What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-13 · 224 added, 186 removed, 270 unchanged (60% of the section changed)

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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.

In the first quarter of 2023, we made certain changes to our financial reporting to increase transparency and improve comparability.

Specifically, we changed the expense captions within Operating income in the Condensed Consolidated Statements of Income to more clearly reflect the nature of the expenses.

The change to natural expense classification had no impact on consolidated Revenues or Operating income.

At the time of the change, we recast prior period amounts to conform to the current presentation.

Strategic Developments

2023 was the first full year that XPO operated solely as an asset-based LTL service provider in North America, following the completion of three key parts of our strategic plan, as previously announced:

the spin-offs of RXO, Inc.

(“RXO”) and GXO Logistics, Inc.

(“GXO”) in November 2022 and August 2021, respectively;

and the sale of our North American intermodal operation in March 2022.

On December 20, 2023, we acquired 28 LTL service centers in the U.S.

previously operated by Yellow Corporation.

Under the transaction, we purchased 26 of the service centers and assumed existing leases for the other two locations.

This is a strategic acquisition of assets that aligns with our commitment to invest in expanding our LTL network capacity.

Our Board of Directors has previously authorized the 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.

The historical results of operations and financial positions of RXO, GXO 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.

We completed the sale of our intermodal operation for cash proceeds of approximately $705 million, net of cash disposed.

The pre-tax gain on the 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.

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 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.

The overall freight environment continues to be recessionary, in large part due to underlying trends in supply and demand.

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

Despite this, we see growth potential ahead in all of our major markets.

We expect to continue to expand our business by investing in capacity for the long-term, gaining profitable market share and aligning price with the value we provide to customers.

Pandemic-related disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have largely abated, but new supply constraints are on the horizon as shippers increasingly avoid utilizing routes through areas with regional conflicts.

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.

Other examples of macroeconomic factors that can affect our results are a rise in interest rates, which increased our cost of capital in 2023, and economic inflation, which, while lessening in the U.S., may still have a negative impact on certain of our operating costs, such as salaries, wages and employee benefits, fuel and purchased transportation.

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

Regarding the war between Russia and Ukraine and the unrest in the Middle East, 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 prolonged disruptions in these regions, or sanctions imposed, or whether future conflicts, if any, may adversely affect our results of operations.

Consolidated Summary Financial Results

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Revenue $ 7,744 $ 7,718 $ 7,202

Cost of transportation and services (exclusive

of depreciation and amortization)

4,945 4,604 3,879 64.1 % 63.9 % 62.9 %

Direct operating expense (exclusive

of depreciation and amortization)

1,154 1,090 979 15.0 % 15.1 % 15.9 %

Sales, general and administrative expense 678 756 746 8.8 % 10.5 % 12.1 %

Salaries, wages and employee benefits 3,159 2,945 2,866 40.8 % 38.2 % 39.8 %

Purchased transportation 1,760 1,964 1,934 22.7 % 25.4 % 26.9 %

Fuel, operating expenses and supplies 1,623 1,687 1,492 21.0 % 21.9 % 20.7 %

Operating taxes and licenses 60 58 56 0.8 % 0.8 % 0.8 %

Insurance and claims 167 183 174 2.2 % 2.4 % 2.4 %

Gains on sales of property and equipment (5) (60) (72) (0.1) % (0.8) % (1.0) %

Depreciation and amortization expense 432 392 385 5.6 % 5.1 % 5.3 %

Goodwill impairment — 64 — — % 0.8 % — %

Litigation matter 8 — — 0.1 % — % — %

Transaction and integration costs 58 58 36 0.7 % 0.8 % 0.5 %

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Interest expense 168 135 211 2.2 % 1.7 % 2.9 %

Income (loss) from continuing operations

before income tax provision (benefit)

Income from continuing operations before

income tax provision

260 258 107 3.4 % 3.3 % 1.5 %

Income tax provision (benefit) 74 11 (54) 1.0 % 0.2 % (0.9) %

Income (loss) from continuing operations 184 96 (110) 2.4 % 1.3 % (1.8) %

Income from discontinued operations,

Income tax provision 68 74 11 0.9 % 1.0 % 0.2 %

Income from continuing operations 192 184 96 2.5 % 2.4 % 1.3 %

Income (loss) from discontinued operations, net

(3) 482 245 — % 6.2 % 3.4 %

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Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

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 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 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 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.

Our consolidated revenue for 2023 increased by 0.3% to $7.7 billion, compared with 2022.

The increase reflects the dynamics in the North American LTL industry described in the segment results below, partially offset by a decline in fuel surcharge revenue.

Foreign currency movement increased revenue by approximately 0.8 percentage points in 2023.

Salaries, wages and employee benefits includes compensation-related costs for our employees, including salaries, wages, incentive compensation, healthcare-related costs and payroll taxes, and covers drivers and dockworkers, operations and facility workers and employees in support roles and other positions.

Salaries, wages and employee benefits in 2023 was $3.2 billion, or 40.8% of revenue, compared with $2.9 billion, or 38.2% of revenue, in 2022.

The year-over-year increase as a percentage of revenue primarily reflects the impact of inflation on our cost base, the insourcing of a greater proportion of linehaul from third-party transportation providers, and higher incentive compensation related to our operating performance.

Purchased transportation includes costs of procuring third-party freight transportation.

Purchased transportation in 2023 was $1.8 billion, or 22.7% of revenue, compared with $2.0 billion, or 25.4% of revenue, in 2022.

The year-over-year decrease as a percentage of revenue primarily reflects lower rates paid to third-party providers for purchased transportation miles and the insourcing of a greater proportion of linehaul from third-party transportation providers.

Fuel, operating expenses and supplies includes the cost of fuel purchased for use in our vehicles as well as related taxes, maintenance and lease costs for our equipment, including tractors and trailers, costs related to operating our owned and leased facilities, bad debt expense, third-party professional fees, information technology expenses and supplies expense.

Fuel, operating expenses and supplies was $1.6 billion in 2023, or 21.0% of revenue, compared with $1.7 billion, or 21.9% of revenue, in 2022.

The year-over-year decrease primarily reflects lower fuel costs.

Operating taxes and licenses includes tax expenses related to our vehicles and our owned and leased facilities as well as license expenses to operate our vehicles.

Operating taxes and licenses in 2023 was $60 million, compared with $58 million in 2022.

Insurance and claims includes costs related to vehicular and cargo claims for both purchased insurance and self-insurance programs.

Insurance and claims in 2023 was $167 million, compared with $183 million in 2022.

The year-over-year decrease reflects lower expense due to improved operating performance related to damaged shipments.

Gains on sales of property and equipment in 2023 was $5 million, compared with $60 million in 2022.

The year-over-year decrease reflects $55 million in gains on real estate transactions in our North American LTL segment in 2022 and no comparable gains in 2023.

Depreciation and amortization expense in 2023 was $432 million, compared with $392 million in 2022.

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

The year-over-year increase reflects the impact of capital investments, in particular tractors and trailers.

There was no goodwill impairment loss in 2023, compared with a $64 million impairment loss in 2022, which 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.

Litigation matter was $8 million in 2023, with no comparable expense in 2022.

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

Transaction and integration costs in 2023 and 2022 were $58 million.

Transaction and integration costs for 2023 are primarily comprised of stock-based compensation and retention awards for certain employees related to strategic initiatives.

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.

We expect stock-based compensation costs related to our previously announced strategic initiatives to conclude in 2024.

Restructuring costs in 2023 were $44 million, compared with $50 million in 2022.

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Other income for 2023 was $15 million, compared with $55 million in 2022.

The year-over-year decrease reflects lower net periodic pension income in 2023 primarily due to a rise in interest rates and a lower expected return on plan assets.

Debt extinguishment loss was $25 million in 2023, compared with $39 million in 2022.

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.

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.

The debt extinguishment loss in 2023 related primarily to the refinancing of our Term Loan Facility in the second quarter of 2023, and to a much lesser extent, the redemption of our outstanding 6.25% senior notes due 2025 (“Senior Notes due 2025”) in the fourth quarter of 2023.

In 2022, the debt extinguishment loss related to the redemption of a portion of our outstanding Senior Notes due 2025.

Interest expense for 2023 increased 24.4% to $168 million, from $135 million in 2022.

The increase in interest expense is primarily due to higher prevailing interest rates, partially offset by the impact of the retirement of $1.1

billion of our Senior Notes due 2025 in 2022 as well as higher interest income.

We anticipate interest expense to be between $240 million and $260 million in 2024.

Our consolidated income from continuing operations before income taxes in 2023 was $260 million, compared with $258 million in 2022.

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

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

With respect to our U.S.

operations, income from continuing operations before income taxes was income of $286 million in 2023, compared with income of $303 million in 2022.

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.

The decrease was primarily due to higher salaries, wages and employee benefits, lower gains on real estate transactions, higher depreciation and amortization, lower pension income and higher interest expense, partially offset by higher revenue, lower purchased transportation and lower fuel costs.

With respect to our non-U.S.

operations, loss from continuing operations before income taxes was $26 million in 2023, compared with a loss of $45 million in 2022.

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.

The decrease in the loss is primarily due to the goodwill impairment charge of $64 million in 2022, and the absence of any such impairment in 2023, and lower purchased transportation and fuel costs in 2023, partially offset by higher salaries, wages and employee benefits and higher lease and facility costs in 2023.

Our effective income tax rates were 26.0% and 28.6% in 2023 and 2022, respectively.

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 and discrete tax benefits of $4 million related to stock-based compensation.

The decrease in our effective income tax rate for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by the non-deductible goodwill impairment charge in 2022 and the absence of any such impairment in 2023.

For the year ended December 31, 2023, our effective tax rate was impacted by $15 million from non-deductible compensation partially offset by $9 million of discrete tax benefits, the largest of which was a $4 million benefit from changes in reserves for uncertain tax positions.

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

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

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 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 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 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 $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.

The increase primarily reflects growth in our LTL segment.

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

Salaries, wages and employee benefits in 2022 was $2.95 billion, or 38.2% of revenue, compared with $2.87 billion, or 39.8% of revenue in 2021.

The year-over-year decrease as a percentage of revenue reflects leveraging compensation-related costs across a larger revenue base in 2022.

Purchased transportation in 2022 was $2.0 billion, or 25.4% of revenue, compared with $1.9 billion, or 26.9% of revenue, in 2021.

The year-over-year decrease as a percentage of revenue is primarily due to a larger revenue base in 2022, partially offset by a small increase in costs due to higher rates paid to third-party providers for purchased transportation, including higher fuel surcharges.

Fuel, operating expenses and supplies in 2022 was $1.7 billion, or 21.9% of revenue, compared with $1.5 billion, or 20.7% of revenue, in 2021.

The year-over-year increase as a percentage of revenue was primarily driven by higher fuel costs.

Operating taxes and licenses in 2022 was $58 million, compared with $56 million in 2021.

Insurance and claims in 2022 was $183 million, compared with $174 million in 2021.

The year-over-year increase was primarily driven by an increase in large loss vehicular claims in 2022.

Gains on sales of property and equipment in 2022 was $60 million, compared with $72 million in 2021.

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, compared to no goodwill impairment loss in 2021.

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 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.

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.

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 of GXO 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.

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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, partially offset by lower foreign currency income 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 Senior Notes due 2025 and wrote-off related debt issuance costs and incurred a pre-payment penalty.

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 $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.

The decrease in interest expense reflected lower average debt balances.

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

The increase was primarily 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 $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.

operations, income from continuing operations before income taxes was $303 million in 2022, compared with income of $108 million 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 $45 million in 2022, compared with a loss of $1 million in 2021.

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.

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 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, which decreased the impact of discrete tax benefits.

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

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

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, 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.

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

Segment Adjusted EBITDA reflects an allocation of corporate costs.

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

North American Less-Than-Truckload Segment

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Revenue in our North American LTL segment increased 0.6% to $4.7 billion in 2023, compared with $4.6 billion in 2022.

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

Revenue included fuel surcharge revenue of $857 million and $1.0 billion, respectively, for the years ended December 31, 2023 and 2022.

The decrease in fuel surcharge revenue was primarily driven by lower diesel prices.

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

We measure yield using gross revenue per hundredweight, excluding fuel surcharges.

Impacts on yield can include weight per shipment and length of haul, among other factors.

Impacts on yield can include weight per shipment and length of haul, among other factors, while impacts on volume can include shipments per day and weight per shipment.

The following table summarizes our key revenue metrics:

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Pounds per day (thousands) 70,196 70,163 — %

Shipments per day 51,322 49,257 4.2 %

Average weight per shipment (in pounds) 1,368 1,424 (3.9) %

Gross revenue per hundredweight, excluding fuel surcharges $ 22.21 $ 21.18 4.9 %

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.

The year-over-year increase in revenue for 2023, excluding fuel surcharge revenue, reflects higher gross revenue per hundredweight, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives.

Volume was flat year-over year, with higher shipments per day in 2023 offset by lower average weight per shipment.

A soft industry environment for freight transportation contributed to lower volumes in the first half of the year, which was offset by higher volumes as the year continued.

Despite unfavorable industry conditions, our volumes increased in the second half of the year due to higher shipments per day resulting from improvements in service quality and investments in capacity, as well as the impact of a competitor ceasing operations during the third quarter of 2023.

In the month of January 2024, weight per day decreased 1.1%, as compared with January 2023, attributable to a year-over-year decrease of 2.5% in weight per shipment and an increase of 1.4% in shipments per day.

Adjusted EBITDA was $864 million, or 18.5% of revenue, in 2023, compared with $932 million, or 20.1% of revenue, in 2022.

Adjusted EBITDA included gains from real estate transactions of $55 million for the year ended December 31, 2022 with no comparable gains in 2023.

Excluding these gains, the small decrease in Adjusted EBITDA reflected lower fuel surcharge revenue, higher salaries, wages and employee benefits, and, to a lesser extent, lower pension income.

These items were partially offset by higher revenue, excluding fuel surcharge revenue, driven by the pricing and volume dynamics explained above, lower purchased transportation, lower fuel costs, and lower damage claims.

Depreciation and amortization expense increased in 2023 compared with 2022 due to the impact of capital investments, in particular tractors and trailers.

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

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.

The following table summarizes our key revenue metrics:

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Pounds per day (thousands) 70,163 71,739 (2.2) %

Shipments per day 49,257 50,392 (2.3) %

Average weight per shipment (in pounds) 1,424 1,424 — %

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.

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 $932 million, or 20.1% of revenue, in 2022, compared with $826 million, or 20.0% of revenue, in 2021.

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.

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

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.

European Transportation Segment

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Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Revenue in our European Transportation segment remained consistent at $3.1 billion in 2023 and 2022.

Foreign currency movement increased revenue by approximately 2.0 percentage points in 2023.

The decrease in revenue compared to 2022, after taking into effect the impact of foreign currency movement, primarily reflects lower volumes in a soft industry environment for freight transportation.

Adjusted EBITDA was $163 million, or 5.3% of revenue in 2023, compared with $169 million, or 5.5% of revenue, in 2022.

The decrease in Adjusted EBITDA was primarily driven by the decrease in revenue after taking into effect the impact of foreign currency movement, described above, higher salaries, wages and employee benefits, and higher lease and facility costs.

These items were partially offset by lower purchased transportation and fuel costs.

Depreciation and amortization expense increased in 2023 compared with 2022 primarily due to the impact of capital investments as well as foreign currency movements.

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

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

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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 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 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

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

(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.

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

As of December 31, 2023, we have $508 million available to draw under our ABL Facility, based on a borrowing base of $508 million and outstanding letters of credit of less than $1 million.

Additionally, under a credit agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $139 million in aggregate face amount of letters of credit as of December 31, 2023.

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.

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.

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:

In February 2023, we amended the 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;

(ii) replace LIBOR-based benchmark rates applicable to loans outstanding with SOFR-based rates;

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

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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 $221 million as of December 31, 2023).

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

As of December 31, 2023, €1 million (approximately $1 million) was available under the program.

Under the securitization program, we service the receivables we sell on behalf of the purchasers.

The program expires in July 2026.

Information related to the trade receivables sold was as follows:

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Cash consideration

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 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.

Bridge Facility

On December 4, 2023, in connection with the Yellow Asset Acquisition, we entered into a senior secured bridge term loan credit agreement (the “Bridge Credit Agreement”).

Under this agreement, we were able to borrow up to an aggregate amount of $870 million (the “Bridge Facility”).

Concurrently with the issuance of the Incremental Term Loans and the Senior Notes due 2032, described below, on December 13, 2023, we terminated the commitments under this agreement.

The Bridge Facility remained unfunded at the termination date.

Term Loan Facility

In 2015, we entered into a Term Loan Credit Agreement that provided for a single borrowing of $1.6 billion, which was subsequently amended to increase the principal balance to $2.0 billion and to extend the maturity date to February 2025 (the “Existing Term Loan Facility”).

In May 2023, we amended the Term Loan Credit Agreement to obtain $700 million of new term loans (the “New Term Loan Facility”) having substantially similar terms as the Existing Term Loan Facility, except with respect to maturity date, issue price, interest rate, prepayment premiums in connection with certain voluntary prepayments and certain other provisions.

The New Term Loan Facility was issued at 99.5% of the face amount and will mature on May 24, 2028.

In the same period, we used net proceeds from the New Term Loan Facility, the Senior Secured Notes due 2028 and the Senior Notes due 2031, as described below, together with cash on hand, to repay $2.0 billion of outstanding principal under the Existing Term Loan Facility, which was scheduled to mature in 2025, and to pay related fees, expenses and accrued interest.

We recorded a debt extinguishment loss of $23 million in 2023 due to this repayment.

In December 2023, we entered into an incremental amendment to the Term Loan Credit Agreement to obtain $400 million of incremental term loans (the “Incremental Term Loans”).

The Incremental Term Loans are a new tranche of loans under the Term Loan Credit Agreement, having substantially similar terms as the New Term Loan Facility, except with respect to maturity date, issue price, prepayment premiums in connection with certain voluntary prepayments and certain other provisions.

The Incremental Term Loans were issued at par and will mature on February 1, 2031.

Both the New Term Loan Facility and Incremental Term Loans bear interest at a rate per annum equal to, at our option, either (a) a Term SOFR rate (subject to a 0.00% floor) or (b) a base rate (subject to a 0.00% floor), in each case, plus an applicable margin of 2.00% for Term SOFR loans or 1.00% for base rate loans.

The interest rate for both tranches was 7.36% as of December 31, 2023.

In December 2023, we completed the private placement of $585 million aggregate principal amount of senior notes due 2032 (the “Senior Notes due 2032”), which mature on February 1, 2032 and bear interest at a rate of 7.125% per annum.

Interest is payable semi-annually in cash in arrears, commencing August 1, 2024.

These notes were issued at par.

In the same period, we used net proceeds from the Incremental Term Loans and the Senior Notes due 2032, together with cash on hand, to finance the Yellow Asset Acquisition, to repay in full the $112 million aggregate principal amount outstanding of our Senior Notes due 2025, and to pay related fees, expenses and accrued interest.

The redemption price for the Senior Notes due 2025 was 101.563% of the principal amount plus accrued and unpaid interest.

We recorded a debt extinguishment loss of $2 million due to this redemption.

In May 2023, we completed private placements of $830 million aggregate principal amount of senior secured notes due 2028 (the “Senior Secured Notes due 2028”) and $450 million aggregate principal amount of senior notes due 2031 (the “Senior Notes due 2031”).

The Senior Secured Notes due 2028 mature on June 1, 2028 and bear interest at a rate of 6.25% per annum.

The Senior Notes due 2031 mature on June 1, 2031 and bear interest at a rate of 7.125% per annum.

Interest is payable semi-annually in cash in arrears and commenced December 1, 2023.

These notes were issued at par and were used to repay our Existing Term Loan Facility as described above.

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

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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.

Share Issuance

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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.

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.

In order to simplify our equity capital structure, in 2021, the remaining 1,015 preferred shares outstanding were exchanged for 0.1 million shares of common stock and the remaining 9.8 million warrants outstanding were exchanged for 9.2 million shares of common stock.

The warrants exchanged included holdings of JPE.

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

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

Share Repurchases

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Our remaining share repurchase authorization as of December 31, 2023 is $503 million.

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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Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

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.”

In 2023, as described above, we amended the terms of our ABL Facility and Existing Term Loan Facility, including transitioning the interest rate from the London Interbank Offered Rate (“LIBOR”) to other base rates.

We have no other contracts or hedging relationships that reference LIBOR.

Sources and Uses of Cash

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During 2023, we:

(i) generated cash from operating activities from continuing operations of $694 million and (ii) received net proceeds of $3.0 billion from the issuance of debt.

We used cash during this period primarily to:

(i) purchase property and equipment of $1.5 billion;

(ii) repay our Existing Term Loan Facility for $2.0 billion and (iii) redeem our Senior Notes due 2025 for $114 million.

During 2022, we:

(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.

(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:

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(iii) repay our ABL Facility borrowings of $200 million and (iv) make payments on debt and finance leases of $80 million.

During 2020, we:

(i) generated cash from operating activities from continuing operations of $296 million;

(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:

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

(ii) repurchase common stock of $114 million and (iii) make payments on debt and finance leases of $65 million.

Cash flows from operating activities from continuing operations for 2023 decreased by $130 million compared with 2022.

The decrease in 2023 compared with 2022 reflects:

(i) the impact of operating assets and liabilities utilizing $99 million of cash in 2023, compared with generating $1 million of cash in 2022;

(ii) a $64 million non-cash

goodwill impairment charge recognized in 2022, that was added back to income from continuing operations in the determination of 2022 operating cash flows;

(iii) lower non-cash deferred tax expense of $49 million in 2023, that is also added back in the determination of operating cash flows and (iv) higher cash paid for interest of $40 million in 2023.

These items were partially offset by:

(i) lower gains on sales of property and equipment of $55 million in 2023 and (ii) higher non-cash depreciation, amortization and net lease activity of $40 million in 2023, that are both also added back in the determination of operating cash flows, and (iii) lower cash paid for taxes of $53 million in 2023.

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

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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, 2023, we had $874 million of operating lease and related interest payment obligations, of which $152 million is due within the next twelve months.

Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $72 million.

These operating leases will commence in 2023 with initial lease terms of 9 years to 15 years.

These operating leases will commence at various times beginning in 2024 through 2025 with initial lease terms of 4.5 years to 15 years.

For further information on our operating leases and their maturities, see Note 8—Leases to our Consolidated Financial Statements.

Investing activities from continuing operations used $1,502 million of cash in 2023 compared with $404 million used in 2022 and $141 million used in 2021.

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 2023, we used $1,533 million of cash to purchase property and equipment, including $878 million related to the Yellow Asset Acquisition, and received $29 million from sales of property and equipment.

During 2022, we used $521 million of cash to purchase property and equipment and received $88 million of cash 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.

We anticipate gross capital expenditures to be between $700 million and $800 million in 2024, 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.

Financing activities from continuing operations generated $761 million of cash in 2023 compared with $861 million of cash used in 2022 and $1.9 billion of cash used in 2021.

The primary source of cash from financing activities during 2023 was $3.0 billion of net proceeds from the issuance of debt.

The primary uses of cash from financing activities during 2023 were $2.1 billion used to repay our Existing Term Loan Facility and redeem the Senior Notes due 2025 and $71 million used to repay other borrowings.

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

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

$200 million of proceeds from borrowings on our ABL Facility, net of payments, and $23 million from net borrowings related to our securitization program.

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

As of December 31, 2023, we had $3.3 billion total outstanding principal amount of debt, excluding finance leases.

We have no significant debt maturities until 2028.

Interest on our ABL and Term Loan facilities are variable, while interest on our senior notes are at fixed rates.

Future interest payments associated with our debt total $510 million at December 31, 2022, with $148 million payable within 12 months, and are estimated based on the principal amount of debt and applicable interest rates as of December 31, 2022.

Interest on our ABL and Term Loan facilities is variable, while interest on our senior notes is at fixed rates.

Future interest payments associated with our debt total $1.4 billion at December 31, 2023, with $213 million payable within 12 months, and are estimated based on the principal amount of debt and applicable interest rates as of December 31, 2023.

Additionally, as of December 31, 2023, we have $290 million of finance lease and related interest payment obligations, of which $71 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, 2023, our expected return on plan assets was $92 million, compared to the actual return on plan assets of $124 million.

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.

The actual annualized return on plan assets for 2023 was approximately 10%, which was above the expected return on asset assumption for the year due to positive returns in the long duration fixed income market environment, which represented 90% of the portfolio, along with positive 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 2023 pre-tax pension income by approximately $4 million.

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For our defined benefit pension plans, accumulated unrecognized actuarial losses were $174 million as of December 31, 2023.

The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.

The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is

amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.

Effect on Results

The effects of the defined benefit pension plans on our results consist primarily of the net effect of the interest cost on plan obligations and the expected return on plan assets.

We estimate that the defined benefit pension plans will contribute annual pre-tax income in 2023 of $18 million.

We estimate that the defined benefit pension plans will contribute annual pre-tax income in 2024 of approximately $25 million.

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 $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.

We contributed $5 million in both 2023 and 2022 to the non-qualified plans and we estimate that we will contribute $5 million in 2024.

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

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We allocate goodwill to our reporting units for the purpose of impairment testing.

We evaluate goodwill for impairment annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred.

We evaluate goodwill for impairment annually as of August 31, or more frequently if an event or circumstance indicates an impairment loss may have been incurred.

We measure goodwill impairment, if any, at the amount a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill.

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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 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.

For our 2023 annual goodwill assessment, we performed a step-zero qualitative analysis for our five 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.

Similarly, for our 2022 annual goodwill assessment performed as of August 31, we performed a step-zero qualitative analysis for each of the three reporting units that existed at that time and reached the same conclusion.

However, 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, while 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 of 2022, 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.

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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.

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.

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

historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.

New Accounting Standards

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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