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 diabetes 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 the U.K.
Community Involvement
In 2021, there were hundreds of examples of our company and employees giving back, including our support of the Susan 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:
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Name | | Age | | Position |
Bradley S.Brad Jacobs | | 6365 | | Chairman of the Board and Chief Executive Officer |
Troy A. CooperMario Harik | | 5041 | | Chief Information Officer; Acting President, Less-Than-Truckload |
Sarah J.S. GlickmanRavi Tulsyan | | 5053 | | Acting Chief Financial Officer |
Mario A. Harik | | 39 | | Chief Information Officer |
Kurt M. Rogers | | 48 | | Chief Legal Officer |
Bradley S.Brad Jacobs has served as XPO’s chairman of the boardBoard of directorsDirectors 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 one of XPO’s second largest stockholder.stockholders. Mr. Jacobs has led two other public companies prior to XPO: United Rentals, Inc., which he founded 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 Waste Systems 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 XPO 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 U.S., 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.
Sarah J.S. Glickman has served as XPO’s acting chief financial officer since August 2018, after joining XPO in June 2018 as senior vice president, corporate finance. Prior to XPO, Ms. Glickman served as chief financial officer of business services for Novartis from January 2017 to May 2018, and held 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 Bristol-Myers Squibb, she had senior responsibility for corporate controllership and accounting, financial controls and compliance. Ms. Glickman began her career at PricewaterhouseCoopers. She is a certified public accountant 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.
Kurt M. RogersRavi Tulsyan has served as XPO’s chief legalfinancial officer since September 2021, after formerly serving as the company’s deputy chief financial officer since February 2020.2021 and treasurer since 2016. Prior to XPO, Mr. Rogers joined XPO from Stericycle, Inc., a global leader in medical waste management, where heTulsyan served as executivetreasurer 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 general counselhead 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 2017 to 2020. He was previously chief legal officerthe University of cloud communications leader Vonage Holdings Corp. for seven years. At StericycleRochester, a master’s degree in mechanical engineering from the Ohio State University, and Vonage, he led the negotiation and execution of numerous strategic initiatives. Earlier, he was a partner at Bingham McCutchen LLP and at Latham & Watkins LLP, specializing in intellectual property and litigation. He received his juris doctorate degree from Cornell Law School and his bachelor’s degree from Cornell University.the Indian Institute of Technology Madras.
Available Information
Our corporate website is www.xpo.com. On this website, you can access, free of charge, our reports on Forms 10-K, 10-Q and 8-K, as well as specialized disclosure reports on Form SD, Proxy Statements on Schedule 14A and amendments to these materials. Materials are available online as soon as reasonably practicable after we electronically submit them to the SEC. You can also access materials on our website regarding our corporate governance policies and practices, including our Corporate Governance Guidelines, Code of Business Ethics and the charters relating to the committees of our boardBoard of directors.Directors. You also may request a printed copy of these materials without charge by writing 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 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 Item 8.
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 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 may exceed the available supply of transportation resources, resulting in increased network congestion and operating inefficiencies. Additional changes in international trade policies and relations could significantly reduce the volume 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 volume 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 be unable 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;
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• | 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 EU, have imposed tariffs on certain goods imported from the U.S. These actions contributed to weakness in the global economy that could adversely affect our results of operations, and such weakness could continue in 2020. 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.
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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 rapid changes in market 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.demand; and
We operate•The U.S. government has made significant changes in a highly competitive industryU.S. trade policy and if we are unablehas 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 adequately address factorsweakness in the global economy that maycould adversely affect our revenueresults 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 suffer.
Competitionescalate in the transportation services industry is intense. Increased competitionfuture quarters. Labor shortages, particularly of truck drivers, have led and may continue to lead to a reductiondifficult 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 revenues, reduced profit margins, or a losslower levels of service, including timeliness, productivity and quality of service. If we continue to face unfavorable market share, any oneconditions, 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 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 systemscustomers and greater capital resources than we do;
A reduction in the rates charged by our competitorsemployees. We expect to gain business, especially during times of declining economic growth,continue to incur additional costs, which may limitbe 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 maintain or increasemanage our rates, maintainbusiness.
The impacts of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our operating margins or achieve significantbusiness, 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 business;North American LTL business, and other management actions to improve our North American LTL business, may not be effective or timely, and may not improve our results of operations or cash flow from operations as planned.
Shippers soliciting bids from multiple transportation providers for their shipping needs,We have undertaken a company-specific action plan to enhance network operating efficiencies and drive growth in our 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 services we provide.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 manufactured tractors. If our anticipated requirements for service centers or fleet differ materially from actual usage, our capital-intensive operations, specifically LTL and full truckload, may have more or 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.
Our exploration ofFailure 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 alternatives is subjectaccounts, LTL process improvements, workforce productivity, European margin expansion, global procurement and further back-office optimization. If we are not able to various riskssuccessfully implement these cost and uncertainties,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 any completed transactionsrevenue and will involve significant timebusiness models, entry into new geographic areas and expense, which could disrupt or adversely affect our business.
On January 15, 2020, we announced that our board of directors had authorized a review of strategic alternatives, including the possible sale or spin-off of one or more of our business units. Whether or not any such transaction or transactions are completed, our business may face significant risks, including, without limitation:
The diversion of management’s attention from operating our ongoing businesses and the overall impactincreased pressure on our businesses because of management’s attentionexisting 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 the review of strategic alternatives;
Potential difficulty in maintainingcontinually 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 morale and retaining key management and other employees;
Potential difficulty in separating assets relatedbase. Our working capital needs may continue to such businesses from the businesses we retain;
The needincrease as our operations grow. Failure to manage our growth effectively, or obtain regulatory approvals and other third-party consents, which could potentially disrupt customer and supplier relationships;
Foreseen and unforeseen dis-synergy costs, costs of restructuring transactions (including taxes) and other significant costs and expenses; and
Potential negative reactions from the financial markets if we do not complete one or more transactions.
Any of these factorsnecessary working capital, could have a material adverse effect on our business, financial condition, results of operations, cash flows and/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.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.
IfWe may sell, spin off or otherwise divest, in whole or in part, one or more of our business units, is sold 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 spun off,completing substantial dispositions. We may not realize the price we will beexpect to receive when divesting a smaller, less diversified company thanbusiness unit, we are today.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.
AIn addition, a sale, spin-off or spin-offother 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 spin-off,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 spin-off,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 spun off.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. Special risks, including accounting, regulatory, compliance, information technology or human resources issues, may arise in connection with, or as a result of, the acquisition of an existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses, possible management distractions, or the inability of the acquired business 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 segments or an acquired business varies from our projections or assumptions, or if estimates about the future profitability of our reporting segments 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 companies could present issues that we were unable 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 certain past companies that we acquired. Also, we may not realize all of the 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, entry 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 flowsare 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 in 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 technology from their transportation and logistics providers. To keep pace with changing technologies and customer demands, we must correctly 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 and logistics industries,industry, or we may fail to respond appropriately by implementing functionality for our technology platform in a timely or cost-effective manner. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.
We must ensure that our information technology systems remain competitive. If our information technology systems are unable to manage high volumes with reliability, accuracy and speed as we grow, or if such systems are not suited to manage the various services 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 enhance our systems to meet our customers’ needs, our 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 both 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, financial, legal and compliance functions, engineering and product development tasks, research and development data, communications, logistics order entry and fulfillment and other business processes. We also rely on third parties and virtualized infrastructure to operate our information technology systems. Despite significant testing, for risk management, 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 or 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 or 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, particularly in the EU, 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, its reputation, 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 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.
FailureWe 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 successfully implementfloating 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 costcontrol. A significant increase in interest rates could have an adverse effect on our financial position and revenue initiatives could causeresults of operations. Additionally, the interest rates on some of our future financial resultsdebt is tied to suffer.
We are implementing various cost and revenue initiatives to further improve our profitability. We estimate that 40%
LIBOR. In July 2017, the head of the potential opportunity isU.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 revenue initiatives: advanced pricing analytics and revenue management tools, our digital freight platform, our shared distribution network and cross-selling to strategic accounts in Europe. The other 60% is related to cost initiatives: LTL process improvements, contract logistics automation, 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.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, impacting 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 customers or provide our services on competitive terms is subject to inherent risks, many of which are beyond our control, including:
Equipment 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. Our industry has periodically experiencedis 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, our global LTL operations and our European truckload operation will likelycould experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demand. During periods of increased competition in the 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 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 operations rely on fleets of vehicles that are owned and operated by independent contractors. Our last mile service is also performed by independent contract carriers who 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 without penalty and upon short notice. 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 scale, or our ability 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 at 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 labor contracts, 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. If any of our customers are affected by labor disputes and consequently cease or significantly modify their operations at a plant served by our Logistics segment, we may experience significant revenue loss and shutdown costs, including costs related to early termination of leases, causing our business to suffer.
XPO Logistics Europe’sOur European business activities require a large amount of labor, which represents one of itsour most significant costs. 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; 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 U.S., the International Brotherhood of Teamsters (“Teamsters”Teamsters”) has attempted to organize employees at several of our LTL and logistics locations, and the International Association of Machinists (“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 logistics location. San Diego, CA locations.
The majority of our employees involved in these organizing efforts rejected union representation. As of January 1, 2020,31, 2022, our employees had 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 10 of the 25 union elections held since 2014, with approximately 545 employees voting in favor and 602 employees voting against representation. In October 2017, a majority of employees at our North Haven, Connecticut logistics location, which had previously voted for Teamsters representation, petitioned us to withdraw recognition of the Teamsters as the employees’ representative and we withdrew this recognition. Similarly, in
In 2019, a majority of employees at our LTL locationsservice centers in Laredo, TexasTX and Aurora, Illinois,IL, voted to decertify the Teamsters as the employees’ representative. In addition, we continueDecember 2020, a majority of employees at our LTL service center in Cinnaminson, NJ also voted to challengedecertify the results of one election held in 2014 for anTeamsters as their bargaining representative. In August 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, while seven locations where 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 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 our business. Third parties could also seek to hold us responsible for any of the liabilities that GXO has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our 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 extendbear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
Risks related to our larger organization or the services provided to our customer base.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. Such 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 are 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.
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.
Subcontracting plays a key role in our European business, which we operate through our majority-owned subsidiary, XPO Logistics Europe SA. As of December 31, 2019, we subcontracted approximately 53% of our Transportation segment 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, any 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 or employer 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 injury 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 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 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; these lawsuits alleged that we made false and misleading statements, purported to assert claims for violations of federal securities laws and sought 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 proceedings of this type in the future, which could require significant attention from management or result in significant legal expenses, settlement costs or damage awards, any 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 U.S. and the U.K. 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 our 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.
WeChanges in income tax regulations for U.S. and multinational companies may be adversely affected by interest rate changes because ofincrease our floating rate credit facilities.
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”), 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 100 basis point 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. 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.
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.”
The economic uncertainties relating to eurozone monetary policies may cause the value of the euro to fluctuate against other currencies. Currency volatility contributes to variations in our sales of products and services in impacted jurisdictions. For example, in the event that one or more European countries were to replace the euro with another currency, 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 business and financial condition in Europe and the business of the combined company.
The decision of the United Kingdom to withdraw 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 and entered into a transition period to, among other things, negotiate an agreement with the EU governing the future relationship between the EU and the U.K. The referendum and subsequent withdrawal of the U.K. from the EU has created significant uncertainty about the future relationship between the U.K. and the EU and will have uncertain impacts on our transportation and logistics operations in Europe. In 2019, we derived approximately 12% of our revenue from the U.K. and an aggregate 26% from the rest of the European countries where we operate. In addition, the implementation of Brexit has caused, and may continue to cause, uncertainty in the global markets.
The effects of Brexit on our transportation and logistics operations in Europe will depend on any agreements the U.K. ultimately reaches to retain access to EU markets either during the transitional period or more permanently. The laws and regulations that will apply to the U.K. domestic economy will depend, in large part, on the content of any agreements the U.K. is able to negotiate with the EU and current laws and regulations may either be replaced or replicated after withdrawal, including those governing manufacturing, labor, environmental, data protection/privacy, competition and other matters either applicable to the transportation and logistics industry directly or with potential impact on the demand for our services in the U.K. or in Europe more generally.
If the U.K. cannot reach an agreement with the EU, it will likely have an adverse impact on access to labor in the U.K. and trade between the U.K. and EU and may create further short-term currency volatility. In the absence of a future trade deal, the U.K.’s trade with the EU and the rest of the world would be subject to tariffs and duties set by the World Trade Organization, which could result in uncertain demand for our services in the U.K. and its trading partners. In addition, the movement of goods between the U.K. and the remaining member states of the EU will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure, which may have unexpected impacts on our ability to efficiently provide our transportation and logistics services. 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 US 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, 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 and results of operations.
Sales 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.
As of December 31, 2019, we owned 95.4% of the outstanding shares of XPO Logistics Europe SA, the majority-owned subsidiary through which we conduct our European operations. We may or may not acquire the remaining shares of XPO Logistics Europe, or we may choose to enact a “squeeze out” merger, which is permitted under
French law when a holder owns more than 95% of outstanding shares. As long as we do not wholly own XPO Logistics Europe, we do not have access to all of its cash flow to service our debt, as we will 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. 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 revenue and may impact our profitability.tax liability.
We are subject to risks associated withincome taxes in the availabilityUnited States and pricemany foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of fuel, all of which are subject to political, economic and market factors that are outside of our control.
Fuel expense constitutes onesuch laws, in any 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 customaryjurisdictions 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, as there is a lag between payment for fuel and collection of the surcharge revenue. 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 servicesoperate could significantly increase our effective tax rate and accordingly, willultimately reduce our revenuescash flows from operating activities 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 conditionsfinancial condition, results of operations and isolated weather events can disrupt our operations. We frequently incur costs related to snowcash flows. The U.S. Congress, the Organization for Economic Co-operation and ice removal, towingDevelopment (“OECD”), the EU and other maintenance activities during winter months. At least somegovernment agencies in jurisdictions in which we and our affiliates do business have maintained a focus on the taxation 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 duemultinational companies. The OECD has recommended changes to climate change or otherwise, can temporarily impact freight volumesnumerous long-standing international tax principles through its base erosion and increase our costs.
Issuesprofit 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 intellectual property rights on whichextent adopted, may increase tax uncertainty and/or 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, a settlement or adverse judgment against us couldeffective tax rate, 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 conditionhigher compliance cost 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 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.provision for income taxes, results of operations and/or cash flows.
We are subject to regulation,governmental regulations and political conditions, which could negatively impact our business.
Our operations are regulated and licensed by various governmental agencies in the U.S. and in foreign countries where 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 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 forwarder. In addition, we are subject to regulations and requirements promulgated by the DOT, FMCSA, DHS, CBP, TSA, FMC, IATA, 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, the movement, handling and accidental discharge of which are highly regulated. Our failure to maintain the 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 under Item 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 our 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 business. In particular, it is difficult to predict which, and in what form, FMCSA regulations may be modified or enforced, and what impact these regulations may have on motor carrier operations or on the aggregate number of trucks that provide hauling capacity to XPO. If higher costs are incurred by us as a result of future changes in regulations, or by the 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.
Changes in income tax regulations for U.S. and multinational companiesFurthermore, political conditions may increase the level of intensity of regulations that impact our tax liability.
The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”), the EU, and other government agencies in jurisdictions in which we and our affiliates do business, have maintained a focus on the taxation of multinational companies. The OECD has recommendedmay require changes to numerous long-standing international tax principles through its base erosion and profit shifting (“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. BEPS”) project. These and other tax laws and related regulations changes, to the extent adopted, may increase tax uncertainty, result in higher compliance cost and adversely affect our provision for income taxes, results of operations and/or cash flow.
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 Office of Foreign Assets Control (“OFAC”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 chairman and chief executive officer controlsbeneficially 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 chairman and chief executive officer, Mr. Bradley S. Jacobs, beneficially ownsowned approximately 18%10.7% of our outstanding common stock as of December 31, 2019.2021. 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 2. PROPERTIES
As of December 31, 2019,2021, we operated approximately 1,504771 locations, primarily in North America and Europe, including approximately 321 locations owned or leased by our customers.Europe. These facilities are located in all 48 contiguous U.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 (3) | | Total |
Transportation (North America) (1) | | 386 |
| | 130 |
| | 9 |
| | 525 |
|
Transportation (Europe) | | 173 |
| | 22 |
| | — |
| | 195 |
|
Transportation (Other) (2) | | 8 |
| | — |
| | — |
| | 8 |
|
Logistics (North America) | | 190 |
| | 1 |
| | 128 |
| | 319 |
|
Logistics (Europe) | | 205 |
| | 7 |
| | 169 |
| | 381 |
|
Logistics (Other) (2) | | 49 |
| | — |
| | 15 |
| | 64 |
|
Corporate | | 12 |
| | — |
| | — |
| | 12 |
|
Total | | 1,023 |
| | 160 |
| | 321 |
| | 1,504 |
|
(1) Locations not in North America or Europe; primarily in Asia. | |
(1) | (2) Includes leased locations and customer sites (owned or leased by customers). Of our owned facilities, 126 were freight service centers for our LTL business throughout the U.S.
|
| |
(2) | Locations not in North America or Europe; primarily in Asia. |
| |
(3) | Locations 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, our shared-services center in Portland, Oregon and various office facilities in France, the U.K. and India to support our global executive and 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 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 contracts. These matters also include numerous purported class action, multi-plaintiff and individual lawsuits, and administrative proceedings that claim either that our owner-operators or contract carriers should be treated as employees, rather than independent contractors, or that some 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 see Note 18—Commitments and Contingencies to our 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 5, 2020,11, 2022, there were approximately 135 record115 registered holders of our common stock. We have never paid, and have no immediate plans to pay, cash dividends on our common stock.
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 MidCap index, the Dow Jones Transportation Average index and the S&P 400 MidCap index. SEC rules 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 2018 Annual Report on Form 10-K included a comparison of our common stock with the Dow Jones Transportation Average index and the Russell MidCap index. However, we believeassumes that the S&P 400 Midcap index, which includes XPO, is more appropriate thanvalue of the Russell Midcap index, because the S&P 400 Midcap generally encompasses companies with market capitalizations that are more comparable to XPO. Consequently, we have included both the Russell MidCap and the S&P 400 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, 20142016 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, 2019.forecast, future performance of our common stock.
| | | | 12/31/14 | | 12/31/15 | | 12/31/16 | | 12/31/17 | | 12/31/18 | | 12/31/19 | | 12/31/16 | | 12/31/17 | | 12/31/18 | | 12/31/19 | | 12/31/20 | | 12/31/21 |
XPO Logistics, Inc. | | $ | 100.00 |
| | $ | 66.66 |
| | $ | 105.58 |
| | $ | 224.05 |
| | $ | 139.53 |
| | $ | 194.96 |
| XPO Logistics, Inc. | | $ | 100.00 | | | $ | 212.21 | | | $ | 132.16 | | | $ | 184.66 | | | $ | 276.18 | | | $ | 314.18 | |
Russell Midcap | | $ | 100.00 |
| | $ | 97.56 |
| | $ | 111.02 |
| | $ | 131.58 |
| | $ | 119.66 |
| | $ | 156.21 |
| |
| Dow Jones Transportation Average | | $ | 100.00 |
| | $ | 83.24 |
| | $ | 101.83 |
| | $ | 121.19 |
| | $ | 106.26 |
| | $ | 128.39 |
| Dow Jones Transportation Average | | $ | 100.00 | | | $ | 119.02 | | | $ | 104.35 | | | $ | 126.09 | | | $ | 146.92 | | | $ | 195.72 | |
S&P 400 Midcap | | $ | 100.00 |
| | $ | 97.82 |
| | $ | 118.11 |
| | $ | 137.30 |
| | $ | 122.08 |
| | $ | 154.07 |
| |
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
None.
ITEM 6. SELECTED FINANCIAL DATARESERVED
The following tables set forth our selected historical and quarterly consolidated financial data. During 2015, we acquired 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.
|
| | | | | | | | | | | | | | | | | | | | |
| | As of or For the Years Ended December 31, |
(In millions, except per share data) | | 2019 | | 2018 | | 2017 | | 2016 | | 2015 |
Operating Results: | | | | | | | | | | |
Revenue | | $ | 16,648 |
| | $ | 17,279 |
| | $ | 15,381 |
| | $ | 14,619 |
| | $ | 7,623 |
|
Operating income (loss) (1) | | 821 |
| | 704 |
| | 582 |
| | 464 |
| | (29 | ) |
Income (loss) before income taxes | | 569 |
| | 566 |
| | 261 |
| | 107 |
| | (283 | ) |
Net income (loss) (2) | | 440 |
| | 444 |
| | 360 |
| | 85 |
| | (192 | ) |
Net income (loss) attributable to common shareholders (3) | | 379 |
| | 390 |
| | 312 |
| | 63 |
| | (246 | ) |
Per Share Data: | | | | | | | | | | |
Basic earnings (loss) per share | | $ | 3.95 |
| | $ | 3.17 |
| | $ | 2.72 |
| | $ | 0.57 |
| | $ | (2.65 | ) |
Diluted earnings (loss) per share | | 3.57 |
| | 2.88 |
| | 2.45 |
| | 0.53 |
| | (2.65 | ) |
Financial Position: | | | | | | | | | | |
Total assets (4) | | $ | 14,128 |
| | $ | 12,270 |
| | $ | 12,602 |
| | $ | 11,698 |
| | $ | 12,643 |
|
Long-term debt, less current portion | | 5,182 |
| | 3,902 |
| | 4,418 |
| | 4,732 |
| | 5,273 |
|
Preferred stock | | 41 |
| | 41 |
| | 41 |
| | 42 |
| | 42 |
|
Total equity | | 2,896 |
| | 3,970 |
| | 4,010 |
| | 3,038 |
| | 3,061 |
|
| |
(1) | Operating income for 2017 and 2016 reflects the retrospective effects from the January 1, 2018 adoption of Accounting Standard Update (“ASU”) 2017-07, Compensation - Retirement Benefits (Topic 715): “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.”
|
| |
(2) | 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”). |
| |
(3) | Net loss attributable to common shareholders for the year ended December 31, 2015 reflects beneficial conversion charges of $52 million on Series C Preferred Stock that were recorded as deemed distributions during the third quarter of 2015. |
| |
(4) | Total assets for 2019 reflects the January 1, 2019 adoption of ASU 2016-02, Leases (Topic 842).
|
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 unauditedcompany 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 eachsemiconductor 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 quartersactions 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 yearsyear ended December 31, 20192021, the constrained labor market resulted in higher third-party transportation and 2018 are summarized below:fuel costs to meet growing demand which were partially offset by increased pricing to our customers.
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(In millions, except per share data) | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter (2) (3) |
2019 | | | | | | | | |
Revenue | | $ | 4,120 |
| | $ | 4,238 |
| | $ | 4,154 |
| | $ | 4,136 |
|
Operating income | | 132 |
| | 258 |
| | 229 |
| | 202 |
|
Net income | | 52 |
| | 145 |
| | 136 |
| | 107 |
|
Net income attributable to common shareholders (1) | | 43 |
| | 122 |
| | 117 |
| | 96 |
|
Basic earnings per share (1) | | 0.40 |
| | 1.32 |
| | 1.27 |
| | 1.04 |
|
Diluted earnings per share (1) | | 0.37 |
| | 1.19 |
| | 1.14 |
| | 0.93 |
|
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 |
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(1) | The sum of the quarterly Net income 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 2019 included a restructuring charge of $21 million and gains on sales of property and equipment of $37 million. |
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(3) | 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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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | | |
Overview
XPO Logistics is a top ten global provider
In our Logistics segment, which we also refer to as supply chain or contract logistics, we provide a wide range of services differentiated by our proprietary technology and our ability to customize solutions for customers. Our services include value-added warehousing, distribution and inventory management, omnichannel and e-commerce fulfillment, reverse logistics, cold chain solutions, packaging and labeling, factory support, aftermarket support and order personalization services. In addition, our Logistics segment provides highly engineered, customized solutions and supply chain optimization services, including advanced automation and predictive volume flow management.
This discussion focuses on our fiscal 2019 results, compared with fiscal 2018 results. The discussion of our fiscal 2018 results, compared with fiscal 2017 results, can be found in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our 2018 Annual Report on Form 10-K.
Potential Strategic Alternatives
In January 2020, we announced that XPO has commenced a review of strategic alternatives, including the possible sale or spin-off of one or more of our business units, in order to maximize shareholder value. A timetable has not been set for the completion of the review process and we have not determined which, if any, business units would be sold or spun off. However, we do not intend to sell or spin off our North American less-than-truckload unit.
Consolidated Summary Financial TableResults
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| | For the Years Ended December 31, | | Percent of Revenue |
(Dollars in millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | $ | 16,648 |
| | $ | 17,279 |
| | 100.0 | % | | 100.0 | % |
Cost of transportation and services | | 8,303 |
| | 9,013 |
| | 49.9 | % | | 52.2 | % |
Direct operating expense | | 5,679 |
| | 5,725 |
| | 34.1 | % | | 33.1 | % |
SG&A expense | | 1,845 |
| | 1,837 |
| | 11.1 | % | | 10.6 | % |
Operating income | | 821 |
| | 704 |
| | 4.9 | % | | 4.1 | % |
Other expense (income) | | (54 | ) | | (109 | ) | | (0.3 | )% | | (0.6 | )% |
Foreign currency loss | | 9 |
| | 3 |
| | 0.1 | % | | — | % |
Debt extinguishment loss | | 5 |
| | 27 |
| | — | % | | 0.2 | % |
Interest expense | | 292 |
| | 217 |
| | 1.8 | % | | 1.3 | % |
Income before income tax provision | | 569 |
| | 566 |
| | 3.4 | % | | 3.3 | % |
Income tax provision | | 129 |
| | 122 |
| | 0.8 | % | | 0.7 | % |
Net income | | $ | 440 |
| | $ | 444 |
| | 2.6 | % | | 2.6 | % |
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| | 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 | % |
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Our consolidated revenue for 2019 decreased2021 increased by (3.7)%25.6% to $16.6$12.8 billion, from $17.3$10.2 billion in 2018.2020. The decrease was increase primarily impacted by a reductionreflects growth in business fromboth our largest customer, resultingLTL and truck brokerage businesses and the negative impact of COVID-19 in approximately $570 million less revenue in 2019, primarily in the Transportation segment. 2020, which decreased demand for our services. Foreign currency movement reducedincreased revenue by approximately 2.00.9 percentage points in 2019.2021.
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 (exclusive of depreciation and amortization) in 20192021 was $8,303 million,$8.9 billion, or 49.9%69.9% of revenue, compared with $9,013 million,$7.0 billion, or 52.2%68.1% of revenue in 2018.2020. The year-over-year improvementincrease as a percentage of revenue was primarily driven by: (i) higher mix of contract logistics revenue; (ii) lowerreflects the constrained labor market, which resulted in higher third-party transportation costs. These increases were partially offset by lower compensation-related costs, in freight brokerage and last mile largely due to reduction in business from our largest customer; and (iii) lower fuelincluding 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 20192021 was $5,679 million,$1.4 billion, or 34.1%10.9% of revenue, compared with $5,725 million,$1.2 billion, or 33.1%12.1% of revenue, in 2018.2020. The year-over-year increasedecrease as a percentage of revenue was primarily was driven by higher personnellower COVID-19 related costs to support growth in our North American contract logistics, partially offset by lower temporary labor,as well as the leveraging of compensation and higher depreciation expense in our logistics segment.facilities costs
across a larger revenue base. Additionally, 20192021 and 20182020 included $110$73 million and $6$90 million, respectively, from gains on the salesales of property and equipment.
Sales, general and administrative expense (“SG&A”&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 $1,845 million$1.3 billion in 2019,2021, or 11.1%10.3% of revenue, compared with $1,837 million,$1.2 billion, or 10.6%11.9% of revenue, in 2018.2020. The year-over-year increasedecrease in SG&A as a percentage of revenue was primarily related to higher payrolldriven by lower self-insurance expense, including higher restructuring-related expenses,compensation costs, bad debt expense and higher insurance and depreciation expenses,third-party professional fees, as well as lower COVID-19-related costs. These impacts were partially offset by lower aggregate bonushigher employee healthcare costs and share-based compensation expenses,legal costs, including $31 million incurred in 2021 related to settlements in connection with classification of independent contractors at our intermodal drayage business unit. See Note 18—Commitments and lower discretionary spending,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 consulting fees. Additionally, 2018 reflected litigation costsinfrastructure, 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 $26the restructuring initiatives recorded in 2021, we expect to achieve annualized pre-tax run-rate savings of approximately $25 million for independent contractor matters.by the end of 2022.
Other income primarily consists of pension income. Other income for 20192021 was $54$57 million, compared with $41 million in 2020. The year-over-year increase reflects $15 million of income, compared with $109 million of income in 2018. The year-over-year decrease reflects lowerhigher net periodic pension income of $18 million in 2019. Additionally, 2018 included 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.2021.
Foreign currency (gain) loss was $9a $2 million gain in 2019,2021, compared with a $3 million gain in 2018. 2020. Foreign currency (gain) loss in 20192021 primarily reflected unrealized lossesa realized gain on foreign currency option and forward contracts. 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.contracts and a realized gain on a terminated net investment hedge, partially offset by foreign currency transaction and measurement losses. For additional information on our foreign currency option and forward contracts, see Note 11—Derivative Instruments to our Consolidated Financial Statements.
Debt extinguishment losses were $5 million and $27loss was $54 million in 2019 and 2018, respectively. Debt extinguishment losses in 2019 related to the write-off of debt issuance costs for the unsecured credit facility (“Unsecured Credit Facility”) that was repaid in 2019. Debt extinguishment losses in 2018 includes $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 for2024 and wrote-off related debt issuance costs, incurred a pre-payment penalty on the refinancingredemption of ourthe 2024 senior securednotes and incurred costs related to the amendment of our term loan credit agreement, as amended (the “Term Loan Facility”). See Liquidity and Capital Resources below for further information.agreement. There were no debt extinguishment losses in 2020.
Interest expense for 2019 increased 34.6%2021 decreased 31.3% to $292$211 million, from $217$307 million in 2018.2020. The increasedecrease in interest expense was primarily related to higherreflected the lower average total indebtedness to fund share purchases.debt balances, including the redemption of our senior notes and amendment of our term loan agreement.
Our consolidated income (loss) from continuing operations before income taxes in 20192021 was $569income of $410 million, compared with $566a loss of $35 million in 2018.2020. The increase primarily was driven by higher operating income in our Transportation and Logistics segments, as discussed below, and lower debt extinguishment losses and lower litigation costs,interest expense, partially offset by higher interest expense, lower pension income and the gain on sale of an equity investmentdebt extinguishment loss recorded in 2018.2021. With respect to our U.S. operations, income from continuing operations before income taxes increased by $60was income of $420 million in 2019,2021, compared with the prior year, primarily reflecting a $96income of $45 million in 2020. The increase in operating income,was primarily due to gainshigher revenue, in part from the negative impact of COVID-19 on sale of property and equipment and cost savings initiatives, higher interest income on intercompany loans, $23 million in lower foreign currency losses, and $22 million lower debt extinguishment losses,our 2020 results, partially offset by $74 million higher third-party transportation, fuel and personnel costs. Additionally impacting the increase was lower interest expense, and a gain of
partially offset by the debt extinguishment loss recorded in 2021. With respect to our non-U.S. operations, loss from continuing operations
$24before income taxes was $10 million in 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 salenegative impact of an equity investment in 2018. With respect toCOVID-19 on our non-U.S. operations, income before taxes decreased by $57 million, reflecting higher other expense of $41 million, due in part to interest on intercompany loans, lower foreign currency gain of $29 million, and lower pension income of $10 million,2020 results, partially offset by higher operating income of $21 million. The foreign currency gain realized by our non-U.S. operations in 2019 was partially offset by the foreign currency loss in our U.S. operations due to hedging strategies,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 20192021 and 2018 were 22.6%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 21.6%, respectively. Our 2019margin-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 was primarily 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 the valuation allowances were transferred to GXO. Additionally, impacting the year ended December 31, 2021, were $8 million of non-deductible compensation, discrete tax benefit from foreign currency losses recognized and $5benefits of $8 million of tax benefitresulting from changes in reserves for uncertain tax positions including favorable resolutionand discrete tax benefits of certain income tax audits. Our 2018$6 million related to stock-based compensation.
For the year ended December 31, 2020, our effective tax rate was impacted primarily impacted by $26a pre-tax book loss, $8 million of excesscontribution and margin-based taxes, foreign rate differential benefit of $3 million, discrete tax benefit frombenefits of $15 million related to stock-based compensation and $6 million of discrete tax benefits related to provision to return adjustments, partially offset by a discrete tax expense of $4 million benefit associatedrelated to changes in reserves for uncertain tax positions.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Our consolidated revenue for 2020 decreased by 4.5% to $10.2 billion, from $10.7 billion in 2019. The decline in revenue primarily reflected the deductionimpact of foreign taxes paidCOVID-19 and lower fuel revenue. Foreign currency movement increased revenue by approximately 0.4 percentage points in 2020.
Cost of transportation and services (exclusive of depreciation and amortization) in 2020 was $7.0 billion, or 68.1% of revenue, compared with $7.4 billion, or 68.9% of revenue in 2019. The year-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 higher 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 property and equipment.
SG&A was $1.2 billion in 2020, or 11.9% of revenue, compared with $1.1 billion, or 10.0% of revenue, in 2019. The year-over-year increase 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 years.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 Charges
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 utilizeuse our resources and infrastructure. Our resultsinfrastructure, including actions in response to COVID-19.
Other income primarily consists of pension income. Other income for 2019 reflect restructuring charges of $492020 was $41 million, of which $2 million was recorded in Cost of transportation and services, $1compared with $23 million in Direct operating expense and $46 million in SG&A in our Consolidated Statements of Income. A portion of our 2019 restructuring charge related to actions as a result of our largest customer downsizing its business with us. Our results for 2018 reflect restructuring charges of2019. The year-over-year increase reflects $21 million of which $1 million was recordedhigher net periodic pension income in Direct operating expense and $20 million in SG&A in our Consolidated Statements of Income. For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements. Upon successful completion of these restructuring initiatives in 2020, we expect to achieve annualized pre-tax savings of approximately $94 million.
Fourth Quarter Items
Key fourth quarter items include:2020.
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| | For the Quarters Ended December 31, |
(In millions) | | 2019 | | 2018 |
Restructuring charges | | $ | 21 |
| | $ | 19 |
|
Gains on sales of property and equipment | | (37 | ) | | (6 | ) |
Litigation costs for independent contractor matters | | — |
| | 26 |
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Gain on sale of equity investment | | — |
| | (24 | ) |
Additionally, the aggregate bonus and share-based compensation expenses were modestly higher in the fourth quarter of 2019 compared to the fourth quarter of 2018. The majority of the restructuring charges and all of the share-based compensation expense and litigation costs have been reflected in SG&A on our Consolidated Statements of Income. Gains on sales of property and equipment are reflected in Direct operating expense. Bonus expense is substantially included in Direct operating expense and SG&A. Gain on sale of equity investment is included in Other expense (income).
Foreign currency (gain) loss was a $3 million gain in 2020, compared with a $10 million loss in 2019. Foreign currency gain in 2020 primarily reflected unrealized gains on foreign currency option and forward contracts and a realized 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 loss was $5 million in 2019 and related 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 2020.
Interest expense for 2020 increased 14.6% to $307 million, from $268 million in 2019. The increase in interest expense was primarily due to higher average total indebtedness, including 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 in 2020.
Our consolidated income (loss) from continuing operations before income taxes in 2020 was a loss of $35 million, compared with income of $301 million in 2019. The decrease primarily was driven by lower operating income and higher interest expense, partially offset by higher other income. With respect to our U.S. operations, income from continuing operations before income taxes was $45 million, compared with income of $286 million in 2019. The decrease was primarily due to the impact of COVID-19 and higher interest expense. With respect to our non-U.S. operations, loss from continuing operations before income taxes was $80 million in 2020, compared to income of $15 million in 2019. The decrease was primarily due to the impact of COVID-19.
Our effective income tax rates were 63.4% and 19.7% in 2020 and 2019, respectively. The increase in our effective income tax rate for the year ended December 31, 2020 compared to the year 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 was impacted primarily by a pre-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 stock-based compensation and $6 million of discrete tax benefits related to provision to return adjustments, partially offset by a discrete tax expense of $4 million related to changes in reserves for uncertain tax 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 significant impact on the Company’s 2020 effective tax rate, primarily due to the pre-tax book loss in 2020 as compared to higher pre-tax book income in 2019. For the year ended December 31, 2019, our effective tax rate was impacted by $8 million of 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 prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain 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 benefit on our Consolidated Statements of Income in 2020. Additionally, we benefited from the 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, 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 reconciliation of Adjusted EBITDA to Income (loss) from 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) | | 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | $ | 10,687 |
| | $ | 11,343 |
| | 100.0 | % | | 100.0 | % |
Operating income | | 752 |
| | 646 |
| | 7.0 | % | | 5.7 | % |
Total depreciation and amortization | | 447 |
| | 461 |
| | N/A |
| | N/A |
|
Revenue in our TransportationNorth American LTL segment decreased 5.8%increased 16.4% to $10.7$4.1 billion in 2019,2021, compared with $11.3$3.5 billion in 2018. 2020. Revenue included fuel surcharge revenue of $632 million and $433 million, respectively, for the years ended December 31, 2021 and 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:
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| | 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 primarily impacted by a reduction in business from our largest customer of approximately $510 million. This revenue loss was largely related to our freight brokerage and direct postal injection businesses, the latter of which ceased operations in the first quarter of 2019. Additionally, revenue in 2019 reflected lower truckload rates in freight brokerage, partially offset by growth in our managed transportation business. Foreign currency movement reduced revenue by approximately 1.5 percentage points in 2019.
Operating income in our Transportation segment increased to $752$904 million, or 7.0%21.9% of revenue, in 2019,2021, compared with $646$764 million, or 5.7%21.6% of revenue, in 2018.2020. The improvementincrease in adjusted EBITDA was primarily reflecteddriven by higher gains on sales of propertyrevenue and equipment of $97 million and higher net revenue,pension income, partially offset by higher personnel, coststhird-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 SG&A. Of the gains on sales of property and equipment, $872021, compared with $77 million wasin 2020.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Revenue in our North American LTL business,segment decreased 6.6% to $3.5 billion in 2020, compared with $3.8 billion in 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:
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| | 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 portiondecrease 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 $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 lower revenue and higher facility costs, partially offset by lower fuel, third-party transportation and personnel costs, as well as higher pension income. Additionally, adjusted EBITDA included $77 million and $88 million in 2020 and 2019, respectively, of gains from real estate transactions.
Brokerage and Other Services Segment
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| | 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, 2021 Compared with Year Ended December 31, 2020
Revenue in our Brokerage and Other Services segment increased 31.0% to $8.9 billion in 2021, compared with $6.8 billion in 2020. The increase in revenue compared to 2020 reflects an increase in North American truck brokerage loads per day facilitated by our digital platform, as well as strength in other brokerage services, in part due to improving market conditions in the economic recovery from the COVID-19 pandemic. These gains were partially offset by the impact of the gain relatedglobal semiconductor shortage, which constrained customer demand for freight transportation services in North America and Europe. Foreign currency movement increased revenue by approximately 1.4 percentage points in 2021.
Adjusted EBITDA was $547 million, or 6.1% of revenue 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 strong pricing in other brokerage services, partially offset by higher compensation and facilities costs.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Revenue in our Brokerage and Other Services segment decreased 3.4% to $6.8 billion in 2020, compared with $7.0 billion in 2019. The decline in revenue primarily reflected the saleimpact of COVID-19 and partial leasebacklower fuel revenue. Foreign currency movement increased revenue by approximately 0.7 percentage points in 2020.
Adjusted EBITDA was $284 million, or 4.2% of our shared service facilityrevenue in Portland, Oregon. Additionally, 2018 reflected litigation costs2020, compared with $406 million, or 5.8% of $26 million for independent contractor matters.revenue, in 2019. The decrease in adjusted EBITDA was primarily driven by lower revenue, partially offset by lower third-party transportation, fuel and personnel costs. Depreciation and amortization expense in 2019 included $6 million related to the impairment of customer relationship intangiblesintangible assets associated with exiting the direct postal injection business. Net revenue is defined as Revenue less Cost of transportation and services.
Logistics Segment
Summary Financial Table
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| | For the Years Ended December 31, | | Percent of Logistics Revenue |
(In millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Revenue | | $ | 6,093 |
| | $ | 6,065 |
| | 100.0 | % | | 100.0 | % |
Operating income | | 241 |
| | 216 |
| | 3.9 | % | | 3.5 | % |
Total depreciation and amortization | | 277 |
| | 244 |
| | N/A |
| | N/A |
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Revenue in our Logistics segment increased by 0.5% to $6.09 billion in 2019, compared with $6.07 billion in 2018. The increase in revenue compared to 2018 was primarily driven by growth of our North American contract logistics business, partially offset by a reduction in business from our largest customer and a decline in contract logistics revenue in Europe, primarily due to foreign currency movement. The impact to our North American contract logistics’ revenue from the reduction in business by our largest customer was approximately $60 million less revenue in 2019. The growth of our North American contract logistics business was led by our food and beverage, consumer packaged goods and aerospace sectors, and by e-commerce in Europe. Foreign currency movement reduced revenue growth by approximately 3.0 percentage points in 2019. Logistics segment revenue for 2019 was negatively impacted by approximately 4 percentage points from the combined impact of foreign exchange movement and the reduction in business from our largest customer.
Operating income in our Logistics segment increased in 2019 to $241 million, or 3.9% of revenue, compared with $216 million, or 3.5% of revenue, in 2018. The increase was primarily driven by higher revenue and lower costs of transportation and services and temporary labor costs, partially offset by new contract startups that required more personnel costs. The lower costs of transportation and services and temporary labor costs reflect a reduction in business from our largest customer. Depreciation and amortization expense increased year-over-year due to the impact of prior capital investments and new contract startups.
Liquidity and Capital Resources
Our principal existing sources of cash are:are (i) cash generated from operations,operations; (ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”“ABL Facility”); and (iii) proceeds from the issuance of other debt. As of December 31, 2019,2021, we have $713$995 million available to draw under the our ABL Facility,, based on a borrowing base of $927 million, as well as$1.0 billion and outstanding letters of credit of $214$5 million. Additionally, under a credit agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $198 million in aggregate face amount of letters of credit as of December 31, 2021.
In July 2021, we amended our existing ABL facility which matures in April 2024 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, including the maturity date, the interest rate margin, and financial covenants. |
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| | December 31, |
(In millions) | | 2019 | | 2018 |
Cash and cash equivalents | | $ | 377 |
| | $ | 502 |
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Working capital | | 84 |
| | 375 |
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The decrease in working capital of $291 million during 2019 was primarily due to recognition of short-term operating leases under the lease accounting standard adopted in 2019 and lowerOur cash and cash equivalents partially offset bybalance was $260 million as of December 31, 2021, compared to $1.7 billion as of December 31, 2020. The decrease in cash and cash equivalents is largely due to the repayment of our unsecured credit facilitydebt in 2019.2021 described below.
We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our 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.
In July 2019, XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, entered intoOur European business participates in a new, three-year trade receivables securitization program co-arranged by Crédit Agricole, BNP Paribas and HSBCtwo European banks (the “Purchasers”) and terminated its prior program.. Under the new program, a wholly-owned bankruptcy remotebankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom and France.France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO Logistics Europe based on itsour control of the entity’s activities. Our subsidiary sells these trade receivables to unaffiliated entities managed by the Purchasers. Under the terminated priorThe program the receivables were originally funded by senior variable funding notesexpires in the same currency as the corresponding receivables. The receivables balance under the terminated program were originally reported as Accounts receivable on our Consolidated Balance Sheets and the related notes were included in our Long-term debt. See Note 12—Debt to our Consolidated Financial Statements for additional information related to our receivables securitization secured borrowing program. In connection with the termination of the prior program, XPO Logistics Europe paid off all of the notes which had been included in our debt balances. The new three year program has lower financing costs and provides us with better liquidity through a higher advance rate.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. We account for transfers under our securitization programs as either sales or secured borrowings based on an evaluation of whether control has transferred. In instances where we do not meet the criteria for surrender of control, the transaction was accounted for as a secured borrowing. For these transactions, the receivables remained on our Consolidated Balance Sheets and the notes were reflected within debt. For transfers, in the securitization programs where we have surrendered control of the receivables, the transactions are accounted for as sales and the receivables are derecognizedremoved from our Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any of our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial.
Under the terminated Our trade receivables securitization program if transfers were accounted for as sales, the consideration received includedpermits us to borrow, on an unsecured basis, cash collected in a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable was not a trade receivable and was recorded basedservicing capacity on its fair value and reportedpreviously sold receivables, which we report within Other current assetsshort-term debt on our Consolidated Balance Sheets. The cash payment which we received on the date of the transfer was reflected within Net cash provided by operating activities. As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity. As of December 31, 2018, the balance of deferred purchaseSheets.
price receivable reflected within Other current assets was $52 million. The new program does not include a deferred purchase price mechanism and all transfers of eligible receivables under the new program are accounted for as sales.
The maximum amount of net cash proceeds available at any one time under the newsecuritization program, inclusive of any unsecured borrowings, is €400€200 million (approximately $448$227 million as of December 31, 2019)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, 2019, €65 million (approximately $73 million)2021, the maximum amount available under the program was available to us based on the level of receivables sold and outstanding as of that date.utilized.
Under the newcurrent program, sales of receivables transfer control to the Purchaser and therefore are accounted for as a reduction in accounts receivable. Wewe 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.Purchasers. In 20192021 and 2018,2020, we collected cash as servicer of $2.168$1.7 billion and $119 million,$1.4 billion, respectively.
Information related to the trade receivables sold was as follows:
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| | 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 | |
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Factoring programs | | | | | | |
Receivables sold in period | | 72 | | | 76 | | | 64 | |
Cash consideration | | 72 | | | 75 | | | 65 | |
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| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Securitization programs (1) | | | | | | |
Receivables sold in period | | $ | 2,231 |
| | $ | 231 |
| | $ | — |
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Cash consideration | | 2,095 |
| | 179 |
| | — |
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Deferred purchase price | | 135 |
| | 52 |
| | — |
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Factoring programs | | | | | | |
Receivables sold in period | | 858 |
| | 663 |
| | 119 |
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Cash consideration | | 854 |
| | 660 |
| | 119 |
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(1) Information for the years ended December 31, 2021, 2020 and 2019 exclude the impact of the Logistics segment. | |
(1) | Receivable transfers under the securitization programs are accounted for as either sales or secured borrowings. In the prior program, a portion of the transfers were accounted for as secured borrowings while under the new program, all transfers are accounted for as sales. This change had the effect of increasing the amount of trade receivables we reported as sold in 2019. |
In addition to the cash considerations referenced above, we received $186$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 2015,2020, we entered into the ABL Facility that provided commitments of up to $1.0 billion with a maturity date of October 30, 2020. In 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 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 (iii) reducingmay automatically renew with one-year terms until the interest rate margin. We can issue up to $350letter 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 up to $50 millionwarranties and affirmative and negative covenants customary for swing line loans under the ABL Facility.financings of this type as well as customary events of default.
Term Loan FacilityFacilities
In 2015,2021, 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 Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) that provided for a single borrowingand borrowed an additional $500 million of $1.6 billion. The Term Loan Credit Agreement has been amended since its inception, including the execution ofincremental loans under a new tranche of loans in 2019, reduction of interest rates and extension of maturity dates. 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 2018,the third quarter of 2021, we refinancedredeemed our term loans with substantially similar terms asoutstanding 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 prior term loans, except with respectproceeds 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 interest rateredemption of the Senior Notes due 2023 and maturity date, prepayment premiumsSenior 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 some other amendments tounpaid interest. We paid for the restrictive covenants. Proceedsredemption with available cash, including the net proceeds from the refinancing were used primarily to repay the prior term loans and to pay interest, fees and expenses in connection with this refinancing. issuance of our 6.25% senior notes due 2025 (“Senior Notes due 2025”) as described below. We recorded a debt extinguishment loss of $10$5 million in 20182021 due to this refinancing.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 oura private placement of $1.0$1.0 billion aggregate principal amount of senior notes (“our Senior Notes due 2024”).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.
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. We paid for the redemption primarily with funds from the settlement of our forward sale agreements, described below. We recorded a debt extinguishment loss of $17 million in 2018 due to this redemption.Statements.
Unsecured Credit Facility
In December 2018, we entered into a $500$500 millionUnsecured Credit Facility. As of December 31, 2018, we hadFacility and borrowed $250 million.$250 million. We borrowed an additional $250$250 million in January 2019. We used the proceeds of both borrowings to finance a portion of our share repurchases described in Note 14—Stockholders’Stockholders�� Equity to our Consolidated Financial Statements.Statements. In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Facility and terminated it in February 2019. We recorded a debt extinguishment loss of $5$5 million in 2019 in connection with this repayment.
Preferred Stock and Warrant Exchanges
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 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 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.
In 2021, the remaining 1,015 preferred shares were exchanged, and we 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 Repurchases
In December 2018, our Board of Directors authorized the repurchase of up to $1$1 billion of our common stock, (the “2018 Program”), which was completed in the first quarter of 2019. The share repurchases were funded by our Unsecured Credit Facility and our available cash.
In February 2019, our Board of Directors authorized additional repurchases of up to $1.5$1.5 billion of our common stock (the “2019 Program”).stock. The 2019 authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. The share purchases under the 2019 Program werethis program have been funded by our available cash and proceeds from our new2019 debt offerings.
There were no share repurchases in 2021. Our remaining share repurchase authorization as of December 31, 2021 is $503 million. Information regarding our shares repurchased, based on settlement date, in 2020 and 2019 were as follows:
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| | Years Ended December 31, |
(In millions, except per share data) | | 2019 | | 2018 |
| | 2019 Program | | 2018 Program | | 2018 Program |
Shares purchased and retired | | 17 | | 8 | | 10 |
Aggregate value | | $ | 883 |
| | $ | 464 |
| | $ | 536 |
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Average price per share | | $ | 50.70 |
| | $ | 59.47 |
| | $ | 53.46 |
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Remaining authorization | | $ | 617 |
| | $ | — |
| | $ | 464 |
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Equity Offering and Forward Sale Agreements
In July 2017, we completed a registered underwritten offering of 11 million shares of our common stock at a public offering price of $60.50 per share (the “Offering”). Of the 11 million shares of common stock, we offered five million shares directly and six million shares were offered in connection with forward sale agreements (the “Forward Sale Agreements”). The Offering closed in July 2017 and we received $290 million of proceeds ($288 million net of fees and expenses) from the sale of the five million shares. We used the net proceeds for general corporate purposes. In July 2018, we settled the forward sales in full by delivering six million shares of our common stock to the counterparties in the agreements and received $349 million of net cash proceeds. We used these net cash proceeds to repay our Senior Notes due 2022 as described above.
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| | | 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, 2019,2021, 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”) phase out at the end of 2021 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. Risk1A, “Risk Factors.”
Sources and Uses of Cash
Our cash flows from operating, investing and financing activities from continuing operations, as reflected on our Consolidated Statements of Cash Flows,, are summarized as follows:
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| | 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) | |
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| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 |
Net cash provided by operating activities | | $ | 791 |
| | $ | 1,102 |
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Net cash used in investing activities | | (161 | ) | | (400 | ) |
Net cash used in financing activities | | (759 | ) | | (620 | ) |
Effect of exchange rates on cash, cash equivalents and restricted cash | | 2 |
| | (17 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | | $ | (127 | ) | | $ | 65 |
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During 2019,2021, we: (i) generated cash from operating activities from continuing operations of $791$656 million; (ii) generated proceeds from sales of property and equipment of $252$132 million; (iii) collected $186received a distribution from GXO of $794 million on the deferred purchase price receivable; and (iv) receivedgenerated proceeds of $1.8 billion on our debt.$384 million from the issuance of common stock. We used cash during this period primarily to: (i) purchase property and equipment of $601$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 and (iv) make payments on debt and finance leases of $80 million.
During 2020, we: (i) generated cash from operating activities from continuing operations of $388 million; (ii) generated proceeds from sales of property and equipment (primarily real estate) of $183 million and (iii) received net proceeds of $1.4 billion from our issuances of debt and short-term borrowings. We used cash during this period primarily to: (i) purchase property and equipment of $303 million; (ii) repurchase common stock of $1.3 billion;$114 million and (iii) make payments on debt and finance leases of $867 million; (iv) purchase noncontrolling interests of $258 million; and (v) pay debt issuance costs of $28$65 million.
During 2018, we: (i) generated cash from operating activities of $1,102 million; (ii) received proceeds of $349 million from our forward sale settlement; and (iii) generated proceeds from sales of property and equipment of $143 million. We used cash during this period principally to: (i) purchase property and equipment of $551 million; (ii) repurchase common stock of $536 million; (iii) make repurchases, net of proceeds, of $151 million on our debt; (iv) make payments on debt and finance leases of $119 million; (v) make payments, net of proceeds, of $100 million on our ABL Facility; and (vi) make payments for tax withholdings on restricted shares of $53 million.
Cash flows from operating activities from continuing operations for 2019 decreased2021 increased by $311$268 million compared with 2018.2020. The increase reflects higher income from continuing operations of $336 million for 2021 compared with the same period in 2020, partially offset by greater use of cash for working capital in 2021 than in the prior-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 $14 million of lower cash generatedincome from net income and $297 million of higher cash usage from operating assets and liabilities for 2019 compared with 2018. The changes incontinuing operations, partially offset by the balancesimpact of operating assets and liabilities utilizing $84 million less cash in 20192020. Within operating assets and liabilities, accrued expenses and other liabilities was a source of cash for 2020 as compared to 2018 resulteda use of cash in 2019. This fluctuation primarily from: (i)reflects 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 higher cash usage related to accounts payable reflecting the timing of payments; (ii) $100 millionresult 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 $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 7 years. For further information on our operating leases and tax payments in 2019; (iii) higher severance payments in 2019 undertheir maturities, see Note 8—Leases to our approved restructuring programs; and (iv) a payment in 2019 of litigation costs for independent contractor matters.Consolidated Financial Statements.
Investing activities from continuing operations used $161$184 million of cash in 20192021 compared with $400$116 million used in 2018.2020 and $67 million used in 2019. During 2019, we: (i) used $601 million of cash to purchase property and equipment; (ii) received $252 million from sales of property and equipment; and (iii) received proceeds of $186 million related to the realization of cash on the deferred purchase price receivable. During 2018,2021, we used $551$313 million of cash to purchase property and equipment and received $143$132 million from sales of property and equipment. During 2020, we used $303 million of cash to purchase property and equipment and received $183 million of cash from the sales of property and equipment.
Financing activities During 2019, we used $759$379 million of cash to purchase property and equipment, received $237 million of cash from
sales of property and equipment and received proceeds of $75 million related to the realization of cash on deferred purchase price receivable. We anticipate net capital expenditures to be between $425 million and $475 million in 20192022, funded by cash on hand and available liquidity.
Financing activities from continuing operations used $1.9 billion of cash in 2021 compared with $620$1.2 billion of cash generated in 2020 and $201 million used in 2018.2019. The primary uses of cash in 2019 were: (i) $1.3from financing activities from continuing operations during 2021 were $2.8 billion used to purchase our common stock; (ii) $779redeem the senior notes due 2022, 2023 and 2024 and $200 million used to repay borrowings under the Unsecured Credit Facility and the senior variable funding notes in connection with the termination of our
prior trade securitization program; and (iii) $258 million used to purchase a shareholder’s noncontrolling interest in XPO Logistics Europe SA. ABL Facility. The primary 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 2020 were $1.1 billion of net proceeds from the issuance of Senior Notes due 2025; $200 million of proceeds from borrowings on our ABL Facility, net of payments, and $23 million from net borrowings related to our securitization program. The primary uses of cash from financing activities from continuing operations in 2020 were $114 million used to repurchase XPO common stock and $65 million used to repay debt and finance 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 used to repay debt and finance leases. The primary source of cash from financing activities from continuing operations in 2019 was $1.7 billion of net proceeds from the issuance of debt as described above. By comparison, the primary useslong-term debt.
As of cash from financing activities in 2018 was $1,225 million repurchaseDecember 31, 2021, we had $3.5 billion total outstanding principal amount of debt, $536excluding finance leases. We have no significant debt maturities until 2025. Interest on our ABL and Term Loan facilities are variable, while interest on our senior notes are at fixed rates. Future interest payments associated with our debt total $623 million repurchase of common stockat December 31, 2021, with $130 million payable within 12 months, and $119 million repaymentare estimated based on the principal amount of debt and finance leases. The main sourceapplicable interest rates as of cash from financing activities in 2018 was $1,064December 31, 2021. Additionally, as of December 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 ofnext twelve months. For further information on our debt facilities and $349 million of proceeds frommaturities, see Note 12—Debt to our forward sale settlement.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 sponsor both funded and unfunded defined benefit plans for some employees in the U.S. and internationally. The largest of these plans include the funded U.S. plan and the unfunded U.S. plan and the funded U.K. plan. Historically, we have realized income, rather than expense, from these plans. We generated aggregate income from our U.S. and U.K. plans of $54$61 million in 2019, $742021, $48 million in 20182020 and $44$24 million in 2017.2019. 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 |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2021 | | 2020 | | 2021 | | 2020 |
Discount rate - net periodic benefit costs | | 4.08 | % | | 3.14% - 3.38% | | 3.65% - 3.95% | | 2.84% - 3.21% | | 2.56 | % | | 2.21 | % | Discount rate - net periodic benefit costs | | 1.96 | % | | 2.96 | % | | 1.11% - 1.71% | | 2.40% - 2.78% |
Discount rate - benefit obligations | | 3.35 | % | | 4.18% - 4.39% | | 2.72% - 3.20% | | 3.93% - 4.28% | | 2.04 | % | | 2.85 | % | 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 20192021 pre-tax pension income by $2 million each for the U.S. plans and U.K. plan, respectively.approximately $3 million.
Beginning in 2018, we started usingWe use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment. Before 2018, we estimated the interest cost component by using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. Our new approach provides a more precise measurement of interest costs by improving the correlation between projected benefit cash flows and their corresponding spot rates. The change did not impact the measurement of our U.S. and U.K. pension benefit obligation and has been accounted for as a change in accounting estimate and 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 using a long-term liability-driven investment strategy that seeks to mitigate the 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, 2019,2021, our expected return on plan assets was $90$101 million, for the U.S. plans and $58 million for the U.K. plan, compared to the actual return on plan assets of $353 million for the U.S. plans and $138 million for the U.K. plan.$25 million. The actual annualized return on plan assets for the U.S. plans for 20192021 was approximately 22%1%, which was abovebelow the expected return on asset assumption for the year due to positivenegative performance in a strong long duration fixed income market environment, which represented over 81%86% of the portfolio, andpartially offset by positive performance from the domestic and international equity markets. The actual annualized return on plan assets for the U.K. plan for 2019 was approximately 11%, which was above the expected return on asset assumption for the year as a result of strong performances across equity and credit asset classes. An increase or decrease of 25 basis points in the expected return on plan assets would increase or decrease our 20192021 pre-tax pension income by $4 million for the U.S. 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 $5$43 million for the U.S. plans and $54 million for the U.K. plan as of December 31, 2019.2021. 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 2020.
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 20202022 of $48 million for the U.S. plans and $36 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 contributed $5$6 million in 2021 and 2020 to the U.S.non-qualified plans, in 2019 and 2018, respectively, and we estimate that we will contribute $5 million to the U.S. plans in 2020.2022.
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 contributed $2 million and $3 million to the U.K. plan in 2019 and 2018, respectively. We estimate that we will contribute $3 million to the U.K. plan in 2020.
For additional information, see Note 13—Employee Benefit Plans to our Consolidated Financial Statements.
Contractual Obligations
Our contractual obligations as of December 31, 2019 were:
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
(In millions) | | Total | | 2020 | | 2021-2022 | | 2023-2024 | | Thereafter |
Contractual obligations | | | | | | | | | | |
Finance leases | | $ | 403 |
| | $ | 71 |
| | $ | 131 |
| | $ | 119 |
| | $ | 82 |
|
Operating leases (1) | | 2,665 |
| | 553 |
| | 908 |
| | 542 |
| | 662 |
|
Purchase commitments | | 92 |
| | 50 |
| | 37 |
| | 4 |
| | 1 |
|
Debt (excluding finance leases) | | 5,072 |
| | 26 |
| | 1,204 |
| | 1,537 |
| | 2,305 |
|
Interest on debt (2) | | 1,331 |
| | 279 |
| | 517 |
| | 334 |
| | 201 |
|
Total contractual cash obligations | | $ | 9,563 |
| | $ | 979 |
| | $ | 2,797 |
| | $ | 2,536 |
| | $ | 3,251 |
|
| |
(1) | As of December 31, 2019, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $176 million. These operating leases will commence in fiscal year 2020 through fiscal year 2035 with initial lease terms of 4 years to 15 years.
|
| |
(2) | Estimated interest payments have been calculated based on the principal amount of debt and the applicable interest rates as of December 31, 2019. |
As
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 our Consolidated Financial Statements. The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently 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
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We 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 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.
For our 2019 goodwill assessment, we performed a quantitative analysis for all five of our reporting units using a combination of income and market approaches, with the assistance of a third-party valuation appraiser. As of August 31, 2019, we completed our annual impairment tests for goodwill with all of our reporting units having fair values in excess of their carrying values.
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 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 of our three reporting units. Based on the qualitative assessments performed, we concluded that it iswas not more-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, 2019performed, and2018, we did not recognize any goodwill impairment.
For our 2020 goodwill assessment, we performed a quantitative analysis for the five 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 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. Our forecasts also reflect 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 our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense.Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are 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. Additionally, claims 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-notmore 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.
New Accounting Standards
Information related to new accounting standards is included in Note 2—Basis of Presentation and Significant Accounting Policies and Note 8—Leases to our Consolidated Financial Statements in this Annual Report on Form 10-K.Policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our 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, 2019,2021, we had an aggregate principal amount outstanding of $2,003 million$2.0 billion on our Term Loan Facility.Facilities. The interest rate fluctuates based on the LIBOR or a Base Rate, as defined in the agreement, plus an applicable margin. Assuming an average annual aggregate principal amount outstanding of $2,003 million,$2.0 billion, a hypothetical 1% increase in the interest rate would have increased our annual interest expense by $20 million. Additionally, we utilize short-term interest rate swaps to mitigate variability in forecasted interest payments on our Term Loan Facility.Facilities. The interest rate swaps convert floating-rate interest payments into fixed rate interest payments.
ABL 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 $1.1$1.0 billion ABL Facility was fully drawn throughout 2019,2021, a hypothetical 1% change in the interest rate would have increased our annual interest expense by $11 million.
Asset Financing. As of December 31, 2019, we had outstanding $11 million aggregate principal amount of asset financing. Most of our Asset Financing arrangements have 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 $11 million, a hypothetical 1% increase in the interest rate would increase our annual interest expense by less than $1$13 million.
Fixed Rate Debt. As of December 31, 2019,2021, we had an aggregate$1.6 billion of $3.1 billionfair value of indebtedness (excluding finance leases) that bears interest at fixed rates. A 1% decrease in market interest rates as of December 31, 20192021 would increase the fair value of our fixed-rate indebtedness by approximately 4%. For additional information concerning our debt, see Note 12—Debt to our 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
A significant proportion of our net assets and income are in non-U.S. dollar (“USD”USD”) currencies, primarily the euro (“EUR”EUR”) and British pound sterling (“GBP”GBP”). We are exposed to currency risk from 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 cross-currency swap agreements to partially manage the related foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated notes, including the interest payments, to fixed-rate, EUR-denominated debt. The risk management objective is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies.
We periodically use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or GBP as their functional currency.
As of December 31, 2019,2021, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in a decrease in net assets of $32 million. As of December 31, 2019,2021, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of $53$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 price fluctuations for diesel fuel purchased for use in our vehicles. During the year ended December 31, 2019,2021, diesel prices fluctuated by as much as 14%20% in France, 11%30% in the United Kingdom, and 7%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
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, 20192021 and 2018,2020, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity and cash flows for each of the years in the three-year period ended December 31, 2019,2021, 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, 2019,2021, 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, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019,2021, 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, 20192021 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Notes 2 and 8 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standard Update (ASU) No. 2016-02, Leases and its related amendments (Topic 842).
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 Control 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 (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.
AssessmentEvaluation of the estimated liabilitiestax-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 large-deductible purchased insurance to provide for the costs of liability, vehicular, and workers’ compensation claims (“self-insured 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.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, 2019.2021.
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 significantsubjective auditor judgment. FactorsAssumptions 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.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 modelsassumptions used to assess these estimates.
The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls over the Company’s self-insurance process includingprocess. This included controls over the assumptions used in estimating the liability.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 includeincluded 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•comparing the Company’s actuarial reserving methodologies with generally accepted actuarial standards;methods and procedures
Evaluating•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;trends and severity factors
Developing•developing an independent expected range of reserves,liabilities, including reservesliabilities for claims that have
been incurred but have not been recorded, based on actuarial methodologies in order to evaluate the Company’s estimated liabilities; and
Comparing•comparing the Company’s recorded liability to anthe independently developed liability range.
Assessment of the carrying value of goodwill
As discussed in notes 2 and 9 to the consolidated financial statements, the goodwill balance as of December 31, 2019 was $4,450 million. The Company performs goodwill impairment testing annually, or more frequently if events or circumstances indicate the carrying value of a reporting unit that includes goodwill might exceed the fair value of that reporting unit. The Company uses a combination of an income approach and a market based approach in assessing the carrying value of its goodwill. The income approach is based on the present value of estimated future cash flows, discounted at a risk-adjusted rate to estimate the fair value of the reporting units. The market approach is based on comparable market multiples for public companies engaged in similar business, as well as recent transactions within the industry and related data.
We identified the assessment of the carrying value of goodwill for each of the Company’s reporting units as a critical audit matter. Assessment of certain assumptions utilized to estimate fair value under the income approach, including long-term future growth rates and the risk adjusted discount rate, required significant auditor judgment. Additionally, assessment of the guideline public companies and transactions within the industry used to estimate fair value under the market approach required significant auditor judgment. Changes to these assumptions can have a significant effect on the Company’s assessment of the carrying value of the goodwill.
The primary procedures performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s goodwill impairment assessment process, including controls related to the determination of the fair value of the reporting unit, the estimate of long-term future growth rates, the assumptions used to develop the risk-adjusted discount rate, and the determination of the guideline public companies and transactions within the industry. Performed sensitivity analyses over the fair value model and long-term future growth rates to assess their impact on the Company’s determination of the fair value of each reporting unit. Compared the Company’s historical growth rate forecast to actual results to assess the Company’s ability to accurately forecast. Involved a valuation professional with specialized skill and knowledge who assisted in:
Comparing the valuation methodologies used by the Company to valuation standards;
Comparing the Company’s risk adjusted discount rate to a risk adjusted discount rate range that was independently developed using publicly available third-party market data for comparable entities;
Comparing the long-term growth rate to industry data, economic growth data, and long-term growth rates utilized in prior years’ valuation analyses by the Company; and
Evaluating the guideline public companies and transactions utilized by the Company by reading the Capital IQ business descriptions, examining financial metrics of the comparable public companies and transactions within the industry, and considering market participant guidance and perspective.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
Stamford, Connecticut
February 10, 2020
16, 2022
XPO Logistics, Inc.
Consolidated Balance Sheets
| | | | December 31, | | December 31, |
(In millions, except per share data) | | 2019 | | 2018 | (In millions, except per share data) | | 2021 | | 2020 |
ASSETS | | | | | ASSETS | | | | |
Current assets: | | | | | |
Current assets | | Current assets | |
Cash and cash equivalents | | $ | 377 |
| | $ | 502 |
| Cash and cash equivalents | | $ | 260 | | | $ | 1,731 | |
Accounts receivable, net of allowances of $58 and $52, respectively | | 2,500 |
| | 2,596 |
| |
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 | | 465 |
| | 590 |
| Other current assets | | 286 | | | 303 | |
Current assets of discontinued operations | | Current assets of discontinued operations | | 26 | | | 1,664 | |
Total current assets | | 3,342 |
| | 3,688 |
| Total current assets | | 2,677 | | | 5,378 | |
Property and equipment, net of $2,054 and $1,585 in accumulated depreciation, respectively | | 2,704 |
| | 2,605 |
| |
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 | | 2,245 |
| | — |
| Operating lease assets | | 908 | | | 844 | |
Goodwill | | 4,450 |
| | 4,467 |
| Goodwill | | 2,479 | | | 2,536 | |
Identifiable intangible assets, net of $850 and $706 in accumulated amortization, respectively | | 1,092 |
| | 1,253 |
| |
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 | | 295 |
| | 257 |
| Other long-term assets | | 255 | | | 187 | |
Long-term assets of discontinued operations | | Long-term assets of discontinued operations | | — | | | 4,666 | |
Total long-term assets | | 10,786 |
| | 8,582 |
| Total long-term assets | | 6,030 | | | 10,799 | |
Total assets | | $ | 14,128 |
| | $ | 12,270 |
| Total assets | | $ | 8,707 | | | $ | 16,177 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities: | | | | | |
Current liabilities | | Current liabilities | |
Accounts payable | | $ | 1,157 |
| | $ | 1,258 |
| Accounts payable | | $ | 1,110 | | | $ | 854 | |
Accrued expenses | | 1,414 |
| | 1,480 |
| Accrued expenses | | 1,107 | | | 1,044 | |
Short-term borrowings and current maturities of long-term debt | | 84 |
| | 367 |
| Short-term borrowings and current maturities of long-term debt | | 58 | | | 1,281 | |
Short-term operating lease liabilities | | 468 |
| | — |
| Short-term operating lease liabilities | | 170 | | | 152 | |
Other current liabilities | | 135 |
| | 208 |
| Other current liabilities | | 69 | | | 102 | |
Current liabilities of discontinued operations | | Current liabilities of discontinued operations | | 24 | | | 1,728 | |
Total current liabilities | | 3,258 |
| | 3,313 |
| Total current liabilities | | 2,538 | | | 5,161 | |
Long-term liabilities | | Long-term liabilities | | | | |
Long-term debt | | 5,182 |
| | 3,902 |
| Long-term debt | | 3,514 | | | 5,240 | |
Deferred tax liability | | 495 |
| | 444 |
| Deferred tax liability | | 316 | | | 286 | |
Employee benefit obligations | | 157 |
| | 153 |
| Employee benefit obligations | | 122 | | | 131 | |
Long-term operating lease liabilities | | 1,776 |
| | — |
| Long-term operating lease liabilities | | 752 | | | 696 | |
Other long-term liabilities | | 364 |
| | 488 |
| Other long-term liabilities | | 327 | | | 384 | |
Long-term liabilities of discontinued operations | | Long-term liabilities of discontinued operations | | — | | | 1,430 | |
Total long-term liabilities | | 7,974 |
| | 4,987 |
| 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, 2019 and 2018, respectively | | 41 |
| | 41 |
| |
Common stock, $0.001 par value; 300 shares authorized; 92 and 116 shares issued and outstanding as of December 31, 2019 and 2018, 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 | | 2,061 |
| | 3,311 |
| Additional paid-in capital | | 1,179 | | | 1,998 | |
Retained earnings | | 786 |
| | 377 |
| Retained earnings | | 43 | | | 868 | |
Accumulated other comprehensive loss | | (145 | ) | | (154 | ) | Accumulated other comprehensive loss | | (84) | | | (158) | |
Total stockholders’ equity before noncontrolling interests | | 2,743 |
| | 3,575 |
| Total stockholders’ equity before noncontrolling interests | | 1,138 | | | 2,709 | |
Noncontrolling interests | | 153 |
| | 395 |
| Noncontrolling interests | | — | | | 140 | |
Total equity | | 2,896 |
| | 3,970 |
| Total equity | | 1,138 | | | 2,849 | |
Total liabilities and equity | | $ | 14,128 |
| | $ | 12,270 |
| 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) | | 2019 | | 2018 | | 2017 | (In millions, except per share data) | | 2021 | | 2020 | | 2019 |
Revenue | | $ | 16,648 |
| | $ | 17,279 |
| | $ | 15,381 |
| Revenue | | $ | 12,806 | | | $ | 10,199 | | | $ | 10,681 | |
Operating expenses | | | | | | | |
Cost of transportation and services | | 8,303 |
| | 9,013 |
| | 8,132 |
| |
Direct operating expense | | 5,679 |
| | 5,725 |
| | 5,006 |
| |
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 | | 1,845 |
| | 1,837 |
| | 1,661 |
| Sales, general and administrative expense | | 1,322 | | | 1,210 | | | 1,068 | |
Total operating expenses | | 15,827 |
| | 16,575 |
| | 14,799 |
| |
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 | | 821 |
| | 704 |
| | 582 |
| Operating income | | 616 | | | 228 | | | 561 | |
Other expense (income) | | (54 | ) | | (109 | ) | | (57 | ) | |
Foreign currency loss | | 9 |
| | 3 |
| | 58 |
| |
Other income | | Other income | | (57) | | | (41) | | | (23) | |
Foreign currency (gain) loss | | Foreign currency (gain) loss | | (2) | | | (3) | | | 10 | |
Debt extinguishment loss | | 5 |
| | 27 |
| | 36 |
| Debt extinguishment loss | | 54 | | | — | | | 5 | |
Interest expense | | 292 |
| | 217 |
| | 284 |
| Interest expense | | 211 | | | 307 | | | 268 | |
Income before income tax provision (benefit) | | 569 |
| | 566 |
| | 261 |
| |
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) | | 129 |
| | 122 |
| | (99 | ) | 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 | | 440 |
| | 444 |
| | 360 |
| Net income | | 341 | | | 117 | | | 440 | |
Net income attributable to noncontrolling interests | | (21 | ) | | (22 | ) | | (20 | ) | |
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 | | $ | 419 |
| | $ | 422 |
| | $ | 340 |
| Net income attributable to XPO | | $ | 336 | | | $ | 110 | | | $ | 419 | |
| | | | | | | | | | | | |
Earnings per share data (Note 17): | | | | | | | |
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 | | $ | 379 |
| | $ | 390 |
| | $ | 312 |
| Net income attributable to common shareholders | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 3.95 |
| | $ | 3.17 |
| | $ | 2.72 |
| |
Diluted earnings per share | | $ | 3.57 |
| | $ | 2.88 |
| | $ | 2.45 |
| |
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 | | 96 |
| | 123 |
| | 115 |
| Basic weighted-average common shares outstanding | | 112 | | | 92 | | | 96 | |
Diluted weighted-average common shares outstanding | | 106 |
| | 135 |
| | 128 |
| Diluted weighted-average common shares outstanding | | 114 | | | 92 | | | 106 | |
See accompanying notes to consolidated financial statements.
XPO Logistics, Inc.
Consolidated Statements of Comprehensive Income
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Net income | | $ | 440 |
| | $ | 444 |
| | $ | 360 |
|
| | | | | | |
Other comprehensive income (loss), net of tax | | | | | | |
Foreign currency translation gain (loss), net of tax effect of $(7), $(6) and $47 | | $ | 23 |
| | $ | (100 | ) | | $ | 180 |
|
Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $(1) in all periods | | 4 |
| | (6 | ) | | 5 |
|
Defined benefit plans adjustment, net of tax effect of $1, $23 and $(29) | | (19 | ) | | (91 | ) | | 90 |
|
Other comprehensive income (loss) | | 8 |
| | (197 | ) | | 275 |
|
Comprehensive income | | $ | 448 |
| | $ | 247 |
| | $ | 635 |
|
Less: Comprehensive income (loss) attributable to noncontrolling interests | | 20 |
| | (5 | ) | | 72 |
|
Comprehensive income attributable to XPO | | $ | 428 |
| | $ | 252 |
| | $ | 563 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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) | | 2019 | | 2018 | | 2017 |
Operating activities | | | | | | |
Net income | | $ | 440 |
| | $ | 444 |
| | $ | 360 |
|
Adjustments to reconcile net income to net cash from operating activities | | | | | | |
Depreciation, amortization and net lease activity | | 739 |
| | 716 |
| | 658 |
|
Stock compensation expense | | 67 |
| | 49 |
| | 79 |
|
Accretion of debt | | 21 |
| | 15 |
| | 19 |
|
Deferred tax expense (benefit) | | 46 |
| | 45 |
| | (158 | ) |
Debt extinguishment loss | | 5 |
| | 27 |
| | 36 |
|
Unrealized loss (gain) on foreign currency option and forward contracts | | 9 |
| | (20 | ) | | 49 |
|
Gain on sale of equity investment | | — |
| | (24 | ) | | — |
|
Gains on sales of property and equipment | | (110 | ) | | (8 | ) | | (13 | ) |
Other | | 21 |
| | 8 |
| | 26 |
|
Changes in assets and liabilities: | | | | | | |
Accounts receivable | | (67 | ) | | (13 | ) | | (320 | ) |
Other assets | | (47 | ) | | (49 | ) | | (92 | ) |
Accounts payable | | (120 | ) | | 35 |
| | 140 |
|
Accrued expenses and other liabilities | | (213 | ) | | (123 | ) | | 1 |
|
Net cash provided by operating activities | | 791 |
| | 1,102 |
| | 785 |
|
Investing activities | | | | | | |
Payment for purchases of property and equipment | | (601 | ) | | (551 | ) | | (504 | ) |
Proceeds from sale of property and equipment | | 252 |
| | 143 |
| | 118 |
|
Cash collected on deferred purchase price receivable | | 186 |
| | — |
| | — |
|
Other | | 2 |
| | 8 |
| | — |
|
Net cash used in investing activities | | (161 | ) | | (400 | ) | | (386 | ) |
Financing activities | | | | | | |
Proceeds from issuance of debt | | 1,754 |
| | 1,074 |
| | 819 |
|
Repurchase of debt | | — |
| | (1,225 | ) | | (1,387 | ) |
Proceeds from borrowings on ABL facility | | 1,935 |
| | 1,355 |
| | 995 |
|
Repayment of borrowings on ABL facility | | (1,935 | ) | | (1,455 | ) | | (925 | ) |
Repayment of debt and finance leases | | (867 | ) | | (119 | ) | | (106 | ) |
Payment for debt issuance costs | | (28 | ) | | (10 | ) | | (17 | ) |
Proceeds from forward sale settlement | | — |
| | 349 |
| | — |
|
Proceeds from common stock offerings | | — |
| | — |
| | 288 |
|
Purchase of noncontrolling interests | | (258 | ) | | — |
| | — |
|
Repurchase of common stock | | (1,347 | ) | | (536 | ) | | — |
|
Payment for tax withholdings for restricted shares | | (14 | ) | | (53 | ) | | (17 | ) |
Dividends paid | | (8 | ) | | (8 | ) | | (7 | ) |
Other | | 9 |
| | 8 |
| | (9 | ) |
Net cash used in financing activities | | (759 | ) | | (620 | ) | | (366 | ) |
Effect of exchange rates on cash, cash equivalents and restricted cash | | 2 |
| | (17 | ) | | 16 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash | | (127 | ) | | 65 |
| | 49 |
|
Cash, cash equivalents and restricted cash, beginning of year | | 514 |
| | 449 |
| | 400 |
|
Cash, cash equivalents and restricted cash, end of year | | $ | 387 |
| | $ | 514 |
| | $ | 449 |
|
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for interest | | $ | 282 |
| | $ | 233 |
| | $ | 274 |
|
Cash paid for income taxes | | $ | 121 |
| | $ | 70 |
| | $ | 79 |
|
| | | | | | | | | | | | | | | | | | | | |
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, 2019, 20182021, 2020 and 20172019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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) Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders’ Equity | | Non-controlling Interests | | Total Equity |
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 |
|
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 |
|
XPO Logistics, Inc.
Consolidated Statements of Changes in Equity(continued)
For the Three Years Ended December 31, 2019, 20182021, 2020 and 20172019
| | | | Series A Preferred Stock | | Common Stock | | | | | | | | | | | | | | 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 Stockholders’ Equity | | Non-controlling Interests | | Total Equity | (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 |
| |
Balance as of December 31, 2020 | | Balance as of December 31, 2020 | | 1 | | | $ | 1 | | | 102,052 | | | $ | — | | | $ | 1,998 | | | $ | 868 | | | $ | (158) | | | $ | 2,709 | | | $ | 140 | | | $ | 2,849 | |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 419 |
| | — |
| | 419 |
| | 21 |
| | 440 |
| Net income | | — | | | — | | | — | | | — | | | — | | | 336 | | | — | | | 336 | | | 5 | | | 341 | |
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 9 |
| | 9 |
| | (1 | ) | | 8 |
| |
Other comprehensive loss | | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | (52) | | | (52) | | | (2) | | | (54) | |
Spin-off of GXO | | Spin-off of GXO | | — | | | — | | | — | | | — | | | (1,199) | | | (1,161) | | | 126 | | | (2,234) | | | (40) | | | (2,274) | |
Exercise and vesting of stock compensation awards | | — |
| | — |
| | 489 |
| | — |
| | 1 |
| | — |
| | — |
| | 1 |
| | — |
| | 1 |
| Exercise and vesting of stock compensation awards | | — | | | — | | | 392 | | | — | | | 2 | | | — | | | — | | | 2 | | | — | | | 2 | |
Tax withholdings related to vesting of stock compensation awards | | — |
| | — |
| | — |
| | — |
| | (14 | ) | | — |
| | — |
| | (14 | ) | | — |
| | (14 | ) | Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (28) | | | — | | | — | | | (28) | | | — | | | (28) | |
Issuance of common stock | | Issuance of common stock | | — | | | — | | | 2,875 | | | — | | | 384 | | | — | | | — | | | 384 | | | — | | | 384 | |
Conversion of preferred stock to common stock | | Conversion of preferred stock to common stock | | (1) | | | (1) | | | 145 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | |
Purchase of noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | — |
| | (3 | ) | | (255 | ) | | (258 | ) | Purchase of noncontrolling interests | | — | | | — | | | — | | | — | | | (34) | | | — | | | — | | | (34) | | | (100) | | | (134) | |
Retirement of common stock | | — |
| | — |
| | (23,932 | ) | | — |
| | (1,275 | ) | | — |
| | — |
| | (1,275 | ) | | — |
| | (1,275 | ) | |
Dividend paid | | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) | | (5 | ) | | (8 | ) | |
Dividend declared | | Dividend declared | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
Exercise of warrants | | Exercise of warrants | | — | | | — | | | 9,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock compensation expense | | — |
| | — |
| | — |
| | — |
| | 36 |
| | — |
| | — |
| | 36 |
| | — |
| | 36 |
| Stock compensation expense | | — | | | — | | | — | | | — | | | 52 | | | — | | | — | | | 52 | | | — | | | 52 | |
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 |
| |
Other | | Other | | — | | | — | | | 58 | | | — | | | 3 | | | — | | | — | | | 3 | | | — | | | 3 | |
Balance as of December 31, 2021 | | 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, 2019, 20182021, 2020 and 20172019
1. Organization
Nature of Operations
XPO Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services. We use an integrated network of people,our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and physical assets to help companies manage their goods most efficiently throughout their supply chains. Our customers are multinational, national, mid-size and small enterprises. We run our business on a global basis, with 2 reportable segments: Transportation and Logistics.truck brokerage services. See Note 4—Segment Reporting and Geographic Information for additional information on our segments.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 information on our discontinued operations, see Note 3—Discontinued Operations.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our consolidated financial statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these 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 recast prior year amounts to conform to the current year’s presentation.
Consolidation
Our consolidated financial statements include the accounts of XPO, Logistics, Inc. (“XPO” or “we”)our wholly-owned subsidiaries, and our majority-owned subsidiaries and variable interest entitiesentity (“VIEs”VIE”) where we are the primary beneficiary. We have eliminated intercompany accounts and transactions.
To determine if we are a primary beneficiary of a VIE,, we evaluate whether we are able to direct the activities that significantly impact the VIE’sVIE’s economic performance, including whether we control the operations of each VIE and whether we can operate the VIEs under our brand or policies. Investors in these the VIEs only have recourse to the assets owned by the VIE and not to our general credit. We do not have implicit support arrangements with any the VIE. We consolidate the VIE,. Other than which is comprised of the special purpose entity which we consolidate related to the European Trade Securitization Program discussed below in this Note and in Note 12—Debt, assets and liabilities of VIEs where we are the primary beneficiary are not significant to our consolidated financial statements.Debt.
We have a controlling financial interest in other entities generally when we own a majority of the voting interest. The noncontrolling interests reflected in our consolidated financial statements primarily relaterelated to a minority interest in XPO Logistics Europe SA (“XPO Logistics Europe”), formally known as Norbert Dentressangle SA (“ND”Europe”), a business we acquired majority ownership of in 2015. As describedIn
2021, we completed a buy-out offer and squeeze-out for the remaining 3% of XPO Logistics Europe that we did not already own at a cost of $128 million plus expenses. Previously, in Note 3—Purchase of Noncontrolling Interest,2020 and 2019, we purchased a portion of theshareholders’ noncontrolling interests in 2019. Following this acquisition, our noncontrolling interest was reduced to approximately 5% of XPO Logistics Europe. for €17 million (approximately $21 million) and €234 million (approximately $258 million), respectively.
Significant Accounting Policies
Revenue Recognition
We recognize revenue when we transfer control of promised products or services to customers in an amount equal to the consideration we expect to receive 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. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied. A description of our performance obligations for our transportation and logistics reportable segments is below.
Transportation
Our transportation segment generatesWe generate revenue by providing freightless-than-truckload, truck brokerage and other transportation services for our customers. Additional services may be provided to our customers under their transportation contracts, including 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. We recognize transportation revenue proportionally as a shipment moves from origin to destination and the related costs are recognized as incurred. Some of our customer contracts contain our promise to stand ready to provide transportation services. For these contracts, we recognize revenue on a straight-line basis over the term of the contract because the pattern of benefit to the customer, and 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 on shipment of the freight or on a monthly basis and make payment according to approved payment terms. When we do not control the specific services, we recognize revenue as the difference between the amount the customer pays us for the service less the amount we are charged to performby third parties who provide the service.
Logistics
Our logistics segment generates revenue by providing supply chain services for our customers, including warehousing, distribution, order fulfillment, packaging, reverse logistics and inventory management contracts ranging from a few months to a few years. Our performance obligations are satisfied over time as customers receive and consume the benefits of our services. The contracts contain a single performance obligation as the distinct services provided remain substantially the same over time and possess the same pattern of transfer. The transaction price is 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 incurred 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 determined based on the costs incurred, while per-unit pricing is determined based on units provided and time and materials pricing is determined based on the hours of services provided. The variable consideration component is recognized over time based on the level of activity.
Generally, we can adjust our pricing based on contractual provisions related to 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 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 they 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
We consider all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2019, 20182021, 2020 and 2017,2019, our restricted cash included in Other long-term assets on our Consolidated Balance Sheets was $10$10 million, $12$11 million and $52$10 million, respectively.
Accounts Receivable and Allowance for Doubtful AccountsCredit Losses
We record accounts receivable at the contractual amount and we record an allowance for doubtful accountscredit losses for the amount we estimate we may not collect. In determining the allowance for doubtful accounts,credit losses, we consider historical
collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay. Commencing 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 accountscredit losses was as follows:
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Beginning balance | | $ | 52 |
| | $ | 42 |
| | $ | 26 |
|
Provision charged to expense | | 34 |
| | 36 |
| | 24 |
|
Write-offs, less recoveries, and other adjustments | | (28 | ) | | (26 | ) | | (8 | ) |
Ending balance | | $ | 58 |
| | $ | 52 |
| | $ | 42 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
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.
In July 2019, XPO Logistics Europe, one of our majority-owned subsidiaries, entered intoOur European business participates in a new, three-year trade receivables securitization program co-arranged by Crédit Agricole, BNP Paribas and HSBC2 European banks (the “Purchasers”) and terminated its prior program.. Under the new program, a wholly-owned bankruptcy remotebankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom and France.France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO Logistics Europe based on itsour control of the entity’s activities. Our subsidiary sells these trade receivables to unaffiliated entities managed by the Purchasers. Under the terminated priorThe program the receivables were originally funded by senior variable funding notesexpires in the same currency as the corresponding receivables. See Note 12—Debt for additional information related to our receivables securitization secured borrowing program.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. We account for transfers under our securitization programs as either sales or secured borrowings based on an evaluation of whether control has transferred. In instances where we do not meet the criteria for surrender of control, the transaction was accounted for as a secured borrowing. For these transactions, the receivables remained on our Consolidated Balance Sheets and the notes were reflected within debt. For transfers, in the securitization programs where we have surrendered control of the receivables, the transactions are accounted for as sales and the receivables are derecognizedremoved from our Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any of our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial.
Under the terminated Our trade receivables securitization program if transfers were accounted for as sales, the consideration received includedpermits us to borrow, on an unsecured basis, cash collected in a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable was not a trade receivable and was recorded basedservicing capacity on its fair value and reportedpreviously sold receivables, which we report within Other current assetsshort-term debt on our Consolidated Balance Sheets. The cash payment which we receivedSheets. See Note 12—Debt for additional information on the date of the transfer was reflected within Net cash provided by operating activities. As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity. As of December 31, 2018, the balance of deferred purchase price receivable reflected within Other current assets was $52 million. The new program does not include a deferred purchase price mechanism and all transfers of eligible receivables under the new program are accounted for as sales.these borrowings.
The maximum amount of net cash proceeds available at any one time under the newsecuritization program, inclusive of any unsecured borrowings, is €400€200 million (approximately $448$227 million as of December 31, 2019)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, 2019, €65 million (approximately $73 million)2021, the maximum amount available under the program was available to us based on the level of receivables sold and outstanding as of that date.utilized. The weighted average interest rate was 0.86%0.50% as of December 31, 2019.2021. Charges for commitment fees, which are based on a percentage of available amounts, and charges for administrative fees were not material to our results of operations for the years ended December 31, 20192021, 2020 and 2018.
2019.
Information related to the trade receivables sold was as follows:
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Securitization programs | | | | | | |
Receivables sold in period | | $ | 2,231 |
| | $ | 231 |
| | $ | — |
|
Cash consideration | | 2,095 |
| | 179 |
| | — |
|
Deferred purchase price | | 135 |
| | 52 |
| | — |
|
| | | | | | |
Factoring programs | | | | | | |
Receivables sold in period | | 858 |
| | 663 |
| | 119 |
|
Cash consideration | | 854 |
| | 660 |
| | 119 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 $186$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
We generally record property and equipment 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.
We 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 1510 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 our outstanding debtthe 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.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—LeasesLeases.
Asset Retirement Obligations
A liability for an asset retirement obligation is recorded in the period in which it is incurred. When an asset retirement obligation liability is initially recorded, we 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
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We 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 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.
For our 2019 goodwill assessment, we performed a quantitative analysis for all 5 of our reporting units using a combination of income and market approaches, with the assistance of a third-party valuation appraiser. As of August 31, 2019, we completed our annual impairment tests for goodwill with all of our reporting units having fair values in excess of their carrying values.
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 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 of our 3 reporting units. Based on the qualitative assessments performed, we concluded that it iswas not more-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, 2019performed, and2018, we did not recognize any goodwill impairment.
For 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 in 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 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. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for our 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
Our intangible assets subject to amortization consist primarily of customer relationships and non-compete agreements.relationships. 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. An 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. An impairment loss is measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. We estimate fair value using the expected future cash flows discounted at a rate comparable with the risks associated with the recovery of the asset. We amortize intangible assets 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.
|
| | |
Classification | | Estimated Useful Life |
Customer relationships | | 5 to 16 years |
Non-compete agreements | | Term of agreement |
Accrued Expenses
The components of accrued expenses as of December 31, 2021 and 2020 are as follows:
|
| | | | | | | | |
| | As of December 31, |
(In millions) | | 2019 | | 2018 |
Accrued salaries and wages | | $ | 478 |
| | $ | 539 |
|
Accrued transportation and facility charges | | 454 |
| | 462 |
|
Accrued value-added tax and other taxes | | 163 |
| | 172 |
|
Other accrued expenses | | 319 |
| | 307 |
|
Total accrued expenses | | $ | 1,414 |
| | $ | 1,480 |
|
| | | | | | | | | | | | | | |
| | As of December 31, |
(In millions) | | 2021 | | 2020 |
Accrued salaries and wages | | $ | 375 | | | $ | 392 | |
Accrued transportation and facility charges | | 390 | | | 303 | |
Other accrued expenses | | 342 | | | 349 | |
Total accrued expenses | | $ | 1,107 | | | $ | 1,044 | |
Self-Insurance
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 our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense.
Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are 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. Changes in these assumptions and factors can impact 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
We retire shares purchased under our share repurchase program and return them to authorized and unissued status. We charge any excess of cost over par value to Additional paid-in capital 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”AOCI”), net of tax, for the years ended December 31, 20192021 and 2018,2020, are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
(In millions) | | Foreign Currency Translation Adjustments | | Derivative Hedges | | Defined Benefit Plans Liability | | Less: AOCI Attributable to Noncontrolling Interests | | AOCI Attributable to XPO |
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 | ) |
Other comprehensive income (loss) | | 33 |
| | 10 |
| | (18 | ) | | 1 |
| | 26 |
|
Amounts reclassified from AOCI | | (10 | ) | | (6 | ) | | (1 | ) | | — |
| | (17 | ) |
Net current period other comprehensive income (loss) | | 23 |
| | 4 |
| | (19 | ) | | 1 |
| | 9 |
|
As of December 31, 2019 | | $ | (120 | ) | | $ | 5 |
| | $ | (31 | ) | | $ | 1 |
| | $ | (145 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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
We account for income taxes using the asset and liability method on a legal entity and jurisdictional basis, under 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. We use judgment and estimates in evaluating our tax positions. 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. Valuation allowances are established when, in our judgment, it is more likely than not that our deferred tax assets will not be realized based on all available evidence. We record Global Intangible Low-Taxed Income (“GILTI”) tax as a period cost.
Our tax returns are subject to examination by U.S. Federal, state and foreign taxing jurisdictions. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years. We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more-likely-than-notmore likely than not that the tax positions will be sustained on examination by the tax authority. We adjust these tax liabilities, including related interest and penalties, based on the current facts and circumstances. We 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 their local currency as their functional currency are translated to U.S. dollars (“USD”USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in AOCI on our Consolidated Balance Sheets.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.USD. The results of operations of our foreign subsidiaries are translated to USD using average exchange rates prevailing for each period presented.
We convert foreign currency transactions recognized on our Consolidated Statements of Income 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 on our Consolidated Statements of IncomeIncome.
.
Foreign currency loss included on our
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Unrealized foreign currency option and forward contracts losses (gains) | | $ | 9 |
| | $ | (20 | ) | | $ | 49 |
|
Realized foreign currency option and forward contracts losses | | — |
| | 16 |
| | 15 |
|
Foreign currency transaction and remeasurement losses (gains) | | — |
| | 7 |
| | (6 | ) |
Total foreign currency loss | | $ | 9 |
| | $ | 3 |
| | $ | 58 |
|
Fair Value Measurements
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. The levels of inputs used to measure fair value 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.
We base our fair value estimates on market assumptions and available information. The carrying values of 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 approximated their fair values as of December 31, 20192021 and 20182020 due to their short-term 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 on the fair value hierarchy of our derivative instruments, see Note 11—Derivative Instruments and for information on financial liabilities, see Note 12—Debt.Debt.
The fair value hierarchy of cash 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, 2019 |
(In millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 |
Cash equivalents | | $ | 144 |
| | $ | 144 |
| | $ | 127 |
| | $ | 17 |
|
| | | | | | | | |
| | As of December 31, 2018 |
(In millions) | | Carrying Value | | Fair Value | | Level 1 | | Level 2 |
Cash equivalents | | $ | 237 |
| | $ | 237 |
| | $ | 236 |
| | $ | 1 |
|
The decrease in cash equivalents from December 31, 2020 to December 31, 2021 was primarily due to the redemption of our senior notes due 2022, 2023 and 2024 and the repayment of borrowings under our revolving loan credit agreement (the “ABL Facility”) in 2021. For further information, see Note 12—Debt.Derivative Instruments
We record all derivative instruments on our Consolidated Balance Sheets as assets or liabilities at fair value. Our 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 on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we must designate the derivative based on the exposure being 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 our 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 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 on our Consolidated Statements of IncomeIncome.
Defined Benefit Pension Plans
We calculate defined benefit pension plan obligations 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 our best estimates based on available information regarding historical experience and factors that may cause future expectations to differ. Our obligation and future expense amounts could be materially impacted by differences in actual experience or changes in 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
We account for stock-based compensation based on the equity instrument’s grant date fair value. For grants of restricted stock units (“RSUs”RSUs”) subject to service-based or performance-based vesting conditions only, we establish the fair value based on the market price on the date of the grant. For grants of RSUsRSUs subject to market-based vesting conditions, we establish the fair value using the Monte Carlo simulation lattice model. We determined the fair value
of our stock-based awards based on our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We account for forfeitures as they occur.
We recognize the grant date fair value of equity awards as compensation cost over the requisite service period. We recognize expense for our performance-based restricted stock units (“PRSUs”PRSUs”) over the awards’ requisite service period based on the number of awards expected to vest with consideration to the actual and expected financial results. We do not recognize expense until achievement of the performance targets for a PRSU award is considered probable.
Adoption of New Accounting Standard
In February 2016,December 2019, the Financial Accounting Standards Board (“FASB”FASB”) issued Accounting Standards Update (“ASU”ASU”) 2016-02, Leases. The core principle of ASU 2016-02 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 recognizes on the balance sheet the right-of-use asset representing the right to use the underlying asset and the lease liability representing the present value of future lease payments.
We utilized a comprehensive approach to assess the impact of ASU 2016-02 on our financial statements and related disclosures. In particular, we completed a robust review of our lease portfolio and enhanced our internal controls, including those related to the identification, monitoring of, measurement and disclosure of our lease portfolio. We also implemented a new software solution to facilitate compliance with the new guidance. As discussed further in Note 8—Leases, we adopted ASU 2016-02 and its related amendments (Topic 842) on January 1, 2019.
Accounting Pronouncements Issued but Not Yet Effective
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” as modified by subsequently issued ASUs. The ASU amends the current incurred losses impairment method with a method that reflects expected credit losses on certain types of financial instruments, including trade receivables. On adoption, we will record an immaterial adjustment to total equity as of January 1, 2020 for the cumulative impact of adoption.
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.” The ASU aligns the requirements 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. Under the guidance, any capitalized implementation costs would be included in prepaid expenses, amortized over the term of the hosting arrangement on a straight-line basis and presented in the same line items in the Consolidated Statement of Income as the expense for fees of the associated hosting arrangements. We adopted this standard on January 1, 2020 on a prospective basis and do not expect it to have a material effect on our consolidated financial statements.
In December 2019, the FASB issued ASU2019-12, Income“Income Taxes (Topic 740): “SimplifyingSimplifying the Accounting for Income Taxes.” The ASU simplifiesis intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent applicationenhance consistency and comparability among reporting entities. We adopted this standard on January 1, 2021 on a prospective basis. The adoption did not have a material effect on our consolidated financial statements.
Accounting Pronouncements Issued but Not Yet Effective
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the 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, 2020, including interim periods within that reporting period; however, early2021. Early adoption is permitted. We 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 financial 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.statements was immaterial. Additionally, in accordance with these agreements, GXO has agreed to indemnify XPO for certain payments XPO makes with respect to certain self-insurance matters that were incurred by GXO prior to the spin-off and remain obligations of XPO. The receivable and reserve for these matters was approximately $23 million and $21 million, respectively, as of December 31, 2021.
3. Purchase of Noncontrolling InterestIn November 2019, we purchased a shareholder’s noncontrolling interest in XPO Logistics Europe for €234 million (approximately $258 million). Our purchase reduced Noncontrolling interests and Additional paid-in capital by $255 million and $3 million, respectively.
4. Segment Reporting and Geographic Information
We are organized intoIn 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. We evaluate our performance in large part based onFollowing the various financial measures of our two reporting segments.
spin-off, we have 2 reportable segments: (i) North American LTL and (ii) Brokerage and Other Services.
In our TransportationNorth American LTL segment, we provide multiple services to facilitate the movement of raw materials, partsour customers with geographic density and finished goods. We accomplish this by using our proprietary technology, third-party independent carriersday-definite regional, inter-regional and our transportation assets and service centers.transcontinental LTL freight services. Our transportation services include truck brokerage, expedite, intermodal, drayage,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 truckload 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 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 non-asset or asset-light businesses while LTL and full truckload are primarily asset-based operations.
In our Logistics segment, which we also refer to as supply chain or contract logistics, we provide a wide range of services differentiated by our proprietary technology and our ability to customize solutions for individual customers. Our services include value-added warehousing, distribution and inventory management, omnichannel and e-commerce fulfillment, reverse logistics, cold chain solutions, packaging and labeling, factory support, aftermarket support and order personalization services. In addition, our Logistics segment provides highly engineered solutions and supply chain optimization services, including advanced automation and predictive volume flow management.offerings.
Some of our operating units provide services to our other operating units outside of their reportable segment. Billings for such services are based on negotiated rates and are reflected as revenues of the billing segment. We adjust these rates from time to time based on market conditions. We eliminate intersegment revenues and expenses in our consolidated results.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our core business.reporting segments.
Our chief operating decision maker (“CODM”) regularly reviews financial information at the reportingoperating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM.CODM. We do not provide asset information by segment to the CODM. 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 our assets are managed atsegment profit (loss). Prior period segment disclosures have been recast to conform to the corporate level.current period presentation.
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 | |
|
| | | | | | | | | | | | | | | | | | | | |
(In millions) | | Transportation | | Logistics | | Corporate | | Eliminations | | Total |
Year Ended December 31, 2019 | | | | | | | | | | |
Revenue | | $ | 10,687 |
| | $ | 6,093 |
| | $ | — |
| | $ | (132 | ) | | $ | 16,648 |
|
Operating income (loss) | | 752 |
| | 241 |
| | (172 | ) | | — |
| | 821 |
|
Depreciation and amortization | | 447 |
| | 277 |
| | 15 |
| | — |
| | 739 |
|
Year Ended December 31, 2018 | | | | | | | | | | |
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 | | | | | | | | | | |
Revenue | | $ | 10,276 |
| | $ | 5,229 |
| | $ | — |
| | $ | (124 | ) | | $ | 15,381 |
|
Operating income (loss) | | 547 |
| | 202 |
| | (167 | ) | | — |
| | 582 |
|
Depreciation and amortization | | 447 |
| | 203 |
| | 8 |
| | — |
| | 658 |
|
(1) 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. 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.
(2) See Note 6— Restructuring Charges for further information on our restructuring actions.
As of December 31, 20192021 and 2018,2020, we held long-lived tangible assets outside of the U.S. of $798$422 million and $776$465 million, respectively.
5. Revenue Recognition
Adoption of Topic 606, “Revenue from Contracts with Customers”
We adopted ASU 2014-09, Revenue (Topic 606): “Revenue from Contracts with Customers.” on January 1, 2018. Our reported results for 2019 and 2018 are presented under Topic 606, while our prior periods were not adjusted and are reported under Topic 605 “Revenue Recognition.” Under Topic 605, for our 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.5. Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area and service offering. Our revenue disaggregated by geographical area, based on sales office 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, 2019 | | Year Ended December 31, 2020 |
(In millions) | | Transportation | | Logistics | | Eliminations | | Total | (In millions) | | North American LTL | | Brokerage and Other Services | | Eliminations | | Total |
Revenue | | | | | | | | | Revenue | | | | | | | | |
United States | | $ | 7,454 |
| | $ | 2,338 |
| | $ | (33 | ) | | $ | 9,759 |
| United States | | $ | 3,461 | | | $ | 3,899 | | | $ | (140) | | | $ | 7,220 | |
North America (excluding United States) | | 286 |
| | 37 |
| | — |
| | 323 |
| North America (excluding United States) | | 78 | | | 233 | | | — | | | 311 | |
France | | 1,358 |
| | 659 |
| | (12 | ) | | 2,005 |
| France | | — | | | 1,205 | | | — | | | 1,205 | |
United Kingdom | | 760 |
| | 1,384 |
| | (68 | ) | | 2,076 |
| United Kingdom | | — | | | 677 | | | — | | | 677 | |
Europe (excluding France and United Kingdom) | | 810 |
| | 1,582 |
| | (16 | ) | | 2,376 |
| Europe (excluding France and United Kingdom) | | — | | | 739 | | | — | | | 739 | |
Other | | 19 |
| | 93 |
| | (3 | ) | | 109 |
| Other | | — | | | 47 | | | — | | | 47 | |
Total | | $ | 10,687 |
| | $ | 6,093 |
| | $ | (132 | ) | | $ | 16,648 |
| 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 |
Revenue | | |
United States | | $ | 9,163 |
|
North America (excluding United States) | | 298 |
|
France | | 2,006 |
|
United Kingdom | | 1,799 |
|
Europe (excluding France and United Kingdom) | | 1,930 |
|
Other | | 185 |
|
Total | | $ | 15,381 |
|
Our revenue disaggregated by service 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 | |
|
| | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 |
Transportation segment: | | | | |
Freight brokerage and truckload | | $ | 4,383 |
| | $ | 4,784 |
|
LTL | | 4,815 |
| | 4,839 |
|
Last mile (1) | | 873 |
| | 1,065 |
|
Managed transportation | | 496 |
| | 462 |
|
Global forwarding | | 299 |
| | 338 |
|
Transportation eliminations | | (179 | ) | | (145 | ) |
Total Transportation segment revenue | | 10,687 |
| | 11,343 |
|
Total Logistics segment revenue | | 6,093 |
| | 6,065 |
|
Intersegment eliminations | | (132 | ) | | (129 | ) |
Total revenue | | $ | 16,648 |
| | $ | 17,279 |
|
(1) Less-Than-Truckload revenue is before intercompany eliminations and includes revenue from the Company’s trailer manufacturing business. | |
(1) | Comprised of our North American last mile operations. |
Transaction Price Allocated to (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
Our remaining performance obligation represents the aggregate amount of transaction price yet to be recognized as of the end of the reporting period.obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On December 31, 2019,2021, the fixed consideration component of our remaining performance obligation was approximately $1.5 billion,$124 million, and we expect approximately 86% of that amount to recognize approximately 75%be recognized over the next three years and the remainder thereafter. The majority of the remaining performance obligation relates to our Logistics reportable segment. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
6. Restructuring Charges
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure.infrastructure, including actions in connection with the spin-off and in response to COVID-19. These actions maygenerally include severance and facility-related costs, including impairment of right-of-use assets, and are intended to improve our efficiency and profitability. Additionally, a portion of the restructuring charge recorded in 2019 is related to our largest customer downsizing its business with us.
Restructuring charges were recorded on our Consolidated Statements of Income as follows:
|
| | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 |
Cost of transportation and services | | $ | 2 |
| | $ | — |
|
Direct operating expense | | 1 |
| | 1 |
|
SG&A | | 46 |
| | 20 |
|
Total | | $ | 49 |
| | $ | 21 |
|
We recognized $21 million and $19 million of restructuring charges in the fourth quarter of 2019 and 2018, respectively. Restructuring charges for the year ended December 31, 2017 were $34 million, the majority of which was included in Sales, general and administrative expense (“SG&A”).
Our restructuring-related 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, 2019 | | |
(In millions) | | Reserve Balance as of December 31, 2018 | | Charges Incurred | | Payments | | Foreign Exchange and Other | | Reserve Balance as of December 31, 2019 |
Severance: | | | | | | | | | | |
Transportation | | $ | 9 |
| | $ | 30 |
| | $ | (26 | ) | | $ | (1 | ) | | $ | 12 |
|
Logistics | | 5 |
| | 14 |
| | (8 | ) | | — |
| | 11 |
|
Corporate | | 2 |
| | 3 |
| | (3 | ) | | — |
| | 2 |
|
Total Severance | | 16 |
| | 47 |
| | (37 | ) | | (1 | ) | | 25 |
|
Facilities: | | | | | | | | | | |
Transportation | | — |
| | 2 |
| | (2 | ) | | — |
| | — |
|
Total | | $ | 16 |
| | $ | 49 |
| | $ | (39 | ) | | $ | (1 | ) | | $ | 25 |
|
We expect the majority of the cash outlays underrelated to the 2019 approved planscharges incurred in 2021 will be substantially complete by the end of 2020.within twelve months.
|
| | | | | | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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 | |
The majority of the cash outlays under the 2018 approved plan were substantially complete by the end of 2019.
7. Property and Equipment
|
| | | | | | | | |
| | December 31, |
(In millions) | | 2019 | | 2018 |
Property and equipment | | | | |
Land | | $ | 334 |
| | $ | 356 |
|
Buildings and leasehold improvements | | 648 |
| | 555 |
|
Vehicles, tractors, trailers and tankers | | 1,726 |
| | 1,561 |
|
Machinery and equipment | | 949 |
| | 809 |
|
Computer software and equipment | | 1,101 |
| | 909 |
|
| | 4,758 |
| | 4,190 |
|
Less: accumulated depreciation and amortization | | (2,054 | ) | | (1,585 | ) |
Total property and equipment, net | | $ | 2,704 |
| | $ | 2,605 |
|
Net book value of capitalized internally-developed software included in property and equipment, net | | $ | 333 |
| | $ | 263 |
|
| | | | | | | | | | | | | | |
| | 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 | |
Depreciation of property and equipment and amortization of computer software was $577$388 million, $546$382 million and $488$370 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively.
8. Leases
Adoption of Topic 842, “Leases”
On January 1, 2019, we adopted Topic 842 prospectively through a cumulative-effect adjustment with no restatement of prior period financial statements. On adoption, we elected the package of practical expedients to retain the lease identification, classification and initial direct costs for existing leases. We recognized $2.1 billion of Operating lease assets and liabilities on the Consolidated Balance Sheet as of January 1, 2019 in connection with the adoption of this new standard. Additionally, beginning in 2019, 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. The adoption of Topic 842 did not have a material impact on our Consolidated Statements of Income and our Consolidated Statements of Cash Flows.
Nature of Leases
Most of our leases are real estate leases. In addition, we lease trucks, trailers, containers and material handling equipment.
The components of our lease expense and gain realized on sale-leaseback transactions were as 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 | |
|
| | | | |
| | Year Ended December 31, |
(In millions) | | 2019 |
Operating lease cost | | $ | 696 |
|
Short-term lease cost | | 144 |
|
Variable lease cost | | 90 |
|
Total operating lease cost | | $ | 930 |
|
Finance lease cost: | | |
Amortization of leased assets | | $ | 53 |
|
Interest on lease liabilities | | 7 |
|
Total finance lease cost | | $ | 60 |
|
Total lease cost | | $ | 990 |
|
Gain recognized on sale-leaseback transactions (1) | | $ | 99 |
|
(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 $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. | |
(1) | For the year ended December 31, 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 and received aggregate cash proceeds of $203 million. Gains on sale-leaseback transactions are included in Direct operating expense 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 | % |
|
| | | | |
(In millions) | | December 31, 2019 |
Operating leases: | | |
Operating lease assets | | $ | 2,245 |
|
Short-term operating lease liabilities | | 468 |
|
Operating lease liabilities | | 1,776 |
|
Total operating lease liabilities | | $ | 2,244 |
|
Finance leases: | | |
Property and equipment, gross | | $ | 483 |
|
Accumulated depreciation | | (125 | ) |
Property and equipment, net | | $ | 358 |
|
Short-term borrowings and current maturities of long-term debt | | 58 |
|
Long-term debt | | 288 |
|
Total finance lease liabilities | | $ | 346 |
|
Weighted-average remaining lease term | | |
Operating leases | | 7 years |
|
Finance leases | | 7 years |
|
Weighted-average discount rate | | |
Operating leases | | 5.16 | % |
Finance leases | | 2.69 | % |
Assets represented by capital leases, net
Supplemental cash flow information related to leases was as follows:
|
| | | | |
| | Year Ended December 31, |
(In millions) | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows for operating leases | | $ | 704 |
|
Operating cash flows for finance leases | | 7 |
|
Financing cash flows for finance leases | | 62 |
|
Leased assets obtained in exchange for new lease obligations: | | |
Operating leases | | 823 |
|
Finance leases | | 103 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
PropertyNet operating lease activity, including the reduction of the operating lease asset and equipment acquired through capital leases was $111 millionthe accretion of the operating lease liability, are reflected in Depreciation, amortization and $145 million for the years ended December 31, 2018 and 2017, respectively. Additionally, non-cash investing activities for the year ended December 31, 2019 include $39 millionnet lease activity on our Consolidated Statements of property and equipment additions for build-to-suit leases.
Cash Flows.
Maturities of lease liabilities as of December 31, 20192021 were as follows:
|
| | | | | | | | |
(In millions) | | Finance Leases | | Operating Leases |
2020 | | $ | 71 |
| | $ | 553 |
|
2021 | | 67 |
| | 503 |
|
2022 | | 64 |
| | 405 |
|
2023 | | 70 |
| | 316 |
|
2024 | | 49 |
| | 226 |
|
Thereafter | | 82 |
| | 662 |
|
Total lease payments | | $ | 403 |
| | $ | 2,665 |
|
Less: interest | | (57 | ) | | (421 | ) |
Present value of lease liabilities | | $ | 346 |
| | $ | 2,244 |
|
| | | | | | | | | | | | | | |
(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, 2019,2021, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $176 million.$11 million. These operating leases will commence in fiscal year 2020 through fiscal year 20352022 with initial lease terms of 43 years to 15 years.7 years.
Disclosures Related to Topic 840
The following information is required disclosure for companies adopting the lease standard prospectively without revising comparative prior period information.
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 and $716 million for the years ended December 31, 2018 and 2017, respectively.
9. Goodwill
|
| | | | | | | | | | | | |
(In millions) | | Transportation | | Logistics | | Total |
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 |
|
Impact of foreign exchange translation and other | | (46 | ) | | 29 |
| | (17 | ) |
Goodwill as of December 31, 2019 | | $ | 2,474 |
| | $ | 1,976 |
| | $ | 4,450 |
|
| | | | | | | | | | | | | | | | | | | | |
(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 are 0were no cumulative goodwill impairments as of December 31, 2019.
2021.
10. Intangible Assets
|
| | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
(In millions) | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Definite-lived intangibles | | | | | | | | |
Customer relationships | | $ | 1,875 |
| | $ | 784 |
| | $ | 1,891 |
| | $ | 640 |
|
Trade name | | 51 |
| | 51 |
| | 52 |
| | 52 |
|
Non-compete agreements | | 16 |
| | 15 |
| | 16 |
| | 14 |
|
| | $ | 1,942 |
| | $ | 850 |
| | $ | 1,959 |
| | $ | 706 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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. For 2018 and 2017, we did 0t recognize any impairment of our identified intangible assets.
Estimated future amortization expense for amortizable intangible assets for the next five years is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2020 |
| 2021 |
| 2022 |
| 2023 |
| 2024 | | Thereafter |
Estimated amortization expense | | $ | 145 |
|
| $ | 137 |
|
| $ | 127 |
|
| $ | 110 |
|
| $ | 106 |
| | $ | 467 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
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&Awas $156$86 million, $159$87 million and $164$96 million for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.
11. Derivative Instruments
In the normal course of business, we are exposed to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. We use derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in our 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, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
The fair value of our derivative instruments and the related notional amounts were as follows:
|
| | | | | | | | | | | | | | | | |
| | December 31, 2019 |
| | | | 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 | | $ | 1,233 |
| | Other long-term assets | | $ | — |
| | Other long-term liabilities | | $ | (18 | ) |
Interest rate swap | | 2,003 |
| | Other current assets | | — |
| | Other current liabilities | | (7 | ) |
Derivatives not designated as hedges: | | | | | | | | | | |
Foreign currency option contracts | | 365 |
| | Other current assets | | 1 |
| | Other current liabilities | | — |
|
Total | | | | | | $ | 1 |
| | | | $ | (25 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2020 |
| | | | 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 | | $ | 450 | | | Other current assets | | $ | — | | | Other current liabilities | | $ | (44) | |
Cross-currency swap agreements | | 740 | | | Other long-term assets | | — | | | Other long-term liabilities | | (65) | |
Interest rate swaps | | 2,003 | | | Other current assets | | — | | | Other current liabilities | | (4) | |
| | | | | | | | | | |
| | | | | | | | | | |
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 on our Consolidated Statements of Income were was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative | | 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) | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Derivatives designated as cash flow hedges: | | | | | | | | | | | | | | | | | | |
Cross-currency swap agreements | | $ | 7 |
| | $ | 13 |
| | $ | (21 | ) | | $ | 5 |
| | $ | 17 |
| | $ | (3 | ) | | $ | 1 |
| | $ | 1 |
| | $ | — |
|
Interest rate swaps | | 5 |
| | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Derivatives designated as net investment hedges: | | | | | | | | | | | | | | | | | | |
Cross-currency swap agreements | | 55 |
| | 52 |
| | (100 | ) | | — |
| | — |
| | — |
| | 10 |
| | 4 |
| | 8 |
|
Nonderivatives designated as hedges: | | | | | | | | | | | | | | | | | | |
Foreign currency denominated notes | | — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | $ | 67 |
| | $ | 65 |
| | $ | (111 | ) | | $ | 5 |
| | $ | 17 |
| | $ | (3 | ) | | $ | 11 |
| | $ | 5 |
| | $ | 8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | |
The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a loss of $9$1 million, and a gain of $4$1 million and a loss of $64$9 million for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, respectively. These amounts are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.Income.
Cross-Currency Swap Agreements
We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate USD-denominatedUSD-denominated debt, including the associated interest payments, to fixed-rate, euro (“EUR”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 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, we will receive interest, either on a quarterly or semi-annuallysemi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates. At maturity, we will repay the original principal amount in EUR and receive the principal amount in USD. USD. These agreements expire at various dates through 2024.
We designated these cross-currency swaps as qualifying hedging instruments and account for them as net investment hedges. We apply the simplified method of assessing the effectiveness of our 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.AOCI. The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially 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 our Consolidated Statements of Cash Flows.Flows.
We also enterPrior to the spin-off, we entered into cross-currency swap agreements to manage the related foreign currency exposure from intercompany loans. We designated these cross-currency swaps as qualifying hedging instruments and accountaccounted for them as cash flow hedges. Gains and losses resulting from the change in the fair value of the cross-currency swaps iswas initially recognized in AOCI and reclassified to Foreign currency (gain) loss to offset the foreign exchange impact in earnings created by thesettling intercompany loans. Cash flows related to these cash flow hedges arewas included in OperatingCash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.Flows.
Interest Rate Hedging
We execute short-term interest rate swaps to mitigate variability in forecasted interest payments on our Senior Secured Term Loan Credit Agreement (the “Term“Term Loan Credit Agreement”Agreement”). The interest rate swaps convert floating-rate interest payments into fixed rate interest payments. We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges. The outstanding interest rate swaps mature on various dates through 2020.in 2022.
We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue. Cash flows related to the interest rate swaps are included in OperatingCash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.Flows.
Foreign Currency Option and Forward Contracts
We periodically use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or the British pound sterling (“GBP”) as their functional currency. Additionally, we periodically use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings. TheGenerally, the foreign currency contracts (both option and forward contracts) wereare not designated as qualifying hedging instruments as of December 31, 2019 or 2018.instruments. The contracts are used to manage our exposure to foreign currency exchange rate 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 on our Consolidated Statements of Income. Commencing in 2018, cashIncome. Cash flows related to the foreign currency contracts are included in InvestingCash flows from investing activities of continuing operations on our Consolidated Statements of Cash Flows,, consistent with the nature and purpose for which these derivatives were acquired. Prior to 2018, these cash flows were reflected within
Operating activities.
12. Debt
|
| | | | | | | | | | | | | | | | |
| | December 31, 2019 | | December 31, 2018 |
| | | | | | | | |
(In millions) | | Principal Balance | | Carrying Value | | Principal Balance | | Carrying Value |
ABL facility | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Term loan facility | | 2,003 |
| | 1,969 |
| | 1,503 |
| | 1,474 |
|
6.125% Senior Notes due 2023 | | 535 |
| | 530 |
| | 535 |
| | 529 |
|
6.50% Senior Notes due 2022 | | 1,200 |
| | 1,192 |
| | 1,200 |
| | 1,190 |
|
6.70% Senior Debentures due 2034 | | 300 |
| | 208 |
| | 300 |
| | 205 |
|
6.75% Senior notes due 2024 | | 1,000 |
| | 987 |
| | — |
| | — |
|
Trade securitization program | | — |
| | — |
| | 283 |
| | 281 |
|
Unsecured credit facility | | — |
| | — |
| | 250 |
| | 246 |
|
Finance leases, asset financing and other | | 380 |
| | 380 |
| | 344 |
| | 344 |
|
Total debt | | 5,418 |
| | 5,266 |
| | 4,415 |
| | 4,269 |
|
Short-term borrowings and current maturities of long-term debt | | 84 |
| | 84 |
| | 371 |
| | 367 |
|
Long-term debt | | $ | 5,334 |
| | $ | 5,182 |
| | $ | 4,044 |
| | $ | 3,902 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 our debt and classification in the fair value hierarchy was as follows:
|
| | | | | | | | | | | | |
(In millions) | | Fair Value | | Level 1 | | Level 2 |
December 31, 2019 | | $ | 5,580 |
| | $ | 3,190 |
| | $ | 2,390 |
|
December 31, 2018 | | 4,305 |
| | 2,020 |
| | 2,285 |
|
| | | | | | | | | | | | | | | | | | | | |
(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 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics. The fair value of the asset financing arrangements approximates carrying value as 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.
Our principal payment obligations on debt (excluding finance leases) for the next five years and thereafter was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter |
Principal payments on debt | | $ | 26 |
| | $ | 3 |
| | $ | 1,201 |
| | $ | 536 |
| | $ | 1,001 |
| | $ | 2,305 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
Principal payments on debt | | $ | — | | | $ | — | | | $ | 1 | | | $ | 3,153 | | | $ | 1 | | | $ | 301 | |
ABL Facility
In 2015, we entered into a revolving loan credit agreement (the “the ABL Facility”) that provided commitments of up to $1.0$1.0 billion with a maturity date of October 30, 2020. In April 2019, we amended the ABL Facility including: (i) increasing the commitments to $1.1$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$350 million of letters of credit and up to $50 million for swing line loans under the ABL Facility.
Our availability under the ABL Facility is equal to the borrowing base less advances and outstanding letters of credit. Our 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. A maximum of 20% of our borrowing base can be equipment and rolling stock in the aggregate. As of December 31, 2019,2021, our borrowing base was $927 million$1.0 billion and our availability was $713$995 million after considering outstanding letters of credit of $214$5 million. As of December 31, 2019,2021, we were in compliance with the ABL Facility’s financial covenants.
Our loans under the ABL Facility bear interest at a rate equal to: (i) London Interbank Offered Rate (“LIBOR”) or base rate plus (i) an applicable margin of 1.25% to 1.50%, for LIBOR loans andor (ii) 0.25% to 0.50%, for base rate loans. As of December 31, 2018, the interest rate margins were 1.50% to 2.00% for LIBOR loans and 0.50% to 1.00% for base rate loans.
The ABL Facility is secured on a first lien basis by the assets of the credit parties as priority collateral and on a second lien basis by certain other assets. The priority collateral consists primarily of our U.S. and Canadian accounts receivable and any of our U.S. and Canadian rolling stock and equipment included in our borrowing base. The ABL Facility contains representations and warranties, affirmative and negative covenants, and events of default customary for agreements of this nature.
The covenants in the ABL Facility can limit our ability to:to 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. We may also be required to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Facility)Facility) of not less than 1.00 if availability under the ABL Facility is below certain thresholds. As of December 31, 2019,2021, we were compliant with this financial covenant.
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 letter of credit facility terminates. As of December 31, 2021, we have issued $198 million in aggregate face amount of letters of credit under the facility.
Term Loan FacilityFacilities
In 2015, we entered into a 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.$1.6 billion. We have amended the Term Loan Credit Agreement in 2019 to include the execution of a new tranche of term loans in 2019,(the “Incremental Term Loan Facility”), to reduce the interest rates and to extend the maturity dates. As of December 31,Net proceeds from borrowings under the applicable terms of the Incremental Term Loan Credit Agreement, as amended, were as follows:
|
| | | | | | | | |
(In millions) | | 2019 | | 2018 |
Commitment: | | | | |
Facility | | $ | 1,503 |
| | $ | 1,503 |
|
Incremental loans | | 500 |
| | N/A |
|
Interest rate: | | | | |
Facility | | | | |
Base rate loans | | 1.00 | % | | 1.00 | % |
LIBOR loans | | 2.00 | % | | 2.00 | % |
Incremental loans | | | | |
Base rate loans | | 1.50 | % | | N/A |
|
LIBOR loans | | 2.50 | % | | N/A |
|
Maturity date | | February 23, 2025 |
| | February 23, 2025 |
|
Proceeds from the new tranche of loansFacility were used for general corporate purposes, including fundingto fund purchases of our common stock as described in Note 14—Stockholders’ Equity.Equity. The interest rates onloans under the term loansIncremental Term Loan Facility were issued at a price of 99.50% of par. In 2021, we amended the Term Loan Credit Agreement to consolidate our tranches and incremental term loans were 3.80% and 4.24%, respectively, as of December 31, 2019.
In February 2018, we refinanced our term loans by replacing the outstanding $1,494 million principal amount of term loans (the “Current Term Loans”) with $1,503 million in aggregate principal amount of new term loans (the “Present Term Loans”). Our Present Term Loans have substantially similar terms as our Current Term Loans, except forlower the interest rate and maturity date, prepayment premiums and some other amendments torate. The applicable terms of the restrictive covenants. We used the proceeds from the Present Term Loans to refinance the Current Term Loans and to pay interest, fees and expenses in connection with this refinancing. Loan Credit Agreement, as amended, 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 $10$3 million in 20182021 due to this refinancing.
In March 2017, we refinancedamendment. The interest rate on our term loans by replacing the outstanding $1,482 million principal amountloan facility was 1.85% as of term loans (the “Existing Term Loans”) with $1,494 million in aggregate principal amount of Current Term Loans. Our Current Term Loans have substantially similar terms as our Existing Term Loans, other than the interest rate and prepayment premiums. We used the proceeds from the Current Term Loans primarily to refinance the Existing Term
Loans and to pay interest, fees and expenses in connection with this refinancing. We recorded a debt extinguishment loss of $8 million in 2017 due to this refinancing.December 31, 2021.
We must prepay an aggregate principal amount of the term loan facility equal to (a) 50% of any Excess Cash Flow, as defined in the agreement, for the most recent fiscal year ended, minus (b) the sum of (i) all voluntary prepayments of loans during the fiscal year and (ii) all voluntary prepayments of loans under the ABL Facility or any other revolving credit facilities during the fiscal year if 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), if such prepayments are funded with internally generated cash flow, as defined in the agreement. If our Consolidated Secured Net Leverage Ratio, 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, the Excess Cash Flow percentage will be 25%. If our Consolidated Secured Net Leverage Ratio for the fiscal year was less than or equal to 2.50:1.00, the Excess Cash Flow percentage will be 0%. The remaining principal is due at maturity. As of December 31, 2019,2021, our Consolidated Secured Net Leverage Ratio was less than 2.50:1.00;1.00, and no excess cash payment was required.
Senior Notes
In February 2019,the third quarter of 2021, we completedredeemed our private placement of $1.0 billion aggregate principal amount ofoutstanding 6.125% senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75% senior notes due 2024 (“Senior Notes due 2024”). We used the proceeds from theThe 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.
In July 2018, we redeemed $400 million of the then $1.6 billion outstanding senior notes due June 2022 (the “Senior Notes due 2022”) that were originally issued in 2015.Equity. The redemption price for the Senior Notes due 20222023 was 103.25%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 primarily with fundsusing cash received from the settlementGXO of our forward sale agreements,approximately $794 million, proceeds from an equity offering described in Note 14—Stockholders’ Equity. and available cash. We recorded a debt extinguishment losslosses of $17$3 million and $43 million in 20182021 related to the redemption of the Senior Notes due to this redemption.2023 and Senior Notes due 2024, respectively.
In December 2017,January 2021, we redeemed our 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. We paid for the redemption with available cash, on hand.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 $23$5 million in 20172021 due to this redemption.
In August 2017,2020, we redeemed our outstanding 7.25% senior notes due 2018 (“completed private placements of $1.15 billion aggregate principal amount of Senior Notes due 2018”), that had been assumed in connection with our 2015 acquisition of Con-way Inc. (“Con-way”).2025. The redemption price for the Senior Notes due 2018 was 102.168%2025 mature on May 1, 2025 and bear interest at a rate of 6.25% per annum. Interest on the notes is paid semi-annually. A total of $850 million of the principal amount, plus accruednotes were issued at par, and unpaid interest. We paid for$300 million of the redemption with cash on hand. We recorded a debt extinguishment lossnotes were issued subsequently at 101.75% of $5 million in 2017 due to this redemption.
The seniorface value. Net proceeds from the notes bear interest payable semiannually,were initially invested in cash and cash equivalents and were subsequently used in arrears. The Senior Notes due 2024 mature on August 15, 2024, the senior notes due September 2023 mature on September 1, 2023 and the 2021 to redeem our outstanding Senior Notes due 2022 mature on June 15, 2022. as described above.
The senior notes are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than some excluded subsidiaries) that are obligors under, or guarantee obligations under, our ABL Facility (or certain of its replacements)or existing Term Loan facility or guarantee certain of our capital markets indebtedness or any guarantor of the senior notes. The senior notes and its guarantees are unsecured, unsubordinated indebtedness for us and our guarantors. The senior notes contain covenants customary for notes of this nature.
Senior Debentures
We assumed Con-way’sin conjunction with an acquisition 6.70% Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $300 million when we acquired Con-way.million. The Senior Debentures bear interest payable semiannually, in cash in arrears, and mature on May 1, 2034. 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
We issued approximately 3000000 shares of our common stock to some holders of our convertible senior notes as part of their conversion in 2017. The conversions were allocated to long-term debt and equity in the amounts of $49 million and $50 million, respectively. Some of these transactions represented induced conversions and we paid the holder a market-based premium in cash. Interest expense reflected the negotiated market-based premiums in addition to the difference between the current fair value and the book value of the convertible senior notes.
Trade Securitization Program
In 2017, XPO Logistics Europe entered into a European trade receivables securitization program for a term of three years. Under the terms of this program, XPO Logistics Europe, or one of its wholly-owned subsidiariesAs discussed in the United Kingdom or France, sold trade receivables to XPO Collections Designated Activity Company Limited (“XCDAL”), a wholly-owned bankruptcy remote special purpose entity of XPO Logistics Europe. The receivables were funded by senior variable funding notes in the same currency as the corresponding receivables. XCDAL was considered a variable interest entity and was consolidated by XPO Logistics Europe based on its control of the entity’s activities. The receivables balance under this program were reported as Accounts receivable on our Consolidated Balance Sheets and the related notes were included in our Long-term debt.
In July 2019, XPO Logistics Europe terminated this trade receivables securitization program and entered into a new trade receivables securitization program for a term of three years. In connection with the termination of the prior program, XPO Logistics Europe paid off all of the notes which had been included in our debt balances. Under the new program, all receivable transfers have been accounted for as sales. For additional information, see Note 2—Basis of Presentation and Significant Accounting Policies, 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, 2021 and had borrowings of €20 million ($24 million) as of December 31, 2020.
Unsecured Credit Facility
In December 2018, we entered into a $500$500 million unsecured credit facility (“Unsecured Credit Facility”Facility”). As of December 31, 2018, we had borrowed $250$250 million. under the Unsecured Credit Facility. We borrowed an additional $250$250 million in January 2019. We used the proceeds of both borrowings to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity.Equity. In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Facility and terminated it in February 2019. We recorded a debt extinguishment loss of $5$5 million in 2019 in connection with this repayment.
Asset Financing
We use unsecured asset financing arrangements to purchase trucks in Europe. These financing arrangements are denominated in EUR, generally with floating interest rates. As of December 31, 2019, interest rates on asset financing range from 0.85% to 1.22%, with a weighted average interest rate of 1.06%, and initial terms range from five years to 10 years.
13. Employee Benefit Plans
Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit pension plans for some employees in the United States.U.S. These pension plans include qualified plans that are eligible for beneficial treatment under the Internal Revenue Code and non-qualified plans that provide additional benefits for employees who are impacted by limitations on compensation eligible for benefits available under the qualified plans. We also sponsor a separate defined benefitPrior to the spin-off of GXO, the pension plan for some employees in the United Kingdom. BothKingdom was sold to a GXO entity and GXO paid approximately £26 million (approximately $34 million) to XPO, which represented the U.S. plans andvalue of the U.K. plan do not allow for new plan participants or additional benefit accruals.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 maintain defined benefit pension plans for some of our foreign subsidiaries that are excluded from the disclosures below due to their immateriality. The information below excludes the results of the pension plan that was sold to GXO.
We measure defined benefit pension plan obligations 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. We determine the net periodic benefit costs 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)income on our Consolidated Statements of Income.Income. We 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, on a plan-by-plan basis.
Funded Status of Defined Benefit Pension Plans
The reconciliation of the changes in the plans’ projected benefit obligations as of December 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. Plans | | U.K. Plan |
(In millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Projected benefit obligation at beginning of year | | $ | 1,659 |
| | $ | 1,821 |
| | $ | 1,164 |
| | $ | 1,305 |
|
Interest cost | | 66 |
| | 59 |
| | 29 |
| | 28 |
|
Plan amendment | | — |
| | — |
| | — |
| | 19 |
|
Actuarial loss (gain) | | 214 |
| | (147 | ) | | 136 |
| | (62 | ) |
Benefits paid | | (77 | ) | | (74 | ) | | (56 | ) | | (56 | ) |
Foreign currency exchange rate changes | | — |
| | — |
| | 50 |
| | (70 | ) |
Projected benefit obligation at end of year (1) | | $ | 1,862 |
| | $ | 1,659 |
| | $ | 1,323 |
| | $ | 1,164 |
|
| |
(1) | As of December 31, 2019, the accumulated benefit obligations for the U.K. PlanThe actuarial gain in 2021 was equal to the projected benefit obligations. As of December 31, 2018, the accumulated benefit obligations for the U.S. and U.K. plans were equal to the projected benefit obligations. |
Actuarial losses were a result of assumption changes, including a decreasean increase in the discount rate, updated mortality projection scales and other assumptions for plan participants and a decrease in assumed inflation for the U.K. plan.participants.
The reconciliation of the changes in the fair value of plan assets as of December 31 was as follows:
|
| | | | | | | | | | | | | | | | |
| | U.S. Plans | | U.K. Plan |
(In millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Fair value of plan assets at beginning of year | | $ | 1,582 |
| | $ | 1,764 |
| | $ | 1,227 |
| | $ | 1,390 |
|
Actual return on plan assets | | 353 |
| | (113 | ) | | 138 |
| | (35 | ) |
Employer contributions | | 5 |
| | 5 |
| | 2 |
| | 3 |
|
Benefits paid | | (77 | ) | | (74 | ) | | (56 | ) | | (56 | ) |
Foreign currency exchange rate changes | | — |
| | — |
| | 51 |
| | (75 | ) |
Fair value of plan assets at end of year | | $ | 1,863 |
| | $ | 1,582 |
| | $ | 1,362 |
| | $ | 1,227 |
|
| | | | | | | | | | | | | | |
(In millions) | | 2021 | | 2020 |
Fair value of plan assets at beginning of year | | $ | 2,062 | | | $ | 1,863 | |
Actual return on plan assets | | 25 | | | 274 | |
Employer contributions | | 6 | | | 5 | |
Benefits paid | | (84) | | | (80) | |
| | | | |
Fair value of plan assets at end of year | | $ | 2,009 | | | $ | 2,062 | |
The funded status of the plans as of December 31 was as follows:
|
| | | | | | | | | | | | | | | | |
| | U.S. Plans | | U.K. Plan |
(In millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Funded status at end of year | | $ | 1 |
| | $ | (77 | ) | | $ | 39 |
| | $ | 63 |
|
Amount recognized in balance sheet: | | | | | | | | |
Long-term assets | | $ | 76 |
| | $ | — |
| | $ | 39 |
| | $ | 63 |
|
Current liabilities | | (6 | ) | | (5 | ) | | — |
| | — |
|
Long-term liabilities | | (69 | ) | | (72 | ) | | — |
| | — |
|
Net amount recognized | | $ | 1 |
| | $ | (77 | ) | | $ | 39 |
| | $ | 63 |
|
Plans with projected and accumulated benefit obligation in excess of plan assets: | | | | | | | | |
Projected and accumulated benefit obligation | | $ | 75 |
| | $ | 1,659 |
| | $ | — |
| | $ | — |
|
Fair value of plan assets | | — |
| | 1,582 |
| | — |
| | — |
|
| | | | | | | | | | | | | | |
(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 | |
| | | | |
(1) Relates to our non-qualified plans which are unfunded.
The funded status of our qualified plans and non-qualified plans was $76$156 million and $(75)$(72) million, respectively, atas of December 31, 2019. Qualified plans are eligible for certain beneficial treatment under the Internal Revenue Code (“IRC”), while non-qualified plans do not meet the IRC criteria.2021.
The amountsactuarial 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, were as follows:2021 and 2020.
|
| | | | | | | | | | | | | | | | |
| | U.S. Plans | | U.K. Plan |
(In millions) | | 2019 | | 2018 | | 2019 | | 2018 |
Actuarial (loss) gain | | $ | (5 | ) | | $ | (53 | ) | | $ | (54 | ) | | $ | 5 |
|
Prior-service credit | | — |
| | — |
| | 18 |
| | 19 |
|
AOCI | | $ | (5 | ) | | $ | (53 | ) | | $ | (36 | ) | | $ | 24 |
|
The net periodic benefit cost and amounts recognized in Other comprehensive income (loss) for the years ended December 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. Plans | | U.K. Plan |
(In millions) | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Net periodic benefit (income) expense: | | | | | | | | | | | | |
Interest cost | | $ | 66 |
| | $ | 59 |
| | $ | 77 |
| | $ | 29 |
| | $ | 28 |
| | $ | 34 |
|
Expected return on plan assets | | (90 | ) | | (92 | ) | | (93 | ) | | (58 | ) | | (67 | ) | | (60 | ) |
Amortization of prior-service credit | | — |
| | — |
| | — |
| | (1 | ) | | (2 | ) | | (1 | ) |
Recognized AOCI loss due to settlements | | — |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
|
Net periodic benefit income | | $ | (24 | ) | | $ | (33 | ) | | $ | (17 | ) | | $ | (30 | ) | | $ | (41 | ) | | $ | (27 | ) |
Amounts recognized in Other comprehensive income (loss) | | | | | | | | | | | | |
Actuarial (gain) loss | | $ | (49 | ) | | $ | 58 |
| | $ | (41 | ) | | $ | 57 |
| | $ | 40 |
| | $ | (72 | ) |
Prior-service cost | | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
|
Reclassification of recognized AOCI gain due to settlements | | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Reclassification of prior-service credit to net periodic benefit income | | — |
| | — |
| | — |
| | 1 |
| | 2 |
| | 1 |
|
(Gain) loss recognized in Other comprehensive income (loss) | | $ | (49 | ) | | $ | 58 |
| | $ | (40 | ) | | $ | 58 |
| | $ | 61 |
| | $ | (71 | ) |
The weighted-average assumptions used to determine the net periodic benefit costs and benefit obligations for the year ended December 31 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Qualified Plans | | U.S. Non-Qualified Plans | | U.K. Plan |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
Discount rate - net periodic benefit costs | | 4.08 | % | | 3.14% - 3.38% | | 3.83% - 4.35% | | 3.65% - 3.95% | | 2.84% - 3.21% | | 4.35 | % | | 2.56 | % | | 2.21 | % | | 2.70 | % |
Discount rate - benefit obligations | | 3.35 | % | | 4.18% - 4.39% | | 3.55% - 3.71% | | 2.72% - 3.20% | | 3.93% - 4.28% | | 3.21% - 3.60% |
| | 2.04 | % | | 2.85 | % | | 2.53 | % |
Expected long-term rate of return on plan assets | | 5.80 | % | | 3.00% - 5.40% | | 2.35% - 5.65% | | N/A | | N/A | | N/A |
| | 4.85 | % | | 4.95 | % | | 5.00 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Qualified Plans | | Non-Qualified Plans |
| | 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
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 | | 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 | | 5.00 | % | | 5.60 | % | | 5.80% | | | | | | |
No rate of compensation increase was assumed as the plans are frozen to additional participant benefit accruals.
Beginning in 2018, we started usingWe use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment. Before 2018, we estimated the interest cost component by using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation. Our new approach provides a more precise measurement of interest costs by improving the
correlation between projected benefit cash flows and their corresponding spot rates. The change did not impact the measurement of our U.S. and U.K. pension benefit obligation and has been accounted for as a change in accounting estimate and 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. Plans | | U.K. Plan |
Year ending December 31: | | | | |
2020 | | $ | 90 |
| | $ | 42 |
|
2021 | | 93 |
| | 44 |
|
2022 | | 95 |
| | 46 |
|
2023 | | 98 |
| | 46 |
|
2024 | | 100 |
| | 49 |
|
2025-2029 | | 524 |
| | 268 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027-2030 |
Expected benefit payments | | $ | 94 | | | $ | 97 | | | $ | 100 | | | $ | 102 | | | $ | 104 | | | $ | 532 | |
Plan Assets
U.S. Plans
We manage the assets in the U.S. plans using a long-term liability-driven investment strategy that seeks to mitigate the funded status volatility by increasing exposure toparticipation in fixed income investments over time.as the plan’s funded status increases. We developed this strategy by analyzing a variety of diversified asset-class combinations with the projected liabilities.
Our current investment strategy is to achieve an investment mix of approximately 80%88% in fixed income securities and 20%12% of investments in equity securities. The fixed income allocation consists primarily of domestic fixed income securities and targets to hedge more than 90%95% of domestic projected liabilities. The target allocations for equity securities includes approximately 55%50% in U.S. equities and approximately 45%50% in non-U.S. equities. Investments in equity and fixed income securities consist of individual securities held in managed separate accounts and commingled investment funds. Generally, our investment strategy does not include an allocation to cash and cash equivalents, but a cash allocation may arise periodically in response to timing considerations regarding contributions, investments, and the payment of benefits and eligible plan expenses. We periodically evaluate our defined benefit plans’ asset portfolios for significant concentrations of risk. Types of investment concentration risks that are evaluated include 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, 2019,2021, our defined benefit plan assets had no significant concentrations of risk.
Our investment policy does not allow investment managers to use market-timing strategies or financial derivative instruments for speculative purposes but financial derivative instruments are used to manage risk and achieve stated investment objectives for duration, yield curve, credit, foreign exchange and equity exposures. Generally, our 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 5.80%5.00% for the overall expected long-term rate of return on plan assets in 20192021 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
Our U.K. Plan’s assets are separated from our assets and invested by trustees, which include our 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 approximately 60% matching assets (U.K. gilts and cash) and approximately 40% growth and income assets (consisting of a range of pooled funds investing in structured equities, high yield
bonds and asset-backed securities). The target asset allocations of the U.K. Plan include acceptable ranges for each asset class.
Collateral assets 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 105% of the liability inflation sensitivity were hedged as of December 31, 2019. The expected long-term rate of return on plan assets in 2019 was 4.85%. Our approach to determine the expected long-term rate of return on plan assets is consistent with the one we used for the U.S. Plans.
The fair values of investments held in the qualified pension plans by major asset category as of December 31, 20192021 and 2018,2020, and the percentage that each asset category comprises of total plan 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, 2019 | | |
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 | | $ | — |
| | $ | — |
| | $ | 24 |
| | $ | 24 |
| | 1.3 | % |
Equity: | | | | | | | | | | |
U.S. large companies | | — |
| | — |
| | 140 |
| | 140 |
| | 7.5 | % |
U.S. small companies | | 30 |
| | — |
| | — |
| | 30 |
| | 1.6 | % |
International | | 72 |
| | — |
| | 75 |
| | 147 |
| | 7.9 | % |
Fixed income securities: | | | | | | | | | | |
Global long-term debt instruments | | 405 |
| | 1,108 |
| | 5 |
| | 1,518 |
| | 81.5 | % |
Derivatives | | — |
| | 4 |
| | — |
| | 4 |
| | 0.2 | % |
Total U.S. Plan assets | | $ | 507 |
| | $ | 1,112 |
| | $ | 244 |
| | $ | 1,863 |
| | 100.0 | % |
| | | | | | | | | | |
Asset category (U.K. Plan) | | | | | | | | | | |
Cash and cash equivalents | | $ | 34 |
| | $ | — |
| | $ | — |
| | $ | 34 |
| | 2.5 | % |
Fixed income securities | | — |
| | 773 |
| | 474 |
| | 1,247 |
| | 91.6 | % |
Derivatives | | — |
| | (8 | ) | | 89 |
| | 81 |
| | 5.9 | % |
Total U.K. Plan assets | | $ | 34 |
| | $ | 765 |
| | $ | 563 |
| | $ | 1,362 |
| | 100.0 | % |
| |
(1) | (1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not 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. |
Table of Contentsthe fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.
|
| | | | | | | | | | | | | | | | | | | |
(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) | Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not 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 the anniversary of investment with 60 days’ prior notice. |
For the periods ended December 31, 20192021 and 2018,2020, we had no investments held in the pension plans within Level 3 of the fair value hierarchy. Our common stock was not a plan asset as of December 31, 20192021 or 2018.2020. The U.S. Non-Qualified Pension Plansnon-qualified plans are unfunded.
Funding
Our funding practice is to evaluate our tax and cash position, and the funded status of our plans, in determining our planned contributions. We estimate that we will contribute $5 million to our U.S. non-qualified plans and $3 millionto our U.K. plan in 20202022 but this could change based on variations in interest rates, asset returns and other factors.
Defined Contribution Retirement Plans
Our costs for defined contribution retirement plans were $70$60 million,, $66 $57 million and $62$57 million for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.
Postretirement Medical Plan
We provide health benefits through a postretirement medical plan for eligible employees hired before 1993 (the “Postretirement Plan”).
Funded Status of Postretirement Medical Plan
The reconciliation of the changes in the plan’s benefit obligation and the determination of the amounts recognized on our Consolidated Balance Sheets were as follows:
|
| | | | | | | | |
| | As of December 31, |
(In millions) | | 2019 | | 2018 |
Projected benefit obligation at beginning of year | | $ | 34 |
| | $ | 40 |
|
Interest cost on projected benefit obligation | | 1 |
| | 1 |
|
Actuarial loss (gain) | | 9 |
| | (5 | ) |
Participant contributions | | 1 |
| | 2 |
|
Benefits paid | | (4 | ) | | (4 | ) |
Projected and accumulated benefit obligation at end of year | | $ | 41 |
| | $ | 34 |
|
Funded status of the plan | | $ | (41 | ) | | $ | (34 | ) |
Amounts recognized in the balance sheet consist of: | | | | |
Current liabilities | | $ | (3 | ) | | $ | (3 | ) |
Long-term liabilities | | (38 | ) | | (31 | ) |
Net amount recognized | | $ | (41 | ) | | $ | (34 | ) |
Discount rate assumption as of December 31 | | 3.09 | % | | 4.21 | % |
| | | | | | | | | | | | | | |
| | As of December 31, |
(In millions) | | 2021 | | 2020 |
Projected benefit obligation at beginning of year | | $ | 44 | | | $ | 41 | |
Interest cost on projected benefit obligation | | 1 | | | 1 | |
Actuarial loss | | — | | | 4 | |
Participant contributions | | 1 | | | 1 | |
Benefits paid | | (5) | | | (3) | |
Projected and accumulated benefit obligation at end of year | | $ | 41 | | | $ | 44 | |
Funded status of the plan | | $ | (41) | | | $ | (44) | |
Amounts recognized in the balance sheet consist of: | | | | |
Current liabilities | | $ | (3) | | | $ | (3) | |
Long-term liabilities | | (38) | | | (41) | |
Net amount recognized | | $ | (41) | | | $ | (44) | |
Discount rate assumption as of December 31 | | 2.67 | % | | 2.20 | % |
The amounts included in AOCI that have not yet been recognized in net periodic benefit expense asincome (expense) and the net periodic benefit income (expense) for the postretirement plan were not material in any of 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, were as follows:
|
| | | | | | | | |
(In millions) | | 2019 | | 2018 |
Actuarial gain (loss) | | $ | 2 |
| | $ | 12 |
|
AOCI | | $ | 2 |
| | $ | 12 |
|
Net Periodic Benefit Expense for Postretirement Medical Plan
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions, except discount rate) | | 2019 | | 2018 | | 2017 |
Service cost - benefits earned during the year | | $ | — |
| | $ | 1 |
| | $ | — |
|
Interest cost on projected benefit obligation | | 1 |
| | 1 |
| | 2 |
|
Amortization of actuarial gain | | (2 | ) | | (1 | ) | | — |
|
Net periodic benefit (gain) expense | | $ | (1 | ) | | $ | 1 |
| | $ | 2 |
|
Discount rate assumption used to calculate interest cost | | 3.87% - 4.36% |
| | 3.11% - 3.67% |
| | 3.90 | % |
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) | | Benefit Payments |
Year ending December 31: | | |
2020 | | $ | 3 |
|
2021 | | 3 |
|
2022 | | 3 |
|
2023 | | 4 |
|
2024 | | 4 |
|
2025-2029 | | 15 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(In millions) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027-2030 |
Expected benefit payments | | $ | 3 | | | $ | 3 | | | $ | 3 | | | $ | 4 | | | $ | 3 | | | $ | 14 | |
14. Stockholders’ Equity
Our Board of Directors is authorized to establish one1 or more series of preferred stock. At December 31, 2019 and 2018, only our Series A Convertible Perpetual Preferred Stock is outstanding.
Series A Convertible Perpetual Preferred Stock and Warrants
WeIn 2011, we issued to some investors 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 our common stock at a conversion price of $7.00 per common share (subject to customary anti-dilution adjustments). We also issued to some investors warrants exercisable for shares of our common stock at an initial exercise price of $7.00 per common share (subject to customary anti-dilution adjustments). As of December 31, 2019, our outstanding preferred stock is convertible into 10 million shares of our common stock and our outstanding warrants are exercisable for an aggregate of 10 million shares of our common stock. Our preferred stock ranksranked senior to our common stock with respect to dividend and liquidation rights. Our preferred stock payspaid quarterly cash dividends equal to the greater of: (i) the “as-converted” dividends on our underlying common stock for the relevant quarter and (ii) 4% of the then-applicable liquidation preference per annum. Our preferred stock iswas not redeemable.
Equity OfferingIn 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 Forward Sale Agreementsa 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 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.
In 2021, the remaining 1,015 preferred shares were exchanged, and we 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 2017,2021, we completed a registered underwritten offering of 115.0 million shares of our 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, we offered 50000002.5 million shares directly and 60000002.5 million shares were offered in connection with forward sale agreements (the “Forward Sale Agreements”).by JPE. The Offering closed in July 2017additional 750,000 purchased shares were also split equally between us and weJPE. We received $290approximately $384 million of proceeds, ($288 million net of fees and expenses)expenses, from the sale of the 5000000 shares. Weshares and used the net proceedsthem to repay a portion of our outstanding borrowings and for general corporate purposes. In July 2018, we settledXPO did not receive any proceeds from the forward sales in fullsale of shares by delivering 6000000 shares of our common stock to the counterparties in the agreements and received $349 million of net cash proceeds. We used these net cash proceeds to repay our Senior Notes due 2022 as described above.JPE.
Share Repurchases
In December 2018, our Board of Directors authorized the repurchase of up to $1$1 billion of our common stock, (the “2018 Program”), which was completed in the first quarter of 2019. The share repurchases were funded by our Unsecured Credit Facility and our available cash.
In February 2019, our Board of Directors authorized additional repurchases of up to $1.5$1.5 billion of our common stock (the “2019 Program”).stock. The 2019 authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. The share purchases under the 2019 Program werethis program have been funded by our available cash and proceeds from our new2019 debt offerings.
December 31, 2021 is $503 million. Information regarding our shares repurchased, based on settlement date, in 2020 and 2019 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 | |
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions, except per share data) | | 2019 | | 2018 |
| | 2019 Program | | 2018 Program | | 2018 Program |
Shares purchased and retired | | 17 | | 8 | | 10 |
Aggregate value | | $ | 883 |
| | $ | 464 |
| | $ | 536 |
|
Average price per share | | $ | 50.70 |
| | $ | 59.47 |
| | $ | 53.46 |
|
Remaining authorization | | $ | 617 |
| | $ | — |
| | $ | 464 |
|
15. Stock-Based Compensation
We grant various types of stock-based compensation awards to directors, officers and key employees under our 2016 incentive plan. These awards include stock options, restricted stock, restricted stock units, performance-based units, cash incentive awards and other equity-related awards (collectively, “Awards”“Awards”).
TheAs a result of the spin-off and in accordance with plan rules, the shares remaining for future issuance under the 2016 plan authorizes the issuance ofwere equitably adjusted. With this adjustment, up to 5.47.2 million shares of our common stock have been authorized for issuance as Awards. Shares awarded may consist of authorized and unissued shares or treasury shares. The 2016 plan will terminate on May 15, 2029, unless terminated earlier by our boardBoard of directors.Directors. As of December 31, 2019, 1.82021, 1.7 million shares of our common stock were available for the grant of Awards under the 2016 plan.
In connection with the spin-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 value of the awards 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 U.S. and some non-U.S. employees, excluding our executive officers and directors, the right to purchase our common stock through payroll deductions up to 10% of each employee’s compensation. Shares are purchased at 5% below fair market value on the last trading day of each six-month offering period. Employees must hold the stock for a minimum of three months from the date of purchase. The plan authorizes the purchase of up to 2000000 shares of our common stock. The plan will terminate in October 2027, unless terminated earlier by our boardBoard of directors.Directors. We do not recognize stock-based compensation expense as the plan is non-compensatory. At December 31, 2019,2021, 2000000 shares of our common stock were available for purchase under the plan.
Our stock-based compensation expense is recorded in SG&A on our Consolidated Statements of Income:Income:
|
| | | | | | | | | | | | |
| | Years ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Restricted stock units | | $ | 30 |
| | $ | 21 |
| | $ | 12 |
|
Performance-based restricted stock units | | 6 |
| | 9 |
| | 10 |
|
Cash-settled performance-based restricted stock units | | 31 |
| | 19 |
| | 55 |
|
Other | | — |
| | — |
| | 2 |
|
Total stock-based compensation expense | | $ | 67 |
| | $ | 49 |
| | $ | 79 |
|
Tax benefit on stock-based compensation | | (2 | ) | | (22 | ) | | (8 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | Years ended December 31, |
(In millions) | | 2021 | | 2020 | | 2019 |
Restricted stock and restricted stock units | | $ | 28 | | | $ | 32 | | | $ | 24 | |
Performance-based restricted stock units | | 9 | | | 2 | | | 5 | |
Cash-settled performance-based restricted stock units | | — | | | 7 | | | 27 | |
| | | | | | |
Total stock-based compensation expense | | $ | 37 | | | $ | 41 | | | $ | 56 | |
Tax benefit on stock-based compensation | | $ | (5) | | | $ | (13) | | | $ | (2) | |
Stock Options
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 boardBoard of directors.Directors. The stock options have a 10-year contractual term and the exercise price equals our stock price on the grant date. We have not granted stock options since 2016.
A summary of stock option award activity for the year ended December 31, 20192021 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, 2018 | | 702,318 |
| | $ | 12.70 |
| | 3.05 |
Granted | | — |
| | — |
| | |
Exercised | | (125,125 | ) | | 14.46 |
| | |
Forfeited | | (1,438 | ) | | 22.83 |
| | |
Outstanding as of December 31, 2019 | | 575,755 |
| | $ | 12.29 |
| | 2.47 |
Options exercisable as of December 31, 2019 | | 575,755 |
| | $ | 12.29 |
| | 2.47 |
NM - Not meaningful
(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.
(3) 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 intrinsic value of options outstanding and exercisable as of December 31, 20192021 was $39 million, respectively.less than $1 million.
The total intrinsic value of options exercised during 2021, 2020 and 2019 2018 and 2017 was $6$4 million, $11$56 million and $9$6 million, respectively. The total cash received from options exercised during 2021, 2020 and 2019 2018was $2 million, less than $1 million and 2017 was $1 million, respectively.
Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units
We grant RSUs and PRSUs to our key employees, officers and directors with various vesting requirements. RSUs generally vest based on the passage of time (service conditions) and PRSUs generally vest based on the achievement of our financial targets (performance conditions). PRSUs may also be subject to stock price (market conditions), employment conditions and employmentother 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 the 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 PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model.
A summary of RSU and PRSU award activity for the year ended December 31, 20192021 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, 2018 | | 1,085,628 |
| | $ | 68.24 |
| | 1,036,925 |
| | $ | 43.51 |
|
Granted | | 1,148,380 |
| | 50.85 |
| | 1,030,368 |
| | 15.93 |
|
Vested | | (195,609 | ) | | 65.62 |
| | (407,245 | ) | | 30.40 |
|
Forfeited and canceled | | (308,984 | ) | | 72.90 |
| | (75,783 | ) | | 35.21 |
|
Outstanding as of December 31, 2019 | | 1,729,415 |
| | $ | 56.17 |
| | 1,584,265 |
| | $ | 29.35 |
|
NM - Not meaningful(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 2021, 2020 and 2019 2018was $69 million, $64 million and 2017 was $13 million, $30 million and $23 million, respectively, measured at the weighted-average grant date fair value.respectively. All of the outstanding RSUs as of December 31, 20192021 vest subject to service conditions.
The total fair value of PRSUs that vested during 2021, 2020 and 2019 2018was $2 million, $8 million and 2017 was $23 million, $96 million and $8 million, respectively, measured at the weighted-average grant date fair value.respectively. Of the outstanding PRSUs as of December 31, 2019, 418,3422021, 1,700,480 vest subject to service and a combination of market and performance conditions, and 1,165,923283,764 vest subject to service and performance conditions and 21,991 vest subject to service and market conditions.
As of December 31, 2019, 2021, unrecognized compensation cost related to non-vested RSUs and PRSUs of $63 $69 million is anticipated to be recognized over a weighted-average period of approximately 2.652.64 years.
Cash-Settled Performance-Based Restricted Stock Units
We grant cash-settled PRSUs to some key employees and executive officers. The PRSUs vest based on the passage
of time and are settled in cash either ratably over a two to four year period or cliff vest at the end of three to four years. The awards may also be subject to the achievement of performance targets and employment conditions. The awards are classified as liabilities and the fair value is based on the closing price of our common stock at grant date and is re-measured each reporting date until settlement. We recognize compensation expense for cash-settled PRSUs over the performance periods based on the probability of achieving the performance conditions and the closing price of our common stock. As of December 31, 2019 and 2018, we had recognized accrued liabilities of $30 million and $18 million, respectively, using a fair value per PRSU of $79.70 and $57.04, respectively.
A summary of cash-settled PRSU award activity for the year ended December 31, 2019 is presented below:
|
| | | |
| | Number of Cash-Settled PRSUs |
Outstanding as of December 31, 2018 | | 753,276 |
|
Granted | | — |
|
Vested | | (317,949 | ) |
Forfeited and canceled | | — |
|
Outstanding as of December 31, 2019 | | 435,327 |
|
As of December 31, 2019, we had $4 million of unrecognized compensation cost related to non-vested cash-settled PRSU compensation that is anticipated to be recognized in 2020; this will vary based on changes in our common stock price and the probability of achieving performance targets in future periods.
16. Income Taxes
Income (loss) from continuing operations before taxes related to our U.S. and foreign 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 | |
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
U.S. | | $ | 379 |
| | $ | 319 |
| | $ | 278 |
|
Foreign | | 190 |
| | 247 |
| | (17 | ) |
Income before income tax provision (benefit) | | $ | 569 |
| | $ | 566 |
| | $ | 261 |
|
The income tax provision (benefit) is comprised of the following:
| | | | Years Ended December 31, | | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 | (In millions) | | 2021 | | 2020 | | 2019 |
Current: | | | | | | | Current: | | | | | | |
U.S. Federal | | $ | 18 |
| | $ | 2 |
| | $ | 2 |
| U.S. Federal | | $ | 56 | | | $ | 30 | | | $ | (3) | |
State | | 3 |
| | 6 |
| | (3 | ) | State | | 13 | | | 7 | | | 1 | |
Foreign | | 62 |
| | 69 |
| | 59 |
| Foreign | | 13 | | | 16 | | | 22 | |
Total current income tax provision | | $ | 83 |
| | $ | 77 |
| | $ | 58 |
| Total current income tax provision | | $ | 82 | | | $ | 53 | | | $ | 20 | |
Deferred: | | | | | | | Deferred: | | | | | | |
U.S. Federal (1) | | $ | 52 |
| | $ | 57 |
| | $ | (134 | ) | |
U.S. Federal | | U.S. Federal | | $ | (10) | | | $ | (40) | | | $ | 52 | |
State | | — |
| | 2 |
| | (2 | ) | State | | (7) | | | (3) | | | 4 | |
Foreign (2) (3) | | (6 | ) | | (14 | ) | | (21 | ) | |
Foreign | | Foreign | | 22 | | | (32) | | | (16) | |
Total deferred income tax provision (benefit) | | 46 |
| | 45 |
| | (157 | ) | Total deferred income tax provision (benefit) | | 5 | | | (75) | | | 40 | |
Total income tax provision (benefit) | | $ | 129 |
| | $ | 122 |
| | $ | (99 | ) | Total income tax provision (benefit) | | $ | 87 | | | $ | (22) | | | $ | 60 | |
| |
(1) | On December 22, 2017, the Tax Cuts and Jobs Act (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, we recorded a tax benefit of $173 million in the fourth quarter of 2017 related to the revaluation of our net deferred tax liabilities. We did not record any changes during the measurement period.
| |
(2) | On December 29, 2019, a law was published in France modifying the phases of previously enacted rate reductions. Consequently, we recorded a tax expense of $3 million in the fourth quarter of 2019 related to the revaluation of our net deferred tax liabilities due to the expected recognition of these liabilities. |
| |
(3) | On December 31, 2017, a law was published in France enacting a rate reduction from 34.4% to 25.8% 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 34% to 25% to be phased in over three years starting in 2018. Consequently, we recorded a tax benefit of $10 million in the fourth quarter of 2017 related to the revaluation of our net deferred tax liabilities. |
The effective tax rate reconciliations were 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, |
| | 2019 | | 2018 | | 2017 |
U.S. federal statutory tax rate | | 21.0 | % | | 21.0 | % | | 35.0 | % |
State taxes, net of U.S. federal benefit | | 0.7 |
| | 1.2 |
| | (1.2 | ) |
Foreign rate differential | | (0.3 | ) | | (1.1 | ) | | (6.7 | ) |
Foreign operations (1) | | 2.9 |
| | 8.3 |
| | (0.1 | ) |
Valuation allowance | | 0.1 |
| | (3.7 | ) | | 0.8 |
|
Changes in uncertain tax positions | | (0.9 | ) | | — |
| | 5.1 |
|
Effect of law changes (2) (3) | | 0.6 |
| | — |
| | (70.2 | ) |
Stock-based compensation | | (0.3 | ) | | (3.8 | ) | | (3.3 | ) |
Other | | (1.2 | ) | | (0.3 | ) | | 2.4 |
|
Effective tax rate | | 22.6 | % | | 21.6 | % | | (38.2 | )% |
(1) Foreign operations include the net impact of changes to valuation allowances, the cost of inclusion of foreign income in the U.S. net of foreign taxes, the impact of foreign tax rate differences from the U.S. Federal rate and permanent items related to foreign operations.(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. |
| |
(2) | In 2019, there were tax rate changes in France. |
| |
(3) | In 2017, there were tax rate changes in the U.S., France and Belgium. |
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 were as follows: | | | | | | | | | | | | | | |
| | 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) | |
|
| | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 |
Deferred tax asset | | | | |
Net operating loss and other tax attribute carryforwards | | $ | 129 |
| | $ | 154 |
|
Accrued expenses | | 45 |
| | 60 |
|
Pension and other retirement obligations | | 17 |
| | 25 |
|
Other | | 59 |
| | 62 |
|
Total deferred tax asset | | 250 |
| | 301 |
|
Valuation allowance | | (69 | ) | | (73 | ) |
Total deferred tax asset, net | | 181 |
| | 228 |
|
Deferred tax liability | | | | |
Intangible assets | | (297 | ) | | (330 | ) |
Property and equipment | | (324 | ) | | (299 | ) |
Other | | (46 | ) | | (35 | ) |
Total deferred tax liability | | (667 | ) | | (664 | ) |
Net deferred tax liability | | $ | (486 | ) | | $ | (436 | ) |
The deferred tax asset and deferred tax liability above are reflected on our Consolidated Balance Sheets as follows:
|
| | | | | | | | |
| | December 31, |
(In millions) | | 2019 | | 2018 |
Other long-term assets | | $ | 9 |
| | $ | 8 |
|
Deferred tax liability | | (495 | ) | | (444 | ) |
Net deferred tax liability | | $ | (486 | ) | | $ | (436 | ) |
Investments in Foreign Subsidiaries
As a result of the Tax Act, we decided to apply a partial indefinite reversal assertion to pre-2018 earnings and profits that have been invested back into the foreign businesses. We also decided not to apply an indefinite reversal assertion on all 2018 and future years’ earnings and profits.
| | | | | | | | | | | | | | |
| | December 31, |
(In millions) | | 2021 | | 2020 |
Other long-term assets | | $ | 8 | | | $ | 7 | |
Deferred tax liability | | (316) | | | (286) | |
Net deferred tax liability | | $ | (308) | | | $ | (279) | |
Operating Loss and Tax Credit Carryforwards
Our operating loss and tax credit carryforwards were as follows: | | | | December 31, | | December 31, |
(In millions) | | Expiration Date | | 2019 | | 2018 | (In millions) | | Expiration Date | | 2021 | | 2020 |
Federal net operating losses for all U.S. operations (including those of minority owned subsidiaries) | | 2032 - 2037 (1) | | $ | 72 |
| | $ | 82 |
| 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 | | Federal long-term capital loss carryforwards | | 2027 | | 126 | | | — | |
Tax effect (before federal benefit) of state net operating losses | | Various times starting in 2020 (1) | | 26 |
| | 26 |
| 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) | | 4 |
| | 16 |
| Federal tax credit carryforwards | | Various times starting in 2032 | | 1 | | | — | |
State tax credit carryforward | | Various times starting in 2020 (1) | | 10 |
| | 8 |
| 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 2020 (1) | | 379 |
| | 382 |
| Foreign net operating losses available to offset future taxable income | | Various times starting in 2022 (1) | | 93 | | | 189 | |
(1) Some credits and losses have unlimited carryforward periods.
| | | | | | | | | | | | | | |
(1) | Some credits and losses have unlimited carryforward periods. | 95 | | |
| | | |
Valuation Allowance
We established a valuation allowance for some of our deferred tax assets, as it is more-likely-than-notmore likely than not that these assets will not be realized in the foreseeable future. We concluded that the remaining deferred tax assets will more-likely-than-notmore likely than not be realized, though this is not assured, and as such no valuation allowance has been provided on these assets.
The balances and activity related to our valuation allowance were as follows:
|
| | | | | | | | | | | | | | | | |
(In millions) | | Beginning Balance | | Additions | | Reductions/ Charges | | Ending Balance |
Year Ended December 31, 2019 | | $ | 73 |
| | $ | — |
| | $ | (4 | ) | | $ | 69 |
|
Year Ended December 31, 2018 | | 93 |
| | — |
| | (20 | ) | | 73 |
|
Year Ended December 31, 2017 | | 83 |
| | 29 |
| | (19 | ) | | 93 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(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
A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTB”) is as follows:
|
| | | | | | | | | | | | |
| | Years Ended December 31, |
(In millions) | | 2019 | | 2018 | | 2017 |
Beginning balance | | $ | 23 |
| | $ | 25 |
| | $ | 15 |
|
Additions for tax positions of the current period | | — |
| | 1 |
| | 2 |
|
Additions for tax positions of prior years | | 3 |
| | 2 |
| | 17 |
|
Reductions for tax positions of prior years | | (7 | ) | | (3 | ) | | — |
|
Settlements with tax authorities | | (1 | ) | | — |
| | (3 | ) |
Reductions due to the statute of limitations | | (1 | ) | | (1 | ) | | (6 | ) |
Currency translation adjustment | | — |
| | (1 | ) | | — |
|
Ending balance | | $ | 17 |
| | $ | 23 |
| | $ | 25 |
|
Interest and penalties | | 7 |
| | 6 |
| | 5 |
|
Gross unrecognized tax benefits | | $ | 24 |
| | $ | 29 |
| | $ | 30 |
|
| | | | | | |
Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year | | $ | 16 |
| | $ | 22 |
| | $ | 23 |
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
We could reflect a reduction to unrecognized tax benefits of $3up 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.
We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2019,2021, we have no tax years under examination by the Internal Revenue Service (“IRS”).IRS. 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 2012,2013, and non-U.S. returns after 20082010 are open under relevant statutes of limitations and are subject to audit.
17. Earnings perPer Share
We compute basic and diluted earnings per share using the two-class method, which allocates earnings to participating securities. The participating securities consistin 2020 and 2019 consisted of our 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. Losses 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 were as follows:
| | | | Years Ended December 31, |
(In millions, except per share data) | | (In millions, except per share data) | | 2021 | | 2020 | | 2019 |
Basic earnings (loss) per common share | | Basic earnings (loss) per common share | | | | | | |
| | | Income (loss) from continuing operations | | $ | 323 | | | $ | (13) | | | $ | 241 | |
| | | | | | | | | Net loss from continuing operations attributable to noncontrolling interests | | — | | | 3 | | | — | |
| | Years Ended December 31, | | Net income (loss) from continuing operations attributable to XPO | | 323 | | | (10) | | | 241 | |
(In millions, except per share data) | | 2019 | | 2018 | | 2017 | |
Basic earnings per common share | | | | | | | |
Net income attributable to XPO | | $ | 419 |
| | $ | 422 |
| | $ | 340 |
| |
Series A preferred stock dividends | | (3 | ) | | (3 | ) | | (3 | ) | |
Non-cash allocation of undistributed earnings | | (37 | ) | | (29 | ) | | (25 | ) | |
| | | 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 | | $ | 379 |
| | $ | 390 |
| | $ | 312 |
| Net income attributable to common shares, basic | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | | | | | | |
Basic weighted-average common shares | | 96 |
| | 123 |
| | 115 |
| Basic weighted-average common shares | | 112 | | | 92 | | | 96 | |
| Basic earnings (loss) from continuing operations per share | | Basic earnings (loss) from continuing operations per share | | $ | 2.88 | | | $ | (0.45) | | | $ | 2.09 | |
Basic earnings from discontinued operations per share | | Basic earnings from discontinued operations per share | | 0.11 | | | 1.32 | | | 1.86 | |
Basic earnings per share | | $ | 3.95 |
| | $ | 3.17 |
| | $ | 2.72 |
| Basic earnings per share | | $ | 2.99 | | | $ | 0.87 | | | $ | 3.95 | |
| | | | | | | | | | | | |
Diluted earnings per common share | | | | | | | |
Net income attributable to common shares, basic | | $ | 379 |
| | $ | 390 |
| | $ | 312 |
| |
Interest from Convertible Senior Notes | | — |
| | — |
| | 1 |
| |
Diluted earnings (loss) per common share | | 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 | | $ | 379 |
| | $ | 390 |
| | $ | 313 |
| Net income attributable to common shares, diluted | | $ | 336 | | | $ | 79 | | | $ | 379 | |
| | | | | | | | | | | | |
Basic weighted-average common shares | | 96 |
| | 123 |
| | 115 |
| Basic weighted-average common shares | | 112 | | | 92 | | | 96 | |
Dilutive effect of Convertible Senior Notes | | — |
| | — |
| | 2 |
| |
Dilutive effect of non-participating stock-based awards and equity forward | | 10 |
| | 12 |
| | 11 |
| |
| | | | Dilutive effect of stock-based awards and warrants | | 2 | | | — | | | 10 | |
Diluted weighted-average common shares | | 106 |
| | 135 |
| | 128 |
| Diluted weighted-average common shares | | 114 | | | 92 | | | 106 | |
| | | | | | | |
Diluted earnings (loss) from continuing operations per share | | Diluted earnings (loss) from continuing operations per share | | $ | 2.82 | | | $ | (0.45) | | | $ | 1.89 | |
Diluted earnings from discontinued operations per share | | Diluted earnings from discontinued operations per share | | 0.11 | | | 1.32 | | | 1.68 | |
Diluted earnings per share | | $ | 3.57 |
| | $ | 2.88 |
| | $ | 2.45 |
| Diluted earnings per share | | $ | 2.93 | | | $ | 0.87 | | | $ | 3.57 | |
| | | | | | | | | | | | |
Potential common shares excluded | | 10 |
| | 10 |
| | 10 |
| 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.
18. Commitments and Contingencies
We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include 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 that claim eitherinvolving claims that our owner-operators or contract carriers should be treated as employees, rather than independent contractors or that some of our 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.
We 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. We review and adjust accruals for loss contingencies quarterly and 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, we 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, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose 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 our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a 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. Legal costs incurred related to these matters are expensed as incurred.
We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our 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 we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
Intermodal Drayage Classification Claims
Certain of our 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 claimsare defendants in 2012 with the DLSE. These owner-operators asserted 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. Decisions were rendered in June 2015 by a DLSE hearing officer with respect to claims of 5 plaintiffs, resulting in awards in an aggregate amount of approximately $1 million, following which we 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 5 claimants were employees rather than independent contractors and awarded an aggregate of approximately $1 million plus post-judgment interest and attorneys’ fees to the claimants. We appealed this judgment, but on February 20, 2019, the United States Court of Appeals for the Ninth Circuit declined to consider the appeal on technical grounds. In addition, separate decisions were rendered in April 2017 by a DLSE hearing officer in claims involving 4 additional plaintiffs, resulting in an award for the plaintiffs in an aggregate amount of approximately $1 million. We appealed this decision to the California Superior Court, Long Beach, and the court ultimately entered judgment in favor of the 4 plaintiffs for approximately $812 thousand on September 27, 2019. The remaining DLSE claims (the “Pending DLSE Claims”) were transferred to California Superior Court, Los Angeles in 3 separate actions involving approximately 170 claimants, including the claimants mentioned above who originally filed claims in 2012. We have reached an agreement to settle the majority of the Pending DLSE Claims, the settlement payment has been made, and the settled claims have been dismissed. In addition, some of our intermodal drayage subsidiaries are party to putative class action litigations individual and multi-plaintiff lawsuits, and administrative claims in California brought by independent contract carriers in California who contracted with these subsidiaries. In these matters,cases, the contract carriers assert that they should be classified as employees, rather than
independent contractors. We believeIn 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 we have 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. We are 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 our accrued liability that we 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
Some of our 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 4 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 District Court, Northern DistrictAlvarez case a total of California: Ron Carter, Juan Estrada, Jerry Green, Burl Malmgren, Bill McDonald$20 million, which includes all attorneys’ fees and Joel Morales v. XPO Logistics, Inc. (“Carter”), filedother costs. We have agreed to pay the plaintiff class in March 2016; the Arrellano case a total of
$9.5 million, which includes all attorneys’ fees and XPO Logistics Inc. (“Garcia”), filedother costs. We accrued for both settlements in July 2016; Kevin Kramer v. XPO Logistics Inc. (“Kramer”), filed in September 2016;the third quarter of 2021. Under the terms of both settlement agreements, we do not have to reclassify our contractors as employees and Hector Ibanez v. XPO Last Mile, Inc. (“Ibanez”), filed in May 2017. We reached agreementsthe plaintiff classes have agreed to settlerelease us from all liability from the Carter, Garcia, Kramerinception of each respective class period through December 31, 2021. All parties involved have agreed to dismiss all claims and Ibanez matters and have accrued the full amount of the settlements. The Carter settlement received final court approval on October 18, 2019,counterclaims with prejudice, and the settlement has been paid.agreements do not contain any admission of liability, wrongdoing or responsibility by any of the parties. The parties awaitCourt granted preliminary approval of the settlements on October 8, 2021, and pursuant 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 settlementssettlements. 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 other matters. As for the other pending lawsuits, we believe that we have adequately accrued for the potential impactfirst half of loss contingencies that are probable and reasonably estimable. We are unable at this time to estimate the amount of the possible loss or range of loss, if any, in excess of our accrued liability that we 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.2022.
Shareholder Litigation
On December 14, 2018, 2a putative class actions wereaction captioned Labul v. XPO Logistics, Inc. et al., was filed in the U.S. District Court for the District of Connecticut and the U.S. District Court for the Southern District of New York against us and some of our current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, based on alleged material misstatements and omissions in our public filings with the U.S. Securities and Exchange Commission. On January 7,June 3, 2019, the plaintiff in one of the class actions, Leeman v. XPO Logistics, Inc. et al., No. 1:18-cv-11741 (S.D.N.Y.), voluntarily dismissed the action without prejudice. In the other putative class action, Labul v. XPO Logistics, Inc. et al., No. 3:18-cv-02062 (D. Conn.), which is pending in the U.S. District Court for the District of Connecticut, on April 2, 2019, the court appointedlead 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”) as lead plaintiffs. On June 3, 2019, the Pension Funds, with additional plaintiff Norfolk County Retirement System, filed a consolidated class action complaint against us and some of our current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 20(a) of the Exchange Act, and Sections 11 and 15 of the Securities Act, based on alleged material misstatements and omissions in our public filings with the U.S. Securities and Exchange Commission.complaint. Defendants moved to dismiss the consolidated class action complaint on August 2, 2019. On November 4, 2019, the courtCourt 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, alleging violations of Section 10(b) ofexecutive. Defendants moved to dismiss the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act. Defendants’ deadline to respond to or move against thefirst amended consolidated class action complaint ison 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., No. 19-cv-889-RGA (D. Del.) (“Jez(the “Jez complaint”) in the U.S. District Court for the District of Delaware, alleging breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Exchange Act against some of our current and former directors and officers, with the company as a nominal defendant. On May 24, 2019,The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler filed a purported shareholder derivative action with substantially similar claims and allegations against the same parties, captioned Candler v. Jacobs, et al., No. 19-cv-959-CFC (D. Del.), also in the U.S. District Court
for the District of Delaware. On June 14, 2019, the two actions were consolidated for all purposes (“consolidated action”). On September 27, 2019, plaintiffs in the consolidated action filed a consolidated shareholder derivative complaint. On the same date, Kevin Rose filed a purported shareholder derivative action with substantially similar claims and allegations againstunder the same parties, captionedcaption Rose v. Jacobs, et al.In re XPO Logistics, Inc. Derivative Litigation., No. 19-cv-1815-RGA (D. Del.), also in the U.S. District Court for the District of Delaware. On December 12, 2019, the courtCourt ordered that the Rose action be consolidated into the consolidated action.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’ deadlineDefendants moved to respond to or move againstdismiss the operative complaint ison 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 merit and we intend to defend the company vigorously against the allegations.vigorously. We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.
Insurance Contribution Litigation
In 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 Oregon Court of Appeals upheld the jury verdict. In September 2019, Allianz appealed to the 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 pollution 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 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 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, as of December 31, 2019.2021. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2019,2021, 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 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, 2019,2021, 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, 2019.2021.
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 our internal control over financial reporting during the quarter ended December 31, 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.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 20202022 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 20202022 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 20202022 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 20202022 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 20202022 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 | | |
| | |
4.74.6 | | |
| | |
4.7 | | |
| | |
4.8 | | |
| | |
4.9 * | | |
| | |
10.1 + | | |
| | |
10.210.1 + | | |
| | |
10.310.2 + | | |
| | |
10.4 + | | |
| | |
10.510.3 + | | |
| | |
10.610.4 + | | |
| | |
10.7 + | | |
| | |
10.8 + | | |
| | |
10.9 + | | |
| | |
|
| | |
Exhibit
Number 10.5 + | | Description |
| | |
10.10 + | | |
| | |
10.1110.6 + | | |
| | |
10.12 + | | |
| | |
10.13 + | | |
| | |
10.1410.7 + | | |
| | |
10.15 + | | |
| | |
10.16 + | | |
| | |
10.1710.8 + | | |
| | |
| | | | | | | | |
Exhibit Number | | Description |
| | |
10.9 + | | |
| | |
10.1910.10 + | | |
| | |
10.20 + | | |
| | |
10.21 + | | |
| | |
10.22 + | | |
| | |
10.2310.11 + | | |
| | |
10.2410.12 + | | |
| | |
10.13 + | | |
| | |
|
| | |
Exhibit
Number
| | Description |
| | |
10.25 + | | |
| | |
10.26 + | | |
| | |
10.27 + | | |
| | |
10.28 + | | |
| | |
10.29 + | | |
| | |
10.30 + | | |
| | |
10.3110.14 + | | |
| | |
10.3210.15 + | | Amendment, dated June 5, 2019, to EmploymentPerformance-Based Restricted Stock Unit Award Agreement, dated February 9, 2016,September 8, 2021, between the registrant and Troy A. CooperRavi Tulsyan (incorporated herein by reference to Exhibit 10.410.6 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 filed with the SEC on August 1, 2019)November 3, 2021). |
| | |
10.33 +10.16 +* | | |
| | |
10.34 +10.17 +* | | |
| | |
10.18 + | | |
| | |
10.3510.19 + | | |
| | |
10.20 + | | |
| | |
10.21 + | | |
| | |
10.22 + | | |
| | |
10.23 + | | |
| | |
10.24 + | | |
| | |
| | | | | | | | |
Exhibit Number | | Description |
| | |
10.25 + | | |
| | |
10.26 + | | |
| | |
10.27 +* | | |
| | |
10.28 | | |
| | |
10.3610.29 | | |
| | |
10.3710.30 | | Second Amended and Restated Revolving Loan Credit Agreement, dated 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). |
| | |
10.3810.31 | | |
| | |
10.32 | | |
| | |
10.33 | | |
| | |
10.34 | | |
| | |
10.35 | | |
| | |
10.36 | | |
10.37 | | |
| | |
| | | | | | | | |
Exhibit Number | | Description |
| | |
10.38 | | |
| | |
|
| | |
Exhibit
Number 10.39 | | Description |
| | |
10.40 | | |
| | |
10.4110.40 | | |
| | |
10.42 | | |
| | |
10.4310.41 | | |
| | |
10.44 | | Amendment No. 4 dated March 7, 2019, to Senior Secured Term Loan Credit Agreement, dated October 30, 2015,March 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 10.1 to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2019 filed with the SEC on May 1, 2019). |
| | |
10.4510.42 | | |
| | |
10.4610.43 | | Refinancing Amendment (Amendment No. 36 to Second Amended and Restated RevolvingSenior Secured Term Loan Credit Agreement,Agreement), dated April 30, 2019,March 3, 2021, by and among the registrant certain, the subsidiaries signatory thereto, as guarantors, the lenders party thereto and 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 May 1, 2019)March 3, 2021). |
| | |
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. |
| | |
|
| | |
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 10, 202016, 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 Executive Officer)
| | February 10, 202016, 2022 |
Bradley S.Brad Jacobs | | | | |
/s/ Sarah J.S. GlickmanRavi Tulsyan | | Acting Chief Financial Officer
(Principal Financial Officer)
| | February 10, 202016, 2022 |
Sarah J.S. GlickmanRavi Tulsyan | | | | |
/s/ Lance A. Robinson | | Chief Accounting Officer (Principal Accounting Officer)
| | February 10, 202016, 2022 |
Lance A. Robinson | | | | |
/s/ AnnaMaria DeSalva | | Vice Chairman of the Board of Directors | | February 10, 202016, 2022 |
AnnaMaria DeSalva | | | | |
/s/ Gena L. Ashe | | Director | | February 10, 2020 |
Gena L. Ashe | | | | |
/s/ Marlene M. Colucci | | Director | | February 10, 2020 |
Marlene M. Colucci | | | | |
/s/ Michael G. Jesselson | | Lead Independent Director | | February 10, 202016, 2022 |
Michael G. Jesselson | | | | |
/s/ Aris KekedjianJason Aiken | | Director | | February 10, 202016, 2022 |
Aris KekedjianJason Aiken | | | | |
/s/ Adrian P. Kingshott | | Director | | February 10, 202016, 2022 |
Adrian P. Kingshott | | | | |
/s/ Jason D. PapastavrouMary Kissel | | Director | | February 10, 202016, 2022 |
Jason D. PapastavrouMary Kissel | | | | |
/s/ Oren G. ShafferAllison Landry | | Director | | February 10, 202016, 2022 |
Oren G. ShafferAllison Landry | | | | |
/s/ Johnny C. Taylor, Jr. | | Director | | February 16, 2022 |
Johnny C. Taylor, Jr. | | | | |