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Item 7. Management’s Discussion and Analysis

2023-02-13 compared with 2022-02-16 · 208 added, 217 removed, 248 unchanged (63% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

XPO Logistics is a leading provider of freight transportation services.

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

These two core lines of business generated the majority of our 2021 revenue and operating income.

Our company has two reportable segments — (i) North American LTL and (ii) Brokerage and Other Services — and within each segment, we are a leading provider in vast, fragmented transportation sectors with growing penetration.

We believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.

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

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

(“GXO”) to XPO stockholders.

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

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

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

The historical results of GXO are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

Impacts of COVID-19 and Supply Chain Challenges

XPO is a leading provider of freight transportation services with company-specific avenues for value creation.

We use our proprietary technology to move goods efficiently through our customers’ supply chains in North America and Europe.

Our company has two reportable segments:

North American Less-Than-Truckload (“LTL”), the largest component of our business, and European Transportation.

Our North American LTL segment includes the results of our trailer manufacturing operations.

Strategic Actions

In March 2022, our Board of Directors approved a strategic plan for the spin-off of our tech-enabled brokered transportation platform as a new public company, separating it from our LTL business in North America;

which was completed in 2022.

Additionally, the plan included the sale of our intermodal operation, which was also completed in 2022;

and the intended divestiture of our European business.

There can be no assurance that the divestiture will occur, or of the terms or timing of a transaction.

On November 1, 2022, we completed the spin-off of our tech-enabled brokered transportation platform as a publicly traded company, RXO, Inc.

The transaction is intended to be tax-free to XPO and our shareholders for U.S.

federal income tax purposes.

The spin-off was accomplished by the distribution of 100% of the outstanding common stock of RXO to XPO shareholders.

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

In connection with the spin-off, we have entered into a separation and distribution agreement, as well as various other agreements with RXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement, a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will provide certain services to RXO.

Divestiture of the Intermodal Operation

In March 2022, we completed the planned sale of our North American intermodal operation for cash proceeds of approximately $705 million, net of cash disposed and subject to customary post-closing working capital adjustments that remain ongoing.

The pre-tax gain on sale was $430 million, net of transaction costs and working capital adjustments, and was included in Income from discontinued operations, net of taxes, for the year ended December 31, 2022.

We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale.

Discontinued Operations from Strategic Actions

In addition to the transactions related to our March 2022 strategic plan, we completed the spin-off of our logistics segment as GXO Logistics, Inc.

(“GXO”) on August 2, 2021.

The historical results of operations and the financial positions of GXO, RXO and our intermodal operation are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

The intermodal operation qualified to be accounted for as a discontinued operation after the spin-off of RXO because the sale of the intermodal operation and RXO were part of one strategic plan of disposal.

Impacts of Notable External Conditions

As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control.

The COVID-19 pandemic that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry.

The onset of the COVID-19 pandemic and associated impacts on economic activity had adverse effects on our results of operations and financial condition beginning in the second quarter of 2020 and continued throughout the year.

The rebound of our business began to occur midway through 2020;

however, as the economy recovers, demand has outpaced supply in certain sectors.

Additionally, labor shortages in the recovery – notably, a reduced supply of truck drivers – present challenges to many service industries, including freight transportation.

These dynamics, together with equipment shortages and pent-up demand for semiconductor chips used by some of our end markets, have created supply chain disruptions and increased our cost of transportation and services.

We cannot predict how long the current labor shortages and other disruptions will last, or whether future disruptions, if any, will adversely affect our results of operations.

We continue to incur net incremental and direct costs related to COVID-19 to ensure that we meet the needs of our employees and customers;

these include costs for personal protective equipment (“PPE”), site cleanings and enhanced employee benefits, referred to as COVID-19-related costs in this Annual Report.

The totality of the actions we have taken during the pandemic, and continue to take, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in key growth initiatives.

Impact of Inflation

Inflation can have a negative impact on our operating costs.

A prolonged period of inflation could cause interest rates, fuel, wages and other costs to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases.

For the year ended December 31, 2021, the constrained labor market resulted in higher third-party transportation and fuel costs to meet growing demand which were partially offset by increased pricing to our customers.

The COVID-19 virus that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry.

Labor shortages, particularly a shortage of truck drivers and dockworkers, and equipment shortages continue to present challenges to many transportation-related industries.

Disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have impacted some of the end-market activities that create demand for our services.

We cannot predict how long these dynamics will last, or whether future challenges, if any, will adversely affect our results of operations.

Additionally, economic inflation can have a negative impact on our operating costs, such as the rising costs of fleet maintenance, fuel and purchased transportation we experienced in 2022.

We mitigate these costs by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases.

In addition, the rise in interest rates increased our cost of capital in 2022.

An economic recession could depress customer demand for transportation services.

Regarding the war between Russia and Ukraine, we have no direct exposure to those geographies.

We cannot predict how global supply chain activities or the economy at large may be impacted by a prolonged war in Ukraine or sanctions imposed in response to the war, or whether future conflicts, if any, may adversely affect our results of operations.

Consolidated Summary Financial Results

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Depreciation and amortization expense 392 385 378 5.1 % 5.3 % 6.1 %

Goodwill impairment 64 — — 0.8 % — % — %

Transaction and integration costs 58 36 67 0.8 % 0.5 % 1.1 %

2 unchanged sentences

Other income (55) (60) (47) (0.7) % (0.8) % (0.8) %

Foreign currency (gain) loss (2) (3) 10 — % — % 0.1 %

Debt extinguishment loss 39 54 — 0.5 % 0.7 % — %

10 unchanged sentences

Our consolidated revenue for 2022 increased by 7.2% to $7.7 billion, from $7.2 billion in 2021.

The increase primarily reflects growth in both our LTL and truck brokerage businesses and the negative impact of COVID-19 in 2020, which decreased demand for our services.

Foreign currency movement increased revenue by approximately 0.9 percentage points in 2021.

Cost of transportation and services (exclusive of depreciation and amortization) includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truck brokerage businesses.

The increase primarily reflects growth in our LTL segment.

Foreign currency movement decreased revenue by approximately 5.3 percentage points in 2022.

Cost of transportation and services (exclusive of depreciation and amortization) includes wages paid to employee drivers, fuel, maintenance and other costs of providing or procuring freight transportation for XPO.

Cost of transportation and services (exclusive of depreciation and amortization) in 2022 was $4.9 billion, or 64.1% of revenue, compared with $4.6 billion, or 63.9% of revenue, in 2021.

The year-over-year increase as a percentage of revenue reflects the constrained labor market, which resulted in higher third-party transportation costs.

These increases were partially offset by lower compensation-related costs, including COVID-19-related costs.

Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist of operating costs related to our LTL service centers.

Direct operating expenses (exclusive of depreciation and amortization) consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.

The year-over-year increase as a percentage of revenue primarily reflects higher fuel costs, almost entirely offset by lower third-party transportation and compensation costs.

Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist of operating costs related to our LTL service centers and other operating facilities.

Direct operating expenses (exclusive of depreciation and amortization) consist mainly of personnel costs, facility expenses and gains and losses on sales of property and equipment.

Direct operating expense (exclusive of depreciation and amortization) in 2022 was $1.2 billion, or 15.0% of revenue, compared with $1.1 billion, or 15.1% of revenue, in 2021.

The year-over-year decrease as a percentage of revenue was primarily driven by lower COVID-19 related costs as well as the leveraging of compensation and facilities costs

across a larger revenue base.

Additionally, 2021 and 2020 included $73 million and $90 million, respectively, from gains on sales of property and equipment.

Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, professional fees, facility costs, bad debt expense and legal costs.

SG&A was $1.3 billion in 2021, or 10.3% of revenue, compared with $1.2 billion, or 11.9% of revenue, in 2020.

The year-over-year decrease in SG&A as a percentage of revenue was primarily driven by lower self-insurance expense, compensation costs, bad debt expense and third-party professional fees, as well as lower COVID-19-related costs.

These impacts were partially offset by higher employee healthcare costs and legal costs, including $31 million incurred in 2021 related to settlements in connection with classification of independent contractors at our intermodal drayage business unit.

See Note 18—Commitments and Contingencies to our Consolidated Financial Statements for further information.

The increase in 2022 reflects higher compensation-related and facility costs and lower gains on sales of property and equipment.

Direct operating expense in 2022 and 2021 included $60 million and $72 million, respectively, from gains on sales of property and equipment.

As a percentage of revenue, direct operating expense in 2022 reflected the leveraging of compensation costs across a larger revenue base, almost entirely offset by the lower gains on sales of property and equipment.

Sales, general and administrative expense (“SG&A”) primarily consists of salary and benefit costs for our sales function and executive and certain administration functions, information technology expenses, professional fees, facility costs, bad debt expense and legal costs.

SG&A was $678 million in 2022, or 8.8% of revenue, compared with $756 million, or 10.5% of revenue, in 2021.

The year-over-year decrease primarily reflects lower compensation-related costs and third-party professional fees.

As a percentage of revenue, the year-over-year decrease reflects the leveraging of compensation-related costs across a larger revenue base.

Depreciation and amortization expense in 2022 was $392 million, compared with $385 million in 2021.

Goodwill impairment was $64 million in 2022 and related to our European Transportation reporting units.

For more information, see critical accounting policies and estimates below.

Transaction and integration costs in 2022 were $58 million, compared with $36 million in 2021.

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 2022 are primarily comprised of stock-based compensation and third-party professional fees related to strategic initiatives.

Transaction and integration costs for 2021 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees.

We expect to incur additional transaction and integration costs related to rebranding and stock-based compensation in 2023 and 2024.

Restructuring costs in 2022 were $50 million, compared with $19 million in 2021.

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

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and divestment activities.

For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements.

Upon successful completion of the restructuring initiatives recorded in 2021, we expect to achieve annualized pre-tax run-rate savings of approximately $25 million by the end of 2022.

Other income primarily consists of pension income.

Other income for 2022 was $55 million, compared with $60 million in 2021.

The year-over-year increase reflects $15 million of higher net periodic pension income in 2021.

Foreign currency (gain) loss was a $2 million gain in 2021, compared with a $3 million gain in 2020.

Foreign currency (gain) loss in 2021 primarily reflected a realized gain on de-designated cross-currency contract.

Foreign currency gain in 2020 primarily reflected unrealized gains on foreign currency option and forward contracts and a realized gain on a terminated net investment hedge, partially offset by foreign currency transaction and measurement losses.

For additional information on our foreign currency option and forward contracts, see Note 11—Derivative Instruments to our Consolidated Financial Statements.

Debt extinguishment loss was $54 million in 2021.

Debt extinguishment loss was $39 million in 2022, compared with $54 million in 2021.

In 2022, we repurchased a portion of our outstanding 6.25% senior notes due 2025 (“Senior Notes due 2025”) and wrote-off related debt issuance costs and incurred a pre-payment penalty.

In 2021, we redeemed our outstanding senior notes due 2022, 2023 and 2024 and wrote-off related debt issuance costs, incurred a pre-payment penalty on the redemption of the 2024 senior notes and incurred costs related to the amendment of our term loan credit agreement.

There were no debt extinguishment losses in 2020.

Interest expense for 2022 decreased 36.0% to $135 million, from $211 million in 2021.

The decrease in interest expense reflected the lower average debt balances, including the redemption of our senior notes and amendment of our term loan agreement.

Our consolidated income (loss) from continuing operations before income taxes in 2021 was income of $410 million, compared with a loss of $35 million in 2020.

The increase primarily was driven by higher operating income and lower interest expense, partially offset by the debt extinguishment loss recorded in 2021.

The decrease in interest expense reflected the lower average debt balances.

We anticipate interest expense to be between $185 million and $195 million in 2023.

Our consolidated income from continuing operations before income taxes in 2022 was $258 million, compared with $107 million in 2021.

The increase primarily was driven by higher operating income and lower interest expense and debt extinguishment loss.

With respect to our U.S.

operations, income from continuing operations before income taxes was income of $303 million in 2022, compared with income of $108 million in 2021.

The increase was primarily due to higher revenue, in part from the negative impact of COVID-19 on our 2020 results, partially offset by higher third-party transportation, fuel and personnel costs.

Additionally impacting the increase was lower interest expense, partially offset by the debt extinguishment loss recorded in 2021.

The increase was primarily due to higher revenue, partially offset by higher fuel, third-party transportation and personnel costs.

Additionally impacting the increase in 2022 were lower interest expense and debt extinguishment loss.

With respect to our non-U.S.

operations, loss from continuing operations

before income taxes was $10 million in 2021, compared with a loss of $80 million in 2020.

The decrease in the loss was primarily due to higher revenues, in part from the negative impact of COVID-19 on our 2020 results, partially offset by higher third-party transportation, fuel and personnel costs.

operations, loss from continuing operations before income taxes was $45 million in 2022, compared with a loss of $1 million in 2021.

The increase in the loss was primarily due to higher fuel costs and the goodwill impairment charge of $64 million in 2022, partially offset by lower personnel costs.

Our effective income tax rates were 28.6% and 10.4% in 2022 and 2021, respectively.

The decrease in our effective income tax rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by reduced contribution and margin-based taxes coupled with increased pre-tax book income and the impact of discrete items.

The increase in our effective income tax rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by increased pre-tax book income coupled with a decreased impact from discrete items.

For the year ended December 31, 2022, our effective tax rate was impacted by the non-deductible goodwill impairment charge and $10 million of non-deductible compensation.

For the year ended December 31, 2021, our effective tax rate was impacted by discrete tax benefits of $45 million related to a tax planning initiative that resulted in the recognition of a long-term capital loss partially offset by discrete tax expenses of $39 million related to foreign valuation allowances, of which $34 million of the valuation allowances were transferred to GXO.

Additionally, impacting the year ended December 31, 2021, were $8 million of non-deductible compensation, discrete tax benefits of $8 million resulting from changes in reserves for uncertain tax positions and discrete tax benefits of $6 million related to stock-based compensation.

For the year ended December 31, 2020, our effective tax rate was impacted primarily by a pre-tax book loss, $8 million of contribution and margin-based taxes, foreign rate differential benefit of $3 million, discrete tax benefits of $15 million related to stock-based compensation and $6 million of discrete tax benefits related to provision to return adjustments, partially offset by a discrete tax expense of $4 million related to changes in reserves for uncertain tax positions.

Additionally, impacting the year ended December 31, 2021, were $8 million of non-deductible compensation and discrete tax benefits of $4 million related to stock-based compensation.

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

Our consolidated revenue for 2020 decreased by 4.5% to $10.2 billion, from $10.7 billion in 2019.

The decline in revenue primarily reflected the impact of COVID-19 and lower fuel revenue.

Our consolidated revenue for 2021 increased by 16.8% to $7.2 billion, from $6.2 billion in 2020.

The increase primarily reflects growth in both our LTL and European Transportation segments and the negative impact of COVID-19 in 2020, which decreased demand for our services.

Foreign currency movement increased revenue by approximately 2.0 percentage points in 2021.

Cost of transportation and services (exclusive of depreciation and amortization) in 2021 was $4.6 billion, or 63.9% of revenue, compared with $3.9 billion, or 62.9% of revenue in 2020.

The year-over-year decrease as a percentage of revenue reflects lower fuel costs, partially offset by higher third-party transportation costs and incremental PPE and other COVID-19-related costs.

The year-over-year increase as a percentage of revenue reflects the constrained labor market, which resulted in higher third-party transportation costs, as well as higher fuel costs.

These increases were partially offset by lower compensation-related costs.

Direct operating expense (exclusive of depreciation and amortization) in 2021 was $1.1 billion, or 15.1% of revenue, compared with $1.0 billion, or 15.9% of revenue, in 2020.

The year-over-year increase as a percentage of revenue was primarily driven by higher facility and payroll costs and incremental PPE and other COVID-19-related costs.

The year-over-year decrease as a percentage of revenue was primarily driven by lower COVID-19 related costs as well as the leveraging of compensation and facilities costs across a larger revenue base.

Additionally, 2021 and 2020 included $72 million and $90 million, respectively, from gains on sales of property and equipment.

SG&A was $1.2 billion in 2020, or 11.9% of revenue, compared with $1.1 billion, or 10.0% of revenue, in 2019.

The year-over-year increase in SG&A as a percentage of revenue was primarily driven by higher compensation costs, increased self-insurance and bad debt expense and incremental PPE and other COVID-19-related costs.

Compensation costs were higher in 2020 compared to the prior year due to the strength of our operating performance in a challenging macro-environment.

SG&A was $756 million in 2021, or 10.5% of revenue, compared with $746 million, or 12.1% of revenue, in 2020.

The year-over-year decrease as a percentage of revenue was primarily driven by lower self-insurance and share-based compensation expenses and third-party professional fees.

These impacts were partially offset by higher employee healthcare costs.

Depreciation and amortization expense in 2021 was $385 million, compared with $378 million in 2020.

Transaction and integration costs in 2021 were $36 million, compared with $67 million in 2020.

Transaction and integration costs for 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

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

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

Restructuring costs in 2021 were $19 million, compared with $22 million in 2020.

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 our spin-off of GXO and in response to COVID-19.

For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements.

Other income primarily consists of pension income.

Other income for 2021 was $60 million, compared with $47 million in 2020.

The year-over-year increase reflects $21 million of higher net periodic pension income in 2020.

Foreign currency (gain) loss was a $3 million gain in 2020, compared with a $10 million loss in 2019.

Foreign currency loss in 2019 primarily reflected unrealized losses on foreign currency option and forward contracts.

Debt extinguishment loss was $5 million in 2019 and related to the write-off of debt issuance costs for an unsecured credit facility (“Unsecured Credit Facility”) that was repaid in 2019.

There were no debt extinguishment losses in 2020.

Interest expense for 2020 increased 14.6% to $307 million, from $268 million in 2019.

The increase in interest expense was primarily due to higher average total indebtedness, including the senior notes due 2025 (the “Senior Notes due 2025”) that were issued in the second quarter of 2020, partially offset by lower interest rates in 2020.

Our consolidated income (loss) from continuing operations before income taxes in 2020 was a loss of $35 million, compared with income of $301 million in 2019.

The decrease primarily was driven by lower operating income and higher interest expense, partially offset by higher other income.

The year-over-year increase reflects $15 million of higher net periodic pension income in 2021, partially offset by lower foreign currency income in 2021.

Interest expense for 2021 decreased 31.5% to $211 million, from $308 million in 2020.

The decrease in interest expense reflected the lower average debt balances, including the redemption of our senior notes and amendment of our term loan agreement.

Our consolidated income (loss) from continuing operations before income taxes in 2021 was income of $107 million, compared with a loss of $164 million in 2020.

The increase primarily was driven by higher operating income and lower interest expense, partially offset by the debt extinguishment loss recorded in 2021.

With respect to our U.S.

operations, income from continuing operations before income taxes was $45 million, compared with income of $286 million in 2019.

The decrease was primarily due to the impact of COVID-19 and higher interest expense.

operations, income from continuing operations before income taxes was income of $108 million in 2021, compared with a loss of $128 million in 2020.

The increase was primarily due to higher revenue, in part from the negative impact of COVID-19 on our 2020 results, and lower insurance and third-party professional fees, partially offset by higher third-party transportation, fuel and personnel costs.

Additionally impacting the increase was lower interest expense, partially offset by the debt extinguishment loss recorded in 2021.

With respect to our non-U.S.

operations, loss from continuing operations before income taxes was $80 million in 2020, compared to income of $15 million in 2019.

The decrease was primarily due to the impact of COVID-19.

operations, loss from continuing operations before income taxes was $1 million in 2021, compared with a loss of $36 million in 2020.

Our effective income tax rates were 10.4% and 33.1% in 2021 and 2020, respectively.

The increase in our effective income tax rate for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily driven by a significant reduction in pre-tax book income and discrete items.

Contribution and margin-based tax expense did not materially change for the year ended December 31, 2020 as compared to the prior year.

However, these items had a significant impact on the Company’s 2020 effective tax rate, primarily due to the pre-tax book loss in 2020 as compared to higher pre-tax book income in 2019.

For the year ended December 31, 2019, our effective tax rate was impacted by $8 million of contribution and margin-based taxes offset by discrete tax benefits of $5 million related to changes in reserves for uncertain tax positions.

Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 provided numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property.

We applied the provisions of the CARES Act relating to income taxes and realized a $4 million reduction in cash taxes as well as an immaterial income tax benefit on our Consolidated Statements of Income in 2020.

Additionally, we benefited from the ability to defer the payment of certain payroll taxes that would otherwise have been required in 2020.

We have not applied for any government loans under the CARES Act or similar laws.

The decrease in our effective income tax rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by increased pre-tax book income and the impact of discrete items.

Additionally, impacting the year ended December 31, 2021, were $8 million of non-deductible compensation and discrete tax benefits of $4 million related to stock-based compensation.

For the year ended December 31, 2020, our effective tax rate was impacted primarily by a pre-tax book loss, $7 million of contribution and margin-based taxes, foreign rate differential benefit of $3 million, discrete tax benefits of $14 million related to stock-based compensation and $7 million related to provision to return adjustments, partially offset by a discrete tax expense of $3 million related to changes in reserves for uncertain tax positions.

Segment Financial Results

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

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

Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income (loss) from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, goodwill impairment charges, transaction and integration costs, restructuring costs and other adjustments.

See Note 4—Segment Reporting and Geographic Information for further information and a reconciliation of Adjusted EBITDA to Income (loss) from continuing operations.

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Revenue in our North American LTL segment increased 12.6% to $4.6 billion in 2022, compared with $4.1 billion in 2021.

Revenue included fuel surcharge revenue of $632 million and $433 million, respectively, for the years ended December 31, 2021 and 2020.

Revenue included fuel surcharge revenue of $1.0 billion and $632 million, respectively, for the years ended December 31, 2022 and 2021.

We evaluate the revenue performance of our LTL business using several commonly used metrics, including volume (weight per day in pounds) and yield, which is a commonly used measure of LTL pricing trends.

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Gross revenue per hundredweight, excluding fuel surcharges $ 21.18 $ 19.80 7.0 %

The year-over-year increase in revenue for 2021 reflects an increase in average weight per day and gross revenue per hundredweight.

The increase in weight per day for 2021 reflects higher shipments per day and weight per shipment.

Adjusted EBITDA was $904 million, or 21.9% of revenue, in 2021, compared with $764 million, or 21.6% of revenue, in 2020.

The increase in adjusted EBITDA was primarily driven by higher revenue and pension income, partially offset by higher personnel, third-party transportation and fuel costs.

Additionally, adjusted EBITDA for 2021 included lower year-over-year gains from real estate transactions, including a $62 million gain in 2021, compared with $77 million in 2020.

The year-over-year increase in revenue for 2022 reflects an increase in gross revenue per hundredweight.

The decrease in weight per day for 2022 reflects lower shipments per day.

Adjusted EBITDA was $1.0 billion, or 21.8% of revenue, in 2022, compared with $906 million, or 22.0% of revenue, in 2021.

Adjusted EBITDA included gains from real estate transactions of $55 million and $62 million, respectively, for the years ended December 31, 2022 and 2021.

Additionally, Adjusted EBITDA in 2022 reflected higher revenue, partially offset by increased compensation and fuel costs, as well as higher purchased transportation costs, in part due to inflation.

Depreciation and amortization expense increased in 2022 compared with 2021 due to the impact of prior capital investments, in particular tractors and trailers.

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

Revenue in our North American LTL segment decreased 6.6% to $3.5 billion in 2020, compared with $3.8 billion in 2019.

Revenue in our North American LTL segment increased 16.3% to $4.1 billion in 2021, compared with $3.5 billion in 2020.

Revenue included fuel surcharge revenue of $632 million and $433 million, respectively, for the years ended December 31, 2021 and 2020.

The decline in revenue reflected the impact of COVID-19.

The following table summarizes our key revenue metrics:

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Gross revenue per hundredweight, excluding fuel surcharges $ 19.80 $ 18.63 6.3 %

The year-over-year decrease in revenue for 2020 reflects a decrease in average weight per day in part due to COVID-19, partially offset by an increase in gross revenue per hundredweight.

The decrease in weight per day reflects lower shipments per day and weight per shipment.

The year-over-year increase in revenue for 2021 reflects an increase in average weight per day and gross revenue per hundredweight.

The increase in weight per day for 2021 reflects higher shipments per day and weight per shipment.

Adjusted EBITDA was $906 million, or 22.0% of revenue, in 2021, compared with $764 million, or 21.5% of revenue, in 2020.

The decrease in adjusted EBITDA was primarily driven by lower revenue and higher facility costs, partially offset by lower fuel, third-party transportation and personnel costs, as well as higher pension income.

Additionally, adjusted EBITDA included $77 million and $88 million in 2020 and 2019, respectively, of gains from real estate transactions.

Brokerage and Other Services Segment

The increase in Adjusted EBITDA was primarily driven by higher revenue and pension income, partially offset by higher personnel, third-party transportation and fuel costs.

Additionally, Adjusted EBITDA for 2021 included lower year-over-year gains from real estate transactions, including a $62 million gain in 2021, compared with $77 million in 2020.

European Transportation Segment

Years Ended December 31, Percent of Revenue

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Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

Revenue in our Brokerage and Other Services segment increased 31.0% to $8.9 billion in 2021, compared with $6.8 billion in 2020.

The increase in revenue compared to 2020 reflects an increase in North American truck brokerage loads per day facilitated by our digital platform, as well as strength in other brokerage services, in part due to improving market conditions in the economic recovery from the COVID-19 pandemic.

These gains were partially offset by the impact of the global semiconductor shortage, which constrained customer demand for freight transportation services in North America and Europe.

Foreign currency movement increased revenue by approximately 1.4 percentage points in 2021.

Revenue in our European Transportation segment decreased 0.1% to $3.07 billion in 2022, compared with $3.08 billion in 2021.

Foreign currency movement decreased revenue by approximately 12.3 percentage points in 2022.

The increase in revenue compared to 2021, after taking into effect the impact of foreign currency movement, primarily reflects higher fuel surcharge revenue.

Adjusted EBITDA was $169 million, or 5.5% of revenue in 2022, compared with $165 million, or 5.4% of revenue, in 2021.

The increase in adjusted EBITDA was primarily driven by higher revenue due to load growth and strong pricing in other brokerage services, partially offset by higher compensation and facilities costs.

The increase in Adjusted EBITDA was primarily driven by lower compensation-related and third-party transportation costs, partially offset by higher fuel costs and the impact of inflation.

Depreciation and amortization expense decreased in 2022 compared with 2021 primarily due to the impact of foreign currency movement.

Year Ended December 31, 2021 Compared with Year Ended December 31, 2020

Revenue in our Brokerage and Other Services segment decreased 3.4% to $6.8 billion in 2020, compared with $7.0 billion in 2019.

The decline in revenue primarily reflected the impact of COVID-19 and lower fuel revenue.

Revenue in our European Transportation segment increased 17.4% to $3.1 billion in 2021, compared with $2.6 billion in 2020.

Foreign currency movement increased revenue by approximately 4.7 percentage points in 2021.

The increase in revenue compared to 2020 reflects improving market conditions in the economic recovery from the COVID-19 pandemic, partially offset by the impact of the global semiconductor shortage, which constrained customer demand for freight transportation services in Europe.

Adjusted EBITDA was $165 million, or 5.4% of revenue in 2021, compared with $87 million, or 3.3% of revenue, in 2020.

The decrease in adjusted EBITDA was primarily driven by lower revenue, partially offset by lower third-party transportation, fuel and personnel costs.

Depreciation and amortization expense in 2019 included $6 million related to the impairment of customer relationship intangible assets associated with exiting the direct postal injection business.

The increase in Adjusted EBITDA was primarily driven by the higher revenue, partially offset by higher third-party transportation, fuel and compensation costs.

Depreciation and amortization expense increased in 2021 compared with 2020 primarily due to the impact of foreign currency movement.

Liquidity and Capital Resources

Our cash and cash equivalents balance was $460 million as of December 31, 2022, compared to $228 million as of December 31, 2021.

Our principal existing sources of cash are (i) cash generated from operations;

(ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”);

and (iii) proceeds from the issuance of other debt.

As of December 31, 2021, we have $995 million available to draw under our ABL Facility, based on a borrowing base of $1.0 billion and outstanding letters of credit of $5 million.

(iii) proceeds from the issuance of other debt;

and (iv) proceeds from divestiture activities.

As of December 31, 2022, we have $470 million available to draw under our ABL Facility, based on a borrowing base of $472 million and outstanding letters of credit of $2 million.

Additionally, under a credit agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $172 million in aggregate face amount of letters of credit as of December 31, 2022.

In July 2021, we amended our existing ABL facility which matures in April 2024 to reduce the commitments from $1.1 billion to $1.0 billion.

There were no other significant changes made to the terms of the facility, including the maturity date, the interest rate margin, and financial covenants.

Our cash and cash equivalents balance was $260 million as of December 31, 2021, compared to $1.7 billion as of December 31, 2020.

The decrease in cash and cash equivalents is largely due to the repayment of debt in 2021 described below.

In connection with the spin-off of RXO, effective November 4, 2022, the commitments under the ABL Facility were reduced from $1.0 billion to $600 million with no further action by any of the parties thereto.

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

In February 2023, we amended our existing ABL Facility to, among other things:

(i) extend the maturity date to April 30, 2026 (subject, in certain circumstances, to a springing maturity if more than $250 million of our existing term loan debt or certain refinancings thereof remain outstanding 91 days prior to their respective maturity dates);

(ii) replace LIBOR-based benchmark rates applicable to loans outstanding with Secured Overnight Financing Rate-based rates;

(iii) reduce the sublimit for issuance of letters of credit to $200 million;

(iv) reduce the sublimit for borrowings in Canadian Dollars to $50 million;

(v) exclude real property from the collateral securing the obligations and (vi) make certain other changes to the covenants and other provisions therein.

The aggregate commitment of all lenders under the amended ABL Facility remains equal to $600 million.

As of December 31, 2022, we had approximately $930 million of total liquidity.

We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources.

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We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements.

We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows.

We also sell trade accounts receivable under a securitization program described below.

We also sell trade accounts receivable under a securitization program for our European transportation business.

We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

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

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

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

The program expires in July 2024.

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

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

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

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

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

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

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

Under the current program, we service the receivables we sell on behalf of the Purchasers, which gives us visibility into the timing of customer payments.

For more information, see Note 2 —Basis of Presentation and Significant Accounting Policies to our Consolidated Financial Statements.

The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $214 million as of December 31, 2022).

As of December 31, 2022, €1 million (approximately $2 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously sold.

Under the program, we service the receivables we sell on behalf of the purchasers, which gives us visibility into the timing of customer payments.

The benefit to our cash flow includes the difference between the cash consideration in the table below and the amount we collected as a servicer on behalf of the purchasers.

In 2021 and 2020, we collected cash as servicer of $1.7 billion and $1.4 billion, respectively.

In both 2022 and 2021, we collected cash as servicer of $1.7 billion.

Information related to the trade receivables sold was as follows:

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1,744 1,726 1,377

Deferred purchase price

Factoring programs

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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.

Letters of Credit Facility

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

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

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

The credit agreement governing the letter of credit facility contains representations and warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.

Term Loan Facilities

In 2021, we amended our senior secured term loan credit agreement (the “Term Loan Credit Agreement”) to consolidate our tranches and lower the interest rate.

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

In March 2019, we entered into an amendment to our Term Loan Credit Agreement and borrowed an additional $500 million of incremental loans under a new tranche of term loans.

Proceeds from the new tranche of loans were used for general corporate purposes, including funding purchases of our common stock as described in Note 14—Stockholders’ Equity.

For more information on these amendments, refer to Note 12—Debt to our Consolidated Financial Statements.

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 2021, we amended our senior secured term loan credit agreement (the “Term Loan Credit Agreement”) to consolidate our tranches and lower the interest rate and recorded a debt extinguishment loss of $3 million due to this amendment.

For more information on this amendment, refer to Note 12—Debt to our Consolidated Financial Statements.

In November 2022, we repurchased $408 million of the then $520 million outstanding Senior Notes due 2025 in a cash tender offer.

Holders of the Senior Notes due 2025 received total consideration of $1,022.50 per $1,000.00 principal amount of notes tendered and accepted for purchase, plus accrued and unpaid interest.

We paid for the tender using cash received from RXO in connection with its spin-off.

We recorded a debt extinguishment loss of $13 million due to this repurchase in the fourth quarter of 2022.

In April 2022, we redeemed $630 million of the then $1.15 billion outstanding principal amount of the Senior Notes due 2025.

The redemption price for the notes was 100% of the principal amount plus a premium, as defined in the indenture, of approximately $21 million and accrued and unpaid interest.

We paid for the redemption using available liquidity.

We recorded a debt extinguishment loss of $26 million due to this redemption in 2022.

In 2021, we redeemed our outstanding 6.125% senior notes due 2023 (“Senior Notes due 2023”), 6.75% senior notes due 2024 (“Senior Notes due 2024”) and 6.50% senior notes due 2022 (“Senior Notes due 2022”).

The redemption price for the Senior Notes due 2023 and Senior Notes due 2022 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 redemptions using available cash, net proceeds from a debt issuance and equity offering and cash received from GXO of approximately $794 million.

We recorded debt extinguishment losses of $51 million related to these redemptions.

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

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

In February 2019, we completed a private placement of $1.0 billion aggregate principal amount of our Senior Notes due 2024.

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

Unsecured Credit Facility

In December 2018, we entered into a $500 million Unsecured Credit Facility and borrowed $250 million.

We borrowed an additional $250 million in January 2019.

We used the proceeds of both borrowings to finance a portion of our share repurchases described in Note 14—Stockholders’ Equity to our Consolidated Financial Statements.

In connection with the issuance of the Senior Notes due 2024 described above, we repaid our outstanding obligations under the Unsecured Credit Facility and terminated it in February 2019.

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

Preferred Stock and Warrant Exchanges

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

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

Share Issuance

In 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 Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s executive chairman.

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.

Series A Convertible Perpetual Preferred Stock (“Preferred Stock”) and Warrants

Commencing the fourth quarter of 2020, holders of our Preferred Stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash.

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

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.

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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.

The warrants exchanged included holdings of JPE.

Subsequent to the exchange in 2021, there are no shares of Preferred Stock or warrants outstanding.

Share Repurchases

In December 2018, our Board of Directors authorized the repurchase of up to $1 billion of our common stock, which was completed in the first quarter of 2019.

The share repurchases were funded by our Unsecured Credit Facility and available cash.

In February 2019, our Board of Directors authorized additional repurchases of up to $1.5 billion of our common stock.

The 2019 authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations.

In February 2019, our Board of Directors authorized repurchases of up to $1.5 billion of our common stock.

Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations.

We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.

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

There were no share repurchases in 2021.

There were no share repurchases in 2022 or 2021.

Our remaining share repurchase authorization as of December 31, 2022 is $503 million.

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

Years Ended December 31,

(In millions, except per share data) 2020 2019

Shares purchased and retired 2 25

Aggregate value $ 114 $ 1,347

Average price per share $ 66.58 $ 53.41

Remaining authorization $ 503 $ 617

In 2020, two million shares were repurchased and retired at an aggregate value of $114 million, or $66.58 average per share.

The share purchases in 2020 were funded by our available cash and proceeds from our 2019 debt offerings.

Loan Covenants and Compliance

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Uncertainty related to the London Interbank Offered Rate (“LIBOR”) phase-out by June 2023 for USD LIBOR with greater than two-month maturities may adversely impact the value of, and our obligations under, our ABL and term loan facilities.

In February 2023, we amended the terms of our ABL, including transitioning the interest rate from LIBOR to other base rates, and we expect to similarly modify the interest rate basis in the Term Loan Facility in 2023.

See the applicable discussion under Item 1A, “Risk Factors.”

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(i) generated cash from operating activities from continuing operations of $824 million;

(ii) generated proceeds from sales of property and equipment of $88 million and (iii) received a distribution from RXO of $312 million.

We used cash during this period primarily to:

(i) purchase property and equipment of $521 million;

(ii) redeem a portion of our Senior Notes due 2025 for $1.1 billion and (iii) make payments on debt and finance leases of $61 million.

During 2021, we:

(i) generated cash from operating activities from continuing operations of $490 million;

(ii) generated proceeds from sales of property and equipment of $131 million;

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(ii) generated proceeds from sales of property and equipment (primarily real estate) of $175 million and (iii) received net proceeds of $1.4 billion from our issuances of debt and short-term borrowings.

We used cash during this period primarily to:

We used cash during this period

primarily to:

(i) purchase property and equipment of $249 million;

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Cash flows from operating activities from continuing operations for 2022 increased by $334 million compared with 2021.

The increase reflects higher income from continuing operations of $336 million for 2021 compared with the same period in 2020, partially offset by greater use of cash for working capital in 2021 than in the prior-year period.

Additionally, cash paid for taxes was $44 million higher in 2021 compared to 2020.

Cash flows from operating activities from continuing operations for 2020 decreased by $241 million compared with 2019.

The decrease reflects lower income from continuing operations, partially offset by the impact of operating assets and liabilities utilizing $84 million less cash in 2020.

Within operating assets and liabilities, accrued expenses and other liabilities was a source of cash for 2020 as compared to a use of cash in 2019.

This fluctuation primarily reflects the deferral of certain tax payments and an increase in compensation and purchased transportation accruals in 2020.

Partially offsetting the impact of accrued expenses and other liabilities was the higher use of cash due to increased accounts receivable as a result of higher revenues in the fourth quarter of 2020 compared to 2019.

As of December 31, 2021, we had $1.1 billion of operating lease and related interest payment obligations, of which $206 million is due within the next twelve months.

The increase in 2022 compared with 2021 reflects:

(i) higher income from continuing operations of $88 million;

(ii) higher non-cash deferred tax and stock compensation expenses of $119 million, that are added back to income from continuing operations in determining cash flow from operating activities;

(iii) a $64 million non-cash goodwill impairment charge recognized in 2022, that also is added back in the determination of operating cash flows and (iv) the impact of operating assets and liabilities generating $1 million of cash in 2022, compared with utilizing $30 million of cash in 2021.

Additionally, cash paid for interest was $108 million lower in 2022 compared to 2021.

Cash flows from operating activities from continuing operations for 2021 increased by $194 million compared with 2020.

The increase reflects higher income from continuing operations of $206 million for 2021 compared with 2020, partially offset by the impact of operating assets and liabilities utilizing $30 million of cash in 2021, compared with generating $92 million of cash in 2020.

Additionally, cash paid for interest was $61 million lower in 2021 and cash paid for taxes was $41 million higher in 2021 as compared to 2020.

As of December 31, 2022, we had $891 million of operating lease and related interest payment obligations, of which $137 million is due within the next twelve months.

Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $52 million.

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Investing activities from continuing operations used $404 million of cash in 2022 compared with $141 million used in 2021 and $70 million used in 2020.

During 2021, we used $313 million of cash to purchase property and equipment and received $132 million from sales of property and equipment.

During 2022, we used $521 million of cash to purchase property and equipment and received $88 million from sales of property and equipment and $29 million from the settlement of cross currency swaps.

During 2021, we used $269 million of cash to purchase property and equipment and received $131 million of cash from sales of property and equipment.

During 2019, we used $379 million of cash to purchase property and equipment, received $237 million of cash from

sales of property and equipment and received proceeds of $75 million related to the realization of cash on deferred purchase price receivable.

We anticipate net capital expenditures to be between $425 million and $475 million in 2022, funded by cash on hand and available liquidity.

Financing activities from continuing operations used $1.9 billion of cash in 2021 compared with $1.2 billion of cash generated in 2020 and $201 million used in 2019.

During 2020, we used $249 million of cash to purchase property and equipment and received $175 million of cash from sales of property and equipment.

We anticipate gross capital expenditures to be between $500 million and $600 million in 2023, funded by cash on hand and available liquidity.

Financing activities from continuing operations used $861 million of cash in 2022 compared with $1.9 billion of cash used in 2021 and $1.2 billion of cash generated in 2020.

The primary uses of cash from financing activities during 2022 were $1.1 billion used to redeem a portion of the Senior Notes due 2025 and $61 million used to repay borrowings.

The primary source of cash from financing activities from continuing operations during 2022 was $312 million of net proceeds from a distribution from RXO, which included net proceeds from RXO’s debt offerings.

The primary uses of cash from financing activities from continuing operations during 2021 were $2.8 billion used to redeem the senior notes due 2022, 2023 and 2024 and $200 million used to repay borrowings under our ABL Facility.

The primary sources of cash from financing activities from continuing operations during 2021 were $794 million of proceeds from a distribution from GXO and $384 million of net proceeds from our common offering.

In July 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO.

In 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO.

The primary sources of cash from financing activities from continuing operations in 2020 were $1.1 billion of net proceeds from the issuance of Senior Notes due 2025;

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The primary uses of cash from financing activities from continuing operations in 2020 were $114 million used to repurchase XPO common stock and $65 million used to repay debt and finance leases.

The primary uses of cash from financing activities from continuing operations in 2019 were $1.3 billion to repurchase XPO common stock and $569 million used to repay debt and finance leases.

The primary source of cash from financing activities from continuing operations in 2019 was $1.7 billion of net proceeds from the issuance of long-term debt.

As of December 31, 2022, we had $2.4 billion total outstanding principal amount of debt, excluding finance leases.

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Additionally, as of December 31, 2022, we have $224 million of finance lease and related interest payment obligations, of which $59 million is due within the next twelve months.

For further information on our debt facilities and maturities, see Note 12—Debt to our Consolidated Financial Statements.

For further information on our debt facilities and maturities, see Note 12—Debt to our Consolidated

Financial Statements.

For further information on our finance lease maturities, see Note 8—Leases to our Consolidated Financial Statements.

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For the year ended December 31, 2022, our expected return on plan assets was $106 million, compared to the actual return on plan assets of $(446) million.

The actual annualized return on plan assets for 2021 was approximately 1%, which was below the expected return on asset assumption for the year due to negative performance in a long duration fixed income market environment, which represented 86% of the portfolio, partially offset by positive performance from the domestic and international equity markets.

The actual annualized return on plan assets for 2022 was approximately (22)%, which was below the expected return on asset assumption for the year due to negative performance in the long duration fixed income market environment, which represented 90% of the portfolio, along with negative performance from the domestic and international equity markets.

An increase or decrease of 25 basis points in the expected return on plan assets would increase or decrease our 2022 pre-tax pension income by approximately $5 million.

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In determining the amount and timing of pension contributions, we consider our cash position, the funded status as measured by the Pension Protection Act of 2006 and generally accepted accounting principles, and the tax deductibility of contributions, among other factors.

We contributed $6 million in 2021 and 2020 to the non-qualified plans, respectively, and we estimate that we will contribute $5 million in 2022.

We contributed $5 million and $6 million in 2022 and 2021 to the non-qualified plans, respectively, and we estimate that we will contribute $5 million in 2023.

For additional information, see Note 13—Employee Benefit Plans to our Consolidated Financial Statements.

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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.

For our 2022 and 2021 annual goodwill assessments, which were performed as of August 31, we performed a step-zero qualitative analysis for each of the three reporting units that existed at the time of the assessments.

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.

In the fourth quarter of 2022 and in connection with the RXO spin-off, we performed additional impairment tests because the number of our reporting units increased from three to five to reflect our new internal organization.

Specifically, whereas our European Transportation business was previously considered a single reporting unit, after the spin-off of RXO, it was determined that the European Transportation business was comprised of four reporting units.

As a result, in the fourth quarter, we tested each of the four new reporting units for potential impairment.

A quantitative test was performed for each of these four new reporting units using a combination of income and market approaches and we recorded an aggregate impairment charge of $64 million related to two of these new reporting units.

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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We believe the actuarial methods are appropriate for measuring these self-insurance accruals.

However, based on the number of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above.

Accordingly, changes in these assumptions and factors can affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims.

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Judgment and estimates are required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties.

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

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

We review our tax positions quarterly and as new information becomes available.

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We evaluate the recoverability of these future tax deductions and credits by assessing all available evidence, including the reversal of deferred tax liabilities, carrybacks available, and historical and projected pre-tax profits generated by our operations.

Valuation allowances are established when, in management’s judgment, it is more likely than not that our deferred tax assets will not be realized.

Valuation allowances

are established when, in management’s judgment, it is more likely than not that our deferred tax assets will not be realized.

In assessing the need for a valuation allowance, management weighs the available positive and negative evidence, including limitations on the use of tax losses and other carryforwards due to changes in ownership, historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.

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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 7. Management’s Discussion and Analysis