UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

___________________________________________
Form 10-Q

___________________________________________
(Mark One)
ý
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2020
or
¨
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission file number: File Number: 001-32172

_______________________________________________________
xpo_logo2020.jpg
XPO Logistics, Inc.
(Exact name of registrant as specified in its charter)

Delaware03-0450326
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
_______________________________________________________
Delaware
 
03-0450326
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Five American Lane
Greenwich, CT
 
06831
 
Greenwich,
CT
 
06831
(Address of principal executive offices)
 
(Zip code)Code)
(855) (855) 976-6951
(Registrant’sRegistrant’s telephone number, including area code)
(______________________________________________________________________________________________________________
N/A
______________________________________________________________________________________________________________
Former name, former address and former fiscal year, if changed since last report)report

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common stock, par value $0.001 per share
 
XPO
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer", "accelerated filer", "smallerfiler,” “accelerated filer,” “smaller reporting company"company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
☒
 
Accelerated filer
 
¨
☐
 
Emerging growth company
☐
 
 
 
 
 
 
 
 
 
 
Non-accelerated filer
¨ (Do not check if a smaller reporting company) 
☐
 
Smaller reporting company
 
¨
☐
 
 
Emerging growth company¨
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒
As of OctoberApril 27, 20172020, there were 119,870,89991,126,364 shares of the registrant’sregistrant’s common stock, par value $0.001 per share, outstanding.



XPO Logistics, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2020
Table of Contents


XPO Logistics, Inc.
Form 10-Q
Index
 
 
Page No.
 
 
 




Table of Contents

Part I—I—Financial Information
Item 1.Financial Statements.
XPO Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

 September 30, December 31,
 
March 31,
 
December 31,
(In millions, except per share data) 2017 2016
 
2020
 
2019
ASSETS    
 
 
 
 
Current assets:    
 
 
 
 
Cash and cash equivalents $473.1
 $373.4
 
$
1,127

 
$
377

Accounts receivable, net of allowances of $39.2 and $26.3, respectively 2,601.0
 2,313.3
Accounts receivable, net of allowances of $63 and $58, respectively
 
2,415

 
2,500

Other current assets 507.6
 386.9
 
464

 
465

Total current assets 3,581.7
 3,073.6
 
4,006

 
3,342

Property and equipment, net of $980.6 and $589.9 in accumulated depreciation, respectively 2,602.1
 2,537.4
Property and equipment, net of $2,138 and $2,054 in accumulated depreciation, respectively
 
2,632

 
2,704

Operating lease assets
 
2,143

 
2,245

Goodwill 4,534.3
 4,325.8
 
4,395

 
4,450

Identifiable intangible assets, net of $515.9 and $377.1 in accumulated amortization, respectively 1,468.0
 1,534.7
Identifiable intangible assets, net of $825 and $850 in accumulated amortization, respectively
 
1,046

 
1,092

Other long-term assets 172.1
 226.9
 
340

 
295

Total long-term assets 8,776.5
 8,624.8
 
10,556

 
10,786

Total assets $12,358.2
 $11,698.4
 
$
14,562

 
$
14,128

LIABILITIES AND STOCKHOLDERS’ EQUITY    
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:    
 
 
 
 
Accounts payable $1,158.0
 $1,056.3
 
$
1,057

 
$
1,157

Accrued expenses 1,517.4
 1,382.1
 
1,446

 
1,414

Current maturities of long-term debt 90.0
 136.5
Short-term borrowings and current maturities of long-term debt
 
260

 
84

Short-term operating lease liabilities
 
456

 
468

Other current liabilities 142.3
 156.7
 
166

 
135

Total current liabilities 2,907.7
 2,731.6
 
3,385

 
3,258

Long-term debt 4,541.0
 4,731.5
 
5,766

 
5,182

Deferred tax liability 535.0
 572.4
 
505

 
495

Employee benefit obligations 211.5
 251.4
 
152

 
157

Long-term operating lease liabilities
 
1,689

 
1,776

Other long-term liabilities 464.6
 373.9
 
337

 
364

Total long-term liabilities 5,752.1
 5,929.2
 
8,449

 
7,974

Stockholders’ equity:    
Convertible perpetual preferred stock, $.001 par value; 10.0 shares authorized; .07 of Series A shares issued and outstanding at September 30, 2017 and December 31, 2016 41.2
 41.6
Common stock, $.001 par value; 300.0 shares authorized; 119.6 and 111.1 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively 0.1
 0.1
Stockholders’ equity:
 
 
 
 
Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; 0.07 of Series A shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
 
41

 
41

Common stock, $0.001 par value; 300 shares authorized; 91 and 92 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
 
—

 
—

Additional paid-in capital 3,581.6
 3,244.9
 
1,943

 
2,061

Accumulated deficit (259.5) (392.9)
Retained earnings
 
804

 
786

Accumulated other comprehensive loss (54.6) (193.7)
 
(210
)
 
(145
)
Total stockholders' equity before noncontrolling interests 3,308.8
 2,700.0
Total stockholders’ equity before noncontrolling interests
 
2,578

 
2,743

Noncontrolling interests 389.6
 337.6
 
150

 
153

Total equity 3,698.4
 3,037.6
 
2,728

 
2,896

Total liabilities and equity $12,358.2
 $11,698.4
 
$
14,562

 
$
14,128

See accompanying notes to condensed consolidated financial statements.


1

Table of Contents

XPO Logistics, Inc.
Condensed Consolidated Statements of OperationsIncome
(Unaudited)
 Three Months Ended September 30, Nine Months Ended September 30,
 
Three Months Ended March 31,
(In millions, except per share data) 2017 2016 2017 2016
 
2020
 
2019
Revenue $3,887.1
 $3,713.8
 $11,186.9
 $10,942.8
 
$
3,864

 
$
4,120

Operating expenses        
 
 
 
 
Cost of transportation and services 2,042.7
 2,008.4
 5,899.6
 5,926.8
 
1,898

 
2,096

Direct operating expense 1,258.7
 1,153.4
 3,590.6
 3,389.8
 
1,360

 
1,406

Sales, general and administrative expense 398.9
 383.2
 1,211.3
 1,224.7
 
525

 
486

Total operating expenses 3,700.3
 3,545.0
 10,701.5
 10,541.3
 
3,783

 
3,988

Operating income 186.8
 168.8
 485.4
 401.5
 
81

 
132

Other income (6.7) (1.1) (6.0) (6.7)
Foreign currency loss (income) 15.0
 (0.3) 53.9
 1.8
Other expense (income)
 
(18
)
 
(17
)
Foreign currency (gain) loss
 
(8
)
 
2

Debt extinguishment loss 4.6
 53.2
 13.6
 53.2
 
—

 
5

Interest expense 72.5
 93.0
 222.4
 280.8
 
72

 
71

Income before income tax provision 101.4
 24.0
 201.5
 72.4
 
35

 
71

Income tax provision 30.4
 2.7
 48.4
 20.0
 
10

 
19

Net income 71.0
 21.3
 153.1
 52.4
 
25

 
52

Net income attributable to noncontrolling interests (8.5) (6.2) (17.4) (13.2)
 
(2
)
 
(5
)
Net income attributable to XPO $62.5
 $15.1
 $135.7
 $39.2
 
$
23

 
$
47

        
 
 
 
 
Earnings per share data:        
 
 
 
 
Net income attributable to common shareholders $57.5
 $13.8
 $124.5
 $35.8
 
$
21

 
$
43

        
 
 
 
 
Basic earnings per share $0.49
 $0.13
 $1.10
 $0.33
 
$
0.23

 
$
0.40

Diluted earnings per share $0.44
 $0.11
 $0.99
 $0.30
 
$
0.20

 
$
0.37

        
 
 
 
 
Weighted-average common shares outstanding        
 
 
 
 
Basic weighted-average common shares outstanding 117.5
 110.3
 113.5
 110.0
 
92

 
107

Diluted weighted-average common shares outstanding 129.8
 122.9
 126.2
 119.2
 
103

 
117

See accompanying notes to condensed consolidated financial statements.


2

Table of Contents

XPO Logistics, Inc.
Condensed Consolidated Statements of Comprehensive (Loss) Income (Loss)
(Unaudited)
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Net income
 
$
25

 
$
52

 
 
 
 
 
Other comprehensive loss, net of tax
 
 
 
 
Foreign currency translation loss, net of tax effect of $(11) and $(6)
 
$
(65
)
 
$
(1
)
Unrealized loss on financial assets/liabilities designated as hedging instruments, net of tax effect of $— and $1
 
—

 
(3
)
Defined benefit plans adjustments, net of tax effect of $2 and $—
 
(5
)
 
—

Other comprehensive loss
 
(70
)
 
(4
)
Comprehensive (loss) income
 
$
(45
)
 
$
48

Less: Comprehensive loss attributable to noncontrolling interests
 
(3
)
 
—

Comprehensive (loss) income attributable to XPO
 
$
(42
)
 
$
48


  Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2017 2016 2017 2016
Net income $71.0
 $21.3
 $153.1
 $52.4
         
Other comprehensive income (loss), net of tax        
Foreign currency translation gain (loss) (1)
 $82.0
 $(8.0) $247.6
 $(27.2)
Unrealized loss on financial assets/liabilities designated as hedging instruments, net of tax effect of $23.3, $9.2, $42.1 and $16.7 (28.4) (12.4) (68.9) (23.3)
Defined benefit plans adjustments, net of tax effect of $1.9, $1.1, $1.9 and $1.1 (1.0) (5.3) (1.0) (5.3)
Other comprehensive income (loss) 52.6
 (25.7) 177.7
 (55.8)
Comprehensive income (loss) $123.6
 $(4.4) $330.8
 $(3.4)
Less: Comprehensive income attributable to noncontrolling interests (21.1) (5.1) (56.0) (10.2)
Comprehensive income (loss) attributable to XPO $102.5
 $(9.5) $274.8
 $(13.6)
(1) There is no tax impact related to the foreign currency translation adjustments as the earnings are considered permanently reinvested.
See accompanying notes to condensed consolidated financial statements.



3

Table of Contents

XPO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
  Nine Months Ended September 30,
(In millions) 2017 2016
Operating activities    
Net income $153.1
 $52.4
Adjustments to reconcile net income to net cash from operating activities    
Depreciation and amortization 489.1
 485.4
Stock compensation expense 50.1
 34.2
Accretion of debt 14.5
 12.3
Deferred tax benefit (3.1) (2.3)
Loss on extinguishment of debt 13.6
 53.2
Unrealized loss (gain) on foreign currency option and forward contracts 49.9
 (2.8)
Other 20.1
 8.7
Changes in assets and liabilities:    
Accounts receivable (199.8) (79.0)
Other assets (40.2) (72.5)
Accounts payable 48.6
 (150.7)
Accrued expenses and other liabilities (71.2) 65.7
Cash flows provided by operating activities 524.7
 404.6
Investing activities    
Payment for purchases of property and equipment (389.9) (318.5)
Proceeds from sale of assets 59.6
 57.9
Other —
 8.6
Cash flows used by investing activities (330.3) (252.0)
Financing activities    
Proceeds from issuance of long-term debt 523.5
 1,377.8
Repurchase of debt (782.9) (1,334.2)
Proceeds from borrowings on ABL facility 495.0
 260.0
Repayment of borrowings on ABL facility (525.0) (260.0)
Repayment of long-term debt and capital leases (80.9) (126.4)
Payment for debt issuance costs (12.8) (24.9)
Proceeds from common stock offering 287.6
 —
Change in bank overdrafts 11.5
 24.9
Payment for tax withholdings for restricted shares (15.2) (9.3)
Dividends paid (3.3) (2.5)
Other (1.0) 11.3
Cash flows used by financing activities (103.5) (83.3)
Effect of exchange rates on cash 8.8
 1.2
Net increase in cash 99.7
 70.5
Cash and cash equivalents, beginning of period 373.4
 289.8
Cash and cash equivalents, end of period $473.1
 $360.3
Supplemental disclosure of cash flow information:    
Cash paid for interest $176.5
 $259.1
Cash paid for income taxes $59.9
 $41.7
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Operating activities
 
 
 
 
Net income
 
$
25

 
$
52

Adjustments to reconcile net income to net cash from operating activities
 
 
 
 
Depreciation, amortization and net lease activity
 
183

 
180

Stock compensation expense
 
18

 
13

Accretion of debt
 
4

 
5

Deferred tax benefit
 
(2
)
 
(5
)
Debt extinguishment loss
 
—

 
5

Unrealized (gain) loss on foreign currency option and forward contracts
 
(4
)
 
2

Gains on sales of property and equipment
 
(27
)
 
(21
)
Other
 
5

 
13

Changes in assets and liabilities:
 
 
 
 
Accounts receivable
 
44

 
(246
)
Other assets
 
(16
)
 
(30
)
Accounts payable
 
(69
)
 
(57
)
Accrued expenses and other liabilities
 
19

 
(7
)
Net cash provided by (used in) operating activities
 
180

 
(96
)
Investing activities
 
 
 
 
Payment for purchases of property and equipment
 
(139
)
 
(118
)
Proceeds from sale of property and equipment
 
54

 
47

Cash collected on deferred purchase price receivable
 
—

 
71

Other
 
6

 
—

Net cash used in investing activities
 
(79
)
 
—

Financing activities
 
 
 
 
Proceeds from borrowings related to securitization program
 
182

 
—

Proceeds from issuance of debt
 
—

 
1,751

Proceeds from borrowings on ABL facility
 
620

 
1,075

Repayment of borrowings on ABL facility
 
(20
)
 
(1,075
)
Repayment of debt and finance leases
 
(25
)
 
(534
)
Payment for debt issuance costs
 
—

 
(24
)
Repurchase of common stock
 
(114
)
 
(1,227
)
Change in bank overdrafts
 
42

 
6

Payment for tax withholdings for restricted shares
 
(16
)
 
(2
)
Other
 
(1
)
 
1

Net cash provided by (used in) financing activities
 
668

 
(29
)
Effect of exchange rates on cash, cash equivalents and restricted cash
 
(19
)
 
—

Net increase (decrease) in cash, cash equivalents and restricted cash
 
750

 
(125
)
Cash, cash equivalents and restricted cash, beginning of period
 
387

 
514

Cash, cash equivalents and restricted cash, end of period
 
$
1,137

 
$
389

Supplemental disclosure of cash flow information:
 
 
 
 
Leased assets obtained in exchange for new operating lease liabilities
 
$
156

 
$
175

Leased assets obtained in exchange for new finance lease liabilities
 
8

 
13

Cash paid for interest
 
76

 
49

Cash paid for income taxes
 
7

 
8

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

XPO Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
 
 
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, 2019
 
72

 
$
41

 
92,342

 
$
—

 
$
2,061

 
$
786

 
$
(145
)
 
$
2,743

 
$
153

 
$
2,896

Net income
 
—

 
—

 
—

 
—

 
—

 
23

 
—

 
23

 
2

 
25

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
—

 
(65
)
 
(65
)
 
(5
)
 
(70
)
Exercise and vesting of stock compensation awards
 
—

 
—

 
417

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to vesting of stock compensation awards
 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
(16
)
 
—

 
(16
)
Retirement of common stock
 
—

 
—

 
(1,715
)
 
—

 
(114
)
 
—

 
—

 
(114
)
 
—

 
(114
)
Dividend declared
 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
(1
)
Stock compensation expense
 
—

 
—

 
—

 
—

 
12

 
—

 
—

 
12

 
—

 
12

Adoption of new accounting standard and other
 
—

 
—

 
—

 
—

 
—

 
(4
)
 
—

 
(4
)
 
—

 
(4
)
Balance as of March 31, 2020
 
72

 
$
41

 
91,044

 
$
—

 
$
1,943

 
$
804

 
$
(210
)
 
$
2,578

 
$
150

 
$
2,728

 
 
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
 
—

 
—

 
—

 
—

 
—

 
47

 
—

 
47

 
5

 
52

Other comprehensive income (loss)
 
—

 
—

 
—

 
—

 
—

 
—

 
1

 
1

 
(5
)
 
(4
)
Exercise and vesting of stock compensation awards
 
—

 
—

 
94

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Tax withholdings related to vesting of stock compensation awards
 
—

 
—

 
—

 
—

 
(2
)
 
—

 
—

 
(2
)
 
—

 
(2
)
Retirement of common stock
 
—

 
—

 
(22,570
)
 
—

 
(1,195
)
 
—

 
—

 
(1,195
)
 
—

 
(1,195
)
Dividend declared
 
—

 
—

 
—

 
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
(1
)
Stock compensation expense
 
—

 
—

 
—

 
—

 
8

 
—

 
—

 
8

 
—

 
8

Adoption of new accounting standard and other
 
—

 
—

 
—

 
—

 
—

 
5

 
—

 
5

 
—

 
5

Balance as of March 31, 2019
 
72

 
$
41

 
93,207

 
$
—

 
$
2,122

 
$
428

 
$
(153
)
 
$
2,438

 
$
395

 
$
2,833


See accompanying notes to condensed consolidated financial statements.

5
Table of Contents

XPO Logistics, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.Organization, Description of Business and Basis of Presentation
XPO Logistics, Inc. and, together with its subsidiaries ("XPO"(“XPO” or “we”), is a top ten global provider of cutting-edge supply chain solutions to the "Company")most successful companies in the world. We use anour integrated network of people, technology and physical assets to help customers manage their goods moremost efficiently throughout their supply chains. The Company’sOur customers are multinational, national, mid-size and small enterprises, and include many of the most prominent companies in the world. XPO runs itsenterprises. We run our business on a global basis, with two2 reportable segments: Transportation and Logistics.
In the Transportation segment, the Company provides multiple services to facilitate the movement of raw materials, parts and finished goods. The Company accomplishes this by using its proprietary transportation technology, third-party carriers and Company-owned trucks and service centers. XPO’s transportation services include: freight brokerage, last mile, less-than-truckload ("LTL"), full truckload, and global forwarding services. Freight brokerage, last mile, and global forwarding are all non-asset or asset-light businesses. LTL and full truckload are asset-based.
In the Logistics segment, referred to as supply chain, the Company provides a range of contract logistics services, including highly engineered and customized solutions, value-added warehousing and distribution, cold chain solutions and other inventory management solutions. Additionally, the Company performs e-commerce fulfillment, order personalization, warehousing, reverse logistics, storage, factory support, aftermarket support, manufacturing, distribution, packaging and labeling, as well as supply chain optimization services such as production flow management.
For additional information relating to these segments, refer to See Note 2—2—Segment Reporting. for further information on our operations.
The Company hasWe prepared the accompanying unaudited condensed consolidated financial statementsour Condensed Consolidated Financial Statements in accordance withU.S. generally accepted accounting principles (“GAAP”) and on the same basis as the accounting policies described in itsour annual report on Form 10-K for the year ended December 31, 20162019 (the "2016“2019 Form 10-K"10-K”), except for the effects of adopting Accounting Standards Update (“ASU”) and the2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” as of January 1, 2020, as described below. The interim reporting requirements of Form 10-Q. Accordingly,10-Q allow certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have beento be condensed or omitted. These unaudited condensed consolidated financial statementsCondensed Consolidated Financial Statements should be read in conjunction with the 20162019 Form 10-K.10-K.
In the opinion of management,The Condensed Consolidated Financial Statements are not audited but reflect all adjustments consisting onlythat are of a normal recurring adjustments, whichnature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented have been made. Interimpresented. Operating results of operationsfor the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, particularly in light of the outbreak of a new strain of coronavirus, COVID-19, in the first quarter of 2020. The rapid escalation of COVID-19 into a pandemic in the first quarter of 2020 has affected, and will continue to affect, economic activity broadly and customer sectors served by our industry. We expect that COVID-19 will have significant effects on economic activity, on demand for our services, and on our results of operations in 2020.
Restricted Cash
As of March 31, 2020 and December 31, 2019, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $10 million.
Accounts Receivable and Allowance for Doubtful Accounts
We record accounts receivable at the contractual amount and we record an allowance for doubtful accounts for the amount we estimate we may not collect. In determining the allowance for doubtful accounts, 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 the first quarter of 2020 and in accordance with ASU 2016-13, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for doubtful accounts. We write off accounts receivable balances once the receivables are no longer deemed collectible.
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 Condensed 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.


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XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by Crédit Agricole, BNP Paribas and HSBC (the “Purchasers”). Under the program, a wholly-owned bankruptcy-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 to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.
We account for transfers under our securitization and factoring arrangements as sales because we sell full year.title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any continuing involvement with the receivables is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets. These borrowings amounted to €164 million ($181 million) as of March 31, 2020. See Note 6—Debt for additional information on these borrowings.
Under a securitization program that was terminated in July 2019, if transfers were accounted for as sales, the consideration received included a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable was not a trade receivable and was recorded based on its fair value and reported within Other current assets on our Condensed Consolidated Balance Sheets. The cash payment which we received on the date of the transfer was reflected within Net cash provided by (used in) operating activities on our Condensed Consolidated Statements of Cash Flows. As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity. The new program does not include a deferred purchase price mechanism.
The maximum amount of net cash proceeds available at any one time under the program is €400 million (approximately $441 million as of March 31, 2020) and this amount includes any unsecured borrowings related to the program. As of March 31, 2020, €88 million (approximately $98 million) was available to us based on the level of receivables sold and outstanding as of that date. The weighted average interest rate was 0.80% as of March 31, 2020. 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 three months ended March 31, 2020 and 2019. The securitization program expires in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.
Information related to the trade receivables sold was as follows:
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Securitization programs
 
 
 
 
Receivables sold in period
 
$
691

 
$
323

Cash consideration
 
691

 
260

Deferred purchase price
 
—

 
63

 
 
 
 
 
Factoring programs
 
 
 
 
Receivables sold in period
 
264

 
184

Cash consideration
 
263

 
183


In addition to the cash considerations referenced above, we received $71 million in the three months ended March 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.


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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, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2020 and December 31, 2019 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents included money market funds valued using quoted prices in active markets. The Level 2 cash equivalents include short-term investments valued using published interest rates for instruments with similar terms and maturities. For information on the fair value hierarchy of our derivative instruments, seeNote 5—Derivative Instruments and for information on financial liabilities, see Note 6—Debt.
The fair value hierarchy of cash equivalents was as follows:
(In millions)
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
March 31, 2020
 
$
733

 
$
733

 
$
733

 
$
—

December 31, 2019
 
144

 
144

 
127

 
17


Adoption of New Accounting Standards
In MarchJune 2016, the Financial Accounting Standards Board ("FASB"(“FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as subsequently modified, amends the current incurred losses impairment method with a method that reflects expected credit losses on certain types of financial instruments, including trade receivables. We adopted this standard on January 1, 2020 and recorded an immaterial adjustment to total equity 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 Standards Update ("ASU") No. 2016-09, Compensation - Stock Compensation (Topic 718): "Improvementsfor 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 Employee Share-based Payment Accounting." This ASU involves several aspectsdevelop or obtain internal-use software. Under the guidance, any capitalized implementation costs would be included in prepaid expenses, amortized over the term of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,hosting arrangement on a straight-line basis and classification on the statement of cash flows. Under the new standard, income tax benefits and deficiencies are to be recognized as income tax expense or benefitpresented in the income statement and the tax effects of exercised or vested awards should be treated as discretesame line items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardlessConsolidated Statement of whetherIncome as the benefit reduces taxes payable inexpense for fees of the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. The Companyassociated hosting arrangements. We adopted this standard in the fourth quarter of 2016, effectiveon January 1, 2016. Accordingly, the provision for income taxes in the first nine months of 2017 included excess tax benefits of $9.8 million that affected the income tax provision. For the nine months ended September 30, 2016, there was no material effect2020 on the Company's condensed consolidated financial statements from thea prospective basis. The adoption of this ASU. In regard to forfeitures, the Company elected to account for forfeitures when they occur.
Accounting Pronouncements Issued But Not Yet Effective
In May 2014, the FASB issued ASU No. 2014-09, Revenue (Topic 606): "Revenue from Contracts with Customers." This new standard includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard will be effective for the Company's annual and interim periods beginning January 1, 2018, and permits the use of either the retrospective or cumulative effect transition method. The Company has determined it will use the modified retrospective transition method. The Company is currently evaluating the effects of this standard and has completed a "gap assessment," whereby it has compared its current revenue recognition

practices to those required by the new standard. The main areas under consideration include the recognition of revenue using proportionate delivery within the Transportation segment and gross versus net revenue presentation. The Company doesdid not currently expect that the adoption of the standard will have a material effect on its statement of operations, balance sheet or statement of cash flows.our consolidated financial statements.
Accounting Pronouncements Issued but Not Yet Effective
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.” The Company expectsASU is intended to provide expanded revenue recognition disclosures based onsimplify the new qualitative and quantitative disclosure requirements of the standard upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the balance sheet a liability to make lease payments (the lease liability) and the right-of-use asset representing the rightaccounting for income taxes by removing certain exceptions to the underlying asset for the lease term. For leases with a term of 12 months or less, the lessee is permittedgeneral principles in Topic 740. The ASU also clarifies and amends existing guidance to make an accounting policy election by class of underlying asset not to recognize lease assetsenhance consistency and lease liabilities. The standardcomparability among reporting entities. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the effects ASU 2016-02 will have on its consolidated financial statements and related disclosures. As of December 31, 2016, the Company reported $2,144.3 million in operating lease obligations and will evaluate those contracts as well as other existing arrangements to determine if they qualify for lease accounting under the new standard. The Company does not plan to adopt the standard early.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force).” This ASU addresses eight specific cash flow classification issues with the objective of reducing the existing diversity in practice. Under the new standard, cash payments for debt prepayments or debt extinguishment costs should be classified as outflows for financing activities. Additional cash flow issues covered under the standard include: settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. This ASU is effective for public entities for fiscal years beginning after December 15, 2017,2020, including interim periods within that reporting period; however, early adoption is permitted. The Company does not expect the adoption of this standard to have a material effect on its consolidated statement of cash flows.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash.” This ASU requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and restricted cash. The standard is effective for the Company's annual and interim periods beginning January 1, 2018 and requires retrospective adoption. The Company does not expect the adoption of this standard to have a material effect on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): "Simplifying the Accounting for Goodwill Impairment." Under the current guidance for assessing goodwill for impairment, an entity can first assess qualitative factors to determine whether a two-step goodwill impairment test is necessary (often referred to as "Step 0"). When an entity bypasses or fails Step 0, the two-step goodwill impairment test is performed. Step 1 compares a reporting unit’s fair value to its carrying amount to determine if there is a potential impairment. If the carrying amount exceeds fair value, Step 2 must be completed. Step 2 involves determining the implied fair value of goodwill and comparing it to the carrying amount of that goodwill to measure the impairment loss, if any. The revised guidance eliminates Step 2 of the current goodwill impairment test, which requires a hypothetical purchase price allocation to measure goodwill impairment. Under the new standard, a goodwill impairment loss will instead be measured at the amount by which a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance in connection with its annual impairment test as of August 31, 2017. The adoption did not impact the consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The ASU will change how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of the benefits in the statements of operations. This cost, commonly referred to as the "net periodic benefit cost," is comprised of several components that reflect different aspects of the arrangement with the employee, including the effect of the related funding. Currently, the Company aggregates the various components of the net periodic benefit cost (including interest cost and the expected return on plan assets) for presentation purposes and includes these costs within operating income (loss) in the condensed consolidated statements of operations. Under the new guidance, these costs will be presented below operating income (loss). This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period; however,

early adoption is permitted. The Company will be adopting the standard for the year ending December 31, 2018. The adoption of the standard will have no impact on net income. In connection with the adoption of this new standard, prior periods will be recast to reflect the new presentation. The amount of net periodic benefit cost that will be reclassified below operating income for fiscal year 2016 will be approximately $25 millionof income.

In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): "Scope of Modification Accounting." This ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new standard, modification accounting applies unless all the following conditionsWe are met: (i) the fair value of the modified award is the same as the fair value of the original award immediately before the modification, (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification, and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification the original award immediately before the original award is modified. Generally speaking, modification accounting requires an entity to calculate and recognize the incremental fair value of the modified award as compensation cost on the date of modification (for a vested award) or over the remaining service period (for an unvested award). This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period; however, early adoption is permitted. The Company is currently evaluating the impact of this standard on itsour consolidated financial statements and does not plan to adoptstatements.
In March 2020, the standard early.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging 2020-04, Reference rate reform (Topic 815): “Targeted Improvements to Accounting for Hedging Activities.” This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period; however, early adoption is permitted. The purpose848)—“Facilitation of the amendments in this effects of reference rate reform on financial reporting.” The ASU is provides optional expedients and exceptions for applying


8
Table of Contents

GAAP to better align an entity’s risk management activities and financial reporting forcontracts, hedging relationships, simplify hedge accounting requirements, and improve the disclosures ofother transactions affected by reference rate reform. The amendments apply only to contracts and hedging arrangements. The Company adopted the standard effective October 1, 2017; the adoption of the standard will impact how the Company currently accounts for its cross currency swaps. While the adoption is expected to have a favorable impact on non-operating income, the impact is notrelationships that reference London Inter-bank Offered Rate (“LIBOR”) or another reference rate expected to be material.

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.
2.Segment Reporting
The Company isWe are organized into two2 reportable segments: Transportation and Logistics. CorporateWe evaluate our performance in large part based on the various financial measures of our 2 reporting segments.
In our Transportation segment, we provide multiple services to facilitate the movement of raw materials, parts and Eliminations constitute the remaining portionsfinished goods. We accomplish this by using our proprietary technology, third-party independent carriers and our transportation assets and service centers. Our transportation services include truck brokerage and expedite; truckload; less-than-truckload (“LTL”); last mile; intermodal and drayage; managed transportation; and global forwarding. Freight brokerage, last mile, global forwarding and managed transportation are non-asset or asset-light businesses while LTL and 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 and distribution, e-commerce and omnichannel fulfillment, cold-chain solutions, reverse logistics, packaging and labeling, factory support, aftermarket support, inventory management, order personalization and supply chain optimization. In addition, our Logistics segment provides engineered solutions for supply chain optimization, such as production flow management.
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 Company’s operating results requiredbilling segment. We adjust these rates from time to be presentedtime based on market conditions. We eliminate intersegment revenues and expenses in orderour consolidated results.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to reconcile the Company’s segment results to the condensed consolidated financial statements.our reporting segments.
The Company's chief executive officer, who is theOur chief operating decision maker ("CODM"(“CODM”), regularly reviews financial information at the reporting segment level in order to make decisions aboutallocate resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODMWe include items directly attributable to a segment, as well asand those that can be allocated on a reasonable basis. Assetbasis, in segment results reported to the CODM. We do not provide asset information by segment is not provided to the Company's CODM, as the majority of the Company'sour assets are managed at the corporate level.

The Company evaluates performance based on the various financial measures of the respective business segments. The following table identifies selectedSelected financial data for the three-our segments is as follows:
(In millions)
 
Transportation
 
Logistics
 
Corporate
 
Eliminations/Other
 
Total
Three months ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
2,459

 
$
1,437

 
$
—

 
$
(32
)
 
$
3,864

Operating income (loss)
 
120

 
38

 
(77
)
 
—

 
81

Depreciation and amortization
 
110

 
69

 
4

 
—

 
183

 
 
 
 
 
 
 
 
 
 
 
Three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
2,659

 
$
1,494

 
$
—

 
$
(33
)
 
$
4,120

Operating income (loss)
 
128

 
46

 
(42
)
 
—

 
132

Depreciation and amortization
 
116

 
61

 
3

 
—

 
180




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3.Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area and nine- months ended September 30, 2017 and 2016:service offering. Our revenue disaggregated by geographical area, based on sales office location, was as follows:
(In millions) Transportation Logistics Corporate Eliminations Total
Three Months Ended September 30, 2017          
Revenue $2,469.8
 $1,458.8
 $—
 $(41.5) $3,887.1
Operating income (loss) 145.2
 77.4
 (35.8) —
 186.8
Depreciation and amortization 111.7
 54.9
 0.7
 —
 167.3
           
Three Months Ended September 30, 2016          
Revenue $2,409.1
 1,347.0
 $—
 $(42.3) $3,713.8
Operating income (loss) 125.4
 75.3
 (31.9) —
 168.8
Depreciation and amortization 114.8
 46.5
 0.5
 —
 161.8
           
Nine Months Ended September 30, 2017          
Revenue $7,152.2
 $4,154.1
 $—
 $(119.4) $11,186.9
Operating income (loss) 406.0
 188.9
 (109.5) —
 485.4
Depreciation and amortization 329.3
 155.1
 4.7
 —
 489.1
           
Nine Months Ended September 30, 2016          
Revenue $7,125.4
 $3,939.7
 $—
 $(122.3) $10,942.8
Operating income (loss) 354.0
 158.3
 (110.8) —
 401.5
Depreciation and amortization 341.9
 142.2
 1.3
 —
 485.4
 
 
Three Months Ended March 31, 2020
(In millions)
 
Transportation
 
Logistics
 
Eliminations
 
Total
Revenue
 
 
 
 
 
 
 
 
United States
 
$
1,702

 
$
536

 
$
(9
)
 
$
2,229

North America (excluding United States)
 
71

 
14

 
—

 
85

France
 
311

 
150

 
(3
)
 
458

United Kingdom
 
182

 
329

 
(16
)
 
495

Europe (excluding France and United Kingdom)
 
188

 
386

 
(3
)
 
571

Other
 
5

 
22

 
(1
)
 
26

Total
 
$
2,459

 
$
1,437

 
$
(32
)
 
$
3,864

 
 
Three Months Ended March 31, 2019
(In millions)
 
Transportation
 
Logistics
 
Eliminations
 
Total
Revenue
 
 
 
 
 
 
 
 
United States
 
$
1,836

 
$
557

 
$
(5
)
 
$
2,388

North America (excluding United States)
 
67

 
18

 
—

 
85

France
 
364

 
169

 
(5
)
 
528

United Kingdom
 
188

 
335

 
(18
)
 
505

Europe (excluding France and United Kingdom)
 
201

 
392

 
(4
)
 
589

Other
 
3

 
23

 
(1
)
 
25

Total
 
$
2,659

 
$
1,494

 
$
(33
)
 
$
4,120

Our revenue disaggregated by service offering was as follows:
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Transportation segment:
 
 
 
 
Freight brokerage and truckload
 
$
1,023

 
$
1,092

LTL
 
1,135

 
1,179

Last mile (1)
 
201

 
224

Managed transportation
 
83

 
124

Global forwarding
 
61

 
77

Transportation eliminations
 
(44
)
 
(37
)
Total Transportation segment revenue
 
2,459

 
2,659

Total Logistics segment revenue
 
1,437

 
1,494

Intersegment eliminations
 
(32
)
 
(33
)
Total revenue
 
$
3,864

 
$
4,120

(1)
Comprised of our North American last mile operations.


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Table of Contents

Performance Obligations
Remaining performance 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 March 31, 2020, the fixed consideration component of our remaining performance obligation was approximately $1.7 billion, and we expect to recognize approximately 70% of that amount 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.
3. 4.Restructuring Charges
In conjunction with various acquisitions, the Company has initiated a facility rationalizationWe engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. These actions generally include severance program to close facilities and reduce employment. These initiativesfacility-related costs and are intended to improve the Company'sour efficiency and profitability.
The restructuringRestructuring charges were recorded on our Condensed Consolidated Statements of Income as follows:
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Cost of transportation and services
 
$
—

 
$
3

Sales, general and administrative expense
 
3

 
10

Total
 
$
3

 
$
13

Our restructuring-related activity was as follows:
 
 
 
 
Three Months Ended March 31, 2020
 
 
(In millions)
 
Reserve Balance as of December 31, 2019
 
Charges Incurred
 
Payments
 
Reserve Balance as of March 31, 2020
Severance:
 
 
 
 
 
 
 
 
Transportation
 
$
12

 
$
3

 
$
(6
)
 
$
9

Logistics
 
11

 
—

 
(3
)
 
8

Corporate
 
2

 
—

 
(1
)
 
1

Total
 
$
25

 
$
3

 
$
(10
)
 
$
18


We expect the majority of the cash outlays related to the charges incurred during the nine months ended September 30, 2017, and included in the Company's condensed consolidated statementfirst quarter of operations as sales, general and administrative expense, direct operating expense, and cost of transportation and services, are summarized below.
    Nine Months Ended September 30, 2017  
(In millions) Reserve Balance at December 31, 2016 Charges Incurred Payments Foreign Exchange and Other Reserve Balance at September 30, 2017
Transportation          
Facilities $1.4
 $0.2
 $(1.3) $—
 $0.3
Severance 5.8
 1.6
 (4.7) 0.5
 3.2
Total 7.2
 1.8
 (6.0) 0.5
 3.5
Logistics          
Contract termination 0.7
 0.3
 (0.3) —
 0.7
Facilities 0.5
 —
 (0.5) —
 —
Severance 16.1
 4.0
 (14.1) 1.1
 7.1
Total 17.3
 4.3
 (14.9) 1.1
 7.8
Corporate          
Contract termination 0.3
 —
 (0.3) —
 —
Severance 0.4
 1.2
 (1.5) 

 0.1
Total 0.7
 1.2
 (1.8) —
 0.1
Total $25.2
 $7.3
 $(22.7) $1.6
 $11.4

4. Fair Value Measurements
The Company accounts for certain assets and liabilities at fair value, and categorizes each of its fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
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.

Assets and Liabilities Measured at Fair Value
As of September 30, 2017 and December 31, 2016, the Company's assets and liabilities measured at fair value include its derivative instruments and the liability related to its cash settled performance-based restricted stock units.
Fair Value of Financial Instruments
The carrying values of the following financial instruments approximated their fair values as of September 30, 2017 and December 31, 2016: cash, cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses. Fair values approximate carrying values for these financial instruments since they are short-term in nature or are receivable or payable on demand. For information regarding the estimated fair value of the Company's derivative instruments and debt, refer to Note 5—Derivative Instruments and Note 6—Debt, respectively.

2020 will be complete within twelve months.
5.Derivative Instruments
In the normal course of business, the Company iswe are exposed to certain risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. ToWe use derivative instruments to manage the volatility related to these exposures, the Company uses derivative instruments.exposures. The objective of these derivative instruments is to reduce fluctuations in the Company’sour earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. The Company hasHistorically, we have not historically incurred, and doesdo not expect to incur in the future, any losses as a result of counterparty default.


11
Table of Contents

The Company'sfair value of our derivative portfolio is comprised ofinstruments and the following instrumentsrelated notional amounts were as of September 30, 2017 and December 31, 2016.follows:
September 30, 2017      
 
March 31, 2020
   Derivative Assets Derivative Liabilities
 
 
 
Derivative Assets
 
Derivative Liabilities
(In millions) Fair Value Hierarchy Level Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value
 
Notional Amount
 
Balance Sheet Caption
 
Fair Value
 
Balance Sheet Caption
 
Fair Value
Derivatives designated as hedges:      
 
 
 
 
 
 
Cross-currency swap agreements Level 2 $1,265.9
 Other long-term assets $—
 Other long-term liabilities $(114.4)
 
$
135

 
Other current assets
 
$
—

 
Other current liabilities
 
$
(2
)
Cross-currency swap agreements Level 2 0.7
 Other current assets 0.1
 Other current liabilities —
 
1,083

 
Other long-term assets
 
30

 
Other long-term liabilities
 
—

Interest rate swaps Level 2 118.1
 Other current assets —
 Other current liabilities (0.6)
Derivatives not designated as hedges:      
 
 
 
 
 
 
Foreign currency option and forward contracts Level 2 876.2
 Other current assets 1.8
 Other current liabilities (13.0)
Foreign currency option and forward contracts Level 2 223.2
 Other long-term assets 1.3
 Other long-term liabilities (4.1)
Foreign currency option contracts
 
312

 
Other current assets
 
4

 
Other current liabilities
 
—

Total   $3.2
 $(132.1)
 
 
 
$
34

 
$
(2
)
 
 
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, 2016            
      Derivative Assets Derivative Liabilities
(In millions) Fair Value Hierarchy Level Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value
Derivatives designated as hedges:            
Cross-currency swap agreements Level 2 $730.9
 Other long-term assets $11.9
 Other long-term liabilities $(6.9)
Cross-currency swap agreements Level 2 3.3
 Other current assets 0.1
 Other current liabilities —
Interest rate swaps Level 2 105.4
 Other current assets —
 Other current liabilities (2.3)
Derivatives not designated as hedges:            
Foreign currency option and forward contracts Level 2 552.2
 Other current assets 18.8
 Other current liabilities (1.0)
Foreign currency option and forward contracts Level 2 742.6
 Other long-term assets 26.7
 Other long-term liabilities (5.8)
Total       $57.5
   $(16.0)
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 following table indicates the amounteffect of pre-tax gains/(losses) that have been recognized in accumulated other comprehensive loss in the condensed consolidated balance sheets and gains/(losses) recognized in income before income tax provision in the condensed consolidated statements of operations for derivative and nonderivative instruments:instruments designated as hedges on our Condensed Consolidated Statements of Income were as follows:
 
 
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives
 
Amount of Gain Reclassified from AOCI into Net Income
 
Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swap agreements
 
$
8

 
$
6

 
$
3

 
$
5

 
$
—

 
$
—

Interest rate swap
 
(5
)
 
(6
)
 
—

 
—

 
—

 
—

Derivatives designated as net investment hedges:
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swap agreements
 
38

 
35

 
—

 
—

 
4

 
2

Total
 
$
41

 
$
35

 
$
3

 
$
5

 
$
4

 
$
2


The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a gain of $4 million and a loss of $2 million for the three months ended March 31, 2020 and 2019, respectively. These amounts are recorded in Foreign currency (gain) loss on our Condensed Consolidated Statements of Income.


12
Table of Contents
  Recognized in Accumulated Other Comprehensive Loss Recognized in Income Before Income Tax Provision
(In millions) Three Months Ended September 30, 2017 Three Months Ended September 30, 2016 Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
Derivatives designated as hedges:        
Cross-currency swap agreements $(50.4) $(17.9) $—
 $—
Interest rate swaps 0.7
 0.3
 —
 —
Derivatives not designated as hedges:        
Interest rate swaps —
 —
 

 0.3
Foreign currency option and forward contracts —
 —
 (14.2) (0.5)
Nonderivatives designated as hedges:        
Foreign currency denominated notes 1.3
 (4.0) —
 $—
Total $(48.4) $(21.6) $(14.2) $(0.2)


  Recognized in Accumulated Other Comprehensive Loss Recognized in Income Before Income Tax Provision
(In millions) Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2017 Nine Months Ended September 30, 2016
Derivatives designated as hedges:        
Cross-currency swap agreements $(112.7) $(23.9) $—
 $—
Interest rate swaps 1.8
 2.8
 —
 —
Derivatives not designated as hedges:        
Interest rate swaps —
 —
 

 0.9
Foreign currency option and forward contracts —
 —
 (52.7) 2.3
Nonderivatives designated as hedges:        
Foreign currency denominated notes 6.9
 (18.9) —
 $—
Total $(104.0) $(40.0) $(52.7) $3.2

Cross-Currency Swap Agreements
In May 2017, the Company enteredWe enter into certain cross-currency swap agreements to manage the related foreign currency exchange risk related to our international operations by effectively converting theour fixed-rate U.S. Dollar ("USD"(“USD”)-denominated senior notes due 2023 (see Note 6—Debt),debt, including the semi-annualassociated interest payments, to fixed-rate, EUR-denominatedeuro (“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 the senior notes due 2023.this debt.
During the term of the swap contracts, the Companywe will receive interest, either on a quarterly interest payments in March, June, September and December of each yearor semi-annual basis, from the counterparties based on USD fixed interest rates, and the Companywe will makepay interest, also on a quarterly interest payments in March, June, September and December of each yearor semi-annual basis, to the counterparties based on EUR fixed interest rates. At maturity, the Companywe will repay the original principal amount in EUR and receive the principal amount in USD. The Company hasUSD. These agreements expire at various dates through 2024.
We designated thethese cross-currency swap agreementsswaps as qualifying hedging instruments and is accountingaccount for thesethem 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 are initially recognized in Accumulated other comprehensive income (“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 Operating activities on our Condensed Consolidated Statements of Cash Flows.
We also enter 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 account for them as cash flow hedges. Gains and losses resulting from the change in the fair value of the cross-currency swaps are initially recognized in AOCI and reclassified to Foreign currency (gain) loss to offset the foreign exchange impact in earnings created by the intercompany loans. Cash flows related to these cash flow hedges are included in Operating activities on our Condensed Consolidated Statements of Cash 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 Loan Credit 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 interest rate swaps matured in the first quarter of 2020.
We record gains and losses resulting from fair value adjustments to the cross-currency swap agreements are recordeddesignated portion of interest rate swaps in accumulated other comprehensive incomeAOCI and reclassify them to Interest expense on the dates that interest payments accrue. Cash flows related to the extent that the cross-currencyinterest rate swaps are effectiveincluded in hedging the designated risk.Operating activities on our Condensed Consolidated Statements of Cash Flows.

Foreign Currency Option and Forward Contracts
In orderWe use foreign currency option contracts to mitigate the currency translation risk which resultsof a reduction in the value of earnings from converting the financial statements of the Company’s internationalour operations which primarilythat use the Euro ("EUR") andEUR or the British Pound Sterling ("GBP")pound sterling as their functional currency, the Company uses foreign currency option and forward contracts.currency. Additionally, the Company maywe use foreign currency forward contracts to mitigate the foreign currency exposure from intercompany loans.loans that are not designated as permanent and can create volatility in earnings. The foreign currency contracts (both option and forward contracts) were not designated as qualifying hedging instruments as of September 30, 2017.March 31, 2020. The contracts are not speculative; rather, they are used to manage the Company’sour exposure to foreign currency exchange rate fluctuations.fluctuations and are not speculative. The contracts generally expire in 2412 months or less. Gains or losses on the contracts are recorded in foreignForeign currency (gain) loss in the condensed consolidated statements on our Condensed Consolidated Statements of operations.Income. Cash flows related to the foreign currency contracts are included in operatingInvesting activities on our Condensed Consolidated Statements of Cash Flows, consistent with the condensed consolidated statementsnature and purpose for which these derivatives were acquired.


13
Table of cash flows, except for the cash flows resulting from forwards designated as hedges of intercompany loans which are included in financing activities.
Contents

6.Debt
The Company's debt is comprised of the following:
  September 30, 2017
      Fair Value
(In millions) Principal Balance Carrying Value Level 1 Level 2
ABL facility $—
 $—
 $—
 $—
Senior notes due 2023 535.0
 527.7
 560.4
 —
Senior notes due 2022 1,600.0
 1,582.2
 1,686.6
 —
Senior notes due 2021 590.3
 584.4
 619.8
 —
Term loan facility 1,494.0
 1,453.3
 —
 1,501.4
Senior debentures due 2034 300.0
 202.3
 299.9
 —
Convertible senior notes 4.7
 4.7
 19.4
 —
Euro private placement notes due 2020 14.2
 15.2
 —
 14.8
Asset financing 95.8
 95.8
 92.6
 —
Capital leases for equipment 165.4
 165.4
 —
 165.4
Total debt $4,799.4
 $4,631.0
 $3,278.7
 $1,681.6
Current maturities of long-term debt $90.0
 $90.0
    
Long-term debt $4,709.4
 $4,541.0
    

6.Debt
  December 31, 2016
      Fair Value
(In millions) Principal Balance Carrying Value Level 1 Level 2
ABL facility $30.0
 $30.0
 $—
 $30.0
Senior notes due 2023 535.0
 527.1
 560.4
 —
Senior notes due 2022 1,600.0
 1,579.9
 1,689.4
 —
Senior notes due 2021 527.1
 520.7
 546.0
 —
Senior notes due 2018 265.8
 267.1
 274.0
 —
Term loan facility 1,481.9
 1,439.2
 —
 1,507.1
Senior debentures due 2034 300.0
 200.8
 241.6
 —
Convertible senior notes 49.4
 47.1
 129.8
 —
Euro private placement notes due 2020 12.6
 13.7
 —
 14.0
Asset financing 145.0
 145.0
 145.0
 —
Capital leases for equipment 97.4
 97.4
 —
 97.4
Total debt $5,044.2
 $4,868.0
 $3,586.2
 $1,648.5
Current maturities of long-term debt $138.9
 $136.5
    
Long-term debt $4,905.3
 $4,731.5
    
 
 
March 31, 2020
 
December 31, 2019
(In millions)
 
Principal Balance
 
Carrying Value
 
Principal Balance
 
Carrying Value
ABL facility
 
$
600

 
$
600

 
$
—

 
$
—

Term loan facility
 
2,003

 
1,969

 
2,003

 
1,969

6.125% Senior notes due 2023
 
535

 
530

 
535

 
530

6.50% Senior notes due 2022
 
1,200

 
1,193

 
1,200

 
1,192

6.70% Senior debentures due 2034
 
300

 
208

 
300

 
208

6.75% Senior notes due 2024
 
1,000

 
987

 
1,000

 
987

Borrowings related to securitization program
 
181

 
181

 
—

 
—

Finance leases, asset financing and other
 
356

 
358

 
380

 
380

Total debt
 
6,175

 
6,026

 
5,418

 
5,266

Short-term borrowings and current maturities of long-term debt
 
260

 
260

 
84

 
84

Long-term debt
 
$
5,915

 
$
5,766

 
$
5,334

 
$
5,182

The fair value of our debt and classification in the fair value hierarchy was as follows:
(In millions)
 
Fair Value
 
Level 1
 
Level 2
March 31, 2020
 
$
6,052

 
$
2,981

 
$
3,071

December 31, 2019
 
5,580

 
3,190

 
2,390


We valued Level 1 debt was valued using quoted prices in active markets. TheWe valued Level 2 debt was valued using bid evaluation pricing models or quoted prices of securities with similar characteristics. The fair value of the asset financing arrangements approximates carrying value sinceas the debt is primarily issued at a floating rate, the debt may be prepaid at any time at par without penalty, and the remaining life of the debt is short-term in nature.
RefinancingABL Facility
As of Existing March 31, 2020, we had a borrowing base of $1.0 billion and availability under our revolving loan credit agreement (the “ABL Facility”) of $186 million after considering outstanding letters of credit on the ABL Facility of $214 million. The average interest rate on borrowings at March 31, 2020 was 2.30%. As of March 31, 2020, we were in compliance with the ABL Facility’s financial covenants.
Term Loan Facility
OnIn March 10, 2017, the Company2019, we entered into a Refinancing Amendment (Amendment No. 2an amendment to Credit Agreement) (the "Amendment"), by and among XPO, its subsidiaries signatory thereto, as guarantors, the lenders party thereto and Morgan Stanley Senior Funding, Inc., in its capacity as administrative agent (the "Administrative Agent"), amending that certain Senior Secured our Term Loan Credit Agreement dated as and borrowed an additional $500 million of October 30, 2015 (as amended, amendedincremental loans under a new tranche of term loans (the “Incremental Term Loan Facility”), increasing our total borrowing under the Term Loan Facilityto $2.0 billion. Proceeds from borrowings under the Incremental Term Loan Facility were used: (i) for general corporate purposes, including to fund purchases of our equity interests described in Note 7—Stockholders’ Equity; and restated, supplemented(ii) to pay fees and expenses relating to, or otherwise modified, includingin connection with, the transactions contemplated by that certain Incremental and Refinancing Amendment (Amendment No. 1 to Credit Agreement), dated as of August 25, 2016, the "Term Loan Credit Agreement")amendment.

Pursuant to the Amendment, the outstanding $1,481.9 million principal amount of term The incremental loans under the Incremental Term Loan Credit Agreement (the "ExistingFacility were issued at a price of 99.50% of par.
The interest rates on the Term Loans")Loan Facility and the Incremental Term Loan Facility were replaced with $1,494.0 million in3.61% and 4.19%, respectively, as of March 31, 2020.
Senior Notes due 2024
In February 2019, we completed a private placement of $1.0 billion aggregate principal amount of new term loans (the "New Term Loans"senior notes (“Senior Notes due 2024”) having substantially similar terms as the Existing Term Loans, other than with respect to the applicable, which bear interest at a rate and prepayment premiums in respect of certain voluntary prepayments.6.75% per annum. Proceeds from the New Term Loans were used primarily to refinance the Existing Term Loans and to pay interest, fees and expenses in connection therewith, and up to $1.5 million may be used for general corporate purposes.
The interest rate margin applicable to the New Term Loans was reduced from 2.25% to 1.25%, in the case of base rate loans, and from 3.25% to 2.25%, in the case of LIBOR loans and the LIBOR floor was reduced from 1.0% to 0%. The interest rate on the New Term Loans was 3.55% at September 30, 2017. The New Term Loans maturity date remains October 30, 2021. The refinancing resulted in a debt extinguishment charge of $8.3 million during the nine months ended September 30, 2017.
Redemption of Senior Notes due 20182024 were used to repay our outstanding obligation under an unsecured credit facility and to finance a portion of our share repurchases described in Note 7—Stockholders’ Equity.
In August 2017,

14

Borrowings related to Securitization Program
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 Company redeemed all of its outstanding 7.25% senior notes due January 2018 (the “Notes”). The redemption price for the Notes was 102.168% of the principal amount of the Notes, plus accruedprogram’s Purchasers and unpaid interest to, but excluding, the date of redemption. The redemption was funded using cash on hand at the date of the redemption. The loss onare included in short-term debt extinguishment was approximately $5 million.
Convertible Senior Notes
During the nine months ended September 30, 2017, the Company issued an aggregate of approximately 2.7 million shares of the Company’s common stock to certain holders of the Convertible Senior Notes in connection with the conversion of $44.7 million aggregate principal amount of the Convertible Senior Notes. The conversions were allocated to long-term debt and equityuntil they are repaid in the amountsfollowing month’s settlement. The securitization program expires in July 2022 and contains financial covenants customary for this type of $44.4 millionarrangement, including maintaining a defined average days sales outstanding ratio. For additional information on the securitization program, see Note 1—Organization, Description of Business and $44.8 million, respectively. A loss on conversionBasis of $0.5 million was recorded as part of these transactions. Certain of these transactions represented induced conversions pursuant to which the Company paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the difference between the current fair value and the book value of the Convertible Senior Notes, were reflected in interest expense.Presentation.
7. Stockholders'Stockholders’ Equity
Share Repurchases
In July 2017,December 2018, our Board of Directors authorized the Company completed a registered underwritten offeringrepurchase of 11 million shares of its common stock at a public offering price of $60.50 per share, plus up to an additional 1.65 million shares of its common stock pursuant to an option granted to the underwriters to purchase additional shares of the Company’s common stock directly from the Company (the “Offering”). Of the 11 million shares of common stock, 5 million shares were offered directly by the Company and 6 million shares were offered in connection with forward sale agreements (the "Forward Sale Agreements") described below. The option granted to the underwriters expired unexercised. The Offering closed on July 25, 2017.
In connection with the Offering, the Company entered into separate Forward Sale Agreements with Morgan Stanley & Co. LLC and JPMorgan Chase Bank, National Association, London Branch (the "Forward Counterparties") pursuant to which the Company has agreed to sell, and each Forward Counterparty agreed to purchase, 3 million shares of the Company’s common stock (or 6 million shares of the Company common stock in the aggregate) subject to the terms and conditions of the Forward Sale Agreements, including the Company’s right to elect cash settlement or net share settlement. The initial forward price under each of the Forward Sale Agreements is $58.08 per share (which is the public offering price$1 billion of our common stock less(the “2018 Program”), which was completed in the underwriting discount)first quarter of 2019. The share repurchases were funded by an unsecured credit facility and is subjectour available cash.
In February 2019, our Board of Directors authorized additional repurchases of up to certain adjustments pursuant$1.5 billion of our common stock (the “2019 Program”). 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 were funded by our available cash and proceeds from our 2019 debt offerings.
Information regarding our shares repurchased, based on settlement date, were as follows:
(In millions, except per share data)
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
 
2019 Program
 
2019 Program
 
2018 Program
Shares purchased and retired
 
2
 
15
 
8
Aggregate value
 
$
114

 
$
763

 
$
464

Average price per share
 
$
66.58

 
$
49.86

 
$
59.47

Remaining authorization
 
$
503

 
$
737

 
$
—


Dividends
The Series A Convertible Perpetual Preferred Stock pays quarterly cash dividends equal to the termsgreater of: (i) the “as-converted” dividends on our underlying common stock for the relevant quarter; and (ii) 4% of the Forward Sale Agreements. Settlement of each of the Forward Sale Agreements must occur no later than one year after the closing of the Offering but may occur earlier at the option of the Company or, in certain circumstances described in the Forward Sale Agreements, at the option of the relevant Forward Counterparty. A Forward Counterparty’s decision to exercise its right to accelerate the Forward Sale Agreements entered into with itthen-applicable liquidation preference per annum.
8.Earnings per Share
We compute basic and to require the Company to settle the Forward Sale Agreements will be made irrespective of the Company’s interests, including the Company’s need for capital. The Company could be required to issue and deliver the Company’s common stock under the terms of the physical settlement provisions of the Forward Sale Agreements irrespective of the Company’s capital needs, which would result in dilution to the Company’sdiluted earnings per share using the two-class method, which allocates earnings to participating securities. The participating securities consist of our Series A Convertible Perpetual Preferred Stock. The undistributed earnings are allocated between common shares and return on equity. participating securities as if all earnings had been distributed during the period. Losses are not allocated to the preferred shares.


15

The Forward Sales Agreements will be accounted forcomputations of basic and diluted earnings per share were as equity instruments with subsequent changes in fair valuefollows:
 
 
Three Months Ended March 31,
(In millions, except per share data)
 
2020
 
2019
Basic earnings per common share
 
 
 
 
Net income attributable to XPO
 
$
23

 
$
47

Series A preferred stock dividends
 
(1
)
 
(1
)
Non-cash allocation of undistributed earnings
 
(1
)
 
(3
)
Net income attributable to common shares, basic
 
$
21

 
$
43

 
 
 
 
 
Basic weighted-average common shares
 
92

 
107

Basic earnings per share
 
$
0.23

 
$
0.40

 
 
 
 
 
Diluted earnings per common share
 
 
 
 
Net income attributable to common shares, diluted
 
$
21

 
$
43

 
 
 
 
 
Basic weighted-average common shares
 
92

 
107

Dilutive effect of non-participating stock-based awards and equity forward
 
11

 
10

Diluted weighted-average common shares
 
103

 
117

 
 
 
 
 
Diluted earnings per share
 
$
0.20

 
$
0.37

 
 
 
 
 
Potential common shares excluded
 
10

 
10


Certain shares were not recognized as long as the contracts continue to be equity classified.
The Company received proceeds of $290.4 million ($287.6 million net of fees and expenses) from the sale of 5 million shares of common stockincluded in the Offering. The Company has not received any proceeds fromcomputation of diluted earnings per share because the sale of shares of its common stock by the Forward Counterparties pursuant to the Forward Sale Agreements. The Company used the net proceeds of the shares issued and sold by the Company in the Offering and expects to use any net proceeds received upon the settlement of the Forward Sale Agreements for general corporate purposes, which may include strategic acquisitions and the repayment or refinancing of outstanding indebtedness. effect was anti-dilutive.

8. 9.Legal and Regulatory Matters
The Company isWe are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of itsour business. These proceedings may include among other matters, claims for property damage or personal injury incurred in connection with the transportation of freight, claims regarding anti-competitive practices, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants and tortious interference with contract.covenants. These proceedingsmatters also include numerous purportedputative class action, lawsuits, multi-plaintiff and individual lawsuits, and state tax and other administrative proceedings that claim either that the Company’s owner operatorsour owner-operators or contract carriers should be treated as employees, rather than independent contractors, or that certainsome of the Company'sour 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.
The Company establishesWe establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. AccrualsWe review and adjust accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. In connection with certain acquisitions of privately-held businesses, the Company has retained purchase price holdbacks or escrows to provide security for a negotiated duration with respect to damages incurred in connection with pre-acquisition claims and litigation matters. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, therefor or the applicable purchase price holdback or escrow, the Company assesseswe assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloseswe disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or statesdisclose that such an estimate cannot be made. The evaluationdetermination as to whether a loss iscan reasonably be considered to be possible or probable is based on the Company’sour assessment, in conjunctiontogether with legal counsel, regarding the ultimate outcome of the matter.
The Company believesWe believe that it haswe have adequately accrued for or has adequate purchase price holdbacks or escrows with respect to, the potential impact of loss contingencies that are probable and reasonably estimable. The Company doesWe do not believe that the ultimate resolution of any matters to which the Company iswe are presently a party


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will have a material adverse effect on itsour results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’sour financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
The Company carriesWe carry liability and excess umbrella insurance policies that it deemswe deem sufficient to cover potential legal claims arising in the normal course of conducting itsour operations as a transportation and logistics company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this Note.note. In the event the Company iswe are required to satisfy a legal claim outside the scope of the coverage provided by insurance, the Company’sour financial condition, results of operations or cash flows could be negatively impacted.
Intermodal Drayage Classification Claims
Certain of the Company’s intermodal drayage subsidiaries received notices from the California Labor Commissioner, Division of Labor Standards Enforcement (the "DLSE"), that a total of approximately 150 owner operators contracted with these subsidiaries filed claims in 2012 with the DLSE in which they assert that they should be classified as employees, rather than independent contractors. These claims seek reimbursement for the owner operators’ business expenses, including fuel, tractor maintenance and tractor lease payments. After a decision was rendered by a DLSE hearing officer in seven of these claims, in 2014, the Company appealed the decision to California Superior Court, San Diego, where a de novo trial was held on the merits of those claims. On July 17, 2015, the court issued a final statement of decision finding that the seven claimants were employees rather than independent contractors, and awarding an aggregate of $2.9 million plus post-judgment interest and attorneys’ fees to the claimants. The Company appealed this judgment, but cannot provide assurance that such appeal will be successful. Separate decisions were rendered in June 2015 by a DLSE hearing officer in claims involving five additional plaintiffs, resulting in an award for the plaintiffs in an aggregate amount of approximately $0.9 million, following which the Company appealed the decisions in the U.S. District Court for the Central District of California. On May 16, 2017, the Court issued judgment finding that the five claimants were employees rather than independent contractors, and awarding an aggregate of approximately $1.0 million plus post-judgment interest and attorneys’ fees to the claimants. The Company has appealed this judgment, but cannot provide assurance that such appeal will be successful. 10.Subsequent Events
Acquisition
In addition, separate decisions were rendered in April 2017 by a DLSE hearing officer in claims involving four additional plaintiffs, resulting in an award for the plaintiffs in an aggregate amount of approximately $0.9 million, following which the Company appealed the decisions to the U.S. District Court for the Central District of California. The remaining DLSE claims (the "Pending DLSE Claims") have been transferred to California Superior Court in three separate actions involving approximately 200 claimants, including the approximately 150 claimants mentioned above. The Company believesMarch 2020, XPO Logistics Europe announced that it has adequately accrued forentered into a definitive agreement to acquire the potential impactmajority of loss contingencies

that are probable and reasonably estimable relating toKuehne + Nagel’s contract logistics operations in the claims referenced above.United Kingdom. The Company is unable at this time to estimate the amount of the possible loss oroperations provide a range of loss, if any,logistics services, including inbound and outbound distribution, reverse logistics management and inventory management and generated revenues in excess2019 of its accrued liability that it may incur as a result of these claims given, among other reasons, that the number and identities of plaintiffs in these lawsuits are uncertain and the range of potential loss could be impacted substantially by future rulings by the courts involved, including on the merits of the claims.
Last Mile Logistics Classification Claims
Certain of the Company’s last mile logistics subsidiaries are party to several putative class action litigations brought by independent contract carriers who contracted with these subsidiaries in which the contract carriers assert that they should be classified as employees, rather than independent contractors.approximately £500 million ($639 million). The particular claims asserted vary from case to case, but the claims generally allege unpaid wages, unpaid overtime, or failure to provide meal and rest periods, and seek reimbursement of the contract carriers’ business expenses. Putative class actions against the Company’s subsidiaries are pending in California (Fernando Ruiz v. Affinity Logistics Corp., filed in May 2005 in the Federal District Court, Southern District of California - the Company has reached an agreement to settle this litigation, whichtransaction is subject to final Court approval; Ron Carter, Juan Estrada, Jerry Green, Burl Malmgren, Bill McDonald and Joel Morales v. XPO Logistics, Inc., filed in March 2016customary closing conditions, including regulatory approvals. The transaction, which is expected to close in the Federal District Court, Northern Districtsecond half of California; Ramon Garcia v. Macy’s2020, is not expected to be material to our operating results.
Secured Debt
In April 2020, we and XPO Logistics Inc.certain of our subsidiaries entered into a Senior Secured Term Loan Credit Agreement (the “Bilateral Credit Agreement”), filedcomprised of a $150 million committed secured term loan facility and a $200 million uncommitted secured evergreen letter of credit facility. The term loan facility is available to be drawn upon, subject to customary conditions, in July 2016 in Superior Courtmultiple borrowings within six months of the State of California, Alameda County; and Kevin Kramer v. XPO Logistics Inc., filed in September 2016 in Superior Court of the State of California, Alameda County); New Jersey (Leonardo Alegre v. Atlantic Central Logistics, Simply Logistics, Inc., filed in March 2015 in the Federal District Court, New Jersey - the Company has reached an agreement to settle this litigation, and the Court has approved the settlement); and Connecticut (Carlos Taveras v. XPO Last Mile, Inc., filed in November 2015 in the Federal District Court, Connecticut, - the Company reached an agreement to settle this litigation and the settlement has been paid). The Company believes that it has adequately accrued for the potential impact of loss contingencies relating to the foregoing claims that are probable and reasonably estimable. The Company is unable at this time to estimate the amount of the possible loss or range of loss, if any, in excess of its accrued liability that it may incur as a result of these claims given, among other reasons, that the number and identities of plaintiffs in these lawsuits are uncertain and the range of potential loss could be impacted substantially by future rulings by the courts involved, including on the merits of the claims.
Last Mile TCPA Claims
The Company is a party to a putative class action litigation (Leung v. XPO Logistics, Inc., filed in May 2015 in the U.S. District Court, Illinois) alleging violations of the Telephone Consumer Protection Act ("TCPA") related to an automated customer call system used by a last mile logistics business that the Company acquired. This matter is in the initial pleading stage and the court has not yet determined whether to certify the matter as a class action. The Company has reached an agreement to settle this matter, which is subject to final Court approval. The Company has accrued the full amount of the proposed settlement.
Less-Than-Truckload Meal Break Claims
The Company’s LTL subsidiary is a party to several class action litigations alleging violations of the state of California's wage and hour laws with respect to its driver employees. Plaintiffs allege failure to provide drivers with required meal breaks and rest breaks. Plaintiffs seek to recover unspecified monetary damages, penalties, interest and attorneys’ fees. The primary case is Jose Alberto Fonseca Pina, et al. v. Con-way Freight Inc., et al. (the "Pina case"). The Pina case was initially filed in November 2009 in Monterey County Superior Court and was removed to the U.S. District Court of California, Northern District. The Company has reached an agreement to settle the Pina case and the settlement has been approved by the Court. The Company has accrued the full amount of the proposed settlement.

9. Earnings Per Share
Basic and diluted earnings per share are computed using the two-class method, which is an earnings allocation method that determines earnings per share for common shares and participating securities. The participating securities consist of the Company's Series A Convertible Perpetual Preferred Stock. The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period. In periods of loss, no allocation is made to the preferred shares.
  Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except per share data) 2017 2016 2017 2016
Basic earnings per common share        
Net income attributable to XPO $62.5
 $15.1
 $135.7
 $39.2
Cumulative preferred dividends (0.7) (0.7) (2.2) (2.2)
Non-cash allocation of undistributed earnings (4.3) (0.6) (9.0) (1.2)
Net income allocable to common shares, basic $57.5
 $13.8
 $124.5
 $35.8
         
Basic weighted-average common shares 117.5
 110.3
 113.5
 110.0
Basic earnings per share $0.49
 $0.13
 $1.10
 $0.33
         
Diluted earnings per common share        
Net income allocable to common shares, basic $57.5
 $13.8
 $124.5
 $35.8
Interest from Convertible Senior Notes 0.2
 0.3
 0.9
 —
Net income allocable to common shares, diluted $57.7
 $14.1
 $125.4
 $35.8
         
Basic weighted-average common shares 117.5
 110.3
 113.5
 110.0
Dilutive effect of Convertible Senior Notes 1.9
 3.0
 2.6
 —
Dilutive effect of non-participating stock-based awards 10.4
 9.6
 10.1
 9.2
Diluted weighted-average common shares 129.8
 122.9
 126.2
 119.2
         
Diluted earnings per share $0.44
 $0.11
 $0.99
 $0.30
         
Potential common shares excluded 10.2
 11.5
 10.2
 14.9
Certain shares were not included in the computation of diluted earnings per share because the effect was anti-dilutive.

10. Subsequent Events
In October 2017, XPO Logistics Europe SA (“XPO Logistics Europe”), in which the Company holds an 86.25% controlling interest, entered into a European trade receivables securitization program for an aggregate maximum amount of €270 million (approximately $315 million) for aclosing date. Any term of three years co-arranged by Crédit Agricole and HSBC. Under the terms of the program, XPO Logistics Europe, or one of its wholly-owned subsidiaries in the United Kingdom or France, will sell trade receivables to XPO Collections Designated Activity Company Limited (“XCDAL”), a wholly-owned bankruptcy remote special purpose entity of XPO Logistics Europe. The receivables will be funded by senior variable funding notes denominated in the same currency as the corresponding receivables. XCDAL is considered a variable interest entity and will be consolidated by XPO Logistics Europe based on its control of the entity’s activities. The receivable balances under this program will be reported as accounts receivable on the Company’s consolidated balance sheet and the obligation to return the cash it receives will be included in the Company’s long-term debt.

The receivables securitization program provides additional liquidity to fund XPO Logistics Europe's operations. Borrowings under the programloans thereunder will bear interest at lenders’ cost of fundsa rate equal to LIBOR or base rate, at our election, plus aan applicable margin of 1.05%.3.00% to 4.50%, for LIBOR loans, or 2.00% to 3.50%, for base rate loans, in each case depending upon the time elapsed since the closing date. The receivables securitization programterm loan facility matures in April 2021.
Letters of credit under the letter of credit facility shall expire within one year of issuance and may contain automatic one-year renewals until the letter of credit facility terminates. As of the date of this Report on Form 10-Q, we have issued $200 million in aggregate face amount of letters of credit, which replaced letters of credit outstanding under our ABL Facility, and have not drawn upon the term loan commitments. The credit agreement governing the term loan and letter of credit facilities contains representations and warranties and affirmative and negative covenants termination events,customary for financings of this type as well as customary events of default, indemnities anddefault.
Senior Notes
Also in April 2020, we completed a private placement of $850 million aggregate principal amount of 6.25% senior notes due 2025 (the “Notes”). We intend to use the net proceeds from the issuance of the Notes for general corporate purposes, which may include the repayment of amounts outstanding under our existing ABL Facility, the repayment and/or redemption of our 6.50% senior notes due 2022 and/or the repayment of other obligationsexisting indebtedness. Interest on the partdebt is paid semi-annually in arrears. The Notes mature on May 1, 2025. The net proceeds from the offering, after deducting debt issuance costs, were approximately $837 million.
The Notes are guaranteed by each of XPO Logistics Europe,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 existing term loan facility (or certain of its subsidiaries,replacements) or guarantee certain of our other indebtedness. The Notes and XCDAL whichits guarantees are unsecured, unsubordinated indebtedness for us and our guarantors. The Notes contain covenants customary for transactionsnotes of this nature.


Item 2.Management’s Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time


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contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as "anticipate," "estimate," "believe," "continue," "could," "intend," "may," "plan," "potential," "predict," "should," "will," "expect," "objective," "projection," "forecast," "goal," "guidance," "outlook," "effort," "target," "trajectory"“anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’sCompany’s other filings with the Securities and Exchange Commission (the "SEC"“SEC”). All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’sCompany’s unaudited Condensed Consolidated Financial Statements and related Notesnotes thereto included elsewhere in this Quarterly Report. Forward-looking statements set forth in this Quarterly Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except asto the extent required by law.
Reference should be made to the audited consolidated financial statements and notes thereto and related "Management’sThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations" includedOperations (“MD&A”) should be read in the Company's 2016conjunction with our 2019 Annual Report on Form 10-K.
Executive Summary
XPO Logistics, Inc., a Delaware corporation, together with its subsidiaries ("(“XPO" the "Company," "we",” or "our"“we”), is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. The Company operates as a highly integrated network of people, technology and physical assets.
We use our network to help our customers manage their goods more efficiently throughout their supply chains. As of September 30, 2017, we served more than 50,000 customers and operated with over 91,000 employees and 1,444 locations in 32 countries.
We run our business on a global basis, withhave two reporting segments: Transportation and Logistics. In 2019, approximately 64% of our revenue came from Transportation; the other 36% came from Logistics. Within each segment, we have built robust service offerings that are positioned to capitalize on fast-growing areas of customer demand. Substantially all of our businessesservices operate under the single brand of XPO Logistics. As of March 31, 2020, we had approximately 97,000 employees and 1,506 locations in 30 countries, and over50,000 customers. Our operations help our customers move their goods most efficiently throughout their supply chains.
We are not reliantclosely monitoring the impact of the COVID-19 pandemic on the economy of any one country, region or industry. Based on where orders originated, approximately 60%all aspects of our 2016 revenue was generatedbusiness and geographies, including how it will impact our customers, employees and other business partners. See “Effects of COVID-19” below.
Transportation Segment
Our Transportation segment includes our services for truck brokerage and expedite; truckload; less-than-truckload (“LTL”); last mile; intermodal and drayage; managed transportation; and global forwarding. We offer these services in both North America and Europe with the United States, 13%exception of intermodal and drayage, which are North American services, and truckload, which is primarily in France, 12% inEurope. Within each region, the United Kingdom, and 15% in other countries. Our customers are also highly diversified across every major industry, with retail and e-commerce historically accounting for approximately a quarter ofcomplementary transportation services we provide represent an opportunity to provide multiple solutions to our revenue.larger customers.
In our Transportation segment,Globally, we are the second largest freight brokerage provider, globally, and wea top five provider of managed transportation. Many of our other transportation services hold industry-leadingmarket-leading positions in North America and Europe.
In North America, we are the largest provider of last mile logistics for heavy goods;goods, the largest manager of expedite shipments; the second largestexpedited shipments, a top three provider of less-than-truckload ("LTL") transportation;LTL transportation and the third largesta top three provider of intermodal services; as well asservices, with a globalnational drayage network. We are also a freight forwarder with a largeglobal network of ocean, air, ground and bordercross-border services.


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In Europe, we have the largest owned road transportation fleet. We offer fullprovide truckload transportation as a brokered service using independent carriers, and as dedicated and non-dedicated capacity using our owned fleet. Our other transportation offerings in Europe as dedicated, non-dedicated and brokered services; last mile logistics services; and are LTL transportation, throughwhich we provide with one of the largest LTL networks in Western Europe.Europe, and last mile logistics for heavy goods. Our transportation networks in Europe cover the regions that produce over 90% of the combined gross domestic product.
Our blended model of owned, contracted and brokered capacity gives us theextensive flexibility to offer solutions that best serve the interestsin providing optimal transportation solutions. The non-asset portion of our customersmodel is predominately variable-cost and the Company.includes our brokerage operations, as well as contracted capacity with independent providers. As of September 30, 2017,March 31, 2020, globally, we had approximately 11,00010,000 independent

owner operators carriers and owner-operators under contract to provide drayage, expedite, last mile and LTL services to our customers, and more than 50,000 independent brokered carriers representing approximately over 1,000,000 trucks on the road.
We employThe asset portion of our transportation model encompasses approximately 15,500 tractors and 40,000 trailers operated by professional drivers who transport goods for customers using our fleet of owned and leased trucks and trailers. Globally, our fleet encompasses approximately 16,000 tractors and 39,000 trailersemployed by XPO. These assets are primarily related to our LTL operations in North America and fullour truckload operations. These assetsoperations in Europe. Our owned fleet also provideprovides supplemental capacity for our freight brokerage operations. Our company overall is asset-light, with assets accounting for just under a third of our revenue.operations as needed.
Logistics Segment
In our Logistics segment, which we sometimes refer to as "supply chain"supply chain or "contractcontract logistics," weXPO is the second largest global provider of contract logistics based on facility space, with the largest outsourced e-fulfillment platform in Europe. We have deep expertise in key verticals and strong positions in fast-growing sectors.
We provide a range of logistics services includingthat help our customers meet their objectives for efficiency, safety and customer service. Our services include highly engineered and customized solutions, as well as value-added warehousing and distribution, cold chaine-commerce and omnichannel fulfillment, cold-chain solutions, and other inventory management solutions. We perform e-commerce fulfillment, order personalization, reverse logistics, recycling, storage,packaging and labeling, factory support, aftermarket support, manufacturing, distribution, packaginginventory management, order personalization and labeling, as well as supply chain optimization. In addition, we provide engineered solutions for supply chain optimization, services such as production flow management. Once we secure a logistics contract, the average customer tenure is approximately five years and the relationship can expand to include a wider range of services, such as inbound and outbound logistics.
Our competitive positioning in logistics is as a technology leader and a proponent of advanced automation. Our logistics operations are innovative and agile, with the ability to engineer sophisticated solutions for complex supply chain requirements. Reverse logistics, also called returns management, and transportation management.
XPO is the second largesta fast-growing area of contract logistics provider worldwide,where we have a reputation as a quality provider. It includes inspections, repackaging, refurbishment, resale or disposal, refunds and warranty management. These are high-value services for any company with consumer end-markets, as shoppers are increasingly “test-driving” the products they buy online. In 2019, we managed approximately 170 million returns.
As of March 31, 2020, we operated 202 million square feet (19 million square meters) of contract logistics facility space worldwide. Approximately 96 million square feet (9 million square meters) was located in North America, where we are a broad footprintmarket leader in logistics capacity; 98 million square feet (9 million square meters) was located in Europe; and 8 million square feet (1 million square meters) was located in Asia. Customers served by our Logistics segment include many of shared and dedicated facilities that makes us attractive to multinational customers. Our logistics customers include the preeminent names in aerospace, retail technology, manufacturing,and e-commerce, food and beverage, technology, aerospace, wireless, industrial and manufacturing, chemical, agribusiness, life sciences and healthcare.
We also benefitOur logistics network benefits from a strong presencepositioning in the high-growth e-commerce sector. E-commerce is predicted to continue to grow globally at a double-digit rate through at least 2020 and, increasingly, order fulfillment is being outsourced. We are the largest outsourced e-fulfillment provider in Europe, and we have a major platform for e-fulfillment in North America, where we provide highly customized solutions that includefor high-volume omnichannel distribution and reverse logistics. In March 2020, we announced a definitive agreement to acquire the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom in the second half of 2020, expanding our presence in the e-commerce, beverage, technology and food service sectors. E-commerce is predicted to continue to grow globally at a double-digit rate through at least 2022, making it difficult for many companies to handle fulfillment in-house while providing high levels of service.
Our experience with fast-growing e-commerce categories makes us a valuable partner to customers who want to outsource order fulfillment and personalization, reverse logistics and omni-channel services.other service-intensive parts of the supply chain. Together with XPO Direct™, our shared space distribution offering, our Logistics segment provides e-


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commerce companies with superior control, flexible warehousing and staffing, advanced automation and predictive analytics that help manage peaks in demand.
Operating Philosophy
We believe that our ability to providerapid pace of innovation differentiates our services and makes the most of the talent and assets within XPO. Our proprietary technology strengthens our relationships with customers, with integrated, end-to-endaddresses their immediate supply chain solutions gives us a competitive advantage. Many customers, particularly large companies, are increasingly turning to multi-modal providers to handle their supply chain requirements. We have built XPO to capitalize on this trend, as well as the trend toward outsourcing in both transportation and logistics, the boom in e-commerce, and the adoption of just-in-time inventory practices. All of our service lines are run by highly experienced operators who know how to deliver results.
Two hallmarks of our operations worldwide are technology and sustainability. We place massive importance on innovation because we believe that great technologyneeds in the hands of well-trained employees ismost efficient ways possible and anticipates their future needs. Technology allows us to be a true partner in our customers’ success.
We concentrate our technology efforts in four areas: our digital freight marketplace, automation and intelligent machines, dynamic data science, and visibility and customer service, specifically in the ultimate competitive advantage.e-commerce supply chain. Our annual2019 investment in technology iswas among the highest in our industry.
Our focus is on using innovation to differentiate our services and deliver tangible value to our customers and investors. We have built a highly scalable and integrated system on a cloud-based platform that speeds up innovation.industry at approximately $550 million. Our global team of more than 1,600 ITapproximately 1,700 technology professionals works closely with our operations in North America and Europe and can deploy proprietarynew software very rapidly. rapidly on our cloud-based platform.
We concentrateprioritize innovations that can benefit our effortscustomers and create value for our shareholders. For example, our XPO Connect™ digital marketplace gives our transportation customers a bird’s-eye view of real-time market conditions and available capacity. It matches shippers and carriers with digital efficiency, benefitting both parties and contributing to our financial performance. Our XPO Smart™ analytics and planning tools use machine learning to drive productivity in our logistics and LTL operations.
Environmental sustainability is another area where our strong commitment sets an example in the following areas of innovation: automation; visibility and customer service business-specific analytics; and far-reaching new capabilities.
We also haveindustry. In the U.S., XPO has been named a strong, global commitment to sustainability. XPO owns the largest natural gas truck fleet in Europe and launched government-approved mega-trucks in Spain, both of which reduce CO2 emissions. We have beenTop 75 Green Supply Chain Partner by Inbound Logistics for four consecutive years. In France, we were awarded the label "Objectifdesignation Objectif CO2" in 2016 for outstanding environmental performance of transport operations in Europe by the French Ministry of the EnvironmentEnvironment. In Spain, all of our sites meet Leadership in Energy and Environmental Design (“LEED”) energy certification standards for 100% consumption of renewable energy. In the French EnvironmentUnited Kingdom, the warehouse of the future we created with Nestlé is scheduled to begin operating in mid-year 2020. It utilizes environmentally friendly ammonia refrigeration systems, energy-saving lighting, air-source heat pumps for administration areas and Energy Agency.rainwater harvesting.
ManyA number of our logistics facilities in North America are ISO14001-certified, which ensures environmental and other regulatory compliances. We monitor fuel emissions from forklifts in our warehouses, with systemsprotocols in place to take immediate corrective action if needed. CompanyOur packaging engineers ensure that the optimal carton size is used for each product slated for distribution, and aswhen feasible, we purchase recycled packaging. As a byproduct of our reverse logistics operations, we recycle millions of electronic components and batteries each year. These
In transportation, we have made substantial investments in fuel-efficient Freightliner Cascadia tractors in North America; these use Environmental Protection Agency (“EPA”) 2013-compliant and Greenhouse Gas 2014-compliant Selective Catalytic Reduction technology. Our North American LTL locations have energy-saving policies in place and are justimplementing a fewphased upgrade to LED lighting. In Europe, we own one of the many initiatives that reflect our commitment toindustry’s most modern road fleets. Our tractors are 98% compliant with Euro V, EEV and Euro VI standards.
We also own a large fleet of natural gas trucks operating in France, the United Kingdom, Spain and Portugal and, in 2019, we invested in 100 new Stralis Natural Power Euro VI tractors for our LTL network in France. These tractors use a progressivecombination of liquified and environmentally sound manner,compressed natural gas (“LNG/CNG”) to generate lower NOx emissions than the Euro VI standard and reduce noise in densely populated areas. In Spain, where we own government-approved mega-trucks, we have embarked on a collaborative research project with the greatest efficiencyGeneral State Administration to test duo-trailer vehicles and least waste possible.capture data about environmental and safety performance in commercial use. Our last mile operations in Europe are piloting electric vehicles for deliveries in urban areas, reducing those emissions to zero.

Strategic Alternatives
In January 2020, we announced that XPO had 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. In March 2020, in light of market conditions, we terminated the strategic review process.


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Effects of COVID-19
As a global provider of supply chain solutions, our business can be impacted to varying degrees by factors beyond our control. The rapid escalation of COVID-19 into a pandemic in 2020 has affected, and will continue to affect, economic activity broadly and customer sectors served by our industry.
In response to the COVID-19 pandemic, the governments of many countries, states, cities and other geographic regions have taken and are continuing to take preventative or reactive actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to shelter-in-place. Due to the critical role we play in moving goods and equipment in the markets we serve, XPO Logistics, Inc.is widely considered an “essential business,” providing supply chain solutions to crucial industries and delivering critical consumer goods. As a result, we have been and are continuing to operate amid state-of-emergency and shelter-in-place orders recently issued in the U.S. and globally. The substantial majority of our operating sites have remained open and operating, and we have continued to serve our customers while employing significant measures to protect our employees and keep them safe.
The COVID-19 pandemic and associated impacts on economic activity had an adverse effect on our results of operations and financial condition for the three months ended March 31, 2020. From a demand standpoint, the last half of March saw demand decline sharply, most notably in Europe, as large sectors of the economy began to shut down, which has continued through the filing date of this Report on Form 10-Q.
It remains very difficult to predict the duration and impact of COVID-19 and how the recovery will play out for our industry generally and our business in particular, due to the extreme uncertainty and unprecedented nature of the COVID-19 pandemic. We do, however, expect that our results of operations and financial condition will be more significantly impacted in the second quarter of 2020 and in subsequent periods, as levels of activity in our business have historically been positively correlated to broad measures of economic activity, such as gross domestic product and measures of industrial production. At the time of the issuance of this Report on Form 10-Q, we are unable to reasonably estimate the full extent of the impact on our future results of operations, liquidity or overall financial position.
While we have incurred additional costs to ensure we meet the needs of our customers and employees, including costs for personal protective equipment, site closures and cleaning and enhanced employee benefits, we believe that a majority of our cost basis is variable, and we have taken and will continue to take aggressive actions to adjust our expenses to reflect changes in demand for our services. These actions have included reduced use of contractors, reduced employee hours, furloughs, layoffs and required use of paid time off, consistent with local regulations. Although we do not expect to be able to fully offset the effects of significantly reduced volumes on our results of operations, the actions that we are taking combined with the variable components of our cost structure should partially mitigate the impact of the pandemic on our profitability relative to the impact on revenues and volumes.
Maintaining strong liquidity has been and will continue to be a top priority for us amid the current economic disruption. As discussed in greater detail below, as of March 31, 2020, we had $1.3 billion of available liquidity, including $1.1 billion of cash and cash equivalents. In addition, in April 2020, we expanded our liquidity by $1.2 billion through the addition of a $350 million term loan and letter of credit facility and $850 million in senior notes. We expect to incur incremental interest expense in 2020 as a result of incurring this new debt. We also expect to reduce our capital expenditures this year substantially, which we believe we can do because the majority of our previously planned 2020 capital spending was intended to support growth initiatives and many of our operations are asset-light.
We are using a combination of rigorous protective measures, technology and virtual communications to endeavor to keep employees safe in all 30 countries where we operate. Measures we have taken to date include:
•
Our employees worldwide are working remotely if able to do so.
•
For employees who need to work on site, we follow the guidance of the World Health Organization, the U.S. Centers for Disease Control, local regulators, and our own health and safety protocols.
•
Social distancing and personal protective equipment guidelines are in effect in all our workplaces.
•
We have implemented consistent and ongoing cleaning of high-touch areas across our facilities worldwide, as well as deep cleaning of any workspaces or facilities likely to have been exposed to COVID-19.


21

•
We have added Pandemic Paid Sick Leave to our U.S. and Canadian benefits packages, covered the cost of COVID-19 testing, continued to provide alternate work arrangements for employees when medically advisable, and guaranteed up to three days of 100% pay continuation if a facility is closed temporarily for deep cleaning.
A further discussion of the impact of the COVID-19 pandemic on our business is set forth below in Part II, Item 1A. Risk Factors.
Consolidated Summary Financial Table
Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change
 
Three Months Ended March 31,
 
Percent of Revenue
 
Change
(In millions)2017 2016 2017 2016 2017 vs. 2016 2017 2016 2017 2016 2017 vs. 2016
(Dollars in millions)
 
2020
 
2019
 
2020
 
2019
 
2020 vs. 2019
Revenue$3,887.1
 $3,713.8
 100.0 % 100.0 % 4.7 % $11,186.9
 $10,942.8
 100.0 % 100.0 % 2.2 %
 
$
3,864

 
$
4,120

 
100.0
 %
 
100.0
 %
 
(6.2
)%
Cost of transportation and services2,042.7
 2,008.4
 52.6 % 54.1 % 1.7 % 5,899.6
 5,926.8
 52.7 % 54.2 % (0.5)%
 
1,898

 
2,096

 
49.1
 %
 
50.9
 %
 
(9.4
)%
Direct operating expense1,258.7
 1,153.4
 32.4 % 31.1 % 9.1 % 3,590.6
 3,389.8
 32.1 % 31.0 % 5.9 %
 
1,360

 
1,406

 
35.2
 %
 
34.1
 %
 
(3.3
)%
SG&A expense398.9
 383.2
 10.3 % 10.3 % 4.1 % 1,211.3
 1,224.7
 10.8 % 11.2 % (1.1)%
SG&A expense
 
525

 
486

 
13.6
 %
 
11.8
 %
 
8.0
 %
Operating income186.8
 168.8
 4.8 % 4.5 % 10.7 % 485.4
 401.5
 4.3 % 3.7 % 20.9 %
 
81

 
132

 
2.1
 %
 
3.2
 %
 
(38.6
)%
Other income(6.7) (1.1) (0.2)% — % 509.1 % (6.0) (6.7) (0.1)% (0.1)% (10.4)%
Foreign currency loss (income)15.0
 (0.3) 0.4 % — % (5,100.0)% 53.9
 1.8
 0.5 % — % 2,894.4 %
Other expense (income)
 
(18
)
 
(17
)
 
(0.5
)%
 
(0.4
)%
 
5.9
 %
Foreign currency (gain) loss
 
(8
)
 
2

 
(0.2
)%
 
—
 %
 
NM

Debt extinguishment loss4.6
 53.2
 0.1 % 1.4 % (91.4)% 13.6
 53.2
 0.1 % 0.5 % (74.4)%
 
—

 
5

 
—
 %
 
0.1
 %
 
(100.0
)%
Interest expense72.5
 93.0
 1.9 % 2.5 % (22.0)% 222.4
 280.8
 2.0 % 2.6 % (20.8)%
 
72

 
71

 
1.9
 %
 
1.7
 %
 
1.4
 %
Income before income tax provision101.4
 24.0
 2.6 % 0.6 % 322.5 % 201.5
 72.4
 1.8 % 0.7 % 178.3 %
 
35

 
71

 
0.9
 %
 
1.7
 %
 
(50.7
)%
Income tax provision30.4
 2.7
 0.8 % 0.1 % 1,025.9 % 48.4
 20.0
 0.4 % 0.2 % 142.0 %
 
10

 
19

 
0.3
 %
 
0.5
 %
 
(47.4
)%
Net income$71.0
 $21.3
 1.8 % 0.6 % 233.3 % $153.1
 $52.4
 1.4 % 0.5 % 192.2 %
 
$
25

 
$
52

 
0.6
 %
 
1.3
 %
 
(51.9
)%
Consolidated ResultsNM - Not meaningful.
Three Months Ended September 30, 2017March 31, 2020 Compared to with Three Months Ended September 30, 2016March 31, 2019
Revenue for the thirdfirst quarter of 2017 increased 4.7%2020decreased6.2% to $3,887.1 million as$3.9 billion, compared with the same quarter in 2019. The decrease is primarily due to the same period in 2016. The increase was primarily drivenimpact of COVID-19 and reduced volumes with our largest customer, including curtailing our direct postal injection business. Additionally, foreign currency movement reduced revenue by growth in our European contract logistics business, mid-single digit improvement in LTL weight per day, accelerating growth in North American brokerage operations, and mid-teens growth in Last Mile revenue. These items were partially offset by the October 2016 divestiture of our North American truckload operation, which had revenue of $131.8 millionapproximately 1.0 percentage point in the thirdfirst quarter of 2016.2020.
Cost of transportation and services represents includes the cost of providing or procuring freight transportation services for ourXPO customers and includes salaries paid to employee drivers in our full truckload and LTL businesses, as well as commissions paid to independent station owners in our global forwarding business. businesses.
Cost of transportation and services for the thirdfirst quarter of 20172020 was $2,042.7 million,$1.9 billion, or 52.6%49.1% of revenue, compared to $2,008.4 million,with $2.1 billion, or 54.1%50.9% of revenue, for the same quarter in the third quarter of 2016.2019. Theyear-over-year reduction as a percentage of revenue was primarily driven by the divestiture of our North American truckload operation and a lower higher mix of managed transportation in North American Supply Chain, partially offset by highercontract logistics revenue, lower third-party transportation costs in freight brokerage and intermodal operations.our transportation segment, and lower fuel costs.
Direct operating expense includes:s are comprised of both fixed and variable expenses and consist of operating costs related to our contract logistics facilities; intermodal equipment lease expense; depreciation expense; maintenance and repair costs; property taxes; operating costs of our local drayage andfacilities, last mile warehousing facilities; costs related to our facilities, LTL service centers and European pallet network, such as direct labor, facilities and forklift trucks; and fixed terminal and cargo handling expenses. OperatingLTL network. Direct operating costs of our contract logistics facilities consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology costs,expenses, depreciation expense, and depreciation expense. Operating costsgains and losses on sales of our local drayageproperty and last mile warehousing facilities consist mainly of personnel costs, rent, maintenance, utilities and other facility-related costs. Operating costs of our LTL facilities consist mainly of personnel costs, rent and depreciation of service center equipment. Fixed terminal and cargo handling costs primarily relate to the fixed rent and storage expense charged by terminal operators.
Direct operating expense for the thirdfirst quarter of 20172020 was $1,258.7 million,$1.4 billion, or 32.4%35.2% of revenue, compared to $1,153.4 million,with $1.4 billion, or 31.1%34.1% of revenue, for the same quarter in the third quarter of 2016.2019. The year-over-year increase as a percentage of revenue was primarily driven by higher benefitspersonnel costs, facility costs in our transportation segment and higher depreciation expense in our logistics segment due to the impact of prior capital investments and new contract startups. Partially offsetting these higher costs were lower temporary labor expense to support growthcosts in our contract logistics business.segment. Additionally, the first quarters of 2020 and 2019 included $27 million and $21 million, respectively, from gains on sale of property and equipment.


22

Sales, general and administrative expense (" (“SG&A"&A”) primarily consists of salary and benefit costs relating to customer acquisition, carrier procurement, billing, customer service,for executive and certain administration functions, salaries and related expenses of our executivecommissions for the sales function, depreciation and administrative staff, integration-related costs, office expenses, technology services,amortization expense, professional fees, and other purchased services relating to the aforementioned functions, travel and entertainmentfacility costs, bad debt expense and depreciation and amortization expense.legal costs.

SG&A&A for the thirdfirst quarter of 20172020 was $398.9$525 million, or 10.3%13.6% of revenue, compared to $383.2with $486 million, or 10.3%11.8% of revenue, for the same quarter in 2019. SG&Ain the thirdfirst quarter of 2016. SG&A expense as a percentage2020 included approximately $40 million of revenue was flat, which primarily reflects the benefitexpenses related to our exploration of cost-saving actions initiated in 2016 and lowerstrategic alternatives, including professional service fees and consultingretention costs. The review process was terminated in March 2020 in light of market conditions, although certain of these costs which were offset bywill continue. SG&A for the first quarter of 2020 also reflected higher purchased services.incentive and stock-based compensation expense.
Foreign currency (gain) loss (income) was an $8 million gain for the thirdfirst quarter of 2017 was $15.02020, compared with a $2 million as compared to $(0.3) million in the third quarter of 2016. The loss for the thirdsame quarter in 2019. Foreign currency gain in the first quarterof 20172020 primarily relates toreflected realized and unrealized lossesgains on the Company's foreign currency option and forward contracts and wasother derivative contracts, including a gain on a terminated net investment hedge. Foreign currency loss in the first quarter of 2019 primarily due to the strengthening of the Euroreflected unrealized losses on foreign currency option and the British Pound relative to the U.S. dollar.forward contracts. For additional information on the Company'sour foreign currency option and forward contracts, see Note 5—5—Derivative Instruments of the condensed consolidated financial statements. to our Condensed Consolidated Financial Statements.
Debt extinguishment loss was $5 millionfor thirdthe first quarter of 20172019. There were no debt extinguishment losses in the first quarter of $4.6 million2020. Debt extinguishment loss in the first quarter of 2019 related to the redemptionwrite-off of debt issuance costs for an unsecured credit facility that was repaid in the Senior Notes due 2018. See Liquidity and Capital Resources below for further information. The debt extinguishment lossfirst quarter of 2019.
Interest expenseincreased to $72 million for the thirdfirst quarter of 20162020 from $71 million for the first quarter of $53.2 million related2019, primarily due to the redemption of the Senior Notes due 2019 in September 2016.
Interest expense decreased to $72.5 million in the third quarter of 2017, from $93.0 million in the third quarter of 2016. The decrease in interest expense is consistent with the year-over-year reduction inhigher average total indebtedness to fund share purchases in 2019 and for general corporate purposes, partially offset by lower interest rates in the first quarter of approximately 10% and also reflects the lower rates attributable to our recent refinancings. The reduction in average total indebtedness reflects the benefit of utilizing the proceeds from the sale of our North American Truckload operation in October 2016 to repurchase $555.0 million of outstanding indebtedness.2020.
Our effective income tax rates were 30.2% and 26.6% for the thirdfirst quarter of 20172020 and 2016 were 30.0% and 11.3%2019, respectively. The effective tax raterates for the thirdfirst quarter of 2017 was2020 and 2019 were based on forecasted full yearfull-year effective tax rates, adjusted for discrete items that occurred within the periodperiods presented. There waswere no material net effective tax rate impact related to discrete items. The third quarter of 2016 effective tax rate was impacted by $10 million of discrete tax benefits primarily associated with change in reserve for uncertain tax positions and deferred tax asset revaluations.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenue foritems impacting the first nine months of 2017 increased 2.2% to $11,186.9 million as compared to the same period in 2016. The increase was primarily driven by growth in our European contract logistics business, improvement in LTL weight per day, and mid-teens growth in North American brokerage and Last Mile operations. These items were partially offset by the October 2016 divestiture of our North American truckload operation, which had revenue of $394.0 million in the nine months ended September 30, 2016.
Cost of transportation and services for the first nine months of 2017 was $5,899.6 million, or 52.7% of revenue, compared to $5,926.8 million, or 54.2% of revenue, in the first nine months of 2016. The reduction as a percentage of revenue was primarily driven by a lower mix of managed transportation in North American Supply Chain, partially offset by higher third-party transportation costs in freight brokerage and intermodal operations.
Direct operating expense for the first nine months of 2017 was $3,590.6 million, or 32.1% of revenue, compared to $3,389.8 million, or 31.0% of revenue, in the first nine months of 2016. The increase as a percentage of revenue was primarily driven by higher benefits and temporary labor expense to support growth in our contract logistics business.
SG&A for the first nine months of 2017 was $1,211.3 million, or 10.8% of revenue, compared to $1,224.7 million, or 11.2% of revenue, in the first nine months of 2016. The improvement in SG&A expense as a percentage of revenue for the nine-months ended September 30, 2017 primarily reflects the benefit of cost-saving actions initiated in 2016 and lower professional fees and consulting costs.
Foreign currency loss for the first nine months of 2017 was $53.9 million as compared to $1.8 million in the first nine months of 2016. The loss for the first nine months of 2017 primarily relates to unrealized losses on the Company's foreign currency option and forward contracts and was primarily due to the strengthening of the Euro and the British Pound relative to the U.S. dollar.
Debt extinguishment loss for the first nine months of 2017 relates to the refinancing of the Company's Term Loan facility and Senior Notes due 2018. As discussed further below (see Liquidity and Capital Resources), the Company incurred a $13.6 million charge in the aggregate related to these refinancings. The debt extinguishment loss for the first nine months of 2016 of $53.2 million related to the redemption of the Senior Notes due 2019 in September 2016.
Interest expense decreased to $222.4 million in the first nine months of 2017, from $280.8 million in the first nine months of 2016. The decrease in interest expense is consistent with the year-over-year reduction in average total indebtedness of approximately 10% and also reflects the lower rates attributable to our recent refinancings. The reduction in average total indebtedness reflects the benefit of utilizing the proceeds from the sale of our North American Truckload operation in October 2016 to repurchase $555.0 million of outstanding indebtedness.
Our effective income tax rates for the first nine months of 2017 and 2016 were 24.0% and 27.6%, respectively. The effective tax rate for the first nine monthsquarter of 2017 was impacted primarily by $9.82020 or 2019.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 provides 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 have applied the provisions of the CARES Act relating to income taxes and recorded a $4 million reduction in cash taxes as well as an immaterial income tax benefit on our Condensed Consolidated Statements of tax benefits associated with share-based payment

arrangements, $3.1 million of tax benefits associated with deferred tax asset revaluations, $3.3 million of tax benefits associated with the release of valuation allowance on state tax matters, and $2.5 million of tax benefits associated with research and development tax credits. The effective tax rate forIncome in the first nine monthsquarter of 2016 was impacted by $12.4 million2020. Additionally, we expect to benefit from the ability to defer the payment of discrete tax benefits primarily associated with changecertain payroll taxes that would otherwise be required in reserve for uncertain tax positions and deferred tax asset revaluations.2020.
TransportationRestructuring Charges
Summary Financial TableWe engage in restructuring actions as part of our ongoing efforts to best utilize our resources and infrastructure. Restructuring charges were recorded on our Condensed Consolidated Statements of Income as follows:
 Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change
(In millions)2017 2016 2017 2016 2017 vs. 2016 2017 2016 2017 2016 2017 vs. 2016
Revenue$2,469.8
 $2,409.1
 100.0% 100.0% 2.5 % $7,152.2
 $7,125.4
 100.0% 100.0% 0.4 %
Cost of transportation and services1,776.8
 1,733.0
 71.9% 71.9% 2.5 % 5,119.7
 5,096.0
 71.6% 71.5% 0.5 %
Direct operating expense300.4
 294.4
 12.2% 12.2% 2.0 % 884.5
 904.6
 12.4% 12.7% (2.2)%
SG&A expense                   
Salaries & benefits132.3
 138.3
 5.4% 5.7% (4.3)% 393.8
 428.3
 5.5% 6.0% (8.1)%
Other SG&A expense38.1
 43.3
 1.5% 1.8% (12.0)% 126.2
 110.9
 1.8% 1.6% 13.8 %
Purchased services36.5
 34.5
 1.5% 1.4% 5.8 % 99.3
 111.5
 1.4% 1.6% (10.9)%
Depreciation & amortization40.5
 40.2
 1.6% 1.7% 0.7 % 122.7
 120.1
 1.7% 1.7% 2.2 %
Total SG&A expense247.4
 256.3
 10.0% 10.6% (3.5)% 742.0
 770.8
 10.4% 10.8% (3.7)%
Operating income$145.2
 $125.4
 5.9% 5.2% 15.8 % $406.0
 $354.0
 5.7% 5.0% 14.7 %
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Cost of transportation and services
 
$
—

 
$
3

Sales, general and administrative expense
 
3

 
10

Total
 
$
3

 
$
13

Note: Total depreciationFor more information, see Note 4—Restructuring Charges to the Condensed Consolidated Financial Statements. Upon successful completion of the restructuring initiatives recorded in the first quarter of 2020, we expect to achieve annualized pre-tax savings of approximately $9 million in 2021. We expect to incur incremental restructuring costs in 2020 as we modify and amortizationright-size our operations for declines and/or surges in demand due to the business impacts of COVID-19; however, we are currently unable to reasonably estimate these costs.


23

Transportation Segment
 
 
Three Months Ended March 31,
 
Percent of Revenue
 
Change
(Dollars in millions)
 
2020
 
2019
 
2020
 
2019
 
2020 vs. 2019
Revenue
 
$
2,459

 
$
2,659

 
100.0
%
 
100.0
%
 
(7.5
)%
Operating income
 
120

 
128

 
4.9
%
 
4.8
%
 
(6.3
)%
Total depreciation and amortization
 
110

 
116

 
N/A

 
N/A

 
(5.2
)%
Transportation segment revenue decreased7.5% to $2.5 billion for the first quarter of 2020, compared with $2.7 billion for the same quarter in 2019. Revenue in the first quarter of 2020 reflected the impact of COVID-19 and reduced volumes with our largest customer, including curtailing our direct postal injection business. Additionally, foreign currency movement reduced revenue by approximately 0.7 percentage points in the first quarter of 2020.
Transportation segment included in cost of transportation and services, direct operating expense and SG&A was $111.7 million and $114.8 millionincome for the three months ended September 30, 2017 and 2016, respectively, and $329.3first quarter of 2020decreased to $120 million and $341.9, or 4.9% of revenue, compared with $128 million, or 4.8% of revenue, for the nine months ended September 30, 2017 and 2016, respectively.
Transportation
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Revenuesame quarter in our Transportation segment increased 2.5% to $2,469.8 million in the third quarter of 2017 compared to $2,409.1 million in the third quarter of 2016.2019. The increasedecrease was primarily driven by mid-teenslower revenue, growth in our U.S. last mile service offering; growth in U.S. freight brokerage; and a 5.6% year-on-year increase in weight per day within our U.S. LTL business, partially offset by the divestiture of our North American truckload operations, which had revenue of $131.8 million in the third quarter of 2016lower third-party transportation, fuel, truck leasing and lower revenue in global forwarding.
Cost of transportation and services for the third quarter of 2017 was $1,776.8 million, or 71.9% of revenue, compared to $1,733.0 million, or 71.9% of revenue, in the third quarter of 2016. The costpersonnel costs as a percentage of revenue was flat comparedrevenue. Partially offsetting these lower costs were higher facility costs, expenses related to our exploration of strategic alternatives and bad debt expenses. Additionally, the first quarter of 2020 reflected higher gains on sale of property and equipment of $8 million. Depreciation and amortization expense in the first quarter of 2019 included $6 million related to the thirdimpairment of customer relationship intangible assets associated with exiting the direct postal injection business.
Logistics Segment
 
 
Three Months Ended March 31,
 
Percent of Revenue
 
Change
(Dollars in millions)
 
2020
 
2019
 
2020
 
2019
 
2020 vs. 2019
Revenue
 
$
1,437

 
$
1,494

 
100.0
%
 
100.0
%
 
(3.8
)%
Operating income
 
38

 
46

 
2.6
%
 
3.1
%
 
(17.4
)%
Total depreciation and amortization
 
69

 
61

 
N/A

 
N/A

 
13.1
 %
Logistics segment revenue decreased3.8% to $1.4 billion for the first quarter of 20162020, compared with $1.5 billion for the same quarter in 2019. This decrease reflects our elimination of certain low-margin business and the downsizing of business by our largest customer in North America, as well as the divestiturenegative impact of our North American truckload operations was offsetCOVID-19 in Europe. Additionally, foreign currency movement reduced revenue growth by approximately 1.4 percentage points in the increased costfirst quarter of third party transportation in brokerage and intermodal operations.2020.
DirectLogistics segment operating expenseincome for the thirdfirst quarter of 2017 was $300.42020decreased to $38 million, or 12.2%2.6% of revenue, compared to $294.4with $46 million, or 12.2%3.1% of revenue, for the same quarter in the third quarter of 2016. Cost savings initiatives and improved dock efficiency largely offset increased payroll and benefits expense in the U.S. LTL business.
SG&A decreased to $247.4 million in the third quarter of 2017 from $256.3 million in the third quarter of 2016. As a percentage of revenue, SG&A decreased from 10.6% in the third quarter of 2016 to 10.0% in the third quarter of 2017, reflecting improved technology-enabled labor efficiencies in North American brokerage and intermodal operations, as well as cost-discipline within European Transport operations.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenue in our Transportation segment increased 0.4% to $7,152.2 million in the first nine months of 2017 compared to $7,125.4 million in the first nine months of 2016.2019. The increasedecrease was primarily driven by mid-teens revenue growth in our U.S. last mile service offering; growth in U.S. freight brokerage; and a 5.8% increase in weight per day within our U.S. LTL business. The impact of these items was partially offset by the divestiture of our North American truckload operations, which had revenue of $394.0 million in the nine months ended September 30, 2016, and lower revenue, in global forwarding.

Costincreased depreciation and amortization expense and expenses related to our exploration of transportationstrategic alternatives. Depreciation and services for the first nine months of 2017amortization expense was $5,119.7 million, or 71.6% of revenue, compared to $5,096.0 million, or 71.5% of revenue,higher in the first nine monthsquarter of 2016. Increased cost of third party transportation in brokerage and intermodal operations and higher fuel expenses were partially offset by line-haul savings in LTL.
Direct operating expense for the first nine months of 2017 was $884.5 million, or 12.4% of revenue,2020 compared to $904.6 million, or 12.7%the prior year quarter due to the impact of revenue, in the first nine months of 2016. The improvement as a percentage of revenue was driven primarily by cost savings initiativesprior capital investments and improved dock efficiency in the U.S. LTL business.
SG&A decreased to $742.0 million in the first nine months of 2017 from $770.8 million in the first nine months of 2016. As a percentage of revenue, SG&A decreased from 10.8% in the first nine months of 2016 to 10.4% in the first nine months of 2017 reflecting technology-enabled labor efficiencies in our North American brokerage and intermodal operations.new contract startups.
Logistics
Summary Financial Table
 Three Months Ended September 30, Percent of Revenue Change Nine Months Ended September 30, Percent of Revenue Change
(In millions)2017 2016 2017 2016 2017 vs. 2016 2017 2016 2017 2016 2017 vs. 2016
Revenue$1,458.8
 $1,347.0
 100.0% 100.0% 8.3 % $4,154.1
 $3,939.7
 100.0% 100.0% 5.4 %
Cost of transportation and services305.2
 316.7
 20.9% 23.5% (3.6)% 894.7
 950.1
 21.5% 24.1% (5.8)%
Direct operating expense959.3
 859.2
 65.8% 63.8% 11.7 % 2,706.3
 2,485.8
 65.1% 63.1% 8.9 %
SG&A expense                   
Salaries & benefits64.9
 50.8
 4.4% 3.8% 27.8 % 188.8
 174.6
 4.5% 4.4% 8.1 %
Other SG&A expense10.0
 6.4
 0.7% 0.5% 56.3 % 47.3
 43.1
 1.1% 1.1% 9.7 %
Purchased services21.7
 17.8
 1.5% 1.3% 21.9 % 66.4
 63.0
 1.6% 1.6% 5.4 %
Depreciation & amortization20.3
 20.8
 1.4% 1.5% (2.4)% 61.7
 64.8
 1.5% 1.6% (4.8)%
Total SG&A expense116.9
 95.8
 8.0% 7.1% 22.0 % 364.2
 345.5
 8.8% 8.8% 5.4 %
Operating income$77.4
 $75.3
 5.3% 5.6% 2.8 % $188.9
 $158.3
 4.5% 4.0% 19.3 %
Note: Total depreciation and amortization for the Logistics segment included in cost of transportation and services, direct operating expense and SG&A was $54.9 million and $46.5 million for the three months ended September 30, 2017 and 2016, respectively, and $155.1 million and $142.2 million for the nine months ended September 30, 2017 and 2016, respectively.
Logistics
Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016
Revenue in our Logistics segment increased by 8.3% to $1,458.8 million in the third quarter of 2017 compared to $1,347.0 million in the third quarter of 2016. The increase in revenue was primarily driven by strong demand for contract logistics both in Europe and North America, partially offset by a decline in managed transportation revenue in North America. European logistics revenue growth reflected a significant benefit from new contract starts, notably with e-commerce and cold chain customers in the United Kingdom, Spain and the Netherlands. In North America, the largest gains came from the e-commerce and industrial sectors.
Cost of transportation and services for the third quarter of 2017 was $305.2 million, or 20.9% of revenue, compared to $316.7 million, or 23.5% of revenue, in the third quarter of 2016. The 3.6% reduction relative to the third quarter of 2016 was primarily driven by the lower cost of third party transportation in the managed transportation operations of North American supply chain, consistent with lower volumes of business.
Direct operating expense in the third quarter of 2017 was $959.3 million, or 65.8% as a percentage of revenue, compared to $859.2 million, or 63.8% as a percentage of revenue, in the third quarter of 2016. The 11.7% increase relative to the third quarter of 2016 was primarily driven by higher payroll and temporary labor costs related to new contract startups.
SG&A increased to $116.9 million in the third quarter of 2017 from $95.8 million in the third quarter of 2016. As a percentage of revenue, SG&A increased to 8.0% in the third quarter of 2017 from 7.1% in the third quarter of 2016 due to higher benefits costs and higher purchased services related to more IT spending to support growth in Europe.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenue in our Logistics segment increased by 5.4% to $4,154.1 million in the first nine months of 2017 compared to $3,939.7 million in the first nine months of 2016. The increase in revenue was primarily driven by strong demand for contract logistics

in both Europe and North America, partially offset by a decline in managed transportation revenue. European logistics revenue growth reflected a significant benefit from new contract starts, notably with e-commerce and cold chain customers in the United Kingdom, Italy and the Netherlands.
Cost of transportation and services for the first nine months of 2017 was $894.7 million, or 21.5% of revenue, compared to $950.1 million, or 24.1% of revenue, in the first nine months of 2016. The 5.8% reduction relative to the first nine months of 2016 was primarily driven by the lower cost of third party transportation in the managed transportation operations of North American supply chain, consistent with lower volumes of business.
Direct operating expense in the first nine months of 2017 was $2,706.3 million, or 65.1% as a percentage of revenue, compared to $2,485.8 million, or 63.1% as a percentage of revenue, in the first nine months of 2016. The 8.9% increase relative to the first nine months of 2016 was primarily driven by higher temporary labor costs related to new contract startups.
SG&A increased to $364.2 million in the first nine months of 2017 from $345.5 million in the first nine months of 2016. As a percentage of revenue, SG&A was flat at 8.8%. The 5.4% increase relative to the first nine months of 2016 was primarily driven by higher payroll and benefits to support new contract starts.
Liquidity and Capital Resources
We manage our liquidity using internalAs of March 31, 2020, we had cash management practices, which are subject to: (i) the policies and cooperationcash equivalents of the financial institutions we utilize to maintain and provide cash management services, (ii) the terms and other requirements of the agreements to which we are a party, and (iii) the statutes, regulations and practices of each of the local jurisdictions in which we operate.
$1.1 billion. Our principal existing sources of cash are (i) cash generated from operations andoperations; (ii) borrowings available under theour 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 September 30, 2017,March 31, 2020, we had cash and cash equivalents of $473.1have $186 million and availability available to draw under the our ABL Facility of $608.5 million. Availability under the ABL Facility is, based on a borrowing base of $857.0 million,$1.0 billion, as well as outstanding letters of credit of $248.5$214 million respectively..
Managing our balance sheet prudently and maintaining appropriate liquidity are high priorities during the disruption caused by COVID-19. In order to best position us to navigate this uncertain period, we have taken a number of actions to further strengthen our liquidity.
We borrowed a net $600 million in revolving loans under our existing ABL Facility for the three months ended March 31, 2020. In addition, in early April 2020 we entered into a Senior Secured Term Loan Credit Agreement (the


24

“Bilateral Credit Agreement”) which allows us to borrow up to $150 million in aggregate principal amount of committed secured term loans and request the issuance of up to $200 million in aggregate face amount of uncommitted secured letters of credit under an evergreen letter of credit facility. Also in April 2020, we completed a private placement of $850 million aggregate principal amount of 6.25% senior notes due 2025 (the “Notes”). The Bilateral Credit Agreement and Notes are discussed further below.
We continually evaluate our liquidity requirements capital needs and the availabilityin light of capital resources based on our operating needs, growth initiatives and our planned growth initiatives.capital resources. We believe that our existing liquidity and sources of cash will becapital are sufficient to support our existing operations over the next 12 months.

Trade Receivables Securitization and Factoring Programs
Equity OfferingWe 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 Condensed 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.
XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by Crédit Agricole, BNP Paribas and HSBC (the “Purchasers”). Under the program, a wholly-owned bankruptcy-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 to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.
We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, any continuing involvement with the receivables is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets. These borrowings amounted to €164 million ($181 million) as of March 31, 2020. See Note 6—Debt to our Condensed Consolidated Financial Statements for additional information on these borrowings.
Under a securitization program that was terminated in July 2017,2019, if transfers were accounted for as sales, the Companyconsideration received included a simultaneous cash payment and a deferred purchase price receivable. The deferred purchase price receivable was not a trade receivable and was recorded based on its fair value and reported within Other current assets on our Condensed Consolidated Balance Sheets. The cash payment which we received on the date of the transfer was reflected within Net cash provided by (used in) operating activities on our Condensed Consolidated Statements of Cash Flows. As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity. The new program does not include a deferred purchase price mechanism.
The maximum amount of net cash proceeds available at any one time under the program is €400 million (approximately $441 million as of March 31, 2020) and this amount includes any unsecured borrowings related to the program. As of March 31, 2020, €88 million (approximately $98 million) was available to us based on the level of receivables sold and outstanding as of that date. The securitization program expires in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.


25

Information related to the trade receivables sold was as follows:
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Securitization programs (1)
 
 
 
 
Receivables sold in period
 
$
691

 
$
323

Cash consideration
 
691

 
260

Deferred purchase price
 
—

 
63

 
 
 
 
 
Factoring programs
 
 
 
 
Receivables sold in period
 
264

 
184

Cash consideration
 
263

 
183

(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 whereas under the new program, all transfers are accounted for as sales. This change had the effect of significantly increasing the amount of trade receivables we reported as sold in the first quarter of 2020.
In addition to the cash considerations referenced above, we received $71 million in the three months ended March 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.
Term Loan Facility
In March 2019, we entered into an amendment to our senior secured term loan credit agreement and borrowed an additional $500 million of incremental loans under a new tranche of term loans. For more information on these amendments, refer to Note 6—Debt to our Condensed Consolidated Financial Statements.
Senior Notes due 2024
In February 2019, we completed a registered underwritten offeringprivate placement of 11 million shares$1.0 billion aggregate principal amount of its common stocksenior notes (“Senior Notes due 2024”), which bear interest at a public offering pricerate of $60.506.75% per annum. Proceeds from the Senior Notes due 2024 were used to repay our outstanding obligation under an unsecured credit facility and to finance a portion of our share plus uprepurchases described in Note 7—Stockholders’ Equity to our Condensed Consolidated Financial Statements.
Borrowings related to Securitization Program
Our trade receivables securitization program permits us to borrow, on an additional 1.65unsecured basis, cash collected in a servicing capacity on previously sold receivables. These borrowings, which amounted to $181 million shares as of its common stock pursuant to an option grantedMarch 31, 2020, are owed to the underwritersprogram’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement. There were no borrowings related to purchasethe program at December 31, 2019. The securitization program expires in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio. For additional sharesinformation on the securitization program, see Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements.
Secured Debt
In April 2020, we and certain of our subsidiaries entered into the Bilateral Credit Agreement, comprised of a $150 million committed secured term loan facility and a $200 million uncommitted secured evergreen letter of credit facility. The term loan facility is available to be drawn upon, subject to customary conditions, in multiple borrowings within six months of the Company’s common stock directly fromclosing date. Any term loans thereunder will bear interest at a rate equal to London Inter-bank Offered Rate (“LIBOR”) or base rate, at our election, plus an applicable margin of 3.00% to 4.50%, for LIBOR loans, or 2.00% to 3.50%, for base rate loans, in each case depending upon the Company (the “Offering”). Oftime elapsed since the 11 million sharesclosing date. The term loan facility matures in April 2021.


26

Letters of credit under the Companyletter of credit facility shall expire within one year of issuance and 6 million shares were offered in connection with forward sale agreements (the "Forward Sale Agreements") described below. The option granted tomay contain automatic one-year renewals until the underwriters expired unexercised. The Offering closed on July 25, 2017.
In connection with the Offering, the Company entered into separate Forward Sale Agreements with Morgan Stanley & Co. LLC and JPMorgan Chase Bank, National Association, London Branch (the "Forward Counterparties") pursuant to which the Company has agreed to sell, and each Forward Counterparty agreed to purchase, 3 million sharesletter of credit facility terminates. As of the Company’s common stock (or 6date of this Report on Form 10-Q, we have issued $200 million shares in aggregate face amount of letters of credit, which replaced letters of credit outstanding under our ABL Facility, and have not drawn upon the Company common stockterm loan commitments. The credit agreement governing the term loan and letter of credit facilities contains representations and warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.
Senior Notes
Also in April 2020, we completed a private placement of $850 million aggregate principal amount of 6.25% senior notes due 2025 (the “Notes”). We intend to use the aggregate) subject to the terms and conditions of the Forward Sale Agreements, including the Company’s right to elect cash settlement or net share settlement. The initial forward price under each of the Forward Sale Agreements is $58.08 per share (which is the public offering price of our common stock, less the underwriting discount) and is subject to certain adjustments pursuant to the terms of the Forward Sale Agreements. Settlement of each of the Forward Sale Agreements must occur no later than one year after the closing of the Offering but may occur earlier at the option of the Company or, in certain circumstances described in the Forward Sale Agreements, at the option of the relevant Forward Counterparty. A Forward Counterparty’s decision to exercise its right to accelerate the Forward Sale Agreements entered into with it and to require the Company to settle the Forward Sale Agreements will be made irrespective of the Company’s interests, including the Company’s need for capital. The Company could be required to issue and deliver the Company’s common stock under the terms of the physical settlement provisions of the Forward Sale Agreements irrespective of the Company’s capital needs, which would result in dilution to the Company’s earnings per share and return on equity.
The Company received proceeds of $290.4 million ($287.6 million net of fees and expenses) from the sale of 5 million shares of common stock in the Offering. The Company has not received any proceeds from the sale of shares of its common stock by the Forward Counterparties pursuant to the Forward Sale Agreements. The Company used the net proceedsissuance of the shares issued and sold by the Company in the Offering and expects to use any net proceeds received upon the settlement of the Forward Sale AgreementsNotes for general corporate purposes, which may include strategic acquisitions and the repayment of amounts outstanding under our existing ABL Facility, the repayment and/or refinancingredemption of outstanding indebtedness. 

Refinancing of Existing Term Loan
On March 10, 2017, we entered into a Refinancing Amendment (Amendment No. 2 to Credit Agreement) (the "Amendment"), by and among XPO, its subsidiaries signatory thereto, as guarantors, the lenders party thereto and Morgan Stanley Senior Funding, Inc., in its capacity as administrative agent (the "Administrative Agent"), amending that certain Senior Secured Term Loan Credit Agreement, dated as of October 30, 2015 (as amended, amended and restated, supplemented or otherwise modified, including by that certain Incremental and Refinancing Amendment (Amendment No. 1 to Credit Agreement), dated as of August 25, 2016, the "Term Loan Credit Agreement").
Pursuant to the Amendment, the outstanding $1,481.9 million principal amount of term loans under the Term Loan Credit Agreement (the "Existing Term Loans") were replaced with $1,494.0 million in aggregate principal amount of new term loans (the "New Term Loans") having substantially similar terms as the Existing Term Loans, other than with respect to the applicable interest rate and prepayment premiums in respect of certain voluntary prepayments. Proceeds from the New Term Loans were used primarily to refinance the Existing Term Loans and to pay interest, fees and expenses in connection therewith, and up to $1.5 million may be used for general corporate purposes.
The interest rate margin applicable to the New Term Loans was reduced from 2.25% to 1.25%, in the case of base rate loans, and from 3.25% to 2.25%, in the case of LIBOR loans and the LIBOR floor was reduced from 1.0% to 0%. The interest rate on the New Term Loans was 3.55% at September 30, 2017. The New Term Loans maturity will remain October 30, 2021. The refinancing resulted in an extinguishment charge of $8.3 million in the nine months ended September 30, 2017. The Company expects annual cash interest savings of approximately $15 million per year related to the refinancing.
Redemption of Senior Notes due 2018
In August 2017, the Company redeemed all of its outstanding 7.25%our 6.50% senior notes due January2022 and/or the repayment of other existing indebtedness. Interest on the debt is paid semi-annually in arrears. The Notes mature on May 1, 2025. The net proceeds from the offering, after deducting debt issuance costs, were approximately $837 million.
The 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 existing term loan facility (or certain of its replacements) or guarantee certain of our other indebtedness. The Notes and its guarantees are unsecured, unsubordinated indebtedness for us and our guarantors. The Notes contain covenants customary for notes of this nature.
Share Repurchases
In December 2018, our Board of Directors authorized the repurchase of up to $1 billion of our common stock (the “Notes”“2018 Program”), which was completed in the first quarter of 2019. The share repurchases were funded by an unsecured credit facility and our available cash.
In February 2019, our Board of Directors authorized additional repurchases of up to $1.5 billion of our common stock (the “2019 Program”). The redemption2019 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, forgeneral 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 Notes was 102.168% ofprogram at any time. The share purchases under the principal amount of the Notes, plus accrued2019 Program were funded by our available cash and unpaid interest to, but excluding, theproceeds from our 2019 debt offerings.
Information regarding our shares repurchased, based on settlement date, of redemption. The redemption was funded using cash on hand at the date of the redemption. The loss on debt extinguishment was approximately $5 million.were as follows:
(In millions, except per share data)
 
Three Months Ended March 31, 2020
 
Three Months Ended March 31, 2019
 
 
2019 Program
 
2019 Program
 
2018 Program
Shares purchased and retired
 
2
 
15
 
8
Aggregate value
 
$
114

 
$
763

 
$
464

Average price per share
 
$
66.58

 
$
49.86

 
$
59.47

Remaining authorization
 
$
503

 
$
737

 
$
—

Loan Covenants and Compliance
As of September 30, 2017,March 31, 2020, we were in compliance with the covenants and other provisions of the ABL Facility, the New Term Loans, the senior notes due 2021, 2022 and 2023 (collectively the "Senior Notes"), and the other applicable indentures.our debt agreements. Any failure to be in compliancecomply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.


27

Sources and Uses of Cash
 
 
Three Months Ended March 31,
(In millions)
 
2020
 
2019
Net cash provided by (used in) operating activities
 
$
180

 
$
(96
)
Net cash used in investing activities
 
(79
)
 
—

Net cash provided by (used in) financing activities
 
668

 
(29
)
Effect of exchange rates on cash, cash equivalents and restricted cash
 
(19
)
 
—

Net increase (decrease) in cash, cash equivalents and restricted cash
 
$
750

 
$
(125
)
During the ninethree months ended September 30, 2017,March 31, 2020, we: (i) generated cash from operating activities of $524.7$180 million; (ii) received net proceeds of $782 million on our debt and short-term borrowings; (iii) generated proceeds from sales of property and equipment (primarily real estate) of $54 million; and (iv) received proceeds of $42 million from bank overdrafts. We used cash during this period primarily to: (i) purchase property and equipment of $139 million; (ii) repurchase common stock of $114 million; and (iii) make payments on debt and finance leases of $25 million.
During the three months ended March 31, 2019, we: (i) collected $71 million on a deferred purchase price
receivable, (ii) generated proceeds from sales of assetsproperty and equipment of $59.6$47 million, and (iii) received proceeds
of $287.6 million from$1.8 billion on our common stock offering.long-term debt. We used cash during this period principally toto: (i) fund operations of $96 million, (ii) purchase property and equipment of $389.9$118 million (ii) redeem our Senior Notes due 2018 for $271.5 million,, (iii) repurchase common stock of $1.2 billion, (iv) make payments on long-term debt and capital leases of $80.9$534 million (iv) make repayments, net of advances, on our ABL Facility of $30.0 million,, and (v) make payments for tax withholdings on restricted shares of $15.2 million and (vi) make payments forpay debt issuance costs of $12.8$24 million.
Cash flows from operating activities for the three months ended March 31, 2020increased by $276 million, compared with the same period in 2019. The increase reflects the impact of lower cash usage of $318 million from operating assets and liabilities, partially offset by $42 million of lower cash-related net income for the three months ended March 31, 2020, compared with the same period in 2019. Cash-related net income represents total cash flows from operating activities less changes in assets and liabilities on the Condensed Consolidated Statements of Cash Flows. The largest components of cash-related net income are Net income plus Depreciation, amortization and net lease activity. Within operating assets and liabilities, accounts receivable was a source of cash for the three months ended March 31, 2020 as compared to a significant use of cash in the prior period reflecting: (i) lower revenues in the current period, in particular in the second half of March as we began to experience the impacts of COVID-19; and (ii) a year-over-year increase of $80 million in proceeds from factoring; partially offset by a use of cash related to unbilled accounts receivable versus a source of cash in the prior year quarter. The impact on accounts receivable was partially offset by $27 million of higher interest payments in the first quarter of 2020. The lower cash-related net income primarily reflects lower operating income year-over-year, exclusive of the impact of gains on sale of property and equipment.
Investing activities used$79 million of cash in the three months ended March 31, 2020 and were cash neutral in the three months ended March 31, 2019. During the three months ended March 31, 2020, we: (i) used $139 million of cash to purchase property and equipment; and (ii) received $54 million from sales of property and equipment. During the three months ended March 31, 2019, we primarily: (i) used $118 million of cash to purchase property and equipment; (ii) received $47 million from sales of property and equipment; and (iii) received proceeds of $71 million related to the realization of cash on deferred purchase price receivable.
Financing activities provided$668 million of cash in the three months ended March 31, 2020 and used$29 million of cash in the three months ended March 31, 2019. The primary sources of cash from financing activities during the three months ended March 31, 2020 were: (i) $600 million of proceeds from borrowings on our ABL Facility, net of payments; (ii) $182 million of proceeds from borrowings related to our securitization program; and (iii) $42 million from bank overdrafts. The primary uses of cash during the first three months of 2020 were: (i) $114 million used to purchase XPO common stock; and (ii) $25 million used to repay borrowings. By comparison, the primary uses of cash during the three months ended March 31, 2019 were the $1.2 billion repurchase of XPO common stock and a $500 million repayment of borrowings under the unsecured credit facility. The primary sources of cash from financing activities during the three months ended March 31, 2019 were $1.7 billion of net proceeds from the


28

issuance of long-term debt, consisting of the incremental term loans and Senior Notes due 2024, as well as amounts received under the senior variable funding notes in connection with the refinancing of our Term Loan facility.trade securitization program.
Contractual Obligations
During the ninethree months ended September 30, 2016, we: (i) generated cashMarch 31, 2020, there were no material changes to our December 31, 2019 contractual obligations. We anticipate net capital expenditures to be between $200 million and $250 million in 2020, which reflects a decrease of approximately $275 million from operating activities of $404.6 million, (ii) generated proceeds from sales of assets of $57.9 million, and (iii) received proceeds, net of repurchases, of $43.6 million onthe estimate provided in our debt.We used cash during this period principally to (i) purchase property and equipment of $318.5 million (ii) make payments on long-term debt and capital leases of $126.4 million and (iii) make payments for debt issuance costs of $24.9 million.
Off-Balance Sheet Arrangements
The Company guarantees the lease payments of certain tractor and trailer equipment utilized by subcontract carriers. These guarantees continue through the end of the lease of the equipment, which is typically four years. The maximum amount of the guarantee is limited2019 Form 10-K due to the amountimpact of unpaid principal and interest. As of September 30, 2017, the maximum amount of these guarantees was approximately $18.0 million.COVID-19, as discussed above.
New Accounting Standards
Information related to new accounting standards is included in Note 1—1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.
We have a significant proportion of our net assets and income in non-U.S. dollar currencies, primarily the EUR and GBP. We are exposed to currencymarket risk from the potentialrelated to changes in functional currency values of ourinterest rates, foreign currency denominated assets, liabilitiesexchange rates and cash flows. Consequently,commodity risk. Other than the broad effects on economic conditions as a depreciationresult of the EUR and GBP relative to the U.S. dollar could have an adverse impact on our financial results. In order to mitigate against the risk of a reduction in the value of foreign currency from the Company’s international operations, the Company uses foreign currency option and forward contracts and gains or losses on these contracts are recorded in foreign currency gain/loss in the condensed consolidated statements of operations. See Note 5—Derivative Instruments for further information.
ThereCOVID-19 pandemic, there have been no material changes to our quantitative and qualitative disclosures about market risk during the ninethree months ended September 30, 2017March 31, 2020, as compared towith the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the year ended December 31, 2016.2019.
Item 4.Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officerChief Executive Officer (“CEO”) and principal financial officer,Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in RulesRule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended as of the end of the period covered by this report.March 31, 2020. Based on theirthat evaluation, our principal executive officerCEO and principal financial officerCFO concluded that our disclosure controls and procedures as of March 31, 2020 were effective as of such time such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries,subsidiaries; and (ii) accumulated and communicated to our management, including our principal executive officerCEO and principal financial officer,CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were nohave not been any changes in our internal control over financial reporting during the quarter ended September 30, 2017March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




Part II—Other Information
Item 1. Legal Proceedings.
For information related to our legal proceedings, please refer to "Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 and Note 8—Legal and Regulatory Matters of Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q.Part II—Other Information
Item 1. Legal Proceedings.
Intermodal Drayage Classification Claims
Certain of our intermodal drayage subsidiaries are defendants in several multi-plaintiff and putative class action litigations brought by independent contract carriers in California who contracted with these subsidiaries. In these cases, the contract carriers, and in some instances the contract carriers’ employees, assert that they should be classified as employees, rather than independent contractors. The particular claims asserted vary from case to case but generally include claims for unpaid wages, unpaid overtime, unpaid wages for missed meal and rest periods, and reimbursement of the contract carriers’ business expenses. We are unable at this time to estimate the amount of the possible loss or range of loss, if any, that we may incur as a result of these claims given, among other reasons, that the range of potential loss could be impacted substantially by future rulings by the courts involved, including on the merits of the claims.


29

Last Mile Logistics Classification Claims
Some of our last mile logistics subsidiaries are defendants in several putative class action litigations brought by independent contract carriers in multiple jurisdictions who contracted with these subsidiaries. In these cases, the contract carriers, and in certain instances the contract carriers’ employees, assert that they should be classified as employees, rather than independent contractors. The particular claims asserted vary from case to case but generally include claims for unpaid wages, unpaid overtime, unpaid wages for missed meal and rest periods, and reimbursement of the contract carriers’ business expenses. 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.
Shareholder Litigation
On December 14, 2018, a putative class action captioned Labul v. XPO Logistics, Inc. et al., No. 3:18-cv-02062 (D. Conn.) was filed in the U.S. District Court for the District of Connecticut 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 June 3, 2019, lead plaintiffs Local 817 IBT Pension Fund, Local 272 Labor-Management Pension Fund, and Local 282 Pension Trust Fund and Local 282 Welfare Trust Fund (together, the “Pension Funds”) filed a consolidated class action complaint. Defendants moved to dismiss the consolidated class action complaint on August 2, 2019. On November 4, 2019, the court dismissed the consolidated class action complaint without prejudice to the filing of an amended complaint. The Pension Funds, on January 3, 2020, filed a first amended consolidated class action complaint against us and a current executive. Defendants moved to dismiss the first amended consolidated class action complaint on March 3, 2020. Briefing on defendants’ motion 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 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. The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler and Kevin Rose under the caption In re XPO Logistics, Inc. Derivative Litigation, No. 19-cv-889-RGA (D. Del.). On December 12, 2019, the court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days. On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases. Defendants moved to dismiss the operative complaint on February 26, 2020. Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss. Defendants opposed plaintiffs’ motions, which were fully briefed on April 20, 2020, and are awaiting decision by the Court.
We believe these suits are without merit and we intend to defend the company vigorously against the allegations. 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.
Item 1A.Risk Factors.Factors.
In addition to the other information set forth in this report, you should carefully considerForm 10-Q and the risk factors discussedpreviously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016, as updated in Part II, Item 1A of our Quarterly Report on Form 10-Q for2019, you should carefully consider the quarter ended June 30, 2017,following risk factors which could materially affect our business, financial condition or future results.

The COVID-19 pandemic could have a material adverse effect on our business operations, results of operations, cash flows and financial position
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 customers, employees and other 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.


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For example, customer demand for our services in many parts of our business has been materially and negatively impacted by the mandated closure of our customers’ operations or points of sale, while customer demand for our services in other parts of our business has increased as consumers stockpile goods or switch to e-commerce platforms to make purchases. From a demand standpoint, the last half of March saw demand decline sharply, most notably in Europe, as large sectors of the economy began to shut down, which has continued into April. We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties including the severity and duration of the outbreak and additional actions that may be taken by governmental authorities. However, we currently expect that our results of operations and financial condition will be more significantly adversely impacted in the second quarter of 2020 and subsequent periods than in the quarter ended March 31, 2020, as levels of activity in our business have historically been positively correlated to broad measures of economic activity, such as gross domestic product and to measures of industrial economic activity. In addition, we have incurred additional costs to ensure we meet the needs of our customers and employees, including costs for personal protective equipment, site closures and cleaning and enhanced employee benefits such as additional paid leave and health benefits (including pandemic paid sick leave). We expect to continue to incur additional costs, which may be significant, as we continue to implement operational changes in response to the pandemic.
Further, our management is focused on mitigating the effects of COVID-19 on our business operations while protecting the health of our employees, which has required and will continue to require, a large investment of time and resources across our enterprise. In addition, we expect to reduce our capital expenditures this year substantially.
If we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for the United States, Europe or our other international markets, we could suffer damage to our reputation and our brand, which could adversely affect our business. Likewise, an extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.
The effect of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including: the severity and duration of the outbreak; governmental, business and other actions (which could include limitations on our operations or mandates to provide services in a specified manner); the promotion of social distancing and the adoption of shelter-in-place orders affecting our ability to provide our services; the impact of the pandemic on economic activity; the extent and duration of the effect on consumer confidence and spending, customer demand and buying patterns; the health of and the effect on our workforce and our ability to meet staffing needs, particularly if members of our workforce are quarantined as a result of exposure; any impairment in value of our tangible or intangible assets which could be recorded as a result of weaker economic conditions; and the potential effects on our internal controls including those over financial reporting as a result of changes in working environments such as shelter-in-place and similar orders that are applicable to our employees and business partners, among others. Further, provisions for bad debt expense may increase given the financial difficulty faced by our business partners, which could, among other things, impact our ability to borrow under our trade receivables securitization program and/or our revolving credit facility. In addition, if the pandemic continues to create disruptions or turmoil in the credit or financial markets, or impacts our credit ratings, it could adversely affect our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted.
There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our customers, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in this Form 10-Q and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated by reference herein.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ended September 30, 2017, the Company issued an aggregate of 2.0 million shares of the Company's common stock, par value $0.001 per share, to certain holders of the Company's Convertible Senior Notes in connection with the conversion of $33.7 million aggregate principal amount of the Convertible Senior Notes. The number of shares of our common stock issued in the foregoing transactions equals the number of shares of our common stock presently issuable to holders of the Convertible Senior Notes upon conversion under the original terms of the Convertible Senior Notes. During the quarter ended September 30, 2017,On February 18, 2020, pursuant to the Investment Agreement dated as of June 13, 2011 (the “Investment Agreement”) by and among Jacobs Private Equity, LLC (“JPE”(“JPE”) and the other investors party thereto (collectively with JPE, the “Investors”“Investors”) the Companywe issued 17,799


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12,750 unregistered shares of its common stock as a result of the cashless exercise of warrants by certain shareholders and 11,429 unregistered shares of itsour common stock as a result of the exercise of warrants by certain shareholders for cash resulting in the receipt of $80,003$89,250 of total proceeds by the Company.proceeds. The proceeds received by the Company will be used for general corporate purposes. The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933, as amended, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering. For additional information on the Company's Convertible Senior Notes, refer to Note 9—Debt,
Issuer Purchases of Item 8, "Financial Statements and Supplementary Data" in our 2016 Annual Report on Form 10-K and Note 6—Debt of Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q.Equity Securities
(In millions, except per share data)
 
Total Number of Shares Purchased (1)
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 2020
 
—

 
$
—

 
—

 
$
617

February 2020
 
—

 
—

 
—

 
617

March 2020
 
2

 
66.58

 
2

 
503

Total
 
2

 
$
66.58

 
2

 
$
503

(1)
Based on settlement date.
(2)
On February 14, 2019, we announced that our Board of Directors authorized repurchases of up to $1.5 billion of our common stock. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. Also, the program does not have an expiration date. For further details, refer to Note 7—Stockholders’ Equity to our Condensed Consolidated Financial Statements.
Item 3.Defaults upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
Item 5.Other Information.
None.


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Item 6.Exhibits.
Exhibit
Number
 
Description
 
 
 
10.1 *+
 
 
 
 
10.2 *+
 
10.3
 
 
31.1 *
31.1
 
 
 
 
31.2 *
 
 
 
 
32.1 ***
 
 
 
 
32.2 ***
 
 
 
 
101.INS *
 
XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
 
 
 
101.SCH *
 
XBRL Taxonomy Extension Schema.
 
 
 
101.CAL *
 
XBRL Taxonomy Extension Calculation Linkbase.
 
 
 
101.DEF *
 
XBRL Taxonomy Extension Definition Linkbase.
 
 
 
101.LAB *
 
XBRL Taxonomy Extension Label Linkbase.
 
 
 
101.PRE *
 
XBRL Taxonomy Extension Presentation Linkbase.
 
 
 
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.




SIGNATURES

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SIGNATURES
Pursuant to the requirements 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.LOGISTICS, INC.
 
 
By:
/s/ Bradley S. Jacobs
 
Bradley S. Jacobs
 
Chief Executive Officer
 
(Principal Executive Officer)
 
 
By:
/s/ John J. HardigDavid B. Wyshner
 
John J. Hardig
David B. Wyshner
 
Chief Financial Officer
 
(Principal Financial Officer)
Date: November 6, 2017May 5, 2020


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