What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-16 compared with 2021-02-12 · 613 added, 470 removed, 1014 unchanged (52% of the section changed)

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Change in Accounting Principle

As discussed in Note 8 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standard Update (ASU) No.

2016-02, Leases and its related amendments (Topic 842).

Basis for Opinions

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A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the tax-free determination of the spin-off of the Company’s Logistics segment

As discussed in Note 1 to the consolidated financial statements, on August 2, 2021, the Company completed the previously announced spin-off of its Logistics segment into an independent public company.

The spin-off was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc.

to the Company’s stockholders and was intended to qualify as tax-free to the Company and its stockholders for U.S.

federal income tax purposes.

We identified the evaluation of the spin-off as a tax-free transaction for U.S.

federal income tax purposes to be a critical audit matter.

The evaluation of the Company’s interpretation and application of the Internal Revenue Code (Code) required complex auditor judgment and the need to involve tax professionals with specialized skills and knowledge to evaluate the U.S.

federal taxability of the spin-off.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s income tax process, including a control related to Company’s evaluation of the spin-off as tax-free for U.S.

federal income tax purposes.

We involved tax professionals with specialized skills and knowledge, who assisted in:

• inspecting the tax opinions from the Company’s external tax advisors that management utilized in forming their conclusions on U.S.

federal income taxability of the spin-off, including certain interpretations of the Code

• assessing the key facts, assumptions and representations provided by management and used by the Company’s external tax advisors when evaluating the U.S.

federal income taxability

Liabilities for self-insured claims

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The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective auditor judgment.

Assumptions that may affect the estimated liability of claims include the consideration of historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions.

Assumptions that may affect the estimated liability of claims include the consideration of

historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions.

Additionally, the Company’s liabilities for self-insured claims included estimates for expenses of claims that have been incurred but have not been reported, and specialized skills were needed to evaluate the actuarial methods and assumptions used to assess these estimates.

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• comparing the Company’s recorded liability to the independently developed liability range.

Assessment of the carrying value of goodwill

As discussed in Notes 2 and 9 to the consolidated financial statements, the goodwill balance as of December 31, 2020 was $4,599 million.

The Company performs goodwill impairment testing annually, or more frequently if events or circumstances indicate the carrying value of a reporting unit that includes goodwill might exceed the fair value of that reporting unit.

In assessing the carrying value of goodwill, the Company uses a third-party appraiser, who uses a combination of an income approach and a market approach to estimate fair value.

The income approach is based on the present value of estimated future cash flows, discounted at a risk-adjusted rate to estimate the fair value of the reporting units.

The market approach is based on comparable market multiples for companies engaged in similar business, as well as recent transactions within the industry.

We identified the assessment of the carrying value of goodwill for each of the Company’s reporting units as a critical audit matter.

Assessment of certain assumptions used to estimate fair value under the income approach, including the fair value model, long-term future growth rates, and the risk-adjusted discount rate, had estimation uncertainty, which resulted in subjective auditor judgment and required specialized skills and knowledge.

Additionally, assessment of the guideline public companies and transactions within the industry used to estimate fair value under the market approach required significant auditor judgment.

Changes to these assumptions may have a significant effect on the Company’s assessment of the carrying value of the goodwill.

The following are the primary procedures performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment assessment process.

This included controls related to the determination of the fair value of the reporting units, the estimate of long-term future growth rates, the assumptions used to develop the risk-adjusted discount rates, and the determination of the guideline public companies and transactions within the industry.

We performed sensitivity analyses over the fair value model for long-term future growth rates to assess their impact on the Company’s determination of the fair value of each reporting unit.

We compared the Company’s historical growth rate forecast to actual results to assess the Company’s ability to accurately forecast.

We involved valuation professionals with specialized skill and knowledge, who assisted in:

• comparing the valuation methodologies used by the Company to valuation standards

• comparing the Company’s risk-adjusted discount rates to risk-adjusted discount rate ranges that were independently developed using publicly available third-party market data for comparable entities

• comparing the long-term growth rates to industry data, economic growth data, and long-term growth rates used by the Company in prior years’ valuation analyses

• evaluating the guideline public companies and transactions used by the Company by reading the business descriptions, examining financial metrics of the comparable public companies and transactions within the industry, and considering market participant guidance and perspective.

We have served as the Company’s auditor since 2011.

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Other current assets 286 303

Current assets of discontinued operations 26 1,664

Total current assets 2,677 5,378

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Other long-term assets 255 187

Long-term assets of discontinued operations — 4,666

Total long-term assets 6,030 10,799

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Other current liabilities 69 102

Current liabilities of discontinued operations 24 1,728

Total current liabilities 2,538 5,161

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Other long-term liabilities 327 384

Long-term liabilities of discontinued operations — 1,430

Total long-term liabilities 5,031 8,167

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Revenue $ 12,806 $ 10,199 $ 10,681

Cost of transportation and services 7,852 8,303 9,013

Direct operating expense 5,837 5,679 5,725

Cost of transportation and services (exclusive of depreciation and

amortization)

8,945 6,950 7,359

Direct operating expense (exclusive of depreciation and amortization) 1,391 1,235 1,186

Sales, general and administrative expense 1,322 1,210 1,068

Depreciation and amortization expense 476 470 467

Transaction and integration costs 37 75 5

Restructuring costs 19 31 35

Operating income 616 228 561

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Interest expense 211 307 268

Income before income tax provision 148 569 566

Income tax provision 31 129 122

Income (loss) from continuing operations before income tax provision

410 ( 35 ) 301

Income tax provision (benefit) 87 ( 22 ) 60

Income (loss) from continuing operations 323 ( 13 ) 241

Income from discontinued operations, net of taxes 18 130 199

Net income 341 117 440

Net income attributable to noncontrolling interests ( 7 ) ( 21 ) ( 22 )

Net loss from continuing operations attributable to noncontrolling

Net income from discontinued operations attributable to

noncontrolling interests

( 5 ) ( 10 ) ( 21 )

Net income attributable to XPO $ 336 $ 110 $ 419

Net income (loss) attributable to common shareholders

Continuing operations $ 323 $ ( 41 ) $ 201

Discontinued operations 13 120 178

Net income attributable to common shareholders $ 336 $ 79 $ 379

Earnings per share data

Basic earnings per share $ 0.87 $ 3.95 $ 3.17

Diluted earnings per share $ 0.78 $ 3.57 $ 2.88

Earnings (loss) per share data

Basic earnings (loss) per share from continuing operations $ 2.88 $ ( 0.45 ) $ 2.09

Basic earnings per share from discontinued operations 0.11 1.32 1.86

Basic earnings per share attributable to common shareholders $ 2.99 $ 0.87 $ 3.95

Diluted earnings (loss) per share from continuing operations $ 2.82 $ ( 0.45 ) $ 1.89

Diluted earnings per share from discontinued operations 0.11 1.32 1.68

Diluted earnings per share attributable to common shareholders $ 2.93 $ 0.87 $ 3.57

Weighted-average common shares outstanding

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Comprehensive income $ 287 $ 110 $ 448

Comprehensive income (loss) attributable to noncontrolling

interests 13 20 ( 5 )

Comprehensive income attributable to noncontrolling interests 3 13 20

Comprehensive income attributable to XPO $ 284 $ 97 $ 428

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(In millions) 2021 2020 2019

Operating activities

Cash flows from operating activities of continuing operations

Net income $ 341 $ 117 $ 440

Adjustments to reconcile net income to net cash from operating activities

Income from discontinued operations, net of taxes 18 130 199

Income (loss) from continuing operations 323 ( 13 ) 241

Adjustments to reconcile income (loss) from continuing operations to net

cash from operating activities

Depreciation, amortization and net lease activity 476 470 467

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Accretion of debt 18 20 16

Deferred tax (benefit) expense ( 81 ) 46 45

Deferred tax expense (benefit) 5 ( 75 ) 40

Debt extinguishment loss 54 — 5

Unrealized (gain) loss on foreign currency option and forward contracts 1 ( 1 ) 9

Gain on sale of equity investment — — ( 24 )

Gains on sales of property and equipment ( 73 ) ( 91 ) ( 101 )

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Accrued expenses and other liabilities 74 198 ( 180 )

Net cash provided by operating activities 885 791 1,102

Investing activities

Net cash provided by operating activities from continuing operations 656 388 629

Cash flows from investing activities of continuing operations

Payment for purchases of property and equipment ( 313 ) ( 303 ) ( 379 )

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Other ( 3 ) 4 —

Net cash used in investing activities ( 357 ) ( 161 ) ( 400 )

Financing activities

Net cash used in investing activities from continuing operations ( 184 ) ( 116 ) ( 67 )

Cash flows from financing activities of continuing operations

Proceeds from issuance of debt — 1,155 1,752

Proceeds from borrowings related to securitization program 47 — —

Proceeds from (repayment of) borrowings related to securitization program ( 24 ) 23 —

Repurchase of debt ( 2,769 ) — —

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Repayment of debt and finance leases ( 80 ) ( 65 ) ( 569 )

Payment for debt issuance costs ( 22 ) ( 28 ) ( 10 )

Proceeds from forward sale settlement — — 349

Purchase of noncontrolling interests ( 21 ) ( 258 ) —

Payment of debt issuance costs ( 5 ) ( 22 ) ( 28 )

Cash paid in connection with preferred stock conversion — ( 22 ) —

Repurchase of common stock ( 114 ) ( 1,347 ) ( 536 )

Issuance (repurchase) of common stock 384 ( 114 ) ( 1,347 )

Change in bank overdrafts — 21 ( 3 )

Payment for tax withholdings for restricted shares ( 28 ) ( 26 ) ( 14 )

Net cash provided by (used in) financing activities 1,136 ( 759 ) ( 620 )

Distribution from GXO 794 — —

Other ( 4 ) 4 8

Net cash provided by (used in) financing activities from continuing

( 1,932 ) 1,154 ( 201 )

XPO Logistics, Inc.

Consolidated Statements of Cash Flows (continued)

Years Ended December 31,

(In millions) 2021 2020 2019

Cash flows from discontinued operations

Operating activities of discontinued operations $ 65 $ 497 $ 162

Investing activities of discontinued operations ( 93 ) ( 241 ) ( 94 )

Financing activities of discontinued operations ( 302 ) ( 18 ) ( 558 )

Net cash provided by (used in) discontinued operations ( 330 ) 238 ( 490 )

Effect of exchange rates on cash, cash equivalents and restricted cash ( 2 ) 14 2

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Cash, cash equivalents and restricted cash, end of year 273 2,065 387

Cash, cash equivalents and restricted cash of discontinued operations,

Cash, cash equivalents and restricted cash of continuing operations, end of

$ 270 $ 1,742 $ 192

Supplemental disclosure of cash flow information:

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Consolidated Statements of Changes in Equity

For the Three Years Ended December 31, 2020, 2019 and 2018

For the Years Ended December 31, 2021, 2020 and 2019

Series A Preferred Stock Common Stock

(Shares in thousands, dollars in millions) Shares Amount Shares Amount Additional Paid-In Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income (Loss) Total XPO Stockholders’

(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

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Net income — — — — — 419 — 419 21 440

Other comprehensive loss — — — — — — ( 170 ) ( 170 ) ( 27 ) ( 197 )

Other comprehensive income (loss) — — — — — — 9 9 ( 1 ) 8

Exercise and vesting of stock compensation awards — — 489 — 1 — — 1 — 1

Tax withholdings related to vesting of stock compensation awards — — — — ( 14 ) — — ( 14 ) — ( 14 )

Issuance of common stock from forward sale settlement — — 6,000 — 349 — — 349 — 349

Purchase of noncontrolling interest — — — — ( 3 ) — — ( 3 ) ( 255 ) ( 258 )

Retirement of common stock — — ( 23,932 ) — ( 1,275 ) — — ( 1,275 ) — ( 1,275 )

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Stock compensation expense — — — — 36 — — 36 — 36

Other — — 82 — 2 1 — 3 — 3

Adoption of new accounting standard and other — — 102 — 5 ( 7 ) — ( 2 ) ( 2 ) ( 4 )

Balance as of December 31, 2019 72 $ 41 92,342 $ — $ 2,061 $ 786 $ ( 145 ) $ 2,743 $ 153 $ 2,896

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Purchase of noncontrolling interests — — — — ( 1 ) — — ( 1 ) ( 20 ) ( 21 )

Conversion of preferred stock to common stock ( 71 ) ( 40 ) 10,014 — 40 — — — — —

Preferred stock conversion — — — — — ( 22 ) — ( 22 ) — ( 22 )

Retirement of common stock — — ( 1,715 ) — ( 114 ) — — ( 114 ) — ( 114 )

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Consolidated Statements of Changes in Equity (continued)

For the Three Years Ended December 31, 2020, 2019 and 2018

For the Years Ended December 31, 2021, 2020 and 2019

Series A Preferred Stock Common Stock

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Net income — — — — — 336 — 336 5 341

Other comprehensive income (loss) — — — — — — ( 13 ) ( 13 ) 6 ( 7 )

Other comprehensive loss — — — — — — ( 52 ) ( 52 ) ( 2 ) ( 54 )

Spin-off of GXO — — — — ( 1,199 ) ( 1,161 ) 126 ( 2,234 ) ( 40 ) ( 2,274 )

Exercise and vesting of stock compensation awards — — 392 — 2 — — 2 — 2

Tax withholdings related to vesting of stock compensation awards — — — — ( 28 ) — — ( 28 ) — ( 28 )

Purchase of noncontrolling interests — — — — ( 1 ) — — ( 1 ) ( 20 ) ( 21 )

Issuance of common stock — — 2,875 — 384 — — 384 — 384

Conversion of preferred stock to common stock ( 1 ) ( 1 ) 145 — 1 — — — — —

Preferred stock conversion — — — — — ( 22 ) — ( 22 ) — ( 22 )

Retirement of common stock — — ( 1,715 ) — ( 114 ) — — ( 114 ) — ( 114 )

Purchase of noncontrolling interests — — — — ( 34 ) — — ( 34 ) ( 100 ) ( 134 )

Dividend declared — — — — — — — — ( 3 ) ( 3 )

Exercise of warrants — — 9,215 — — — — — — —

Stock compensation expense — — — — 52 — — 52 — 52

Adoption of new accounting standard and other — — — — 7 ( 4 ) — 3 — 3

Other — — 58 — 3 — — 3 — 3

Balance as of December 31, 2021 — $ — 114,737 $ — $ 1,179 $ 43 $ ( 84 ) $ 1,138 $ — $ 1,138

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Nature of Operations

We use our integrated network of people, technology and physical assets to help customers manage their goods most efficiently throughout their supply chains.

Our customers are multinational, national, mid-size and small enterprises.

We run our business on a global basis, with two reportable segments:

Transportation and Logistics.

XPO Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services.

We use our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services.

See Note 4—Segment Reporting and Geographic Information for additional information on our operations.

In December 2020, we announced that our Board of Directors unanimously approved a plan to pursue a spin-off of 100 % of our Logistics segment as a separate publicly traded company.

The spin-off, which we intend to qualify as a transaction that is generally tax-free for U.S.

federal income tax purposes to XPO shareholders, would result in XPO shareholders owning stock in both companies.

If completed, the spin-off will result in separate public companies with clearly delineated service offerings.

XPO will be a global provider of primarily less-than-truckload (“LTL”) transportation and truck brokerage services, and the spun-off company will be the second largest contract logistics provider in the world.

Both companies’ stocks are expected to trade on the New York Stock Exchange, and we plan to consider a dual listing on the London Stock Exchange for the spun-off company in due course.

The transaction is currently expected to be completed in the second half of 2021, subject to various conditions.

There can be no assurance that the spin-off will occur or, if it does occur, of its terms or timing.

On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to XPO and our stockholders for U.S.

federal income tax purposes, which was accomplished by the distribution of 100 % of the outstanding common stock of GXO Logistics, Inc.

(“GXO”) to XPO stockholders.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution.

XPO does not beneficially own any shares of GXO’s common stock following the spin-off.

GXO is an independent public company trading under the symbol “GXO” on the New York Stock Exchange.

The historical results of operations and the financial position of our Logistics segment for periods prior to the spin-off are presented as discontinued operations in these consolidated financial statements.

For information on our discontinued operations, see Note 3—Discontinued Operations.

Basis of Presentation and Significant Accounting Policies

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generally accepted accounting principles (“GAAP”), which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our consolidated financial statements and the accompanying notes.

We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions, particularly in light of the outbreak of a strain of coronavirus, COVID-19.

COVID-19 has had, and we expect will continue to have, significant effects on economic activity, on demand for our services, and on our results of operations in 2021.

Certain reclassifications have been made to prior year amounts to conform to the current year’s presentation.

We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions.

Following the spin-off, we adopted a new format for our Consolidated Statements of Income to separately present depreciation and amortization expense, transaction and integration costs and restructuring costs from other operating expenses.

We have recast prior year amounts to conform to the current year’s presentation.

Consolidation

Our consolidated financial statements include the accounts of XPO Logistics, Inc.

(“XPO” or “we”) and our majority-owned subsidiaries and variable interest entities (“VIEs”) where we are the primary beneficiary.

Our consolidated financial statements include the accounts of XPO, our wholly-owned subsidiaries, and our majority-owned subsidiaries and variable interest entity (“VIE”) where we are the primary beneficiary.

We have eliminated intercompany accounts and transactions.

To determine if we are a primary beneficiary of a VIE, we evaluate whether we are able to direct the activities that significantly impact the VIE’s economic performance, including whether we control the operations of each VIE and whether we can operate the VIEs under our brand or policies.

Investors in these VIEs only have recourse to the assets owned by the VIE and not to our general credit.

We do not have implicit support arrangements with any VIE.

Other than the special purpose entity related to the European Trade Securitization Program discussed below in this Note and in Note 12—Debt, which we consolidate, assets and liabilities of VIEs where we are the primary beneficiary are not significant to our consolidated financial statements.

Investors in the VIE only have recourse to the assets owned by the VIE and not to our general credit.

We do not have implicit support arrangements with the VIE.

We consolidate the VIE, which is comprised of the special purpose entity related to the European Trade Securitization Program discussed below in this Note and in Note 12—Debt.

We have a controlling financial interest in entities generally when we own a majority of the voting interest.

The noncontrolling interests reflected in our consolidated financial statements primarily relate to a minority interest in XPO Logistics Europe SA (“XPO Logistics Europe”), formerly known as Norbert Dentressangle SA, a business we

acquired in 2015.

As described in Note 3—Purchases of Noncontrolling Interest, we purchased portions of the noncontrolling interests in both 2020 and 2019.

Following these acquisitions, the noncontrolling interest was reduced to approximately 3 % of XPO Logistics Europe.

The noncontrolling interests reflected in our consolidated financial statements primarily related to a minority interest in XPO Logistics Europe SA (“XPO Logistics Europe”), a business we acquired majority ownership of in 2015.

2021, we completed a buy-out offer and squeeze-out for the remaining 3 % of XPO Logistics Europe that we did not already own at a cost of $ 128 million plus expenses.

Previously, in 2020 and 2019, we purchased shareholders’ noncontrolling interests in XPO Logistics Europe for € 17 million (approximately $ 21 million) and € 234 million (approximately $ 258 million), respectively.

Significant Accounting Policies

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A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied.

A description of our performance obligations for our transportation and logistics reportable segments is below.

Transportation

Our transportation segment generates revenue by providing less-than-truckload, freight brokerage and other transportation services for our customers.

We generate revenue by providing less-than-truckload, truck brokerage and other transportation services for our customers.

Additional services may be provided to our customers under their transportation contracts, including unloading and other incidental services.

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When we do not control the specific services, we recognize revenue as the difference between the amount the customer pays us for the service less the amount we are charged by third parties who provide the service.

Our Logistics segment generates revenue by providing supply chain services for our customers, including warehousing and distribution, order fulfillment, reverse logistics, packaging and labeling, factory and aftermarket support and inventory management contracts ranging from a few months to a few years.

Our performance obligations are satisfied over time as customers receive and consume the benefits of our services.

The contracts generally contain a single performance obligation as the distinct services provided remain substantially the same over time and possess the same pattern of transfer.

The transaction price is based on the consideration specified in the contract with the customer and contains fixed and variable consideration.

In general, the fixed consideration component of a contract represents reimbursement for facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract.

The variable consideration component is comprised of cost reimbursement determined based on the costs incurred, while per-unit pricing is determined based on units provided and time and materials pricing is determined based on the hours of services provided.

The variable consideration component is recognized over time based on the level of activity.

Generally, we can adjust our pricing based on contractual provisions related to achieving agreed-upon performance metrics, changes in volumes, services and market conditions.

Revenue relating to these pricing adjustments is estimated and included in the consideration if it is probable that a significant revenue reversal will not occur in the future.

The estimate of variable consideration is determined by the expected value or most likely amount method and

factors in current, past and forecasted experience with the customer.

The estimate of variable consideration is determined by the expected value or most likely amount method and factors in current, past and forecasted experience with the customer.

Customers are billed based on terms specified in the revenue contract and they pay us according to approved payment terms.

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We expense the incremental costs of obtaining contracts when incurred if the amortization period of the assets is one year or less.

These costs are included in Direct operating expense.

These costs are included in Direct operating expense (exclusive of depreciation and amortization).

Cash, Cash Equivalents and Restricted Cash

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As of December 31, 2021, 2020 and 2019, our restricted cash included in Other long-term assets on our Consolidated Balance Sheets was $ 10 million, $ 11 million and $ 10 million, respectively.

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.

Accounts Receivable and Allowance for Credit Losses

We record accounts receivable at the contractual amount and we record an allowance for credit losses for the amount we estimate we may not collect.

In determining the allowance for credit losses, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay.

Commencing in 2020 and in accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” discussed further below, 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.

Measurement of Credit Losses on Financial Instruments”, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses.

We write off accounts receivable balances once the receivables are no longer deemed collectible.

The roll-forward of the allowance for doubtful accounts was as follows:

The roll-forward of the allowance for credit losses was as follows:

Years Ended December 31,

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Beginning balance $ 46 $ 38 $ 41

Cumulative effect adjustment for adoption of ASU 2016-13 4 — —

Provision charged to expense 28 45 20

Write-offs, less recoveries, and other adjustments ( 27 ) ( 41 ) ( 23 )

Cumulative effect adjustment for adoption of ASU 2016-13 — 4 —

Ending balance $ 47 $ 46 $ 38

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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, one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (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.

Our European business participates in a trade receivables securitization program co-arranged by two European banks (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries in the United Kingdom and France to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.

The program expires in July 2024.

We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred.

For these transfers, the receivables are removed from our Consolidated Balance Sheets at the date of transfer.

In the securitization and

factoring arrangements, any of our continuing involvement is limited to servicing the receivables.

The fair value of any servicing assets and liabilities is immaterial.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Consolidated Balance Sheets.

These borrowings amounted to € 41 million ($ 50 million) as of December 31, 2020.

See Note 12—Debt for additional information related to our receivables securitization secured borrowing program and these borrowings.

Under a securitization program that was terminated in July 2019, we accounted for transfers as either sales or secured borrowings based on an evaluation of whether control has transferred.

For the transfers that did not meet the criteria for surrender of control, the transaction was accounted for as a secured borrowing.

These secured borrowings were repaid when the program was terminated.

For transfers that 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 Consolidated Balance Sheets.

The cash payment which we received on the date of the transfer was reflected within Net cash provided by operating activities on our Consolidated Statement 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 new program, inclusive of any unsecured borrowings, is € 400 million (approximately $ 489 million as of December 31, 2020).

As of December 31, 2020, € 75 million (approximately $ 92 million) was available to us, subject to having sufficient receivables available to sell to the Purchasers.

See Note 12—Debt for additional information on these borrowings.

The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is € 200 million (approximately $ 227 million as of December 31, 2021).

Prior to July 2021, when the securitization program was amended in connection with the spin-off, the maximum amount available was € 400 million.

As of December 31, 2021, the maximum amount available under the program was utilized.

The weighted average interest rate was 0.50 % as of December 31, 2021.

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Cash consideration

(1) Information for the years ended December 31, 2021, 2020 and 2019 exclude the impact of the Logistics segment.

In addition to the cash considerations referenced above, we received $ 75 million in the year ended December 31, 2019, for the realization of cash on the deferred purchase price receivable for our prior securitization program.

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Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management.

For our 2020 and 2019 goodwill assessments, we performed a quantitative analysis for all five of our reporting units using a combination of income and market approaches, with the assistance of a third-party valuation appraiser.

As of August 31, 2020 and 2019, we completed our annual impairment tests for goodwill with all of our reporting units having fair values in excess of their carrying values, resulting in no impairment of goodwill.

Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis.

If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit.

The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.

For our 2021 goodwill assessment, we performed a step-zero qualitative analysis for our three reporting units.

Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.

For our 2020 goodwill assessment, we performed a quantitative analysis for the five reporting units that existed at the time of the assessment using a combination of income and market approaches with the assistance of a third-party valuation appraiser.

As of August 31, 2020, we completed our annual impairment test for goodwill with all of our reporting units having fair values in excess of their carrying values, resulting in no impairment of goodwill.

Our number of reporting units decreased from five in 2020 to three in 2021 as a result of the spin-off and other organizational changes.

The income approach of determining fair value is based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate.

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Intangible Assets

Our intangible assets subject to amortization consist of customer relationships and non-compete agreements.

Our intangible assets subject to amortization consist primarily of customer relationships.

We review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

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We amortize intangible assets on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized.

The range of estimated useful lives by type are as follows:

Classification Estimated Useful Life

Customer relationships

5 to 16 years

Non-compete agreements

Term of agreement

The estimated useful life for customer relationships is 5 to 16 years.

Accrued Expenses

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Accrued transportation and facility charges 390 303

Accrued value-added tax and other taxes 220 163

Other accrued expenses 342 349

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Self-Insurance

We use a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo and workers’ compensation claims.

We use a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, workers’ compensation, cyber risk and property claims.

We periodically evaluate our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense.

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Amounts reclassified from AOCI ( 9 ) 15 ( 1 ) — 5

Net current period other comprehensive income (loss) 23 4 ( 19 ) 1 9

Net current period other

comprehensive income (loss)

112 ( 2 ) ( 117 ) ( 6 ) ( 13 )

As of December 31, 2020 ( 8 ) 3 ( 148 ) ( 5 ) ( 158 )

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Amounts reclassified from AOCI ( 6 ) ( 7 ) — — ( 13 )

Net current period other comprehensive income (loss) 112 ( 2 ) ( 117 ) ( 6 ) ( 13 )

Net current period other

comprehensive income (loss)

( 85 ) ( 3 ) 34 2 ( 52 )

Spin-off of GXO 41 — 82 3 126

As of December 31, 2021 $ ( 52 ) $ — $ ( 32 ) $ — $ ( 84 )

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We use judgment and estimates in evaluating our tax positions.

Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-off of GXO.

Valuation allowances are established when, in our judgment, it is more likely than not that our deferred tax assets will not be realized based on all available evidence.

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Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Foreign currency (gain) loss included on our Consolidated Statements of Income consisted of the following:

Years Ended December 31,

(In millions) 2020 2019 2018

Unrealized foreign currency option and forward contracts (gains) losses $ ( 2 ) $ 9 $ ( 20 )

Realized foreign currency option, forward and other derivative contracts (gains) losses ( 4 ) — 16

Foreign currency transaction and remeasurement losses 3 — 7

Total foreign currency (gain) loss $ ( 3 ) $ 9 $ 3

Fair Value Measurements

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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 December 31, 2021 and 2020 due to their short-term nature and/or being receivable or payable on demand.

The Level 1 cash equivalents include 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.

The Level 1 cash equivalents include money market funds valued using quoted prices in active markets and a cash deposit for the securitization program.

For information on the fair value hierarchy of our derivative instruments, see Note 11—Derivative Instruments and for information on financial liabilities, see Note 12—Debt.

The fair value hierarchy of cash equivalents was as follows:

(In millions) Carrying Value Fair Value Level 1 Level 2

(In millions) Carrying Value Fair Value Level 1

December 31, 2021 $ 181 $ 181 $ 181

December 31, 2020 1,685 1,685 1,685

The decrease in cash equivalents from December 31, 2020 to December 31, 2021 was primarily due to the redemption of our senior notes due 2022, 2023 and 2024 and the repayment of borrowings under our revolving loan credit agreement (the “ABL Facility”) in 2021.

For further information, see Note 12—Debt.

Derivative Instruments

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The gain or loss resulting from fair value adjustments on cash flow hedges are recorded in AOCI on our Consolidated Balance Sheets until the hedged item is recognized in earnings and is presented in the same income statement line item as the earnings effect of the hedged item.

The gains and losses on the net investment hedges are recorded as cumulative translation adjustments in AOCI to the extent that the instruments are effective in hedging

the designated risk.

The gains and losses on the net investment hedges are recorded as cumulative translation adjustments in AOCI to the extent that the instruments are effective in hedging the designated risk.

Gains and losses on cash flow hedges and net investment hedges representing hedge components excluded from the assessment of effectiveness will be amortized into Interest expense on our Consolidated Statements of Income in a systematic manner.

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We do not recognize expense until achievement of the performance targets for a PRSU award is considered probable.

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“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 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 for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Under the guidance, any capitalized implementation costs would be included in prepaid expenses, amortized over the term of the hosting arrangement on a straight-line basis and presented in the same line items in the Consolidated Statement of Income as the expense for fees of the associated hosting arrangements.

We adopted this standard on January 1, 2020 on a prospective basis.

The adoption did not have a material effect on our consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Effective

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Adoption of New Accounting Standard

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

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The adoption did not have a material effect on our consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Effective

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements.

This ASU is effective for fiscal years beginning after December 15, 2021.

Early adoption is permitted.

We are currently evaluating the impact of the new guidance, which is limited to financial statement disclosures.

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848):

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We are currently evaluating the impact of the new guidance.

Purchases of Noncontrolling Interest

In the third quarter of 2020 and fourth quarter of 2019, we purchased shareholders’ noncontrolling interests in XPO Logistics Europe for € 17 million (approximately $ 21 million) and € 234 million (approximately $ 258 million), respectively.

Discontinued Operations

As discussed above, on August 2, 2021, we completed the spin-off of our Logistics segment.

In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $ 794 million, which we used to repay a portion of our outstanding borrowings.

For further information, see Note 12—Debt.

During the year ended December 31, 2021, we incurred approximately $ 125 million of costs related to the spin-off, of which $ 101 million are reflected within income from discontinued operations in our Consolidated Statements of Income.

The following table summarizes the financial results from discontinued operations of GXO:

Years Ended December 31,

(In millions) 2021 2020 2019

Revenue $ 4,350 $ 6,182 $ 6,087

Direct operating expense (exclusive of depreciation and

amortization)

3,614 5,156 5,120

Sales, general and administrative expense 364 517 421

Depreciation and amortization expense 185 296 272

Transaction and other operating costs 105 50 14

Operating income 82 163 260

Other income ( 27 ) ( 38 ) ( 31 )

Interest expense 12 18 23

Income from discontinued operations before income tax provision 97 183 268

Income tax provision 79 53 69

Net income from discontinued operations, net of taxes 18 130 199

Net income from discontinued operations attributable to

noncontrolling interests

( 5 ) ( 10 ) ( 21 )

Net income from discontinued operations attributable to GXO $ 13 $ 120 $ 178

The following table summarizes the assets and liabilities from discontinued operations of GXO:

(In millions) 2020

Cash and cash equivalents $ 323

Accounts receivable, net 1,212

Other current assets 129

Total current assets of discontinued operations 1,664

Property and equipment, net 770

Operating lease assets 1,434

Goodwill 2,063

Identifiable intangible assets, net 299

Other long-term assets 100

Total long-term assets of discontinued operations 4,666

Accounts payable 408

Accrued expenses 770

Short-term borrowings and current finance lease liabilities 57

Short-term operating lease liabilities 332

Other current liabilities 161

Total current liabilities of discontinued operations 1,728

Long-term debt and finance lease liabilities 129

Deferred tax liability 85

Long-term operating lease liabilities 1,099

Other long-term liabilities 117

Total long-term liabilities of discontinued operations $ 1,430

Prior to the spin-off of GXO, the U.K.

pension plan was sold to a GXO entity.

For further information, see Note 13—Employee Benefit Plans.

In connection with the spin-off, we entered into a separation and distribution agreement as well as various other agreements with GXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement (“EMA”), a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will continue to provide certain services for a period of time specified in the applicable agreement to GXO following the spin-off.

The impact of these services on the consolidated financial statements was immaterial.

Additionally, in accordance with these agreements, GXO has agreed to indemnify XPO for certain payments XPO makes with respect to certain self-insurance matters that were incurred by GXO prior to the spin-off and remain obligations of XPO.

The receivable and reserve for these matters was approximately $ 23 million and $ 21 million, respectively, as of December 31, 2021.

Segment Reporting and Geographic Information

We are organized into two reportable segments:

In connection with the spin-off, we revised our reportable segments to reflect how our chief operating decision maker (“CODM”) makes decisions related to resource allocation and segment performance.

Prior to the spin-off, we had two reportable segments:

Transportation and Logistics.

We evaluate our performance in large part based on the various financial measures of our two reporting segments.

In our Transportation segment, we provide multiple services to facilitate the movement of raw materials, parts and finished goods.

We accomplish this by using our proprietary technology, third-party independent carriers and our transportation assets and service centers.

Our transportation services include LTL, truck brokerage services and other transportation services.

In our Logistics segment, which we sometimes refer to as supply chain, 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 logistics, packaging and labeling, factory support, aftermarket support, inventory management, order personalization and supply chain optimization, such as product flow management.

In addition, our Logistics segment provides reverse logistics, which is also called returns management.

Following the spin-off, we have two reportable segments:

(i) North American LTL and (ii) Brokerage and Other Services.

In our North American LTL segment, we provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services.

Our services include cross-border U.S.

service to and from Mexico and Canada, as well as intra-Canada service.

In our Brokerage and Other Services segment, shippers create the truckload demand and we place their freight with qualified carriers, pricing our service on either a spot or contract basis.

Our Brokerage and Other Services segment also includes last mile logistics for heavy goods sold through e-commerce, omnichannel retail and direct-to-consumer channels.

Several other non-core brokered freight transportation modes are included in our Brokerage and Other Services segment, as well as our European transportation offerings.

Some of our operating units provide services to our other operating units outside of their reportable segment.

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Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reporting segments.

Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

Our CODM regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance.

We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM.

We do not provide asset information by segment to the CODM.

During the third quarter of 2021, our CODM began evaluating segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, litigation settlements for significant matters, transaction and integration costs, restructuring costs and other adjustments.

Prior to the change in our reporting segments in the third quarter of 2021, our CODM used operating income as the measure of segment profit (loss).

Prior period segment disclosures have been recast to conform to the current period presentation.

Selected financial data for our segments is as follows:

(In millions) Transportation Logistics Corporate Eliminations/Other Total

Year Ended December 31, 2020

Revenue $ 10,199 $ 6,182 $ — $ ( 129 ) $ 16,252

Operating income (loss) (1)

507 140 ( 256 ) — 391

Depreciation and amortization 453 301 12 — 766

Year Ended December 31, 2019

Revenue $ 10,687 $ 6,093 $ — $ ( 132 ) $ 16,648

Operating income (loss) (2)

752 241 ( 172 ) — 821

Depreciation and amortization 447 277 15 — 739

Year Ended December 31, 2018

Revenue $ 11,343 $ 6,065 $ — $ ( 129 ) $ 17,279

Operating income (loss) (3)

646 216 ( 158 ) — 704

Depreciation and amortization 461 244 11 — 716

(1) Consolidated operating income for 2020 includes $ 100 million of transaction and integration costs, of which $ 21 million relates to our Transportation segment and $ 28 million relates to our Logistics segment, and $ 56 million of restructuring expense.

(2) Consolidated operating income for 2019 includes $ 5 million of transaction and integration costs and $ 49 million of restructuring expense.

(3) Consolidated operating income for 2018 includes $ 33 million of transaction, integration and rebranding costs, $ 21 million of restructuring expense, $ 26 million of litigation costs and $ 24 million from gain on sale of equity investment.

The transaction and integration costs for 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020 and costs related to our planned acquisition of the Kuehne + Nagel business, as described in Note 19—Subsequent Events.

For further information on our restructuring actions, see Note 6—Restructuring Charges to the Consolidated Financial Statements.

We also incurred net incremental and direct costs as a result of the COVID-19 pandemic in 2020, including costs for personal protective equipment, site cleanings and enhanced employee benefits, such as appreciation pay.

Years Ended December 31,

(in millions) 2021 2020 2019

North American LTL $ 4,118 $ 3,539 $ 3,791

Brokerage and Other Services 8,907 6,800 7,041

Eliminations ( 219 ) ( 140 ) ( 151 )

Total $ 12,806 $ 10,199 $ 10,681

Adjusted EBITDA

North American LTL $ 904 $ 764 $ 851

Brokerage and Other Services 547 284 406

Corporate ( 212 ) ( 201 ) ( 167 )

Total adjusted EBITDA 1,239 847 1,090

Debt extinguishment loss 54 — 5

Interest expense 211 307 268

Income tax provision (benefit) 87 ( 22 ) 60

Depreciation and amortization expense 476 470 467

Unrealized (gain) loss on foreign currency option and

forward contracts

Litigation settlements 31 — —

Transaction and integration costs (1)

Restructuring costs (2)

Income (loss) from continuing operations $ 323 $ ( 13 ) $ 241

Depreciation and amortization expense

North American LTL $ 226 $ 224 $ 227

Brokerage and Other Services 240 229 220

Corporate 10 17 20

Total $ 476 $ 470 $ 467

(1) Transaction and integration costs for 2021 and 2020 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-off of the Logistics segment, as well as retention awards paid to certain employees.

Additionally, transaction and integration costs for 2020 included professional fees related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

Transaction and integration costs for 2021 and 2020 include $ 1 million and $ 5 million, respectively, related to our North American LTL segment;

$ 16 million and $ 16 million, respectively, related to our Brokerage and Other Services segment and $ 20 million and $ 54 million, respectively, related to Corporate.

(2) See Note 6— Restructuring Charges for further information on our restructuring actions.

As of December 31, 2021 and 2020, we held long-lived tangible assets outside of the U.S.

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Year Ended December 31, 2021

(In millions) Transportation Logistics Eliminations Total

(In millions) North

LTL Brokerage and Other Services Eliminations Total

United States $ 4,029 $ 5,387 $ ( 219 ) $ 9,197

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Year Ended December 31, 2020

(In millions) Transportation Logistics Eliminations Total

(In millions) North

LTL Brokerage and Other Services Eliminations Total

United States $ 3,461 $ 3,899 $ ( 140 ) $ 7,220

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Year Ended December 31, 2019

(In millions) Transportation Logistics Eliminations Total

(In millions) North

LTL Brokerage and Other Services Eliminations Total

United States $ 3,702 $ 3,902 $ ( 151 ) $ 7,453

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(In millions) 2021 2020 2019

Transportation segment:

LTL $ 4,450 $ 4,815 $ 4,839

Freight brokerage and truckload 4,373 4,383 4,784

North America:

$ 4,192 $ 3,575 $ 3,841

Truck brokerage 2,749 1,684 1,372

Last mile 1,016 908 873

Other brokerage (2)

2,025 1,564 1,853

Managed transportation 344 496 462

Global forwarding 300 299 338

Transportation eliminations ( 176 ) ( 179 ) ( 145 )

Total Transportation segment revenue 10,199 10,687 11,343

Total Logistics segment revenue 6,182 6,093 6,065

Intersegment eliminations ( 129 ) ( 132 ) ( 129 )

Total revenue $ 16,252 $ 16,648 $ 17,279

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

Total North America 9,982 7,731 7,939

Europe 3,077 2,622 2,923

Eliminations ( 253 ) ( 154 ) ( 181 )

Total $ 12,806 $ 10,199 $ 10,681

(1) Less-Than-Truckload revenue is before intercompany eliminations and includes revenue from the Company’s trailer manufacturing business.

(2) Other brokerage includes intermodal and drayage, expedite, freight forwarding and managed transportation services.

Freight forwarding includes operations conducted outside of North America but managed by our North American entities.

Performance Obligations

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(i) have original expected durations of one year or less or (ii) contain variable consideration.

On December 31, 2020, the fixed consideration component of our remaining performance obligation was approximately

$ 1.6 billion, and we expect to recognize approximately 75 % 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.

On December 31, 2021, the fixed consideration component of our remaining performance obligation was approximately $ 124 million, and we expect approximately 86 % of that amount to be recognized over the next three years and the remainder thereafter.

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.

Restructuring Charges

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to COVID-19.

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with the spin-off and in response to COVID-19.

These actions generally include severance and facility-related costs, including impairment of right-of-use assets, and are intended to improve our efficiency and profitability.

Restructuring charges were recorded on our Consolidated Statements of Income as follows:

Years Ended December 31,

(In millions) 2020 2019 2018

Cost of transportation and services $ 1 $ 2 $ —

Direct operating expense 7 1 1

Sales, general and administrative expense 48 46 20

Total $ 56 $ 49 $ 21

We recognized $ 3 million, $ 21 million and $ 19 million of restructuring charges in the fourth quarter of 2020, 2019 and 2018, respectively.

Our restructuring-related activity was as follows:

Year Ended December 31, 2021

(In millions) Reserve Balance as of December 31, 2019 Charges Incurred Payments Foreign Exchange and Other Reserve Balance as of December 31, 2020

Transportation $ 12 $ 17 $ ( 22 ) $ — $ 7

Logistics 11 21 ( 14 ) 1 19

(In millions) Reserve Balance

December 31, 2020 Charges Incurred Payments Foreign Exchange and Other Reserve Balance

December 31, 2021

Brokerage and Other Services $ 7 $ 10 $ ( 12 ) $ 1 $ 6

Corporate 1 9 ( 2 ) ( 1 ) 7

Total severance 8 19 ( 14 ) — 13

Transportation — 6 — ( 1 ) 5

Logistics — 1 ( 1 ) — —

Brokerage and Other Services 5 — ( 3 ) — 2

Total facilities 5 — ( 3 ) — 2

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Year Ended December 31, 2020

(In millions) Reserve Balance as of December 31, 2018 Charges Incurred Payments Foreign Exchange and Other Reserve Balance as of December 31, 2019

Transportation $ 9 $ 30 $ ( 26 ) $ ( 1 ) $ 12

Logistics 5 14 ( 8 ) — 11

(In millions) Reserve Balance

December 31, 2019 Charges Incurred Payments Foreign Exchange and Other Reserve Balance

December 31, 2020

North American LTL $ 1 $ 4 $ ( 5 ) $ — $ —

Brokerage and Other Services 11 13 ( 17 ) — 7

Corporate 3 8 ( 9 ) ( 1 ) 1

Total severance 15 25 ( 31 ) ( 1 ) 8

Transportation — 2 ( 2 ) — —

Brokerage and Other Services — 6 — ( 1 ) 5

Total facilities — 6 — ( 1 ) 5

Total $ 15 $ 31 $ ( 31 ) $ ( 2 ) $ 13

The majority of the cash outlays related to the charges incurred in 2019 were substantially complete by the end of 2020.

Property and Equipment

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Depreciation of property and equipment and amortization of computer software was $ 388 million, $ 382 million and $ 370 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Adoption of Topic 842, “Leases”

On January 1, 2019, we adopted ASU 2016-02, “Leases”, and its related amendments (Topic 842) prospectively through a cumulative-effect adjustment with no restatement of prior period financial statements.

Beginning in 2019, net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Consolidated Statements of Cash Flows.

The adoption of Topic 842 did not have a material impact on our Consolidated Statements of Income and our Consolidated Statements of Cash Flows.

Nature of Leases

Most of our leases are real estate leases.

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Total operating lease cost

$ 417 $ 336 $ 310

Finance lease cost:

Amortization of leased assets

$ 53 $ 43 $ 43

Interest on lease liabilities

Total finance lease cost

$ 58 $ 48 $ 48

Total lease cost $ 475 $ 384 $ 358

Gain recognized on sale-leaseback transactions (1)

$ 69 $ 84 $ 93

(1) For the years ended December 31, 2021, 2020 and 2019, we completed multiple sale-leaseback transactions for land and buildings, including a sale and partial leaseback of our shared-services center in Portland, Oregon in 2019.

We received aggregate cash proceeds of $ 143 million and $ 203 million in 2020 and 2019, respectively.

Gains on sale-leaseback transactions are included in Direct operating expense in our Consolidated Statements of Income.

We received aggregate cash proceeds of $ 96 million, $ 143 million and $ 199 million in 2021, 2020 and 2019, respectively.

Gains on sale-leaseback transactions are included in Direct operating expense (exclusive of depreciation and amortization) in our Consolidated Statements of Income.

Supplemental balance sheet information related to leases was as follows:

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Total operating lease liabilities

$ 2,278 $ 2,244

Finance leases:

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Operating cash flows for operating leases

$ 224 $ 223 $ 201

Operating cash flows for finance leases

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Finance leases

Property and equipment acquired through capital leases was $ 111 million for the year ended December 31, 2018.

Additionally, non-cash investing activities for the years ended December 31, 2020 and 2019 included $ 30 million and $ 39 million of property and equipment additions for build-to-suit leases.

Net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Consolidated Statements of Cash Flows.

Maturities of lease liabilities as of December 31, 2021 were as follows:

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Total lease payments

$ 479 $ 2,718

interest ( 18 ) ( 198 )

Present value of lease liabilities

$ 409 $ 2,278

As of December 31, 2021, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $ 11 million.

These operating leases will commence in 2021 through 2022 with initial lease terms of 2 years to 15 years.

Rent expense was $ 820 million for the year ended December 31, 2018.

(In millions) Transportation Logistics Total

These operating leases will commence in 2022 with initial lease terms of 3 years to 7 years.

(In millions) North American LTL Brokerage and Other Services Total

Goodwill as of December 31, 2019 $ 722 $ 1,752 $ 2,474

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Goodwill as of December 31, 2021 $ 722 $ 1,757 $ 2,479

There are no cumulative goodwill impairments as of December 31, 2020.

There were no cumulative goodwill impairments as of December 31, 2021.

Intangible Assets

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Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, future impairment of intangible assets, accelerated amortization of intangible assets and other events.

Intangible asset amortization expense recorded in Sales, general and administrative expense (“SG&A”) was $ 144 million, $ 156 million and $ 159 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Intangible asset amortization expense was $ 86 million, $ 87 million and $ 96 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Derivative Instruments

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Derivatives designated as hedges

Cross-currency swap agreements $ 450 Other current assets $ — Other current liabilities $ ( 44 )

Cross-currency swap agreements 740 Other long-term assets — Other long-term liabilities ( 65 )

Interest rate 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 —

Interest rate swaps 2,003 Other current assets — Other current liabilities ( 4 )

Total $ — $ ( 113 )

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The effect of derivative and nonderivative instruments designated as hedges on our Consolidated Statements of Income was as follows:

Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Years Ended December 31,

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Total $ 88 $ ( 98 ) $ 67 $ 7 $ ( 15 ) $ 5 $ 6 $ 9 $ 11

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a gain of $ 1 million, a loss of $ 9 million and a gain of $ 4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a loss of $ 1 million, a gain of $ 1 million and a loss of $ 9 million for the years ended December 31, 2021, 2020 and 2019, respectively.

These amounts are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

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The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.

In 2021, in preparation for the spin-off, we novated (or transferred) cross-currency swaps that were recorded as a liability with a fair value of approximately $ 28 million to GXO, as well as the associated amounts in AOCI.

During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates.

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We apply the simplified method of assessing the effectiveness of our net investment hedging relationships.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in AOCI.

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.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially

recognized in 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 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 Consolidated Statements of Cash Flows.

Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

Prior to the spin-off, we entered into cross-currency swap agreements to manage the related foreign currency exposure from intercompany loans.

We designated these cross-currency swaps as qualifying hedging instruments and accounted for them as cash flow hedges.

Gains and losses resulting from the change in the fair value of the cross-currency swaps was initially recognized in AOCI and reclassified to Foreign currency (gain) loss to offset the foreign exchange impact in earnings created by settling intercompany loans.

Cash flows related to these cash flow hedges was included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

Interest Rate Hedging

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We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges.

The interest rate swaps mature on various dates through 2021.

The outstanding interest rate swaps mature in 2022.

We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue.

Cash flows related to the interest rate swaps are included in Operating activities on our Consolidated Statements of Cash Flows.

Cash flows related to the interest rate swaps are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.

Foreign Currency Option and Forward Contracts

We use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or the British pound sterling as their functional currency.

Additionally, we use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings.

The foreign currency contracts (both option and forward contracts) are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative.

We periodically use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or the British pound sterling as their functional currency.

Additionally, we periodically use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings.

Generally, the foreign currency contracts (both option and forward contracts) are not designated as qualifying hedging instruments.

The contracts are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative.

The contracts generally expire in 12 months or less.

We had no outstanding contracts as of December 31, 2020.

As of December 31, 2019, the contracts were not designated as qualifying hedging instruments.

We had no outstanding contracts as of December 31, 2021 and December 31, 2020.

Gains or losses on the contracts are recorded in Foreign currency (gain) loss on our Consolidated Statements of Income.

Cash flows related to the foreign currency contracts are included in Investing activities on our Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired.

Cash flows related to the foreign currency contracts are included in Cash flows from investing activities of continuing operations on our Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired.

December 31, 2021 December 31, 2020

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6.125 % Senior notes due 2023

535 531 535 530

6.75 % Senior notes due 2024

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Principal payments on debt $ — $ — $ 1 $ 3,153 $ 1 $ 301

(1) In January 2021, we redeemed the outstanding balance of our senior notes due June 2022 (the “Senior Notes due 2022”).

In 2015, we entered into a revolving loan credit agreement (the “ABL Facility”) that provided commitments of up to $ 1.0 billion with a maturity date of October 30, 2020.

In 2015, we entered into the ABL Facility that provided commitments of up to $ 1.0 billion with a maturity date of October 30, 2020.

In April 2019, we amended the ABL Facility including:

(i) increasing the commitments to $ 1.1 billion, (ii) extending the maturity date to April 30, 2024, subject to springing maturity if some of our senior notes reach specified levels set in the credit agreement and (iii) reducing the interest rate margin.

In July 2021, we amended the ABL Facility to reduce the commitments from $ 1.1 billion to $ 1.0 billion.

There were no other significant changes made to the terms of the facility.

We can issue up to $ 350 million of letters of credit under the ABL Facility.

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A maximum of 20 % of our borrowing base can be equipment and rolling stock in the aggregate.

As of December 31, 2020, our borrowing base was $ 1.1 billion and our availability was $ 883 million, after considering outstanding borrowings of $ 200 million and outstanding letters of credit of $ 17 million.

As of December 31, 2021, our borrowing base was $ 1.0 billion and our availability was $ 995 million after considering outstanding letters of credit of $ 5 million.

As of December 31, 2021, we were in compliance with the ABL Facility’s financial covenants.

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LIBOR or base rate plus (i) an applicable margin of 1.25 % to 1.50 % for LIBOR loans or (ii) 0.25 % to 0.50 %, for base rate loans.

The average interest rate on outstanding borrowings as of December 31, 2020 was 1.40 %.

The ABL Facility is secured on a first lien basis by the assets of the credit parties as priority collateral and on a second lien basis by certain other assets.

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As of December 31, 2021, we were compliant with this financial covenant.

In April 2020, we entered into a Senior Secured Term Loan Credit Agreement, comprised of a $ 150 million committed secured term loan facility and a $ 200 million uncommitted secured evergreen letter of credit facility.

We did not draw on the term loan facility through its term, which ended in January 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.

Letters of Credit Facility

In 2020, we entered into a $ 200 million uncommitted secured evergreen letter of credit facility.

The letter of credit facility had an initial one-year term, which automatically renewed for an additional year, and may automatically renew with one-year terms until the letter of credit facility terminates.

As of December 31, 2021, we have issued $ 198 million in aggregate face amount of letters of credit under the facility.

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.

Term Loan Facilities

In 2015, we entered into a Term Loan Credit Agreement that provided for a single borrowing of $ 1.6 billion.

The Term Loan Credit Agreement was issued at an original issue discount of $ 32 million.

In 2018, we refinanced our term loans by replacing the outstanding $ 1.5 billion principal amount of term loans (the “Initial Term Loans”) with $ 1.5 billion in aggregate principal amount of new term loans (the “Present Term Loans”).

Our Present Term Loans have substantially similar terms as our Initial Term Loans, except for the interest rate and maturity date, prepayment premiums and some other amendments to the restrictive covenants.

We used the proceeds from the Present Term Loans to refinance the Initial Term Loans and to pay interest, fees and expenses in connection with this refinancing.

We recorded a debt extinguishment loss of $ 10 million in 2018 due to this refinancing.

We amended the Term Loan Credit Agreement in 2019 to include a new tranche of term loans (the “Incremental Term Loan Facility”), to reduce the interest rates and to extend the maturity dates.

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The loans under the Incremental Term Loan Facility were issued at a price of 99.50 % of par.

The interest rates on the Present Term Loans and the Incremental Term Loans were 2.15 % and 2.66 %, respectively, as of December 31, 2020.

As of December 31, 2020 and 2019, the applicable terms of the Term Loan Credit Agreement, as amended, were as follows:

(In millions) Present Term Loans Incremental Term Loans

Amounts outstanding at December 31, 2020 and 2019:

Facility $ 1,503 $ 500

In 2021, we amended the Term Loan Credit Agreement to consolidate our tranches and lower the interest rate.

The applicable terms of the Term Loan Credit Agreement, as amended, are as follows:

December 31, 2020

(In millions) December 31, 2021 First Tranche Second Tranche

Principal balance $ 2,003 $ 1,503 $ 500

Interest spread:

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LIBOR loans 1.75 % 2.00 % 2.50 %

Maturity date February 2025 February 2025

Maturity date February 2025 February 2025 February 2025

We recorded a debt extinguishment loss of $ 3 million in 2021 due to this amendment.

The interest rate on our term loan facility was 1.85 % as of December 31, 2021.

We must prepay an aggregate principal amount of the term loan facility equal to (a) 50 % of any Excess Cash Flow, as defined in the agreement, for the most recent fiscal year ended, minus (b) the sum of (i) all voluntary prepayments of loans during the fiscal year and (ii) all voluntary prepayments of loans under the ABL Facility or any other revolving credit facilities during the fiscal year if accompanied by a corresponding permanent reduction in the commitments under the credit agreement or any other revolving credit facilities in the case of each of the immediately preceding clauses (i) and (ii), if such prepayments are funded with internally generated cash flow, as defined in the agreement.

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As of December 31, 2021, our Consolidated Secured Net Leverage Ratio was less than 2.50 :1.00, and no excess cash payment was required.

In the second quarter of 2020, we completed private placements of $ 1.15 billion aggregate principal amount of Senior Notes due 2025.

In the third quarter of 2021, we redeemed our outstanding 6.125 % senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75 % senior notes due 2024 (“Senior Notes due 2024”).

The Senior Notes due 2024 were originally issued in 2019 and the proceeds were used to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity.

The redemption price for the Senior Notes due 2023 was 100.0 % of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375 % of the principle amount, plus accrued and unpaid interest.

We paid for the redemption using cash received from GXO of approximately $ 794 million, proceeds from an equity offering described in Note 14—Stockholders’ Equity and available cash.

We recorded debt extinguishment losses of $ 3 million and $ 43 million in 2021 related to the redemption of the Senior Notes due 2023 and Senior Notes due 2024, respectively.

In January 2021, we redeemed our outstanding 6.50 % senior notes due 2022 (“Senior Notes due 2022”) that were originally issued in 2015.

The redemption price for the notes was 100.0 % of the principal amount, plus accrued and unpaid interest.

We paid for the redemption with available cash, including the net proceeds from the issuance of our 6.25 % senior notes due 2025 (“Senior Notes due 2025”) as described below.

We recorded a debt extinguishment loss of $ 5 million in 2021 due to this redemption.

In 2020, we completed private placements of $ 1.15 billion aggregate principal amount of Senior Notes due 2025.

The Senior Notes due 2025 mature on May 1, 2025 and bear interest at a rate of 6.25 % per annum.

Interest on the notes is paid semi-annually.

$ 850 million of the notes were issued at par, and $ 300 million of the notes were issued subsequently at 101.75 % of face value.

Net proceeds from the notes were invested in cash and cash equivalents.

In February 2019, we completed a private placement of $ 1.0 billion aggregate principal amount of senior notes (“Senior Notes due 2024”).

We used the proceeds from the Senior Notes due 2024 to repay our outstanding obligation under the Unsecured Credit Facility described below and to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity.

In July 2018, we redeemed $ 400 million of the then $ 1.6 billion outstanding Senior Notes due 2022 that were originally issued in 2015.

The redemption price for the Senior Notes due 2022 was 103.25 % of the principal amount, plus accrued and unpaid interest.

We paid for the redemption primarily with funds from the settlement of our forward sale agreements, described in Note 14—Stockholders’ Equity.

We recorded a debt extinguishment loss of $ 17 million in 2018 due to this redemption.

In January 2021, we redeemed the remaining balance of the Senior Notes due 2022.

For additional information, see Note 19—Subsequent Events.

The senior notes bear interest payable semiannually, in cash in arrears.

The Senior Notes due 2025 mature on May 1, 2025, the Senior Notes due 2024 mature on August 15, 2024, the Senior Notes due September 2023 mature on September 1, 2023 and the Senior Notes due 2022 mature on June 15, 2022.

The senior notes are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than some excluded subsidiaries) that are obligors under, or guarantee obligations under, our ABL Facility or existing term loan facilities or guarantee certain of our capital markets indebtedness or any guarantor of the senior notes.

A total of $ 850 million of the notes were issued at par, and $ 300 million of the notes were issued subsequently at 101.75 % of face value.

Net proceeds from the notes were initially invested in cash and cash equivalents and were subsequently used in 2021 to redeem our outstanding Senior Notes due 2022 as described above.

The senior notes are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than some excluded subsidiaries) that are obligors under, or guarantee obligations under, our ABL Facility or existing Term Loan facility or guarantee certain of our capital markets indebtedness or any guarantor of the senior notes.

The senior notes and its guarantees are unsecured, unsubordinated indebtedness for us and our guarantors.

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Senior Debentures

We assumed Con-way’s 6.70 % Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $ 300 million when we acquired Con-way.

We assumed in conjunction with an acquisition 6.70 % Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $ 300 million.

The Senior Debentures bear interest payable semiannually, in cash in arrears, and mature on May 1, 2034.

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Trade Securitization Program

As discussed in Note 2—Basis of Presentation and Significant Accounting Policies, XPO Logistics Europe participates in a trade receivables securitization program.

The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s

The program will expire in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

In 2019, XPO Logistics Europe terminated a prior trade receivables securitization program and paid off the notes associated with the program, which had been included in our debt balances.

As discussed in Note 2—Basis of Presentation and Significant Accounting Policies, our European business participates in a trade receivables securitization program.

The program contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables.

These borrowings are owed to the program’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement.

We had no such borrowings outstanding as of December 31, 2021 and had borrowings of € 20 million ($ 24 million) as of December 31, 2020.

Unsecured Credit Facility

In December 2018, we entered into a $ 500 million unsecured credit facility (“Unsecured Credit Facility”).

As of December 31, 2018, we had borrowed $ 250 million under the facility.

As of December 31, 2018, we had borrowed $ 250 million under the Unsecured Credit Facility.

We borrowed an additional $ 250 million in January 2019.

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We recorded a debt extinguishment loss of $ 5 million in 2019 in connection with this repayment.

Asset Financing

We use unsecured asset financing arrangements to purchase trucks in Europe.

These financing arrangements are denominated in EUR, generally with floating interest rates.

As of December 31, 2020, interest rates on asset financing range from 0.85 % to 1.06 %, with a weighted average interest rate of 0.99 %, and initial terms range from 6 years to 10 years.

Employee Benefit Plans

Defined Benefit Pension Plans

We sponsor both funded and unfunded defined benefit pension plans for some employees in the United States.

We sponsor both funded and unfunded defined benefit pension plans for some employees in the U.S.

These pension plans include qualified plans that are eligible for beneficial treatment under the Internal Revenue Code and non-qualified plans that provide additional benefits for employees who are impacted by limitations on compensation eligible for benefits available under the qualified plans.

We also sponsor a separate defined benefit pension plan for some employees in the United Kingdom.

Both the U.S.

plans and the U.K.

plan do not allow for new plan participants or additional benefit accruals.

Prior to the spin-off of GXO, the pension plan for some employees in the United Kingdom was sold to a GXO entity and GXO paid approximately £ 26 million (approximately $ 34 million) to XPO, which represented the value of the net assets at the date of the sale.

In connection with this transaction, approximately $ 82 million of accumulated other comprehensive income, net of tax, was transferred to GXO.

We also maintain defined benefit pension plans for some of our foreign subsidiaries that are excluded from the disclosures below due to their immateriality.

The information below excludes the results of the pension plan that was sold to GXO.

We measure defined benefit pension plan obligations based on the present value of projected future benefit payments for all participants for services rendered to date.

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Interest cost 39 54

Actuarial loss 216 214 159 136

Actuarial (gain) loss ( 82 ) 216

Benefits paid ( 84 ) ( 80 )

Foreign currency exchange rate changes and other — — 50 50

Projected benefit obligation at end of year $ 1,925 $ 2,052

$ 2,052 $ 1,862 $ 1,500 $ 1,323

(1) As of December 31, 2020 and 2019, the accumulated benefit obligations for the U.K.

plan was equal to the projected benefit obligations.

Actuarial losses were a result of assumption changes, including a decrease in the discount rate, updated mortality projection scales and other assumptions for plan participants, and an increase in assumed inflation for the U.K.

The actuarial gain in 2021 was a result of assumption changes, including an increase in the discount rate, updated mortality projection scales and other assumptions for plan participants.

The reconciliation of the changes in the fair value of plan assets as of December 31 was as follows:

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Benefits paid ( 84 ) ( 80 )

Foreign currency exchange rate changes — — 46 51

Fair value of plan assets at end of year $ 2,009 $ 2,062

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Long-term liabilities ( 67 ) ( 73 )

Net pension asset (liability) recognized $ 10 $ 1 $ ( 24 ) $ 39

Plans with projected and accumulated benefit obligation in excess

of plan assets:

Net pension asset recognized $ 84 $ 10

Plans with projected and accumulated benefit obligation in excess of plan assets:

Projected and accumulated benefit obligation (1)

Fair value of plan assets — — 1,476 —

The funded status of our qualified plans and non-qualified plans was $ 88 million and $( 78 ) million, respectively, at December 31, 2020.

Qualified plans are eligible for certain beneficial treatment under the Internal Revenue Code (“IRC”), while non-qualified plans do not meet the IRC criteria.

The amounts included in AOCI that have not yet been recognized in net periodic benefit expense as of December 31 were as follows:

(In millions) 2020 2019 2020 2019

Actuarial loss $ ( 50 ) $ ( 5 ) $ ( 158 ) $ ( 54 )

Prior-service credit — — 17 18

$ ( 50 ) $ ( 5 ) $ ( 141 ) $ ( 36 )

(1) Relates to our non-qualified plans which are unfunded.

The funded status of our qualified plans and non-qualified plans was $ 156 million and $( 72 ) million, respectively, as of December 31, 2021.

The actuarial loss included in AOCI that has not yet been recognized in net periodic benefit expense was $ 43 million and $ 50 million, respectively, as of December 31, 2021 and 2020.

The net periodic benefit cost and amounts recognized in Other comprehensive income (loss) for the years ended December 31 was as follows:

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Expected return on plan assets ( 101 ) ( 102 ) ( 90 )

Amortization of prior-service credit — — — ( 1 ) ( 1 ) ( 2 )

Amortization of actuarial loss 1 — —

Net periodic benefit income $ ( 61 ) $ ( 48 ) $ ( 24 )

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Actuarial (gain) loss $ ( 7 ) $ 45 $ ( 49 )

Prior-service cost — — — 1 — 19

Reclassification of prior-service credit to net periodic benefit

income — — — 1 1 2

Reclassification of recognized AOCI gain due to settlements — — —

(Gain) loss recognized in Other comprehensive income (loss) $ ( 7 ) $ 45 $ ( 49 )

The weighted-average assumptions used to determine the net periodic benefit costs and benefit obligations for the year ended December 31 were as follows:

Qualified Plans U.S.

Non-Qualified Plans U.K.

2020 2019 2018 2020 2019 2018 2020 2019 2018

Discount rate - net

periodic benefit costs 2.96 % 4.08 % 3.14 % - 3.38 %

2.40 % - 2.78 %

3.65 % - 3.95 %

Qualified Plans Non-Qualified Plans

2021 2020 2019 2021 2020 2019

Discount rate - net periodic benefit costs 1.96 % 2.96 % 4.08 %

1.11 % - 1.71 %

Discount rate - benefit

obligations 2.48 % 3.35 % 4.18 % - 4.39 %

2.40 % - 2.78 %

3.65 % - 3.95 %

Discount rate - benefit obligations 2.84 % 2.48 % 3.35 %

2.19 % - 2.72 %

1.62 % - 2.30 %

Expected long-term rate

of return on plan assets 5.60 % 5.80 % 3.00 % - 5.40 %

2.72 % - 3.20 %

Expected long-term rate of return on plan assets 5.00 % 5.60 % 5.80 %

No rate of compensation increase was assumed as the plans are frozen to additional participant benefit accruals.

We use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment.

Expected benefit payments for the defined benefit pension plans are summarized below.

Expected benefit payments for the defined benefit pension plans for the years ended December 31 are summarized below.

These estimates are based on assumptions about future events.

Actual benefit payments may vary from these estimates.

(In millions) U.S.

Year ending December 31:

2021 $ 92 $ 50

2026-2030 529 297

(In millions) 2022 2023 2024 2025 2026 2027-2030

Expected benefit payments $ 94 $ 97 $ 100 $ 102 $ 104 $ 532

We manage the assets in the U.S.

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The assumption of 5.00 % for the overall expected long-term rate of return on plan assets in 2021 was developed using asset allocation and return expectations.

The return expectations are created using long-term historical and expected returns and current market expectations for inflation, interest rates and economic growth.

Plan’s assets are separated from our assets and invested by trustees, which include our representatives, with the goal of meeting the U.K.

Plan’s projected future pension liabilities.

The trustees’ investment objectives are to meet the performance target set in the deficit recovery plan of the U.K.

Plan in a risk-controlled framework.

The actual asset allocations of the U.K.

Plan are in line with the target asset allocations.

The trustees have approved a transition in 2021 to a new target strategic asset allocation for the U.K.

Plan that consists of approximately 40 % matching assets (U.K.

gilts and cash) and approximately 60 % growth and income assets (consisting of a range of

pooled funds investing in structured equities, investment grade and high yield bonds and asset-backed securities).

The target asset allocations of the U.K.

Plan include acceptable ranges for each asset class.

Collateral assets consist of U.K.

fixed-interest gilts, index-linked gilts and cash, which are used to back derivative positions that hedge the sensitivity of the liabilities to changes in interest rates and inflation.

Plan Actuary’s Technical Provisions funding basis, approximately 95 % of the liability interest rate sensitivity and 105 % of the liability inflation sensitivity were hedged as of December 31, 2020.

The expected long-term rate of return on plan assets in 2020 was 4.40 %.

Our approach to determine the expected long-term rate of return on plan assets is consistent with the one we used for the U.S.

The fair values of investments held in the pension plans by major asset category as of December 31, 2020 and 2019, and the percentage that each asset category comprises of total plan assets were as follows:

December 31, 2020

The return expectations are created using long-term historical and expected returns for the various asset classes and current market expectations for inflation, interest rates and economic growth.

The fair values of investments held in the qualified pension plans by major asset category as of December 31, 2021 and 2020, and the percentage that each asset category comprises of total plan assets were as follows:

(Dollars in millions) Level 1 Level 2 Not Subject

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Total Percentage of Plan Assets

Asset category (U.S.

Qualified Plans)

December 31, 2021

Cash and cash equivalents:

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Fixed income securities 406 1,310 6 1,722 85.8 %

Derivatives — 1 — 1 — %

Plan assets $ 478 $ 1,275 $ 309 $ 2,062 100.0 %

Asset category (U.K.

Cash and cash equivalents $ 17 $ — $ — $ 17 1.2 %

Fixed income securities — 883 495 1,378 93.3 %

Derivatives — 4 77 81 5.5 %

Plan assets $ 17 $ 887 $ 572 $ 1,476 100.0 %

(1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.

Total plan assets $ 453 $ 1,310 $ 246 $ 2,009 100.0 %

December 31, 2020

(Dollars in millions) Level 1 Level 2 Not Subject

to Leveling (1)

Total Percentage of Plan Assets

Asset category (U.S.

Qualified Plans)

Cash and cash equivalents:

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Derivatives — 1 — 1 — %

Plan assets $ 507 $ 1,112 $ 244 $ 1,863 100.0 %

Asset category (U.K.

Cash and cash equivalents $ 34 $ — $ — $ 34 2.5 %

Fixed income securities — 773 474 1,247 91.6 %

Derivatives — ( 8 ) 89 81 5.9 %

Plan assets $ 34 $ 765 $ 563 $ 1,362 100.0 %

Total plan assets $ 478 $ 1,275 $ 309 $ 2,062 100.0 %

(1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy.

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Our common stock was not a plan asset as of December 31, 2021 or 2020.

Non-Qualified Pension Plans are unfunded.

The non-qualified plans are unfunded.

Our funding practice is to evaluate our tax and cash position, and the funded status of our plans, in determining our planned contributions.

We estimate that we will contribute $ 5 million to our U.S.

non-qualified plans and $ 1 million to our U.K.

plan in 2021 but this could change based on variations in interest rates, asset returns and other factors.

We estimate that we will contribute $ 5 million to our non-qualified plans in 2022 but this could change based on variations in interest rates, asset returns and other factors.

Defined Contribution Retirement Plans

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Interest cost on projected benefit obligation 1 1

Actuarial loss (gain) 4 9

Actuarial loss — 4

Participant contributions 1 1

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The discount rates assumptions used to calculate the interest cost were 1.56 % - 2.34 %, 2.66 % - 3.22 % and 3.87 % - 4.36 % for the years ended December 31, 2021, 2020 and 2019, respectively.

Expected benefit payments, which reflect expected future service, as appropriate, are summarized below.

Expected benefit payments, which reflect expected future service, as appropriate, for the years ended December 31 are summarized below.

These estimates are based on assumptions about future events.

Actual benefit payments may vary from these estimates.

(In millions) Benefit Payments

Year ending December 31:

(In millions) 2022 2023 2024 2025 2026 2027-2030

Expected benefit payments $ 3 $ 3 $ 3 $ 4 $ 3 $ 14

Stockholders’ Equity

Our Board of Directors is authorized to establish one or more series of preferred stock.

At December 31, 2020 and 2019, only our Series A Convertible Perpetual Preferred Stock is outstanding.

Series A Convertible Perpetual Preferred Stock and Warrants

We issued 75,000 shares of the Series A Preferred Stock with an initial liquidation preference of $ 1,000 per share which are convertible into shares of our common stock at a conversion price of $ 7.00 per common share (subject to customary anti-dilution adjustments).

In 2011, we issued 75,000 shares of the Series A Preferred Stock with an initial liquidation preference of $ 1,000 per share which were convertible into shares of our common stock at a conversion price of $ 7.00 per common share (subject to customary anti-dilution adjustments).

We also issued warrants exercisable for shares of our common stock at an initial exercise price of $ 7.00 per common share (subject to customary anti-dilution adjustments).

Our preferred stock ranks senior to our common stock with respect to dividend and liquidation rights.

Our preferred stock pays

quarterly cash dividends equal to the greater of:

Our preferred stock ranked senior to our common stock with respect to dividend and liquidation rights.

Our preferred stock paid quarterly cash dividends equal to the greater of:

(i) the “as-converted” dividends on our underlying common stock for the relevant quarter and (ii) 4 % of the then-applicable liquidation preference per annum.

Our preferred stock is not redeemable.

Our preferred stock was not redeemable.

In December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and a lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions) their holdings, including Jacobs Private Equity, LLC, an entity controlled by the Company’s chairman and chief executive officer, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

With respect to the preferred stock, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $ 22 million of cash.

The $ 22 million has been reflected as a preferred stock conversion charge in the accompanying consolidated financial statements.

With respect to the warrants, 0.3 million warrants were exchanged, and we issued 0.3 million shares of common stock.

Additional commitments were made with respect to 9.6 million warrants, which are expected to be converted into 9.1 million shares of common stock in the first quarter of 2021.

As of December 31, 2020, our remaining outstanding preferred stock is convertible into 0.1 million shares of our common stock, and our outstanding warrants are exercisable for an aggregate of 9.8 million shares of our common stock.

Forward Sales

In 2018, we settled forward sales in full that were included in a 2017 registered underwritten offering by delivering six million shares of our common stock to the counterparties in the agreements and received $ 349 million of net cash proceeds.

We used these net cash proceeds to repay our Senior Notes due 2022.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions)

their holdings, including Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s chairman and chief executive officer, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

With respect to the preferred stock, through December 31, 2020, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $ 22 million of cash.

The $ 22 million was reflected as a preferred stock conversion charge in 2020 in the accompanying consolidated financial statements.

With respect to the warrants, through December 31, 2020, 0.3 million warrants were exchanged, and we issued 0.3 million shares of common stock.

In 2021, the remaining 1,015 preferred shares were exchanged, and we issued 0.1 million shares of common stock.

With respect to the warrants, in 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.

These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment.

As of December 31, 2021, there were no shares of preferred stock or warrants outstanding.

Share Issuance

In July 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $ 138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by JPE.

The additional 750,000 purchased shares were also split equally between us and JPE.

We received approximately $ 384 million of proceeds, net of fees and expenses, from the sale of the shares and used them to repay a portion of our outstanding borrowings and for general corporate purposes.

XPO did not receive any proceeds from the sale of shares by JPE.

Share Repurchases

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The share purchases under this program have been funded by our available cash and proceeds from our 2019 debt offerings.

Information regarding our shares repurchased, based on settlement date, were as follows:

There were no share repurchases in 2021.

Our remaining share repurchase authorization as of December 31, 2021 is $ 503 million.

Information regarding our shares repurchased, based on settlement date, in 2020 and 2019 were as follows:

Years Ended December 31,

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These awards include stock options, restricted stock, restricted stock units, performance-based units, cash incentive awards and other equity-related awards (collectively, “Awards”).

The 2016 plan authorizes the issuance of up to 6.6 million shares of our common stock as Awards.

As a result of the spin-off and in accordance with plan rules, the shares remaining for future issuance under the 2016 plan were equitably adjusted.

With this adjustment, up to 7.2 million shares of our common stock have been authorized for issuance as Awards.

Shares awarded may consist of authorized and unissued shares or treasury shares.

1 unchanged sentence

As of December 31, 2021, 1.7 million shares of our common stock were available for the grant of Awards under the 2016 plan.

In connection with the spin-off, stock-based compensation awards that were previously granted to GXO’s employees and directors under XPO’s incentive plan were converted to awards issued under GXO’s incentive plan.

Additionally, in order to preserve the value of the awards held by employees continuing with XPO following the spin-off, the number of outstanding shares underlying the awards were adjusted using the ratio and methodology outlined in the EMA.

The ratio was based on the closing price per share of XPO common stock on July 30, 2021 compared to the closing price per share of XPO common stock on August 2, 2021.

The strike prices of options were similarly adjusted as outlined in the EMA.

The impact of these adjustments on the number of awards outstanding is included in the effect of spin-off activity in the tables below.

The modification of these awards in connection with the spin-off did not result in incremental compensation cost.

Our employee stock purchase plan offers eligible employees, excluding our executive officers and directors, the right to purchase our common stock up to 10 % of each employee’s compensation.

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The stock options have a 10 -year contractual term and the exercise price equals our stock price on the grant date.

We have no t granted stock options since 2016.

A summary of stock option award activity for the year ended December 31, 2021 is presented below:

2 unchanged sentences

Outstanding as of December 31, 2020 (1)

42,755 $ 21.01 3.36

Exercised ( 51,783 ) 14.62

Forfeited — —

Effect of spin-off (3)

Outstanding as of December 31, 2021 6,608 $ 9.80 0.93

Options exercisable as of December 31, 2021 6,608 $ 9.80 0.93

The intrinsic value of options outstanding and exercisable as of December 31, 2020 was $ 4 million.

NM - Not meaningful

(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.

(2) The above table excludes stock option awards that were granted in 2021 that subsequently converted to awards issued under GXO’s incentive plan.

(3) Represents the net impact of (i) adjustments made to preserve the value of awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.

The intrinsic value of options outstanding and exercisable as of December 31, 2021 was less than $ 1 million.

The total intrinsic value of options exercised during 2021, 2020 and 2019 was $ 4 million, $ 56 million and $ 6 million, respectively.

The total cash received from options exercised during 2020, 2019 and 2018 was less than $ 1 million, $ 1 million and $ 1 million, respectively.

The total cash received from options exercised during 2021, 2020 and 2019 was $ 2 million, less than $ 1 million and $ 1 million, respectively.

Restricted Stock, Restricted Stock Units and Performance-Based Restricted Stock Units

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The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards.

In 2020, we granted approximately 0.2 million shares of fully vested restricted stock to some of our employees that have sale and transfer restrictions for two years from grant date.

The restricted stock had a weighted-average grant date fair value of $ 48.05 and was determined based on the fair market value of the shares at the grant date less a discount associated with transferability restrictions.

The assumptions used to fair value the restricted stock included a risk-free interest rate of 0.20 % and volatility of 61.0 %.

The number of RSUs and PRSUs vested includes shares of our common stock that we withheld on behalf of our employees to satisfy the minimum tax withholdings.

Non-cash financing activities for the year ended December 31, 2020 included $ 21 million related to tax withholdings for restricted shares that were paid in 2021.

We estimate the fair value of PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model, with the following weighted-average assumptions:

Risk-free interest rate 0.6 %

Volatility 50.3 %

Dividend yield —

Expected term (in years) 4.6

We estimate the fair value of PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model.

A summary of RSU and PRSU award activity for the year ended December 31, 2021 is presented below:

1 unchanged sentence

Outstanding as of December 31, 2020 (1)

1,615,812 $ 67.43 1,856,561 $ 45.39

Granted 839,372 87.13 70,954 80.67

1 unchanged sentence

Forfeited and canceled ( 337,312 ) 105.04 ( 597,739 ) 44.19

Effect of spin-off (2)

( 78,046 ) NM 699,076 NM

Outstanding as of December 31, 2021 1,461,610 $ 54.81 2,006,235 $ 46.19

NM - Not meaningful

(1) Outstanding awards at December 31, 2020 includes awards that were subsequently converted to awards issued under GXO’s incentive plan.

(2) Represents the net impact of (i) adjustments made to preserve the value of awards immediately before and after the spin-off, and (ii) the conversion of certain awards to awards issued under GXO’s incentive plan.

The total fair value of RSUs that vested during 2021, 2020 and 2019 was $ 69 million, $ 64 million and $ 13 million, respectively.

3 unchanged sentences

As of December 31, 2021, unrecognized compensation cost related to non-vested RSUs and PRSUs of $ 69 million is anticipated to be recognized over a weighted-average period of approximately 2.64 years.

Cash-Settled Performance-Based Restricted Stock Units

We previously granted cash-settled PRSUs to some key employees and executive officers.

The PRSUs vested based on the passage of time and are settled in cash either ratably over a two to four year period or cliff vest at the end of three to four years .

The awards were also subject to the achievement of performance targets and employment

The awards were classified as liabilities and the fair value was based on the closing price of our common stock at grant date and was re-measured each reporting date until settlement.

We recognized compensation expense for cash-settled PRSUs over the performance periods based on the probability of achieving the performance conditions and the closing price of our common stock.

As of December 31, 2019, we had recognized accrued liabilities of $ 30 million using a fair value per PRSU of $ 79.70 .

A summary of cash-settled PRSU award activity for the year ended December 31, 2020 is presented below:

Number of Cash-Settled PRSUs

Outstanding as of December 31, 2019 435,327

Vested ( 419,942 )

Forfeited and canceled —

Outstanding as of December 31, 2020 15,385

Income before taxes related to our U.S.

Income (loss) from continuing operations before taxes related to our U.S.

and foreign operations was as follows:

3 unchanged sentences

Foreign ( 10 ) ( 80 ) 15

Income before income tax provision $ 148 $ 569 $ 566

Income (loss) from continuing operations before income tax

provision (benefit)

$ 410 $ ( 35 ) $ 301

The income tax provision (benefit) is comprised of the following:

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Total deferred income tax provision (benefit) 5 ( 75 ) 40

Total income tax provision $ 31 $ 129 $ 122

Total income tax provision (benefit) $ 87 $ ( 22 ) $ 60

The effective tax rate reconciliations were as follows:

4 unchanged sentences

federal benefit 2.4 ( 7.4 ) 1.2

Foreign rate differential ( 5.9 ) ( 0.3 ) ( 1.1 )

Foreign operations (1)

10.3 16.9 ( 1.1 )

Contribution- and margin-based taxes 1.2 ( 22.4 ) 2.8

Valuation allowances ( 0.6 ) 0.1 ( 3.7 )

Changes in uncertain tax positions ( 2.1 ) ( 10.8 ) ( 1.6 )

Non-deductible compensation 1.8 ( 0.4 ) 0.1

Provision to return adjustments 1.2 11.4 ( 1.4 )

Effect of law changes ( 1.0 ) ( 3.9 ) 0.8

Stock-based compensation ( 1.4 ) 42.0 ( 0.9 )

Other ( 5.6 ) ( 1.2 ) ( 0.2 )

Long-term capital loss ( 11.0 ) — —

( 1.1 ) 17.0 ( 1.2 )

Effective tax rate 21.3 % 63.4 % 19.7 %

(1) Foreign operations include the net impact of changes to valuation allowances, the cost of inclusion of foreign income in the U.S.

net of foreign taxes, and permanent items related to foreign operations.

net of foreign taxes, the impact of foreign tax rate differences from the U.S.

Federal rate and permanent items related to foreign operations.

(2) In the year ended December 31, 2020, the impact of “Other” on the effective tax rate was disproportionately high compared to 2019 and 2021 due to the low income (loss) from continuing operations before income tax provision (benefit) in 2020.

For 2020, “Other” is primarily comprised of 7.7 % of U.S.

Federal tax credits, 6.5 % of U.S.

Federal tax permanent adjustments, and 2.7 % of changes in valuations allowance.

Components of the Net Deferred Tax Asset or Liability

12 unchanged sentences

Property and equipment ( 252 ) ( 256 )

Pension and other retirement obligations ( 6 ) —

Other ( 24 ) ( 38 )

6 unchanged sentences

Net deferred tax liability $ ( 308 ) $ ( 279 )

Investments in Foreign Subsidiaries

We apply a partial indefinite reversal assertion to pre-2018 earnings and profits that have been invested back into the foreign businesses.

We do not apply an indefinite reversal assertion on all 2018 and future years’ earnings and profits.

Operating Loss and Tax Credit Carryforwards

3 unchanged sentences

(including those of minority owned subsidiaries)

2033 - 2037 (1)

Federal long-term capital loss carryforwards 2027 126 —

Tax effect (before federal benefit) of state net operating

losses Various times starting in 2021 (1)

Various times starting in 2022 (1)

Federal tax credit carryforwards Various times starting in 2032 1 —

1 unchanged sentence

Foreign net operating losses available to offset future

taxable income Various times starting in 2021 (1)

taxable income

Various times starting in 2022 (1)

(1) Some credits and losses have unlimited carryforward periods .

23 unchanged sentences

the effective income tax rate as of the end of the year

$ 8 $ 17 $ 15

We could reflect a reduction to unrecognized tax benefits of up to $ 1 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.

8 unchanged sentences

We compute basic and diluted 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 participating securities in 2020 and 2019 consisted of our Series A Convertible Perpetual Preferred Stock.

The undistributed earnings are allocated between common shares and participating securities as if all earnings had been distributed during the period.

4 unchanged sentences

(In millions, except per share data) 2021 2020 2019

Basic earnings per common share

Net income attributable to XPO $ 110 $ 419 $ 422

Basic earnings (loss) per common share

Income (loss) from continuing operations $ 323 $ ( 13 ) $ 241

Net loss from continuing operations attributable to noncontrolling

Net income (loss) from continuing operations attributable to XPO 323 ( 10 ) 241

Preferred stock conversion charge — ( 22 ) —

1 unchanged sentence

Non-cash allocation of undistributed earnings — ( 6 ) ( 37 )

Net income (loss) from continuing operations attributable to common

$ 323 $ ( 41 ) $ 201

Income from discontinued operations, net of taxes $ 18 $ 130 $ 199

Net income from discontinued operations attributable to noncontrolling

( 5 ) ( 10 ) ( 21 )

Net income from discontinued operations attributable to common shares $ 13 $ 120 $ 178

Net income (loss) from continuing operations attributable to common

shares, basic

$ 323 $ ( 41 ) $ 201

Net income from discontinued operations attributable to common shares,

Net income attributable to common shares, basic $ 336 $ 79 $ 379

Basic weighted-average common shares 112 92 96

Basic earnings (loss) from continuing operations per share $ 2.88 $ ( 0.45 ) $ 2.09

Basic earnings from discontinued operations per share 0.11 1.32 1.86

Basic earnings per share $ 2.99 $ 0.87 $ 3.95

Diluted earnings per common share

Diluted earnings (loss) per common share

Net income (loss) from continuing operations attributable to common

shares, diluted

$ 323 $ ( 41 ) $ 201

Net income from discontinued operations attributable to common shares,

Net income attributable to common shares, diluted $ 336 $ 79 $ 379

Basic weighted-average common shares 112 92 96

Dilutive effect of warrants and stock-based awards 10 10 12

Dilutive effect of stock-based awards and warrants 2 — 10

Diluted weighted-average common shares 114 92 106

Diluted earnings (loss) from continuing operations per share $ 2.82 $ ( 0.45 ) $ 1.89

Diluted earnings from discontinued operations per share 0.11 1.32 1.68

Diluted earnings per share $ 2.93 $ 0.87 $ 3.57

Potential common shares excluded — 20 10

Certain shares were not included in the computation of diluted earnings per share because the effect was anti-dilutive.

Certain shares were not included in the computation of diluted earnings (loss) per share because the effect was anti-dilutive.

Commitments and Contingencies

12 unchanged sentences

Legal costs incurred related to these matters are expensed as incurred.

We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation and logistics company.

The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note.

In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.

Subsequent Events

In January 2021, our XPO Logistics Europe subsidiary acquired the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom, which generated annual revenues in 2020 of approximately £ 450 million ($ 585 million).

The operations, which provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management, will be included in our Logistics segment.

Debt Redemption

Also in January 2021, we redeemed our outstanding Senior Notes due 2022.

The redemption price for the Senior Notes due 2022 was 100.0 % of the principal amount, plus accrued and unpaid interest.

We paid for the redemption with available cash.

We expect to record a debt extinguishment loss of approximately $ 5 million in our first quarter of 2021 results of operations due to this redemption.

Intermodal Drayage Classification Claims

Certain of our intermodal drayage subsidiaries are defendants in class action litigations brought by independent contract carriers in California who contracted with these subsidiaries.

In these cases, the contract carriers assert that they should be classified as employees, rather than independent contractors.

In two related cases pending in Federal District Court in Los Angeles , Alvarez v.

XPO Logistics Cartage, LLC and Arrellano v.

XPO Port Services, Inc.

, the Court has certified classes beginning in April 2016 and March 2013, respectively.

Plaintiffs allege that defendants exercised an impermissible degree of control over plaintiffs’ operations through the terms of the parties’ contracts and defendants’ policies, including enforcement of requirements imposed on motor carriers by state and federal law.

The particular claims asserted vary from case to case but generally include claims that, should the contract carriers be determined to be employees, they would be entitled to reimbursement for unpaid wages and/or minimum wage, unpaid wages for missed meal and rest periods, reimbursement of certain of the contract carriers’ business expenses (including fuel and insurance related costs), Labor Code penalties under California’s Private Attorneys General Act, and attorneys’ fees and costs associated with bringing the action.

Defendants mounted a vigorous defense on the merits of plaintiffs’ claims, including as to whether the plaintiffs met the applicable test for the threshold issue of employment classification.

Trial in both cases was scheduled to begin September 7, 2021.

In August 2021, the parties held a mediation at which a tentative settlement was reached in both actions.

Subject to the Court’s approval, we have agreed to pay the plaintiff class in the Alvarez case a total of $ 20 million, which includes all attorneys’ fees and other costs.

We have agreed to pay the plaintiff class in the Arrellano case a total of

$ 9.5 million, which includes all attorneys’ fees and other costs.

We accrued for both settlements in the third quarter of 2021.

Under the terms of both settlement agreements, we do not have to reclassify our contractors as employees and the plaintiff classes have agreed to release us from all liability from the inception of each respective class period through December 31, 2021.

All parties involved have agreed to dismiss all claims and counterclaims with prejudice, and the settlement agreements do not contain any admission of liability, wrongdoing or responsibility by any of the parties.

The Court granted preliminary approval of the settlements on October 8, 2021, and pursuant to the settlement agreements, the company provided the settlement funds to the third-party class administrators in December 2021.

On January 10, 2022, following a hearing, the Court granted final approval of the settlements.

Plaintiffs’ motions for attorneys’ fees and incentive awards have been taken under submission, so final judgment has not yet been entered, but the company currently expects distribution of funds to class members to occur in the first half of 2022.

Shareholder Litigation

On December 14, 2018, a putative class action captioned Labul v.

XPO Logistics, Inc.

, 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.

On March 19, 2021, the Court dismissed the first amended consolidated class action complaint with prejudice and closed the case.

On April 29, 2021, the Pension Funds filed a notice of appeal, and the appellate process is ongoing.

Also, on May 13, 2019, Adriana Jez filed a purported shareholder derivative action captioned Jez v.

Jacobs, et al.

, (the “Jez complaint”) in 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.

On December 12, 2019, the Court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days.

On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases.

Defendants moved to dismiss the operative complaint on February 26, 2020.

Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss.

The Court granted plaintiffs’ motion on July 6, 2020.

On April 14, 2021, the Court issued an order staying proceedings pending resolution of an appeal in the Labul action.

Plaintiffs stipulated that they will dismiss the shareholder derivative action with prejudice if the Labul dismissal is affirmed on appeal.

We believe these suits are without merit and we intend to defend the company vigorously.

We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.

Insurance Contribution Litigation

In April 2012, Allianz Global Risks US Insurance Company sued eighteen insurance companies in a case captioned Allianz Global Risks US Ins.

ACE Property & Casualty Ins.

Co., et al., Multnomah County Circuit Court (Case No.

Allianz sought contribution on environmental and product liability claims that Allianz agreed to defend and indemnify on behalf of its insured, Daimler Trucks North America (“DTNA”).

Defendants had insured Freightliner’s assets, which DTNA acquired in 1981.

Con-way, Freightliner’s former parent company, intervened.

We acquired Con-way in 2015.

Con-way and Freightliner had self-insured under fronting agreements with defendant insurers ACE, Westport, and General.

Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies.

Con-way’s captive insurer, Centron, was also a

named defendant.

After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner.

In June 2015, Allianz appealed to the Oregon Court of Appeals.

In May 2019, the Oregon Court of Appeals upheld the jury verdict.

In September 2019, Allianz appealed to the Oregon Supreme Court.

In March 2021, the Oregon Supreme Court reversed the jury verdict, holding that it was an error to allow the jury to decide how the parties intended the fronting policies to operate, and also holding that the trial court improperly instructed the jury concerning one of the pollution exclusions at issue.

In July of 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision.

There is no date yet set for the next stages of the proceeding.

The parties have filed cross-motions for summary judgment concerning the interpretation of certain of the fronting policies, which are yet to be decided.

Following summary judgment, we anticipate a jury trial on the pollution exclusion, then a bench trial on allocation of defense costs among the subject insurance policies.

We have accrued an immaterial amount for the potential exposure associated with Centron in the bench trial regarding allocation.

As any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time, no liability has been accrued in the accompanying consolidated financial statements for those potential exposures.

Quarterly Financial Data (Unaudited)

Our unaudited results of operations for each of the quarters in the years ended December 31, 2021 and 2020 are summarized below:

(In millions, except per share data) First

Quarter Second Quarter Third Quarter (2)

Fourth Quarter

Revenue $ 2,989 $ 3,186 $ 3,270 $ 3,361

Operating income 139 191 112 174

Income from continuing operations 63 113 21 126

Income (loss) from discontinued operations, net of taxes 55 45 ( 78 ) ( 4 )

Net income (loss) 118 158 ( 57 ) 122

Net income (loss) attributable to common shareholders:

Continuing operations 63 113 21 126

Discontinued operations 52 43 ( 78 ) ( 4 )

Net income (loss) attributable to common shareholders 115 156 ( 57 ) 122

Basic earnings (loss) per share:

Continuing operations 0.59 1.01 0.19 1.09

Discontinued operations 0.49 0.38 ( 0.69 ) ( 0.03 )

Basic earnings (loss) per share attributable to common

1.08 1.39 ( 0.50 ) 1.06

Diluted earnings (loss) per share:

Continuing operations 0.56 1.00 0.19 1.08

Discontinued operations 0.46 0.38 ( 0.68 ) ( 0.03 )

Diluted earnings (loss) per share attributable to common

1.02 1.38 ( 0.49 ) 1.05

(1) The sum of the quarterly Net income (loss) attributable to common shareholders and earnings (loss) per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective periods and because losses are not allocated to the Series A Preferred Stock in calculating earnings (loss) per share.

(2) The third quarter of 2021 included a litigation settlement charge of $ 29 million.

(In millions, except per share data) First

Second Quarter (3)

Third Quarter Fourth Quarter (4)

Revenue $ 2,459 $ 2,127 $ 2,675 $ 2,938

Operating income (loss) 38 ( 101 ) 138 153

Income (loss) from continuing operations ( 9 ) ( 107 ) 37 66

Income (loss) from discontinued operations, net of taxes 34 ( 27 ) 61 62

Net income (loss) 25 ( 134 ) 98 128

Net income (loss) attributable to common shareholders:

Continuing operations ( 11 ) ( 105 ) 28 34

Discontinued operations 32 ( 27 ) 56 59

Net income (loss) attributable to common shareholders 21 ( 132 ) 84 93

Basic earnings (loss) per share:

Continuing operations ( 0.11 ) ( 1.16 ) 0.30 0.37

Discontinued operations 0.34 ( 0.29 ) 0.63 0.64

Basic earnings (loss) per share attributable to common

0.23 ( 1.45 ) 0.93 1.01

Diluted earnings (loss) per share:

Continuing operations ( 0.11 ) ( 1.16 ) 0.27 0.33

Discontinued operations 0.34 ( 0.29 ) 0.56 0.58

Diluted earnings (loss) per share attributable to common

0.23 ( 1.45 ) 0.83 0.91

(2) The first quarter of 2020 included transaction and integration costs of $ 37 million.

(3) The second quarter of 2020 included transaction and integration costs of $ 29 million and restructuring costs of $ 28 million.

(4) The fourth quarter of 2020 included a $ 22 million, or $ 0.22 per diluted share from continuing operations, preferred stock conversion charge that reduced income attributable to common shareholders from continuing operations for earnings per share purposes, but did not affect net income, associated with the December 2020 conversion of our preferred stock.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data