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Item 1A. Risk Factors

2022-02-16 compared with 2021-02-12 · 160 added, 138 removed, 270 unchanged (52% of the section changed)

The following are important factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Annual Report on Form 10-K or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public.

The following are important factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Annual Report or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public.

You should carefully consider the following factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related Notes in Item 8.

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In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase;

• A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment capacity or services to meet our commitments to our customers;

• We may not be able to appropriately adjust our expenses to rapid changes in market demand.

In order to maintain high variability in our business model, it is necessary to adjust staffing levels when market demand changes.

In periods of rapid change, it is more difficult to match our staffing levels to our business needs.

In addition, we have other expenses that are primarily variable but are fixed for a period of time, as well as certain significant fixed expenses;

we may be unable to adequately adjust these expenses to match a rapid change in demand;

government has made significant changes in U.S.

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Such conditions could have an adverse effect on our business, results of operations and financial condition, as well as on the price of our common stock.

• A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment capacity or services to meet our commitments to our customers;

• We may not be able to appropriately adjust our expenses to rapid changes in market demand.

In order to maintain high variability in our business model, it is necessary to adjust staffing levels when market demand changes.

In periods of rapid change, it is more difficult to match our staffing levels to our business needs.

In addition, we have other expenses that are primarily variable but are fixed for a period of time, as well as certain significant fixed expenses;

we may be unable to adequately adjust these expenses to match a rapid change in demand.

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

If we continue to face unfavorable market conditions arising from the COVID-19 pandemic, our business, prospects, financial condition and operating results may be negatively impacted.

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our employees, customers and business partners.

The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which will adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.

We experienced declines in demand for our services that began in the first quarter of 2020, had a substantial impact in the second quarter of 2020, and abated throughout the second half of 2020.

These declines in demand meaningfully affected our results in both North America and Europe.

We also incurred additional costs to meet the needs of our customers and employees.

Our operations and those of our customers have been subject to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors, which may be beyond our control.

The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters.

Labor shortages, particularly of truck drivers, have led and may continue to lead to difficult conditions for hiring and retention of drivers as well as mechanics, dock workers and others, and increased labor costs, and along with equipment shortages, can result in lower levels of service, including timeliness, productivity and quality of service.

If we continue to face unfavorable market conditions, our business, prospects, financial condition and operating results may be negatively impacted.

During the COVID-19 pandemic, we have incurred additional costs to meet the needs of our customers and employees.

We expect to continue to incur additional costs, which may be significant, as we implement operational changes in response to the pandemic.

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Furthermore, the extent and pace of a recovery remains uncertain and may differ significantly among the countries in which we operate.

As a result, the pandemic could have a material impact on our results of operations and heighten many of our other known risks described in this Annual Report on Form 10-K.

As a result, the pandemic and related supply chain disruptions could have a material impact on our results of operations and heighten many of our other known risks described in this Annual Report.

Risks related to Our Strategy, Operations, Legal and Compliance and Finance

Our profitability may be materially adversely impacted if our investments in equipment, service centers and warehouses do not match customer demand for these resources or if there is a decline in the availability of funding sources for these investments.

Our company-specific action plan to enhance network efficiencies and drive growth in our North American LTL business, and other management actions to improve our North American LTL business, may not be effective or timely, and may not improve our results of operations or cash flow from operations as planned.

We have undertaken a company-specific action plan to enhance network operating efficiencies and drive growth in our North American LTL business, including among other actions, selectively imposing freight embargoes, increasing prices, expanding our driver school enrollment, increasing production capacity of our trailer manufacturing facility, and investing in the door count in our network of terminal facilities.

The effectiveness and timeliness of these actions, which are and will be costly, and other management actions to improve our North American LTL business, may not result in the expected improvements in our results of operations or cash flow from operations in our North American LTL business.

Our profitability may be materially adversely impacted if our investments in equipment and service centers do not match customer demand for these resources or if there is a decline in the availability of funding sources for these investments.

Our LTL and full truckload operations require significant investments in equipment and freight service centers.

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If our anticipated requirements for service centers or fleet differ materially from actual usage, our capital-intensive operations, specifically LTL and full truckload, may have more or less capacity than is optimal.

Our logistics operations can require a significant commitment of capital in the form of shelving, racking and other warehousing systems that may be required to deliver warehouse-management services to our customers.

To the extent that a customer defaults on its obligations under its agreement with us, we could be forced to take a significant loss on the unrecovered portion of this capital cost.

Our investments in equipment and service centers depend on our ability to generate cash flow from operations and our access to credit, debt and equity capital markets.

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Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.

We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, our digital freight platform, our shared distribution network, cross-selling to strategic accounts, LTL process improvements, logistics automation, workforce productivity, European margin expansion, global procurement and further back-office optimization.

We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, our digital freight platform, our shared distribution network, cross-selling to strategic accounts, LTL process improvements, workforce productivity, European margin expansion, global procurement and further back-office optimization.

If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.

Our past acquisitions, as well as any acquisitions that we may complete in the future, may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.

While we intend for our acquisitions to enhance our competitiveness and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations.

Special risks, including accounting, regulatory, compliance, information technology or human resources issues, may arise in connection with, or as a result of, the acquisition of an existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses, possible management distractions, or the inability of the acquired business to achieve the levels of revenue, profit, productivity or synergies we anticipate or otherwise perform as we expect on the timeline contemplated.

We are unable to predict all of the risks that could arise as a result of our acquisitions.

In addition, if the performance of our reporting segments or an acquired business varies from our projections or assumptions, or if estimates about the future profitability of our reporting segments or an acquired business change, our revenues, earnings or other aspects of our financial condition could be adversely affected.

We may not successfully manage our growth.

We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on growth in our transportation and logistics businesses, including organic growth through new customer wins and increased business with existing customers, as well as additional acquisitions.

We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on growth, including organic growth through new customer wins and increased business with existing customers, as well as additional acquisitions.

We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entry into new geographic areas and increased pressure on our existing infrastructure and information technology systems from multiple customer project implementations.

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Failure to manage our growth effectively, or obtain necessary working capital, could have a material adverse effect on our business, results of operations, cash flows and financial condition.

We may sell or spin-off one or more of our business units, which may have an adverse effect on our remaining businesses and the market price of our common stock, including because we may become a smaller, less diversified company than we are today.

We may sell or spin-off one or more of our business units and any such transaction or transactions may have an adverse effect on our remaining businesses and the market price of our common stock.

For example, a sale or spin-off of one or more of our business units will result in us being a smaller, less diversified company with a more concentrated area of focus.

Following a potential sale or spin-off, we will be reliant on our remaining business units.

We may sell, spin off or otherwise divest one or more of our business units, which may have an adverse effect on our remaining businesses and the market price of our common stock, and we would anticipate incurring material compensation and other expenses, including expenses related to the acceleration of equity awards, in connection with substantial dispositions.

We may sell, spin off or otherwise divest, in whole or in part, one or more of our business units, which may have an adverse effect on our remaining businesses and the market price of our common stock, and we would anticipate incurring material compensation and other expenses, including expenses related to the acceleration of equity awards, in connection with entering into and/or completing substantial dispositions.

We may not realize the price we expect to receive when divesting a business unit, we may incur a loss in connection with a sale, spin-off or other divestiture of a business unit, the market price of our common stock and the multiples at which our common stock trades may not increase following a business unit sale, spin-off or other divestiture, and/or we may incur ongoing transition obligations and costs that adversely impact our operations following a business unit sale, spin-off or other divestiture.

Certain of these factors could have an adverse effect on our results of operations and cash flows.

In addition, a sale, spin-off or other divestiture of one or more of our business units will result in us being a smaller, less diversified company with a more concentrated area of focus.

Following a potential sale, spin-off or other divestiture, we will be reliant on our remaining business units.

As a result, we may become more vulnerable to changing market conditions, which could have a material adverse effect on our business, financial condition and results of operations.

The diversification of our revenues, costs and cash flows will diminish as a result of a sale or spin-off, such that our results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility and our ability to fund capital expenditures, investments and service our debt may be diminished.

We may also incur ongoing costs and retain certain liabilities that were previously allocated to entities that were sold or spun off.

The diversification of our revenues, costs and cash flows will diminish as a result of a sale, spin-off or other divestiture, such that our results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility and our ability to fund capital expenditures, investments and service our debt may be diminished.

We may also incur ongoing costs and retain certain liabilities that were previously allocated to entities that were sold, spun off or otherwise divested.

Those costs may exceed our estimates or could diminish the benefits we expect to realize.

Further, a sale, spin-off or other divestiture of one or more of our business units may subject us to litigation.

An unfavorable outcome of such litigation may result in a material adverse impact on our business, financial condition,

cash flows or results of operations.

In addition, regardless of the outcome, litigation proceedings can be costly, time-consuming, disruptive to our operations, and distracting to management.

We are unable to predict all of the risks that could arise as a result of our acquisitions.

If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.

At December 31, 2021, we had $2.5 billion of goodwill on our consolidated balance sheet.

Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations.

We assess potential impairment of our goodwill annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred.

Impairment may result from significant changes in the manner or use of the acquired assets, in connection with the sale, spin off or other divestiture of a business unit, negative industry or economic trends and/or significant underperformance relative to historic or projected operating results.

For a discussion of our goodwill impairment testing, see “Critical Accounting Policies and Estimates - Evaluation of Goodwill” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Issues related to the intellectual property rights on which our business depends, whether related to our failure to enforce our own rights or infringement claims brought by others, could have a material adverse effect on our business, financial condition and results of operations.

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Whether internally developed or purchased, it is possible that users of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties.

In the event that a claim is made against us by a third party for the

infringement of intellectual property rights, a settlement or adverse judgment against us could result in increased costs to license the technology or a legal prohibition against our using the technology.

In the event that a claim is made against us by a third party for the infringement of intellectual property rights, a settlement or adverse judgment against us could result in increased costs to license the technology or a legal prohibition against our using the technology.

Thus, our failure to obtain, maintain or enforce our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

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or we may fail to secure the rights to intellectual property developed by our employees, contractors and others.

Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention and our resources, and ultimately be unsuccessful.

Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention and divert our resources, and ultimately be unsuccessful.

Moreover, should we fail to develop and properly manage future intellectual property, this could adversely affect our market positions and business opportunities.

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dollar could have an adverse impact on our financial results as further discussed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”

We do not own, and may not acquire, all of the outstanding shares of XPO Logistics Europe SA, the majority-owned subsidiary through which we conduct our European operations.

As of December 31, 2020, we owned approximately 97% of the outstanding shares of XPO Logistics Europe SA, the majority-owned subsidiary through which we conduct our European operations.

We may or may not acquire the remaining shares of XPO Logistics Europe, or we may choose to enact a “squeeze out” merger, which is permitted under French law when a holder owns more than 95% of outstanding shares.

As long as we do not wholly own XPO Logistics Europe, we do not have access to all of its cash flow to service our debt, as we will receive a prorated portion of any dividend based on our ownership percentage.

In addition, we will be subject to limitations on our ability to enter into transactions with XPO Logistics Europe that are not on arms-length terms, which could limit synergies that we could otherwise achieve between our North American and European operations.

Moreover, so long as XPO Logistics Europe continues to be a listed public company in France, we will incur certain recurring costs associated with that public listing.

Volatility in fuel prices impacts our fuel surcharge revenue and may impact our profitability.

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Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate change or otherwise, can temporarily impact freight volumes and increase our costs.

Risks related to the Proposed Spin-Off of Our Logistics Segment

The proposed spin-off of our logistics segment into a stand-alone, publicly-traded company is subject to the final approval of our Board of Directors, contingent upon the satisfaction of a number of conditions, may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.

In December 2020, we announced our intention to separate our logistics segment into a stand-alone, publicly-traded company (“SpinCo”).

The proposed separation is currently expected to be effected through a pro-rata distribution to our shareholders of all of the issued and outstanding shares of common stock of SpinCo.

Completion of the proposed spin-off is subject to the final approval of our Board of Directors and the satisfaction of various customary conditions, including, among others, the receipt and the continuing validity of an opinion from outside counsel regarding the qualification of the spin-off (together with certain related transactions) as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, the effectiveness of a Form 10 registration statement that we intend to file with the SEC, the receipt by us of certain proceeds from financing arrangements that SpinCo intends to enter into in connection with the spin-off, the refinancing, if necessary, of our debt on terms satisfactory to our Board of Directors, the New York Stock Exchange having approved for listing (subject to official notice of distribution) the shares of common stock of SpinCo that we intend to distribute to our shareholders, and no other event or development existing or having occurred that, in the judgment of our Board of Directors, in its sole and absolute discretion, makes it inadvisable to effect the spin-off or related transactions.

The proposed spin-off is complex in nature, and unanticipated developments or changes, including changes in the law, the macroeconomic environment, competitive conditions of our markets, regulatory approvals or clearances, the uncertainty of the financial markets, and challenges in executing the separation, could delay or prevent the completion of the proposed spin-off, or cause the spin-off to occur on terms or conditions that are different or less favorable than expected, including, without limitation, the failure of the spin-off to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes to our shareholders.

Whether or not we complete the spin-off, our ongoing businesses may face material challenges in connection with the proposed spin-off, including, without limitation:

• the diversion of our management’s attention from operating and growing our business as a result of the significant amount of our management’s time and effort required to execute the proposed spin-off;

• foreseen and unforeseen costs and expenses that will be incurred in connection with the proposed spin-off, including accounting, tax, legal and other professional services costs as well as recruiting costs associated with hiring key senior management and personnel new to SpinCo;

• retaining existing business and operational relationships, including with customers, suppliers and employees, as well as cultivating new business relationships;

• potential negative reactions from the financial markets if we fail to complete the spin-off as currently expected, within the anticipated time frame or at all.

Additionally, volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets.

Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions.

These conditions may adversely affect our anticipated timeline to complete the spin-off and the expected benefits of the spin-off, including by increasing the time and expense involved in the spin-off.

Other challenges associated with effectively executing the spin-off include attracting, retaining and motivating key management and employees during the pendency of the spin-off and following its completion;

addressing any disruptions to our supply chain, manufacturing, sales and distribution, and other operations resulting from separating XPO into two independent companies;

and separating XPO’s information systems.

Any of these factors could have a material adverse effect on our business, financial condition, results of operations, cash flows and/or the price of our common stock.

Furthermore, if the spin-off is completed, we cannot provide assurance that the spin-off will achieve the full strategic and financial benefits expected to result from the separation, nor can we provide assurance that each stand-alone company will be successful in meeting its objectives.

If the spin-off occurs, our financial and operational profile will change, and we will be a smaller, less diversified company than we are today.

A spin-off of our Logistics segment will result in us being a smaller, less diversified company with a more concentrated area of focus.

Following the proposed spin-off, we will be reliant on our remaining business units.

As a result, we may become more vulnerable to changing market conditions and competitive pressures, which could have a material adverse effect on our business, financial condition and results of operations.

The diversification of our revenues, costs and cash flows will diminish as a result of a spin-off, such that our results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility and our ability to fund capital expenditures, investments and service our debt may be diminished.

We may also incur ongoing costs and retain certain liabilities that were previously allocated to entities that were spun off.

Those costs may exceed our estimates or could diminish the benefits we expect to realize.

There can be no assurance that the combined value of the common stock of the two publicly traded companies following the completion of the proposed spin-off will be equal to or greater than what the value of our common stock would have been had the spin-off not occurred.

If the spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes, XPO and XPO stockholders could be subject to significant tax liabilities.

In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S.

federal or non-U.S.

income tax purposes, we could be subject to significant tax liabilities.

It is a condition to the spin-off that we receive an opinion of outside counsel regarding the qualification of the spin-off, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code.

The opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of XPO and SpinCo, including those relating to the past and future conduct of XPO and SpinCo.

If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if XPO or SpinCo breaches any of its representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel, the opinion of counsel may be invalid, and the conclusions reached therein could be jeopardized.

Notwithstanding receipt of the opinion of counsel, the U.S.

Internal Revenue Service (the “IRS”) could determine that the spin-off and/or certain related transactions should be treated as taxable transactions for U.S.

federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel was based are false or have been violated.

In addition, the opinion of counsel will represent the judgment of such counsel and will not be binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion of counsel.

Accordingly, notwithstanding receipt of the opinion of counsel, there can be no assurance that the IRS will not assert that the spin-off and/or certain related transactions do not qualify for tax-free treatment for U.S.

federal income tax purposes or that a court would not sustain such a challenge.

In the event the IRS were to prevail with such challenge, XPO and XPO stockholders could be subject to significant U.S.

federal income tax liability.

If the spin-off, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S.

federal income tax purposes, XPO would recognize taxable gain as if it had sold the SpinCo common stock in a taxable sale for its fair market value (unless XPO and SpinCo jointly make an election under Section 336(e) of the Code with respect to the spin-off, in which case, in general, (a) XPO would recognize taxable gain as if SpinCo had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of SpinCo common stock and the assumption of all its liabilities and (b) SpinCo would obtain a related step-up in the basis of its assets), and XPO stockholders who receive such SpinCo shares in the spin-off would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

Also, concerns relating to climate change have led to a range of local, state, federal, and international regulatory and policy efforts to seek to address greenhouse gas (“GHG”) emissions.

In the U.S., various approaches are being proposed or adopted at the federal, state, and local government levels.

These efforts could lead to additional costs on the Company now or in the future, including increased fuel and other capital or operational costs, or additional legal requirements on the Company.

In addition to the potential for additional GHG regulation or incentives, enhanced corporate, public, and stakeholder awareness of climate change could affect the Company's reputation or customer

Climate change concerns and GHG regulatory efforts could also affect the Company's customers themselves.

Any of these factors, individually or combined with one or more factors, or other unforeseen factors or other impacts of climate change, could affect the Company and have an effect on our business, operations, or financial condition.

Risks related to Our Use of Technology

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they are a key component of our customer-facing services and internal growth strategy.

In general, we expect our customers to continue to demand more sophisticated, fully integrated technology from their transportation and logistics providers.

In general, we expect our customers to continue to demand more sophisticated, fully integrated technology from their transportation providers.

To keep pace with changing technologies and customer demands, we must correctly address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends.

This process of continuous enhancement may lead to significant ongoing software development costs, which will continue to increase if we pursue new acquisitions of companies and their current systems.

In addition, we may fail to accurately determine the needs of our customers or trends in the transportation and logistics industries, or we may fail to respond appropriately by implementing functionality for our technology platform in a timely or cost-effective manner.

In addition, we may fail to accurately determine the needs of our customers or trends in the transportation industry, or we may fail to respond appropriately by implementing functionality for our technology platform in a timely or cost-effective manner.

Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.

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This could result in a loss of customers or a decline in the volume of freight we receive from customers.

We are developing proprietary information technology for both of our business segments.

We are developing proprietary information technology.

Our technology may not be successful or may not achieve the desired results and we may require additional training or different personnel to successfully implement this technology.

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The efficient operation of our business depends on our information technology systems.

We rely on our information technology systems to effectively manage our sales and marketing, financial, legal and compliance functions, engineering and product development tasks, research and development data, communications, logistics order entry and fulfillment and other business processes.

We also rely on third parties and virtualized infrastructure to operate

our information technology systems.

We rely on our information technology systems to effectively manage our sales and marketing, financial, legal and compliance functions, engineering and product development tasks, research and development data, communications, order entry and fulfillment and other business processes.

We also rely on third parties and virtualized infrastructure to operate our information technology systems.

Despite significant testing, external and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error, pose a direct threat to the stability or effectiveness of our information technology systems and operations.

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Any such failure could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failures have been remedied.

Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.

We may also be subject to cybersecurity attacks and other intentional hacking.

Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation or increased service and maintenance costs.

reputation or increased service and maintenance costs.

Addressing such issues could prove to be impossible or very costly and responding to the resulting claims or liability could similarly involve substantial cost.

In addition, recently, regulatory and enforcement focus on data protection has heightened in the U.S.

and abroad, particularly in the EU, and failure to comply with applicable U.S.

Also, due to recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, customer and employee data, which, if released, could adversely impact our customer relationships, our reputation, and even violate privacy laws.

Recently, regulatory and enforcement focus on data protection has heightened in the U.S.

and abroad, particularly in the EU.

Failure to comply with applicable U.S.

or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our business, reputation, results of operations and financial condition.

Risks related to Our Credit and Liquidity

Our substantial indebtedness could adversely affect our financial condition.

We have substantial outstanding indebtedness, which could:

Our indebtedness could adversely affect our financial condition.

We have outstanding indebtedness, which could:

negatively affect our ability to pay principal and interest on our debt;

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We may be adversely affected by interest rate changes because of our floating rate credit facilities.

on London Interbank Offered Rate (“LIBOR”) or a Base Rate, as defined in the agreements, plus an applicable margin.

The Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”) and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on London Interbank Offered Rate (“LIBOR”) or a Base Rate, as defined in the agreements, plus an applicable margin.

Our European trade receivables securitization program (the “Receivables Securitization Program”) provides for an interest rate at lenders’ cost of funds plus an applicable margin.

Our financial position may be affected by fluctuations in interest rates since the ABL Facility, Term Loan Facility and Receivables Securitization Program are subject to floating interest rates.

Refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for the impact on interest expense of a hypothetical 100 basis point increase in the interest rate.

Refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for the impact on interest expense of a hypothetical 1% increase in the interest rate.

Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control.

A significant increase in interest rates could have an adverse effect on our financial position and results of operations.

Additionally, the interest rates on some of our debt is tied to LIBOR.

Additionally, the interest rates on some of our debt is tied to

In July 2017, the head of the U.K.’s Financial Conduct Authority announced its intention to phase out the use of LIBOR by the end of 2021.

However, for U.S.

dollar-denominated (“USD”) LIBOR, only one-week and two-month USD LIBOR will cease to be published after 2021, and all remaining USD LIBOR tenors will continue being published until June 2023.

The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to another benchmark rate or rates, could have adverse impacts on our outstanding debt that currently uses LIBOR as a benchmark rate, and ultimately, adversely affect our financial condition and results of operations.

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We depend on third parties in the operation of our business.

In our freight brokerage, last mile and global forwarding operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering this freight.

In addition, in our freight brokerage businesses and in our last mile business, we engage independent contractors who own and operate their own equipment.

In our intermodal drayage, expedite, last mile and global forwarding operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering this freight.

In addition, in our intermodal drayage, expedite and last mile businesses, we engage independent contractors who own and operate their own equipment.

Accordingly, we are dependent on third parties to provide truck, rail, ocean, air and other transportation services and to report certain events to us, including delivery information and cargo claims.

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Our LTL services in North America and Europe and our full truckload services in Europe are conducted primarily with employee drivers.

Our industry has periodically experienced and may, in future, experience intense competition for qualified drivers in the transportation industry due to a shortage of drivers.

The availability of qualified drivers may be affected from time to time by changing workforce demographics, competition from other transportation companies and industries for employees, the availability and affordability of driver training schools, changing industry regulations, and the demand for drivers in the labor market.

Our industry is currently experiencing and may, in the future, experience intense competition for qualified drivers in the transportation industry due to a shortage of drivers.

industry regulations, and the demand for drivers in the labor market.

If the current industry-wide shortage of qualified drivers continues, our global LTL operations and our European truckload operation could experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demand.

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Our business in the past has been, and in the future could be, adversely affected by strikes and labor negotiations at seaports, labor disputes between railroads and their union employees, or by a work stoppage at one or more railroads or local trucking companies servicing rail or port terminals, including work disruptions involving owner-operators under contract with our local trucking operations.

Strikes and work stoppages also could occur at our own facilities.

Port shutdowns and similar disruptions to major points in national or international transportation networks, most of which are beyond our control, could result in terminal embargoes, disrupt equipment and freight flows, depress volumes and revenues, increase costs and have other negative effects on our operations and financial results.

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If our customers experience plant slowdowns or closures because they are unable to negotiate labor contracts, our revenue and profitability could be negatively impacted.

In particular, our Logistics segment derives a substantial portion of its revenue from the operation and management of facilities that are often located in close proximity to a customer’s manufacturing plant and are integrated into the customer’s production line process.

If any of our customers are affected by labor disputes and consequently cease or significantly modify their operations at a plant served by our Logistics segment, we may experience significant revenue loss and shutdown costs, including costs related to early termination of leases, causing our business to suffer.

Our European business activities require a large amount of labor, which represents one of our most significant costs.

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Efforts by labor organizations to organize employees at certain locations in North America, if successful, may result in increased costs and decreased efficiencies at those locations.

Since 2014, in the U.S., the International Brotherhood of Teamsters (“Teamsters”) has attempted to organize employees at several of our LTL and logistics locations, and the International Association of Machinists (“Machinists”) has attempted to organize a small number of mechanics at three LTL maintenance shops.

In 2018, the United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) attempted to organize warehouse workers at one logistics location.

Since 2014, in the U.S., the International Brotherhood of Teamsters (“Teamsters”) has attempted to organize employees at several of our LTL locations, and the International Association of Machinists (“Machinists”) has attempted to organize a small number of mechanics at three LTL maintenance shops.

Additionally, the Teamsters is currently pursuing representation of independent contractor owner-operators at our Intermodal Commerce and San Diego, CA locations.

The majority of our employees involved in these organizing efforts rejected union representation.

As of January 1, 2021, our employees had voted in favor of union representation in 10 of the 29 union elections held since 2014, with 684 employees voting in favor and 782 employees voting against representation.

In October 2017, a majority of employees at our North Haven, Connecticut logistics location, which had previously voted for Teamsters representation, petitioned us to withdraw recognition of the Teamsters as the employees’ representative, and we withdrew this recognition.

Similarly, in 2019, a majority of

employees at our LTL locations in Laredo, Texas and Aurora, Illinois, voted to decertify the Teamsters as the employees’ representative.

In December 2020, employees at our LTL location in Cinnaminson, New Jersey filed a petition with the National Labor Relations Board to decertify the Teamsters as the employees’ bargaining representative;

the election date is pending.

As of December 31, 2020, XPO is engaged in good faith bargaining with the Teamsters at six locations where employees voted in favor of union representation.

In May 2020, LTL technicians at our Gary Hammond, Indiana shop ratified a contract negotiated between XPO and the Machinists.

Since 2014, the Teamsters have withdrawn seven petitions seeking elections on behalf of approximately 396 LTL employees prior to the election being held, and the Machinists withdrew one petition for an LTL election on behalf of six individuals.

As of January 31, 2022, our employees had voted against union representation in 19 of the 29 union elections held since 2014.

In May 2020, LTL technicians at our Gary Hammond, IN shop ratified a contract negotiated between XPO and the Machinists union.

In November 2021, the Gary Hammond facility lease expired and that shop was closed by us.

In July 2021, LTL drivers and dockworkers at our Miami, FL service center and drivers at our Trenton, NJ service center ratified contracts negotiated between XPO and the Teamsters.

As of January 31, 2022, we are engaged in good faith bargaining with the Teamsters at two locations where employees voted in favor of union representation.

In 2019, a majority of employees at our LTL service centers in Laredo, TX and Aurora, IL, voted to decertify the Teamsters as the employees’ representative.

In December 2020, a majority of employees at our LTL service center in Cinnaminson, NJ also voted to decertify the Teamsters as their bargaining representative.

In August 2021, drivers at our LTL service center in Los Angeles, CA also filed a decertification petition.

In October 2021, the Teamsters disclaimed interest in continuing to represent the employees at that location.

In September 2021, employees at our Bakersfield, CA service center filed a petition to decertify the Teamsters and later that month the Teamsters disclaimed interest in continuing to represent employees at that location.

Likewise, in November 2021, the Teamsters withdrew its petition for an election at our Kansas City LTL service center.

Since 2014, the Teamsters have withdrawn seven petitions seeking elections on behalf of LTL employees prior to the election being held, and the Machinists withdrew one petition for an LTL election on behalf of a small group of shop employees.

Today, only 184 North American LTL employees are represented by a union, of which only 98 are subject to a collective bargaining agreement.

In January 2022, LTL employees at our Trenton, NJ service center filed a deauthorization petition with the NLRB seeking to withdraw the authority of the Teamsters to require union employees to pay union dues to retain their XPO jobs.

The outcome of that vote is pending.

Finally, in January 2022, the Teamsters filed a petition for an election with the NLRB seeking to represent approximately 250 owner operators at our Intermodal's Commerce and San Diego, CA Intermodal locations, and the drivers they employ, who are independent contractors.

The Teamsters argue that the owner operators and their drivers are misclassified and that they are, in fact, XPO employees entitled to organize under the National Labor Relations Act.

We will vigorously oppose the Teamsters’ efforts.

Although we have properly classified these workers under the current legal precedent as independent contractors as opposed to employees, the NLRB and its General Counsel have signaled the possible reversal of that precedent, and other pro-employer precedents.

In addition, the NLRB and the U.S.

Department of Labor have entered into a Memorandum of Understanding regarding the exchange of information and cooperation in enforcement activities regarding misclassification issues.

The White House Task Force on Worker Organizing and Empowerment released a report on February 7, 2022 with numerous pro-labor recommendations regarding, among others, federal government support of union organizing efforts and enforcement against companies that misclassify employees as independent contractors.

There can be no assurance that increased government regulation and enforcement in this area will not increase our costs or have an adverse effect on our results of operations, cash flows and businesses.

We cannot predict with certainty whether further organizing efforts may result in the unionization of any additional locations in the U.S.

If successful, these efforts may result in increased costs and decreased efficiencies at the specific locations where representation is elected.

We do not expect the impact, if any, to extend to our larger organization or the services provided to our customer base.

There can be no assurance that decertification will succeed at any of our facilities with union representation.

If union efforts are successful, these efforts may result in increased costs and decreased efficiencies at the specific locations where representation is elected, and have an adverse effect on our results of operations, cash flows and businesses.

Risks related to the Spin-Off

We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off.

Although we believe that separating our Logistics segment into a stand-alone, publicly traded company has provided financial, operational and other benefits to us and our stockholders, we cannot provide assurance that we will achieve the full strategic and financial benefits expected from the spin-off.

If we do not realize the intended benefits of the spin-off, we could suffer a material adverse effect on our business, financial conditions, results of operations and cash flows.

If the spin-off, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes, XPO and XPO stockholders could be subject to significant tax liabilities.

In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S.

federal or non-U.S.

income tax purposes, we could be subject to significant tax liabilities.

It was a condition to the spin-off that we receive an opinion of outside counsel regarding the qualification of the spin-off, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code.

The opinion of counsel was based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of XPO and GXO, including those relating to the past and future conduct of XPO and GXO.

If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if XPO or GXO breaches any of its representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel, the opinion of counsel may be invalid, and the conclusions reached therein could be jeopardized.

Notwithstanding receipt of the opinion of counsel, the U.S.

Internal Revenue Service (the “IRS”) could determine that the spin-off and/or certain related transactions should be treated as taxable transactions for U.S.

federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel was based are false or have been violated.

federal income tax purposes or that a court would not sustain such a challenge.

In the event the IRS were to prevail with such challenge, XPO and XPO stockholders could be subject to significant U.S.

federal income tax liability.

If the spin-off, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S.

federal income tax purposes, XPO would recognize taxable gain as if it had sold the GXO common stock in a taxable sale for its fair market value (unless XPO and GXO jointly make an election under Section 336(e) of the Code with respect to the spin-off, in which case, in general, (a) XPO would recognize taxable gain as if GXO had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of GXO common stock and the assumption of all its liabilities and (b) GXO would obtain a related step-up in the basis of its assets), and GXO stockholders who receive such GXO shares in the spin-off would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.

In connection with the separation into two public companies, each of XPO and GXO agreed to indemnify each other for certain liabilities.

If we are required to pay under these indemnities to GXO, our financial results could be negatively impacted.

The GXO indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which GXO will be allocated responsibility, and GXO may not be able to satisfy its indemnification obligations in the future.

Pursuant to the separation and distribution agreement and certain other agreements between XPO and GXO, each party agrees to indemnify the other for certain liabilities, in each case for uncapped amounts.

Indemnities that we may be required to provide GXO are not subject to any cap, may be significant and could negatively impact our business.

Third parties could also seek to hold us responsible for any of the liabilities that GXO has agreed to retain.

Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business.

Further, the indemnities from GXO for our benefit may not be sufficient to protect us against the full amount of such liabilities, and GXO may not be able to fully satisfy its indemnification obligations.

Moreover, even if we ultimately succeed in recovering from GXO any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves.

Each of these risks could negatively affect our business, results of operations and financial condition.

Risks related to Litigation and Regulations

Certain of our businesses rely on owner-operators and contract carriers to conduct their operations, and the status of these parties as independent contractors, rather than employees, is being challenged.

We are involved in numerous lawsuits, including class action lawsuits, multi-plaintiff and individual lawsuits, and state tax and other administrative proceedings that claim that our contract carriers or owner-operators or their drivers should be treated as our employees, rather than independent contractors, or that certain of our drivers were not paid for all compensable time or were not provided with required meal or rest breaks.

We are involved in numerous lawsuits, including class action lawsuits, multi-plaintiff and individual lawsuits, and state tax and other administrative proceedings that claim that our contract carriers or owner-operators or their drivers should be treated as our employees, rather than independent contractors, or that certain individuals were not paid for all compensable time or were not provided with required meal or rest breaks.

These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both.

In addition, we incur certain costs, including legal fees, in defending the status of these parties as independent contractors.

While we believe that our contract carriers and owner-operators and their drivers are properly classified as independent contractors rather than as employees, adverse final outcomes in these matters could, among other things, entitle certain of our contract carriers and owner-operators and their drivers to reimbursement with respect to certain expenses and to the benefit of wage-and-hour laws and result in employment and withholding tax and benefit liability for us, and could result in changes to the independent contractor status of our contract carriers and owner-operators.

certain expenses and to the benefit of wage-and-hour laws and result in employment and withholding tax and benefit liability for us, and could result in changes to the independent contractor status of our contract carriers and owner-operators.

Changes to state or federal laws governing the definition of independent contractors could also impact the status of our contract carriers and owner-operators.

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Material increases in the frequency or severity of vehicular accidents, liability claims or workers’ compensation claims, or the unfavorable resolution of claims, or our failure to recover, in full or in part, under indemnity provisions with transportation providers, could materially and adversely affect our operating results.

Our involvement in the transportation of certain goods, including but not limited to

hazardous materials, could also increase our exposure in the event that we or one of our contracted carriers is involved in an accident resulting in injury or contamination.

Our involvement in the transportation of certain goods, including but not limited to hazardous materials, could also increase our exposure in the event that we or one of our contracted carriers is involved in an accident resulting in injury or contamination.

In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.

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One class action lawsuit has since been voluntarily dismissed.

While we believe that we have a number of valid defenses to the claims described above and intend to vigorously defend ourselves in the remaining class action lawsuit, the matter is in the early stages of litigation and no assessment can be made as to the likely outcome of the matter or whether it will be material to us.

In March 2021, the court dismissed the second class action lawsuit with prejudice.

In April 2021, the plaintiffs appealed the court’s decision to dismiss the second class action lawsuit.

While we believe that we have a number of valid defenses to the claims described above and intend to vigorously defend ourselves in the remaining class action lawsuit, the matter is in the appellate process and no assessment can be made as to the likely outcome of the matter or whether it will be material to us.

Also, we may be subject to additional proceedings of this type in the future, which could require significant attention from management or result in significant legal expenses, settlement costs or damage awards, any of which could have a material impact on our financial position, results of operations and cash flows.

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The OECD has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (“BEPS”) project.

In addition, the new U.S.

In addition, the current U.S.

presidential administration has called for changes to fiscal and tax policies, which may include comprehensive tax reform.

These and other tax laws and related regulations changes, to the extent adopted, may increase tax uncertainty and/or our effective tax rate, result in higher compliance cost and adversely affect our provision for income taxes, results of operations and/or cash flows.

We are subject to regulation, which could negatively impact our business.

We are subject to governmental regulations and political conditions, which could negatively impact our business.

Our operations are regulated and licensed by various governmental agencies in the U.S.

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Through our subsidiaries and operations, we hold various licenses required to carry out our domestic and international services.

These licenses permit us to provide services as a motor carrier, property broker, customs broker, indirect air carrier, OTI, NVOCC, freight forwarder, air freight forwarder, and ocean freight forwarder.

These licenses permit us to provide services as a motor carrier, property broker, customs broker, indirect air carrier, OTI, NVOCC, freight forwarder, air freight forwarder, and

ocean freight forwarder.

In addition, we are subject to regulations and requirements promulgated by the DOT, FMCSA, DHS, CBP, TSA, FMC, IATA, Canada Border Services Agency and various other international, domestic, state and local agencies and port authorities.

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Our failure to maintain the required licenses, or to comply with applicable regulations, could have a material adverse impact on our business and results of operations.

See the “Regulation” section under Item 1 for more information.

See the “Regulation” section under Item 1, “Business” for more information.

Future laws and regulations may be more stringent and may require changes to our operating practices that influence the demand for our services or require us to incur significant additional costs.

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If higher costs are incurred by us as a result of future changes in regulations, or by the independent contractors or third-party transportation providers who pass increased costs on to us, this could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.

Furthermore, political conditions may increase the level of intensity of regulations that impact our business, may require changes to our operating practices, may influence demand for our services, or may require us to incur significant additional costs, any of which could negatively impact our business.

Failure to comply with trade compliance laws and regulations applicable to our operations may subject us to liability and result in mandatory or voluntary disclosures to government agencies of transactions or dealings involving sanctioned countries, entities or individuals.

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To our knowledge, OFAC is considering no further action in response to the voluntary disclosure filed by us in August 2016.

We may, in the future, identify additional transactions or dealings involving sanctioned countries,

entities or individuals.

We may, in the future, identify additional transactions or dealings involving sanctioned countries, entities or individuals.

The transactions or dealings that we have identified to date, or other transactions or dealings that we may identify in the future, could result in negative consequences to us, including government investigations, penalties and reputational harm.

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There are many factors that could impair our profitability, including the following:

• Competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do;

• A reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business;

• Shippers soliciting bids from multiple transportation providers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors;

• The establishment by our competitors of cooperative relationships to increase their ability to address shipper needs;

• Decisions by our current or prospective customers to develop or expand internal capabilities for some of the services we provide;

• The development of new technologies or business models that could result in our disintermediation in certain services we provide.

(i) competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do;

(ii) a reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business;

(iii) shippers soliciting bids from multiple transportation providers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors;

(iv) the establishment by our competitors of cooperative relationships to increase their ability to address shipper needs;

(v) decisions by our current or

prospective customers to develop or expand internal capabilities for some of the services we provide;

and (vi) the development of new technologies or business models that could result in our disintermediation in certain services we provide.

The withdrawal of the United Kingdom from the European Union may have a negative effect on global economic conditions, financial markets and our operations.

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from the EU have created significant uncertainty about the future relationship between the U.K.

and the EU and will have uncertain impacts on our transportation and logistics operations in Europe.

and the EU and will have uncertain impacts on our transportation operations in Europe.

In 2021, we derived approximately 7% of our revenue from the U.K.

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Following Brexit, the movement of goods between the U.K.

and the remaining member states of the EU has become subject to additional inspections and documentation checks, which may create delays at ports of entry and departure and potential impacts on our ability to efficiently provide our transportation and logistics services.

Moreover, currency volatility could drive a weaker U.K.

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Any adverse consequences of Brexit, such as a deterioration in the U.K.’s or the EU’s economic condition, currency exchange rates, bilateral trade agreements or regulatory trade environment, including the potential imposition of tariffs, could reduce demand for our services in the U.K.

or the EU, negatively impact the value of our defined benefit pension plans in the U.K., or otherwise have a negative impact on our operations, financial condition and results of operations.

or the EU or otherwise have a negative impact on our operations, financial condition and results of operations.

INVESTMENT RISK

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What changed 10-K

Item 1A. Risk Factors