employee drivers. Recently, there has beenOur industry is currently experiencing and may, in the future, experience intense competition for qualified drivers in the transportation industry due to a shortage of drivers. The availability of qualified drivers may be affected from time to time by changing workforce demographics, competition from other transportation companies and industries for employees, the availability and affordability of driver training schools, changing
industry regulations, and the demand for drivers in the labor market. If the current industry-wide shortage of qualified drivers continues, these business lines will likely continue toour global LTL operations and our European truckload operation could experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demands. As a resultdemand. During periods of increased competition in the current highly-competitive labor market for drivers, our LTL and full truckload operations may be required to increase driver compensation and benefits in the future or face difficulty meeting customer demands,demand, all of which could adversely affect our profitability. Additionally, a shortage of drivers could result in the underutilization of our truck fleet, lost revenue, increased costs for purchased transportation or increased costs for driver recruitment.
Increases in independent contractor driver rates or other necessities in attracting and retaining qualified independent contractor drivers could adversely affect our profitability and ability to replenish or grow our independent contractor driver networks.
Our freight brokerage and intermodal businesses operate through fleets of vehicles that are owned and operated by independent contractors. Our last mile business also operates through a fleet of independent contract carriers that supply their own vehicles, drivers and helpers. These independent contractors are responsible for maintaining and operating their own equipment and paying their own fuel, insurance, licenses and other operating costs. Turnover and bankruptcy among independent contractor drivers often limit the pool of qualified independent contractor drivers and increase competition for their services. In addition, regulations such as the FMCSA Compliance Safety Accountability program may further reduce the pool of qualified independent contractor drivers. Thus, our continued reliance on independent contractor drivers could limit our ability to grow our ground transportation networks.
We are currently experiencing difficulty in attracting and retaining sufficient numbers of qualified independent contractor drivers, and we expect to continue to experience this difficulty from time to time in the future. Additionally, our agreements with independent contractor drivers are terminable by either party upon short notice and without penalty. Consequently, we need to regularly recruit new qualified independent contractor drivers to replace those who have left our networks. If we are unable to retain our existing independent contractor drivers or recruit new independent contractor drivers, our business and results of operations could be adversely affected.
The rates we offer our independent contractor drivers are subject to market conditions and we may find it necessary to continue to increase independent contractor drivers’ rates in future periods. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be required to increase our mileage rates and accessorial pay or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our profitability and ability to maintain our size or to pursue our growth strategy.
Our business may be materially adversely affected by labor disputes.
Our business in the past has been, and in the future could be, adversely affected by strikes and labor negotiations affectingat seaports, labor disputes between railroads and their union employees, or by a work stoppage at one or more railroads or local trucking companies servicing rail or port terminals, including work disruptions involving owner-operators under contract with our local trucking operations. Strikes and work stoppages also could occur at our own facilities. Port shutdowns and similar disruptions to major points in national or international transportation networks, most of which are beyond our control, could result in terminal embargoes, disrupt equipment and freight flows, depress volumes and revenues, increase costs and have other negative effects on our operations and financial results.
Labor disputes involving our customers could affect our operations. If our customers experience plant slowdowns or closures because they are unable to negotiate new labor contracts, and our customers’ plants experience slowdowns or closures as a result, our revenue and profitability could be negatively impacted. In particular, our Logistics segment derives a substantial portion of its revenue from the operation and management of facilities that are often located in close proximity to a customer’s manufacturing plant and are integrated into the customer’s production line process. We may experience significant revenue loss and shutdown costs, including costs related to early termination of leases, causing our business to suffer if clients are affected by strikes or other labor disputes, close their plants or significantly modify their capacity or supply chains at a plant that our Logistics segment services.
XPO Logistics Europe’sOur European business activities require a large amount of labor, which represents one of itsour most significant costs, and itcosts. It is essential that we maintain good relations with employees, trade unions and other staff representative institutions. A deteriorating economic environment may result in tensions in industrial relations, which may lead to industrial action within our European operations andoperations; this could have a direct impact on our business operations. Generally, any deterioration in industrial relations in our European operations, such as general strike activities or other material labor disputes, could have an adverse effect on our revenues, earnings, financial position and outlook.
Efforts by labor organizations to organize employees at certain locations in North America, if successful, may result in increased costs and decreased efficiencies at those locations.
Since 2014, in the United States,U.S., the International Brotherhood of Teamsters (“Teamsters”) has attempted to organize employees at several of the Company’sour LTL locations and two Supply Chain locations, and the International Association of Machinists (“Machinists”) has attempted to organize a small number of mechanics at
three LTL maintenance shops. In 2018,Additionally, the United Automobile, AerospaceTeamsters is currently pursuing representation of independent contractor owner-operators at our Intermodal Commerce and Agricultural Implement Workers of America (“UAW”) attempted to organize warehouse workers at one Supply Chain location. San Diego, CA locations.
The majority of our employees involved in these organizing efforts rejected union representation. As of January 1, 2019,31, 2022, our employees havehad voted against union representation in 19 of the 29 union elections held since 2014.
In May 2020, LTL technicians at our Gary Hammond, IN shop ratified a contract negotiated between XPO and the Machinists union. In November 2021, the Gary Hammond facility lease expired and that shop was closed by us. In July 2021, LTL drivers and dockworkers at our Miami, FL service center and drivers at our Trenton, NJ service center ratified contracts negotiated between XPO and the Teamsters. As of January 31, 2022, we are engaged in good faith bargaining with the Teamsters at two locations where employees voted in favor of union representation in nine of the 23 union elections held since 2014, with approximately 520 employees voting in favor and 560 employees voting against representation.
In October 2017,2019, a majority of the employees of the North Haven, Connecticut Supply Chain location who hadat our LTL service centers in Laredo, TX and Aurora, IL, voted for Teamsters representation petitioned the Company to withdraw recognition ofdecertify the Teamsters as the employees’ representative andrepresentative. In December 2020, a majority of employees at our LTL service center in Cinnaminson, NJ also voted to decertify the Company withdrew this recognition.Teamsters as their bargaining representative. In addition, the Company continues to challenge the results of one election held in 2014 for anAugust 2021, drivers at our LTL locationservice center in Los Angeles, California pursuantCA also filed a decertification petition. In October 2021, the Teamsters disclaimed interest in continuing to represent the employees at that location. In September 2021, employees at our Bakersfield, CA service center filed a petition to decertify the Teamsters and later that had been filed bymonth the Teamsters. The remaining seven locations whereTeamsters disclaimed interest in continuing to represent employees had votedat that location. Likewise, in favor of union representation are in negotiationsNovember 2021, the Teamsters withdrew its petition for an initial collective bargaining agreement. election at our Kansas City LTL service center.
Since 2014, the Teamsters have withdrawn sixseven petitions seeking elections on behalf of approximately 230 LTL employees prior to the election being held, and the Machinists withdrew one petition for an LTL election on behalf of six individuals. a small group of shop employees. Today, only 184 North American LTL employees are represented by a union, of which only 98 are subject to a collective bargaining agreement.
In January 2022, LTL employees at our Trenton, NJ service center filed a deauthorization petition with the NLRB seeking to withdraw the authority of the Teamsters to require union employees to pay union dues to retain their XPO jobs. The outcome of that vote is pending.
Finally, in January 2022, the Teamsters filed a petition for an election with the NLRB seeking to represent approximately 250 owner operators at our Intermodal's Commerce and San Diego, CA Intermodal locations, and the drivers they employ, who are independent contractors. The Teamsters argue that the owner operators and their drivers are misclassified and that they are, in fact, XPO employees entitled to organize under the National Labor Relations Act. We will vigorously oppose the Teamsters’ efforts. Although we have properly classified these workers under the current legal precedent as independent contractors as opposed to employees, the NLRB and its General Counsel have signaled the possible reversal of that precedent, and other pro-employer precedents. In addition, the NLRB and the U.S. Department of Labor have entered into a Memorandum of Understanding regarding the exchange of information and cooperation in enforcement activities regarding misclassification issues. The White House Task Force on Worker Organizing and Empowerment released a report on February 7, 2022 with numerous pro-labor recommendations regarding, among others, federal government support of union organizing efforts and enforcement against companies that misclassify employees as independent contractors. There can be no assurance that increased government regulation and enforcement in this area will not increase our costs or have an adverse effect on our results of operations, cash flows and businesses.
We cannot predict with certainty whether further organizing efforts may result in the unionization of any additional locations domestically.in the U.S. There can be no assurance that decertification will succeed at any of our facilities with union representation. If union efforts are successful, these efforts may result in increased costs and decreased efficiencies at the specific locations where representation is elected. elected, and have an adverse effect on our results of operations, cash flows and businesses.
Risks related to the Spin-Off
We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off.
Although we believe that separating our Logistics segment into a stand-alone, publicly traded company has provided financial, operational and other benefits to us and our stockholders, we cannot provide assurance that we will achieve the full strategic and financial benefits expected from the spin-off. If we do not expectrealize the intended benefits of the spin-off, we could suffer a material adverse effect on our business, financial conditions, results of operations and cash flows.
If the spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, XPO and XPO stockholders could be subject to significant tax liabilities. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we could be subject to significant tax liabilities.
It was a condition to the spin-off that we receive an opinion of outside counsel regarding the qualification of the spin-off, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code. The opinion of counsel was based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of XPO and GXO, including those relating to the past and future conduct of XPO and GXO. If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if XPO or GXO breaches any of its representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel, the opinion of counsel may be invalid, and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the opinion of counsel, the U.S. Internal Revenue Service (the “IRS”) could determine that the spin-off and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel was based are false or have been violated. In addition, the opinion of counsel will represent the judgment of such counsel and will not be binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt of the opinion of counsel, there can be no assurance that the IRS will not assert that the spin-off and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, XPO and XPO stockholders could be subject to significant U.S. federal income tax liability.
If the spin-off, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, XPO would recognize taxable gain as if it had sold the GXO common stock in a taxable sale for its fair market value (unless XPO and GXO jointly make an election under Section 336(e) of the Code with respect to the spin-off, in which case, in general, (a) XPO would recognize taxable gain as if GXO had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of GXO common stock and the assumption of all its liabilities and (b) GXO would obtain a related step-up in the basis of its assets), and GXO stockholders who receive such GXO shares in the spin-off would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
In connection with the separation into two public companies, each of XPO and GXO agreed to indemnify each other for certain liabilities. If we are required to pay under these indemnities to GXO, our financial results could be negatively impacted. The GXO indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which GXO will be allocated responsibility, and GXO may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation and distribution agreement and certain other agreements between XPO and GXO, each party agrees to indemnify the other for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide GXO are not subject to any cap, may be significant and could negatively impact ifour business. Third parties could also seek to hold us responsible for any of the liabilities that GXO has agreed to extendretain. Any amounts we are required to our larger organization or the servicepay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our customer base.operating business. Further, the indemnities from GXO for our benefit may not be sufficient to protect us against the full amount of such liabilities, and GXO may not be able to fully satisfy its indemnification obligations.
Moreover, even if we ultimately succeed in recovering from GXO any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
Risks related to Litigation and Regulations
Certain of our businesses rely on owner-operators and contract carriers to conduct their operations, and the status of these parties as independent contractors, rather than employees, is being challenged.
We are involved in numerous lawsuits, including putative class action lawsuits, multi-plaintiff and individual lawsuits, and state tax and other administrative proceedings that claim that our contract carriers or owner-operators or their drivers should be treated as our employees, rather than independent contractors, or that certain of our driversindividuals were not paid for all compensable time or were not provided with required meal or rest breaks. These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both. In addition, we incur certain costs, including legal fees, in defending the status of these parties as independent contractors.
While we believe that our contract carriers and owner-operators and their drivers are properly classified as independent contractors rather than as employees, adverse decisions have been rendered recently in certain cases pending against us, including with respect to determinations that certain of our contract carriers and owner-operators are improperly classified. Certain of these decisions are subject to appeal, but we cannot provide assurance that we will determine to pursue any appeal or that any such appeal will be successful. Adverse final outcomes in these matters could, among other things, entitle certain of our contract carriers and owner-operators and their drivers to reimbursement with respect to
certain expenses and to the benefit of wage-and-hour laws and result in employment and withholding tax and benefit liability for us, and could result in changes to the independent contractor status of our contract carriers and owner-operators. Changes to state or federal laws governing the definition of independent contractors could also impact the status of our contract carriers and owner-operators. Adverse final outcomes in these matters or changes to state or federal laws could cause us to change our business model, which could have a material adverse effect on our business strategies, financial condition, results of operations or cash flows. These claims involve potentially significant classes that could involve thousands of claimants and, accordingly, significant potential damages and litigation costs, and could lead others to bring similar claims.
The results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.
Our overseas operations subject us to various operational and financial risks that could adversely affect our business.
The services we provide outside of the United States subject us to risks resulting from changes in tariffs, trade restrictions, trade agreements, tax policies, difficulties in managing or overseeing foreign operations and agents, different liability standards, issues related to compliance with anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, data protection, trade compliance, and intellectual property laws of countries which do not protect our rights in our intellectual property, including our proprietary information systems, to the same extent as the laws of the United States. The occurrence or consequences of any of these factors may restrict our
ability to operate in the affected region and/or decrease the profitability of our operations in that region. As we expand our business in foreign countries, we will also be exposed to increased risk of loss from foreign currency fluctuations and exchange controls.
Our European business heavily relies on subcontracting and we use a large number of temporary employees in these operations. Any failure to properly manage our subcontractors or temporary employees in Europe could have a material adverse impact on our revenues, earnings, financial position and outlook.
We operate in Europe through our majority-owned subsidiary, XPO Logistics Europe SA. Subcontracting plays a key role in our European operations and we subcontract approximately 55% of our transport operations in the region. As a result, we are exposed to various risks related to managing our subcontractors, such as the risk that they do not fulfill their assignments in a satisfactory manner or within the specified deadlines. Such failures could compromise our ability to fulfill our commitments to our customers, comply with applicable regulations or otherwise meet our customers’ expectations. In some situations, the poor execution of services by our subcontractors could result in a customer terminating a contract. Such failures by our subcontractors could harm our reputation and ability to win new business and could lead to our being liable for contractual damages. Furthermore, in the event of a failure by our subcontractors to fulfill their assignments in a satisfactory manner, we could be required to perform unplanned work or additional services in line with the contracted service, without receiving any additional compensation. Lastly, some of our subcontractors in Europe may not be insured or may not have sufficient resources available to handle any claims from customers resulting from potential damage and losses relating to their performance of services on our behalf. As a result, the non-compliance by our subcontractors with their contractual or legal obligations may have a material adverse effect on our business and financial condition.
XPO Logistics Europe also makes significant use of temporary staff. We cannot guarantee that temporary employees are as well-trained as our other employees. Specifically, we may be exposed to the risk that temporary employees may not perform their assignments in a satisfactory manner or may not comply with our safety rules in an appropriate manner, whether as a result of their lack of experience or otherwise. If such risks materialize, they could have a material adverse effect on our business and financial condition.
We are involved in multiple lawsuits and are subject to various claims that could result in significant expenditures and impact our operations.
The nature of our business exposes us to the potential for various types of claims and litigation. In addition to the matters described in the risk factor “Certain of our businesses rely on owner-operators and contract carriers to conduct their operations, and the status of these parties as independent contractors, rather than employees, is being challenged,” we are subject to claims and litigation related to labor and employment, personal injury, vehicular accidents, cargo and other property damage, business practices, environmental liability and other matters, including with respect to claims asserted under various other theories of agency andor employer liability notwithstanding our independent contractor relationships with our transportation providers.liability. Claims against us may exceed the amount of insurance coverage that we have or may not be covered by insurance at all. Businesses that we acquire also increase our exposure to litigation. Material increases in the frequency or severity of vehicular accidents, liability claims or workers’ compensation claims, or the unfavorable resolution of claims, or our failure to recover, in full or in part, under indemnity provisions with transportation providers, could materially and adversely affect our operating results. Our involvement in the transportation of certain goods, including but not limited to hazardous materials, could also increase our exposure in the event that we or one of our contracted carriers is involved in an accident resulting in injuriesinjury or contamination. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.
An increase in the number and/or severity of self-insured claims or an increase in insurance premiums could have an adverse effect on us.
We use a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of employee medical, vehicular collision and accident, cargo and workers’ compensation claims. Our estimated liability for self-retained insurance claims reflects certain actuarial assumptions and judgments, which are subject to a degree of variability. We reserve for anticipated losses and expenses and periodically evaluate and adjust our claims reserves to reflect our experience. Estimating the number and severity of claims, as well as related judgment or settlement amounts, is inherently difficult. This inherent difficulty, along with legal expenses, incurred but not reported claims, and
other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates. Accordingly, our ultimate results may differ from our estimates, which could result in losses over our reserved amounts. We periodically evaluate our level of insurance coverage and adjust insurance levels based on targeted risk tolerance and premium expense. An increase in the number and/or severity of self-insured claims or an increase in insurance premiums could have an adverse effect on us, while higher self-insured retention levels may increase the impact of loss occurrences on our results of operations.
In addition, the cost of providing benefits under our medical plans is dependent on a variety of factors, including governmental laws and regulations, healthcare cost trends, claims experience and healthcare decisions by plan participants. As a result, we are unable to predict how the cost of providing benefits under medical plans will affect our financial condition, results of operations or cash flows.
We are currently subject to securities class action litigation and may be subject to similar litigation in the future. Such matters can be expensive, time-consuming and have a material adverse effect on our business, results of operations and financial condition.
We are currently subject to securities class action litigation alleging violations of securities laws, which could harm our business and require us to incur significant costs. In December 2018, two purported class action lawsuits were filed against us and certain of our officers allegingofficers; these lawsuits alleged that we made false and misleading statements, and purportingpurported to assert claims for violations of the federal securities laws and seekingsought unspecified compensatory damages and other relief. One class action lawsuit has since been voluntarily dismissed. In March 2021, the court dismissed the second class action lawsuit with prejudice. In April 2021, the plaintiffs appealed the court’s decision to dismiss the second class action lawsuit. While we believe that we have a number of valid defenses to the claims described above and intend to vigorously defend ourselves in the remaining class action lawsuit, the matter is in the early stages of litigationappellate process and no assessment can be made as to the likely outcome of the matter or whether it will be material to us. Also, we may be subject to additional suits or proceedings of this type in the future, and litigation of this type maywhich could require significant attention from management and couldor result in significant legal expenses, settlement costs or damage awards, thatany of which could have a material impact on our financial position, results of operations and cash flows.
We are subject to risks associated with defined benefit plans for our current and former employees, which could have a material adverse effect on our earnings and financial position.
We maintain defined benefit pension plans and a postretirement medical plan. Our defined benefit pension plans include funded and unfunded plans in the United States and the United Kingdom.U.S. A decline in interest rates and/or lower returns on funded plan assets may cause increases in the expense and funding requirements for these defined benefit pension plans and for our postretirement medical plan. Despite past amendments that froze our defined benefit pension plans to new participants and curtailed benefits, these pension plans remain subject to volatility associated with interest rates, inflation, returns on plan assets, other actuarial assumptions and statutory funding requirements. In addition to being subject to volatility associated with interest rates, our postretirement medical plan remains subject to volatility associated with actuarial assumptions and trends in healthcare costs. Any of the aforementioned factors could lead to a significant increase in the expense of these plans and a deterioration in the solvency of these plans, which could significantly increase the Company’sour contribution requirements. As a result, we are unable to predict the effect on our financial statements associated with our defined benefit pension plans and our postretirement medical plan.
Because ofChanges in income tax regulations for U.S. and multinational companies may increase our floating rate credit facilities, we may be adversely affected by interest rate changes.tax liability.
The Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”), the senior secured term loan credit agreement, as amended (the “Term Loan Facility”) and the unsecured credit agreement (the “Unsecured Credit Agreement”), provide for an interest rate based on London Interbank Offered Rate (“LIBOR”) or a Base Rate, as defined in the agreements, plus an applicable margin. Our European trade receivables securitization program (the “Receivables Securitization Program”) provides for an interest rate at lenders’ cost of funds plus an applicable margin. Our financial position may be affected by fluctuations in interest rates since the ABL Facility, Term Loan Facility, Unsecured Credit Agreement and Receivables Securitization ProgramWe are subject to floating interest rates. Refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for the impact on interest expense of a hypothetical 100 basis point increaseincome taxes in the interest rate. Interest rates are highly sensitiveUnited States and many foreign jurisdictions. Changes to many factors, including governmental monetary policies, domesticincome tax laws and international economic and political
conditions and other factors beyond our control. A significant increasesuch laws, in interest rates could have an adverse effect on our financial position and results of operations.
We are exposed to currency exchange rate fluctuations because a significant proportion of our assets, liabilities and earnings are denominated in foreign currencies.
We present our financial statements in U.S. dollars, but we have a significant proportion of our net assets and income in non-U.S. dollar currencies, primarily the euro and British pound sterling. Consequently, a depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have an adverse impact on our financial results as further discussed below under Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”
The economic uncertainties relating to eurozone monetary policies may cause the valueany of the euro to fluctuate against other currencies. Currency volatility contributes to variationsjurisdictions in which we operate could significantly increase our sales of productseffective tax rate and services in impacted jurisdictions. For example, in the event that one or more European countries were to replace the euro with another currency,ultimately reduce our sales into such countries, or in Europe generally, would likely be adversely affected until stable exchange rates are established. Accordingly, fluctuations in currency exchange rates could adversely affect our businesscash flows from operating activities and financial condition and the business of the combined company.
The United Kingdom’s expected exit from the European Union couldotherwise have a material adverse effect on our business andfinancial condition, results of operations.
Following a referendumoperations and cash flows. The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”), the EU and other government agencies in June 2016jurisdictions in which voterswe and our affiliates do business have maintained a focus on the taxation of multinational companies. The OECD has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (“BEPS”) project. In addition, the current U.S. presidential administration has called for changes to fiscal and tax policies, which may include comprehensive tax reform. These and other tax laws and related regulations changes, to the extent adopted, may increase tax uncertainty and/or our effective tax rate, result in the United Kingdom (“U.K.”) approved an exit from the European Union (“EU”), the U.K. government initiated a process to leave the EU (a process often referred to as “Brexit”)higher compliance cost and has begun negotiating the terms of the U.K.’s future relationship with the EU. The likely exit of the U.K. from the EU will have uncertain impacts onadversely affect our transportation and logistics operations in Europe. In 2018, we derived approximately 38% of our revenue from the U.K. and Europe, including 12% from the U.K. Any adverse consequences of Brexit, such as a deterioration in the U.K.’s and/or EU’s economic condition, currency exchange rates, bilateral trade agreements or regulation of trade, including the potential imposition of tariffs, could reduce demandprovision for our services in the U.K. and/or the EU, negatively impact the value of our defined benefit pension plans in the U.K., or otherwise have a negative impact on our operations, financial condition andincome taxes, results of operations.
Sales operations and/or issuances of a substantial number of shares of our common stock may adversely affect the market price of our common stock.
We may fund any future acquisitions or our capital requirements from time to time, in whole or part, through sales or issuances of our common stock or equity-based securities, subject to prevailing market conditions and our financing needs. Future equity financing will dilute the interests of our then-existing stockholders, and future sales or issuances of a substantial number of shares of our common stock or other equity-related securities may adversely affect the market price of our common stock.
We do not own, and may not acquire, all of the outstanding shares of XPO Logistics Europe SA, the majority-owned subsidiary through which we conduct our European operations.
We currently own 86.25% of the outstanding shares of XPO Logistics Europe, the majority-owned subsidiary through which we conduct our European operations. We may not acquire the remaining shares of XPO Logistics Europe. French law only permits “squeeze out” mergers when a holder owns more than 95% of the outstanding shares. Since we do not wholly-own XPO Logistics Europe, we will not have access to all of its cash flow to service our debt, as we will only receive a prorated portion of any dividend based on our ownership percentage. In addition, we will be subject to limitations on our ability to enter into transactions with XPO Logistics Europe that are not on arms-length terms, which could limit synergies that we could otherwise achieve between our North American and European operations. We also may not be able to consolidate XPO Logistics Europe with XPO Logistics France SAS, XPO’s 100% owned French holding company, for tax purposes. Moreover, XPO Logistics Europe would be forced to continue as a listed public company in France, thereby incurring certain recurring costs.
Volatility in fuel prices impacts our fuel surcharge revenues and may impact our profitability.flows.
We are subject to risks associated with the availabilitygovernmental regulations and price of fuel, which are subject to political economic and market factors that are outside of our control.
Fuel expense constitutes one of the greatest costs to our LTL and full truckload carrier operations, as well as to our fleet of independent contractor drivers and third-party transportation providers who complete the physical movement of freight arranged by our other business operations. Accordingly, we may be adversely affected by the timing and degree of fluctuations and volatility in fuel prices. As is customary in our industry, most of our customer contracts include fuel-surcharge revenue programs or cost-recovery mechanisms to mitigate the effect of the fuel price increase over base amounts established in the contract. However, these fuel surcharge mechanisms may not capture the entire amount of the increase in fuel prices, and they also feature a lag between the payment for fuel and collection of the surcharge revenue. Market pressures may limit our ability to assess fuel surcharges in the future. The extent to which we are able to recover fuel cost charges in full may also vary depending on the degree to which we are not compensated due to empty and out-of-route miles or from engine idling during cold or warm weather.
Decreases in fuel prices reduce the cost of transportation services and accordingly, will reduce our revenues and may reduce margins for certain lines of business. Significant changes in the price or availability of fuel in future periods, or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a material adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.
Extreme or unusual weather conditions, can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
Certain weather conditions such as floods, ice and snow can disrupt our operations. Increases in the cost of our operations, such as snow removal at our locations, towing and other maintenance activities, frequently occur during the winter months. Natural disasters such as hurricanes and flooding can also impact freight volumes and increase our costs.
Issues related to the intellectual property rights on which our business depends, whether related to our failure to enforce our own rights or infringement claims brought by others, could have a material adverse effect on our business, financial condition and results of operations.
We use both internally developed and purchased technologies in conducting our business. Whether internally developed or purchased, it is possible that users of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties. In the event that a claim is made against us by a third party for the infringement of intellectual property rights, any settlement or adverse judgment against us, either in the form of increased costs of licensing or a cease and desist order in using the technology, could have an adverse effect on us and our results of operations.
We also rely on a combination of intellectual property rights, including copyrights, trademarks, domain names, trade secrets, intellectual property licenses and other contractual rights, to establish and protect our intellectual property and technology. Any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated; our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties or we may fail to secure the rights to intellectual property developed by our employees, contractors and others. Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention and resources and ultimately be unsuccessful. Moreover, our failure to develop and properly manage new intellectual property could adversely affect our market positions and business opportunities.
Our failure to obtain, maintain and enforce our intellectual property rights could therefore have a material adverse effect on our business, financial condition and results of operations.
We are subject to regulation, which could negatively impact our business.
Our operations are regulated and licensed by various governmental agencies in the United StatesU.S. and in foreign countries in whichwhere we operate. These regulatory agencies have authority and oversight of domestic and international transportation services and related activities, licensure, motor carrier operations, safety and security and other matters. We must comply with various insurance and surety bond requirements to act in the capacities for which we are licensed. Our subsidiaries and independent contractors must also comply with applicable regulations and requirements of various agencies. Through our subsidiaries and business units,operations, we hold various licenses required to carry out our domestic and international services. These licenses permit us to provide services as a motor carrier, property broker, customs broker, indirect air carrier, OTI, NVOCC, freight forwarder, air freight forwarder, and ocean freight
25
ocean freight forwarder. We alsoIn addition, we are subject to regulations and requirements promulgated by among others, the DOT, FMCSA, DHS, CBP, TSA, FMC, IATA, the Canada Border Services Agency and various other international, domestic, state and local agencies and port authorities.
Certain of our businesses engage in the transportation of hazardous materials, which subjects us to regulations with respect to transportation of such materialsthe movement, handling and environmental regulations in the case of any accidents that occur during the transportation of materials and result inaccidental discharge of such materials.which are highly regulated. Our failure to maintain ourthe required licenses, or to comply with applicable regulations, could have a material adverse impact on our business and results of operations. See the “Regulation” section of this Annual Report on Form 10-K under the caption titledItem 1, “Business” for more information.
Future laws and regulations may be more stringent and may require changes to our operating practices that influence the demand for transportationour services or require us to incur significant additional costs. We are unable to predict the impact that recently enacted and future regulations may have on our businesses.business. In particular, it is difficult to predict which, and in what form, CSA, the ELD mandate or any other FMCSA regulations may be modified or enforced, and what impact any such regulationthese regulations may have on motor carrier operations or on the aggregate number of trucks that provide hauling capacity to the Company. HigherXPO. If higher costs are incurred by us as a result of future newchanges in regulations, or by ourthe independent contractors or third-party transportation providers who pass increased costs on to us, this could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.
Furthermore, political conditions may increase the level of intensity of regulations that impact our business, may require changes to our operating practices, may influence demand for our services, or may require us to incur significant additional costs, any of which could negatively impact our business.
Failure to comply with trade compliance laws and regulations applicable to our operations may subject us to liability and result in mandatory or voluntary disclosures to government agencies of transactions or dealings involving sanctioned countries, entities or individuals.
As a result of our acquisition activities, we acquired companies with business operations outside the U.S., some of which were not previously subject to certain U.S. laws and regulations, including trade sanctions administered by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”). of the U.S. Department of the Treasury. In the course of implementing our compliance processes with respect to the operations of these acquired companies, we have identified a number of transactions or dealings involving countries and entities that are subject to U.S. economic sanctions. As disclosed in our reports filed with the SEC, we filed initial voluntary disclosure of such matters with OFAC in August 2016. In August 2018, OFAC addressed these matters by responding with a cautionary letter to us. To our knowledge, OFAC is considering no further action in response to the voluntary disclosure filed by us in August 2016. We may, in the future, identify additional transactions or dealings involving sanctioned countries, entities or individuals. The transactions or dealings that we have identified to date, or other transactions or dealings that we may identify in the future, could result in negative consequences to us, including government investigations, penalties and reputational harm.
INDUSTRY RISK
Risks related to Our Markets, Competition and Brexit
We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
Competition in the transportation services industry is intense. Increased competition may lead to a reduction in revenues, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our profitability, including the following: (i) competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do; (ii) a reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business; (iii) shippers soliciting bids from multiple transportation providers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors; (iv) the establishment by our competitors of cooperative relationships to increase their ability to address shipper needs; (v) decisions by our current or
prospective customers to develop or expand internal capabilities for some of the services we provide; and (vi) the development of new technologies or business models that could result in our disintermediation in certain services we provide.
The withdrawal of the United Kingdom from the European Union may have a negative effect on global economic conditions, financial markets and our operations.
In June 2016, a majority of voters in the U.K. voted in favor of the U.K.’s withdrawal from the EU (“Brexit”) in a national referendum. On January 31, 2020, the U.K. withdrew from the EU. The referendum and subsequent withdrawal of the U.K. from the EU have created significant uncertainty about the future relationship between the U.K. and the EU and will have uncertain impacts on our transportation operations in Europe. In 2021, we derived approximately 7% of our revenue from the U.K. and an aggregate 17% from the rest of the European countries where we operate.
Following Brexit, the movement of goods between the U.K. and the remaining member states of the EU has become subject to additional inspections and documentation checks, which may create delays at ports of entry and departure and potential impacts on our ability to efficiently provide our transportation service. Moreover, currency volatility could drive a weaker U.K. pound which could result in a decrease in our reported consolidated financial results for the U.K., which are reported in U.S. dollars.
Any adverse consequences of Brexit, such as a deterioration in the U.K.’s or the EU’s economic condition, currency exchange rates, bilateral trade agreements or regulatory trade environment, including the potential imposition of tariffs, could reduce demand for our services in the U.K. or the EU or otherwise have a negative impact on our operations, financial condition and results of operations.
INVESTMENT RISK
Our Chairmanchairman and Chief Executive Officer controlschief executive officer beneficially owns a large portion of our stock and has substantial control over us, which could limit other stockholders’ ability to influence the outcome of key transactions, including changes of control.control, and any sales of our common stock by Mr. Jacobs (or the perception that such sales may occur) could adversely impact the volume of trading, liquidity and market price of our common stock.
Under applicable SEC rules, our Chairmanchairman and Chief Executive Officer,chief executive officer, Mr. Bradley S. Jacobs, beneficially ownsowned approximately 15%10.7% of our outstanding common stock as of December 31, 2018.2021. This concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with concentrated stockholders. Our preferred stock votes together with our common stock on an “as-converted” basis on all matters, except as otherwise required by law, and separately as a class with respect to certain matters implicating the rights of holders of shares of the preferred stock. Accordingly, Mr. Jacobs can exert substantial influence over our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders. Additionally, significant fluctuations in the levels of ownership of our largest stockholders and our directors and officers (for example, if such persons decide to sell all or a portion of their shares), including shares beneficially owned by Mr. Jacobs, could adversely impact the volume of trading, liquidity and market price of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2018, the Company and its subsidiaries2021, we operated approximately 1,535771 locations, primarily in North America and Europe, including approximately 331 locations owned or leased by our customers.Europe. These facilities are located in all 48 states of the contiguous United StatesU.S. states, as well as globally.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Segment (Location) | | Leased Facilities | | Owned Facilities | | Customer Facilities (2) | | Total |
| North American LTL | | 221 | | | 117 | | | — | | | 338 | |
| Brokerage and Other Services: | | | | | | | | |
| North America | | 192 | | | 2 | | | 14 | | | 208 | |
| Europe | | 190 | | | 13 | | | 4 | | | 207 | |
Other (1) | | 8 | | | — | | | — | | | 8 | |
| Brokerage and Other Services | | 390 | | | 15 | | | 18 | | | 423 | |
| Corporate | | 10 | | | — | | | — | | | 10 | |
| Total | | 621 | | | 132 | | | 18 | | | 771 | |
|
| | | | | | | | | | | | |
| Segment (Location) | | Leased Facilities | | Owned Facilities | | Customer Facilities (2) | | Total |
| Transportation (North America) | | 371 |
| | 144 |
| | 5 |
| | 520 |
|
| Transportation (Europe) | | 164 |
| | 30 |
| | — |
| | 194 |
|
Transportation (Other) (1) | | 10 |
| | — |
| | — |
| | 10 |
|
| Logistics (North America) | | 200 |
| | 1 |
| | 131 |
| | 332 |
|
| Logistics (Europe) | | 210 |
| | 9 |
| | 173 |
| | 392 |
|
Logistics (Other) (1) | | 55 |
| | — |
| | 22 |
| | 77 |
|
| Corporate | | 9 |
| | 1 |
| | — |
| | 10 |
|
| Total | | 1,019 |
| | 185 |
| | 331 |
| | 1,535 |
|
| |
(1) | Other represents locations primarily in Asia. |
| |
(2) | Locations owned and leased by customers. |
(2) Includes leased locations and customer sites (owned or leased by customers).
We lease our current executive office located in Greenwich, Connecticut, as well as our national operations center in Charlotte, North Carolina. As of December 31, 2018, we owned aCarolina, our shared-services center in Portland, Oregon and various office facilities in France, the facility at which we conduct a portion ofU.K. and India to support our expedited transportation operations in Buchanan, Michigan. In addition, we owned 138 freight service centers for our LTL businessglobal executive and 39 properties throughout Europe.shared-services functions. We believe that our facilities are sufficient for our current needs.
ITEM 3. LEGAL PROCEEDINGS
We are involved, and will continueInformation with respect to be involved, in numerouscertain legal proceedings arising out of the conduct of our business. These proceedings may include, among other matters, claims for property damage or personal injury incurredis included in connection with the transportation of freight, claims regarding anti-competitive practices, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants and tortious interference with contract. These proceedings also include numerous putative class action lawsuits, multi-plaintiff and individual lawsuits and state tax and other administrative proceedings that claim either that our owner-operators or contract carriers should be treated as employees, rather than independent contractors, or that certain of our drivers were not paid for all compensable time or were not provided with required meal or rest breaks. These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both. Additionally, we are subject to shareholder litigation regarding our public filings with the SEC. For additional information about these matters, please refer to Note 17—18—Commitments and Contingencies to theour Consolidated Financial Statements.Statements (included in Part II, Item 8 of this Annual Report) and is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see “Risk Factors” above.
We do not believe that the ultimate resolution of any matters to which we are presently party will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol XPO.
As of February 8, 2019,11, 2022, there were approximately 210 record115 registered holders of our common stock, based upon data available to us from our transfer agent.stock. We have never paid, and have no immediate plans to pay, cash dividends on our common stock.
Issuer Purchases of Equity Securities
|
| | | | | | | | | | | | | | |
| (In millions, except per share data) | | Total Number of
Shares Purchased (1) | | Average Price Paid
Per Share | | Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs | | Approximate Dollar
Value of Shares that
May Yet Be Purchased
Under the Plans or Programs (2) |
| October 1, 2018 through October 31, 2018 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| November 1, 2018 through November 30, 2018 | | — |
| | — |
| | — |
| | — |
|
| December 1, 2018 through December 31, 2018 | | 10 |
| | 53.46 |
| | 10 |
| | 464 |
|
| Total | | 10 |
| | $ | 53.46 |
| | 10 |
| | $ | 464 |
|
| | | | | | | | | | | | | | |
(1) | Based on settlement date. |
| 32 | | |
(2) | On December 14, 2018, our Board of Directors authorized share repurchases of up to $1 billion of our common stock. For further details, refer to Note 13—Stockholders’ Equity to the Consolidated Financial Statements. In January and February 2019, we repurchased 8 million shares for an aggregate value of $464 million. This completed the authorized repurchase program. On February 13, 2019, our Board of Directors authorized a new share repurchase of up to $1.5 billion of our common stock. We are not obligated to repurchase any specific number of shares, and may suspend or discontinue the program at any time.
| | |
Stock Performance Graph
The graph below compares the cumulative five-year total return of holders of our common stock with the cumulative total returns, including reinvestmentperformance of any dividends, of the Russell 2000 Index, the Dow Jones Transportation Average Indexindex and the RussellS&P 400 MidCap index. The rulesgraph assumes that the value of the SEC require that if an index is selected that is different from the index used in the immediately preceding fiscal year, the total return must be compared with both the newly-selected index and the index used in the immediately preceding year. The graph in our 2017 Annual Report on 10-K included a comparison of our common stock with the Russell 2000 Index and the Dow Jones Transportation Average Index. However, the Russell MidCap index, of which we are a component, generally includes companies with more comparable market capitalization to us than the Russell 2000 index. As a result, we believe that the Russell MidCap index is a more appropriate index and have included both the Russell 2000 and the Russell MidCap indices in the graph. The graph tracks the performance of a $100 investment in our common stock and in each index fromwas $100 on December 31, 20132016 and that all dividends and other distributions, including the effect of the spin-off of GXO, were reinvested. The comparisons in the graph below are based on historical data and not indicative of, or intended to December 31, 2018.forecast, future performance of our common stock.
| | | | | 12/31/13 | | 12/31/14 | | 12/31/15 | | 12/31/16 | | 12/31/17 | | 12/31/18 | | 12/31/16 | | 12/31/17 | | 12/31/18 | | 12/31/19 | | 12/31/20 | | 12/31/21 |
| XPO Logistics, Inc. | | $ | 100.00 |
| | $ | 155.50 |
| | $ | 103.65 |
| | $ | 164.17 |
| | $ | 348.38 |
| | $ | 216.96 |
| XPO Logistics, Inc. | | $ | 100.00 | | | $ | 212.21 | | | $ | 132.16 | | | $ | 184.66 | | | $ | 276.18 | | | $ | 314.18 | |
| Russell 2000 | | $ | 100.00 |
| | $ | 104.89 |
| | $ | 100.26 |
| | $ | 121.63 |
| | $ | 139.44 |
| | $ | 124.09 |
| |
| | Dow Jones Transportation Average | | $ | 100.00 |
| | $ | 125.07 |
| | $ | 104.11 |
| | $ | 127.36 |
| | $ | 151.58 |
| | $ | 132.90 |
| Dow Jones Transportation Average | | $ | 100.00 | | | $ | 119.02 | | | $ | 104.35 | | | $ | 126.09 | | | $ | 146.92 | | | $ | 195.72 | |
| Russell MidCap | | $ | 100.00 |
| | $ | 113.22 |
| | $ | 110.46 |
| | $ | 125.70 |
| | $ | 148.97 |
| | $ | 135.48 |
| |
| S&P 400 MidCap | | S&P 400 MidCap | | $ | 100.00 | | | $ | 116.24 | | | $ | 103.36 | | | $ | 130.44 | | | $ | 148.26 | | | $ | 184.96 | |
Unregistered Sales of Equity Securities and Use of Proceeds
DuringNone.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
XPO Logistics is a leading provider of freight transportation services. We use our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services. These two core lines of business generated the majority of our 2021 revenue and operating income.
Our company has two reportable segments — (i) North American LTL and (ii) Brokerage and Other Services — and within each segment, we are a leading provider in vast, fragmented transportation sectors with growing penetration. We believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.
On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to XPO and our stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc. (“GXO”) to XPO stockholders. XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution. XPO does not beneficially own any shares of GXO’s common stock following the spin-off. GXO is an independent public company trading under the symbol “GXO” on the New York Stock Exchange. The historical results of GXO are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.
Impacts of COVID-19 and Supply Chain Challenges
As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. The COVID-19 pandemic that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry.
The onset of the COVID-19 pandemic and associated impacts on economic activity had adverse effects on our results of operations and financial condition beginning in the second quarter of 2020 and continued throughout the year. The rebound of our business began to occur midway through 2020; however, as the economy recovers, demand has outpaced supply in certain sectors. Additionally, labor shortages in the recovery – notably, a reduced supply of truck drivers – present challenges to many service industries, including freight transportation. These dynamics, together with equipment shortages and pent-up demand for semiconductor chips used by some of our end markets, have created supply chain disruptions and increased our cost of transportation and services. We cannot predict how long the current labor shortages and other disruptions will last, or whether future disruptions, if any, will adversely affect our results of operations.
We continue to incur net incremental and direct costs related to COVID-19 to ensure that we meet the needs of our employees and customers; these include costs for personal protective equipment (“PPE”), site cleanings and enhanced employee benefits, referred to as COVID-19-related costs in this Annual Report.
The totality of the actions we have taken during the pandemic, and continue to take, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in key growth initiatives.
Impact of Inflation
Inflation can have a negative impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases. For the year ended December 31, 2018, pursuant2021, the constrained labor market resulted in higher third-party transportation and fuel costs to the Investment Agreement dated as of June 13, 2011meet growing demand which were partially offset by and among Jacobs Private Equity, LLC (“JPE”) and the other investors party thereto (collectively with JPE, the “Investors”) the Company issued 53,500 unregistered shares of its common stock as a result of the cashless exercise
increased pricing to our customers.
of warrants by certain shareholders and 7,143 unregistered shares of its common stock as a result of the exercise of warrants by certain shareholders for cash resulting in the receipt of $50,001 of total proceeds by the Company. The proceeds received by the Company will be used for general corporate purposes. The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933, as amended, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth our selected historical and quarterly consolidated financial data. During 2014 and 2015, we made a number of acquisitions, including the 2015 acquisitions of Con-way, Inc. and Norbert Dentressangle, and have included the results of operations of the acquired businesses from the date of acquisition. Additionally, we divested our North American Truckload operation in the fourth quarter of 2016. As a result, our period to period results of operations vary depending on the dates and sizes of these acquisitions and divestitures. Accordingly, this selected financial data is not necessarily comparable or indicative of our future results. This financial data should be read together with our Consolidated Financial Statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this Annual Report.
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| | | | | | | | | | | | | | | | | | | | |
| | | As of or For the Years Ended December 31, |
| (In millions, except per share data) | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| Operating Results: | | | | | | | | | | |
| Revenue | | $ | 17,279 |
| | $ | 15,381 |
| | $ | 14,619 |
| | $ | 7,623 |
| | $ | 2,357 |
|
Operating income (loss) (1) | | 704 |
| | 582 |
| | 464 |
| | (29 | ) | | (41 | ) |
| Income (loss) before income taxes | | 566 |
| | 261 |
| | 107 |
| | (283 | ) | | (90 | ) |
Net income (loss) (2) | | 444 |
| | 360 |
| | 85 |
| | (192 | ) | | (64 | ) |
Net income (loss) attributable to common shareholders (3) | | 390 |
| | 312 |
| | 63 |
| | (246 | ) | | (107 | ) |
| Per Share Data: | | | | | | | | | | |
| Basic earnings (loss) per share | | $ | 3.17 |
| | $ | 2.72 |
| | $ | 0.57 |
| | $ | (2.65 | ) | | $ | (2.00 | ) |
| Diluted earnings (loss) per share | | 2.88 |
| | 2.45 |
| | 0.53 |
| | (2.65 | ) | | (2.00 | ) |
| Financial Position: | | | | | | | | | | |
| Total assets | | $ | 12,270 |
| | $ | 12,602 |
| | $ | 11,698 |
| | $ | 12,643 |
| | $ | 2,749 |
|
| Long-term debt, less current portion | | 3,902 |
| | 4,418 |
| | 4,732 |
| | 5,273 |
| | 580 |
|
| Preferred stock | | 41 |
| | 41 |
| | 42 |
| | 42 |
| | 42 |
|
| Total equity | | 3,970 |
| | 4,010 |
| | 3,038 |
| | 3,061 |
| | 1,655 |
|
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(1) | Operating income for 2017 and 2016 reflects the retrospective effects from the January 1, 2018 adoption of Accounting Standard Update 2017-07, Compensation - Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” See Note 2—Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements in Item 8 for further information.
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(2) | As discussed further in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our net income for 2017 included a $173 million benefit related to the revaluation of our net deferred tax liabilities as a result of the Tax Cuts and Jobs Act (the “Tax Act”). |
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(3) | Net loss attributable to common shareholders for the years ended December 31, 2015 and 2014 reflect beneficial conversion charges of $52 million on Series C Preferred Stock and $41 million on Series B Preferred Stock, respectively, that were recorded as deemed distributions during the third quarter of 2015 and the fourth quarter of 2014, respectively. |
The Company’s unaudited results of operations for each of the quarters in the years ended December 31, 2018 and 2017 are summarized below:
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| | | | | | | | | | | | | | | | |
| (In millions, except per share data) | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter (2) (3) |
| 2018 | | | | | | | | |
| Revenue | | $ | 4,192 |
| | $ | 4,363 |
| | $ | 4,335 |
| | $ | 4,389 |
|
| Operating income | | 141 |
| | 228 |
| | 209 |
| | 126 |
|
| Net income | | 79 |
| | 159 |
| | 115 |
| | 91 |
|
Net income attributable to common shareholders (1) | | 67 |
| | 138 |
| | 101 |
| | 84 |
|
Basic earnings per share (1) | | 0.56 |
| | 1.14 |
| | 0.81 |
| | 0.67 |
|
Diluted earnings per share (1) | | 0.50 |
| | 1.03 |
| | 0.74 |
| | 0.62 |
|
| 2017 | | | | | | | | |
| Revenue | | $ | 3,540 |
| | $ | 3,760 |
| | $ | 3,887 |
| | $ | 4,194 |
|
| Operating income | | 104 |
| | 175 |
| | 177 |
| | 126 |
|
| Net income | | 25 |
| | 57 |
| | 71 |
| | 207 |
|
Net income attributable to common shareholders (1) | | 19 |
| | 47 |
| | 57 |
| | 189 |
|
Basic earnings per share (1) | | 0.18 |
| | 0.43 |
| | 0.49 |
| | 1.57 |
|
Diluted earnings per share (1) | | 0.16 |
| | 0.38 |
| | 0.44 |
| | 1.42 |
|
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(1) | The sum of the quarterly Net income (loss) attributable to common shareholders and earnings per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods and the impact of the two-class method of calculating earnings per share. |
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(2) | The fourth quarter of 2018 included a litigation charge of $26 million, a gain on the sale of an equity investment of $24 million and a restructuring charge of $19 million. |
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(3) | The fourth quarter of 2017 included a debt extinguishment loss of $22 million and a tax benefit of $173 million resulting from the enactment of the Tax Act. |
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
XPO Logistics, Inc., a Delaware corporation, together with its subsidiaries (“XPO,” the “Company,” “we” or “our”), is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. We are organized into two reportable segments: Transportation and Logistics. The Transportation segment provides freight brokerage, last mile, less-than-truckload (“LTL”), full truckload, global forwarding and managed transportation services. The Logistics segment, which we also refer to as supply chain, provides differentiated and data-intensive contract logistics services for customers, including value-added warehousing and distribution, e-commerce fulfillment, cold chain solutions, reverse logistics, packaging and labeling, factory support, aftermarket support, inventory management and personalization services, such as laser etching. In addition, our Logistics segment provides highly engineered, customized solutions and supply chain optimization services, such as volume flow management, predictive analytics and advanced automation.
Our chief executive officer, who is the chief operating decision maker (“CODM”), regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Consolidated Summary Financial TableResults
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | Percent of Revenue |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 12,806 | | | $ | 10,199 | | | $ | 10,681 | | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of transportation and services (exclusive of depreciation and amortization) | | 8,945 | | | 6,950 | | | 7,359 | | | 69.9 | % | | 68.1 | % | | 68.9 | % |
Direct operating expense (exclusive of depreciation and amortization) | | 1,391 | | | 1,235 | | | 1,186 | | | 10.9 | % | | 12.1 | % | | 11.1 | % |
| Sales, general and administrative expense | | 1,322 | | | 1,210 | | | 1,068 | | | 10.3 | % | | 11.9 | % | | 10.0 | % |
| Depreciation and amortization expense | | 476 | | | 470 | | | 467 | | | 3.7 | % | | 4.6 | % | | 4.4 | % |
| Transaction and integration costs | | 37 | | | 75 | | | 5 | | | 0.3 | % | | 0.7 | % | | — | % |
| Restructuring costs | | 19 | | | 31 | | | 35 | | | 0.1 | % | | 0.3 | % | | 0.3 | % |
| Operating income | | 616 | | | 228 | | | 561 | | | 4.8 | % | | 2.2 | % | | 5.3 | % |
| Other income | | (57) | | | (41) | | | (23) | | | (0.4) | % | | (0.4) | % | | (0.2) | % |
| Foreign currency (gain) loss | | (2) | | | (3) | | | 10 | | | — | % | | — | % | | 0.1 | % |
| Debt extinguishment loss | | 54 | | | — | | | 5 | | | 0.4 | % | | — | % | | — | % |
| Interest expense | | 211 | | | 307 | | | 268 | | | 1.6 | % | | 3.0 | % | | 2.5 | % |
Income (loss) from continuing operations before income tax provision (benefit) | | 410 | | | (35) | | | 301 | | | 3.2 | % | | (0.3) | % | | 2.8 | % |
| Income tax provision (benefit) | | 87 | | | (22) | | | 60 | | | 0.7 | % | | (0.2) | % | | 0.6 | % |
| Income (loss) from continuing operations | | 323 | | | (13) | | | 241 | | | 2.5 | % | | (0.1) | % | | 2.3 | % |
Income from discontinued operations, net of taxes | | 18 | | | 130 | | | 199 | | | 0.1 | % | | 1.3 | % | | 1.9 | % |
| Net income | | $ | 341 | | | $ | 117 | | | $ | 440 | | | 2.7 | % | | 1.1 | % | | 4.1 | % |
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| | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, | | Percent of Revenue |
| (Dollars in millions) | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Revenue | | $ | 17,279 |
| | $ | 15,381 |
| | $ | 14,619 |
| | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Cost of transportation and services | | 9,013 |
| | 8,132 |
| | 7,887 |
| | 52.2 | % | | 52.9 | % | | 54.0 | % |
| Direct operating expense | | 5,725 |
| | 5,006 |
| | 4,616 |
| | 33.1 | % | | 32.5 | % | | 31.6 | % |
| SG&A expense | | 1,837 |
| | 1,661 |
| | 1,652 |
| | 10.6 | % | | 10.8 | % | | 11.3 | % |
| Operating income | | 704 |
| | 582 |
| | 464 |
| | 4.1 | % | | 3.8 | % | | 3.2 | % |
| Other expense (income) | | (109 | ) | | (57 | ) | | (34 | ) | | (0.6 | )% | | (0.4 | )% | | (0.2 | )% |
| Foreign currency loss (gain) | | 3 |
| | 58 |
| | (40 | ) | | — | % | | 0.4 | % | | (0.3 | )% |
| Debt extinguishment loss | | 27 |
| | 36 |
| | 70 |
| | 0.2 | % | | 0.2 | % | | 0.5 | % |
| Interest expense | | 217 |
| | 284 |
| | 361 |
| | 1.3 | % | | 1.8 | % | | 2.5 | % |
| Income before income tax provision (benefit) | | 566 |
| | 261 |
| | 107 |
| | 3.3 | % | | 1.7 | % | | 0.8 | % |
| Income tax provision (benefit) | | 122 |
| | (99 | ) | | 22 |
| | 0.7 | % | | (0.6 | )% | | 0.2 | % |
| Net income | | $ | 444 |
| | $ | 360 |
| | $ | 85 |
| | 2.6 | % | | 2.3 | % | | 0.6 | % |
Year Ended December 31, 20182021 Compared with Year Ended December 31, 20172020
Our consolidated revenue for 20182021 increased by 12.3%25.6% to $17.3$12.8 billion, from $15.4$10.2 billion in 2017.2020. The increase primarily was driven byreflects growth in both our EuropeanLTL and North American contract logisticstruck brokerage businesses and by the expansionnegative impact of COVID-19 in 2020, which decreased demand for our transportation businesses, most notably our LTL, freight brokerage and last mile service offerings.services. Foreign currency movement contributed toincreased revenue growth by approximately 1.60.9 percentage points in 2018.2021.
During the fourth quarter of 2018, our largest customer curtailed its business with us, resulting in a decrease in revenue of $46 million. In early 2019, this same customer further downsized the balance of its business with us. Based on 2018 data, we estimate that the downsizing will negatively impact our full-year 2019 revenue by approximately $600 million, or approximately two-thirds of the revenue that this customer’s business generated for our Company in 2018.
Cost of transportation and services (exclusive of depreciation and amortization) includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our truckloadLTL and LTLtruck brokerage businesses.
Cost of transportation and services increased by 10.8% (exclusive of depreciation and amortization) in 2018 to $9,013 million, from $8,132 million in 2017. As a percentage2021 was $8.9 billion, or 69.9% of revenue, Costcompared with $7.0 billion, or 68.1% of transportation and services decreased to 52.2%revenue in 2018, from 52.9% in 2017.2020. The reductionyear-over-year increase as a percentage of revenue was primarily drivenreflects the constrained labor market, which resulted in higher third-party transportation costs. These increases were partially offset by a higher mix of contract logistics revenue, and by net revenue margin improvement in freight brokerage. Net revenue is defined as Revenue less Cost of transportation and services. Net revenue margin is defined as net revenue as a percentage of Revenue.lower compensation-related costs, including COVID-19-related costs.
Direct operating expensesexpenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist of operating costs related to our contract logistics facilities, last mile warehousing facilities, LTL service centers and European LTL network.centers. Direct operating costsexpenses (exclusive of depreciation and amortization) consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, depreciation expense, and gains and losses on sales of property and equipment.
Direct operating expense (exclusive of depreciation and amortization) in 20182021 was $5,725 million,$1.4 billion, or 33.1%10.9% of revenue, compared with $5,006 million,$1.2 billion, or 32.5%12.1% of revenue, in 2017.2020. The increaseyear-over-year decrease as a percentage of revenue was primarily was driven by lower COVID-19 related costs as well as the leveraging of compensation and facilities costs
across a higher mix of contract logisticslarger revenue base. Additionally, 2021 and higher temporary labor costs related to an increase in the number of new Logistics contract startups. In 2018, Direct operating expense2020 included $6$73 million ofand $90 million, respectively, from gains on the salesales of property and equipment.
Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, depreciation and amortization expense, professional fees, facility costs, bad debt expense and legal costs.
SG&A was $1,837 million$1.3 billion in 2018,2021, or 10.6%10.3% of revenue, compared with $1,661 million,$1.2 billion, or 10.8%11.9% of revenue, in 2017.2020. The improvementyear-over-year decrease in SG&A as a percentage of revenue was primarily reflectsdriven by lower self-insurance expense, compensation costs, bad debt expense and third-party professional fees, andas well as lower bonus and share-based compensation expenses,COVID-19-related costs. These impacts were partially offset by higher employee healthcare costs of $26and legal costs, including $31 million for independent contractor matters incurred in late 2018.2021 related to settlements in connection with classification of independent contractors at our intermodal drayage business unit. See Note 18—Commitments and Contingencies to our Consolidated Financial Statements for further information.
Depreciation and amortization expense in 2021 was $476 million, compared with $470 million in 2020.
Transaction and integration costs in 2021 were $37 million, compared with $75 million in 2020. Transaction and integration costs for 2021 and 2020 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-off of the Logistics segment, as well as retention awards paid to certain employees. Additionally, transaction and integration costs for 2020 included professional fees related to our previously announced exploration of strategic alternatives that was terminated in March 2020.
Restructuring costs in 2021 were $19 million, compared with $31 million in 2020. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with our spin-off and in response to COVID-19. For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements. Upon successful completion of the restructuring initiatives recorded in 2021, we expect to achieve annualized pre-tax run-rate savings of approximately $25 million by the end of 2022.
Other expense (income)income primarily consists of pension income. Other income for 20182021 was $109$57 million, compared with $41 million in 2020. The year-over-year increase reflects $15 million of income, compared with $57 million of income in 2017. Components of Other expense (income) that contributed to the increase were:higher net periodic pension income of $72in 2021.
Foreign currency (gain) loss was a $2 million gain in 2018,2021, compared with $42a $3 million gain in 2017; a gain of $24 million related to the sale of an equity investment in a private company; and a gain of $9 million related to a terminated swap.
2020. Foreign currency (gain) loss was $3 million in 2018, compared with $58 million in 2017.2021 primarily reflected a realized gain on de-designated cross-currency contract. Foreign currency lossgain in 20182020 primarily reflects realized losses on foreign currency option and forward contracts, as well as foreign currency transaction and remeasurement losses, almost entirely offset byreflected unrealized gains on foreign currency option and forward contracts. Foreign currency loss in 2017 primarily reflects unrealizedcontracts and a realized lossesgain on foreign currency option and forward contracts,a terminated net investment hedge, partially offset by foreign currency transaction and remeasurementmeasurement losses. For additional information on our foreign currency option and forward contracts, see Note 10—11—Derivative Instruments to theour Consolidated Financial Statements.
Debt extinguishment losses were $27 million and $36loss was $54 million in 2018 and 2017, respectively. Debt extinguishment losses in 2018 included $17 million for the partial redemption of2021. In 2021, we redeemed our 6.50%outstanding senior notes due 2022, (“Senior Notes due 2022”)2023 and $10 million for the refinancing of our senior secured term loan credit agreement, as amended (the “Term Loan Facility”). Debt extinguishment losses in 2017 includes $8 million for the refinancing of our Term Loan Facility, $23 million for2024 and wrote-off related debt issuance costs, incurred a pre-payment penalty on the redemption of the 5.75%2024 senior notes due June 2021 (“Senior Notes due 2021”) and $5 million forincurred costs related to the redemptionamendment of the 7.25% senior notes due 2018 (“Senior Notes due 2018”). See Liquidity and Capital Resources below for further information.our term loan credit agreement. There were no debt extinguishment losses in 2020.
Interest expense for 20182021 decreased 23.6%31.3% to $217$211 million, from $284$307 million in 2017.2020. The decrease in interest expense reflects a reduction inreflected the lower average total indebtedness, as well as lower rates attributable todebt balances, including the redemption of our 2018 refinancings.senior notes and amendment of our term loan agreement.
Our consolidated income (loss) from continuing operations before income taxes in 20182021 was $566income of $410 million, compared with $261a loss of $35 million in 2017.2020. The increase primarily was driven by higher operating income in our Transportation and Logistics segments, primarily due to revenue growth, reducedlower interest expense, lower foreign currency losses and higher pension income.partially offset by the debt extinguishment loss recorded in 2021. With respect to our U.S. operations, income from continuing operations before income taxes increased by $41was income of $420 million in 2018,2021, compared with the prior year,income of $45 million in 2020. The increase was primarily reflecting a $78 million increasedue to higher revenue, in operating income, a $73 million decrease in borrowing costs and a $50 million increase in other income, including a gain of $24 millionpart from the salenegative impact of an equity investment,COVID-19 on our 2020 results, partially offset by $166 million of foreign currency losses.higher third-party transportation, fuel and personnel costs. Additionally impacting the increase was lower interest expense, partially offset by the debt extinguishment loss recorded in 2021. With respect to our non-U.S. operations, income before taxes increased by
loss from continuing operations
33
$264before income taxes was $10 million reflecting $220in 2021, compared with a loss of $80 million in 2020. The decrease in the loss was primarily due to higher revenues, in part from the negative impact of foreign currency gain. The foreign currency gain realized byCOVID-19 on our non-U.S. operations in 2018 was2020 results, partially offset by the foreign currency loss in our U.S. operations due to hedging strategies,higher third-party transportation, fuel and to naturally offsetting positions of intercompany loans between the entities.personnel costs.
Our effective income tax rates were 21.3% and 63.4% in 20182021 and 2017 were 21.6%2020, respectively. The decrease in our effective income tax rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by reduced contribution and (38.2)%, respectively. Primary impacts to the 2018margin-based taxes coupled with increased pre-tax book income and the impact of discrete items. For the year ended December 31, 2021, our effective tax rate were: $26was impacted by discrete tax benefits of $45 million related to a tax planning initiative that resulted in the recognition of a long-term capital loss partially offset by discrete tax expenses of $39 million related to foreign valuation allowances, of which $34 million of excessthe valuation allowances were transferred to GXO. Additionally, impacting the year ended December 31, 2021, were $8 million of non-deductible compensation, discrete tax benefitbenefits of $8 million resulting from changes in reserves for uncertain tax positions and discrete tax benefits of $6 million related to stock-based compensation; and a $4 million benefit associated withcompensation.
For the deduction of foreign taxes paid in prior years. Primary impacts to the 2017year ended December 31, 2020, our effective tax rate were:was impacted primarily by a $173pre-tax book loss, $8 million of contribution and margin-based taxes, foreign rate differential benefit of $3 million, discrete tax benefitbenefits of $15 million related to the Tax Cutsstock-based compensation and Jobs Act (the “Tax Act”); an $18 million benefit due to differences between foreign tax rates and the U.S. tax rate; $13$6 million of incrementaldiscrete tax benefits related to provision to return adjustments, partially offset by a discrete tax expense dueof $4 million related to changes in reserves for uncertain tax positions; a $10 million benefit due to the revaluation of deferred tax liabilities resulting from enacted tax law changes in France and Belgium that lowered the statutory tax rates; and $9 million of excess benefit from stock-based compensation.
The Tax Act includes numerous changes to existing U.S. tax law. We have carefully evaluated the Tax Act, and although we anticipate that ongoing regulatory guidance will be issued, our accounting for the enactment date effects is complete. We have analyzed the various provisions of the Tax Act and their impact on our operations and financial statements, and have reached the following final conclusions:
The reduction in the U.S. corporate federal statutory tax rate from 35% to 21% required a one-time revaluation of our net deferred tax liabilities which resulted in a tax benefit of $173 million recorded as of December 31, 2017. No modifications were required during 2018.
The Tax Act required a one-time tax on the mandatory deemed repatriation of accumulated foreign earnings as of December 31, 2017. We did not incur a tax liability on the mandatory repatriation.
We did not incur U.S. tax liabilities from the Tax Act provision for the Base Erosion and Anti-Abuse Tax (“BEAT”) as of December 31, 2018.
We did incur U.S. tax liabilities from the Tax Act provision for the Global Intangible Low-Taxed Income (“GILTI”) as of December 31, 2018 in the amount of $8 million. We made a policy decision to record GILTI as part of period cost.
Fourth Quarter 2018 Items
Fourth quarter 2018 includes the previously discussed litigation costs of $26 million (see also Note 17—Commitments and Contingencies to the Consolidated Financial Statements) and a gain on the sale of an equity investment of $24 million. Additionally, our fourth quarter 2018 results reflect a restructuring charge of $19 million (see also Note 6—Restructuring Charges to the Consolidated Financial Statements) and a decrease in stock compensation expense of $44 million, compared with fourth quarter 2017. The restructuring charge and stock compensation expense have been reflected within SG&A in the Consolidated Statements of Income. Upon successful completion of the restructuring initiatives in 2019, we expect to achieve annualized pre-tax cost savings of approximately $55 million to $60 million.positions.
Year Ended December 31, 20172020 Compared with Year Ended December 31, 20162019
Our consolidated revenue for 2017 increased2020 decreased by 5.2%4.5% to $15.4$10.2 billion, from $14.6$10.7 billion in 2016.2019. The increasedecline in revenue primarily was drivenreflected the impact of COVID-19 and lower fuel revenue. Foreign currency movement increased revenue by growthapproximately 0.4 percentage points in our European contract logistics business, improvement in weight per day in our North American LTL business, and by the expansion of our North American truck brokerage and last mile businesses. These benefits to 2017 revenue were partially offset by the October 2016 divestiture of our North American Truckload operation, which had revenue of $432 million in 2016.2020.
Cost of transportation and services increased by 3.1% in 2017 to $8,132 million, from $7,887 million in 2016. As a percentage of revenue, Cost of transportation and services decreased to 52.9%(exclusive of depreciation and amortization) in 2017, from 54.0%2020 was $7.0 billion, or 68.1% of revenue, compared with $7.4 billion, or 68.9% of revenue in 2016.2019. The reductionyear-over-year decrease as a percentage of revenue reflects lower fuel costs, partially offset by higher third-party transportation costs and incremental PPE and other COVID-19-related costs.
Direct operating expense (exclusive of depreciation and amortization) in 2020 was $1.2 billion, or 12.1% of revenue, compared with $1.2 billion, or 11.1% of revenue, in 2019. The year-over-year increase as a percentage of revenue was primarily driven by a lower mixhigher facility and payroll costs and incremental PPE and other COVID-19-related costs. Additionally, 2020 and 2019 included $90 million and $101 million, respectively, from gains on sales of managed transportation revenueproperty and equipment.
SG&A was $1.2 billion in North America and a higher mix of contract logistics revenue in Europe, partially offset by higher third-party transportation costs in freight brokerage and last mile operations.
Direct operating expense in 2017 was $5,006 million,2020, or 32.5%11.9% of revenue, compared with $4,616 million,$1.1 billion, or 31.6%10.0% of revenue, in 2016.2019. The year-over-year increase as a percentage of revenue primarily was driven by higher costs for payroll and
temporary labor to support growth in our contract logistics business, and by the sale of the truckload business. These impacts were partially offset by our implementation of cost-saving initiatives and the improved dock efficiency we realized in our North American LTL business.
SG&A was $1,661 million in 2017, or 10.8% of revenue, compared with $1,652 million, or 11.3% of revenue, in 2016. The improvement in SG&A as a percentage of revenue was primarily driven by higher compensation costs, increased self-insurance and bad debt expense and incremental PPE and other COVID-19-related costs. Compensation costs were higher in 2020 compared to the prior year due to the strength of our operating performance in a challenging macro-environment.
Depreciation and amortization expense in 2020 was $470 million, compared with $467 million in 2019.
Transaction and integration costs in 2020 were $75 million, compared with $5 million in 2019. Transaction and integration costs for 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020.
Restructuring costs in 2020 were $31 million, compared with $35 million in 2019. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to COVID-19.
Other income primarily consists of pension income. Other income for 2020 was $41 million, compared with $23 million in 2019. The year-over-year increase reflects savings from shared services, centralized procurement initiatives, lower professional fees, and technology-enabled labor efficiencies in our North American brokerage and intermodal businesses.
Other expense (income) for 2017 was $57$21 million of income, compared with $34 million of income in 2016. The primary driver of the increase washigher net periodic pension income in 2020.
Foreign currency impact(gain) loss was a loss of $58$3 million gain in 2017,2020, compared with a gain of $40$10 million in 2016. The loss in 20172019. Foreign currency gain in 2020 primarily reflects a $49 million lossreflected unrealized gains on unrealized foreign currency option and forward contracts due to the strengthening of the euro and the British pound sterling relative to the U.S. dollar. The gain in 2016 primarily was due to a $40 millionrealized gain on a terminated net investment hedge, partially offset by foreign currency transaction and measurement losses. Foreign currency loss in 2019 primarily reflected unrealized losses on foreign currency option and forward contracts.
Debt extinguishment losses were $36 million and $70loss was $5 million in 20172019 and 2016, respectively. Debtrelated to the write-off of debt issuance costs for an unsecured credit facility (“Unsecured Credit Facility”) that was repaid in 2019. There were no debt extinguishment losses in 2017 include $8 million for the refinancing of our Term Loan Facility, $23 million for the redemption of the Senior Notes due 2021 and $5 million for the redemption of the Senior Notes due 2018. Debt extinguishment losses in 2016 include $35 million from the redemption of the Senior Notes due 2019, $18 million from the refinancing of the Term Loan Facility, and $17 million from the repurchase of Term Loan Facility debt.2020.
Interest expense for 2017 decreased 21.3%2020 increased 14.6% to $284$307 million, from $361$268 million in 2016.2019. The decreaseincrease in interest expense reflects a reduction inwas primarily due to higher average total indebtedness, as well asincluding the senior notes due 2025 (the “Senior Notes due 2025”) that were issued in the second quarter of 2020, partially offset by lower interest rates attributable to our recent refinancings. The reduction in average total indebtedness reflects our utilization of the proceeds from the sale of our North American Truckload operation in October 2016 to repurchase $555 million of outstanding indebtedness.2020.
Our consolidated income (loss) from continuing operations before income taxes for 2017in 2020 was $261a loss of $35 million, compared with $107income of $301 million for 2016.in 2019. The increasedecrease primarily was driven by significantly higherlower operating income in our Transportation and Logistics segments, primarily due to revenue growth, cost-saving initiatives and technology-enabled labor efficiencies, and by reducedhigher interest expense, partially offset by foreign currency losses.higher other income. With respect to our U.S. operations, income from continuing operations before income taxes increased by $348was $45 million, compared with income of $286 million in 2017, compared with2019. The decrease was primarily due to the prior year, reflecting a $127 million increase in foreign currency gain, a $110 million decrease in borrowing costs, a $92 million increase in operating income,impact of COVID-19 and a $19 million increase in other income.higher interest expense. With respect to our non-U.S. operations, loss from continuing operations before income before taxes decreased by $194was $80 million reflecting a $208in 2020, compared to income of $15 million increase in foreign currency loss.2019. The foreign currency loss realized by our non-U.S. operations in 2017decrease was partially offset by a gain in our U.S. operationsprimarily due to hedging strategies and naturally offsetting positionsthe impact of intercompany loans between the entities. The significant difference between U.S. income before tax of $278 million and non-U.S. loss before tax of $17 million reflects the fact that foreign currency movements benefited our U.S. operations and negatively impacted our non-U.S. operations in 2017.COVID-19.
Our effective income tax rates were 63.4% and 19.7% in 20172020 and 2016 were (38.2)% and 20.9%,2019, respectively. Primary impactsThe increase in our effective income tax rate for the year ended December 31, 2020 compared to the 2017year ended December 31, 2019 was primarily driven by a significant reduction in pre-tax book income and discrete items. For the year ended December 31, 2020, our effective tax rate were:was impacted primarily by a $173pre-tax book loss, $8 million of contribution and margin-based taxes, foreign rate differential benefit of $3 million, discrete tax benefits of $15 million related to the Tax Act; an $18 million benefit due to differences between foreign tax ratesstock-based compensation and the U.S. tax rate; $13$6 million of incrementaldiscrete tax benefits related to provision to return adjustments, partially offset by a discrete tax expense dueof $4 million related to changes in reserves for uncertain tax positions;positions. Contribution and margin-based tax expense did not materially change for the year ended December 31, 2020 as compared to the prior year. However, these items had a $10 million benefitsignificant impact on the Company’s 2020 effective tax rate, primarily due to the revaluation of deferred tax liabilities resulting from enacted tax law changespre-tax book loss in France and Belgium that lowered2020 as compared to higher pre-tax book income in 2019. For the statutory tax rates; and $9 million of excess benefit from stock-based compensation. Primary impacts to the 2016year ended December 31, 2019, our effective tax rate were: a $13was impacted by $8 million benefit dueof contribution and margin-based taxes offset by discrete tax benefits of $5 million related to changes in reserves for uncertain tax positions.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 provided numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the revaluationprior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of deferredcertain qualified improvement property. We applied the provisions of the CARES Act relating to income taxes and realized a $4 million reduction in cash taxes as well as an immaterial income tax liabilities resultingbenefit on our Consolidated Statements of Income in 2020. Additionally, we benefited from an enactedthe ability to defer the payment of certain payroll taxes that would otherwise have been required in 2020. We have not applied for any government loans under the CARES Act or similar laws.
Segment Financial Results
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, law change in France that lowered the statutory tax rate;depreciation and amortization expense, litigation settlements for significant matters, transaction and integration costs, restructuring costs and other adjustments. See Note 4—Segment Reporting and Geographic Information for further information and a $5 million benefitreconciliation of Adjusted EBITDA to Income (loss) from stock-based compensation.
continuing operations.
TransportationNorth American Less-Than-Truckload Segment
Summary Financial Table | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | Percent of Revenue |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 4,118 | | | $ | 3,539 | | | $ | 3,791 | | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Adjusted EBITDA | | 904 | | | 764 | | | 851 | | | 21.9 | % | | 21.6 | % | | 22.4 | % |
| Depreciation and amortization expense | | 226 | | | 224 | | | 227 | | | 5.5 | % | | 6.3 | % | | 6.0 | % |
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020 |
| | | | | | | | | | | | | | | | | | | | | |
| | | For the Years Ended December 31, | | Percent of Transportation Revenue |
| (In millions) | | 2018 (1) | | 2017 (1) | | 2016 (1) | | 2018 | | 2017 | | 2016 |
| Revenue | | $ | 11,343 |
| | $ | 10,276 |
| | $ | 9,976 |
| | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Operating income | | 646 |
| | 547 |
| | 459 |
| | 5.7 | % | | 5.3 | % | | 4.6 | % |
| |
(1) | Certain minor organizational changes were made in 2018 related to our managed transportation business. Managed transportation previously had been included in the Logistics segment; as of January 1, 2018, it is reflected in the Transportation segment. Prior period information was recast to conform to the current year presentation. |
Note: Total depreciation and amortization for the TransportationRevenue in our North American LTL segment increased 16.4% to $4.1 billion in 2021, compared with $3.5 billion in 2020. Revenue included in Costfuel surcharge revenue of transportation and services, Direct operating expense and SG&A was $461 million, $447$632 million and $456$433 million, respectively, for the years ended December 31, 2018, 20172021 and 2016, respectively.2020.
We evaluate the revenue performance of our LTL business using several commonly used metrics, including volume (weight per day in pounds) and yield, which is a commonly used measure of LTL pricing trends. We measure yield using gross revenue per hundredweight excluding fuel surcharges. Impacts on yield can include weight per shipment and length of haul, among other factors. The following table summarizes our key revenue metrics:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | Change % |
| Pounds per day (thousands) | | 71,739 | | | 67,725 | | | 5.9 | % |
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| Gross revenue per hundredweight, excluding fuel surcharges | | $ | 19.80 | | | $ | 18.63 | | | 6.3 | % |
The year-over-year increase in revenue for 2021 reflects an increase in average weight per day and gross revenue per hundredweight. The increase in weight per day for 2021 reflects higher shipments per day and weight per shipment.
Adjusted EBITDA was $904 million, or 21.9% of revenue, in 2021, compared with $764 million, or 21.6% of revenue, in 2020. The increase in adjusted EBITDA was primarily driven by higher revenue and pension income, partially offset by higher personnel, third-party transportation and fuel costs. Additionally, adjusted EBITDA for 2021 included lower year-over-year gains from real estate transactions, including a $62 million gain in 2021, compared with $77 million in 2020.
Year Ended December 31, 20182020 Compared with Year Ended December 31, 20172019
Revenue in our TransportationNorth American LTL segment increased by 10.4%decreased 6.6% to $11.3$3.5 billion in 2018,2020, compared with $10.3$3.8 billion in 2017.2019. Revenue included fuel surcharge revenue of $433 million and $532 million, respectively, for the years ended December 31, 2020 and 2019. The decline in revenue reflected the impact of COVID-19.
The following table summarizes our key revenue metrics:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2020 | | 2019 | | Change % |
| Pounds per day (thousands) | | 67,725 | | | 73,059 | | | (7.3) | % |
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| Gross revenue per hundredweight, excluding fuel surcharges | | $ | 18.63 | | | $ | 18.27 | | | 2.0 | % |
The year-over-year decrease in revenue for 2020 reflects a decrease in average weight per day in part due to COVID-19, partially offset by an increase in gross revenue per hundredweight. The decrease in weight per day reflects lower shipments per day and weight per shipment.
Adjusted EBITDA was led$764 million, or 21.6% of revenue, in 2020, compared with $851 million, or 22.4% of revenue, in 2019. The decrease in adjusted EBITDA was primarily driven by growth in our freight brokerage, LTLlower revenue and last mile businesses in North America,higher facility costs, partially offset by lower fuel, third-party transportation and personnel costs, as well as our transportation business in the United Kingdom. Foreign currency movement contributed to revenue growth by approximately 1.2 percentage points in 2018.
Operating income in our Transportation segment increased to $646higher pension income. Additionally, adjusted EBITDA included $77 million and $88 million in 2018, compared with $547 million in 2017. The improvement primarily was driven by revenue growth, improved profitability in our global freight brokerage business, operating margin improvement in our North America LTL business,2020 and the expansion2019, respectively, of our dedicated truckload business in Europe.gains from real estate transactions.
Brokerage and Other Services Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | Percent of Revenue |
| (Dollars in millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 8,907 | | | $ | 6,800 | | | $ | 7,041 | | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Adjusted EBITDA | | 547 | | | 284 | | | 406 | | | 6.1 | % | | 4.2 | % | | 5.8 | % |
| Depreciation and amortization expense | | 240 | | | 229 | | | 220 | | | 2.7 | % | | 3.4 | % | | 3.1 | % |
Year Ended December 31, 20172021 Compared with Year Ended December 31, 20162020
Revenue in our TransportationBrokerage and Other Services segment increased by 3.0%31.0% to $10.3$8.9 billion in 2017,2021, compared with $10.0$6.8 billion in 2016. This increase primarily was driven by 16.6% revenue growth in our U.S. last mile business, 16.8% growth in U.S. freight brokerage business, and a 5.1%2020. The increase in weightrevenue compared to 2020 reflects an increase in North American truck brokerage loads per day facilitated by our digital platform, as well as strength in our North American LTL business. The impact of these items was partially offset by the divestiture of our North American Truckload operation, which had revenue of $432 millionother brokerage services, in 2016, and lower revenue in our global forwarding and managed transportation businesses.
Operating income in our Transportation segment increased in 2017 to $547 million, compared with $459 million in 2016. The improvement was primarily driven by strong revenue growth, a reduction in direct operating expensespart due to improving market conditions in the implementation of cost-saving initiatives andeconomic recovery from the improved dock efficiency we realized in our North American LTL business, and lower SG&A from centralized support functions in European transportation and technology-enabled labor efficiencies in our North American freight brokerage business.COVID-19 pandemic. These gains were partially offset by our salethe impact of the global semiconductor shortage, which constrained customer demand for freight transportation services in North American Truckload operation.America and Europe. Foreign currency movement increased revenue by approximately 1.4 percentage points in 2021.
Logistics Segment
Summary Financial Table
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| | | For the Years Ended December 31, | | Percent of Logistics Revenue |
| (In millions) | | 2018 (1) | | 2017 (1) | | 2016 (1) | | 2018 | | 2017 | | 2016 |
| Revenue | | $ | 6,065 |
| | $ | 5,229 |
| | $ | 4,761 |
| | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Operating income | | 216 |
| | 202 |
| | 165 |
| | 3.5 | % | | 3.9 | % | | 3.5 | % |
| |
(1) | Certain minor organizational changes were made in 2018 related to our managed transportation business. Managed transportation previously had been included in the Logistics segment; as of January 1, 2018, it is reflected in the Transportation segment. Prior period information was recast to conform to the current year presentation. |
Note: Total depreciationrevenue in 2021, compared with $284 million, or 4.2% of revenue, in 2020. The increase in adjusted EBITDA was primarily driven by higher revenue due to load growth and amortization for the Logistics segment includedstrong pricing in Cost of transportationother brokerage services, partially offset by higher compensation and services, Direct operating expense and SG&A was $244 million, $203 million and $185 million for the years ended December 31, 2018, 2017 and 2016, respectively.facilities costs.
Year Ended December 31, 20182020 Compared with Year Ended December 31, 20172019
Revenue in our LogisticsBrokerage and Other Services segment increased by 16.0%decreased 3.4% to $6.1$6.8 billion in 2018,2020, compared with $5.2$7.0 billion in 2017.2019. The increasedecline in revenue primarily was driven by strong demand for contract logistics in Europereflected the impact of COVID-19 and North America, led by the growth of e-commerce logistics. In Europe, the largest gains came from the fashion, food and beverage, and retail sectors. In North America, the largest gains came from the omnichannel retail and consumer packaged goods sectors.lower fuel revenue. Foreign currency movement contributed toincreased revenue growth by approximately 2.40.7 percentage points in 2018.2020.
Operating incomeAdjusted EBITDA was $284 million, or 4.2% of revenue in our Logistics segment increased in 2018 to $216 million,2020, compared with $202$406 million, or 5.8% of revenue, in 2017.2019. The improvementdecrease in adjusted EBITDA was primarily was driven by stronglower revenue, growth and site productivity improvements. This was partially offset by higher direct operating costs, largelylower third-party transportation, fuel and personnel costs. Depreciation and amortization expense in 2019 included $6 million related to new contract startups that required more temporary labor, payroll and purchased services, and higher bad debt expense.the impairment of customer relationship intangible assets associated with exiting the direct postal injection business.
Year Ended December 31, 2017 Compared with Year Ended December 31, 2016
Revenue in our Logistics segment increased by 9.8% to $5.2 billion in 2017, compared with $4.8 billion in 2016. The increase in revenue primarily was driven by strong demand for contract logistics in Europe and North America. European logistics revenue growth reflected a significant benefit from new e-commerce and cold chain contract startups in the United Kingdom, Italy and the Netherlands. In North America, the largest gains came from the e-commerce, industrial and consumer packaged goods sectors.
Operating income in our Logistics segment increased in 2017 to $202 million, compared with $165 million in 2016. The improvement primarily was driven by strong revenue growth. This was partially offset by an increase in direct operating costs and SG&A, largely related to new contract startups that required more temporary labor and payroll.
Liquidity and Capital Resources
Our principal existing sources of cash are (i) cash generated from operations,operations; (ii) borrowings available under theour Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”); and (iii) proceeds from the issuance of other debt. Availability under the ABL Facility of $704 million asAs of December 31, 2018 is2021, we have $995 million available to draw under our ABL Facility, based on a borrowing base of $934 million, as well as$1.0 billion and outstanding letters of credit of $230$5 million. In addition,Additionally, under a credit agreement, we use trade accounts receivable securitization and factoring programs as parthave a $200 million uncommitted secured evergreen letter of managing our cash flows and to offset the impact of certain customers extending payment terms.
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| | | | | | | | |
| | | December 31, |
| (In millions) | | 2018 | | 2017 |
| Cash and cash equivalents | | $ | 502 |
| | $ | 397 |
|
| Working capital | | 375 |
| | 591 |
|
The decrease in working capital of $216 million during 2018 was primarily due to higher short-term borrowings, including an unsecured credit facility, entered intounder which we have issued $198 million in December 2018 (“Unsecured Credit Agreement”) described below, and an accrualaggregate face amount of letters of credit as of December 31, 2018 related2021.
In July 2021, we amended our existing ABL facility which matures in April 2024 to our share repurchases, partially offset by higherreduce the commitments from $1.1 billion to $1.0 billion. There were no other significant changes made to the terms of the facility, including the maturity date, the interest rate margin, and financial covenants.
Our cash and cash equivalents balance was $260 million as of December 31, 2021, compared to $1.7 billion as of December 31, 2020. The decrease in 2018.cash and cash equivalents is largely due to the repayment of debt in 2021 described below.
We continually evaluate our liquidity requirements capital needs and the availabilityin light of capital resources based on our operating needs, growth initiatives and our planned growth initiatives.capital resources. We believe that our existing liquidity and sources of liquidity will becapital are sufficient to support our existing operations over the next 12 months.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows. We also sell trade accounts receivable under a securitization program described below. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.
Our European business participates in a trade receivables securitization program co-arranged by two European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries in the United Kingdom and France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities. The program expires in July 2024.
We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Consolidated Balance Sheets at the date of transfer. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Consolidated Balance Sheets.
The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $227 million as of December 31, 2021). Prior to July 2021, when the securitization program was amended in connection with the spin-off, the maximum amount available was €400 million. As of December 31, 2021, the maximum amount available under the program was utilized.
Under the current program, we service the receivables we sell on behalf of the Purchasers, which gives us visibility into the timing of customer payments. The benefit to our cash flow includes the difference between the cash consideration in the table below and the amount we collected as a servicer on behalf of the Purchasers. In 2021 and 2020, we collected cash as servicer of $1.7 billion and $1.4 billion, respectively.
Information related to the trade receivables sold was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 (1) | | 2020 (1) | | 2019 (1) |
| Securitization programs | | | | | | |
| Receivables sold in period | | $ | 1,726 | | | $ | 1,377 | | | $ | 1,217 | |
| Cash consideration | | 1,726 | | | 1,377 | | | 1,161 | |
| Deferred purchase price | | — | | | — | | | 57 | |
| | | | | | |
| Factoring programs | | | | | | |
| Receivables sold in period | | 72 | | | 76 | | | 64 | |
| Cash consideration | | 72 | | | 75 | | | 65 | |
(1) Information for the years ended December 31, 2021, 2020 and 2019 exclude the impact of the Logistics segment.
In addition to the cash considerations referenced above, we received $75 million in the year ended December 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.
Letters of Credit Facility
In 2020, we entered into a credit agreement that contained a $200 million uncommitted secured evergreen letter of credit facility. The letter of credit facility had an initial one-year term, which automatically renewed for an additional year, and may automatically renew with one-year terms until the letter of credit facility terminates. As of December 31, 2021, we have issued $198 million in aggregate face amount of letters of credit. The credit agreement governing the letter of credit facility contains representations and warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.
Term Loan Facilities
In 2021, we amended our senior secured term loan credit agreement (the “Term Loan Credit Agreement”) to consolidate our tranches and lower the interest rate. We recorded a debt extinguishment loss of $3 million in 2021 due to this amendment. In March 2019, we entered into an amendment to our Term Loan Credit Agreement and borrowed an additional $500 million of incremental loans under a new tranche of term loans. Proceeds from the new tranche of loans were used for general corporate purposes, including funding purchases of our common stock as described in Note 14—Stockholders’ Equity. For more information on these amendments, refer to Note 12—Debt to our Consolidated Financial Statements.
Senior Notes
In the third quarter of 2021, we redeemed our outstanding 6.125% senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75% senior notes due 2024 (“Senior Notes due 2024”). The Senior Notes due 2024 were originally issued in 2019 and the proceeds were used to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity. The redemption price for the Senior Notes due 2023 was 100.0% of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375% of the principle amount, plus accrued and unpaid interest. We paid for the redemption using cash received from GXO of approximately $794 million, proceeds from an equity offering described in Note 14—Stockholders’ Equity and available cash. We recorded debt extinguishment losses of $3 million and $43 million in 2021 related to the redemption of the Senior Notes due 2023 and Senior Notes due 2024, respectively.
In January 2021, we redeemed our outstanding 6.50% senior notes due 2022 (“Senior Notes due 2022”) that were originally issued in 2015. The redemption price for the notes was 100.0% of the principal amount, plus accrued and unpaid interest. We paid for the redemption with available cash, including the net proceeds from the issuance of our 6.25% senior notes due 2025 (“Senior Notes due 2025”) as described below. We recorded a debt extinguishment loss of $5 million in 2021 due to this redemption.
In 2020, we completed private placements of $1.15 billion aggregate principal amount of Senior Notes due 2025. Net proceeds from the notes were initially invested in cash and cash equivalents and were subsequently used in 2021 to redeem our outstanding Senior Notes due 2022 as described above.
In February 2019, we completed a private placement of $1.0 billion aggregate principal amount of our Senior Notes due 2024. We used the proceeds from the Senior Notes due 2024 to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity to our Consolidated Financial Statements.
Unsecured Credit Facility
In December 2018, we entered into a $500 million Unsecured Credit Agreement with Citibank, N.A., which matures on December 23, 2019. As of December 31, 2018, we hadFacility and borrowed $250 million under the Unsecured Credit
Agreement.million. We made a second borrowing ofborrowed an additional $250 million in January 2019. We used the proceeds of both borrowings to finance a portion of our share repurchases as described below. Our borrowingsin Note 14—Stockholders�� Equity to our Consolidated Financial Statements. In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Agreement will initially bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) or Alternate Base Rate (“ABR”) plus an applicable margin of 3.50%,Facility and terminated it in the case of LIBOR loans, and 2.50% in the case of ABR loans. The margin is subject to two increases, of 50 basis points each, if any amounts remain outstanding under the Unsecured Credit Agreement on certain dates. The interest rate on outstanding borrowings as of December 31, 2018 was 6.01%.
Redemption of Senior Notes due 2022
In July 2018, we redeemed $400 million of the then $1.6 billion outstanding Senior Notes due 2022 that were originally issued in 2015. The redemption price for the Senior Notes due 2022 was 103.25% of the principal amount, plus accrued and unpaid interest up to, but excluding, the date of redemption. The redemption was primarily funded using proceeds from the settlement of the forward sale agreements, described below. In connection with the redemption, we recognized a loss on debt extinguishment of $17 million in 2018.
Refinancing of Term Loans
In February 2018, we entered into a Refinancing Amendment (Amendment No. 3 to the Credit Agreement) (the “Third Amendment”), pursuant to which, the outstanding $1,494 million principal amount of term loans under the Term Loan Credit Agreement (the “Former Term Loans”) were replaced with $1,503 million in aggregate principal amount of new term loans (the “Present Term Loans”). The Present Term Loans have substantially similar terms as the Former Term Loans, except with respect to the interest rate and maturity date applicable to the Present Term Loans, prepayment premiums in connection with certain voluntary prepayments and certain other amendments to the restrictive covenants. Proceeds from the Present Term Loans were used to refinance the Former Term Loans and to pay interest, fees and expenses in connection therewith.
The interest rate margin applicable to the Present Term Loans was reduced from 1.25% to 1.00%, in the case of base rate loans, and from 2.25% to 2.00%, in the case of LIBOR loans (with the LIBOR floor remaining at 0.0%). The interest rate on the Present Term Loans was 4.51% as of December 31, 2018. The Present Term Loans will mature on February 23, 2025. The refinancing resulted in a debt extinguishment charge of $10 million, which was recognized in 2018.
In March 2017, we entered into a Refinancing Amendment (Amendment No. 2 to the Credit Agreement) (the “Second Amendment”), pursuant to which the outstanding $1,482 million principal amount of term loans under the Term Loan Credit Agreement (the “Existing Term Loans”) were replaced with $1,494 million in aggregate principal amount of new term loans (the “Current Term Loans”). The Current Term Loans have substantially similar terms as the Existing Term Loans, other than the applicable interest rate and prepayment premiums in respect to certain voluntary prepayments. Proceeds from the Current Term Loans were used primarily to refinance the Existing Term Loans and to pay interest, fees and expenses in connection therewith.
The interest rate margin applicable to the Current Term Loans was reduced from 2.25% to 1.25%, in the case of base rate loans, and from 3.25% to 2.25%, in the case of LIBOR loans and the LIBOR floor was reduced from 1.0% to 0%. The refinancing resulted in a debt extinguishment charge of $8 million in 2017.
In August 2016, we entered into a Refinancing Amendment (the “First Amendment”), pursuant to which the outstanding $1,592 million principal amount of term loans under the Term Loan Credit Agreement (the “Old Term Loans”) were replaced with a like aggregate principal amount of new term loans (the “New Term Loans”). The New Term Loans have substantially similar terms as the Old Term Loans, other than the applicable interest rate and prepayment premiums in respect to certain voluntary prepayments. Of the $1,592 million of term loans that were refinanced, $1,197 million were exchanged and represent a non-cash financing activity. The interest rate margin applicable to the New Term Loans was reduced from 3.50% to 2.25%, in the case of base rate loans, and from 4.50% to 3.25%, in the case of LIBOR loans. In connection with this refinancing, various lenders exited the syndicate and we recognized2019. We recorded a debt extinguishment loss of $18$5 million in 2016.2019 in connection with this repayment.
In addition, pursuant to the First Amendment, we borrowed $400 million of Incremental Term B-1 Loans (the “Incremental Term B-1 Loans”) and an additional $50 million of Incremental Term B-2 Loans (the “Incremental
38
Preferred Stock and Warrant Exchanges
Term B-2 Loans”). The New Term Loans, Incremental Term B-1 LoansIn December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and Incremental Term B-2 Loans alla lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock. Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions) their holdings, including Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s chairman and chief executive officer, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have identical terms, other than withan approximate value equal to the exercise price of the warrants. With respect to the original issue discounts,preferred stock, through December 31, 2020, 69,445 shares were exchanged, and will mature on October 30, 2021.we issued 9.9 million shares of common stock and paid $22 million of cash. The $22 million was reflected as a preferred stock conversion charge in 2020 in the accompanying consolidated financial statements. With respect to the warrants, through December 31, 2020, 0.3 million warrants were exchanged, and we issued 0.3 million shares of common stock.
RedemptionIn 2021, the remaining 1,015 preferred shares were exchanged, and we issued 0.1 million shares of Senior Notes duecommon stock. With respect to the warrants, in 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment. As of December 31, 2021, there were no shares of preferred stock or warrants outstanding.
Share Repurchases
In December 2017, we redeemed all2018, our Board of Directors authorized the repurchase of up to $1 billion of our outstanding Senior Notes due 2021 that were originally issuedcommon stock, which was completed in 2015. The redemption price for the Senior Notes due 2021 was 102.875% of the principal amount, plus accrued and unpaid interest up to, but excluding, the date of redemption. The redemption was funded using cash on hand at the date of the redemption. The loss on debt extinguishment of $23 million was recognized in 2017.
Redemption of Senior Notes due 2018
In August 2017, we redeemed all of our outstanding Senior Notes due 2018. The Senior Notes due 2018 were assumed in connection with our 2015 acquisition of Con-way, Inc. (“Con-way”). The redemption price for the Senior Notes due 2018 was 102.168% of the principal amount, plus accrued and unpaid interest up to, but excluding, the date of redemption. The redemption was funded using cash on hand at the date of the redemption. The loss on debt extinguishment of $5 million was recognized in 2017.
Receivables Securitization and Factoring
We use trade accounts receivable securitization and factoring programs as part of managing our cash flows. We account for transfers under our factoring arrangements as sales because we sell full title and ownership in the underlying receivables and have met the criteria for control of the receivables to be considered transferred. We account for transfers under our securitization program as either sales or secured borrowings based on an evaluation of whether we have transferred control.
In October 2017, XPO Logistics Europe SA (“XPO Logistics Europe”), in which we hold an 86.25% controlling interest, entered into a European trade receivables securitization program for a term of three years co-arranged by Crédit Agricole and HSBC. Under the terms of the program, XPO Logistics Europe, or one of its wholly-owned subsidiaries in the United Kingdom or France, sells trade receivables to XPO Collections Designated Activity Company Limited (“XCDAL”), a wholly-owned bankruptcy remote special purpose entity of XPO Logistics Europe. The receivables are funded by senior variable funding notes denominated in the same currency as the corresponding receivables. XCDAL is considered a variable interest entity and it is consolidated by XPO Logistics Europe based on its control of the entity’s activities.The receivables balance under this program are reported as Accounts receivable in our Consolidated Balance Sheets and the related notes are included in our Long-term debt.The receivables securitization program provides additional liquidity to fund XPO Logistics Europe’s operations.
In the first quarter of 2018, the aggregate maximum amount2019. The share repurchases were funded by our Unsecured Credit Facility and available under the program was increased from €270 million to €350 million (approximately $401 million as of December 31, 2018). Additionally, in the fourth quarter of 2018, the program was amended and a portion of the receivables transferred from XCDAL are now accounted for as sales. As of December 31, 2018, the remaining borrowing capacity, which considers receivables that are collateral for the notes as well as receivables which have been sold, was $0. The weighted-average interest rate as of December 31, 2018 for the program was 1.09%.cash.
As of December 31, 2018, in connection with the securitization program, we sold receivables of $231 million and received cash of $179 million and a deferred purchase price receivable of $52 million. ForIn February 2019, our factoring programs, as of December 31, 2018, we sold receivables of $248 million and received cash of $246 million. As of December 31, 2017, for our factoring programs, we sold receivables of $119 million and received cash of $119 million.
Share Repurchases
On December 14, 2018, our Board of Directors authorized shareadditional repurchases of up to $1$1.5 billion of our common stock. The repurchase2019 authorization permits us to repurchasepurchase shares in both the open market and in private repurchase transactions, with the timing and number of shares repurchased dependent on a variety of factors, including price, general business andconditions, market conditions, alternative investment opportunities and funding considerations. Through December 31, 2018, based on the settlement date, we purchased and retired 10 million shares of our common stock having an aggregate value of $536 million at an average price of $53.46 per share. In January and February 2019,
based on the settlement date, wepurchased and retired 8 million shares of our common stock having an aggregate value of $464 million at an average price of $59.47 per share, which completed the authorized repurchase program. The share repurchases were funded by the unsecured credit facility and available cash.On February 13, 2019, our Board of Directors authorized a new share repurchase of up to $1.5 billion of our common stock. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
Equity Offering and Forward Sale Agreements
In July 2017, we completed a registered underwritten offering of 11 million shares of The share purchases under this program have been funded by our common stock at a public offering price of $60.50 per share (the “Offering”). Of the 11 million shares of common stock, five million shares were offered directly by us and six million shares were offered in connection with forward sale agreements (the “Forward Sale Agreements”) described below. The Offering closed on July 25, 2017.
We received proceeds of $290 million ($288 million net of fees and expenses) from the sale of five million shares of common stock in the Offering. We used the net proceeds of the shares issued and sold by us in the Offering for general corporate purposes.
In connection with the Offering, we entered into separate Forward Sale Agreements with Morgan Stanley & Co. LLC and JPMorgan Chase Bank, National Association, London Branch (the “Forward Counterparties”) pursuant to which we agreed to sell, and each Forward Counterparty agreed to purchase, three million shares of our common stock (or six million shares of our common stock in the aggregate) subject to the terms and conditions of the Forward Sale Agreements, including our right to elect cash settlement or net share settlement. The initial forward price under each of the Forward Sale Agreements is $58.08 per share (which was the public offering price of our common stock for the primary offering of the five million shares described above, less the underwriting discount) and was subject to certain adjustments pursuant to the terms of the Forward Sale Agreements. Consistent with our strategy to grow our business in part through acquisitions, we entered into the Forward Sale Agreements to provide additional available cash for such acquisitions, among other general corporate purposes. In July 2018, we physically settled the forwardsand proceeds from our 2019 debt offerings.
There were no share repurchases in full by delivering six million2021. Our remaining share repurchase authorization as of December 31, 2021 is $503 million. Information regarding our shares of common stock to the Forward Counterparties for net cash proceeds to us of $349 million. As a part of our ordinary course treasury management activities, we applied these net cash proceeds to the repayment of the Senior Notes due 2022repurchased, based on settlement date, in 2020 and 2019 were as described above, thereby reducing our overall outstanding debt and interest expense.follows:
| | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions, except per share data) | | | | 2020 | | 2019 |
| Shares purchased and retired | | | | 2 | | | 25 | |
| Aggregate value | | | | $ | 114 | | | $ | 1,347 | |
| Average price per share | | | | $ | 66.58 | | | $ | 53.41 | |
| Remaining authorization | | | | $ | 503 | | | $ | 617 | |
Loan Covenants and Compliance
As of December 31, 2018,2021, we were in compliance with the covenants and other provisions of our debt agreements. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
LIBOR
Uncertainty related to the London Interbank Offered Rate (“LIBOR”) phase-out by June 2023 for USD LIBOR with greater than two-month maturities may adversely impact the value of, and our obligations under, our ABL and term loan facilities. See the applicable discussion under Item 1A, “Risk Factors.”
Sources and Uses of Cash
Our cash flows from operating, investing and financing activities from continuing operations, as reflected on the our Consolidated Statements of Cash Flows,, are summarized as follows:
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Net cash provided by operating activities | | $ | 1,102 |
| | $ | 785 |
| | $ | 622 |
|
| Net cash (used in) provided by investing activities | | (400 | ) | | (386 | ) | | 142 |
|
| Net cash used in financing activities | | (620 | ) | | (366 | ) | | (681 | ) |
| Effect of exchange rates on cash, cash equivalents and restricted cash | | (17 | ) | | 16 |
| | (4 | ) |
| Net increase in cash, cash equivalents and restricted cash | | $ | 65 |
| | $ | 49 |
| | $ | 79 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Net cash provided by operating activities from continuing operations | | $ | 656 | | | $ | 388 | | | $ | 629 | |
| Net cash used in investing activities from continuing operations | | (184) | | | (116) | | | (67) | |
| Net cash provided by (used in) financing activities from continuing operations | | (1,932) | | | 1,154 | | | (201) | |
During 2018,2021, we: (i) generated cash from operating activities from continuing operations of $1,102 million,$656 million; (ii) received proceeds of $349 million from our forward sale settlement and (iii) generated proceeds from sales of assetsproperty and equipment of $143 million.$132 million; (iii) received a distribution from GXO of $794 million and (iv) generated proceeds of $384 million from the issuance of common stock. We used cash during this period principallyprimarily to: (i) purchase property and equipment of $551$313 million; (ii) redeem our senior notes due 2022, 2023 and 2024 for $2.8 billion; (iii) repay our ABL Facility borrowings of $200 million (ii) repurchase common stock of $536 million, (iii)and (iv) make payments on long-term debt and capitalfinance leases of $119 million, (iv) make
payments, net of proceeds, of $100 million on our ABL facility, (v) make payments for tax withholdings on restricted shares of $53 million and (vi) make repurchases, net of proceeds, of $151 million on our debt.$80 million.
During 2017,2020, we: (i) generated cash from operating activities from continuing operations of $785 million,$388 million; (ii) generated proceeds from sales of assetsproperty and equipment (primarily real estate) of $118 million, (iii) generated proceeds from common stock offerings of $288$183 million and (iv)(iii) received net proceeds of $70 million, net$1.4 billion from our issuances of repayments, on our ABL facility.debt and short-term borrowings. We used cash during this period principallyprimarily to: (i) purchase property and equipment of $504$303 million; (ii) repurchase common stock of $114 million (ii) make repurchases, net of proceeds, of $568 million on our debt,and (iii) make payments on long-term debt and capitalfinance leases of $106 million, (iv) make payments for debt issuance costs in connection with the European trade securitization program of $17 million and (v) make payments for tax withholdings on restricted shares of $17$65 million.
Cash flows from operating activities for 2018 increased by $317 million compared with 2017, due to higher cash-related net income of $196 million and net movements in operating assets and liabilities of $121 million. The increase in cash-related net income was due primarily to higher revenues in our transportation and logistics segments. The changes in the balances of operating assets and liabilities in 2018 compared with 2017 resulted primarily from a lower accounts receivable position on a year-over-year basis, partially offset by the timing of working capital payments. As discussed above, the lower accounts receivable position in 2018 as compared with 2017 reflects higher sales of trade receivables under our securitization and factoring programs in 2018. In particular, in exchange for the sales, we received cash of $179 million (securitization) and $246 million (factoring) as of December 31, 2018, and $119 million (factoring) as of December 31, 2017. Additionally, cash flows from operating activities was favorably impacted by $41 million of lower interest payments in 2018 compared with 2017, due to lower average debt balances and lower interest rates in 2018 due to refinancings.
Cash flows from operating activities from continuing operations for 20172021 increased by $163$268 million compared with 2016, due to2020. The increase reflects higher cash-related net income from continuing operations of $239$336 million for 2021 compared with the same period in 2020, partially offset by net movementsgreater use of cash for working capital in operating assets and liabilities of $76 million. The increase in cash-related net income was due primarily to higher revenues in our transportation and logistics segments. The changes2021 than in the balancesprior-year period. Additionally, cash paid for taxes was $44 million higher in 2021 compared to 2020.
Cash flows from operating activities from continuing operations for 2020 decreased by $241 million compared with 2019. The decrease reflects lower income from continuing operations, partially offset by the impact of operating assets and liabilities utilizing $84 million less cash in 20172020. Within operating assets and liabilities, accrued expenses and other liabilities was a source of cash for 2020 as compared with 2016 resultedto a use of cash in 2019. This fluctuation primarily fromreflects the deferral of certain tax payments and an increase in compensation and purchased transportation accruals in 2020. Partially offsetting the impact of accrued expenses and other liabilities was the higher use of cash due to increased accounts receivable as a result of higher revenues in the fourth quarter of 2020 compared to 2019.
As of December 31, 2021, we had $1.1 billion of operating lease and related interest payment obligations, of which led$206 million is due within the next twelve months. Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $11 million. These operating leases will commence in 2022 with initial lease terms of 3 years to a higher accounts receivable position7 years. For further information on a year-over-year basis, partially offset by the timing of working capital payments. Additionally, cash flows fromour operating activities was favorably impacted by lower interest of $89 million paid in 2017 compared with 2016, dueleases and their maturities, see Note 8—Leases to lower average debt balances and more favorable interest rates in 2017, primarily from the redemption of our Senior Notes due 2019 and advantageous debt refinancings.Consolidated Financial Statements.
Investing activities from continuing operations used $400$184 million of cash in 20182021 compared with $386$116 million used in 20172020 and $142$67 million generatedused in 2016.2019. During 2018,2021, we used $551$313 million of cash to purchase fixed assetsproperty and equipment and received $143$132 million from sales of cash from the sale of assets.property and equipment. During 2017,2020, we used $504$303 million of cash to purchase fixed assetsproperty and equipment and received $118$183 million of cash from the salesales of assets.property and equipment. During 2016,2019, we received $548used $379 million of cash from the sale of our North American Truckload operation, used $483 million to purchase fixed assetsproperty and equipment, received $69$237 million of cash from
sales of property and equipment and received proceeds of $75 million related to the salerealization of assets.cash on deferred purchase price receivable. We anticipate net capital expenditures to be between $425 million and $475 million in 2022, funded by cash on hand and available liquidity.
Financing activities from continuing operations used $620 million$1.9 billion of cash in 2018,2021 compared with $366$1.2 billion of cash generated in 2020 and $201 million used in 20172019. The primary uses of cash from financing activities from continuing operations during 2021 were $2.8 billion used to redeem the senior notes due 2022, 2023 and $6812024 and $200 million used in 2016.to repay borrowings under our ABL Facility. The primary use of cash in 2018 was the $1,225 million repurchase of debt, consisting of the refinancing of the Former Term Loans and the partial redemption of our Senior Notes due 2022, the $536 million repurchase of common stock and the $119 million repayment of debt and capital leases. The main sources of cash from financing activities from continuing operations during 2021 were $794 million of proceeds from a distribution from GXO and $384 million of net proceeds from our common offering. In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO. The primary sources of cash from financing activities from continuing operations in 2018 was the $1,064 million2020 were $1.1 billion of net proceeds from the issuance of debt, consisting of the refinancing of the term loan, amounts received from secured borrowing transactions under our European trade securitization program and amounts received under the Unsecured Credit Agreement, and $349Senior Notes due 2025; $200 million of proceeds from borrowings on our forward sale settlement. In 2017,ABL Facility, net of payments, and $23 million from net borrowings related to our securitization program. The primary useuses of cash was the $1,387from financing activities from continuing operations in 2020 were $114 million used to repurchase ofXPO common stock and $65 million used to repay debt and the $106finance leases. The primary uses of cash from financing activities from continuing operations in 2019 were $1.3 billion to repurchase XPO common stock and $569 million repayment ofused to repay debt and capitalfinance leases. The mainprimary source of cash from financing activities from continuing operations in 20172019 was the $802 million$1.7 billion of net proceeds from the issuance of long-term debt.
As of December 31, 2021, we had $3.5 billion total outstanding principal amount of debt, excluding finance leases. We have no significant debt maturities until 2025. Interest on our ABL and $288Term Loan facilities are variable, while interest on our senior notes are at fixed rates. Future interest payments associated with our debt total $623 million net proceeds fromat December 31, 2021, with $130 million payable within 12 months, and are estimated based on the issuance of common stock. In 2016, our primary use of cash was the $1,889 million repurchaseprincipal amount of debt and the $151 million repaymentapplicable interest rates as of debt and capital leases. The main sourceDecember 31, 2021. Additionally, as of cash from financing activities in 2016 was the $1,352December 31, 2021, we have $255 million of net proceeds fromfinance lease and related interest payment obligations, of which $61 million is due within the issuance of long-term debt.
next twelve months. For further information on our debt facilities and maturities, see Note 12—Debt to our Consolidated Financial Statements. For further information on our finance lease maturities, see Note 8—Leases to our Consolidated Financial Statements.
Defined Benefit Pension Plans
We maintainsponsor both funded and unfunded defined benefit plans for certainsome employees in the U.S. and internationally. The largest of these plans include the funded U.S. plan and the unfunded U.S. plan (collectively, the “U.S. Plans”) and the funded U.K. plan, which we refer to as defined benefit pension plans. Historically, we have realized income, rather than expense, from these plans. We generated aggregate income from our U.S. and U.K. plans of $74$61 million in 2018, $442021, $48 million in 20172020 and $28$24 million in 2016.2019. The plans have been generating income due to their funded status and because they do not allow for new plan participants or additional benefit accruals.
Defined benefit pension plan amounts are calculated using various actuarial assumptions and methodologies. Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors. The assumptions used in recording the projected benefit obligations and fair value of plan assets represent our best estimates based on available information regarding historical experience and factors that may cause future expectations to differ. Differences in actual experience or changes in assumptions could materially impact our obligation and future expense or income.
Discount Rate
In determining the appropriate discount rate, we are assisted by actuaries who utilize a yield-curve model based on a universe of high-grade corporate bonds (rated AA or better by Moody’s, S&P or Fitch rating services). The model determines a single equivalent discount rate by applying the yield curve to expected future benefit payments.
The discount rates used in determining the net periodic benefit costs and benefit obligations are as follows:
| | | | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan | | Qualified Plans | | Non-Qualified Plans |
| | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | | 2021 | | 2020 | | 2021 | | 2020 |
| Discount rate - net periodic benefit costs | | 3.14% - 3.38% | | 3.83% - 4.35% | | 2.84% - 3.21% | | 4.35 | % | | 2.21 | % | | 2.70 | % | Discount rate - net periodic benefit costs | | 1.96 | % | | 2.96 | % | | 1.11% - 1.71% | | 2.40% - 2.78% |
| Discount rate - benefit obligations | | 4.18% - 4.39% | | 3.55% - 3.71% | | 3.93% - 4.28% | | 3.21% - 3.60% |
| | 2.85 | % | | 2.53 | % | Discount rate - benefit obligations | | 2.84 | % | | 2.48 | % | | 2.19% - 2.72% | | 1.62% - 2.30% |
An increase or decrease of 25 basis points in the discount rate would decrease or increase our 20182021 pre-tax pension income by $2 million each for the U.S. qualified plans and U.K. plan, respectively.approximately $3 million.
In 2018, we changed how weWe use a full yield curve approach to estimate the interest cost component of net periodic cost for our U.S. and U.K. pension benefit plans. Previously, we estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. The new estimate utilizes a full yield curve approach in the estimation of this component by applying the specific spot rates along the yield curve used in the determination ofto determine the benefit obligation to each of the underlying projected cash flows based on time until payment. The new estimate provides a more precise measurement of interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of our U.S. and U.K. pension benefit obligation and has been accounted for as a change in accounting estimate and thus applied prospectively.
Rate of Return on Plan Assets
We estimate the expected return on plan assets using current market data as well as historical returns. The expected return on plan assets is based on estimates of long-term returns and considers the plans’ anticipated asset allocation over the course of the next year. The plan assets are managed pursuant tousing a long-term allocationliability-driven investment strategy that seeks to mitigate volatility in the plans’ funded status volatility by increasing participation in fixed-income investments over time.generally as funded status increases. This strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the plans.
For the year ended December 31, 2018,2021, our expected return on plan assets was $92$101 million, for the U.S. Plans and $67 million for the U.K. plan, compared to the actual return on plan assets of $(113) million for the U.S. Plans and $(35) million for the U.K. plan.$25 million. The actual annualized return on plan assets for the U.S. Plans for 20182021 was approximately (6)%1%, which was below the expected return on asset assumption for the year due to negative performance in a challenging long duration fixed income market environment, which represented over 80%86% of the
portfolio, and negativepartially offset by positive performance from the domestic and international equity markets. The actual annualized return on plan assets for the U.K. plan for 2018 was approximately (3)%, which was below the expected return on asset assumption for the year due to a fall in the plan’s liability driven investments portfolio, which represents approximately 50% of the plan’s assets due to a rise in nominal and real gilt yields over the year, as well as negative performance from equity and credit markets over the year. An increase or decrease of 25 basis points in the expected return on plan assets would increase or decrease our 20182021 pre-tax pension income by $4 million for the U.S. qualified plans and $3 million for the U.K. plan.approximately $5 million.
Actuarial Gains and Losses
Changes in the discount rate and/or differences between the expected and actual rate of return on plan assets results in unrecognized actuarial gains or losses. For our defined benefit pension plans, accumulated unrecognized actuarial losses were $53$43 million for the U.S. Plans and gains of $5 million for the U.K. plan as of December 31, 2018.2021. The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants. We do not expect to recognize any amortization of actuarial gain or loss in our net periodic benefit expense (income) for 2019.
Lump Sum Payout
During 2017, we offered eligible former employees who had not yet commenced receiving their pension benefit an opportunity to receive a lump sum payout of their vested pension benefit. On December 1, 2017, in connection with this offer, one of our pension plans paid $142 million from pension plan assets to those who accepted this offer, thereby reducing our pension benefit obligations. The transaction had no cash impact on us but did result in a non-cash pre-tax pension settlement gain of $1 million. As a result of the lump sum payout, we re-measured the funded status of our pension plan as of the settlement date. To calculate this pension settlement gain, we utilized a discount rate of 4.35% through the measurement date and 3.83% thereafter.
Effect on Results
The effects of the defined benefit pension plans on our results consist primarily of the net effect of the interest cost on plan obligations for the U.S. Plans and the U.K. plan, and the expected return on plan assets. We estimate that the defined benefit pension plans will contribute annual pre-tax income in 20192022 of $24 million for the U.S. Plans and $30 million for the U.K. plan.$60 million.
Funding
In determining the amount and timing of pension contributions, for the U.S. Plans, we consider our cash position, the funded status as measured by the Pension Protection Act of 2006 and generally accepted accounting principles, and the tax deductibility of contributions, among other factors. We made $5contributed $6 million of contributionsin 2021 and 2020 to the U.S. Non-Qualified Plans in 2018non-qualified plans, respectively, and $5 million of contributions in 2017; we estimate that we will makecontribute $5 million of contributions to the U.S. Non-Qualified Plans in 2019. We made no contributions to the U.S. Qualified Plans in 2018 and 2017. We do not anticipate making any contributions to the U.S. Qualified Plans in 2019.2022.
For the U.K. plan, the amount and timing of pension contributions are determined in accordance with U.K. pension codes and trustee negotiations. We made contributions of $3 million and $13 million to the U.K. plan in 2018 and 2017, respectively. We estimate that we will make $3 million of contributions to the U.K. plan in 2019.
For additional information, refer to see Note 12—13—Employee Benefit Plans to theour Consolidated Financial Statements.
Contractual Obligations
The following table reflects our contractual obligations as of December 31, 2018:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period |
| (In millions) | | Total | | 2019 | | 2020-2021 | | 2022-2023 | | Thereafter |
| Contractual obligations | | | | | | | | | | |
| Capital leases payable | | $ | 310 |
| | $ | 61 |
| | $ | 115 |
| | $ | 95 |
| | $ | 39 |
|
| Operating leases | | 2,436 |
| | 577 |
| | 827 |
| | 509 |
| | 523 |
|
| Purchase commitments | | 97 |
| | 49 |
| | 41 |
| | 7 |
| | — |
|
| Debt (excluding capital leases) | | 4,126 |
| | 322 |
| | 262 |
| | 1,737 |
| | 1,805 |
|
Interest on debt (1) | | 1,200 |
| | 228 |
| | 400 |
| | 282 |
| | 290 |
|
| Total contractual cash obligations | | $ | 8,169 |
| | $ | 1,237 |
| | $ | 1,645 |
| | $ | 2,630 |
| | $ | 2,657 |
|
| |
(1) | Estimated interest payments have been calculated based on the principal amount of debt and the applicable interest rates as of December 31, 2018. |
As of December 31, 2018, our Consolidated Balance Sheet reflects a long-term liability of $444 million for deferred taxes and $29 million for gross unrecognized tax benefits. As the timing of future cash outflows for these liabilities is uncertain, they are excluded from the above table. Actual amounts of contractual cash obligations may differ from estimated amounts due to changes in foreign currency exchange rates. We anticipate net capital expenditures to be between $400 million and $450 million in 2019.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. A summary of our significant accounting policies is contained in Note 2—Basis of Presentation and Significant Accounting Policies to theour Consolidated Financial Statements. InThe methods, assumptions, and estimates that we use in applying manyour accounting principles, we make assumptions, estimates and/orpolicies may require us to apply judgments regarding matters that are often subjectiveinherently uncertain and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. We have identified below our accounting policies that we believe could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.
Evaluation of Goodwill
Goodwill consists ofWe measure goodwill as the excess of costconsideration transferred over the fair value of net assets acquired in business combinations. Goodwill is testedWe allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually, or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. We measure goodwill impairment, if any, at the amount a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. Application of the goodwill impairment test requires judgment, including the identification of reporting units, the assignment of assets and liabilities to reporting units, the assignment of goodwill to reporting units, and a determination of the fair value of each reporting unit.
As more fully described in Note 2—Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements, Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Accounting for Goodwill Impairment,” which we adopted in connection with our annual goodwill impairment test as of August 31, 2017, dictates that goodwill impairment, if any, is measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.
Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrycarrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.
For our 20182021 goodwill assessment, we performed a step-zero qualitative analysis for all six of our three reporting units. For our 2017 goodwill assessment, we performed a step-zero qualitative analysis for five of our reporting units and elected to proceed directly to a step one quantitative analysis for one reporting unit. Based on the qualitative assessments performed, each year, we concluded that it iswas not more likely than notmore-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed. For the years ended December 31, 2018performed, and 2017, we did not recognize any goodwill impairment.
We estimateFor our 2020 goodwill assessment, we performed a quantitative analysis for the fair valuefive reporting units that existed at the time of the assessment using a combination of income and market approaches with the assistance of a third-party valuation appraiser. As of August 31, 2020, we completed our annual impairment test for goodwill with all of our reporting units using anhaving fair values in excess of their carrying values, resulting in no impairment of goodwill. Our number of reporting units decreased from five in 2020 to three in 2021 as a result of the spin-off and other organizational changes.
The income approach of determining fair value is based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The discount rates reflect management’s judgment and are based on a risk adjusted weighted-average cost of capital utilizing industry market data of businesses similar to the reporting units. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. WeOur forecasts also make certain forecasts aboutreflect expectations concerning future economic conditions, interest rates and other market data. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.
Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of potential impairment.
Self-Insurance Accruals
We use a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, and workers’ compensation, cyber risk and property claims. We periodically evaluate the our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense. The measurementLiabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and classification of self-insured costs requires the consideration ofare estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. These methods provide estimates of the undiscounted liability associated withAdditionally, claims incurred as of the balance sheet date, including estimates of claims incurred but not reported.may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections. We believe the actuarial methods are appropriate for measuring these self-insurance accruals. However, based on the number of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above. Accordingly, changes in these assumptions and factors can affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims.
Income Taxes
Our annual effective tax rate is based on our income and statutory tax rates in the various jurisdictions in which we operate. Judgment and estimates are required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-off of GXO. We review our tax positions quarterly and as new information becomes available. Our effective tax rate in any financial statement period may be materially impacted by changes in the mix and/or level of earnings by taxing jurisdiction.
Deferred income tax assets represent amounts available to reduce income taxes payable in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing all available evidence, including the reversal of deferred tax liabilities, carrybacks available, and historical and projected pre-tax profits generated by our operations. Valuation allowances are established when, in management’s judgment, it is more likely than not that itsour deferred tax assets will not be realized. In assessing the need for a valuation allowance, management weighs the available positive and negative evidence, including limitations on the use of tax losses and other carryforwards due to changes in ownership, historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.
Information related to new accounting standards is included in Note 2—Basis of Presentation and Significant Accounting Policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about ourOur market risk disclosures involvesinvolve forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity price risk.
Interest Rate Risk
We have exposure to changes in interest rates on our debt, as follows:
Term Loan FacilityFacilities. As of December 31, 2018,2021, we had an aggregate principal amount outstanding of $1,503 million$2.0 billion on our Term Loan Facility.Facilities. The interest rate fluctuates based on LIBOR or a Base Rate, as defined in the agreement, plus an applicable margin of 2.00%, in the case of LIBOR loans, and 1.00%, in the case of Base Rate loans.margin. Assuming an average annual aggregate principal amount outstanding of $1,503 million,$2.0 billion, a hypothetical 1% increase in the interest rate would have increased our annual interest expense by $15$20 million.
ABL Facility. We have exposure Additionally, we utilize short-term interest rate swaps to changesmitigate variability in forecasted interest ratespayments on our Term Loan Facilities. The interest rate swaps convert floating-rate interest payments into fixed rate interest payments.
ABL Facility.Facility. The interest rates on our ABL Facility fluctuate based on LIBOR or a Base Rate, as defined in the agreement, plus an applicable margin. Assuming our $1.0 billion ABL Facility was fully drawn throughout 2018,2021, a hypothetical 1% change in the interest rate would have increased our annual interest expense by $10$13 million.
Trade Securitization Program.Fixed Rate Debt. As of December 31, 2018, our trade securitization program had an outstanding debt balance of $283 million. The interest rates on our Trade Securitization Program fluctuate based on lenders’ cost of funds plus an applicable margin. Assuming our $401 million trade securitization program was fully drawn through secured borrowings throughout 2018, a hypothetical 1% increase in the interest rate would have increased our annual interest expense by $4 million.
Unsecured Credit Facility. We have exposure to changes in interest rates on our Unsecured Credit Facility. The interest rates on our Unsecured Credit Facility fluctuate based on LIBOR or a Base Rate plus an applicable margin. Assuming our $500 million Unsecured Credit Facility was fully drawn as of December 31, 2018, a hypothetical 1% change in the interest rate would have increased our annual interest expense by $5 million.
Asset Financing. As of December 31, 2018,2021, we had outstanding $55 million aggregate principal amount$1.6 billion of Asset Financing. Most of the Asset Financing has floating interest rates that subject us to risk resulting from changes in short-term (primarily Euribor) interest rates. Assuming an average annual aggregate principal amount outstanding of $55 million, a hypothetical 1% increase in the interest rate would increase our annual interest expense by less than $1 million.
We also have risk related to our fixed-rate debt. As of December 31, 2018, we had an aggregate of $2.1 billionfair value of indebtedness (excluding capitalfinance leases) that bears interest at fixed rates. A 1% decrease in market interest rates as of December 31, 20182021 would increase the fair value of our fixed-rate indebtedness by approximately 4%. For additional information concerning our debt, see Note 11—12—Debt to theour Consolidated Financial Statements.
We also have exposure to changes in interest rates as a result of our cash balances, which totaled $260 million as of December 31, 2021 and generally earn interest income that approximates LIBOR. Assuming an annual average cash balance of $260 million, a hypothetical 1% increase in the interest rate would reduce our net interest expense by $3 million.
Foreign Currency Exchange Risk
We have a significantA proportion of our net assets and income are in non-U.S. dollar (“USD”) currencies, primarily the euro (“EUR”) and British pound sterling (“GBP”). We are exposed to currency risk from the potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR or the GBP relative to the USD could have an adverse impact on our financial results.
In connection with the issuances of the Senior Notes due 2023 and the Senior Notes due 2022, we entered into certain cross-currency swap agreements to partially manage the relatedWe periodically use foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated Senior Notes due 2023 and the Senior Notes due 2022, including the semi-annual interest payments,option contracts to fixed-rate, EUR-denominated debt. The risk management objective is to manage a portion of the foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies.
In order to mitigate against the risk of a reduction in the value of foreign currency earnings before interest, taxes, depreciation and amortization for those Companyfrom our operations that use the EUR or the GBP as their functional currency, we use foreign currency option contracts.currency.
As of December 31, 2018,2021, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in a decrease in net assets of $52$32 million. As of December 31, 2018,2021, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of $30$24 million. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with our actual experience in foreign currency transactions. Fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The sensitivity
analysis of the impact of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.
Commodity Price Risk
We are exposed to the impact of marketprice fluctuations in the price offor diesel fuel purchased for use in Company-ownedour vehicles. During the year ended December 31, 2018,2021, diesel prices fluctuated by as much as 17.4%20% in France, 17.7%30% in the United Kingdom, and 14.2%41% in the United States. However, we include price adjustment clauses or cost-recovery mechanisms in many of our customer contracts in the event of a change in the cost to purchase fuel. The clauses mean that substantially all fluctuations in the purchase price of diesel, except for short-term economic fluctuations, can be passed on to customers in the sales price. Therefore, a hypothetical 10% change in the price of diesel would not be expected to materially affect our financial performance over the long term.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
XPO Logistics, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of XPO Logistics, Inc. and subsidiaries (the Company) as of December 31, 20182021 and 2017,2020, the related consolidated statements of income, comprehensive income, (loss), cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2018,2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,2021, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2018,2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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’sManagement's Annual Report on Internal ControlsControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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: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.deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the tax-free determination of the spin-off of the Company’s Logistics segment
As discussed in Note 1 to the consolidated financial statements, on August 2, 2021, the Company completed the previously announced spin-off of its Logistics segment into an independent public company. The spin-off was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc. to the Company’s stockholders and was intended to qualify as tax-free to the Company and its stockholders for U.S. federal income tax purposes.
We identified the evaluation of the spin-off as a tax-free transaction for U.S. federal income tax purposes to be a critical audit matter. The evaluation of the Company’s interpretation and application of the Internal Revenue Code (Code) required complex auditor judgment and the need to involve tax professionals with specialized skills and knowledge to evaluate the U.S. federal taxability of the spin-off.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process, including a control related to Company’s evaluation of the spin-off as tax-free for U.S. federal income tax purposes. We involved tax professionals with specialized skills and knowledge, who assisted in:
•inspecting the tax opinions from the Company’s external tax advisors that management utilized in forming their conclusions on U.S. federal income taxability of the spin-off, including certain interpretations of the Code
•assessing the key facts, assumptions and representations provided by management and used by the Company’s external tax advisors when evaluating the U.S. federal income taxability
Liabilities for self-insured claims
As discussed in Note 2 to the consolidated financial statements, the Company uses a combination of self-insurance programs and purchased insurance to provide for the costs of liability, vehicular, and workers’ compensation claims (self-insured claims). The Company records estimates of the undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of claims incurred but not reported, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. These liabilities are recorded within accrued liabilities and other long-term liabilities as of December 31, 2021.
We identified the assessment of the estimated liabilities for self-insured claims as a critical audit matter. The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective auditor judgment. Assumptions that may affect the estimated liability of claims include the consideration of
historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions. Additionally, the Company’s liabilities for self-insured claims included estimates for expenses of claims that have been incurred but have not been reported, and specialized skills were needed to evaluate the actuarial methods and assumptions used to assess these estimates.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s self-insurance process. This included controls over the assumptions used in estimating the liabilities for self-insured claims. In addition, we compared the Company’s estimates of liabilities for individual self-insured claims to current available information, which included legal claims, incident and case reports, current and historical cost experience, or other evidence. We involved an actuarial professional with specialized skills and knowledge, who assisted in:
•comparing the Company’s actuarial reserving methodologies with accepted actuarial methods and procedures
•evaluating assumptions used in determining the liability, including expected level of cost per claim and retention levels, in relation to recent historical loss payment trends and severity factors
•developing an independent expected range of liabilities, including liabilities for claims that have been incurred but have not been recorded, based on actuarial methodologies
•comparing the Company’s recorded liability to the independently developed liability range.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Charlotte, North CarolinaStamford, Connecticut
February 14, 2019
16, 2022
XPO Logistics, Inc.
Consolidated Balance Sheets
| | | | | December 31, | | December 31, |
| (In millions, except per share data) | | 2018 | | 2017 | (In millions, except per share data) | | 2021 | | 2020 |
| ASSETS | | | | | ASSETS | | | | |
| Current assets: | | | | | |
| Current assets | | Current assets | |
| Cash and cash equivalents | | $ | 502 |
| | $ | 397 |
| Cash and cash equivalents | | $ | 260 | | | $ | 1,731 | |
| Accounts receivable, net of allowances of $52 and $42, respectively | | 2,596 |
| | 2,725 |
| |
| Accounts receivable, net of allowances of $47 and $46, respectively | | Accounts receivable, net of allowances of $47 and $46, respectively | | 2,105 | | | 1,680 | |
| Other current assets | | 590 |
| | 466 |
| Other current assets | | 286 | | | 303 | |
| Current assets of discontinued operations | | Current assets of discontinued operations | | 26 | | | 1,664 | |
| Total current assets | | 3,688 |
| | 3,588 |
| Total current assets | | 2,677 | | | 5,378 | |
| Property and equipment, net of $1,585 and $1,110 in accumulated depreciation, respectively | | 2,605 |
| | 2,664 |
| |
| Long-term assets | | Long-term assets | | | | |
| Property and equipment, net of $1,828 and $1,646 in accumulated depreciation, respectively | | Property and equipment, net of $1,828 and $1,646 in accumulated depreciation, respectively | | 1,808 | | | 1,891 | |
| Operating lease assets | | Operating lease assets | | 908 | | | 844 | |
| Goodwill | | 4,467 |
| | 4,564 |
| Goodwill | | 2,479 | | | 2,536 | |
| Identifiable intangible assets, net of $706 and $560 in accumulated amortization, respectively | | 1,253 |
| | 1,435 |
| |
| Identifiable intangible assets, net of $612 and $536 in accumulated amortization, respectively | | Identifiable intangible assets, net of $612 and $536 in accumulated amortization, respectively | | 580 | | | 675 | |
| Other long-term assets | | 257 |
| | 351 |
| Other long-term assets | | 255 | | | 187 | |
| Long-term assets of discontinued operations | | Long-term assets of discontinued operations | | — | | | 4,666 | |
| Total long-term assets | | 8,582 |
| | 9,014 |
| Total long-term assets | | 6,030 | | | 10,799 | |
| Total assets | | $ | 12,270 |
| | $ | 12,602 |
| Total assets | | $ | 8,707 | | | $ | 16,177 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Current liabilities: | | | | | |
| Current liabilities | | Current liabilities | |
| Accounts payable | | $ | 1,258 |
| | $ | 1,251 |
| Accounts payable | | $ | 1,110 | | | $ | 854 | |
| Accrued expenses | | 1,480 |
| | 1,526 |
| Accrued expenses | | 1,107 | | | 1,044 | |
| Short-term borrowings and current maturities of long-term debt | | 367 |
| | 104 |
| Short-term borrowings and current maturities of long-term debt | | 58 | | | 1,281 | |
| Short-term operating lease liabilities | | Short-term operating lease liabilities | | 170 | | | 152 | |
| Other current liabilities | | 208 |
| | 116 |
| Other current liabilities | | 69 | | | 102 | |
| Current liabilities of discontinued operations | | Current liabilities of discontinued operations | | 24 | | | 1,728 | |
| Total current liabilities | | 3,313 |
| | 2,997 |
| Total current liabilities | | 2,538 | | | 5,161 | |
| Long-term liabilities | | Long-term liabilities | | | | |
| Long-term debt | | 3,902 |
| | 4,418 |
| Long-term debt | | 3,514 | | | 5,240 | |
| Deferred tax liability | | 444 |
| | 419 |
| Deferred tax liability | | 316 | | | 286 | |
| Employee benefit obligations | | 153 |
| | 162 |
| Employee benefit obligations | | 122 | | | 131 | |
| Long-term operating lease liabilities | | Long-term operating lease liabilities | | 752 | | | 696 | |
| Other long-term liabilities | | 488 |
| | 596 |
| Other long-term liabilities | | 327 | | | 384 | |
| Long-term liabilities of discontinued operations | | Long-term liabilities of discontinued operations | | — | | | 1,430 | |
| Total long-term liabilities | | 4,987 |
| | 5,595 |
| Total long-term liabilities | | 5,031 | | | 8,167 | |
| Stockholders’ equity: | | | | | |
| Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; 0.07 of Series A shares issued and outstanding as of December 31, 2018 and 2017, respectively | | 41 |
| | 41 |
| |
| Common stock, $0.001 par value; 300 shares authorized; 116 and 120 shares issued and outstanding as of December 31, 2018 and 2017, respectively | | — |
| | — |
| |
| Stockholders’ equity | | Stockholders’ equity | | | | |
Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; — and 0.001 of Series A shares issued and outstanding as of December 31, 2021 and 2020, respectively | | Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; — and 0.001 of Series A shares issued and outstanding as of December 31, 2021 and 2020, respectively | | — | | | 1 | |
Common stock, $0.001 par value; 300 shares authorized; 115 and 102 shares issued and outstanding as of December 31, 2021 and 2020, respectively | | Common stock, $0.001 par value; 300 shares authorized; 115 and 102 shares issued and outstanding as of December 31, 2021 and 2020, respectively | | — | | | — | |
| Additional paid-in capital | | 3,311 |
| | 3,590 |
| Additional paid-in capital | | 1,179 | | | 1,998 | |
| Retained earnings (accumulated deficit) | | 377 |
| | (43 | ) | |
| Accumulated other comprehensive (loss) income | | (154 | ) | | 16 |
| |
| Retained earnings | | Retained earnings | | 43 | | | 868 | |
| Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | (84) | | | (158) | |
| Total stockholders’ equity before noncontrolling interests | | 3,575 |
| | 3,604 |
| Total stockholders’ equity before noncontrolling interests | | 1,138 | | | 2,709 | |
| Noncontrolling interests | | 395 |
| | 406 |
| Noncontrolling interests | | — | | | 140 | |
| Total equity | | 3,970 |
| | 4,010 |
| Total equity | | 1,138 | | | 2,849 | |
| Total liabilities and equity | | $ | 12,270 |
| | $ | 12,602 |
| Total liabilities and equity | | $ | 8,707 | | | $ | 16,177 | |
See accompanying notes to consolidated financial statements.
XPO Logistics, Inc.
Consolidated Statements of Income
| | | | | Years Ended December 31, | | Years Ended December 31, |
| (In millions, except per share data) | | 2018 | | 2017 | | 2016 | (In millions, except per share data) | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 17,279 |
| | $ | 15,381 |
| | $ | 14,619 |
| Revenue | | $ | 12,806 | | | $ | 10,199 | | | $ | 10,681 | |
| Operating expenses | | | | | | | |
| Cost of transportation and services | | 9,013 |
| | 8,132 |
| | 7,887 |
| |
| Direct operating expense | | 5,725 |
| | 5,006 |
| | 4,616 |
| |
Cost of transportation and services (exclusive of depreciation and amortization) | | Cost of transportation and services (exclusive of depreciation and amortization) | | 8,945 | | | 6,950 | | | 7,359 | |
| Direct operating expense (exclusive of depreciation and amortization) | | Direct operating expense (exclusive of depreciation and amortization) | | 1,391 | | | 1,235 | | | 1,186 | |
| Sales, general and administrative expense | | 1,837 |
| | 1,661 |
| | 1,652 |
| Sales, general and administrative expense | | 1,322 | | | 1,210 | | | 1,068 | |
| Total operating expenses | | 16,575 |
| | 14,799 |
| | 14,155 |
| |
| Depreciation and amortization expense | | Depreciation and amortization expense | | 476 | | | 470 | | | 467 | |
| Transaction and integration costs | | Transaction and integration costs | | 37 | | | 75 | | | 5 | |
| Restructuring costs | | Restructuring costs | | 19 | | | 31 | | | 35 | |
| Operating income | | 704 |
| | 582 |
| | 464 |
| Operating income | | 616 | | | 228 | | | 561 | |
| Other expense (income) | | (109 | ) | | (57 | ) | | (34 | ) | |
| Foreign currency loss (gain) | | 3 |
| | 58 |
| | (40 | ) | |
| Other income | | Other income | | (57) | | | (41) | | | (23) | |
| Foreign currency (gain) loss | | Foreign currency (gain) loss | | (2) | | | (3) | | | 10 | |
| Debt extinguishment loss | | 27 |
| | 36 |
| | 70 |
| Debt extinguishment loss | | 54 | | | — | | | 5 | |
| Interest expense | | 217 |
| | 284 |
| | 361 |
| Interest expense | | 211 | | | 307 | | | 268 | |
| Income before income tax provision (benefit) | | 566 |
| | 261 |
| | 107 |
| |
Income (loss) from continuing operations before income tax provision (benefit) | | Income (loss) from continuing operations before income tax provision (benefit) | | 410 | | | (35) | | | 301 | |
| Income tax provision (benefit) | | 122 |
| | (99 | ) | | 22 |
| Income tax provision (benefit) | | 87 | | | (22) | | | 60 | |
| Income (loss) from continuing operations | | Income (loss) from continuing operations | | 323 | | | (13) | | | 241 | |
| Income from discontinued operations, net of taxes | | Income from discontinued operations, net of taxes | | 18 | | | 130 | | | 199 | |
| Net income | | 444 |
| | 360 |
| | 85 |
| Net income | | 341 | | | 117 | | | 440 | |
| Net income attributable to noncontrolling interests | | (22 | ) | | (20 | ) | | (16 | ) | |
Net loss from continuing operations attributable to noncontrolling interests | | Net loss from continuing operations attributable to noncontrolling interests | | — | | | 3 | | | — | |
Net income from discontinued operations attributable to noncontrolling interests | | Net income from discontinued operations attributable to noncontrolling interests | | (5) | | | (10) | | | (21) | |
| Net income attributable to XPO | | $ | 422 |
| | $ | 340 |
| | $ | 69 |
| Net income attributable to XPO | | $ | 336 | | | $ | 110 | | | $ | 419 | |
| | | | | | | | | | | | | |
| Earnings per share data (Note 16): | | | | | | | |
| Net income (loss) attributable to common shareholders | | Net income (loss) attributable to common shareholders | |
| Continuing operations | | Continuing operations | | $ | 323 | | | $ | (41) | | | $ | 201 | |
| Discontinued operations | | Discontinued operations | | 13 | | | 120 | | | 178 | |
| Net income attributable to common shareholders | | $ | 390 |
| | $ | 312 |
| | $ | 63 |
| Net income attributable to common shareholders | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | | | | | | | |
| Basic earnings per share | | $ | 3.17 |
| | $ | 2.72 |
| | $ | 0.57 |
| |
| Diluted earnings per share | | $ | 2.88 |
| | $ | 2.45 |
| | $ | 0.53 |
| |
| Earnings (loss) per share data | | Earnings (loss) per share data | |
| Basic earnings (loss) per share from continuing operations | | Basic earnings (loss) per share from continuing operations | | $ | 2.88 | | | $ | (0.45) | | | $ | 2.09 | |
| Basic earnings per share from discontinued operations | | Basic earnings per share from discontinued operations | | 0.11 | | | 1.32 | | | 1.86 | |
| Basic earnings per share attributable to common shareholders | | Basic earnings per share attributable to common shareholders | | $ | 2.99 | | | $ | 0.87 | | | $ | 3.95 | |
| Diluted earnings (loss) per share from continuing operations | | Diluted earnings (loss) per share from continuing operations | | $ | 2.82 | | | $ | (0.45) | | | $ | 1.89 | |
| Diluted earnings per share from discontinued operations | | Diluted earnings per share from discontinued operations | | 0.11 | | | 1.32 | | | 1.68 | |
| Diluted earnings per share attributable to common shareholders | | Diluted earnings per share attributable to common shareholders | | $ | 2.93 | | | $ | 0.87 | | | $ | 3.57 | |
| | | | | | | | | | | | | |
| Weighted-average common shares outstanding | | | | | | | Weighted-average common shares outstanding | |
| Basic weighted-average common shares outstanding | | 123 |
| | 115 |
| | 110 |
| Basic weighted-average common shares outstanding | | 112 | | | 92 | | | 96 | |
| Diluted weighted-average common shares outstanding | | 135 |
| | 128 |
| | 123 |
| Diluted weighted-average common shares outstanding | | 114 | | | 92 | | | 106 | |
See accompanying notes to consolidated financial statements.
XPO Logistics, Inc.
Consolidated Statements of Comprehensive Income (Loss)
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Net income | | $ | 444 |
| | $ | 360 |
| | $ | 85 |
|
| | | | | | | |
| Other comprehensive (loss) income, net of tax | | | | | | |
| Foreign currency translation (loss) gain, net of tax effect of $(6), $47 and $- | | $ | (100 | ) | | $ | 180 |
| | $ | (138 | ) |
| Unrealized (loss) gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $(1), $(1) and $- | | (6 | ) | | 5 |
| | (7 | ) |
| Defined benefit plans adjustment, net of tax effect of $23, $(29) and $(4) | | (91 | ) | | 90 |
| | 4 |
|
| Other comprehensive (loss) income | | (197 | ) | | 275 |
| | (141 | ) |
| Comprehensive income (loss) | | $ | 247 |
| | $ | 635 |
| | $ | (56 | ) |
| Less: Comprehensive (loss) income attributable to noncontrolling interests | | (5 | ) | | 72 |
| | (3 | ) |
| Comprehensive income (loss) attributable to XPO | | $ | 252 |
| | $ | 563 |
| | $ | (53 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Net income | | $ | 341 | | | $ | 117 | | | $ | 440 | |
| | | | | | |
| Other comprehensive income (loss), net of tax | | | | | | |
| Foreign currency translation gain (loss), net of tax effect of $—, $17 and $(7) | | $ | (85) | | | $ | 112 | | | $ | 23 | |
| Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $1, $— and $(1) | | (3) | | | (2) | | | 4 | |
| Defined benefit plans adjustment, net of tax effect of $(11), $30 and $1 | | 34 | | | (117) | | | (19) | |
| Other comprehensive income (loss) | | (54) | | | (7) | | | 8 | |
| Comprehensive income | | $ | 287 | | | $ | 110 | | | $ | 448 | |
| Less: Comprehensive income attributable to noncontrolling interests | | 3 | | | 13 | | | 20 | |
| Comprehensive income attributable to XPO | | $ | 284 | | | $ | 97 | | | $ | 428 | |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | |
| XPO Logistics, Inc. |
| | | | | | |
| Consolidated Statements of Cash Flows |
| | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities of continuing operations | | | | | | |
| Net income | | $ | 341 | | | $ | 117 | | | $ | 440 | |
| Income from discontinued operations, net of taxes | | 18 | | | 130 | | | 199 | |
| Income (loss) from continuing operations | | 323 | | | (13) | | | 241 | |
Adjustments to reconcile income (loss) from continuing operations to net cash from operating activities | | | | | | |
| Depreciation, amortization and net lease activity | | 476 | | | 470 | | | 467 | |
| Stock compensation expense | | 37 | | | 41 | | | 56 | |
| Accretion of debt | | 18 | | | 20 | | | 16 | |
| Deferred tax expense (benefit) | | 5 | | | (75) | | | 40 | |
| Debt extinguishment loss | | 54 | | | — | | | 5 | |
| Unrealized (gain) loss on foreign currency option and forward contracts | | 1 | | | (1) | | | 9 | |
| Gains on sales of property and equipment | | (73) | | | (91) | | | (101) | |
| Other | | 4 | | | 49 | | | (8) | |
| Changes in assets and liabilities | | | | | | |
| Accounts receivable | | (502) | | | (265) | | | 101 | |
| Other assets | | (1) | | | (41) | | | 82 | |
| Accounts payable | | 240 | | | 96 | | | (99) | |
| Accrued expenses and other liabilities | | 74 | | | 198 | | | (180) | |
| Net cash provided by operating activities from continuing operations | | 656 | | | 388 | | | 629 | |
| Cash flows from investing activities of continuing operations | | | | | | |
| Payment for purchases of property and equipment | | (313) | | | (303) | | | (379) | |
| Proceeds from sale of property and equipment | | 132 | | | 183 | | | 237 | |
| Cash collected on deferred purchase price receivable | | — | | | — | | | 75 | |
| Other | | (3) | | | 4 | | | — | |
| Net cash used in investing activities from continuing operations | | (184) | | | (116) | | | (67) | |
| Cash flows from financing activities of continuing operations | | | | | | |
| Proceeds from issuance of debt | | — | | | 1,155 | | | 1,752 | |
| Proceeds from (repayment of) borrowings related to securitization program | | (24) | | | 23 | | | — | |
| Repurchase of debt | | (2,769) | | | — | | | — | |
| Proceeds from borrowings on ABL facility | | — | | | 1,020 | | | 1,935 | |
| Repayment of borrowings on ABL facility | | (200) | | | (820) | | | (1,935) | |
| Repayment of debt and finance leases | | (80) | | | (65) | | | (569) | |
| Payment of debt issuance costs | | (5) | | | (22) | | | (28) | |
| | | | | | |
| Cash paid in connection with preferred stock conversion | | — | | | (22) | | | — | |
| | | | | | |
| | | | | | |
| Issuance (repurchase) of common stock | | 384 | | | (114) | | | (1,347) | |
| Change in bank overdrafts | | — | | | 21 | | | (3) | |
| Payment for tax withholdings for restricted shares | | (28) | | | (26) | | | (14) | |
| | | | | | |
| Distribution from GXO | | 794 | | | — | | | — | |
| Other | | (4) | | | 4 | | | 8 | |
Net cash provided by (used in) financing activities from continuing operations | | (1,932) | | | 1,154 | | | (201) | |
| | | | | | |
XPO Logistics, Inc.
Consolidated Statements of Cash Flows
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Operating activities | | | | | | |
| Net income | | $ | 444 |
| | $ | 360 |
| | $ | 85 |
|
| Adjustments to reconcile net income to net cash from operating activities | | | | | | |
| Depreciation and amortization | | 716 |
| | 658 |
| | 643 |
|
| Stock compensation expense | | 49 |
| | 79 |
| | 55 |
|
| Accretion of debt | | 15 |
| | 19 |
| | 17 |
|
| Deferred tax expense (benefit) | | 45 |
| | (158 | ) | | (21 | ) |
| Debt extinguishment loss | | 27 |
| | 36 |
| | 70 |
|
| Unrealized (gain) loss on foreign currency option and forward contracts | | (20 | ) | | 49 |
| | (40 | ) |
| Gain on sale of equity investment | | (24 | ) | | — |
| | — |
|
| Other | | — |
| | 13 |
| | 8 |
|
| Changes in assets and liabilities: | | | | | | |
| Accounts receivable | | (13 | ) | | (320 | ) | | (154 | ) |
| Other assets | | (49 | ) | | (92 | ) | | 13 |
|
| Accounts payable | | 35 |
| | 140 |
| | 2 |
|
| Accrued expenses and other liabilities | | (123 | ) | | 1 |
| | (56 | ) |
| Net cash provided by operating activities | | 1,102 |
| | 785 |
| | 622 |
|
| Investing activities | | | | | | |
| Payment for purchases of property and equipment | | (551 | ) | | (504 | ) | | (483 | ) |
| Proceeds from sale of assets | | 143 |
| | 118 |
| | 69 |
|
| Proceeds from sale of business, net of $11 cash divested | | — |
| | — |
| | 548 |
|
| Other | | 8 |
| | — |
| | 8 |
|
| Net cash (used in) provided by investing activities | | (400 | ) | | (386 | ) | | 142 |
|
| Financing activities | | | | | | |
| Proceeds from issuance of debt | | 1,074 |
| | 819 |
| | 1,378 |
|
| Repurchase of debt | | (1,225 | ) | | (1,387 | ) | | (1,889 | ) |
| Proceeds from borrowings on ABL facility | | 1,355 |
| | 995 |
| | 360 |
|
| Repayment of borrowings on ABL facility | | (1,455 | ) | | (925 | ) | | (330 | ) |
| Repayment of long-term debt and capital leases | | (119 | ) | | (106 | ) | | (151 | ) |
| Payment of debt issuance costs | | (10 | ) | | (17 | ) | | (26 | ) |
| Proceeds from forward sale settlement | | 349 |
| | — |
| | — |
|
| Proceeds from common stock offerings | | — |
| | 288 |
| | — |
|
| Repurchase of common stock | | (536 | ) | | — |
| | — |
|
| Change in bank overdrafts | | — |
| | (3 | ) | | (17 | ) |
| Payment for tax withholdings for restricted shares | | (53 | ) | | (17 | ) | | (11 | ) |
| Dividends paid | | (8 | ) | | (7 | ) | | (5 | ) |
| Other | | 8 |
| | (6 | ) | | 10 |
|
| Net cash used in financing activities | | (620 | ) | | (366 | ) | | (681 | ) |
| Effect of exchange rates on cash, cash equivalents and restricted cash | | (17 | ) | | 16 |
| | (4 | ) |
| Net increase in cash, cash equivalents and restricted cash | | 65 |
| | 49 |
| | 79 |
|
| Cash, cash equivalents and restricted cash, beginning of year | | 449 |
| | 400 |
| | 321 |
|
| Cash, cash equivalents and restricted cash, end of year | | $ | 514 |
| | $ | 449 |
| | $ | 400 |
|
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid for interest | | $ | 233 |
| | $ | 274 |
| | $ | 363 |
|
| Cash paid for income taxes | | $ | 70 |
| | $ | 79 |
| | $ | 41 |
|
| | | | | | | | | | | | | | | | | | | | |
| XPO Logistics, Inc. |
| | | | | | |
| Consolidated Statements of Cash Flows (continued) |
| | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| | | | | | |
| Cash flows from discontinued operations | | | | | | |
| Operating activities of discontinued operations | | $ | 65 | | | $ | 497 | | | $ | 162 | |
| Investing activities of discontinued operations | | (93) | | | (241) | | | (94) | |
| Financing activities of discontinued operations | | (302) | | | (18) | | | (558) | |
| Net cash provided by (used in) discontinued operations | | (330) | | | 238 | | | (490) | |
| Effect of exchange rates on cash, cash equivalents and restricted cash | | (2) | | | 14 | | | 2 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | (1,792) | | | 1,678 | | | (127) | |
| Cash, cash equivalents and restricted cash, beginning of year | | 2,065 | | | 387 | | | 514 | |
| Cash, cash equivalents and restricted cash, end of year | | 273 | | | 2,065 | | | 387 | |
Less: Cash, cash equivalents and restricted cash of discontinued operations, end of year | | 3 | | | 323 | | | 195 | |
Cash, cash equivalents and restricted cash of continuing operations, end of year | | $ | 270 | | | $ | 1,742 | | | $ | 192 | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Cash paid for interest | | 253 | | | 314 | | | 281 | |
| Cash paid for income taxes | | 84 | | | 40 | | | 82 | |
See accompanying notes to consolidated financial statements.
XPO Logistics, Inc.
Consolidated Statements of Changes in Equity
For the Three Years Ended December 31, 2018, 20172021, 2020 and 20162019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A Preferred Stock | | Common Stock | | | | | | | | | | | | |
| (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total XPO Stockholders’
Equity | | Non-controlling Interests | | Total Equity |
| Balance as of December 31, 2018 | | 72 | | | $ | 41 | | | 115,683 | | | $ | — | | | $ | 3,311 | | | $ | 377 | | | $ | (154) | | | $ | 3,575 | | | $ | 395 | | | $ | 3,970 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 419 | | | — | | | 419 | | | 21 | | | 440 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | 9 | | | 9 | | | (1) | | | 8 | |
| Exercise and vesting of stock compensation awards | | — | | | — | | | 489 | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 1 | |
| Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (14) | | | — | | | — | | | (14) | | | — | | | (14) | |
| Purchase of noncontrolling interest | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | | | (255) | | | (258) | |
| Retirement of common stock | | — | | | — | | | (23,932) | | | — | | | (1,275) | | | — | | | — | | | (1,275) | | | — | | | (1,275) | |
| Dividend declared | | — | | | — | | | — | | | — | | | — | | | (3) | | | — | | | (3) | | | (5) | | | (8) | |
| Stock compensation expense | | — | | | — | | | — | | | — | | | 36 | | | — | | | — | | | 36 | | | — | | | 36 | |
| Adoption of new accounting standard and other | | — | | | — | | | 102 | | | — | | | 5 | | | (7) | | | — | | | (2) | | | (2) | | | (4) | |
| | | | | | | | | | | | | | | | | | | | |
| Balance as of December 31, 2019 | | 72 | | | $ | 41 | | | 92,342 | | | $ | — | | | $ | 2,061 | | | $ | 786 | | | $ | (145) | | | $ | 2,743 | | | $ | 153 | | | $ | 2,896 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 110 | | | — | | | 110 | | | 7 | | | 117 | |
| Other comprehensive income (loss) | | — | | | — | | | — | | | — | | | — | | | — | | | (13) | | | (13) | | | 6 | | | (7) | |
| Exercise and vesting of stock compensation awards | | — | | | — | | | 1,411 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (47) | | | — | | | — | | | (47) | | | — | | | (47) | |
| Purchase of noncontrolling interests | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | | | (20) | | | (21) | |
| Conversion of preferred stock to common stock | | (71) | | | (40) | | | 10,014 | | | — | | | 40 | | | — | | | — | | | — | | | — | | | — | |
| Preferred stock conversion | | — | | | — | | | — | | | — | | | — | | | (22) | | | — | | | (22) | | | — | | | (22) | |
| Retirement of common stock | | — | | | — | | | (1,715) | | | — | | | (114) | | | — | | | — | | | (114) | | | — | | | (114) | |
| Dividend declared | | — | | | — | | | — | | | — | | | — | | | (2) | | | — | | | (2) | | | (6) | | | (8) | |
| Stock compensation expense | | — | | | — | | | — | | | — | | | 52 | | | — | | | — | | | 52 | | | — | | | 52 | |
| Adoption of new accounting standard and other | | — | | | — | | | — | | | — | | | 7 | | | (4) | | | — | | | 3 | | | — | | | 3 | |
| Balance as of December 31, 2020 | | 1 | | | $ | 1 | | | 102,052 | | | $ | — | | | $ | 1,998 | | | $ | 868 | | | $ | (158) | | | $ | 2,709 | | | $ | 140 | | | $ | 2,849 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Series A Preferred Stock | | Common Stock | | | | | | | | | | | | |
| (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders’
Equity | | Non-controlling Interests | | Total Equity |
| Balance as of December 31, 2015 | | 73 |
| | $ | 42 |
| | 109,523 |
| | $ | — |
| | $ | 3,212 |
| | $ | (465 | ) | | $ | (72 | ) | | $ | 2,717 |
| | $ | 344 |
| | $ | 3,061 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 69 |
| | — |
| | 69 |
| | 16 |
| | 85 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (122 | ) | | (122 | ) | | (19 | ) | | (141 | ) |
| Repurchase of noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Exercise and vesting of stock compensation awards | | — |
| | — |
| | 1,298 |
| | — |
| | 10 |
| | — |
| | — |
| | 10 |
| | — |
| | 10 |
|
| Tax withholdings related to vesting of stock compensation | | — |
| | — |
| | — |
| | — |
| | (11 | ) | | — |
| | — |
| | (11 | ) | | — |
| | (11 | ) |
| Conversion of Series A preferred stock to common stock | | (1 | ) | | — |
| | 93 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Issuance of common stock upon conversion of convertible senior notes, net of tax | | — |
| | — |
| | 173 |
| | — |
| | 3 |
| | — |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Dividend paid | | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | | (3 | ) | | (6 | ) |
| Adoption of stock compensation standard | | — |
| | — |
| | — |
| | — |
| | 1 |
| | 6 |
| | — |
| | 7 |
| | — |
| | 7 |
|
| Stock compensation expense | | — |
| | — |
| | — |
| | — |
| | 27 |
| | — |
| | — |
| | 27 |
| | — |
| | 27 |
|
| Balance as of December 31, 2016 | | 72 |
| | $ | 42 |
| | 111,087 |
| | $ | — |
| | $ | 3,245 |
| | $ | (393 | ) | | $ | (194 | ) | | $ | 2,700 |
| | $ | 338 |
| | $ | 3,038 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 340 |
| | — |
| | 340 |
| | 20 |
| | 360 |
|
| Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 223 |
| | 223 |
| | 52 |
| | 275 |
|
| Exercise and vesting of stock compensation awards | | — |
| | — |
| | 728 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Tax withholdings related to vesting of stock compensation awards | | — |
| | — |
| | — |
| | — |
| | (17 | ) | | — |
| | — |
| | (17 | ) | | — |
| | (17 | ) |
| Issuance of common stock from offering | | — |
| | — |
| | 5,000 |
| | — |
| | 288 |
| | — |
| | — |
| | 288 |
| | — |
| | 288 |
|
| Conversion of Series A preferred stock to common stock | | — |
| | (1 | ) | | 103 |
| | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Issuance of common stock upon conversion of convertible senior notes, net of tax | | — |
| | — |
| | 3,002 |
| | — |
| | 49 |
| | — |
| | — |
| | 49 |
| | — |
| | 49 |
|
| Dividend paid | | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | | (4 | ) | | (7 | ) |
| Impact of tax reform act | | — |
| | — |
| | — |
| | — |
| | — |
| | 13 |
| | (13 | ) | | — |
| | — |
| | — |
|
| Stock compensation expense | | — |
| | — |
| | — |
| | — |
| | 23 |
| | — |
| | — |
| | 23 |
| | — |
| | 23 |
|
| Balance as of December 31, 2017 | | 72 |
| | $ | 41 |
| | 119,920 |
| | $ | — |
| | $ | 3,590 |
| | $ | (43 | ) | | $ | 16 |
| | $ | 3,604 |
| | $ | 406 |
| | $ | 4,010 |
|
XPO Logistics, Inc.
Consolidated Statements of Changes in Equity (continued) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Series A Preferred Stock | | Common Stock | | | | | | | | | | | | |
| (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated
Deficit | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders’
Equity | | Non-controlling Interests | | Total Equity |
| Balance as of December 31, 2017 | | 72 |
| | $ | 41 |
| | 119,920 |
| | $ | — |
| | $ | 3,590 |
| | $ | (43 | ) | | $ | 16 |
| | $ | 3,604 |
| | $ | 406 |
| | $ | 4,010 |
|
| Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 422 |
| | — |
| | 422 |
| | 22 |
| | 444 |
|
| Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (170 | ) | | (170 | ) | | (27 | ) | | (197 | ) |
| Exercise and vesting of stock compensation awards | | — |
| | — |
| | 995 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
|
| Tax withholdings related to vesting of stock compensation awards | | — |
| | — |
| | — |
| | — |
| | (53 | ) | | — |
| | — |
| | (53 | ) | | — |
| | (53 | ) |
| Issuance of common stock from forward sale settlement | | — |
| | — |
| | 6,000 |
| | — |
| | 349 |
| | — |
| | — |
| | 349 |
| | — |
| | 349 |
|
| Retirement of common stock | | — |
| | — |
| | (11,314 | ) | | — |
| | (608 | ) | | — |
| | — |
| | (608 | ) | | — |
| | (608 | ) |
| Dividend paid | | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | | (6 | ) | | (9 | ) |
| Stock compensation expense | | — |
| | — |
| | — |
| | — |
| | 30 |
| | — |
| | — |
| | 30 |
| | — |
| | 30 |
|
| Other | | — |
| | — |
| | 82 |
| | — |
| | 2 |
| | 1 |
| | — |
| | 3 |
| | — |
| | 3 |
|
| Balance as of December 31, 2018 | | 72 |
| | $ | 41 |
| | 115,683 |
| | $ | — |
| | $ | 3,311 |
| | $ | 377 |
| | $ | (154 | ) | | $ | 3,575 |
| | $ | 395 |
| | $ | 3,970 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Series A Preferred Stock | | Common Stock | | | | | | | | | | | | |
| (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total XPO Stockholders’
Equity | | Non-controlling Interests | | Total Equity |
| Balance as of December 31, 2020 | | 1 | | | $ | 1 | | | 102,052 | | | $ | — | | | $ | 1,998 | | | $ | 868 | | | $ | (158) | | | $ | 2,709 | | | $ | 140 | | | $ | 2,849 | |
| Net income | | — | | | — | | | — | | | — | | | — | | | 336 | | | — | | | 336 | | | 5 | | | 341 | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | (52) | | | (52) | | | (2) | | | (54) | |
| Spin-off of GXO | | — | | | — | | | — | | | — | | | (1,199) | | | (1,161) | | | 126 | | | (2,234) | | | (40) | | | (2,274) | |
| Exercise and vesting of stock compensation awards | | — | | | — | | | 392 | | | — | | | 2 | | | — | | | — | | | 2 | | | — | | | 2 | |
| Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (28) | | | — | | | — | | | (28) | | | — | | | (28) | |
| Issuance of common stock | | — | | | — | | | 2,875 | | | — | | | 384 | | | — | | | — | | | 384 | | | — | | | 384 | |
| Conversion of preferred stock to common stock | | (1) | | | (1) | | | 145 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
| Purchase of noncontrolling interests | | — | | | — | | | — | | | — | | | (34) | | | — | | | — | | | (34) | | | (100) | | | (134) | |
| Dividend declared | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Exercise of warrants | | — | | | — | | | 9,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Stock compensation expense | | — | | | — | | | — | | | — | | | 52 | | | — | | | — | | | 52 | | | — | | | 52 | |
| Other | | — | | | — | | | 58 | | | — | | | 3 | | | — | | | — | | | 3 | | | — | | | 3 | |
| Balance as of December 31, 2021 | | — | | | $ | — | | | 114,737 | | | $ | — | | | $ | 1,179 | | | $ | 43 | | | $ | (84) | | | $ | 1,138 | | | $ | — | | | $ | 1,138 | |
See accompanying notes to consolidated financial statements.
XPO Logistics, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2018, 20172021, 2020 and 20162019
1. Organization
Nature of Operations
XPO Logistics, Inc. and, together with its subsidiaries (“XPO” or the “Company”“we”) uses an integrated network, is a leading provider of people,freight transportation services. We use our proprietary technology and physical assets to help customers manage theirmove goods most efficiently through theirour customers’ supply chains. The Company’s customers are multinational, national, mid-sizechains, primarily by providing less-than-truckload (“LTL”) and small enterprises. XPO runs its business on a global basis, with two reportable segments: Transportation and Logistics.truck brokerage services. See Note 4—Segment Reporting and Geographic Information for additional information on our operations.
On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to XPO and our stockholders for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc. (“GXO”) to XPO stockholders. XPO stockholders received 1 share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution. XPO does not beneficially own any shares of GXO’s common stock following the spin-off. GXO is an independent public company trading under the symbol “GXO” on the New York Stock Exchange.
The historical results of operations and the financial position of our Logistics segment for periods prior to the spin-off are presented as discontinued operations in these consolidated financial statements for furtherstatements. For information on the Company’s segments.our discontinued operations, see Note 3—Discontinued Operations.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The preparation of theWe prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires managementus to make estimates and assumptions that affectimpact the amounts reported amounts of assets and liabilitiesdisclosed in our consolidated financial statements and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenue and expense during the reporting period. Estimates have beenaccompanying notes. We prepared these estimates based on the basis of the most current and best available information, but actual results could differ materially from those estimates. Certain reclassificationsthese estimates and assumptions.
Following the spin-off, we adopted a new format for our Consolidated Statements of Income to separately present depreciation and amortization expense, transaction and integration costs and restructuring costs from other operating expenses. We have been made torecast prior year amounts to conform to the current year’s presentation.
Consolidation
TheOur consolidated financial statements include the accounts of the CompanyXPO, our wholly-owned subsidiaries, and itsour majority-owned subsidiaries and variable interest entitiesentity (“VIEs”VIE”) for which the Company iswhere we are the primary beneficiary. IntercompanyWe have eliminated intercompany accounts and transactions have been eliminated in the consolidated financial statements.transactions.
If the Company determines that it hasTo determine if we are a variable interest in a VIE, the Company then evaluates if it is the primary beneficiary of the VIE. The evaluation assessesa VIE, we evaluate whether the Company has the powerwe are able to direct the activities that significantly affectimpact the VIE’s economic performance, including having operationalwhether we control overthe operations of each VIE and operatingwhether we can operate the VIEsVIE under the XPOour brand or policies. When changes occur to the design of an entity, the Company reconsiders whether it is subject to the VIE model. The Company continuously evaluates whether it has a controlling financial interest in a VIE. Investors in these entitiesthe VIE only have recourse to the assets owned by the entityVIE and not to the Company’sour general credit. The Company doesWe do not have implicit support arrangements with anythe VIE. Other thanWe consolidate the VIE, which is comprised of the special purpose entity which the Company consolidates related to the European Trade Securitization Program discussed below in this Note 11—Debt, assets and liabilities of VIEs for which the Company is the primary beneficiary are not significant to the Company’s consolidated financial statements.in Note 12—Debt.
The Company hasWe have a controlling financial interest in other entities where it currently holds, directly or indirectly, more than 50%generally when we own a majority of the voting rights or where it exercises control through substantive participating rights or as a general partner. Where the Company is a general partner, it considers substantive removal rights held by other partners in determining if it holds a controlling financial interest. The Company reevaluates whether it has a controlling financial interest in these entities when its voting or substantive participating rights change. Income or loss attributable to noncontrolling interests is deducted from net income/loss to determine net income/loss attributable to XPO. The noncontrolling interests reflected in our consolidated financial statements primarily relaterelated to the 13.75%a minority interest in Norbert DentressangleXPO Logistics Europe SA (“ND”XPO Logistics Europe”).
Recast, a business we acquired majority ownership of Financial Information Due to Adoption of New Accounting Guidance
in 2015. In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-07, Compensation - Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension
Cost2021, we completed a buy-out offer and Net Periodic Postretirement Benefit Cost.” The ASU changes how employerssqueeze-out for the remaining 3% of XPO Logistics Europe that sponsor defined benefit pension and/or other postretirement benefit plans present thewe did not already own at a cost of the benefits$128 million plus expenses. Previously, in the Consolidated Statements of Income. This cost, commonly referred to as the “net periodic benefit cost,” is comprised of several components that reflect different aspects of the arrangement with the employee, including the effect of the related funding. Previously, the Company aggregated the various components of the net periodic benefit cost (including interest cost2020 and the expected return on plan assets)2019, we purchased shareholders’ noncontrolling interests in XPO Logistics Europe for presentation purposes€17 million (approximately $21 million) and had included these costs within Operating income in the Consolidated Statements of Income. Under the new guidance, these costs are presented below Operating income. The Company adopted the standard on January 1, 2018 and recast prior periods to reflect the new presentation. The adoption of the standard had no impact on Net income. The amount of net periodic pension income included in Other expense (income) was $72€234 million $42 million and $24 million for the years ended December 31, 2018, 2017 and 2016,(approximately $258 million), respectively.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash.” The ASU requires that the statement of cash flows reconcile the change during the period in the total of cash, cash equivalents and restricted cash. The Company adopted this standard on January 1, 2018 and applied its provisions retrospectively. The adoption of this standard reduced cash flows provided by operating activities by $14 million and $3 million for the years ended December 31, 2017 and 2016, respectively, and reduced cash flows used by investing activities by $39 million on the Consolidated Statements of Cash Flows for the year ended December 31, 2017.
Significant Accounting Policies
Revenue Recognition
Revenue is recognized uponWe recognize revenue when we transfer of control of promised products or services to customers in an amount that reflectsequal to the consideration the Company expectswe expect to receive in exchange for those products or services.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606.customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as, the performance obligation is satisfied. The following is a description of the Company’s performance obligations for the transportation and logistics reportable segments.
Transportation
The Company’s transportation segment generatesWe generate revenue fromby providing freightless-than-truckload, truck brokerage and other transportation services for itsour customers. Certain accessorialAdditional services may be provided to our customers under their transportation contracts, such asincluding unloading and other incidental services. The transaction price is based on the consideration specified in the customer’s contract.
A performance obligation is created when a customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. TransportationWe recognize transportation revenue is recognized proportionally as a shipment moves from origin to destination and the related costs are recognized as incurred. Some of theour customer contracts contain aour promise to stand ready as the Company is obligated to provide transportation services for the customer.services. For these contracts, the Company recognizeswe recognize revenue on a straight-line basis over the term of the contract because the pattern of benefit to the customer, as well as the Company’sand our efforts to fulfill the contract, are generally distributed evenly throughout the period. Performance obligations are generally short-term, with transit daystimes usually less than one week. Generally, customers are billed either uponon shipment of the freight or on a monthly basis and remitmake payment according to approved payment terms. The Company recognizes revenue on a net basis when the Company doesWhen we do not control the specific services.
Logistics
The Company’s logistics segment generatesservices, we recognize revenue from providing supply chain services for its customers, including warehousing, distribution, order fulfillment, packaging, reverse logistics and inventory management contracts ranging from a few months to a few years. The Company’s performance obligations are satisfied over time as customers simultaneously receive and consume the benefits of the Company’s services. The contracts contain a single performance obligation, as the distinct services provided remain substantiallydifference between the same over time and possessamount the customer pays us for the service less the amount we are charged by third parties who provide the service.
the same pattern of transfer. The transaction price isGenerally, we can adjust our pricing based on the consideration specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration component of a contract represents reimbursement for facility and equipment costs incurredcontractual provisions related to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract. The variable consideration component is comprised of cost reimbursement, per-unit pricing or time and materials pricing and is determined based on the costs, units or hours of services provided, respectively, and is recognized over time based on the level of activity.
Generally, the Company’s contracts contain provisions for adjustments to pricing based on achieving agreed-upon performance metrics, changes in volumes, services and market conditions. Revenue relating to these pricing adjustments is estimated and included in the consideration if it is probable that a significant revenue reversal will not occur in the future. The estimate of variable consideration is determined either by the expected value or most likely amount method and factors in current, past and forecasted experience with the customer. Customers are billed based on terms specified in the revenue contract and remit paymentthey pay us according to approved payment terms.
Contract Costs
We expense the incremental costs of obtaining contracts when incurred if the amortization period of the assets is one year or less. These costs are included in Direct operating expense (exclusive of depreciation and amortization).
Cash, Cash Equivalents and Restricted Cash
The Company considersWe consider all highly liquid investments with an original maturity of three months or less as ofon the date of purchase to be cash equivalents. As of December 31, 2018, 20172021, 2020 and 2016, the total amount of2019, our restricted cash included in Other long-term assets on theour Consolidated Balance Sheets was $12$10 million,, $52 $11 million and $26$10 million, respectively.Restricted cash as
Accounts Receivable and Allowance for Doubtful AccountsCredit Losses
AccountsWe record accounts receivable are recorded at the contractual amount.amount and we record an allowance for credit losses for the amount we estimate we may not collect. In determining the allowance for doubtful accounts, the Company considerscredit losses, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of the Company’sour customers, any specific customer collection issues, that have been identified, current economic conditions, and other factors that may affectimpact our customers’ ability to pay. The Company writesCommencing in 2020 and in accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses. We write off accounts receivable balances once the receivables are no longer deemed collectible.
The roll-forward of the allowance for doubtful accounts iscredit losses was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 46 | | | $ | 38 | | | $ | 41 | |
| Provision charged to expense | | 28 | | | 45 | | | 20 | |
| Write-offs, less recoveries, and other adjustments | | (27) | | | (41) | | | (23) | |
| Cumulative effect adjustment for adoption of ASU 2016-13 | | — | | | 4 | | | — | |
| Ending balance | | $ | 47 | | | $ | 46 | | | $ | 38 | |
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Beginning balance | | $ | 42 |
| | $ | 26 |
| | $ | 17 |
|
| Provision charged to expense | | 36 |
| | 24 |
| | 15 |
|
| Write-offs, less recoveries, and other adjustments | | (26 | ) | | (8 | ) | | (6 | ) |
| Ending balance | | $ | 52 |
| | $ | 42 |
| | $ | 26 |
|
Receivables securitization and factoring
The Company usesWe sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows. We also sell trade accounts receivable under a securitization program described below. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.
Our European business participates in a trade receivables securitization program co-arranged by 2 European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries in the normal courseUnited Kingdom and France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of business as part of managing its cash flows.the entity’s activities. The Company accountsprogram expires in July 2024.
We account for transfers under itsour securitization and factoring arrangements as sales because the Company sellswe sell full title and ownership in the underlying receivables and has met the criteria for control of the receivables to beis considered transferred. The Company accounts for transfers under its securitization program as either sales or secured borrowings based on an evaluation of whether it has transferred control. In instances where the Company does not meet the criteria for surrender of control, the transaction is accounted for as a secured borrowing. For these transactions, the receivables remain on the Consolidated Balance Sheets of the Company and the notes are reflected within debt, see Note 11—Debt for additional information related to the Company’s receivables securitization secured borrowing program. For transfers, in the securitization program where the Company has surrendered control, the transactions are accounted for as sales and the receivables are derecognizedremoved from theour Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any
continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Consolidated Balance Sheets. See Note 12—Debt for additional information on these borrowings.
For transfersThe maximum amount of net cash proceeds available at any one time under the securitization program, which are accounted forinclusive of any unsecured borrowings, is €200 million (approximately $227 million as sales,of December 31, 2021). Prior to July 2021, when the consideration received includes a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable is not a trade receivable and it is recorded based on its fair value and reported within Other current assetssecuritization program was amended in connection with the Company’s Consolidated Balance Sheets. The cash payment whichspin-off, the Company receives on the date of the transfer is reflected within Net cash provided by operating activities. As the Company receives cash payments on the deferred purchase price receivable, it is reflected as an investing activity.maximum amount available was €400 million. As of December 31, 2018,2021, the balance of deferred purchase price receivable reflected within Other current assetsmaximum amount available under the program was $52 million. Thereutilized. The weighted average interest rate was no deferred purchase price receivable balance0.50% as of December 31, 2017.
As2021. Charges for commitment fees, which are based on a percentage of December 31, 2018, in connection with the securitization program, the Company sold receivables of $231 millionavailable amounts, and received cash of $179 million and a deferred purchase price receivable of $52 million. For the Company’s factoring programs, as of December 31, 2018, the Company sold receivables of $248 million and received cash of $246 million. As of December 31, 2017,charges for the Company’s factoring programs, the Company sold receivables of $119 million and received cash of $119 million. The cost of participating in these programs was immaterialadministrative fees were not material to the Company’sour results of operations for the years ended December 31, 2018, 20172021, 2020 and 2016.2019.
Information related to the trade receivables sold was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 (1) | | 2020 (1) | | 2019 (1) |
| Securitization programs | | | | | | |
| Receivables sold in period | | $ | 1,726 | | | $ | 1,377 | | | $ | 1,217 | |
| Cash consideration | | 1,726 | | | 1,377 | | | 1,161 | |
| Deferred purchase price | | — | | | — | | | 57 | |
| | | | | | |
| Factoring programs | | | | | | |
| Receivables sold in period | | 72 | | | 76 | | | 64 | |
| Cash consideration | | 72 | | | 75 | | | 65 | |
(1) Information for the years ended December 31, 2021, 2020 and 2019 exclude the impact of the Logistics segment.
In addition to the cash considerations referenced above, we received $75 million in the year ended December 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.
Property and Equipment
PropertyWe generally record property and equipment are generally recorded at cost, or in the case of acquired property and equipment, at fair value at the date of acquisition. Maintenance and repair expenditures are charged to expense as incurred. For internally-developed computer software, all costs incurred during planning and evaluation are expensed as incurred. Costs incurred during the application development stage are capitalized and included in property and equipment. Capitalized software also includes the fair value of acquired internally-developed technology.
Depreciation is computedWe compute depreciation expense on a straight-line basis over the estimated useful lives of the assets as follows:
|
| | | | | | | |
| Classification | | Estimated Useful Life |
| Buildings and leasehold improvements | | Term of lease to 40 years |
| Vehicles, containers, tractors, trailers and tankers | | 3 to 1415 years |
| Rail cars and chassis | | 15 to 30 years |
| Machinery and equipment | | 3 to 10 years |
| Computer software and equipment | | 1 to 6 years |
Leases
We determine if an arrangement is a lease at inception. We recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use incremental borrowing rates based on the information available at commencement date to determine the present value of future lease payments. This rate is determined from a hypothetical yield curve that takes into consideration market yield levels of our relevant debt outstanding as well as the index that matches our credit rating, and then adjusts as if the borrowings were collateralized.
We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options. We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability. We recognize leases with an initial term of 12 months or less as lease expense over the lease term and those leases are not recorded on our Consolidated Balance Sheets. We account for lease and non-lease components within a contract as a single lease component for our real estate leases. For additional information on our leases, see Note 8—Leases.
Asset Retirement Obligations
A liability for an asset retirement obligation (“ARO”) is recorded in the period in which it is incurred. When an AROasset retirement obligation liability is initially recorded, the Company capitalizeswe capitalize the cost by increasing the carrying amount of the related long-lived asset. For each subsequent period, the liability is increased for accretion expense and the capitalized cost is depreciated over the useful life of the related asset.
Goodwill
Goodwill consists ofWe measure goodwill as the excess of costconsideration transferred over the fair value of net assets acquired in business combinations. Goodwill is evaluatedWe allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually, or more frequently if eventsan event or circumstances indicatecircumstance indicates an impairment. Under ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Accounting for Goodwill Impairment,” which the Company adopted in connection with its annual goodwill impairment test as of August 31, 2017,loss may have been incurred. We measure goodwill impairment, if any, is measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management.
Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform thea quantitative analysis.analysis for that reporting unit. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.
For the 2018our 2021 goodwill assessment, the Companywe performed a step-zero qualitative analysis for all sixour 3 reporting units. For the 2017 goodwill assessment, the Company performed a step-zero qualitative analysis for five of its reporting units and elected to proceed directly to a step one quantitative analysis for one reporting unit. Based on the qualitative assessments performed, each year, the Companywe concluded that it iswas not more likely than notmore-likely-than-not that the fair value of theeach of our reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed. For the years ended December 31, 2018performed, and 2017, the Companywe did not recognize any goodwill impairment.
The Company determinesFor our 2020 goodwill assessment, we performed a quantitative analysis for the 5 reporting units that existed at the time of the assessment using a combination of income and market approaches with the assistance of a third-party valuation appraiser. As of August 31, 2020, we completed our annual impairment test for goodwill with all of our reporting units having fair values for eachin excess of their carrying values, resulting in no impairment of goodwill. Our number of reporting units decreased from 5 in 2020 to 3 in 2021 as a result of the reporting units using an income approach. For purposes of thespin-off and other organizational changes.
The income approach of determining fair value is determined based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The Company uses itsWe use our internal forecasts to estimate future cash flows and includesinclude an estimate of long-term future growth rates based on itsour most recent views of the long-term outlook for theour business. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry.
Intangible Assets
The Company’sOur intangible assets subject to amortization consist primarily of customer relationships and non-compete agreements. The Company reviewsrelationships. We review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. IfAn asset is considered to be impaired if the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying amount, the assetamount. An impairment loss is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. The Company estimatesWe estimate fair value using the expected future cash flows discounted at a rate commensuratecomparable with the risks associated with the recovery of the asset. For the periods presented, the Company did not recognize any impairment of the identifiedWe amortize intangible assets. Intangible assets are amortized on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized. The range of estimated useful lives by type are as follows:life for customer relationships is 5 to 16 years.
| | | | | | | | | | | | | | |
| | 65 | | |
| | |
Classification | | Estimated Useful Life |
Customer relationships | | 5 to 16 years |
Non-compete agreements | | Term of agreement |
Accrued Expenses
AccruedThe components of accrued expenses include the following components:as of December 31, 2021 and 2020 are as follows:
| | | | | As of December 31, | | As of December 31, |
| (In millions) | | 2018 | | 2017 | (In millions) | | 2021 | | 2020 |
| Accrued salaries and wages | | $ | 539 |
| | $ | 581 |
| Accrued salaries and wages | | $ | 375 | | | $ | 392 | |
| Accrued transportation and facility charges | | 462 |
| | 438 |
| Accrued transportation and facility charges | | 390 | | | 303 | |
| Accrued value-added tax and other taxes | | 172 |
| | 176 |
| |
| Other accrued expenses | | 307 |
| | 331 |
| Other accrued expenses | | 342 | | | 349 | |
| Total accrued expenses | | $ | 1,480 |
| | $ | 1,526 |
| Total accrued expenses | | $ | 1,107 | | | $ | 1,044 | |
Self-Insurance
The Company usesWe use a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, and workers’ compensation, cyber risk and property claims. The CompanyWe periodically evaluates itsevaluate our level of insurance coverage and adjusts its our insurance levels based on risk tolerance and premium expense.
The measurementLiabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and classification of self-insured costs requires the consideration ofare estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. These methods provide estimates of the undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of claims incurred but not reported. Changes in these assumptions and factors can affectimpact actual costs paid to settle the claims and those amounts may be different than estimates.
Advertising Costs
Advertising costs are expensed as incurred.
Stockholders’ Equity
The Company has aWe retire shares purchased under our share repurchase program under which shares purchased are retired and returnedreturn them to authorized and unissued status. AnyWe charge any excess of cost over par value is charged to Additional paid-in capital to the extent that if a balance is present. If Additional paid-in capital is fully depleted, any remaining excess of cost over par value will be charged to Retained earnings.
Accumulated Other Comprehensive Income (Loss)
The components of and changes in accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the years ended December 31, 20182021 and 2017,2020, are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Foreign Currency Translation Adjustments | | Derivative Hedges | | Defined Benefit Plans Liability | | Less: AOCI Attributable to Noncontrolling Interests | | AOCI Attributable to the Company |
| As of December 31, 2016 | | $ | (206 | ) | | $ | — |
| | $ | (13 | ) | | $ | 25 |
| | $ | (194 | ) |
| Other comprehensive income | | 180 |
| | 10 |
| | 92 |
| | (52 | ) | | 230 |
|
| Amounts reclassified from AOCI | | — |
| | (5 | ) | | (2 | ) | | — |
| | (7 | ) |
| Net current period other comprehensive income | | 180 |
| | 5 |
| | 90 |
| | (52 | ) | | 223 |
|
| Impact of tax reform act | | (17 | ) | | 2 |
| | 2 |
| | — |
| | (13 | ) |
| As of December 31, 2017 | | (43 | ) | | 7 |
| | 79 |
| | (27 | ) | | 16 |
|
| Other comprehensive (loss) income | | (96 | ) | | 12 |
| | (89 | ) | | 27 |
| | (146 | ) |
| Amounts reclassified from AOCI | | (4 | ) | | (18 | ) | | (2 | ) | | — |
| | (24 | ) |
| Net current period other comprehensive loss | | (100 | ) | | (6 | ) | | (91 | ) | | 27 |
| | (170 | ) |
| As of December 31, 2018 | | $ | (143 | ) | | $ | 1 |
| | $ | (12 | ) | | $ | — |
| | $ | (154 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Foreign Currency Translation Adjustments | | Derivative Hedges | | Defined Benefit Plans Liability | | Less: AOCI Attributable to Noncontrolling Interests | | AOCI Attributable to XPO |
| As of December 31, 2019 | | $ | (120) | | | $ | 5 | | | $ | (31) | | | $ | 1 | | | $ | (145) | |
| Other comprehensive income (loss) | | 121 | | | (17) | | | (116) | | | (6) | | | (18) | |
| Amounts reclassified from AOCI | | (9) | | | 15 | | | (1) | | | — | | | 5 | |
Net current period other comprehensive income (loss) | | 112 | | | (2) | | | (117) | | | (6) | | | (13) | |
| As of December 31, 2020 | | (8) | | | 3 | | | (148) | | | (5) | | | (158) | |
| Other comprehensive income (loss) | | (79) | | | 4 | | | 34 | | | 2 | | | (39) | |
| Amounts reclassified from AOCI | | (6) | | | (7) | | | — | | | — | | | (13) | |
Net current period other comprehensive income (loss) | | (85) | | | (3) | | | 34 | | | 2 | | | (52) | |
| Spin-off of GXO | | 41 | | | — | | | 82 | | | 3 | | | 126 | |
| As of December 31, 2021 | | $ | (52) | | | $ | — | | | $ | (32) | | | $ | — | | | $ | (84) | |
Income Taxes
The Company accountsWe account for income taxes in accordance with FASB Accounting Standards Codification (“ASC”) Topic 740: “Income Taxes.” Income taxesusing the asset and effective tax rates are calculatedliability method on a legal entity and jurisdictional basis, relyingunder which we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. Our calculation relies on several factors, including pre-tax earnings, differences between tax laws and accounting rules, statutory tax rates, tax credits, uncertain tax positions, and valuation allowances. The Company usesWe use judgment and estimates in evaluating itsour tax positions.
Under ASC 740, deferred income taxes arise from temporary differences between Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the tax basesspin-off of assets and liabilities and their reported amounts in the Consolidated Financial Statements.GXO. Valuation allowances are established when, in management’sour judgment, it is more likely than not that itsour deferred tax assets will not be realized. In assessing the need for a valuation allowance, management weighs therealized based on all available positive and negative evidence, including limitations on the use of tax losses and other carryforwards due to changes in ownership, historic information, and projections of future taxable income that include and exclude future reversals of taxable temporary differences. The Company has elected toevidence. We record Global Intangible Low-Taxed Income (“GILTI”) tax as a period cost.
The Company’sOur tax returns are subject to examination by U.S. Federal, state and foreign taxing jurisdictions. ASC 740 clarifiesWe regularly assess the accountingpotential outcomes of these examinations and any future examinations for uncertainty in income taxes recognized in a Company’s financial statements and prescribes a recognition threshold with measurement attributes for incomethe current or prior years. We recognize tax benefits from uncertain tax positions taken or expected to be takenonly if (based on a tax return. Under ASC 740, the impacttechnical merits of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount estimated to be sustained under theposition) it is more likely than not principle. An uncertain incomethat the tax positionpositions will not be recognized insustained on examination by the financial statements if it does not meet the stated criteria. The Company adjuststax authority. We adjust these tax liabilities, including related interest and penalties, based on the current facts and circumstances. Recently enacted tax law changes, published rulings,
court cases, and outcomes of tax audits are all considered. While the Company does not expect material changes, it is possible that its actual tax liability will differ from its established tax liabilities for unrecognized tax benefits which may impact its effective tax rate. While it is often difficult to predict the outcome of any particular tax position, the Company believes that its tax provisions reflect the more likely than not outcome of known tax contingencies. The Company reportsWe report tax-related interest and penalties as a component of income tax expense.
Foreign Currency Translation and Transactions
The assets and liabilities of our foreign subsidiaries that use thetheir local currency as their functional currency are translated to U.S. dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in AOCI on theour Consolidated Balance Sheets. The assets and liabilities of our foreign subsidiaries whose local currency is not their functional currency are remeasured from their local currency to their functional currency and then translated to USD. The results of operations of the Company’sour foreign subsidiaries are translated to USD using average exchange rates prevailing for each period presented.
ForeignWe convert foreign currency transactions recognized in theon our Consolidated Statements of Income are converted to USD by applying the exchange rate prevailing on the date of the transaction. Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Foreign currency (gain) loss (gain) in theon our Consolidated Statements of Income.
Foreign currency loss (gain) included in the Consolidated Statements
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Unrealized foreign currency option and forward contracts (gains) losses | | $ | (20 | ) | | $ | 49 |
| | $ | (40 | ) |
| Realized foreign currency option and forward contracts losses (gains) | | 16 |
| | 15 |
| | (3 | ) |
| Foreign currency transaction and remeasurement losses (gains) | | 7 |
| | (6 | ) | | 3 |
|
| Total foreign currency loss (gain) | | $ | 3 |
| | $ | 58 |
| | $ | (40 | ) |
Fair Value Measurements
ASC Topic 820: “Fair Value Measurements and Disclosures” defines fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and classifies thedate. The levels of inputs used to measure fair value into the following hierarchy:are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
TheWe base our fair value estimates are based upon certainon market assumptions and information available to management.information. The carrying valuevalues of the following financial instruments approximated their fair values as of December 31, 2018 and 2017: cash and cash equivalents, accounts receivable, deferred purchase price related to accounts receivable sold, accounts payable, accrued expenses and current maturities of long-term debt. Fairdebt approximated their fair values approximate carrying values for these financial instruments, as they areof December 31, 2021 and 2020 due to their short-term in nature and/or arebeing receivable or payable on demand. The Level 1 cash equivalents include money market funds valued using quoted prices in active markets. The Level 2markets and a cash equivalents include short-term investments valued using published interest ratesdeposit for instruments with similar terms and maturities.the securitization program. For information regardingon the fair value hierarchy of the Company’sour derivative instruments, see Note 11—Derivative Instruments and for information on financial liabilities, refer to see Note 10—Derivative Instruments and Note 11—Debt, respectively.
12—Debt.
The following table summarizes the fair value hierarchy of cash equivalents:equivalents was as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Carrying Value | | Fair Value | | Level 1 | | |
| December 31, 2021 | | $ | 181 | | | $ | 181 | | | $ | 181 | | | |
| December 31, 2020 | | 1,685 | | | 1,685 | | | 1,685 | | | |
|
| | | | | | | | | | | | | | | | |
| | | As of December 31, 2018 |
| (In millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 |
| Cash equivalents | | $ | 237 |
| | $ | 237 |
| | $ | 236 |
| | $ | 1 |
|
| | | | | | | | | |
| | | As of December 31, 2017 |
| (In millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 |
| Cash equivalents | | $ | 90 |
| | $ | 90 |
| | $ | 74 |
| | $ | 16 |
|
Derivative Instruments
The Company recordsWe record all derivative instruments on theour Consolidated Balance Sheets as assets or liabilities at fair value. The Company’sOur accounting treatment for changes in the fair value of derivative instruments depends on whether the instruments have been designated and qualify as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Companywe must designate the derivative based uponon the exposure being hedged. hedged and assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivative instruments are highly effective in offsetting changes in earnings and cash flows of the hedged items. When a derivative instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively. We link cash flow hedges to specific forecasted transactions or variability of cash flow to be paid.
The gain or loss resulting from fair value adjustments on cash flow hedges are recorded in AOCI on theour Consolidated Balance Sheets until the hedged item is recognized in earnings and is presented in the same income statement line item as the earnings effect of the hedged item. The gains and losses on the net investment hedges are recorded as cumulative translation adjustments in AOCI to the extent that the instruments are effective in hedging the designated risk. Gains and losses on cash flow hedges and net investment hedges representing hedge components excluded from the assessment of effectiveness will be amortized into Interest expense in the on our Consolidated Statements of Income in a systematic manner. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recorded in Foreign currency (gain) loss (gain) in theon our Consolidated Statements of Income.
Defined Benefit Pension Plans
DefinedWe calculate defined benefit pension plan obligations are calculated using various actuarial assumptions and methodologies. Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors. The assumptions used in recording the projected benefit obligation and fair value of plan assets represent the Company’sour best estimates based on available information regarding historical experience and factors that may cause future expectations to differ. DifferencesOur obligation and future expense amounts could be materially impacted by differences in actual experience or changes in assumptions could materially impact the Company’s obligation and future expense amounts.assumptions.
The impact of plan amendments, actuarial gains and losses and prior-service costs are recorded in AOCI and are generally amortized as a component of net periodic benefit cost over the remaining service period of the active employees covered by the defined benefit pension plans. Unamortized gains and losses are amortized only to the extent they exceed 10% of the higher of the fair value of plan assets or the projected benefit obligation of the respective plan.
Stock-Based Compensation
The Company accountsWe account for stock-based compensation based on the equity instrument’s grant date fair value. For grants of restricted stock units (“RSUs”) subject to service-based or performance-based vesting conditions only, we establish the fair value is established based on the market price on the date of the grant. For grants of RSUs subject to market-based vesting conditions, we establish the fair value is established using the Monte Carlo simulation lattice model. For grants of options and stock appreciation rights (“SARs”), the Company uses the Black-Scholes option pricing model to estimateWe determined the fair value of stock-based payment awards. The determination of the fair value ofour stock-based awards is affected by the Company’sbased on our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. The Company accountsWe account for forfeitures as they occur.
The weighted-averageWe recognize the grant date fair value of each stock option is amortizedequity awards as compensation cost over the requisite service period. For options with graded vesting, weWe recognize compensation cost on a straight-line basis over the requisite service period of the entire award; however, the amount of compensation cost recognized at any date will at least equal the portion of the grant date value of the award that is vested as of that date. For the Company’sexpense for our performance-based restricted stock units
(“PRSUs”), the Company recognizes expense over the awards’ requisite service period based on the number of awards expected to vest with consideration to the actual and expected financial results. IfWe do not recognize expense until achievement of the performance targets for a PRSU award is not considered probable, then no expense is recognized until achievement of such targets becomes probable.
Adoption of New Accounting StandardsStandard
ReferIn December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU is intended to Recast of Financial Information Due to Adoption of New Accounting Guidance abovesimplify the accounting for a discussion of ASUs 2017-07 and 2016-18.
In May 2014, the FASB issued ASU 2014-09, Revenue (Topic 606): “Revenue from Contracts with Customers.” Topic 606 includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. As discussed further in Note 5—Revenue Recognition, the Company adopted Topic 606 on January 1, 2018.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” This ASU addresses eight specific cash flow classification issues with the objective of reducing diversity in practice. Under the new standard, cash payments for debt prepayments or debt extinguishment costs should be classified as outflows for financing activities. Additional cash flow issues covered under the standard include: settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relationincome taxes by removing certain exceptions to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interestsgeneral principles in securitization transactions,Topic 740. The ASU also clarifies and separately identifiable cash flowsamends existing guidance to enhance consistency and application of the predominance principle. The Companycomparability among reporting entities. We adopted this standard on January 1, 2018. Adoption was2021 on a prospective basis andbasis. The adoption did not have a material effect on the Company’s Consolidated Statements of Cash Flows.
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): “Scope of Modification Accounting.” This ASU provides guidance about the changes to the terms or conditions of a share-based payment award that require an entity to apply modification accounting. Under the new standard, modification accounting applies unless all of the following conditions are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the modification; (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification; and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. Generally speaking, modification accounting requires an entity to calculate and recognize the incremental fair value of the modified award as compensation cost on the date of modification (for a vested award) or over the remaining service period (for an unvested award). The impact of this guidance, which was applied prospectively on January 1, 2018, is dependent on future modifications, if any, to the Company’s share-based payment awards.
In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740): “Amendments to Securities and Exchange Commission (“SEC”) Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The ASU amends ASC 740 to provide further guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”) and allows for the recognition of provisional amounts in the event that a company does not have the necessary information available, prepared or analyzed to finalize its accounting under ASC 740. ASU 2018-05 allows for adjustments to provisional amounts in multiple reporting periods during the allowable one-year measurement period from the Tax Act enactment date. This standard was adopted upon issuance. The reduction in the U.S. corporate federal statutory tax rate from 35% to 21% required a one-time revaluation of our net deferred tax liabilities resulting in the Company recording a tax benefit of $173 million as of December 31, 2017. No modifications were required during 2018.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): “Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans.” The ASU includes the removal of the requirement to disclose the amounts in AOCI expected to be recognized in expense over the next fiscal year and the effects of a one-percentage point change in assumed healthcare cost trend
rates. Additionally, it requires the disclosure of an explanation of the reasons for significant gains/losses related to a change in the benefit obligation. The Company early-adopted ASU 2018-14 in the fourth quarter of 2018. The adoption, which is limited to disclosures only, will not have a material impact on the Company’s consolidated financial statements.
Accounting Pronouncements Issued but Not Yet Effective
In February 2016,November 2021, the FASB issued ASU 2016-02, Leases2021-10, “Government Assistance (Topic 842). The core principle of Topic 842 is that a lessee should recognize on its Consolidated Balance Sheets the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the balance sheet a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, which clarified certain aspects of ASU 2016-02. Also, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842)832): “Targeted Improvements,” which provides an optional transition method to allow entities, on adoption of ASU 2016-02, to report prior periods under previous lease accounting guidance. The Company will adopt Topic 842 effective January 1, 2019 using the transition method providedDisclosures by ASU 2018-11, and the Company estimates the adoption will result in the recognition of a right-of-use asset and corresponding lease liability for operating leases of approximately $2 billion on the Consolidated Balance Sheets. The Company will elect the package of practical expedients on adoption, which will retain the lease identification, classification and initial direct costs for leases that commenced prior to the adoption date. Additionally, the Company will elect the recognition exemption which allows the Company to not recognize lease assets and lease liabilities on the Consolidated Balance Sheet for leases with an initial term of 12 months or less and to not separate associated lease and non-lease components within a contract as permitted by the standards.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.Business Entities about Government Assistance.” The ASU alignsincreases the requirementstransparency surrounding government assistance by requiring disclosure of (i) the types of assistance received, (ii) an entity’s accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.assistance and (iii) the effect of the assistance on the entity’s financial statements. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period; however, early2021. Early adoption is permitted. The Company isWe are currently evaluating the impact of this standardthe new guidance, which is limited to financial statement disclosures.
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on itsfinancial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impact of the new guidance.
3. Discontinued Operations
As discussed above, on August 2, 2021, we completed the spin-off of our Logistics segment. In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $794 million, which we used to repay a portion of our outstanding borrowings. For further information, see Note 12—Debt. During the year ended December 31, 2021, we incurred approximately $125 million of costs related to the spin-off, of which $101 million are reflected within income from discontinued operations in our Consolidated Statements of Income.
The following table summarizes the financial results from discontinued operations of GXO:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Revenue | | $ | 4,350 | | | $ | 6,182 | | | $ | 6,087 | |
Direct operating expense (exclusive of depreciation and amortization) | | 3,614 | | | 5,156 | | | 5,120 | |
| Sales, general and administrative expense | | 364 | | | 517 | | | 421 | |
| Depreciation and amortization expense | | 185 | | | 296 | | | 272 | |
| Transaction and other operating costs | | 105 | | | 50 | | | 14 | |
| Operating income | | 82 | | | 163 | | | 260 | |
| Other income | | (27) | | | (38) | | | (31) | |
| Interest expense | | 12 | | | 18 | | | 23 | |
| Income from discontinued operations before income tax provision | | 97 | | | 183 | | | 268 | |
| Income tax provision | | 79 | | | 53 | | | 69 | |
| Net income from discontinued operations, net of taxes | | 18 | | | 130 | | | 199 | |
Net income from discontinued operations attributable to noncontrolling interests | | (5) | | | (10) | | | (21) | |
| Net income from discontinued operations attributable to GXO | | $ | 13 | | | $ | 120 | | | $ | 178 | |
The following table summarizes the assets and liabilities from discontinued operations of GXO:
| | | | | | | | |
| | December 31, |
| (In millions) | | 2020 |
| Cash and cash equivalents | | $ | 323 | |
| Accounts receivable, net | | 1,212 | |
| Other current assets | | 129 | |
| Total current assets of discontinued operations | | 1,664 | |
| Property and equipment, net | | 770 | |
| Operating lease assets | | 1,434 | |
| Goodwill | | 2,063 | |
| Identifiable intangible assets, net | | 299 | |
| Other long-term assets | | 100 | |
| Total long-term assets of discontinued operations | | 4,666 | |
| Accounts payable | | 408 | |
| Accrued expenses | | 770 | |
| Short-term borrowings and current finance lease liabilities | | 57 | |
| Short-term operating lease liabilities | | 332 | |
| Other current liabilities | | 161 | |
| Total current liabilities of discontinued operations | | 1,728 | |
| Long-term debt and finance lease liabilities | | 129 | |
| Deferred tax liability | | 85 | |
| | |
| Long-term operating lease liabilities | | 1,099 | |
| Other long-term liabilities | | 117 | |
| Total long-term liabilities of discontinued operations | | $ | 1,430 | |
Prior to the spin-off of GXO, the U.K. pension plan was sold to a GXO entity. For further information, see Note 13—Employee Benefit Plans.
In connection with the spin-off, we entered into a separation and distribution agreement as well as various other agreements with GXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement (“EMA”), a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will continue to provide certain services for a period of time specified in the applicable agreement to GXO following the spin-off. The impact of these services on the consolidated financial statements.
3. Divestitures
North American Truckload Operation
In October 2016, pursuantstatements was immaterial. Additionally, in accordance with these agreements, GXO has agreed to a Stock Purchase Agreement between the Company and a subsidiary of TransForce Inc. (“TransForce”), the Company divested its North American Truckload operation (formerly known as Con-way Truckload)indemnify XPO for a $558 million cash consideration, subjectcertain payments XPO makes with respect to certain adjustments. Forself-insurance matters that were incurred by GXO prior to the period from January 1, 2016 through October 26, 2016,spin-off and remain obligations of XPO. The receivable and reserve for these North American Truckload operation generated revenuematters was approximately $23 million and $21 million, respectively, as of $432 million (prior to intercompany eliminations) and operating incomeDecember 31, 2021.
4. Segment Reporting and Geographic Information
The Company is organized into twoIn connection with the spin-off, we revised our reportable segments to reflect how our chief operating decision maker (“CODM”) makes decisions related to resource allocation and segment performance. Prior to the spin-off, we had 2 reportable segments: Transportation and Logistics. Following the spin-off, we have 2 reportable segments: (i) North American LTL and (ii) Brokerage and Other Services.
In our North American LTL segment, we provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services. Our services include cross-border U.S. service to and from Mexico and Canada, as well as intra-Canada service.
In our Brokerage and Other Services segment, shippers create the Transportationtruckload demand and we place their freight with qualified carriers, pricing our service on either a spot or contract basis. Our Brokerage and Other Services segment the Company provides multiple services to facilitate movements of raw materials, parts and finished goods. The Company accomplishes this by using its proprietary technology, third-party independent carriers and Company-owned transportation assets and service centers. XPO’s transportation services include: freight brokerage,also includes last mile less-than-truckload (“LTL”), full truckload, global forwardinglogistics for heavy goods sold through e-commerce, omnichannel retail and managed transportation. Freight brokerage, last mile, global forwardingdirect-to-consumer channels. Several other non-core brokered freight transportation modes are included in our Brokerage and managedOther Services segment, as well as our European transportation are all non-asset or asset-light businesses; the LTL and full truckload operations are primarily asset-based.offerings.
In the Logistics segment, which we also refer to as supply chain, the Company provides differentiated and data-intensive contract logistics services for customers, including value-added warehousing and distribution, e-commerce
fulfillment, cold chain solutions, reverse logistics, packaging and labeling, factory support, aftermarket support, inventory management and personalization services, such as laser etching. In addition, the Logistics segment provides highly engineered, customized solutions and supply chain optimization services, such as volume flow management, predictive analytics and advanced automation.
Certain of the Company’sour operating units provide services to our other Company operating units outside of their reportable segment. Billings for such services are based on negotiated rates which approximates fair value, and are reflected as revenues of the billing segment. TheseWe adjust these rates are adjusted from time to time based on market conditions. SuchWe eliminate intersegment revenues and expenses are eliminated in the Company’sour consolidated results.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, as well as certainand other costs and credits not attributed to the Company’s core business. These costs are not allocated to the businessour reporting segments.
The Company’s chief operating decision maker (“CODM”)Our CODM regularly reviews financial information at the reportingoperating segment level in order to make decisions aboutallocate resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODMWe include items directly attributable to a segment, as well asand those that can be allocated on a reasonable basis. Assetbasis, in segment results reported to the CODM. We do not provide asset information by segment is not provided to the Company’sCODM. During the third quarter of 2021, our CODM began evaluating segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, litigation settlements for significant matters, transaction and integration costs, restructuring costs and other adjustments. Prior to the change in our reporting segments in the third quarter of 2021, our CODM used operating income as the majoritymeasure of segment profit (loss). Prior period segment disclosures have been recast to conform to the Company’s assets are managed at the corporate level.current period presentation.
The Company evaluates performance based on the various financial measures
Selected financial data for our segments is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Revenue | | | | | | |
| North American LTL | | $ | 4,118 | | | $ | 3,539 | | | $ | 3,791 | |
| Brokerage and Other Services | | 8,907 | | | 6,800 | | | 7,041 | |
| Eliminations | | (219) | | | (140) | | | (151) | |
| Total | | $ | 12,806 | | | $ | 10,199 | | | $ | 10,681 | |
| | | | | | |
| Adjusted EBITDA | | | | | | |
| North American LTL | | $ | 904 | | | $ | 764 | | | $ | 851 | |
| Brokerage and Other Services | | 547 | | | 284 | | | 406 | |
| Corporate | | (212) | | | (201) | | | (167) | |
| Total adjusted EBITDA | | 1,239 | | | 847 | | | 1,090 | |
| Less: | | | | | | |
| Debt extinguishment loss | | 54 | | | — | | | 5 | |
| Interest expense | | 211 | | | 307 | | | 268 | |
| Income tax provision (benefit) | | 87 | | | (22) | | | 60 | |
| Depreciation and amortization expense | | 476 | | | 470 | | | 467 | |
Unrealized (gain) loss on foreign currency option and forward contracts | | 1 | | | (1) | | | 9 | |
| Litigation settlements | | 31 | | | — | | | — | |
Transaction and integration costs (1) | | 37 | | | 75 | | | 5 | |
Restructuring costs (2) | | 19 | | | 31 | | | 35 | |
| Income (loss) from continuing operations | | $ | 323 | | | $ | (13) | | | $ | 241 | |
| | | | | | |
| Depreciation and amortization expense | | | | | | |
| North American LTL | | $ | 226 | | | $ | 224 | | | $ | 227 | |
| Brokerage and Other Services | | 240 | | | 229 | | | 220 | |
| Corporate | | 10 | | | 17 | | | 20 | |
| Total | | $ | 476 | | | $ | 470 | | | $ | 467 | |
(1) Transaction and integration costs for 2021 and 2020 are primarily comprised of third-party professional fees related to strategic initiatives, including the years ended December 31, 2018, 2017spin-off of the Logistics segment, as well as retention awards paid to certain employees. Additionally, transaction and 2016:integration costs for 2020 included professional fees related to our previously announced exploration of strategic alternatives that was terminated in March 2020. Transaction and integration costs for 2021 and 2020 include $1 million and $5 million, respectively, related to our North American LTL segment; $16 million and $16 million, respectively, related to our Brokerage and Other Services segment and $20 million and $54 million, respectively, related to Corporate.
|
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Transportation | | Logistics | | Corporate | | Eliminations | | Total |
Year Ended December 31, 2018 (1) | | | | | | | | | | |
| Revenue | | $ | 11,343 |
| | $ | 6,065 |
| | $ | — |
| | $ | (129 | ) | | $ | 17,279 |
|
| Operating income (loss) | | 646 |
| | 216 |
| | (158 | ) | | — |
| | 704 |
|
| Depreciation and amortization | | 461 |
| | 244 |
| | 11 |
| | — |
| | 716 |
|
Year Ended December 31, 2017 (1) | | | | | | | | | | |
| Revenue | | $ | 10,276 |
| | $ | 5,229 |
| | $ | — |
| | $ | (124 | ) | | $ | 15,381 |
|
| Operating income (loss) | | 547 |
| | 202 |
| | (167 | ) | | — |
| | 582 |
|
| Depreciation and amortization | | 447 |
| | 203 |
| | 8 |
| | — |
| | 658 |
|
Year Ended December 31, 2016 (1) | | | | | | | | | | |
| Revenue | | $ | 9,976 |
| | $ | 4,761 |
| | $ | — |
| | $ | (118 | ) | | $ | 14,619 |
|
| Operating income (loss) | | 459 |
| | 165 |
| | (160 | ) | | — |
| | 464 |
|
| Depreciation and amortization | | 456 |
| | 185 |
| | 2 |
| | — |
| | 643 |
|
| |
(1) | Certain minor organizational changes were made in 2018 related to the Company’s managed transportation business. Managed transportation previously had been included in the Logistics segment; as of January 1, 2018, it is reflected in the Transportation segment. Prior period information was recast to conform to the current year presentation. |
For(2) See Note 6— Restructuring Charges for further information regarding revenues generated by geographical area, refer to Note 5—Revenue Recognition.on our restructuring actions.
As of December 31, 20182021 and 2017, the Company2020, we held long-lived tangible assets outside of the United StatesU.S. of $776$422 million and $848$465 million, respectively.
Adoption of Topic 606, “Revenue from Contracts with Customers”
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective method applied to those contracts that were not completed as of the adoption date. The Company recorded an immaterial adjustment to opening Retained earnings as of January 1, 2018 for the cumulative impact of adoption related to the recognition of in-transit revenue in its Transportation segment. Results for 2018 are presented under Topic 606, while prior periods were not adjusted and are reported under Topic 605 “Revenue Recognition.” The adoption of Topic 606 did not have a material impact on the Consolidated Financial Statements as of the adoption date or for the year ended
5. Revenue Recognition
December 31, 2018. Under Topic 605, for the Company’s Transportation segment, with the exception of the LTL business, revenue was recognized at the point in time when delivery was complete and the shipping terms of the contract were satisfied.
Disaggregation of Revenues
The Company disaggregates itsWe disaggregate our revenue by geographic area and service offering. The following tables present the Company’sOur revenue disaggregated by geographical area, based on sales office location:location, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| (In millions) | | North
American
LTL | | Brokerage and Other Services | | Eliminations | | Total |
| Revenue | | | | | | | | |
| United States | | $ | 4,029 | | | $ | 5,387 | | | $ | (219) | | | $ | 9,197 | |
| North America (excluding United States) | | 89 | | | 311 | | | — | | | 400 | |
| France | | — | | | 1,354 | | | — | | | 1,354 | |
| United Kingdom | | — | | | 879 | | | — | | | 879 | |
| Europe (excluding France and United Kingdom) | | — | | | 843 | | | — | | | 843 | |
| Other | | — | | | 133 | | | — | | | 133 | |
| Total | | $ | 4,118 | | | $ | 8,907 | | | $ | (219) | | | $ | 12,806 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2020 |
| (In millions) | | North
American
LTL | | Brokerage and Other Services | | Eliminations | | Total |
| Revenue | | | | | | | | |
| United States | | $ | 3,461 | | | $ | 3,899 | | | $ | (140) | | | $ | 7,220 | |
| North America (excluding United States) | | 78 | | | 233 | | | — | | | 311 | |
| France | | — | | | 1,205 | | | — | | | 1,205 | |
| United Kingdom | | — | | | 677 | | | — | | | 677 | |
| Europe (excluding France and United Kingdom) | | — | | | 739 | | | — | | | 739 | |
| Other | | — | | | 47 | | | — | | | 47 | |
| Total | | $ | 3,539 | | | $ | 6,800 | | | $ | (140) | | | $ | 10,199 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| (In millions) | | North
American
LTL | | Brokerage and Other Services | | Eliminations | | Total |
| Revenue | | | | | | | | |
| United States | | $ | 3,702 | | | $ | 3,902 | | | $ | (151) | | | $ | 7,453 | |
| North America (excluding United States) | | 89 | | | 196 | | | — | | | 285 | |
| France | | — | | | 1,358 | | | — | | | 1,358 | |
| United Kingdom | | — | | | 760 | | | — | | | 760 | |
| Europe (excluding France and United Kingdom) | | — | | | 805 | | | — | | | 805 | |
| Other | | — | | | 20 | | | — | | | 20 | |
| Total | | $ | 3,791 | | | $ | 7,041 | | | $ | (151) | | | $ | 10,681 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2018 |
| (In millions) | | Transportation | | Logistics | | Eliminations | | Total |
| Revenue | | | | | | | | |
| United States | | $ | 8,055 |
| | $ | 2,196 |
| | $ | (19 | ) | | $ | 10,232 |
|
| North America (excluding United States) | | 274 |
| | 67 |
| | — |
| | 341 |
|
| France | | 1,496 |
| | 687 |
| | (18 | ) | | 2,165 |
|
| United Kingdom | | 704 |
| | 1,436 |
| | (70 | ) | | 2,070 |
|
| Europe (excluding France and United Kingdom) | | 793 |
| | 1,584 |
| | (18 | ) | | 2,359 |
|
| Other | | 21 |
| | 95 |
| | (4 | ) | | 112 |
|
| Total | | $ | 11,343 |
| | $ | 6,065 |
| | $ | (129 | ) | | $ | 17,279 |
|
|
| | | | | | | | |
| | | Year Ended December 31, |
| (In millions) | | 2017 | | 2016 |
| Revenue | | | | |
| United States | | $ | 9,163 |
| | $ | 8,758 |
|
| North America (excluding United States) | | 298 |
| | 322 |
|
| France | | 2,006 |
| | 1,903 |
|
| United Kingdom | | 1,799 |
| | 1,701 |
|
| Europe (excluding France and United Kingdom) | | 1,930 |
| | 1,644 |
|
| Other | | 185 |
| | 291 |
|
| Total | | $ | 15,381 |
| | $ | 14,619 |
|
The following table presents the Company’sOur revenue disaggregated by service offering:offering was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| North America: | | | | | | |
LTL (1) | | $ | 4,192 | | | $ | 3,575 | | | $ | 3,841 | |
| Truck brokerage | | 2,749 | | | 1,684 | | | 1,372 | |
| Last mile | | 1,016 | | | 908 | | | 873 | |
Other brokerage (2) | | 2,025 | | | 1,564 | | | 1,853 | |
| Total North America | | 9,982 | | | 7,731 | | | 7,939 | |
| Europe | | 3,077 | | | 2,622 | | | 2,923 | |
| Eliminations | | (253) | | | (154) | | | (181) | |
| Total | | $ | 12,806 | | | $ | 10,199 | | | $ | 10,681 | |
|
| | | | |
| (In millions) | | Year Ended December 31, 2018 |
| Transportation: | | |
| Freight brokerage and truckload | | $ | 4,784 |
|
| LTL | | 4,839 |
|
Last mile (1) | | 1,065 |
|
| Managed transportation | | 462 |
|
| Global forwarding | | 338 |
|
| Transportation eliminations | | (145 | ) |
| Total Transportation segment revenue | | 11,343 |
|
| Total Logistics segment revenue | | 6,065 |
|
| Intersegment eliminations | | (129 | ) |
| Total revenue | | $ | 17,279 |
|
| |
(1) | Comprised of the Company’s North American last mile operations. |
Contract Balances(1) Less-Than-Truckload revenue is before intercompany eliminations and Costs
The Company did not have material contract assets, liabilities or costs associated with arrangements with its customers as of December 31, 2018 or December 31, 2017. The Company did not recognize a material amount ofincludes revenue during the year ended December 31, 2018 that was deferred as of December 31, 2017. The Company applies the practical expedient in Topic 606 that permits the recognition of incremental costs of obtaining contracts as an expense when incurred, if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in Direct operating expense.
Transaction Price Allocated to Remaining Performance Obligation
On December 31, 2018, the fixed consideration component offrom the Company’s remainingtrailer manufacturing business.
(2) Other brokerage includes intermodal and drayage, expedite, freight forwarding and managed transportation services. Freight forwarding includes operations conducted outside of North America but managed by our North American entities.
Performance Obligations
Remaining performance obligation was approximately $1.5 billion, ofobligations represent firm contracts for which the Company expects to recognize approximately 80% over the next three yearsservices have not been performed and the remainder thereafter. Most offuture revenue recognition is expected. As permitted in determining the remaining performance obligation, relates to the Logistics reportable segment. The Company applies the disclosure exemption in Topic 606 that permits the omission of remaining performancewe omit obligations that either:that: (i) have original expected durations of one year or less or (ii) contain variable consideration. The Company’sOn December 31, 2021, the fixed consideration component of our remaining performance obligations relatedobligation was approximately $124 million, and we expect approximately 86% of that amount to variable consideration will be satisfiedrecognized over the remaining tenure of contracts based onnext three years and the volume of services provided. Remainingremainder thereafter. We estimate remaining performance obligations are estimates made at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions andor terminations.
6. Restructuring Charges
In 2018, management approved aWe engage in restructuring plan to leverage its resources and existing infrastructure to further streamline its organization. Exit costs primarily consisting of severance were recordedactions as part of this global initiative. The initiativesour ongoing efforts to best use our resources and infrastructure, including actions in connection with the spin-off and in response to COVID-19. These actions generally include severance and facility-related costs, including impairment of right-of-use assets, and are intended to improve the Company’sour efficiency and profitability. The following table sets forth the
Our restructuring-related activity:activity was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, 2021 | | |
| (In millions) | | Reserve Balance
as of
December 31, 2020 | | Charges Incurred | | Payments | | Foreign Exchange and Other | | Reserve Balance
as of
December 31, 2021 |
| Severance | | | | | | | | | | |
| | | | | | | | | | |
| Brokerage and Other Services | | $ | 7 | | | $ | 10 | | | $ | (12) | | | $ | 1 | | | $ | 6 | |
| Corporate | | 1 | | | 9 | | | (2) | | | (1) | | | 7 | |
| Total severance | | 8 | | | 19 | | | (14) | | | — | | | 13 | |
| Facilities | | | | | | | | | | |
| | | | | | | | | | |
| Brokerage and Other Services | | 5 | | | — | | | (3) | | | — | | | 2 | |
| Total facilities | | 5 | | | — | | | (3) | | | — | | | 2 | |
| Total | | $ | 13 | | | $ | 19 | | | $ | (17) | | | $ | — | | | $ | 15 | |
|
| | | | | | | | | | | | |
| | | Year ended December 31, 2018 | | |
| (In millions) | | Charges Incurred | | Payments | | Reserve Balance as of December 31, 2018 |
| Severance | | | | | | |
| Transportation | | $ | 12 |
| | $ | (3 | ) | | $ | 9 |
|
| Logistics | | 6 |
| | (1 | ) | | 5 |
|
| Corporate | | 3 |
| | (1 | ) | | 2 |
|
| Total | | $ | 21 |
| | $ | (5 | ) | | $ | 16 |
|
Restructuring charges in 2018 were $21 million, of which $19 million was recorded in the fourth quarter of 2018. With respect to the $21 million charge, $1 million was recorded in Direct operating expenses and $20 million in SG&A in the Consolidated Statements of Income. The Company expectsWe expect the majority of the cash outlays under the 2018 approved plan will be substantially complete by the end of 2019.
Prior to 2018, in conjunction with various acquisitions, the Company had initiated severance programs to reduce headcount and improve the Company’s efficiency and profitability. As of December 31, 2017, the reserves remaining under these severance programs were $14 million for the Transportation segment, $5 million for the Logistics segment and $1 million for Corporate. The cash outlays related to the 2017 reserve balance were substantiallycharges incurred in 2021 will be complete by the end of 2018 with no adjustments to the reserves.within twelve months.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, 2020 | | |
| (In millions) | | Reserve Balance
as of
December 31, 2019 | | Charges Incurred | | Payments | | Foreign Exchange and Other | | Reserve Balance
as of
December 31, 2020 |
| Severance | | | | | | | | | | |
| North American LTL | | $ | 1 | | | $ | 4 | | | $ | (5) | | | $ | — | | | $ | — | |
| Brokerage and Other Services | | 11 | | | 13 | | | (17) | | | — | | | 7 | |
| Corporate | | 3 | | | 8 | | | (9) | | | (1) | | | 1 | |
| Total severance | | 15 | | | 25 | | | (31) | | | (1) | | | 8 | |
| Facilities | | | | | | | | | | |
| | | | | | | | | | |
| Brokerage and Other Services | | — | | | 6 | | | — | | | (1) | | | 5 | |
| Total facilities | | — | | | 6 | | | — | | | (1) | | | 5 | |
| Total | | $ | 15 | | | $ | 31 | | | $ | (31) | | | $ | (2) | | | $ | 13 | |
7. Property and Equipment
The following table outlines the Company’s property and equipment: | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2021 | | 2020 |
| Property and equipment | | | | |
| Land | | $ | 276 | | | $ | 297 | |
| Buildings and leasehold improvements | | 380 | | | 375 | |
| Vehicles, tractors, trailers and tankers | | 1,825 | | | 1,791 | |
| Machinery and equipment | | 270 | | | 264 | |
| Computer software and equipment | | 885 | | | 810 | |
| | 3,636 | | | 3,537 | |
| Less: accumulated depreciation and amortization | | (1,828) | | | (1,646) | |
| Total property and equipment, net | | $ | 1,808 | | | $ | 1,891 | |
| Net book value of capitalized internally-developed software included in property and equipment, net | | $ | 230 | | | $ | 248 | |
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2018 | | 2017 |
| Property and equipment | | | | |
| Land | | $ | 356 |
| | $ | 410 |
|
| Buildings and leasehold improvements | | 555 |
| | 558 |
|
| Vehicles, tractors, trailers and tankers | | 1,561 |
| | 1,464 |
|
| Machinery and equipment | | 809 |
| | 648 |
|
| Computer software and equipment | | 909 |
| | 694 |
|
| | | 4,190 |
| | 3,774 |
|
| Less: accumulated depreciation and amortization | | (1,585 | ) | | (1,110 | ) |
| Total property and equipment, net | | $ | 2,605 |
| | $ | 2,664 |
|
Depreciation of property and equipment and amortization of computer software was $546$388 million, $488$382 million and $466$370 million for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. Assets represented by capital
8. Leases
Most of our leases netare real estate leases. In addition, we lease trucks, trailers, containers and material handling equipment.
The components of accumulated depreciation,our lease expense and gain realized on sale-leaseback transactions were $296as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Operating lease cost | | $ | 235 | | | $ | 221 | | | $ | 197 | |
| Short-term lease cost | | 150 | | | 86 | | | 88 | |
| Variable lease cost | | 32 | | | 29 | | | 25 | |
| Total operating lease cost | | $ | 417 | | | $ | 336 | | | $ | 310 | |
| Finance lease cost: | | | | | | |
| Amortization of leased assets | | $ | 53 | | | $ | 43 | | | $ | 43 | |
| Interest on lease liabilities | | 5 | | | 5 | | | 5 | |
| Total finance lease cost | | $ | 58 | | | $ | 48 | | | $ | 48 | |
| Total lease cost | | $ | 475 | | | $ | 384 | | | $ | 358 | |
Gain recognized on sale-leaseback transactions (1) | | $ | 69 | | | $ | 84 | | | $ | 93 | |
(1) For the years ended December 31, 2021, 2020 and 2019, we completed multiple sale-leaseback transactions for land and buildings, including a sale and partial leaseback of our shared-services center in Portland, Oregon in 2019. We received aggregate cash proceeds of $96 million, $143 million and $244$199 million in 2021, 2020 and 2019, respectively. Gains on sale-leaseback transactions are included in Direct operating expense (exclusive of depreciation and amortization) in our Consolidated Statements of Income.
Supplemental balance sheet information related to leases was as follows: | | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2021 | | 2020 |
| Operating leases: | | | | |
| Operating lease assets | | $ | 908 | | | $ | 844 | |
| | | | |
| Short-term operating lease liabilities | | $ | 170 | | | $ | 152 | |
| Operating lease liabilities | | 752 | | | 696 | |
| Total operating lease liabilities | | $ | 922 | | | $ | 848 | |
| Finance leases: | | | | |
| Property and equipment, gross | | $ | 403 | | | $ | 392 | |
| Accumulated depreciation | | (156) | | | (135) | |
Property and equipment, net | | $ | 247 | | | $ | 257 | |
| | | | |
| Short-term borrowings and current maturities of long-term debt | | $ | 57 | | | $ | 59 | |
| Long-term debt | | 180 | | | 193 | |
| Total finance lease liabilities | | $ | 237 | | | $ | 252 | |
| Weighted-average remaining lease term: | | | | |
| Operating leases | | 8 years | | 7 years |
| Finance leases | | 6 years | | 6 years |
| Weighted-average discount rate: | | | | |
| Operating leases | | 4.86 | % | | 5.26 | % |
| Finance leases | | 1.98 | % | | 2.33 | % |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
| Operating cash flows for operating leases | | $ | 224 | | | $ | 223 | | | $ | 201 | |
| Operating cash flows for finance leases | | 5 | | | 5 | | | 5 | |
| Financing cash flows for finance leases | | 75 | | | 59 | | | 51 | |
| Leased assets obtained in exchange for new lease obligations: | | | | | | |
| Operating leases | | 271 | | | 268 | | | 344 | |
| Finance leases | | 71 | | | 46 | | | 53 | |
Net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Consolidated Statements of Cash Flows.
Maturities of lease liabilities as of December 31, 2018 and 2017, respectively, and are included primarily2021 were as follows:
| | | | | | | | | | | | | | |
| (In millions) | | Finance Leases | | Operating Leases |
| 2022 | | $ | 61 | | | $ | 206 | |
| 2023 | | 56 | | | 189 | |
| 2024 | | 49 | | | 151 | |
| 2025 | | 34 | | | 113 | |
| 2026 | | 18 | | | 88 | |
| Thereafter | | 37 | | | 373 | |
| Total lease payments | | 255 | | | 1,120 | |
| Less: interest | | (18) | | | (198) | |
| Present value of lease liabilities | | $ | 237 | | | $ | 922 | |
As of December 31, 2021, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $11 million. These operating leases will commence in vehicles, tractors, trailers and tankers. Property and equipment acquired through capital leases was $111 million, $145 million and $71 million in 2018, 2017 and 2016, respectively. The net book value2022 with initial lease terms of capitalized internally-developed software totaled $263 million and $206 million3 years to 7 years.
9. Goodwill
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | North American LTL | | Brokerage and Other Services | | Total |
| Goodwill as of December 31, 2019 | | $ | 722 | | | $ | 1,752 | | | $ | 2,474 | |
| Impact of foreign exchange translation and other | | — | | | 62 | | | 62 | |
| Goodwill as of December 31, 2020 | | 722 | | | 1,814 | | | 2,536 | |
| Impact of foreign exchange translation and other | | — | | | (57) | | | (57) | |
| Goodwill as of December 31, 2021 | | $ | 722 | | | $ | 1,757 | | | $ | 2,479 | |
There were no cumulative goodwill impairments as of December 31, 2018 and 2017, respectively.
8. Goodwill
The following is a summary of the changes in the gross carrying amounts of goodwill by segment:2021.
|
| | | | | | | | | | | | |
| (In millions) | | Transportation | | Logistics | | Total |
Goodwill as of December 31, 2016 (1) | | $ | 2,420 |
| | $ | 1,906 |
| | $ | 4,326 |
|
| Impact of foreign exchange translation | | 107 |
| | 131 |
| | 238 |
|
| Goodwill as of December 31, 2017 | | 2,527 |
| | 2,037 |
| | 4,564 |
|
| Impact of foreign exchange translation | | (7 | ) | | (90 | ) | | (97 | ) |
| Goodwill as of December 31, 2018 | | $ | 2,520 |
| | $ | 1,947 |
| | $ | 4,467 |
|
| | | | | | | | | | | | | | |
(1) | Certain minor organizational changes were made in 2018 related to the Company’s managed transportation business. Managed transportation’s goodwill previously had been included in the Logistics segment; as of January 1, 2018, it is reflected in the Transportation segment. Prior period information was recast to conform to the current year presentation. This resulted in $69 million of goodwill being reflected in the Transportation segment as of December 31, 2016, previously reflected in the Logistics segment.
| 78 | | |
| | | |
9. Intangible Assets
The following table outlines the Company’s identifiable intangible assets:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| (In millions) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Definite-lived intangibles | | | | | | | | |
| Customer relationships | | $ | 1,891 |
| | $ | 640 |
| | $ | 1,924 |
| | $ | 494 |
|
| Trade name | | 52 |
| | 52 |
| | 54 |
| | 52 |
|
| Non-compete agreements | | 16 |
| | 14 |
| | 17 |
| | 14 |
|
| | | $ | 1,959 |
| | $ | 706 |
| | $ | 1,995 |
| | $ | 560 |
|
10. Intangible Assets
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (In millions) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Definite-lived intangibles | | | | | | | | |
| Customer relationships | | $ | 1,192 | | | $ | 612 | | | $ | 1,211 | | | $ | 536 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
We did not recognize any impairment of our identified intangible assets in 2021 and 2020. We recorded a non-cash, pre-tax charge of $6 million in 2019 related to the impairment of customer relationships intangibles associated with exiting our direct postal injection business.
Estimated future amortization expense for amortizable intangible assets for the next five years is as follows:
| | | (In millions) | | 2019 |
| 2020 |
| 2021 |
| 2022 |
| 2023 | | Thereafter | (In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
| Estimated amortization expense | | $ | 151 |
|
| $ | 145 |
|
| $ | 138 |
|
| $ | 128 |
|
| $ | 111 |
| | $ | 580 |
| Estimated amortization expense | | $ | 75 | | | $ | 65 | | | $ | 64 | | | $ | 62 | | | $ | 62 | | | $ | 252 | |
Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, future impairment of intangible assets, accelerated amortization of intangible assets and other events.
Intangible asset amortization expense recorded in SG&A was $159$86 million, $164$87 million and $174$96 million for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively.
10.11. Derivative Instruments
In the normal course of business, the Company iswe are exposed to certain risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. ToWe use derivative instruments to manage the volatility related to these exposures, the Company uses derivative instruments.exposures. The objective of these derivative instruments is to reduce fluctuations in the Company’sour earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. Historically, the Company haswe have not incurred, and doesdo not expect to incur in the future, any losses as a result of counterparty default.
The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk management objective and strategy for undertaking various hedge transactions. This process includes linking cash flow hedges to specific forecasted transactions or variabilityfair value of cash flow to be paid. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the designatedour derivative instruments that are used in hedging transactions are highly effective in offsetting changes in the cash flows of the hedged items. When a derivative instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively.
The following table presents the account on the Consolidated Balance Sheets in which the Company’s derivative instruments have been recognized and the related notional amounts and fair values:were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | | | Derivative Assets | | Derivative Liabilities |
| (In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value |
| Derivatives designated as hedges | | | | | | | | | | |
| Cross-currency swap agreements | | $ | 362 | | | Other current assets | | $ | — | | | Other current liabilities | | $ | (4) | |
| Cross-currency swap agreements | | 110 | | | Other long-term assets | | — | | | Other long-term liabilities | | — | |
| Interest rate swaps | | 2,003 | | | Other current assets | | — | | | Other current liabilities | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| Total | | | | | | $ | — | | | | | $ | (4) | |
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 |
| | | | | Derivative Assets | | Derivative Liabilities |
| (In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value |
| Derivatives designated as hedges: | | | | | | | | | | |
| Cross-currency swap agreements | | $ | 1,270 |
| | Other long-term assets | | $ | — |
| | Other long-term liabilities | | $ | (81 | ) |
| Derivatives not designated as hedges: | | | | | | | | | | |
| Foreign currency option contracts | | 473 |
| | Other current assets | | 7 |
| | Other current liabilities | | — |
|
| Total | | | | | | $ | 7 |
| | | | $ | (81 | ) |
| | | | | December 31, 2017 | | December 31, 2020 |
| | | | | Derivative Assets | | Derivative Liabilities | | | Derivative Assets | | Derivative Liabilities |
| (In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value | (In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value |
| Derivatives designated as hedges: | | | | | | | |
| Derivatives designated as hedges | | Derivatives designated as hedges | | | | | | | | | | |
| Cross-currency swap agreements | | $ | 1,304 |
| | Other long-term assets | | $ | — |
| | Other long-term liabilities | | $ | (146 | ) | Cross-currency swap agreements | | $ | 450 | | | Other current assets | | $ | — | | | Other current liabilities | | $ | (44) | |
| Derivatives not designated as hedges: | | | | | | | |
| Foreign currency option and forward contracts | | 1,038 |
| | Other current assets | | 2 |
| | Other current liabilities | | (16 | ) | |
| Cross-currency swap agreements | | Cross-currency swap agreements | | 740 | | | Other long-term assets | | — | | | Other long-term liabilities | | (65) | |
| Interest rate swaps | | Interest rate swaps | | 2,003 | | | Other current assets | | — | | | Other current liabilities | | (4) | |
| | Total | | | | $ | 2 |
| | $ | (162 | ) | Total | | $ | — | | | $ | (113) | |
The derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.
The effect of derivative and nonderivative instruments designated as hedges and nonderivatives designated as hedges in theon our Consolidated Statements of Income for the years ended December 31, 2018, 2017, and 2016 arewas as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives | | Amount of Gain (Loss) Reclassified from AOCI into Net Income | | Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Derivatives designated as cash flow hedges | | | | | | | | | | | | | | | | | | |
| Cross-currency swap agreements | | $ | 4 | | | $ | (12) | | | $ | 7 | | | $ | 7 | | | $ | (15) | | | $ | 5 | | | $ | — | | | $ | — | | | $ | 1 | |
| Interest rate swaps | | — | | | (5) | | | 5 | | | — | | | — | | | — | | | — | | | — | | | — | |
Derivatives designated as net investment hedges | | | | | | | | | | | | | | | | | | |
| Cross-currency swap agreements | | 84 | | | (81) | | | 55 | | | — | | | — | | | — | | | 6 | | | 9 | | | 10 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Total | | $ | 88 | | | $ | (98) | | | $ | 67 | | | $ | 7 | | | $ | (15) | | | $ | 5 | | | $ | 6 | | | $ | 9 | | | $ | 11 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative | | Amount of Gain (Loss) Reclassified from AOCI into Net Income | | Amount of Gain (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |
| (In millions) | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
| Derivatives designated as cash flow hedges: | | | | | | | | | | | | | | |
| Cross-currency swap agreements | | $ | 13 |
| | $ | (21 | ) | | $ | — |
| | $ | 17 |
| | $ | (3 | ) | | $ | 1 |
| | $ | — |
|
| Interest rate swaps | | — |
| | 2 |
| | 5 |
| | — |
| | — |
| | — |
| | — |
|
| Derivatives designated as net investment hedges: | | | | | | | | | | | | | | |
| Cross-currency swap agreements | | 52 |
| | (100 | ) | | 15 |
| | — |
| | — |
| | 4 |
| | 8 |
|
| Nonderivatives designated as hedges: | | | | | | | | | | | | | | |
| Foreign currency denominated notes | | — |
| | 8 |
| | (27 | ) | | — |
| | — |
| | — |
| | — |
|
| Total | | $ | 65 |
| | $ | (111 | ) | | $ | (7 | ) | | $ | 17 |
| | $ | (3 | ) | | $ | 5 |
| | $ | 8 |
|
The amounts excluded from effectiveness testing for the cross-currency swap agreements were $2 million and $3 million of loss in AOCI for derivatives designated as cash flow hedges as of December 31, 2018 and 2017, respectively, and $32 million and $44 million of loss in AOCI for derivatives designated as net investment hedges as of December 31, 2018 and 2017, respectively. There were no gains (losses) reclassified out of AOCI into Net income for the year ended December 31, 2016.
The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was $4a loss of $1 million, $(64)a gain of $1 million and $43a loss of $9 million for the years ended December 31, 2018, 20172021, 2020 and 2016,2019, respectively. These amounts are recorded in Foreign currency (gain) loss (gain) in theon our Consolidated Statements of Income.
Cross-Currency Swap Agreements
In May 2017, the Company enteredWe enter into certain cross-currency swap agreements to manage the foreign currency exchange risk relatedrelated to the Company’sour international operations by effectively converting theour fixed-rate U.S. Dollar (“USD”)-denominated 6.125% senior notes due 2023 (“Senior Notes due 2023”) (see Note 11—Debt),USD-denominated debt, including the associated semi-annual interest payments, to fixed-rate, Euroeuro (“EUR”)-denominated debt. The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt. In 2021, in preparation for the Senior Notes due 2023.spin-off, we novated (or transferred) cross-currency swaps that were recorded as a liability with a fair value of approximately $28 million to GXO, as well as the associated amounts in AOCI.
During the term of the swap contracts, the Companywe will receive interest, either on a quarterly interest payments in March, June, September and December of each yearor semi-annual basis, from the counterparties based on USD fixed interest rates, and the Companywe will makepay interest, also on a quarterly interest payments in March, June, September and December of each yearor semi-annual basis, to the counterparties based on EUR fixed interest rates. At maturity, the Companywe will repay the original principal amount in EUR and receive the principal amount in USD. These agreements expire at various dates through 2024.
In 2015, in connection with the issuance of the 6.50% senior notes due 2022 (“Senior Notes due 2022”), the Company entered into certainWe designated these cross-currency swap agreements to manage the foreign currency exchange risk related to the Company’s international operations by effectively converting a portion of the fixed-rate USD-denominated Senior Notes due 2022, including the associated semi-annual interest payments, to fixed-rate, EUR-denominated debt. The risk management objective of the agreements is to manage the Company’s foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows for a portion of the Senior Notes due 2022. During the term of the swap contracts, the Company will receive semi-annual interest payments in June and December of each year from the counterparties based on USD fixed interest rates, and the Company will make semi-annual interest payments in June and December
of each year to the counterparties based on EUR fixed interest rates. At maturity, the Company will repay the original principal amount in EUR and receive the principal amount in USD.
The Company has designated the cross-currency swap agreementsswaps as qualifying hedging instruments and is accountingaccount for thesethem as net investment hedges. In the fourth quarter of 2017, and in accordance with the guidance in ASU 2017-12, the Company appliedWe apply the simplified method of assessing the effectiveness of itsour net investment hedging relationships. Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially
recognized in AOCI. TheAOCI. The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initiallyinitially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner. For net investment hedges that were de-designated prior to their maturity, the amounts in AOCI will remain in AOCI until the subsidiary is sold or substantially liquidated. Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in OperatingCash flows from operating activities of continuing operations on the our Consolidated Statements of Cash Flows.Flows.
Additionally, inPrior to the fourth quarter of 2017, a portion of thespin-off, we entered into cross-currency swap that hedges the Senior Notes due 2023 was de-designated as a net investment hedge and re-designated with a larger notional amount as a cash flow hedge. This cash flow hedge was entered intoagreements to manage the related foreign currency exposure from intercompany loans. The amountsWe designated these cross-currency swaps as qualifying hedging instruments and accounted for them as cash flow hedges. Gains and losses resulting from the change in the fair value of the cross-currency swaps was initially recognized in AOCI related to the net investment hedge at the date of de-designation were recognized as cumulative translation adjustments and will remain in AOCI until the subsidiary is sold or substantially liquidated. For the cash flow hedge, the Company reclassifies a portion of AOCIreclassified to Foreign currency (gain) loss (gain) to offset the foreign exchange impact in earnings created by thesettling intercompany loans. The Company also amortizes a portion of AOCI to Interest expense related to the initial portion of a loss excluded from the assessment of effectiveness of the cash flow hedge. Cash flows related to thisthese cash flow hedge arehedges was included in FinancingCash flows from operating activities of continuing operations on the our Consolidated Statements of Cash Flows.
Hedge of Net Investments in Foreign Operations
In addition to the cross-currency swaps, the Company periodically uses foreign currency denominated notes as nonderivative hedging instruments of its net investments in foreign operations. Prior to their redemption in 2017, the Company had designated the 5.75% senior notes due 2021 (“Senior Notes due 2021”) as a net investment hedge and the gains and losses resulting from the exchange rate adjustments to the designated portion of the foreign currency denominated notes were recorded in AOCI to the extent that the foreign currency denominated notes are effective in hedging the designated risk. As of December 31, 2018 and 2017, there is no amount of Long-term debt on the Consolidated Balance Sheets that is designated as a net investment hedge of its investments in international subsidiaries that use the EUR as their functional currency. The amount recognized in AOCI during the period that the Senior Notes due 2021 were designated as a net investment hedge remains in AOCI as of December 31, 2018 and will remain in AOCI until the subsidiary is sold or substantially liquidated. The Company does not expect amounts that are currently deferred in AOCI to be reclassified to income over the next 12 months.Flows.
Interest Rate Hedging
In 2018, the Company utilized aWe execute short-term interest rate swap to mitigate variability in forecasted interest payments on the Company’s senior secured term loan credit agreement, as amended (the “Term Loan Facility”). The interest rate swap converted a floating rate interest payment into a fixed rate interest payment. The Company designated the interest rate swap as a qualifying hedging instrument and accounted for this derivative as a cash flow hedge. The interest rate swap matured in August 2018.
In 2017, the Company utilized interest rate swaps to mitigate variability in forecasted interest payments on the Company’s EUR-denominated asset financings that are based on benchmark interest rates (e.g., Euribor)our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”). The objective was for the cash flows of the interest rate swaps to offset any changes in cash flows of the forecasted interest payments attributable to changes in the benchmark interest rate. The interest rate swaps converted floating rateconvert floating-rate interest payments into fixed rate interest payments. The CompanyWe designated the interest rate swaps as qualifying hedging instruments and accountedaccount for these derivatives as cash flow hedges of the forecasted obligations.hedges. The Company hedged its exposure to the variabilityoutstanding interest rate swaps mature in future cash flows for forecasted interest payments through the maturity date of the swap in December 2017.2022.
GainsWe record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps are recorded in AOCI and reclassifiedreclassify them to Interest expense on the dates that interest payments accrued.accrue. Cash flows related to the interest rate swaps are included in OperatingCash flows from operating activities of continuing operations on the our Consolidated Statements of Cash Flows.Flows.
Foreign Currency Option and Forward Contracts
In orderWe periodically use foreign currency option contracts to mitigate the currency translation risk that resultsof a reduction in the value of earnings from converting the financial statements of the Company’s internationalour operations which primarilythat use the EUR andor the British pound sterling (“GBP”) as their functional currency, the Company uses foreign currency option and forward contracts.currency. Additionally, the Company maywe periodically use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings. Generally, the foreign currency exposure from intercompany loans. The foreign currency contracts were(both option and forward contracts) are not designated as qualifying hedging instruments as of December 31, 2018 or 2017.instruments. The contracts are not speculative; rather, they are used to manage the Company’sour exposure to foreign currency exchange rate fluctuations.fluctuations and are not speculative. The contracts generally expire in 12 months or less. We had no outstanding contracts as of December 31, 2021 and December 31, 2020. Gains or losses on the contracts are recorded in Foreign currency (gain) loss (gain) in theon our Consolidated Statements of Income. In 2018, the Company changed its policy related to the cash flow presentation of foreign currency option contracts, as the Company believes cash receipts and payments related to economic hedges should be classified based on the nature and purpose for which those derivatives were acquired and, given that the Company did not elect to apply hedge accounting to these derivatives, the Company believes it is preferable to reflect these cash flows as Investing activities. Previously, these cash flows were reflected within Operating activities. Net cash used by investing activities for the year ended December 31, 2018 included $21 million of cash usage related to these foreign currency option contracts. Prior years’ impacts were not material. With this change in presentation, all cashCash flows related to the foreign currency contracts are included in InvestingCash flows from investing activities of continuing operations on the our Consolidated Statements of Cash Flows,. consistent with the nature and purpose for which these derivatives were acquired.
11.
12. Debt
The following table summarizes the Company’s debt:
|
| | | | | | | | | | | | | | | | |
| | | December 31, 2018 | | December 31, 2017 |
| | | | | | | | | |
| (In millions) | | Principal Balance | | Carrying Value | | Principal Balance | | Carrying Value |
| ABL facility | | $ | — |
| | $ | — |
| | $ | 100 |
| | $ | 100 |
|
| Term loan facility | | 1,503 |
| | 1,474 |
| | 1,494 |
| | 1,456 |
|
| 6.125% Senior Notes due 2023 | | 535 |
| | 529 |
| | 535 |
| | 528 |
|
| 6.50% Senior Notes due 2022 | | 1,200 |
| | 1,190 |
| | 1,600 |
| | 1,583 |
|
| 6.70% Senior Debentures due 2034 | | 300 |
| | 205 |
| | 300 |
| | 203 |
|
| Trade securitization program | | 283 |
| | 281 |
| | 303 |
| | 299 |
|
| Unsecured credit facility | | 250 |
| | 246 |
| | — |
| | — |
|
| Asset financing and other | | 55 |
| | 55 |
| | 104 |
| | 105 |
|
| Capital leases for equipment | | 289 |
| | 289 |
| | 248 |
| | 248 |
|
| Total debt | | 4,415 |
| | 4,269 |
| | 4,684 |
| | 4,522 |
|
| Short-term borrowings and current maturities of long-term debt | | 371 |
| | 367 |
| | 104 |
| | 104 |
|
| Long-term debt | | $ | 4,044 |
| | $ | 3,902 |
| | $ | 4,580 |
| | $ | 4,418 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| (In millions) | | Principal Balance | | Carrying Value | | Principal Balance | | Carrying Value |
| ABL facility | | $ | — | | | $ | — | | | $ | 200 | | | $ | 200 | |
| Term loan facilities | | 2,003 | | | 1,977 | | | 2,003 | | | 1,974 | |
| 6.50% Senior notes due 2022 | | — | | | — | | | 1,200 | | | 1,195 | |
| 6.125% Senior notes due 2023 | | — | | | — | | | 535 | | | 531 | |
| 6.75% Senior notes due 2024 | | — | | | — | | | 1,000 | | | 989 | |
| 6.25% Senior notes due 2025 | | 1,150 | | | 1,141 | | | 1,150 | | | 1,138 | |
| 6.70% Senior debentures due 2034 | | 300 | | | 214 | | | 300 | | | 210 | |
| Borrowings related to securitization program | | — | | | — | | | 24 | | | 24 | |
| Finance leases, asset financing and other | | 240 | | | 240 | | | 260 | | | 260 | |
| Total debt | | 3,693 | | | 3,572 | | | 6,672 | | | 6,521 | |
| Short-term borrowings and current maturities of long-term debt | | 58 | | | 58 | | | 1,286 | | | 1,281 | |
| Long-term debt | | $ | 3,635 | | | $ | 3,514 | | | $ | 5,386 | | | $ | 5,240 | |
The fair value of theour debt as of December 31, 2018 was $4,305 million, of which $2,020 million was classified as Level 1 and $2,285 million was classified as Level 2classification in the fair value hierarchy. The fair value of the debthierarchy was as of December 31, 2017 was $4,816 million, of which $2,647 million was classified asfollows:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Fair Value | | Level 1 | | Level 2 |
| December 31, 2021 | | $ | 3,811 | | | $ | 1,571 | | | $ | 2,240 | |
| December 31, 2020 | | 6,908 | | | 4,429 | | | 2,479 | |
We valued Level 1 and $2,169 million was classified as Level 2. The Level 1 debt was valued using quoted prices in active markets. TheWe valued Level 2 debt was valued using bid evaluation pricing models or quoted prices of securities with similar characteristics. The fair value of the asset financing arrangements approximates carrying value sinceas the debt is primarily issued at a floating rate, the debt may be prepaid at any time at par without penalty, and the remaining life of the debt is short-term in nature.
The following table outlines the Company’sOur principal payment obligations on debt (excluding capitalfinance leases) for the next five years and thereafter:thereafter was as follows:
| | | (In millions) | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | (In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
| Principal payments on debt | | $ | 322 |
| | $ | 259 |
| | $ | 3 |
| | $ | 1,201 |
| | $ | 536 |
| | $ | 1,805 |
| Principal payments on debt | | $ | — | | | $ | — | | | $ | 1 | | | $ | 3,153 | | | $ | 1 | | | $ | 301 | |
ABL Facility
In October 2015, the Companywe entered into the Second Amended and Restated Revolving Loan Credit Agreement (the “ABL Facility”) among XPO and certain of XPO’s U.S. and Canadian wholly owned subsidiaries, as borrowers, the other credit parties from time to time party thereto, the lenders party thereto and Morgan Stanley Senior Funding, Inc. (“MSSF”), as agent for such lenders. The ABL Facility which replaced XPO’s then-existing Amended Credit Agreement, providesthat provided commitments of up to $1.0 billion and matures onwith a maturity date of October 30, 2020. UpIn April 2019, we amended the ABL Facility including: (i) increasing the commitments to $1.1 billion, (ii) extending the maturity date to April 30, 2024, subject to springing maturity if some of our senior notes reach specified levels set in the credit agreement and (iii) reducing the interest rate margin. In July 2021, we amended the ABL Facility to reduce the commitments from $1.1 billion to $1.0 billion. There were no other significant changes made to the terms of the facility. We can issue up to $350 million of the ABL Facility is available for issuance of letters of credit and up to $50 million ofunder the ABL Facility is available for swing line loans. Total unamortized debt issuance costs related to the ABL Facility classified in Other long-term assets as of December 31, 2018 and 2017 were $4 million and $6 million, respectively.Facility.
Availability onOur availability under the ABL Facility is equal to the borrowing base less advances and outstanding letters of credit. TheOur borrowing base includes a fixed percentage of: (i) our eligible U.S. and Canadian accounts receivable; plus (ii) any of our eligible U.S. and Canadian rolling stock and equipment. As of December 31, 2018, the borrowing base was $934 million and availability was $704 million, after considering outstanding letters of credit of $230 million. A maximum of 20% of theour borrowing base can be attributable to the equipment and rolling stock in the aggregate. As of December 31, 2018, the Company2021, our borrowing base was $1.0 billion and our availability was $995 million after considering outstanding letters of credit of $5 million. As of December 31, 2021, we were in compliance with the ABL Facility’s financial covenants.
Our loans under the ABL Facility bear interest at a rate equal to: LIBOR or base rate plus (i) an applicable margin of 1.25% to 1.50% for LIBOR loans or (ii) 0.25% to 0.50%, for base rate loans.
The ABL Facility is secured on a first lien basis by the assets of the credit parties which constitute ABL Facilityas priority collateral and on a second lien basis by certain other assets. ABL FacilityThe priority collateral consists primarily of our U.S. and Canadian accounts receivable as well asand any of our U.S. and Canadian rolling stock and equipment included by XPO in theour borrowing base. The Company’s borrowings under the ABL Facility will bear interest at a rate equal to the London Interbank Offered Rate (“LIBOR”) or a Base Rate, as defined in the agreement, plus an applicable margin of 1.50% to 2.00%, in the case of LIBOR loans, and 0.50% to 1.00%, in the case of Base Rate loans. The ABL Facility contains representations and warranties, affirmative and negative covenants, and events of default customary for agreements of this nature.
Among other things, theThe covenants in the ABL Facility can limit the Company’sour ability to with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. In certain circumstances, such as if availability is below certain thresholds, the ABL FacilityWe may also requires the Companybe required to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Facility) of not less than 1.00.1.00 if availability under the ABL Facility is below certain thresholds. As of December 31, 2018, the Company was2021, we were compliant with this financial covenant. If
Letters of Credit Facility
In 2020, we entered into a $200 million uncommitted secured evergreen letter of credit facility. The letter of credit facility had an initial one-year term, which automatically renewed for an additional year, and may automatically renew with one-year terms until the Company defaults on one or more covenantsletter of credit facility terminates. As of December 31, 2021, we have issued $198 million in aggregate face amount of letters of credit under the ABL Facility and continues to default, the commitments may be terminated and the principal amount outstanding, together with all accrued unpaid interest and other amounts owed, may be declared immediately due and payable. Certain subsidiaries acquired by the Company in the future may be excluded from some of the covenant restrictions.facility.
Term Loan FacilityFacilities
In October 2015, XPOwe entered into a Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) that provided for a single borrowing of $1.6 billion. The Term Loan Credit Agreement was issued at an original issue discount of $32 million.
In February 2018, the Company entered into a Refinancing Amendment (Amendment No. 3 to the Credit Agreement) (the “Third Amendment”), by and among XPO, its subsidiaries signatory thereto, as guarantors, the lenders party thereto and MSSF, in its capacity as administrative agent, amending that certain Senior Secured Term Loan Credit Agreement, dated as of October 30, 2015 (asWe amended amended and restated, supplemented or otherwise modified, including by that certain Incremental and Refinancing Amendment (Amendment No. 1 to the Credit Agreement), dated as of August 25, 2016, and by that certain Refinancing Amendment (Amendment No. 2 to the Credit Agreement), dated March 10, 2017, the “Term Loan Credit Agreement”).
Pursuant to the Third Amendment, the outstanding $1,494 million principal amount of term loans under the Term Loan Credit Agreement (the “Former Term Loans”) were replaced with $1,503 million in aggregate principal amount2019 to include a new tranche of new term loans (the “Present“Incremental Term Loans”Loan Facility”). The Present Term Loans have substantially similar terms as the Former Term Loans, except with respect, to reduce the interest raterates and to extend the maturity date applicable todates. Net proceeds from borrowings under the PresentIncremental Term Loans, prepayment premiums in connection with certain voluntary prepayments and certain other amendments to the restrictive covenants. Proceeds from the Present Term LoansLoan Facility were used for general corporate purposes, including to refinancefund purchases of our common stock described in Note 14—Stockholders’ Equity. The loans under the Former Term Loans and to pay interest, fees and expenses in connection therewith.
The interest rate margin applicable to the Present Term Loans was reduced from 1.25% to 1.00%, in the case of base rate loans, and from 2.25% to 2.00%, in the case of LIBOR loans (with the LIBOR floor remaining at 0.0%). The interest rate on the Present Term Loans was 4.51% as of December 31, 2018. The Present Term Loans will mature on February 23, 2025. The refinancing resulted in a debt extinguishment charge of $10 million, which was recognized in 2018.
In March 2017, the Company entered into a Refinancing Amendment (Amendment No. 2 to the Credit Agreement) (the “Second Amendment”), by and among XPO, its subsidiaries signatory thereto, as guarantors, the lenders party thereto and MSSF, in its capacity as administrative agent (the “Administrative Agent”), amending the Senior SecuredIncremental Term Loan Credit Agreement dated asFacility were issued at a price of October 30, 2015 (as99.50% of par. In 2021, we amended amended and restated, supplemented or otherwise modified, including by the Incremental and Refinancing Amendment (Amendment No. 1 to the Credit Agreement) (the “First Amendment”), dated as of August 25, 2016, the “Term Loan Credit Agreement.)”
Pursuant to the Second Amendment, the outstanding $1,482 million principal amount of term loans under the Term Loan Credit Agreement (the “Existing Term Loans”) were replaced with $1,494 million in aggregate principal amountto consolidate our tranches and lower the interest rate. The applicable terms of new term loans (the “Current Term Loans”). The Current Term Loans have substantially similar terms as the Existing Term Loans, other than the applicable interest rate and prepayment premiums in respect to certain voluntary prepayments. Proceeds from the Current Term Loans were used primarily to refinance the Existing Term Loans and to pay interest, fees and expenses in connection therewith.
The interest rate margin applicable to the Current Term Loans was reduced from 2.25% to 1.25%, in the case of base rate loans, and from 3.25% to 2.25%, in the case of LIBOR loans and the LIBOR floor was reduced from 1.0% to 0%. The refinancing resulted in a debt extinguishment charge of $8 million in 2017.
In August 2016, the Company entered into a Refinancing Amendment (the “First Amendment”), pursuant to which the outstanding $1,592 million principal amount of term loans under the Term Loan Credit Agreement, (the “Old Term Loans”) were replaced with a like aggregate principal amount of new term loans (the “New Term Loans”). The New Term Loans have substantially similar terms as the Old Term Loans, other than the applicable interest rate and prepayment premiums in respect to certain voluntary prepayments. Of the $1,592 million of term loans that were refinanced, $1,197 million were exchanged and represent a non-cash financing activity. The interest rate margin applicable to the New Term Loans was reduced from 3.50% to 2.25%, in the case of base rate loans, and from 4.50% to 3.25%, in the case of LIBOR loans. In connection with this refinancing, various lenders exited the syndicate and the Company recognizedamended, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| (In millions) | | December 31, 2021 | | First Tranche | | Second Tranche |
| Principal balance | | $ | 2,003 | | | $ | 1,503 | | | $ | 500 | |
| Interest spread: | | | | | | |
| Base rate loans | | 0.75 | % | | 1.00 | % | | 1.50 | % |
| LIBOR loans | | 1.75 | % | | 2.00 | % | | 2.50 | % |
| Maturity date | | February 2025 | | February 2025 | | February 2025 |
We recorded a debt extinguishment loss of $18$3 million in 2016.
In addition, pursuant2021 due to the First Amendment, the Company borrowed $400 millionthis amendment. The interest rate on our term loan facility was 1.85% as of Incremental Term B-1 Loans (the “Incremental Term B-1 Loans”) and an additional $50 million of Incremental Term B-2 Loans (the “Incremental Term B-2 Loans”). The New Term Loans, Incremental Term B-1 Loans and Incremental Term B-2 Loans all have identical terms, other than with respect to the original issue discounts, and will mature on October 30, 2021.
Commencing with the fiscal year ending December 31, 2016, the Company2021.
We must prepay an aggregate principal amount of the Term Loan Facilityterm loan facility equal to (a) 50% of any Excess Cash Flow, as defined in the agreement, if any, for the most recent fiscal year ended, minus (b) the sum of (i) all voluntary prepayments of loans during suchthe fiscal year and (ii) all voluntary prepayments of loans under the ABL Facility or any other revolving credit facilities during suchthe fiscal year to the extentif accompanied by a corresponding permanent reduction in the commitments under the credit agreement or any other revolving credit facilities in the case of each of the immediately preceding clauses (i) and (ii), to the extentif such prepayments are funded with internally generated cash flow, as defined in the agreement; provided, further, that (x) the Excess Cash Flow percentage shall be 25% if theagreement. If our Consolidated Secured Net Leverage Ratio, of Borrower, as defined in the agreement, for the fiscal year was less than or equal to 3.00:1.00
and greater than 2.50:1.00, and (y) the Excess Cash Flow percentage shallwill be 0% if the Company’s25%. If our Consolidated Secured Net Leverage Ratio for the fiscal year was less than or equal to 2.50:1.00.1.00, the Excess Cash Flow percentage will be 0%. The remaining principal is due at maturity. As of December 31, 2018, the Company’s2021, our Consolidated Secured Net Leverage Ratio was less than 2.50:1.00; therefore,1.00, and no excess cash payment was required.
Senior Notes
In July 2018, the Companythird quarter of 2021, we redeemed $400 million of the then $1.6 billionour outstanding 6.125% senior notes due 2023 (“Senior Notes due 2022 that2023”) and our outstanding 6.75% senior notes due 2024 (“Senior Notes due 2024”). The Senior Notes due 2024 were originally issued in 2015.2019 and the proceeds were used to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity. The redemption price for the Senior Notes due 20222023 was 103.25%100.0% of the principal amount, plus accrued and unpaid interest up to, but excluding,and the dateredemption price for the Senior Notes due 2024 was 103.375% of redemption. Thethe principle amount, plus accrued and unpaid interest. We paid for the redemption was primarily funded using cash received from GXO of approximately $794 million, proceeds from an equity offering described in Note 14—Stockholders’ Equity and available cash. We recorded debt extinguishment losses of $3 million and $43 million in 2021 related to the settlementredemption of the forward sale agreements, described in Note 13—Stockholders’ Equity. In connection with the redemption, we recognized a loss on debt extinguishment of $17 million in 2018.Senior Notes due 2023 and Senior Notes due 2024, respectively.
In December 2017, the CompanyJanuary 2021, we redeemed all of itsour outstanding 6.50% senior notes due June 2021 (the “Senior2022 (“Senior Notes due 2021”2022”) that were originally issued in 2015. The redemption price for the Senior Notes due 2021notes was 102.875%100.0% of the principal amount, plus accrued and unpaid interest up to, but excluding,interest. We paid for the dateredemption with available cash, including the net proceeds from the issuance of redemption. The redemption was funded using cash on hand at the date of the redemption. The loss on debt extinguishment of $23 million was recognized in 2017.
In August 2017, the Company redeemed all of its outstanding 7.25%our 6.25% senior notes due 20182025 (“Senior Notes due 2018”2025”). as described below. We recorded a debt extinguishment loss of $5 million in 2021 due to this redemption.
In 2020, we completed private placements of $1.15 billion aggregate principal amount of Senior Notes due 2025. The Senior Notes due 2018 were assumed in connection with2025 mature on May 1, 2025 and bear interest at a rate of 6.25% per annum. Interest on the Company’s 2015 acquisitionnotes is paid semi-annually. A total of Con-way, Inc. (“Con-way”). The redemption price for the Senior Notes due 2018 was 102.168%$850 million of the principal amount, plus accruednotes were issued at par, and unpaid interest up to, but excluding, the date of redemption. The redemption was funded using cash on hand at the date$300 million of the redemption. The loss on debt extinguishmentnotes were issued subsequently at 101.75% of $5 million was recognized in 2017.
The Senior Notes bear interest payable semiannually,face value. Net proceeds from the notes were initially invested in cash and cash equivalents and were subsequently used in arrears. The Senior Notes due 2023 mature on September 1, 2023. The2021 to redeem our outstanding Senior Notes due 2022 mature on June 15, 2022.as described above.
The Senior Notessenior notes are guaranteed by each of the Company’sour direct and indirect wholly-owned restricted subsidiaries (other than certainsome excluded subsidiaries) that are obligors under, or guarantee obligations under, the Company’sour ABL Facility (or certain replacements thereof)or existing Term Loan facility or guarantee certain of our capital markets indebtedness of the Company or any guarantor of the Senior Notes.senior notes. The Senior Notessenior notes and theits guarantees thereof are unsecured, unsubordinated indebtedness for us and our guarantors. The senior notes contain covenants customary for notes of the Company and the guarantors. Among other things, the covenants of the Senior Notes limit the Company’s ability to, with certain exceptions: incur indebtedness or issue disqualified stock; grant liens; pay dividends or make distributions in respect of capital stock; make certain investments or other restricted payments; prepay or repurchase subordinated debt; sell or transfer assets; engage in certain mergers, consolidations, acquisitions and dispositions; and enter into certain transactions with affiliates.this nature.
Senior Debentures
InWe assumed in conjunction with the Company’san acquisition of Con-way, the Company assumed Con-way’s 6.70% Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $300 million. The Senior Debentures bear interest payable semiannually, in cash in arrears, and mature on May 1, 2034. In accordance with ASC 805 “Business Combinations,” the Senior Debentures were recorded at fair value on the acquisition date, resulting in a fair value discount of $101 million on October 30, 2015. Including amortization of the fair value adjustment recorded on the acquisition date, interest expense on the Senior Debentures is recognized at an annual effective interest rate of 10.96%.
Convertible Senior Notes
The Convertible Senior Notes bore interest payable semi-annually, in cash in arrears, and matured on October 1, 2017.
During the year ended December 31, 2017, the Company issued an aggregate of approximately three million shares of the Company’s common stock to certain holders of the Convertible Senior Notes in connection with the conversion of the Convertible Senior Notes. The conversions were allocated to long-term debt and equity in the amounts of $49 million and $50 million, respectively. A loss on conversion of $1 million was recorded as part of these transactions. Certain of these transactions represented induced conversions pursuant to which the Company paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the
difference between the current fair value and the book value of the Convertible Senior Notes, were reflected in interest expense.
Trade Securitization Program
In October 2017, XPO Logistics Europe SA (“XPO Logistics Europe”),As discussed in which the Company holds an 86.25% controlling interest, entered into a European trade receivables securitization program for a term of three years co-arranged by Crédit Agricole and HSBC. Under the terms of the program, XPO Logistics Europe, or one of its wholly-owned subsidiaries in the United Kingdom or France, sells trade receivables to XPO Collections Designated Activity Company Limited (“XCDAL”), a wholly-owned bankruptcy remote special purpose entity of XPO Logistics Europe. The receivables are funded by senior variable funding notes denominated in the same currency as the corresponding receivables. XCDAL is considered a variable interest entity and it is consolidated by XPO Logistics Europe based on its control of the entity’s activities.The receivables balance under this program are reported as Accounts receivable in the Company’s Consolidated Balance Sheets and the related notes are included in the Company’s Long-term debt.
The receivables securitization program provides additional liquidity to fund XPO Logistics Europe’s operations. The receivables securitization program contains representations and warranties, affirmative and negative covenants, termination events, events of default, indemnities and other obligations on the part of XPO Logistics Europe, certain of its subsidiaries and XCDAL, which are customary for transactions of this nature.
In the first quarter of 2018, the aggregate maximum amount available under the program was increased from €270 million to €350 million (approximately $401 million as of December 31, 2018). The weighted-average interest rate as of December 31, 2018 was 1.09%. Charges for administrative fees and commitment fees, the latter of which is based on a percentage of the unused amounts available, were not material to the Company’s results of operations for the years ended December 31, 2018 and 2017. Additionally, in the fourth quarter of 2018, the program was amended and a portion of the receivables transferred from XCDAL are now accounted for as sales, see Note 2—Basis of Presentation and Significant Accounting Policies,. As our European business participates in a trade receivables securitization program. The program contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.
Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables. These borrowings are owed to the program’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement. We had no such borrowings outstanding as of December 31, 2018, the remaining borrowing capacity, which considers receivables that are collateral for the notes2021 and had borrowings of €20 million ($24 million) as well as receivables which have been sold, was $0.of December 31, 2020.
Unsecured Credit Facility
In December 2018, the Companywe entered into a $500 million unsecured credit agreementfacility (“Unsecured Credit Agreement”Facility”) with Citibank, N.A., which matures on December 23, 2019.. As of December 31, 2018, the Companywe had borrowed $250 million under the Unsecured Credit Agreement. The Company made a second borrowing ofFacility. We borrowed an additional $250 million in January 2019. The CompanyWe used the proceeds of both borrowings to finance a portion of itsour share repurchases as described in Note 13—14—Stockholders’ Equity. The Company’s borrowingsEquity. In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Agreement will initially bear interest atFacility and terminated it in February 2019. We recorded a rate equal to LIBOR or Alternate Base Rate (“ABR”) plus an applicable margindebt extinguishment loss of 3.50%,$5 million in the case of LIBOR loans, and 2.50%2019 in the case of ABR loans. The margin is subject to two increases, of 50 basis points each, if any amounts remain outstanding under the Unsecured Credit Agreement on certain dates. The interest rate on outstanding borrowings as of December 31, 2018 was 6.01%.connection with this repayment.
Asset Financing
The asset financing arrangements are unsecured and are used to purchase trucks in Europe. The financing arrangements are denominated in USD, EUR, GBP and Romanian New Lei, with primarily floating interest rates. As of December 31, 2018, interest rates on asset financing range from 0.53% to 4.97%, with a weighted average interest rate of 1.47%, and initial terms range from five years to 10 years.
12.13. Employee Benefit Plans
Defined Benefit Pension Plans
The Company maintainsWe sponsor both funded and unfunded defined benefit pension plans for certainsome employees in the United States.U.S. These pension plans include qualified plans (the “U.S. Qualified Plans”) that are eligible for certain beneficial treatment under the Internal Revenue Code (“IRC”), as well asand non-qualified plans that do not meet the IRC criteria. The Company’s non-qualified defined benefit pension plans (collectively, the “U.S. Non-Qualified Pension Plans” and together with the U.S. Qualified Plans, the “U.S. Plans”) consist mostly of a primary non-qualified supplemental defined benefit
pension plan and provide additional benefits for certain employees who are affectedimpacted by IRC limitations on compensation eligible for benefits available under the qualified plans. Additionally,Prior to the Company maintains a separate defined benefitspin-off of GXO, the pension plan for certainsome employees in the United Kingdom (the “U.K. Plan”).
The Companywas sold to a GXO entity and GXO paid approximately £26 million (approximately $34 million) to XPO, which represented the value of the net assets at the date of the sale. In connection with this transaction, approximately $82 million of accumulated other comprehensive income, net of tax, was transferred to GXO. We also maintainsmaintain defined benefit pension plans for certainsome of itsour foreign subsidiaries. These international defined benefit pension planssubsidiaries that are excluded from the disclosures below due to their immateriality. BothThe information below excludes the U.S. Plans and U.K. Plan do not allow for new plan participants or additional benefit accruals.
During 2017, the Company offered eligible former employees who had not yet commenced receiving their pension benefit an opportunity to receive a lump sum payout of their vested pension benefit. On December 1, 2017, in connection with this offer, oneresults of the Company’s pension plans paid $142 million from pension plan assetsthat was sold to those who accepted this offer, thereby reducing its pension benefit obligations. The transaction had no cash impact on the Company but did result in a non-cash pre-tax pension settlement gain of $1 million. As a result of the lump sum payout, the Company re-measured the funded status of its pension plan as of the settlement date. To calculate this pension settlement gain, the Company utilized a discount rate of 4.35% through the measurement date and 3.83% thereafter.GXO.
DefinedWe measure defined benefit pension plan obligations are measured based on the present value of projected future benefit payments for all participants for services rendered to date. The projected benefit obligation is a measure of benefits attributed to service to date, assuming that the plan continues in effect and that estimated future events (including turnover and mortality) occur. TheWe determine the net periodic benefit costs are determined using assumptions regarding the projected benefit obligation and the fair value of plan assets as of the beginning of the year. Net periodic benefit costs are recorded in Other expense (income) in theincome on our Consolidated Statements of Income. TheWe calculate the funded status of the defined benefit pension plans, which represents the difference between the projected benefit obligation and the fair value of plan assets, is calculated on a plan-by-plan basis.
Funded Status of Defined Benefit Pension Plans
The following tables provide a reconciliation of the changes in the plans’ projected benefit obligations as of December 31:31 was as follows:
| | | | | | | | | | | | | | |
| (In millions) | | 2021 | | 2020 |
| Projected benefit obligation at beginning of year | | $ | 2,052 | | | $ | 1,862 | |
| Interest cost | | 39 | | | 54 | |
| | | | |
| Actuarial (gain) loss | | (82) | | | 216 | |
| Benefits paid | | (84) | | | (80) | |
| | | | |
| Projected benefit obligation at end of year | | $ | 1,925 | | | $ | 2,052 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| (In millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Projected benefit obligation at beginning of year | | $ | 1,743 |
| | $ | 1,745 |
| | $ | 78 |
| | $ | 74 |
| | $ | 1,305 |
| | $ | 1,235 |
|
| Interest cost | | 57 |
| | 74 |
| | 2 |
| | 3 |
| | 28 |
| | 34 |
|
| Plan amendment | | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
|
| Actuarial (gain) loss | | (142 | ) | | 128 |
| | (5 | ) | | 6 |
| | (62 | ) | | (23 | ) |
| Benefits paid | | (69 | ) | | (62 | ) | | (5 | ) | | (5 | ) | | (56 | ) | | (60 | ) |
| Settlement | | — |
| | (142 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign currency exchange rate changes | | — |
| | — |
| | — |
| | — |
| | (70 | ) | | 119 |
|
Projected benefit obligation at end of year (1) | | $ | 1,589 |
| | $ | 1,743 |
| | $ | 70 |
| | $ | 78 |
| | $ | 1,164 |
| | $ | 1,305 |
|
| |
(1) | At the end of each year presented, the accumulated benefit obligations for the plans are equal to the projected benefit obligations. |
The U.S. Qualified Plans and U.K. Plan realized actuarial gains of $142 million and $62 million, respectively,gain in 2018. In the U.S. Qualified Plans, the gain2021 was a result of assumption changes, including an increase in the discount rate, based on a December 31, 2018 reference yield curve and the use of an updated mortality projection scale for plan participants. In the U.K. Plan, the gain was a result of changes in actuarialscales and other assumptions including an increase in the discount rate based on a December 31, 2018 reference yield curve, an increase in inflation assumptions and the use of an updated mortality projection scale for plan participants.
The following tables provide a reconciliation of the changes in the fair value of plan assets as of December 31:31 was as follows:
| | | | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan | | | | | | | | | | | | |
| (In millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 | (In millions) | | 2021 | | 2020 |
| Fair value of plan assets at beginning of year | | $ | 1,764 |
| | $ | 1,700 |
| | $ | — |
| | $ | — |
| | $ | 1,390 |
| | $ | 1,207 |
| Fair value of plan assets at beginning of year | | $ | 2,062 | | | $ | 1,863 | |
| Actual return on plan assets | | (113 | ) | | 268 |
| | — |
| | — |
| | (35 | ) | | 109 |
| Actual return on plan assets | | 25 | | | 274 | |
| Employer contributions | | — |
| | — |
| | 5 |
| | 5 |
| | 3 |
| | 13 |
| Employer contributions | | 6 | | | 5 | |
| Benefits paid | | (69 | ) | | (62 | ) | | (5 | ) | | (5 | ) | | (56 | ) | | (60 | ) | Benefits paid | | (84) | | | (80) | |
| Settlement | | — |
| | (142 | ) | | — |
| | — |
| | — |
| | — |
| |
| Foreign currency exchange rate changes | | — |
| | — |
| | — |
| | — |
| | (75 | ) | | 121 |
| |
| | Fair value of plan assets at end of year | | $ | 1,582 |
| | $ | 1,764 |
| | $ | — |
| | $ | — |
| | $ | 1,227 |
| | $ | 1,390 |
| Fair value of plan assets at end of year | | $ | 2,009 | | | $ | 2,062 | |
The following table provides the funded status of the plans as of December 31:31 was as follows:
| | | | | | | | | | | | | | |
| (In millions) | | 2021 | | 2020 |
| Funded status at end of year | | $ | 84 | | | $ | 10 | |
| Amount recognized in balance sheet: | | | | |
| Long-term assets | | $ | 156 | | | $ | 88 | |
| Current liabilities | | (5) | | | (5) | |
| Long-term liabilities | | (67) | | | (73) | |
| Net pension asset recognized | | $ | 84 | | | $ | 10 | |
| Plans with projected and accumulated benefit obligation in excess of plan assets: | | | | |
Projected and accumulated benefit obligation (1) | | $ | 72 | | | $ | 78 | |
| | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| (In millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Funded status: | | | | | | | | | | | | |
| Funded status at end of year | | $ | (7 | ) | | $ | 21 |
| | $ | (70 | ) | | $ | (78 | ) | | $ | 63 |
| | $ | 85 |
|
| Funded status recognized in balance sheet: | | | | | | | | | | | | |
| Long-term assets | | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | — |
| | $ | 63 |
| | $ | 85 |
|
| Current liabilities | | — |
| | — |
| | (5 | ) | | (6 | ) | | — |
| | — |
|
| Long-term liabilities | | (7 | ) | | — |
| | (65 | ) | | (72 | ) | | — |
| | — |
|
| Net amount recognized | | $ | (7 | ) | | $ | 21 |
| | $ | (70 | ) | | $ | (78 | ) | | $ | 63 |
| | $ | 85 |
|
| Plans with projected and accumulated benefit obligation in excess of plan assets: | | | | | | | | | | | | |
| Projected and accumulated benefit obligation | | $ | 1,589 |
| | $ | — |
| | $ | 70 |
| | $ | 78 |
| | $ | — |
| | $ | — |
|
| Fair value of plan assets | | 1,582 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
The following table provides amountsfunded status of our qualified plans and non-qualified plans was $156 million and $(72) million, respectively, as of December 31, 2021.
The actuarial loss included in AOCI that havehas not yet been recognized in net periodic benefit expense was $43 million and $50 million, respectively, as of December 31:31, 2021 and 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| (In millions) | | 2018 | | 2017 | | 2018 | | 2017 | | 2018 | | 2017 |
| Actuarial (loss) gain | | $ | (50 | ) | | $ | 13 |
| | $ | (3 | ) | | $ | (8 | ) | | $ | 5 |
| | $ | 44 |
|
| Prior-service credit | | — |
| | — |
| | — |
| | — |
| | 19 |
| | 39 |
|
| AOCI | | $ | (50 | ) | | $ | 13 |
| | $ | (3 | ) | | $ | (8 | ) | | $ | 24 |
| | $ | 83 |
|
The following table sets forth the amount of net periodic benefit cost and amounts recognized in Other comprehensive income (loss) income for the years ended December 31:31 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Net periodic benefit (income) expense: | | | | | | |
| Interest cost | | $ | 39 | | | $ | 54 | | | $ | 66 | |
| Expected return on plan assets | | (101) | | | (102) | | | (90) | |
| Amortization of actuarial loss | | 1 | | | — | | | — | |
| | | | | | |
| | | | | | |
| Net periodic benefit income | | $ | (61) | | | $ | (48) | | | $ | (24) | |
| Amounts recognized in Other comprehensive income (loss): | | | | | | |
| Actuarial (gain) loss | | $ | (7) | | | $ | 45 | | | $ | (49) | |
| | | | | | |
| Reclassification of recognized AOCI gain due to settlements | | — | | | — | | | — | |
| | | | | | |
| (Gain) loss recognized in Other comprehensive income (loss) | | $ | (7) | | | $ | 45 | | | $ | (49) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| (In millions) | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 |
| Net periodic benefit (income) expense: | | | | | | | | | | | | | | | | | | |
| Interest cost | | $ | 57 |
| | $ | 74 |
| | $ | 76 |
| | $ | 2 |
| | $ | 3 |
| | $ | 3 |
| | $ | 28 |
| | $ | 34 |
| | $ | 41 |
|
| Expected return on plan assets | | (92 | ) | | (93 | ) | | (88 | ) | | — |
| | — |
| | — |
| | (67 | ) | | (60 | ) | | (59 | ) |
| Amortization of prior-service credit | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (2 | ) | | (1 | ) | | (1 | ) |
| Recognized AOCI loss due to settlements | | — |
| | (1 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net periodic benefit (income) expense | | $ | (35 | ) | | $ | (20 | ) | | $ | (12 | ) | | $ | 2 |
| | $ | 3 |
| | $ | 3 |
| | $ | (41 | ) | | $ | (27 | ) | | $ | (19 | ) |
| Amounts recognized in Other comprehensive (loss) income | | | | | | | | | | | | | | | | | | |
| Actuarial loss (gain) | | $ | 63 |
| | $ | (47 | ) | | $ | 11 |
| | $ | (5 | ) | | $ | 6 |
| | $ | 3 |
| | $ | 40 |
| | $ | (72 | ) | | $ | 29 |
|
| Prior-service cost | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| | (42 | ) |
| Reclassification of recognized AOCI gain due to settlements | | — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Reclassification of prior-service credit to net periodic benefit (income) expense | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 1 |
| | 1 |
|
| Loss (gain) recognized in Other comprehensive (loss) income | | $ | 63 |
| | $ | (46 | ) | | $ | 11 |
| | $ | (5 | ) | | $ | 6 |
| | $ | 3 |
| | $ | 61 |
| | $ | (71 | ) | | $ | (12 | ) |
The following table outlines the weighted-average assumptions used to determine the net periodic benefit costs and benefit obligations for the year ended December 31:31 were as follows:
| | | | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan | | Qualified Plans | | Non-Qualified Plans |
| | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2018 | | 2017 | | 2016 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| Discount rate - net periodic benefit costs | | 3.14% - 3.38% | | 3.83% - 4.35% | | 4.65 | % | | 2.84% - 3.21% | | 4.35 | % | | 4.65 | % | | 2.21 | % | | 2.70 | % | | 3.75 | % | Discount rate - net periodic benefit costs | | 1.96 | % | | 2.96 | % | | 4.08% | | 1.11% - 1.71% | | 2.40% - 2.78% | | 3.65% - 3.95% |
| Discount rate - benefit obligations | | 4.18% - 4.39% | | 3.55% - 3.71% | | 4.35 | % | | 3.93% - 4.28% | | 3.21% - 3.60% |
| | 4.35 | % | | 2.85 | % | | 2.53 | % | | 2.70 | % | Discount rate - benefit obligations | | 2.84 | % | | 2.48 | % | | 3.35% | | 2.19% - 2.72% | | 1.62% - 2.30% | | 2.72% - 3.20% |
| Expected long-term rate of return on plan assets | | 3.00% - 5.40% | | 2.35% - 5.65% | | 5.58 | % | | N/A | | N/A |
| | N/A |
| | 4.95 | % | | 5.00 | % | | 5.40 | % | Expected long-term rate of return on plan assets | | 5.00 | % | | 5.60 | % | | 5.80% | |
No rate of compensation increase was assumed as the plans are frozen to additional participant benefit accruals.
In 2018, the Company changed how it estimatesWe use a full yield curve approach to estimate the interest cost component of net periodic cost for its U.S. and U.K. pension benefit plans. Previously, the Company estimated the interest cost component utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. The new estimate utilizes a full yield curve approach in the estimation of this component by applying the specific spot rates along the yield curve used in the determination ofto determine the benefit obligation to each of the underlying projected cash flows based on time until payment. The new estimate provides a more precise measurement of interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change does not affect the measurement of the Company’s U.S. and U.K. pension benefit obligation and has been accounted for as a change in accounting estimate and thus applied prospectively.
Expected benefit payments for the defined benefit pension plans for the years ended December 31 are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.
|
| | | | | | | | | | | | |
| (In millions) | | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| Year ending December 31: | | | | | | |
| 2019 | | $ | 80 |
| | $ | 5 |
| | $ | 40 |
|
| 2020 | | 83 |
| | 5 |
| | 41 |
|
| 2021 | | 87 |
| | 5 |
| | 43 |
|
| 2022 | | 89 |
| | 5 |
| | 45 |
|
| 2023 | | 92 |
| | 5 |
| | 46 |
|
| 2024-2028 | | 492 |
| | 25 |
| | 257 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027-2030 |
| Expected benefit payments | | $ | 94 | | | $ | 97 | | | $ | 100 | | | $ | 102 | | | $ | 104 | | | $ | 532 | |
Plan Assets
U.S. Qualified Plans
Assets ofWe manage the assets in the U.S. Qualified Plans are segregated from those of the Company and are managed pursuant toplans using a long-term liability-driven asset allocationinvestment strategy that seeks to mitigate the funded status volatility by increasing exposure toparticipation in fixed income investments over time. Thisas the plan’s funded status increases. We developed this strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities.
TheOur current investment strategy is to achieve an investment mix of approximately 82%88% in fixed income securities and 18%12% of investments in equity securities. The current fixed income allocation consists primarily of domestic fixed income securities and targets to hedge 90%more than 95% of domestic projected liabilities. The target allocations for equity securities include 56%includes approximately 50% in U.S. equities and 44%approximately 50% in non-U.S. equities. Investments in equity and fixed income securities consist of individual securities held in managed separate accounts as well asand commingled investment funds. TheGenerally, our investment strategy does not include a meaningful long-term investmentan allocation to cash and cash equivalents; however, theequivalents, but a cash allocation may risearise periodically in response to timing considerations regarding contributions, investments, and the payment of benefits and eligible plan expenses. The CompanyWe periodically evaluates itsevaluate our defined benefit plans’ asset portfolios for the existence of significant concentrations of risk. Types of investment concentration risks that are evaluated include but are not limited to, concentrations in a single entity, industry,issuer, specific security, asset class, credit rating, duration, industry/sector, currency, foreign country or individual fund manager. As of December 31, 2018, there were2021, our defined benefit plan assets had no significant concentrations of risk in the Company’s defined benefit plan assets.risk.
TheOur investment policy does not allow investment managers to use market-timing strategies or financial derivative instruments for speculative purposes. However,purposes but financial derivative instruments are used to manage risk and achieve stated investment objectives regardingfor duration, yield curve, credit, foreign exchange and equity exposures. Generally, theour investment managers are prohibited from short selling, trading on margin, and trading commodities, warrants or other options, except when acquired as a result of the purchase of another security, or in the case of options, when sold as part of a covered position.
The assumption of between 3.00% and 5.40%5.00% for the overall expected long-term rate of return on plan assets in 20182021 was developed using asset allocation and return expectations. The return expectations are created using long-term historical and expected returns for the various asset classes and current market expectations for inflation, interest rates and economic growth.
U.K. Plan
The U.K. Plan’s assets are segregated from those of the Company and invested by trustees, which include Company representatives, with the goal of meeting the U.K. Plan’s projected future pension liabilities. The trustees’ investment objectives are to meet the performance target set in the deficit recovery plan of the U.K. Plan in a risk-controlled framework. The actual asset allocations of the U.K. Plan are in line with the target asset allocations. The implied target asset allocation of the U.K. Plan consists of 56% matching assets (U.K. gilts and cash) and 44% growth assets (consisting of a range of pooled funds investing in structured equities, illiquid credit, dynamic asset
allocation, high yield bonds, multi-asset credit and asset-backed securities). The target asset allocations of the U.K. Plan include acceptable ranges for each asset class.
The dynamic asset allocation and multi-asset credit funds invest dynamically across multiple asset classes with the aim of providing a diversified exposure to markets. Collateral consist of U.K. fixed-interest gilts, index-linked gilts and cash, which are used to back derivative positions that hedge the sensitivity of the liabilities to changes in interest rates and inflation. On the U.K. Plan Actuary’s Technical Provisions funding basis, approximately 95% of the liability interest rate sensitivity and 112% of the liability inflation sensitivity were hedged as of December 31, 2018. The expected long-term rate of return on plan assets in 2018 was 4.95%. The approach to determine the expected long-term rate of return on plan assets is consistent with the one used for the U.S. Plans.
The following tables set forth the fair values of investments held in the qualified pension plans by major asset category as of December 31, 20182021 and 2017, as well as2020, and the percentage that each asset category comprises of total plan assets:assets were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| (Dollars in millions) | | Level 1 | | Level 2 | | Not Subject to Leveling (1) | | Total | | Percentage of Plan Assets |
| December 31, 2021 | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | |
| Short-term investment fund | | $ | — | | | $ | — | | | $ | 34 | | | $ | 34 | | | 1.7 | % |
| Equity: | | | | | | | | | | |
| U.S. large companies | | — | | | — | | | 107 | | | 107 | | | 5.3 | % |
| U.S. small companies | | — | | | — | | | 17 | | | 17 | | | 0.8 | % |
| International | | 47 | | | — | | | 82 | | | 129 | | | 6.4 | % |
| | | | | | | | | | |
| Fixed income securities | | 406 | | | 1,310 | | | 6 | | | 1,722 | | | 85.8 | % |
| | | | | | | | | | |
| Total plan assets | | $ | 453 | | | $ | 1,310 | | | $ | 246 | | | $ | 2,009 | | | 100.0 | % |
| December 31, 2020 | | | | | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | |
| Short-term investment fund | | $ | — | | | $ | — | | | $ | 37 | | | $ | 37 | | | 1.8 | % |
| Equity: | | | | | | | | | | |
| U.S. large companies | | — | | | — | | | 136 | | | 136 | | | 6.6 | % |
| U.S. small companies | | — | | | — | | | 33 | | | 33 | | | 1.6 | % |
| International | | 53 | | | — | | | 102 | | | 155 | | | 7.5 | % |
| | | | | | | | | | |
| Fixed income securities | | 425 | | | 1,274 | | | 1 | | | 1,700 | | | 82.5 | % |
| Derivatives | | — | | | 1 | | | — | | | 1 | | | — | % |
| Total plan assets | | $ | 478 | | | $ | 1,275 | | | $ | 309 | | | $ | 2,062 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2018 | | |
| Asset category (U.S. Qualified Plans) | | Level 1 | | Level 2 | | Not Subject to Leveling (1) | | Total | | Percentage of Plan Assets |
| Cash and cash equivalents | | | | | | | | | | |
| Short-term investment fund | | $ | — |
| | $ | — |
| | $ | 37 |
| | $ | 37 |
| | 2.3 | % |
| Equity: | | | | | | | | | | |
| U.S. large companies | | — |
| | — |
| | 107 |
| | 107 |
| | 6.8 | % |
| U.S. small companies | | 25 |
| | — |
| | — |
| | 25 |
| | 1.6 | % |
| International | | 59 |
| | — |
| | 60 |
| | 119 |
| | 7.5 | % |
| Fixed income securities: | | | | | | | | | | |
| Global long-term debt instruments | | 223 |
| | 1,063 |
| | 8 |
| | 1,294 |
| | 81.8 | % |
| Derivatives | | 1 |
| | (1 | ) | | — |
| | — |
| | — | % |
| Total U.S. Plan assets | | $ | 308 |
| | $ | 1,062 |
| | $ | 212 |
| | $ | 1,582 |
| | 100.0 | % |
| | | | | | | | | | | |
| Asset category (U.K. Plan) | | | | | | | | | | |
| Cash and cash equivalents | | $ | 57 |
| | $ | — |
| | $ | — |
| | $ | 57 |
| | 4.6 | % |
| Fixed income securities | | — |
| | 615 |
| | 363 |
| | 978 |
| | 79.7 | % |
| Derivatives | | — |
| | 5 |
| | 26 |
| | 31 |
| | 2.6 | % |
Hedge funds (2) | | — |
| | — |
| | 38 |
| | 38 |
| | 3.1 | % |
| Diversified multi-asset funds: | | | | | | | | | | |
| Dynamic asset allocation | | — |
| | — |
| | 123 |
| | 123 |
| | 10.0 | % |
| Total U.K. Plan assets | | $ | 57 |
| | $ | 620 |
| | $ | 550 |
| | $ | 1,227 |
| | 100.0 | % |
| |
(1) | In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments(1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets. |
| |
(2) | The fair value of the fund is based on the fair value of the underlying assets, substantially all of which is invested in the York Credit Opportunities Master Fund, L.P., an exempted limited partnership formed under the laws of the Cayman Islands. The fund offers very limited liquidity with redemption only allowed on anniversary of investment with 60 days’ prior notice. |
Table of Contentsthe fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.
|
| | | | | | | | | | | | | | | | | | | |
| (Dollars in millions) | | December 31, 2017 | | |
| Asset category (U.S. Qualified Plans) | | Level 1 | | Level 2 | | Not Subject to Leveling (1) | | Total | | Percentage of Plan Assets |
| Cash and cash equivalents | | | | | | | | | | |
| Short-term investment fund | | $ | — |
| | $ | — |
| | $ | 25 |
| | $ | 25 |
| | 1.4 | % |
| Equity: | | | | | | | | | | |
| U.S. large companies | | 189 |
| | 49 |
| | 101 |
| | 339 |
| | 19.2 | % |
| U.S. small companies | | 37 |
| | — |
| | — |
| | 37 |
| | 2.1 | % |
| International | | 79 |
| | — |
| | 82 |
| | 161 |
| | 9.1 | % |
| Fixed income securities: | | | | | | | | | | |
| Global long-term debt instruments | | 171 |
| | 940 |
| | 87 |
| | 1,198 |
| | 68.0 | % |
| Derivatives | | 1 |
| | 3 |
| | — |
| | 4 |
| | 0.2 | % |
| Total U.S. Plan assets | | $ | 477 |
| | $ | 992 |
| | $ | 295 |
| | $ | 1,764 |
| | 100.0 | % |
| | | | | | | | | | | |
| Asset category (U.K. Plan) | | | | | | | | | | |
| Cash and cash equivalents | | $ | 65 |
| | $ | — |
| | $ | — |
| | $ | 65 |
| | 4.6 | % |
| Fixed income securities | | — |
| | 371 |
| | 293 |
| | 664 |
| | 47.8 | % |
| Derivatives | | — |
| | 13 |
| | 54 |
| | 67 |
| | 4.9 | % |
Hedge funds (2) | | — |
| | — |
| | 42 |
| | 42 |
| | 3.0 | % |
| Diversified multi-asset funds: | | | | | | | | | | |
| Risk parity | | — |
| | — |
| | 275 |
| | 275 |
| | 19.8 | % |
| Dynamic asset allocation | | — |
| | — |
| | 277 |
| | 277 |
| | 19.9 | % |
| Total U.K. Plan assets | | $ | 65 |
| | $ | 384 |
| | $ | 941 |
| | $ | 1,390 |
| | 100.0 | % |
| |
(1) | In accordance with ASU 2015-07, Fair Value Measurement (Topic 820), certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets. |
| |
(2) | The fair value of the fund is based on the fair value of the underlying assets, substantially all of which is invested in the York Credit Opportunities Master Fund, L.P., an exempted limited partnership formed under the laws of the Cayman Islands. The fund offers very limited liquidity with redemption only allowed on anniversary of investment with 60 days’ prior notice. |
For the periods ended December 31, 20182021 and 2017, the Company2020, we had no investments held in the pension plans within Level 3 of the fair value hierarchy. There was no XPOOur common stock held inwas not a plan assetsasset as of December 31, 20182021 or 2017.2020. The U.S. Non-Qualified Pension Plansnon-qualified plans are unfunded.
Funding
The Company’sOur funding practice is to evaluate itsour tax and cash position, as well asand the funded status of itsour plans, in determining itsour planned contributions. The Company estimatesWe estimate that itwe will contribute $5 million to its U.S. Non-Qualified Plans and $3 millionto its U.K. Planour non-qualified plans in 2019; however,2022 but this could change based on variations in interest rates, asset returns and other factors.
Defined Contribution Retirement Plans
The Company’s costOur costs for defined contribution retirement plans in 2018, 2017 and 2016 was $66were $60 million,, $62 $57 million and $59$57 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Postretirement Medical Plan
The Company sponsorsWe provide health benefits through a postretirement medical plan that provides health benefits to certain non-contractualfor eligible employees who are at least 55 years of age with at least 10 years of servicehired before 1993 (the “Postretirement Plan”). The
Postretirement Plan does not provide employer-subsidized retiree medical benefits for employees hired on or after January 1, 1993.
Funded Status of Postretirement Medical Plan
The following sets forthreconciliation of the changes in the plan’s benefit obligation and the determination of the amounts recognized on theour Consolidated Balance Sheets for the Postretirement Plan:were as follows:
| | | | | As of December 31, | | As of December 31, |
| (In millions) | | 2018 | | 2017 | (In millions) | | 2021 | | 2020 |
| Projected benefit obligation at beginning of year | | $ | 40 |
| | $ | 51 |
| Projected benefit obligation at beginning of year | | $ | 44 | | | $ | 41 | |
| Interest cost on projected benefit obligation | | 1 |
| | 2 |
| Interest cost on projected benefit obligation | | 1 | | | 1 | |
| Actuarial gain | | (5 | ) | | (9 | ) | |
| Actuarial loss | | Actuarial loss | | — | | | 4 | |
| Participant contributions | | 2 |
| | 2 |
| Participant contributions | | 1 | | | 1 | |
| Benefits paid | | (4 | ) | | (6 | ) | Benefits paid | | (5) | | | (3) | |
| Projected and accumulated benefit obligation at end of year | | $ | 34 |
| | $ | 40 |
| Projected and accumulated benefit obligation at end of year | | $ | 41 | | | $ | 44 | |
| Funded status of the plan | | $ | (34 | ) | | $ | (40 | ) | Funded status of the plan | | $ | (41) | | | $ | (44) | |
| Amounts recognized in the balance sheet consist of: | | | | | Amounts recognized in the balance sheet consist of: | | | | |
| Current liabilities | | $ | (3 | ) | | $ | (3 | ) | Current liabilities | | $ | (3) | | | $ | (3) | |
| Long-term liabilities | | (31 | ) | | (37 | ) | Long-term liabilities | | (38) | | | (41) | |
| Net amount recognized | | $ | (34 | ) | | $ | (40 | ) | Net amount recognized | | $ | (41) | | | $ | (44) | |
| Discount rate assumption as of December 31 | | 4.21 | % | | 3.52 | % | Discount rate assumption as of December 31 | | 2.67 | % | | 2.20 | % |
The following table provides amounts included in AOCI that have not yet been recognized in net periodic benefit expense as of December 31:
|
| | | | | | | | |
| (In millions) | | 2018 | | 2017 |
| Actuarial gain (loss) | | $ | 12 |
| | $ | 8 |
|
| AOCI | | $ | 12 |
| | $ | 8 |
|
Net Periodic Benefit Expense for Postretirement Medical Plan
Netincome (expense) and the net periodic benefit expense includesincome (expense) for the following components:
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions, except discount rate) | | 2018 | | 2017 | | 2016 |
| Net periodic benefit expense: | | | | | | |
| Service cost - benefits earned during the year | | $ | 1 |
| | $ | — |
| | $ | 1 |
|
| Interest cost on projected benefit obligation | | 1 |
| | 2 |
| | 2 |
|
| Amortization of actuarial gain | | (1 | ) | | — |
| | — |
|
| Net periodic benefit expense | | $ | 1 |
| | $ | 2 |
| | $ | 3 |
|
| Discount rate assumption used to calculate interest cost | | 3.11% - 3.67% |
| | 3.90 | % | | 4.20 | % |
the periods presented. The discount rates assumptions used to calculate the interest cost were 1.56% - 2.34%, 2.66% - 3.22% and 3.87% - 4.36% for the years ended December 31, 2021, 2020 and 2019, respectively.
Expected benefit payments, which reflect expected future service, as appropriate, for the years ended December 31 are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027-2030 |
| Expected benefit payments | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 3 | | | $ | 14 | |
|
| | | | |
| (In millions) | | Benefit Payments |
| Year ending December 31: | | |
| 2019 | | $ | 3 |
|
| 2020 | | 3 |
|
| 2021 | | 3 |
|
| 2022 | | 3 |
|
| 2023 | | 3 |
|
| 2024-2028 | | 14 |
|
13.14. Stockholders’ Equity
Pursuant to the Company’s Certificate of Incorporation, theOur Board of Directors mayis authorized to establish one1 or more series of preferred stock. Other than the Series A Convertible Perpetual Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), no shares of preferred stock are currently outstanding.
Series A Convertible Perpetual Preferred Stock and Warrants
In 2011, the Companywe issued to certain investors, for $75 million in cash: (i) an aggregate of 75,000 shares of the Series A Preferred Stock with an initial liquidation preference of $1,000 per share which arewere convertible into shares of Companyour common stock at a conversion price of $7.00 per common share (subject to customary anti-dilution adjustments), and (ii). We also issued warrants exercisable for shares of Companyour common stock at an initial exercise price of $7.00 per common share (subject to customary anti-dilution adjustments) (the “Warrants”). As of December 31, 2018, the outstanding Series A Preferred Stock is convertible into 10 million shares of CompanyOur preferred stock ranked senior to our common stock and there are outstanding Warrants exercisable for an aggregate of 10 million shares of Company common stock. The Series A Preferred Stock ranks, with respect to dividend rights and rights upon liquidation winding-up or dissolution of the Company, senior to the Company’s commonrights. Our preferred stock and to each other class or series of stock of the Company (including any series of preferred stock) the terms of which do not expressly provide that such class or series ranks senior to or pari passu with the Series A Preferred Stock. The Series A Preferred Stock payspaid quarterly cash dividends equal to the greater of: (i) the “as-converted” dividends on theour underlying Company common stock for the relevant quarter and:and (ii) 4% of the then-applicable liquidation preference per annum. The Series A Preferred Stock isOur preferred stock was not redeemable orredeemable.
In December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and a lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock. Additionally, some holders of our warrants exchanged (or committed to exchange subject to any required offer to purchase and votes together withthe satisfaction of certain customary closing conditions)
their holdings, including Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s common stock on an “as-converted” basis on all matters, except as otherwise required by law,chairman and separately aschief executive officer, for a class with respect to certain matters implicating the rights of holdersnumber of shares of Series A Preferred Stock.our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants. With respect to the preferred stock, through December 31, 2020, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $22 million of cash. The $22 million was reflected as a preferred stock conversion charge in 2020 in the accompanying consolidated financial statements. With respect to the warrants, through December 31, 2020, 0.3 million warrants were exchanged, and we issued 0.3 million shares of common stock.
Equity OfferingIn 2021, the remaining 1,015 preferred shares were exchanged, and Forward Sale Agreementswe issued 0.1 million shares of common stock. With respect to the warrants, in 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment. As of December 31, 2021, there were no shares of preferred stock or warrants outstanding.
Share Issuance
In July 2017, the Company2021, we completed a registered underwritten offering of 115.0 million shares of itsour common stock at a public offering price of $60.50$138.00 per share, (the “Offering”).plus an additional 750,000 shares of our common stock through an option granted to underwriters. Of the 115.0 million shares, of common stock, fivewe offered 2.5 million shares directly and 2.5 million shares were offered directly by the Company and six millionJPE. The additional 750,000 purchased shares were offered in connection with forward sale agreements (the “Forward Sale Agreements”) described below. The Offering closed on July 25, 2017.
The Companyalso split equally between us and JPE. We received proceedsapproximately $384 million of $290 million ($288 millionproceeds, net of fees and expenses)expenses, from the sale of five million shares of common stock in the Offering. The Company used the net proceeds of the shares issued and sold by the Company in the Offeringused them to repay a portion of our outstanding borrowings and for general corporate purposes.
In connection with XPO did not receive any proceeds from the Offering, the Company entered into separate Forward Sale Agreements with Morgan Stanley & Co. LLC and JPMorgan Chase Bank, National Association, London Branch (the “Forward Counterparties”) pursuant to which the Company agreed to sell, and each Forward Counterparty agreed to purchase, three millionsale of shares of the Company’s common stock (or six million shares of the Company common stock in the aggregate) subject to the terms and conditions of the Forward Sale Agreements, including the Company’s right to elect cash settlement or net share settlement. The initial forward price under each of the Forward Sale Agreements is $58.08
per share (which was the public offering price of the Company’s common stock for the primary offering of the five million shares described above, less the underwriting discount) and was subject to certain adjustments pursuant to the terms of the Forward Sale Agreements. Consistent with the Company’s strategy to grow its business in part through acquisitions, the Company entered into the Forward Sale Agreements to provide additional available cash for such acquisitions, among other general corporate purposes. In July 2018, the Company physically settled the forwards in full by delivering six million shares of common stock to the Forward Counterparties for net cash proceeds to the Company of $349 million. As a part of its ordinary course treasury management activities, the Company applied these net cash proceeds to the repayment of the Senior Notes due 2022 as described above.JPE.
Share Repurchases
OnIn December 14, 2018, the Company’sour Board of Directors authorized share repurchasesthe repurchase of up to $1 billion of our common stock, which was completed in the Company’sfirst quarter of 2019. The share repurchases were funded by our Unsecured Credit Facility and available cash.
In February 2019, our Board of Directors authorized additional repurchases of up to $1.5 billion of our common stock. The repurchase2019 authorization permits the Companyus to repurchasepurchase shares in both the open market and in private repurchase transactions, with the timing and number of shares repurchased dependent on a variety of factors, including price, general business andconditions, market conditions, alternative investment opportunities and funding considerations. ThroughWe are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. The share purchases under this program have been funded by our available cash and proceeds from our 2019 debt offerings.
There were no share repurchases in 2021. Our remaining share repurchase authorization as of December 31, 2018,2021 is $503 million. Information regarding our shares repurchased, based on the settlement date, the Company purchasedin 2020 and retired 10 million shares2019 were as follows:
| | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions, except per share data) | | | | | 2020 | | 2019 |
| Shares purchased and retired | | | | | | 2 | | | 25 | |
| Aggregate value | | | | | | $ | 114 | | | $ | 1,347 | |
| Average price per share | | | | | | $ | 66.58 | | | $ | 53.41 | |
| Remaining authorization | | | | | | $ | 503 | | | $ | 617 | |
14.15. Stock-Based Compensation
In 2016, the Company’s stockholders approved the XPO Logistics, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”). The 2016 Plan replaces the XPO Logistics, Inc. Amended and Restated 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) and the Con-way Inc. 2012 Equity and Incentive Plan (the “Con-way Plan”), the latter of which was assumed by the Company in connection with the acquisition of Con-way in 2015. Any awards granted under the 2011 Plan and the Con-way Plan will remain in effect pursuant to their respective terms.
Under the terms of the 2016 Plan, the Company grantsWe grant various types of stock-based compensation awards to directors, officers and key employees. Theemployees under our 2016 Plan provides forincentive plan. These awards in the form ofinclude stock options, stock appreciation rights, restricted stock, restricted stock units, deferred share units, performance compensation awards, performanceperformance-based units, cash incentive awards and other equity-based or equity-related awards (collectively, “Awards”) that the Compensation Committee.
As a result of the Board of Directors (the “Committee”) determines are consistentspin-off and in accordance with plan rules, the purpose of the 2016 Plan and the interests of the Company.
The maximum aggregate number of shares of common stock that may be delivered pursuant to Awardsremaining for future issuance under the 2016 Plan is 3.4plan were equitably adjusted. With this adjustment, up to 7.2 million shares. Awards that are settled in cash would not reduce the number of shares available for delivery under the 2016 Plan. In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off, the Committee shall equitably adjust any or all of the number of shares of the Company with respect to which Awardsour common stock have been authorized for issuance as Awards. Shares awarded may be granted, including 2011 Plan share limits, the terms of any outstanding Award, the number of shares subject to outstanding Awards, and the exercise price of any Award, if applicable. Any shares delivered pursuant to an Award may consist in whole or in part, of authorized and unissued shares or of treasury shares.
The 2016 Planplan will continue in effect until December 20, 2026,terminate on May 15, 2029, unless terminated earlier by theour Board of Directors. As of December 31, 2018, there were2021, 1.7 million shares of our common stock were available for issuancethe grant of Awards under the 2016 Plan.plan.
In December 2017,connection with the Company’s stockholders approvedspin-off, stock-based compensation awards that were previously granted to GXO’s employees and directors under XPO’s incentive plan were converted to awards issued under GXO’s incentive plan. Additionally, in order to preserve the XPO Logistics, Inc. Employee Stock Purchase Plan (the “ESPP”). Under the termsvalue of the ESPP, allawards held by employees continuing with XPO following the spin-off, the number of outstanding shares underlying the awards were adjusted using the ratio and methodology outlined in the EMA. The ratio was based on the closing price per share of XPO common stock on July 30, 2021 compared to the closing price per share of XPO common stock on August 2, 2021. The strike prices of options were similarly adjusted as outlined in the EMA. The impact of these adjustments on the number of awards outstanding is included in the effect of spin-off activity in the tables below. The modification of these awards in connection with the spin-off did not result in incremental compensation cost.
Our employee stock purchase plan offers eligible employees, inexcluding our executive officers and directors, the U.S. canright to purchase our common stock through payroll deductions (which cannot exceedup to 10% of each employee’s compensation)compensation. Shares are purchased at 5% below fair market value on the last trading day at the end of each six-month offering period. The plan authorizes the purchase period during two offering periods per year, beginning on April 1 and October 1. Under the ESPP, employees must hold the stock they purchase for a minimum of three months from the dateup to 2000000 shares of purchase. Subject to adjustment for changesour common stock. The plan will terminate in the Company’s capitalization, the number of shares to be granted under the ESPP is not to exceed two million shares. The first offering period occurred in 2018. The ESPP will be in effect until October 2027, unless terminated earlier at the discretion of theby our Board of Directors.
The plan is deemed non-compensatory, and therefore no We do not recognize stock-based compensation expense will be recognized. Executive officers and directorsas the plan is non-compensatory. At December 31, 2021, 2000000 shares of the Company are not eligible to participate in the ESPP. Thereour common stock were two million shares available to be grantedfor purchase under the ESPP as of December 31, 2018.plan.
The Company recognized the followingOur stock-based compensation expense is recorded in SG&A in theon our Consolidated Statements of Income:
| | | | | Years ended December 31, | | Years ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 | (In millions) | | 2021 | | 2020 | | 2019 |
| Stock options | | $ | — |
| | $ | 1 |
| | $ | 1 |
| |
| Stock appreciation rights | | — |
| | 1 |
| | 1 |
| |
| Restricted stock units | | 21 |
| | 12 |
| | 13 |
| |
| Restricted stock and restricted stock units | | Restricted stock and restricted stock units | | $ | 28 | | | $ | 32 | | | $ | 24 | |
| Performance-based restricted stock units | | 9 |
| | 10 |
| | 13 |
| Performance-based restricted stock units | | 9 | | | 2 | | | 5 | |
| Cash-settled performance-based restricted stock units | | 19 |
| | 55 |
| | 27 |
| Cash-settled performance-based restricted stock units | | — | | | 7 | | | 27 | |
| | Total stock-based compensation expense | | $ | 49 |
| | $ | 79 |
| | $ | 55 |
| Total stock-based compensation expense | | $ | 37 | | | $ | 41 | | | $ | 56 | |
| Tax benefit on stock-based compensation | | (22 | ) | | (8 | ) | | (6 | ) | Tax benefit on stock-based compensation | | $ | (5) | | | $ | (13) | | | $ | (2) | |
Stock Options
For employees and officers,Our stock options typically vest over three to five years after the grant date for our employees and officers and one year after the grant date for our Board of Directors. The stock options have a 10-year contractual term and anthe exercise price equal to the Company’sequals our stock price on the grant date. For grants to members of the Company’s Board of Directors, stock options vest one year after the grant date, have a 10-year contractual term, and an exercise price equal to the Company’s stock price on the grant date.
The following is a summary of the weighted-average assumptions used to calculate the 2016 grant-date fair value using the Black-Scholes option pricing model. There were no stock options granted during 2018 and 2017.
| | | | | | | | | | | | | | |
| | 91 | | |
| | | |
| | 2016 |
Weighted-average risk-free interest rate | | 1.8 | % |
Weighted-average volatility | | 50.0 | % |
Weighted-average dividend yield | | — |
|
Weighted-average expected option term (in years) | | 6.44 |
|
The expected term
A summary of stock option award activity for the year ended December 31, 20182021 is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | Stock Options |
| | Number of Stock Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Term |
Outstanding as of December 31, 2020 (1) | | 42,755 | | | $ | 21.01 | | | 3.36 |
Granted (2) | | — | | | — | | | |
| Exercised | | (51,783) | | | 14.62 | | | |
| Forfeited | | — | | | — | | | |
Effect of spin-off (3) | | 15,636 | | | NM | | |
| Outstanding as of December 31, 2021 | | 6,608 | | | $ | 9.80 | | | 0.93 |
| Options exercisable as of December 31, 2021 | | 6,608 | | | $ | 9.80 | | | 0.93 |
|
| | | | | | | | | |
| | | Stock Options |
| | | Number of Stock Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Term |
| Outstanding as of December 31, 2017 | | 851,573 |
| | $ | 13.21 |
| | 4.44 |
| Granted | | — |
| | — |
| | |
| Exercised | | (148,255 | ) | | 15.52 |
| | |
| Forfeited | | (1,000 | ) | | 23.31 |
| | |
| Outstanding as of December 31, 2018 | | 702,318 |
| | $ | 12.70 |
| | 3.05 |
| Options exercisable as of December 31, 2018 | | 697,818 |
| | $ | 12.63 |
| | 3.03 |
(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.
(2) The above table excludes stock option awards that were granted in 2021 that subsequently converted to awards issued under GXO’s incentive plan.
88
The weighted-average grant date fair(i) adjustments made to preserve the value of options granted during 2016 was $11.37. awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.
The intrinsic value of options outstanding and exercisable as of December 31, 20182021 was $31 million, respectively. As of December 31, 2018, the Company had an immaterial amount of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of one year.less than $1 million.
The total intrinsic value of options exercised during 2018, 20172021, 2020 and 20162019 was $11$4 million, $9$56 million and $12$6 million, respectively. The total cash received from options exercised during 2018, 20172021, 2020 and 20162019 was $1$2 million, less than $1 million and $13$1 million, respectively.
Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
The Company has grantedWe grant RSUs and PRSUs to certainour key employees, officers and directors of the Company with various vesting requirements as established by the Committee. Therequirements. RSUs generally vest based on the passage of time. The vesting of certain RSU awards may also be subject to the price of the Company’s common stock exceeding a specified per share price for a designated period of time (service conditions) and continued employment by the grantee at the Company as of the vesting date. The PRSUs granted willgenerally vest based on the achievement of certainour financial targets with respect to the Company’s overall financial performance for specified periods. The vesting of certain(performance conditions). PRSUs ismay also be subject to thestock price of the Company’s common stock exceeding a specified per share price for a designated period of time(market conditions), employment conditions and generally require continued employment by the grantee at the Company as of the vesting date.
The RSUs and PRSUs may vest in whole or in part before the applicable vesting date if the grantee’s employment is terminated by the Company without cause or by the grantee with good reason (as defined in the grant agreement), upon death or disability of the grantee or in the event of a change in control of the Company. Upon vesting, the RSUs and PRSUs result in the issuance of shares of XPO common stock after required minimum tax withholdings.other non-financial conditions. The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until certificates representingthe shares are issued and delivered in settlement of the awards.
The number of RSUs and PRSUs vested includes shares of our common stock that we withheld on behalf of our employees to satisfy the minimum tax withholdings. We estimate the fair value of all grants of RSUs and PRSUs subject to market-based vesting conditions was estimated using thea Monte Carlo simulation lattice model.
A summary of RSU and PRSU award activity for the year ended December 31, 20182021 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RSUs | | PRSUs |
| | Number of
RSUs | | Weighted-Average Grant Date Fair Value | | Number of PRSUs | | Weighted-Average Grant Date Fair Value |
Outstanding as of December 31, 2020 (1) | | 1,615,812 | | | $ | 67.43 | | | 1,856,561 | | | $ | 45.39 | |
| Granted | | 839,372 | | | 87.13 | | | 70,954 | | | 80.67 | |
| Vested | | (578,216) | | | 68.31 | | | (22,617) | | | 75.00 | |
| Forfeited and canceled | | (337,312) | | | 105.04 | | | (597,739) | | | 44.19 | |
Effect of spin-off (2) | | (78,046) | | | NM | | 699,076 | | | NM |
| Outstanding as of December 31, 2021 | | 1,461,610 | | | $ | 54.81 | | | 2,006,235 | | | $ | 46.19 | |
|
| | | | | | | | | | | | | | |
| | | RSUs | | PRSUs |
| | | Number of RSUs | | Weighted-Average Grant Date Fair Value | | Number of PRSUs | | Weighted-Average Grant Date Fair Value |
| Outstanding as of December 31, 2017 | | 1,041,554 |
| | $ | 41.96 |
| | 1,838,227 |
| | $ | 24.37 |
|
| Granted | | 532,537 |
| | 97.85 |
| | 470,251 |
| | 58.49 |
|
| Vested | | (305,542 | ) | | 39.01 |
| | (1,085,748 | ) | | 18.86 |
|
| Forfeited and canceled | | (182,921 | ) | | 53.62 |
| | (185,805 | ) | | 36.10 |
|
| Outstanding as of December 31, 2018 | | 1,085,628 |
| | $ | 68.24 |
| | 1,036,925 |
| | $ | 43.51 |
|
(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.
(2) Represents the net impact of (i) adjustments made to preserve the value of awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.
The total fair value of RSUs that vested during 2018, 20172021, 2020 and 20162019 was $30$69 million, $23$64 million and $27$13 million, respectively. All of the outstanding RSUs as of December 31, 20182021 vest subject to service conditions.
The total fair value of PRSUs that vested during 2018, 20172021, 2020 and 20162019 was $96$2 million, $8 million and $7$23 million, respectively. Of the outstanding PRSUs as of December 31, 2018, 444,9592021, 1,700,480 vest subject to service and a combination of market and performance conditions, and 591,966283,764 vest subject to service and performance conditions and 21,991 vest subject to service and market conditions.
As of December 31, 2018, the Company had $69 million of2021, unrecognized compensation cost related to non-vested RSURSUs and PRSU compensation thatPRSUs of $69 million is anticipated to be recognized over a weighted-average period of approximately 3.312.64 years.
Cash-Settled Performance-Based Restricted Stock Units
In February 2016, the Company entered into employment agreements with its executive officers. Pursuant16. Income Taxes
Income (loss) from continuing operations before taxes related to these agreements, on February 9, 2016, the Company granted cash-settled PRSUs under the 2011 Plan to certain executive officers. Twenty-five percent of the PRSUs vestour U.S. and are settled in cash on each of the first four anniversaries of the grant, subject to the grantee’s continued employment through the applicable anniversary and achievement of certainforeign operations was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| U.S. | | $ | 420 | | | $ | 45 | | | $ | 286 | |
| Foreign | | (10) | | | (80) | | | 15 | |
Income (loss) from continuing operations before income tax provision (benefit) | | $ | 410 | | | $ | (35) | | | $ | 301 | |
performance targets for each tranche. Cash-settled PRSU awards are measured at fair value initially based on the closing price of the Company’s common stock at the date of grant and are required to be re-measured to fair value at each reporting date until settlement. Compensation expense for cash-settled PRSUs is recognized over the applicable performance periods based on the probability of achieving the performance conditions and the closing price of the Company’s common stock at each balance sheet date. The Company records as a liability (until settlement) the cost of a cash-settled PRSU award for which achievement of the performance condition is deemed probable. As of December 31, 2018 and 2017, the Company had recognized accrued liabilities of $18 million and $52 million, respectively, using a fair value per PRSU of $57.04 and $91.59, respectively.
A summary of cash-settled PRSU award activity for the year ended December 31, 2018 is presented below:
| | | | | | | | | | | | | | |
| | 93 | | |
| | | |
| | Number of Cash-Settled PRSUs |
Outstanding as of December 31, 2017 | | 1,693,394 |
|
Granted | | 15,385 |
|
Vested | | (564,465 | ) |
Forfeited and canceled | | (391,038 | ) |
Outstanding as of December 31, 2018 | | 753,276 |
|
As of December 31, 2018, the Company had $24 million of unrecognized compensation cost related to non-vested cash-settled PRSU compensation that is anticipated to be recognized over a weighted-average period of approximately one year; this will vary based on changes in the Company’s common stock price and the probability of achieving performance targets in future periods.
15. Income Taxes
A summary of income (loss) before taxes related to U.S. and foreign operations are as follows:
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| U.S. | | $ | 319 |
| | $ | 278 |
| | $ | (70 | ) |
| Foreign | | 247 |
| | (17 | ) | | 177 |
|
| Income before income tax provision (benefit) | | $ | 566 |
| | $ | 261 |
| | $ | 107 |
|
The components of the income tax provision (benefit) consistis comprised of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Current: | | | | | | |
| U.S. Federal | | $ | 56 | | | $ | 30 | | | $ | (3) | |
| State | | 13 | | | 7 | | | 1 | |
| Foreign | | 13 | | | 16 | | | 22 | |
| Total current income tax provision | | $ | 82 | | | $ | 53 | | | $ | 20 | |
| Deferred: | | | | | | |
| U.S. Federal | | $ | (10) | | | $ | (40) | | | $ | 52 | |
| State | | (7) | | | (3) | | | 4 | |
| Foreign | | 22 | | | (32) | | | (16) | |
| Total deferred income tax provision (benefit) | | 5 | | | (75) | | | 40 | |
| Total income tax provision (benefit) | | $ | 87 | | | $ | (22) | | | $ | 60 | |
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Current: | | | | | | |
| U.S. Federal | | $ | 2 |
| | $ | 2 |
| | $ | (11 | ) |
| State | | 6 |
| | (3 | ) | | 6 |
|
| Foreign | | 69 |
| | 59 |
| | 48 |
|
| Total current income tax provision | | $ | 77 |
| | $ | 58 |
| | $ | 43 |
|
| Deferred: | | | | | | |
U.S. Federal (1) | | $ | 57 |
| | $ | (134 | ) | | $ | 1 |
|
| State | | 2 |
| | (2 | ) | | (2 | ) |
Foreign (2) | | (14 | ) | | (21 | ) | | (20 | ) |
| Total deferred income tax provision (benefit) | | 45 |
| | (157 | ) | | (21 | ) |
| Total income tax provision (benefit) | | $ | 122 |
| | $ | (99 | ) | | $ | 22 |
|
| |
(1) | On December 22, 2017, the Tax Act was signed into law. The Tax Act includes numerous changes to existing U.S. tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction became effective January 1, 2018. As a result, the Company recorded a tax benefit of $173 million in the fourth quarter of 2017 related to the revaluation of its net deferred tax liabilities. The Company did not record any changes during the measurement period. |
| |
(2) | On December 31, 2017, a law was published in France enacting a rate reduction from 34.43% to 25.83% to be phased in over five years starting in 2018. On December 29, 2017, a law was published in Belgium enacting a tax rate reduction from 33.99% to 25% to be phased in over three years starting in 2018. Consequently, the Company recorded a tax benefit of $10 million in the fourth quarter of 2017 related to the revaluation of its net deferred tax liabilities. |
The effective tax rate reconciliations arewere as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| U.S. federal statutory tax rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State taxes, net of U.S. federal benefit | | 2.4 | | | (7.4) | | | 1.2 | |
| | | | | | |
Foreign operations (1) | | 10.3 | | | 16.9 | | | (1.1) | |
| Contribution- and margin-based taxes | | 1.2 | | | (22.4) | | | 2.8 | |
| | | | | | |
| Changes in uncertain tax positions | | (2.1) | | | (10.8) | | | (1.6) | |
| Non-deductible compensation | | 1.8 | | | (0.4) | | | 0.1 | |
| Provision to return adjustments | | 1.2 | | | 11.4 | | | (1.4) | |
| Effect of law changes | | (1.0) | | | (3.9) | | | 0.8 | |
| Stock-based compensation | | (1.4) | | | 42.0 | | | (0.9) | |
| Long-term capital loss | | (11.0) | | | — | | | — | |
Other (2) | | (1.1) | | | 17.0 | | | (1.2) | |
| Effective tax rate | | 21.3 | % | | 63.4 | % | | 19.7 | % |
|
| | | | | | | | | |
| | | Years Ended December 31, |
| | | 2018 | | 2017 | | 2016 |
| U.S. federal statutory tax rate | | 21.0 | % | | 35.0 | % | | 35.0 | % |
| State taxes, net of U.S. federal benefit | | 1.2 |
| | (1.2 | ) | | 4.8 |
|
| Foreign rate differential | | (1.1 | ) | | (6.7 | ) | | (13.2 | ) |
Foreign operations (1) | | 8.3 |
| | (0.1 | ) | | 2.4 |
|
| Valuation allowance | | (3.7 | ) | | 0.8 |
| | 11.2 |
|
| Changes in uncertain tax positions | | — |
| | 5.1 |
| | (0.1 | ) |
Effect of law changes (2) | | — |
| | (70.2 | ) | | (12.3 | ) |
| Stock-based compensation | | (3.8 | ) | | (3.3 | ) | | (4.7 | ) |
| Other | | (0.3 | ) | | 2.4 |
| | (2.2 | ) |
| Effective tax rate | | 21.6 | % | | (38.2 | )% | | 20.9 | % |
(2) In the year ended December 31, 2020, the impact of “Other” on the effective tax rate was disproportionately high compared to 2019 and 2021 due to the low income (loss) from continuing operations before income tax provision (benefit) in 2020. For 2020, “Other” is primarily comprised of 7.7% of U.S. Federal tax credits, 6.5% of U.S. Federal tax permanent adjustments, and 2.7% of changes in valuations allowance.
| | | | | | | | | | | | | | |
(1) | Foreign operations include the net impact of the changes to foreign valuation allowances, the cost of foreign inclusion net of foreign tax credits, and permanent items related to foreign operations. |
| 94 | | |
(2) | 2017 U.S., France and Belgium tax rate changes; 2016 France tax rate change. | | |
Components of the Net Deferred Tax Asset or Liability
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability arewere as follows:
|
| | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 |
| Deferred tax asset | | | | |
| Net operating loss and other tax attribute carryforwards | | $ | 154 |
| | $ | 191 |
|
| Accrued expenses | | 60 |
| | 65 |
|
| Pension and other retirement obligations | | 25 |
| | 26 |
|
| Other | | 62 |
| | 64 |
|
| Total deferred tax asset | | 301 |
| | 346 |
|
| Valuation allowance | | (73 | ) | | (93 | ) |
| Total deferred tax asset, net | | 228 |
| | 253 |
|
| Deferred tax liability | | | | |
| Intangible assets | | (330 | ) | | (371 | ) |
| Property and equipment | | (299 | ) | | (255 | ) |
| Other | | (35 | ) | | (38 | ) |
| Total deferred tax liability | | (664 | ) | | (664 | ) |
| Net deferred tax liability | | $ | (436 | ) | | $ | (411 | ) |
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 |
| Deferred tax asset | | | | |
| Net operating loss and other tax attribute carryforwards | | $ | 77 | | | $ | 72 | |
| Accrued expenses | | 60 | | | 87 | |
| Pension and other retirement obligations | | — | | | 21 | |
| Other | | 46 | | | 69 | |
| Total deferred tax asset | | 183 | | | 249 | |
| Valuation allowance | | (37) | | | (40) | |
| Total deferred tax asset, net | | 146 | | | 209 | |
| Deferred tax liability | | | | |
| Intangible assets | | (172) | | | (194) | |
| Property and equipment | | (252) | | | (256) | |
| Pension and other retirement obligations | | (6) | | | — | |
| Other | | (24) | | | (38) | |
| Total deferred tax liability | | (454) | | | (488) | |
| Net deferred tax liability | | $ | (308) | | | $ | (279) | |
The deferred tax asset and deferred tax liability above are reflected in theon our Consolidated Balance Sheets as follows:
| | | | | | | | | | | | | | |
| | December 31, |
| (In millions) | | 2021 | | 2020 |
| Other long-term assets | | $ | 8 | | | $ | 7 | |
| Deferred tax liability | | (316) | | | (286) | |
| Net deferred tax liability | | $ | (308) | | | $ | (279) | |
|
| | | | | | | | |
| | | December 31, |
| (In millions) | | 2018 | | 2017 |
| Other long-term assets | | $ | 8 |
| | $ | 8 |
|
| Deferred tax liability | | (444 | ) | | (419 | ) |
| Net deferred tax liability | | $ | (436 | ) | | $ | (411 | ) |
Investments in Foreign Subsidiaries
As a result of the Tax Act, the Company has decided to apply a partial indefinite reversal assertion to pre-2018 earnings and profits that have been invested back into the foreign businesses. The Company has also decided not to apply an indefinite reversal assertion on all 2018 and future years’ earnings and profits. The Company has recorded federal, state and withholding taxes in the amount of $2 million related to the change in assertion.
Operating Loss and Tax Credit Carryforwards
As of December 31, 2018Our operating loss and 2017, the Company had federal net operating losses for all U.S. operations (including those of minority owned subsidiaries) of $82 million and $188 million, respectively, expiring at various times between 2028 and 2038. As of December 31, 2018 and 2017, the tax effect (before federal benefit) of the Company’s state net operating losses was $26 million and $33 million, respectively, expiring at various times between 2019 and 2038.
As of December 31, 2018 and 2017, the Company had federal tax credit carryforwards of $16 millionwere as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| (In millions) | | Expiration Date | | 2021 | | 2020 |
Federal net operating losses for all U.S. operations (including those of minority owned subsidiaries) | | 2033 - 2037 (1) | | $ | 14 | | | $ | 22 | |
| Federal long-term capital loss carryforwards | | 2027 | | 126 | | | — | |
Tax effect (before federal benefit) of state net operating losses | | Various times starting in 2022 (1) | | 24 | | | 26 | |
| Federal tax credit carryforwards | | Various times starting in 2032 | | 1 | | | — | |
| State tax credit carryforward | | Various times starting in 2022 (1) | | 3 | | | 4 | |
Foreign net operating losses available to offset future taxable income | | Various times starting in 2022 (1) | | 93 | | | 189 | |
(1) Some credits and $34 million, respectively, expiring at various times starting in 2032 with certain credits having anlosses have unlimited carryforward period. As of December 31, 2018 and 2017, the Company had state tax credit carryforwards of $8 million and $10 million, respectively, expiring at various times between 2019 and 2030.
periods.
As of December 31, 2018 and 2017, the Company’s foreign net operating losses available to offset future taxable income were $382 million and $332 million, respectively. These foreign loss carryforwards will expire at various times beginning in 2019, with some losses having an unlimited carryforward period.
Valuation Allowance
The Company has evaluated the available positive and negative evidence and concluded that,We established a valuation allowance for some of itsour deferred tax assets, as it is more likely than not that these assets will not be realized in the foreseeable future. Based on the Company’s assessment, as of December 31, 2018, total valuation allowances of $73 million were recorded against deferred tax assets. Although realization is not assured, the Company hasWe concluded that it is more likely than not that the remaining deferred tax assets will more likely than not be realized, though this is not assured, and as such no valuation allowance has been provided on these assets.
The Company’sbalances and activity related to our valuation allowance decreased by $20 million during the year ended December 31, 2018.were as follows:
The following table presents a roll-forward of the valuation allowance for the years ended December 31, 2018, 2017 and 2016, respectively:
|
| | | | | | | | | | | | | | | | |
| (In millions) | | Balance at Beginning of Year | | Additions | | Reductions/
Charges | | Balance at End of Year |
| Valuation allowance | | | | | | | | |
| Year Ended December 31, 2018 | | $ | 93 |
| | $ | — |
| | $ | (20 | ) | | $ | 73 |
|
| Year Ended December 31, 2017 | | 83 |
| | 29 |
| | (19 | ) | | 93 |
|
| Year Ended December 31, 2016 | | 68 |
| | 15 |
| | — |
| | 83 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | | Beginning Balance | | Additions | | Reductions | | Ending Balance |
| Year Ended December 31, 2021 | | $ | 40 | | | $ | 43 | | | $ | (46) | | | $ | 37 | |
| Year Ended December 31, 2020 | | 33 | | | 8 | | | (1) | | | 40 | |
| Year Ended December 31, 2019 | | 38 | | | 3 | | | (8) | | | 33 | |
Unrecognized Tax Benefits (UTB)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (In millions) | | 2021 | | 2020 | | 2019 |
| Beginning balance | | $ | 17 | | | $ | 15 | | | $ | 20 | |
| Additions for tax positions of the current period | | — | | | — | | | — | |
| Additions for tax positions of prior years | | — | | | 5 | | | 3 | |
| Reductions for tax positions of prior years | | (1) | | | (1) | | | (7) | |
| Settlements with tax authorities | | (1) | | | (1) | | | (1) | |
| Reductions due to the statute of limitations | | (7) | | | (1) | | | — | |
| Currency translation adjustment | | — | | | — | | | — | |
| Ending balance | | $ | 8 | | | $ | 17 | | | $ | 15 | |
| Interest and penalties | | 5 | | | 6 | | | 6 | |
| Gross unrecognized tax benefits | | $ | 13 | | | $ | 23 | | | $ | 21 | |
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year | | $ | 8 | | | $ | 17 | | | $ | 15 | |
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions) | | 2018 | | 2017 | | 2016 |
| Beginning balance | | $ | 25 |
| | $ | 15 |
| | $ | 12 |
|
| Additions for tax positions of the current period | | 1 |
| | 2 |
| | — |
|
| Additions for tax positions from acquisitions | | — |
| | — |
| | 10 |
|
| Additions for tax positions of prior years | | 2 |
| | 17 |
| | 1 |
|
| Reductions for tax positions of prior years | | (3 | ) | | — |
| | — |
|
| Settlements with tax authorities | | — |
| | (3 | ) | | — |
|
| Reductions due to the statute of limitations | | (1 | ) | | (6 | ) | | (8 | ) |
| Currency translation adjustment | | (1 | ) | | — |
| | — |
|
| Ending balance | | $ | 23 |
| | $ | 25 |
| | $ | 15 |
|
| Interest and penalties | | 6 |
| | 5 |
| | 4 |
|
| Gross unrecognized tax benefits | | $ | 29 |
| | $ | 30 |
| | $ | 19 |
|
| | | | | | | |
| Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year | | $ | 22 |
| | $ | 23 |
| | $ | 11 |
|
During the next 12 months, it is reasonably possible that the CompanyWe could reflect a reduction to unrecognized tax benefits of $4up to $1 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.
The Company isWe are subject to taxation in the United States and various states and various foreign jurisdictions. As of December 31, 2018, the Company has2021, we have no tax years under examination by the Internal Revenue Service (“IRS”). The Company hasIRS. We have various U.S. state and local examinations and non-U.S. examinations in process. The U.S. federal tax
returns after 2008, state and local returns after 2009,2013, and non-U.S. returns after 20072010 are open under relevant statutes of limitations and are subject to audit.
16.17. Earnings perPer Share
BasicWe compute basic and diluted earnings per share are computed using the two-class method, which is anallocates earnings allocation method that determines earnings per share for common shares andto participating securities. The participating securities consistin 2020 and 2019 consisted of the Company’sour Series A Convertible Perpetual Preferred Stock. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. In periods of loss, no allocation is madeLosses are not allocated to the preferred shares. As discussed in Note 14—Stockholders’ Equity, we recorded a preferred stock conversion charge in December 2020 in connection with the conversion of our Series A preferred stock.
The computations of basic and diluted earnings per share arewere as follows:
|
| | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions, except per share data) | | 2018 | | 2017 | | 2016 |
| Basic earnings per common share | | | | | | |
| Net income attributable to XPO | | $ | 422 |
| | $ | 340 |
| | $ | 69 |
|
| Convertible preferred dividends | | (3 | ) | | (3 | ) | | (3 | ) |
| Non-cash allocation of undistributed earnings | | (29 | ) | | (25 | ) | | (3 | ) |
| Net income allocable to common shares, basic | | $ | 390 |
| | $ | 312 |
| | $ | 63 |
|
| | | | | | | |
| Basic weighted-average common shares | | 123 |
| | 115 |
| | 110 |
|
| Basic earnings per share | | $ | 3.17 |
| | $ | 2.72 |
| | $ | 0.57 |
|
| | | | | | | |
| Diluted earnings per common share | | | | | | |
| Net income allocable to common shares, basic | | $ | 390 |
| | $ | 312 |
| | $ | 63 |
|
| Interest from Convertible Senior Notes | | — |
| | 1 |
| | 2 |
|
| Net income allocable to common shares, diluted | | $ | 390 |
| | $ | 313 |
| | $ | 65 |
|
| | | | | | | |
| Basic weighted-average common shares | | 123 |
| | 115 |
| | 110 |
|
| Dilutive effect of Convertible Senior Notes | | — |
| | 2 |
| | 3 |
|
| Dilutive effect of non-participating stock-based awards and equity forward | | 12 |
| | 11 |
| | 10 |
|
| Diluted weighted-average common shares | | 135 |
| | 128 |
| | 123 |
|
| | | | | | | |
| Diluted earnings per share | | $ | 2.88 |
| | $ | 2.45 |
| | $ | 0.53 |
|
| | | | | | | |
| Potential common shares excluded | | 10 |
| | 10 |
| | 12 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| (In millions, except per share data) | | 2021 | | 2020 | | 2019 |
| Basic earnings (loss) per common share | | | | | | |
| Income (loss) from continuing operations | | $ | 323 | | | $ | (13) | | | $ | 241 | |
| Net loss from continuing operations attributable to noncontrolling interests | | — | | | 3 | | | — | |
| Net income (loss) from continuing operations attributable to XPO | | 323 | | | (10) | | | 241 | |
| Preferred stock conversion charge | | — | | | (22) | | | — | |
| Series A preferred stock dividends | | — | | | (3) | | | (3) | |
| Non-cash allocation of undistributed earnings | | — | | | (6) | | | (37) | |
| Net income (loss) from continuing operations attributable to common shares | | $ | 323 | | | $ | (41) | | | $ | 201 | |
| | | | | | | |
| Income from discontinued operations, net of taxes | | $ | 18 | | | $ | 130 | | | $ | 199 | |
| Net income from discontinued operations attributable to noncontrolling interests | | (5) | | | (10) | | | (21) | |
| Net income from discontinued operations attributable to common shares | | $ | 13 | | | $ | 120 | | | $ | 178 | |
| | | | | | | |
| Net income (loss) from continuing operations attributable to common shares, basic | | $ | 323 | | | $ | (41) | | | $ | 201 | |
| Net income from discontinued operations attributable to common shares, basic | | 13 | | | 120 | | | 178 | |
| Net income attributable to common shares, basic | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | |
| Basic weighted-average common shares | | 112 | | | 92 | | | 96 | |
| | | | | | | |
| Basic earnings (loss) from continuing operations per share | | $ | 2.88 | | | $ | (0.45) | | | $ | 2.09 | |
| Basic earnings from discontinued operations per share | | 0.11 | | | 1.32 | | | 1.86 | |
| Basic earnings per share | | $ | 2.99 | | | $ | 0.87 | | | $ | 3.95 | |
| | | | | | | |
| Diluted earnings (loss) per common share | | | | | | |
| Net income (loss) from continuing operations attributable to common shares, diluted | | $ | 323 | | | $ | (41) | | | $ | 201 | |
| Net income from discontinued operations attributable to common shares, diluted | | 13 | | | 120 | | | 178 | |
| Net income attributable to common shares, diluted | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | |
| Basic weighted-average common shares | | 112 | | | 92 | | | 96 | |
| | | | | | | |
| Dilutive effect of stock-based awards and warrants | | 2 | | | — | | | 10 | |
| Diluted weighted-average common shares | | 114 | | | 92 | | | 106 | |
| | | | | | | |
| Diluted earnings (loss) from continuing operations per share | | $ | 2.82 | | | $ | (0.45) | | | $ | 1.89 | |
| Diluted earnings from discontinued operations per share | | 0.11 | | | 1.32 | | | 1.68 | |
| Diluted earnings per share | | $ | 2.93 | | | $ | 0.87 | | | $ | 3.57 | |
| | | | | | | |
| Potential common shares excluded | | — | | | 20 | | | 10 | |
Certain shares were not included in the computation of diluted earnings (loss) per share because the effect was anti-dilutive.17. Commitments and Contingencies
Lease Commitments
Under operating leases, the Company is required to make payments for various real estate, double-stack railcars, containers, chassis, tractors, data processing equipment, transportation and office equipment that have an initial or remaining non-cancelable lease term. Certain leases also contain provisions that allow the Company to extend the leases for various renewal periods.
18. Commitments and Contingencies
Under certain capital lease agreements, the Company guarantees the residual value of tractors at the end of the lease term. The stated amounts of the residual-value guarantees have been included in the minimum lease payments below.
Future minimum lease payments with initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2018 were as follows:
|
| | | | | | | | |
| (In millions) | | Capital Leases | | Operating Leases |
| Year ending December 31: | | | | |
| 2019 | | $ | 61 |
| | $ | 577 |
|
| 2020 | | 60 |
| | 460 |
|
| 2021 | | 55 |
| | 367 |
|
| 2022 | | 52 |
| | 288 |
|
| 2023 | | 43 |
| | 221 |
|
| Thereafter | | 39 |
| | 523 |
|
| Total minimum lease payments | | $ | 310 |
| | $ | 2,436 |
|
| Amount representing interest | | (21 | ) | | |
| Present value of minimum lease payments | | $ | 289 |
| | |
Rent expense was $820 million, $716 million and $677 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Litigation
The Company isWe are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of itsour business. These proceedings may include among other matters, claims for property damage or personal injury incurred in connection with the transportation of freight, claims regarding anti-competitive practices, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants and tortious interference with contracts.covenants. These matters also include numerous purportedputative class action, multi-plaintiff and individual lawsuits, and administrative proceedings involving claims that claim either that the Company’sour owner-operators or contract carriers should be treated as employees, rather than independent contractors or that certain of the Company’s drivers were not paid for all compensable time or were not provided with required meal or rest breaks.(“misclassification claims”). These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods,breaks, unreimbursed business expenses, penalties and other items), injunctive relief, or both.
The Company establishesWe establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. AccrualsWe review and adjust accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, therefor, the Company assesseswe assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloseswe disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or statesdisclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on the Company’sour assessment, in conjunctiontogether with legal counsel, regarding the ultimate outcome of the matter.
The Company believesWe believe that it haswe have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company doesWe do not believe that the ultimate resolution of any matters to which the Company iswe are presently a party will have a material adverse effect on itsour results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’sour financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
The Company carriesWe carry liability and excess umbrella insurance policies that it deemswe deem sufficient to cover potential legal claims arising in the normal course of conducting itsour operations as a transportation and logistics company. The
liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the event the Company iswe are required to satisfy a legal claim outside the scope of the coverage provided by insurance, the Company’sour financial condition, results of operations or cash flows could be negatively impacted.
Intermodal Drayage Classification Claims
Certain of the Company’s intermodal drayage subsidiaries received notices from the California Labor Commissioner, Division of Labor Standards Enforcement (the “DLSE”), that a total of approximately 150 owner-operators contracted with these subsidiaries filed claims in 2012 with the DLSE in which they assert that they should be classified as employees, rather than independent contractors. These claims seek reimbursement for the owner-operators’ business expenses, including fuel, tractor maintenance and tractor lease payments. After a decision was rendered by a DLSE hearing officer in seven of these claims, in 2014, the Company appealed the decision to the California Superior Court, San Diego, where a de novo trial was held on the merits of those claims. On July 17, 2015, the court issued a final statement of decision finding that the seven claimants were employees rather than independent contractors and awarding an aggregate of $3 million plus post-judgment interest and attorneys’ fees to the claimants. The Company exhausted its appeals in this matter and the Superior Court entered final judgment against the Company in January 2018 and that judgment has been paid. Separate decisions were rendered in June 2015 by a DLSE hearing officer in claims involving five additional plaintiffs, resulting in an award for the plaintiffs in an aggregate amount of approximately $1 million, following which the Company appealed the decisions in the U.S. District Court for the Central District of California (“Central District Court”). On May 16, 2017, the Central District Court issued judgment finding that the five claimants were employees rather than independent contractors and awarding an aggregate of approximately $1 million plus post-judgment interest and attorneys’ fees to the claimants. The Company has appealed this judgment but cannot provide assurance that such appeal will be successful. In addition, separate decisions were rendered in April 2017 by a DLSE hearing officer in claims involving four additional plaintiffs, resulting in an award for the plaintiffs in an aggregate amount of approximately $1 million, which the Company has appealed to the California Superior Court, Long Beach. The remaining DLSE claims (the “Pending DLSE Claims”) have been transferred to California Superior Court in three separate actions involving approximately 170 claimants, including the claimants mentioned above who originally filed claims in 2012. The Company has reached an agreement to settle the majority of the Pending DLSE Claims and has accrued the full amount of the settlement. The settlement will require court approval. In addition, certain of the Company’sour intermodal drayage subsidiaries are party to putativedefendants in class action litigations and other administrative claims in California brought by independent contract carriers in California who contracted with these subsidiaries. In these litigations,cases, the contract carriers assert that they should be classified as employees, rather than independent contractors. The Company believescontractors. In two related cases pending in Federal District Court in Los Angeles, Alvarez v. XPO Logistics Cartage, LLC and Arrellano v. XPO Port Services, Inc., the Court has certified classes beginning in April 2016 and March 2013, respectively. Plaintiffs allege that it has adequately accrued fordefendants exercised an impermissible degree of control over plaintiffs’ operations through the potential impact of loss contingencies that are probable and reasonably estimable relating to the claims referenced above. The Company is unable at this time to estimate the amountterms of the possible loss or rangeparties’ contracts and defendants’ policies, including enforcement of loss, if any, in excess of its accrued liability that it may incur as a result of these claims given, among other reasons, that the range of potential loss could be impacted substantiallyrequirements imposed on motor carriers by future rulings by the courts involved, including on the merits of the claims.
Last Mile Logistics Classification Claims
Certain of the Company’s last mile logistics subsidiaries are party to several putative class action litigations brought by independent contract carriers who contracted with these subsidiaries. In these litigations, the contract carriers,state and in some cases the contract carriers’ employees, assert that they should be classified as employees, rather than independent contractors.federal law. The particular claims asserted vary from case to case but generally include claims that, should the claims generally allegecontract carriers be determined to be employees, they would be entitled to reimbursement for unpaid wages and/or minimum wage, unpaid overtime, or failure to providewages for missed meal and rest periods, and seek reimbursement of certain of the contract carriers’ business expenses. Theexpenses (including fuel and insurance related costs), Labor Code penalties under California’s Private Attorneys General Act, and attorneys’ fees and costs associated with bringing the action. Defendants mounted a vigorous defense on the merits of plaintiffs’ claims, including as to whether the plaintiffs met the applicable test for the threshold issue of employment classification. Trial in both cases include four related matters pendingwas scheduled to begin September 7, 2021.
In August 2021, the parties held a mediation at which a tentative settlement was reached in both actions. Subject to the Court’s approval, we have agreed to pay the plaintiff class in the Federal DistrictAlvarez case a total of $20 million, which includes all attorneys’ fees and other costs. We have agreed to pay the plaintiff class in the Arrellano case a total of
$9.5 million, which includes all attorneys’ fees and other costs. We accrued for both settlements in the third quarter of 2021. Under the terms of both settlement agreements, we do not have to reclassify our contractors as employees and the plaintiff classes have agreed to release us from all liability from the inception of each respective class period through December 31, 2021. All parties involved have agreed to dismiss all claims and counterclaims with prejudice, and the settlement agreements do not contain any admission of liability, wrongdoing or responsibility by any of the parties. The Court Northern Districtgranted preliminary approval of California: Ron Carter, Juan Estrada, Jerry Green, Burl Malmgren, Bill McDonaldthe settlements on October 8, 2021, and Joel Moralespursuant to the settlement agreements, the company provided the settlement funds to the third-party class administrators in December 2021. On January 10, 2022, following a hearing, the Court granted final approval of the settlements. Plaintiffs’ motions for attorneys’ fees and incentive awards have been taken under submission, so final judgment has not yet been entered, but the company currently expects distribution of funds to class members to occur in the first half of 2022.
Shareholder Litigation
On December 14, 2018, a putative class action captioned Labul v. XPO Logistics, Inc. (“Carter”)et al., filed in March 2016; Ramon Garcia v. Macy’s and XPO Logistics Inc. (“Garcia”), filed in July 2016; Kevin Kramer v. XPO Logistics Inc. (“Kramer”), filed in September 2016; and Hector Ibanez v. XPO Last Mile, Inc. (“Ibanez”), filed in May 2017. The Company has reached agreements to settle the Carter, Garcia, Kramer and Ibanez matters and has accrued the full amount of the settlements. The settlements will require court approval. With respect to other pending claims, the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company is unable at this time to estimate the amount of the possible loss or range of loss, if any, in excess of its accrued liability that it may
incur as a result of these claims given, among other reasons, that the number and identities of plaintiffs in these lawsuits are uncertain and the range of potential loss could be impacted substantially by future rulings by the courts involved, including on the merits of the claims.
Last Mile TCPA Claims
The Company is a party to a putative class action litigation (Leung v. XPO Logistics, Inc., filed in May 2015 in the U.S. District Court, Illinois (“Illinois Court”)) alleging violations of the Telephone Consumer Protection Act (“TCPA”) related to an automated customer call system used by a last mile logistics business that the Company acquired. The Company has reached an agreement to resolve the Leung case, and the Illinois Court has approved the settlement and entered final judgment. The Company has accrued the full amount of the approved settlement. Distribution of the settlement funds began in September 2018.
Shareholder Litigation
On December 14, 2018, two putative class actions werewas filed in the U.S. District Court for the District of Connecticut against us and the U.S. District Court for the Southern Districtsome of New York against the Company and certain of itsour current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well asand Section 20(a) of the Exchange Act, based on alleged material misstatements and omissions in the Company’sour public filings with the U.S. Securities and Exchange Commission. On January 7,June 3, 2019, lead plaintiffs Local 817 IBT Pension Fund, Local 272 Labor-Management Pension Fund, and Local 282 Pension Trust Fund and Local 282 Welfare Trust Fund (together, the “Pension Funds”) filed a consolidated class action complaint. Defendants moved to dismiss the consolidated class action complaint on August 2, 2019. On November 4, 2019, the plaintiffCourt dismissed the consolidated class action complaint without prejudice to the filing of an amended complaint. The Pension Funds, on January 3, 2020, filed a first amended consolidated class action complaint against us and a current executive. Defendants moved to dismiss the first amended consolidated class action complaint on March 3, 2020. On March 19, 2021, the Court dismissed the first amended consolidated class action complaint with prejudice and closed the case. On April 29, 2021, the Pension Funds filed a notice of appeal, and the appellate process is ongoing.
Also, on May 13, 2019, Adriana Jez filed a purported shareholder derivative action captioned Jez v. Jacobs, et al., (the “Jez complaint”) in onethe U.S. District Court for the District of Delaware, alleging breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the actions, Leeman v.Exchange Act against some of our current and former directors and officers, with the company as a nominal defendant. The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler and Kevin Rose under the caption In re XPO Logistics, Inc. et al., No. 1:18-cv-11741 (S.D.N.Y.), voluntarily dismissedDerivative Litigation. On December 12, 2019, the Court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days. On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases. Defendants moved to dismiss the operative complaint on February 26, 2020. Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss. The Court granted plaintiffs’ motion on July 6, 2020. On April 14, 2021, the Court issued an order staying proceedings pending resolution of an appeal in the Labul action. Plaintiffs stipulated that they will dismiss the shareholder derivative action with prejudice if the Labul dismissal is affirmed on appeal.
We believe these suits are without prejudice. In the other action, Labul v. XPO Logistics, Inc. et al., No. 3:18-cv-02062 (D. Conn.), which remains pending, the complaint has not yet been served. The Company intendsmerit and we intend to defend itself vigorously against the allegations. The Company iscompany vigorously. We are unable at this time to determine the amount of the possible loss or range of loss, if any, that itwe may incur as a result of these matters.
Insurance Contribution Litigation 18.Subsequent EventIn April 2012, Allianz Global Risks US Insurance Company sued 18 insurance companies in a case captioned Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., Multnomah County Circuit Court (Case No. 1204-04552). Allianz sought contribution on environmental and product liability claims that Allianz agreed to defend and indemnify on behalf of its insured, Daimler Trucks North America (“DTNA”). Defendants had insured Freightliner’s assets, which DTNA acquired in 1981. Con-way, Freightliner’s former parent company, intervened. We acquired Con-way in 2015. Con-way and Freightliner had self-insured under fronting agreements with defendant insurers ACE, Westport, and General. Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies. Con-way’s captive insurer, Centron, was also a
named defendant. After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner. In June 2015, Allianz appealed to the Oregon Court of Appeals. In May 2019, the Company’s BoardOregon Court of Directors authorized a new share repurchase of upAppeals upheld the jury verdict. In September 2019, Allianz appealed to $1.5 billionthe Oregon Supreme Court. In March 2021, the Oregon Supreme Court reversed the jury verdict, holding that it was an error to allow the jury to decide how the parties intended the fronting policies to operate, and also holding that the trial court improperly instructed the jury concerning one of the Company’spollution exclusions at issue. In July of 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision. There is no date yet set for the next stages of the proceeding. The parties have filed cross-motions for summary judgment concerning the interpretation of certain of the fronting policies, which are yet to be decided. Following summary judgment, we anticipate a jury trial on the pollution exclusion, then a bench trial on allocation of defense costs among the subject insurance policies. We have accrued an immaterial amount for the potential exposure associated with Centron in the bench trial regarding allocation. As any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time, no liability has been accrued in the accompanying consolidated financial statements for those potential exposures.
19. Quarterly Financial Data (Unaudited)
Our unaudited results of operations for each of the quarters in the years ended December 31, 2021 and 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| (In millions, except per share data) | | First
Quarter | | Second Quarter | | Third Quarter (2) | | Fourth Quarter |
| 2021 | | | | | | | | |
| Revenue | | $ | 2,989 | | | $ | 3,186 | | | $ | 3,270 | | | $ | 3,361 | |
| Operating income | | 139 | | | 191 | | | 112 | | | 174 | |
| Income from continuing operations | | 63 | | | 113 | | | 21 | | | 126 | |
| Income (loss) from discontinued operations, net of taxes | | 55 | | | 45 | | | (78) | | | (4) | |
| Net income (loss) | | 118 | | | 158 | | | (57) | | | 122 | |
Net income (loss) attributable to common shareholders: (1) | | | | | | | | |
| Continuing operations | | 63 | | | 113 | | | 21 | | | 126 | |
| Discontinued operations | | 52 | | | 43 | | | (78) | | | (4) | |
| Net income (loss) attributable to common shareholders | | 115 | | | 156 | | | (57) | | | 122 | |
Basic earnings (loss) per share: (1) | | | | | | | | |
| Continuing operations | | 0.59 | | | 1.01 | | | 0.19 | | | 1.09 | |
| Discontinued operations | | 0.49 | | | 0.38 | | | (0.69) | | | (0.03) | |
Basic earnings (loss) per share attributable to common shareholders | | 1.08 | | | 1.39 | | | (0.50) | | | 1.06 | |
Diluted earnings (loss) per share: (1) | | | | | | | | |
| Continuing operations | | 0.56 | | | 1.00 | | | 0.19 | | | 1.08 | |
| Discontinued operations | | 0.46 | | | 0.38 | | | (0.68) | | | (0.03) | |
Diluted earnings (loss) per share attributable to common shareholders | | 1.02 | | | 1.38 | | | (0.49) | | | 1.05 | |
(1) The sum of the quarterly Net income (loss) attributable to common stock. The Company isshareholders and earnings (loss) per share may not obligatedequal annual amounts due to repurchase any specificdifferences in the weighted-average number of shares outstanding during the respective periods and may suspend or discontinuebecause losses are not allocated to the program at any time.Series A Preferred Stock in calculating earnings (loss) per share.
(2) The third quarter of 2021 included a litigation settlement charge of $29 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| (In millions, except per share data) | | First Quarter (2) | | Second Quarter (3) | | Third Quarter | | Fourth Quarter (4) |
| 2020 | | | | | | | | |
| Revenue | | $ | 2,459 | | | $ | 2,127 | | | $ | 2,675 | | | $ | 2,938 | |
| Operating income (loss) | | 38 | | | (101) | | | 138 | | | 153 | |
| Income (loss) from continuing operations | | (9) | | | (107) | | | 37 | | | 66 | |
| Income (loss) from discontinued operations, net of taxes | | 34 | | | (27) | | | 61 | | | 62 | |
| Net income (loss) | | 25 | | | (134) | | | 98 | | | 128 | |
Net income (loss) attributable to common shareholders: (1) | | | | | | | | |
| Continuing operations | | (11) | | | (105) | | | 28 | | | 34 | |
| Discontinued operations | | 32 | | | (27) | | | 56 | | | 59 | |
| Net income (loss) attributable to common shareholders | | 21 | | | (132) | | | 84 | | | 93 | |
Basic earnings (loss) per share: (1) | | | | | | | | |
| Continuing operations | | (0.11) | | | (1.16) | | | 0.30 | | | 0.37 | |
| Discontinued operations | | 0.34 | | | (0.29) | | | 0.63 | | | 0.64 | |
Basic earnings (loss) per share attributable to common shareholders | | 0.23 | | | (1.45) | | | 0.93 | | | 1.01 | |
Diluted earnings (loss) per share: (1) | | | | | | | | |
| Continuing operations | | (0.11) | | | (1.16) | | | 0.27 | | | 0.33 | |
| Discontinued operations | | 0.34 | | | (0.29) | | | 0.56 | | | 0.58 | |
Diluted earnings (loss) per share attributable to common shareholders | | 0.23 | | | (1.45) | | | 0.83 | | | 0.91 | |
(1) The sum of the quarterly Net income (loss) attributable to common shareholders and earnings (loss) per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods and because losses are not allocated to the Series A Preferred Stock in calculating earnings (loss) per share.
(2) The first quarter of 2020 included transaction and integration costs of $37 million.
(3) The second quarter of 2020 included transaction and integration costs of $29 million and restructuring costs of $28 million.
(4) The fourth quarter of 2020 included a $22 million, or $0.22 per diluted share from continuing operations, preferred stock conversion charge that reduced income attributable to common shareholders from continuing operations for earnings per share purposes, but did not affect net income, associated with the December 2020 conversion of our preferred stock.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and acting chief financial officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended.amended, as of December 31, 2021. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2018,2021, such that the information required to be included in our SEC reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company,XPO, including our consolidated subsidiaries; and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management, including our chief executive officer and acting chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018,2021, based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2018.2021.
KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, on Form 10-K, has issued an audit report, which is included elsewhere within this Form 10-K,Annual Report, on the effectiveness of our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’sour internal control over financial reporting during the quarter ended December 31, 20182021 that have materially affected, or are reasonably likely to materially affect, itsour internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On February 15, 2022, the Compensation Committee of the Board of Directors of XPO approved an amendment to the terms of the performance-based stock unit awards (“PSU Awards”) held by Brad Jacobs, Mario Harik, and Troy Cooper (collectively, the “Executives”).
The amendment modifies the clause of the change of control definition applicable to the PSU Awards that is triggered based on eligible transfers of assets with a minimum value or businesses or business lines representing a minimum amount of revenue (i) to increase the applicable transaction thresholds for value of assets and amount of revenue, respectively, from 50% to 75%, in each case, compared to the total asset value on a prior measurement date or total revenue during a prior measurement period and (ii) to clarify that an eligible transfer for purposes of this clause only applies to a transaction or series of transactions with respect to an entire business or business line of XPO, provided that the distribution of 80% or more of the common stock of a subsidiary of XPO that holds an entire business or business line will be included as an eligible transfer.
Each Executive entered into a letter agreement with XPO documenting the terms of the amendment. The foregoing summary of the amendments does not purport to be complete and is qualified in its entirety by reference to the full text of the letter agreements, the form of which is filed with this Annual Report as Exhibit 10.17 and is incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Part III of Form 10-K (other than certain information required by Item 401 of Regulation S-K with respect to our executive officers, which is provided under Item 1, “Business” of Part I of this Annual Report on Form 10-K)Report) will be set forth in our definitive Proxy Statement for the 20192022 Annual Meeting of Stockholders and is incorporated herein by reference.
We have adopted a Code of Business Ethics (the “Code”), which is applicable to our principal executive officer, principal financial officer, principal accounting officer and other senior officers. The Code is available on our website at www.xpo.com, under the heading “Corporate Governance” within the “Investors” tab. In the event that we amend or waive any of the provisions of the Code that relate to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, we intend to disclose the same on our website at the web address specified above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III of Form 10-K will be set forth in our Proxy Statement for the 20192022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Part III of Form 10-K, including information regarding security ownership of certain beneficial owners and management and information regarding securities authorized for issuance under equity compensation plans, will be set forth in our Proxy Statement for the 20192022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Part III of Form 10-K will be set forth in our Proxy Statement for the 20192022 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Stamford, CT, Auditor ID: 185.
The information required by Item 14 of Part III of Form 10-K will be set forth in our Proxy Statement for the 20192022 Annual Meeting of Stockholders and is incorporated herein by reference.
PART IV
Item 15. EXHIBITS,EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
The list of Consolidated Financial Statements provided in the Index to Consolidated Financial Statements is incorporated herein by reference. Such Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K.Report. All financial statement schedules are omitted because the required information is not applicable, or because the information required is included in the Consolidated Financial Statements and notes thereto.
Exhibits
| | | | | | | | |
Exhibit
Number | | Description |
| | |
Exhibit
Number
2.1 | | Description |
| | |
2.1 | | |
| | |
3.12.2 | | |
| | |
| 3.1 | | |
| | |
| 3.2 | | |
| | |
| 3.3 | | |
| | |
| 3.4 | | |
| | |
| 3.5 | | |
| | |
| 3.6 | | |
| | |
| 3.7 | | |
| | |
| 3.8 | | |
| | |
| 3.9 | | |
| | |
| 4.1 | | |
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| | |
| 4.2 | | |
| | |
|
| | |
Exhibit
Number
4.3 | | Description |
| | |
4.3 | | |
| | |
| 4.4 | | |
| | |
4.5 | | |
| | |
4.6 | | |
| | |
4.74.5 | | |
| | |
4.8 | | |
| | |
4.94.6 | | |
| | |
| 4.7 | | |
| | |
10.1 +4.8 | | |
| | |
| 4.9 | | |
| | |
| 10.1 + | | |
| | |
| 10.2 + | | |
| | |
| 10.3 + | | |
| | |
| 10.4 + | | |
| | |
10.310.5 + | | |
| | |
10.4 + | | |
| | |
10.5 + | | |
| | |
10.6 + | | |
| | |
10.7 + | | |
| | |
10.8 + | | |
| | |
|
| | |
Exhibit
Number
| | Description |
| | |
10.9 + | | |
| | |
10.10 + | | |
| | |
10.1110.6 + | | |
| | |
10.12 + | | |
| | |
10.13 + | | |
| | |
10.1410.7 + | | |
| | |
10.15 + | | |
| | |
10.16 + | | |
| | |
10.1710.8 + | | |
| | |
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| 10.9 + | | |
| | |
| 10.10 + | | |
| | |
| 10.11 + | | |
| | |
| 10.12 + | | |
| | |
| 10.13 + | | |
| | |
| 10.14 + | | |
| | |
| 10.15 + | | |
| | |
| 10.16 +* | | |
| | |
| 10.17 +* | | |
| | |
| 10.18 + | | |
| | |
| 10.19 + | | |
| | |
| 10.20 + | | |
| | |
| 10.21 + | | |
| | |
| 10.22 + | | |
| | |
| 10.23 + | | |
| | |
| 10.24 + | | |
| | |
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| 10.25 + | | |
| | |
| 10.26 + | | |
| | |
| 10.27 +* | | |
| | |
| 10.28 | | |
| | |
10.18 *10.29 | | |
| | |
10.19 + | | |
| | |
10.20 + | | |
| | |
10.21 +* | | |
| | |
10.22 +* | | |
| | |
10.23 +* | | |
| | |
10.24 + | | |
| | |
10.25 + | | |
|
| | |
Exhibit
Number
10.30 | | Description |
| | |
| | |
10.26 + | | |
| | |
10.27 + | | |
| | |
10.28 + | | |
| | |
10.29 + | | |
| | |
10.30 + | | |
| | |
10.31 + | | |
| | |
10.32 + | | |
| | |
10.33 + | | |
| | |
10.34 + | | |
| | |
10.35 | | Second Amended and Restated Revolving Loan Credit Agreement, dated as of October 30, 2015, by and among the registrant and certain subsidiaries signatory thereto, as borrowers, other credit parties signatory thereto, Morgan Stanley Senior Funding, Inc., as agent, and the Lenders from time to time party thereto (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on November 2, 2015). |
| | |
10.3610.31 | | |
| | |
| 10.32 | | |
| | |
| 10.33 | | |
| | |
| 10.34 | | |
| | |
| 10.35 | | |
| | |
| 10.36 | | |
| 10.37 | | |
| | |
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Exhibit
Number | | Description |
| | |
| 10.38 | | |
| | |
10.3810.39 | | |
| | |
10.39 | | |
| | |
|
| | |
Exhibit
Number
10.40 | | Description |
| | |
10.40 | | |
| | |
10.41 | | |
| | |
10.42 | | |
| | |
10.4310.41 | | Amendment No. 24 to Second Amended and Restated RevolvingSenior Secured Term Loan Credit Agreement, dated as of March 22, 2018,7, 2019, by and among the registrant and certain subsidiaries signatory thereto, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as administrative agent (incorporated herein by reference to Exhibit 10.210.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed with the SEC on May 7, 2018)1, 2019). |
| | |
10.4410.42 | | Incremental Amendment (Amendment No. 5 to Senior Secured Term Loan Credit Agreement,Agreement), dated as of December 24, 2018,March 18, 2019, by and among the registrant, the subsidiaries signatory thereto, as guarantors, the lenders party thereto and Citibank, N.A.Morgan Stanley Senior Funding, Inc., as administrative agent (incorporated herein by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on December 31, 2018)March 18, 2019). |
| | |
| 10.43 | | |
| | |
| 10.44 | | |
| | |
| 10.45 | | |
| | |
| 10.46 | | |
| | |
| 10.47 | | |
| | |
| 21 * | | |
| | |
| 23 * | | |
| | |
| 31.1 * | | |
| | |
| 31.2 * | | |
| | | | | | | | |
Exhibit
Number | | Description |
| | |
| | |
| 32.1** | | |
| | |
| 32.2** | | |
| | |
101.INS * | | XBRL Instance Document. |
| | |
101.SCH * | | XBRL Taxonomy Extension Schema. |
| | |
101.CAL * | | XBRL Taxonomy Extension Calculation Linkbase. |
| | |
101.DEF * | | XBRL Taxonomy Extension Definition Linkbase. |
| | |
101.LAB * | | XBRL Taxonomy Extension Label Linkbase. |
| | |
101.PRE * | | XBRL Taxonomy Extension Presentation Linkbase. |
| | |
* | | Filed herewith. |
| | |
** | | Furnished herewith. |
| | |
|
| | |
Exhibit
Number
101.INS * | | DescriptionInline XBRL Instance Document. |
| | |
+101.SCH * | | Inline XBRL Taxonomy Extension Schema. |
| | |
| 101.CAL * | | Inline XBRL Taxonomy Extension Calculation Linkbase. |
| | |
| 101.DEF * | | Inline XBRL Taxonomy Extension Definition Linkbase. |
| | |
| 101.LAB * | | Inline XBRL Taxonomy Extension Label Linkbase. |
| | |
| 101.PRE * | | Inline XBRL Taxonomy Extension Presentation Linkbase. |
| | |
| 104 * | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| | |
| * | | Filed herewith. |
| | |
| ** | | Furnished herewith. |
| | |
| + | | This exhibit is a management contract or compensatory plan or arrangement. |
| | |
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.
| | | | | |
| XPO LOGISTICS, INC. |
| |
| By: | XPO LOGISTICS, INC./s/ Brad Jacobs |
| Brad Jacobs |
By: | /s/ Bradley S. Jacobs |
| Bradley S. Jacobs |
| (Chairman of the Board of Directors and Chief Executive Officer) |
| |
| By: | /s/ Sarah J.S. GlickmanRavi Tulsyan |
| Sarah J.S. GlickmanRavi Tulsyan |
| (Acting Chief Financial Officer) |
February 14, 201916, 2022
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 on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Bradley S.Brad Jacobs | | Chairman of the Board of Directors and Chief Executive Officer (Principal
(Principal Executive Officer) | | February 14, 201916, 2022 |
Bradley S.Brad Jacobs | | | | |
/s/ Sarah J.S. GlickmanRavi Tulsyan | | Acting Chief Financial Officer (Principal
(Principal Financial Officer) | | February 14, 201916, 2022 |
Sarah J.S. GlickmanRavi Tulsyan | | | | |
/s/ Lance A. Robinson | | Chief Accounting Officer (Principal
(Principal Accounting Officer) | | February 14, 201916, 2022 |
Lance A. Robinson | | | | |
| /s/ AnnaMaria DeSalva | | Vice Chairman of the Board of Directors | | February 14, 201916, 2022 |
| AnnaMaria DeSalva | | | | |
/s/ Gena L. Ashe | | Director | | February 14, 2019 |
Gena L. Ashe | | | | |
| | Director | | |
Marlene M. Colucci | | | | |
/s/ Michael G. Jesselson | | Lead Independent Director | | February 14, 201916, 2022 |
Michael G. Jesselson | | | | |
| /s/ Jason Aiken | | Director | | February 16, 2022 |
| Jason Aiken | | | | |
/s/ Adrian P. Kingshott | | Director | | February 14, 201916, 2022 |
Adrian P. Kingshott | | | | |
/s/ Jason D. PapastavrouMary Kissel | | Director | | February 14, 201916, 2022 |
Jason D. PapastavrouMary Kissel | | | | |
/s/ Oren G. ShafferAllison Landry | | Director | | February 14, 201916, 2022 |
Oren G. ShafferAllison Landry | | | | |
| /s/ Johnny C. Taylor, Jr. | | Director | | February 16, 2022 |
| Johnny C. Taylor, Jr. | | | | |
