XPO, Inc 10-K for FY2023
XPO, Inc. (XPO)
10-K
2024-02-08
For: 2023-12-31
View Original
Added on
April 09, 2026
About this 10-K
XPO, Inc filed this 10-K on February 8, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.74B
- up 0.3% from $7.72B a year earlier
- Net income
- $189M
- down 71.6% from net income of $666M a year earlier
- Diluted EPS
- $1.60
- down 72.2% from $5.76 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
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(Mark One)
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-32172
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(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
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Registrant’s telephone number, including area code (855 ) 976-6951
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||||||||
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $6.7 billion as of June 30, 2023, based upon the closing price of the common stock on that date.
As of February 1, 2024, there were 116,112,873 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
XPO, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
TABLE OF CONTENTS
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PART I
In this Annual Report, "we," "our," "us," "XPO, Inc.," “XPO,” and "the Company" refer to XPO, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual future results, levels of activity, performance or achievements to be materially different from our expected future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Annual Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report. Forward-looking statements set forth in this Annual Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law.
ITEM 1. BUSINESS
Company Overview
XPO, Inc., together with its subsidiaries, 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. As of December 31, 2023, we had approximately 38,000 employees and 596 locations in 17 countries serving approximately 52,000 customers.
Our company has two reportable segments: North American Less-Than-Truckload (“LTL”), the largest component of our business, and European Transportation.
North American LTL Segment
LTL in North America is a bedrock industry providing a critical service to the economy, with favorable pricing dynamics and an established competitive landscape. XPO is one of the largest LTL networks in North America, with approximately 8% share of the U.S. market, estimated to be $59 billion in 2022.
We provide approximately 31,000 shippers in North America with critical geographic density and day-definite domestic and cross-border services to approximately 99% of U.S. zip codes, as well as Mexico, Canada and the Caribbean. Our capacity and reach give us the ability to manage large freight volumes efficiently and balance our network to leverage fixed costs. For the full year 2023, our customer-focused organization of truck drivers, service center teams and sales professionals worked together to move approximately 18 billion pounds of freight through our network to its destinations.
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Importantly, our LTL business historically has generated a high return on invested capital and robust free cash flow. This supports our ongoing investments in our people, network capacity and proprietary technology. We manage the business to specific objectives, such as high customer service scores for on-time delivery and damage-free freight, the optimal sourcing of linehaul transportation, and the expansion of our service center footprint in strategic markets with long-term demand. Since implementing our LTL 2.0 growth plan in the fourth quarter of 2021, we have added 551 net new doors to our network through organic expansion. In December 2023, we completed the acquisition of 28 service centers previously operated by Yellow Corporation (the “Yellow Asset Acquisition”), representing approximately 2,900 doors.
Additionally, in 2023, we continued to advance a host of initiatives that are specific to XPO and largely independent of the macroeconomic environment. We produced over 6,400 trailers at our in-house trailer manufacturing facility, surpassing our goal of more than 6,000 trailers, and continued to invest in training drivers at our 130 commercial driver schools. Our in-house trailer manufacturing and driver schools are examples of self-reliant capabilities that are competitively advantageous to us, particularly when industry conditions make it difficult to source equipment or drivers.
Specific to our technology, we believe that we have a large opportunity to drive further growth and profitability in our LTL network through innovation. For more information, see “Proprietary Technology and Intellectual Property” below.
European Transportation Segment
XPO has a unique pan-European transportation platform with leading positions in key geographies: We are the #1 full truckload broker and the #1 pallet network (LTL) provider in France; the #1 full truckload broker and the #1 LTL provider in Iberia (Spain and Portugal); and a top-tier dedicated truckload provider in the U.K., where we also have the largest single-owner LTL network. We serve an extensive base of customers within the consumer, trade and industrial markets, including many sector leaders that have long-tenured relationships with us.
Our range of freight services in Europe encompasses dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and, increasingly, multimodal solutions, such as road-rail and road-short sea combinations that we tailor to customer needs. Our operators use our proprietary technology to manage these services within our digital ecosystem in Europe.
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. and GXO Logistics, Inc. 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.
Proprietary Technology and Intellectual Property
One of the ways in which we deliver superior service to our customers is by empowering our employees with technology. Our industry is evolving, and customers want to de-risk their supply chains by forming relationships with reliable service providers that have invested in innovation.
We have built a highly scalable ecosystem on the cloud that deploys our software consistently across our operating footprint. In our North American LTL business, the caliber of our technology is mission-critical to our success; it optimizes linehaul, pickup-and-delivery and pricing — the main components of the service we provide. An LTL
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network of our scale has hundreds of thousands of activities underway at any given time, all managed on our technology. In 2023, we moved approximately 18 billion pounds of freight 803 million miles, including moving linehaul freight an average of 2.6 million miles a day.
With intelligent route-building, we can reduce empty miles in our linehaul network, improve load factor and mitigate cargo damage. Our proprietary bypass models make recommendations to enhance trailer utilization, assimilating massive amounts of data and taking volume, density, and freight dimensions into account. We use our real-time visualization tools to reduce costs with pickups and deliveries and developed a robust pricing platform for contractual account management and automated, dynamic pricing for local accounts.
XPO Smart® is our proprietary suite of intelligent tools and analytics that self-adjusts site by site to drive productivity across our LTL service center operations. Our software incorporates dynamic data science, predictive analytics and machine learning to aid our managers in workflow decision-making. We use XPO Smart® to improve our labor in a safe, disciplined and cost-effective manner.
XPO Connect® is our fully automated, cloud-based digital platform for transportation procurement used by our European operations — it encompasses our Freight Optimizer system, shipper interface, pricing engine, carrier interface and our Drive XPO® mobile app for carriers. When our customers in Europe have freight to move, XPO Connect® tracks the freight movement from end-to-end with the optimal transportation provider, giving us a key lever to earn customer loyalty and share.
The “XPO” trademark, service mark, and trade name are essential to our business and critical to our success. XPO, XPO Smart, XPO Connect, and Your Freight First, among others, are trademarks and service marks for which registrations, or applications for registration, are on file, as applicable with the United States Patent and Trademark Office. We believe these trademarks, service marks, and trade names are important components of our marketing strategy, and seek to protect those proprietary marks and trade names relevant to our business. For some marks, we have also registered or are pursuing registration in certain other countries.
Environmental Information
Our innovation strategy is focused on providing highly efficient supply chain services that use automation and data science to create value for our shareholders and customers. We use our proprietary technology to provide reliable freight transportation services and make the most of the resources within our company.
For many of our customers, the transportation needs of their business account for a significant portion of their CO2 footprint. Our technology can coordinate the movement of customer goods in ways that are greener, safer, more efficient and more cost-effective. Some of our key priorities in this regard are to optimize the utilization of truck and trailer capacity, invest in modern, fuel-efficient fleet, streamline local and linehaul freight flows and train our drivers in eco-friendly techniques.
Transportation Fleet
Our ongoing fleet initiatives companywide include modernizing our tractors and trailers; deploying cleaner fuels where practical, such as natural gas, biodiesel, biogas and electricity; expanding our use of data and analytics to improve the efficiency of routing, loading and handling freight; and exploring the commercial viability of alternative vehicles that have a lower environmental impact.
COVID-19 created supply chain challenges that temporarily disrupted the retirement of older LTL tractors industrywide. Now, new equipment is more readily available, and we will continue to invest in tractors with 15-liter engines and automatic transmissions that improve reliability and fuel economy, while lowering emissions and extending engine life. In 2024, we intend to purchase approximately 2,000 new LTL tractors for our North American LTL network.
In Europe, our diesel road fleet is over 97% compliant with Euro 6 standards, and we have a natural gas-powered fleet of more than 230 trucks serving customers in France, the U.K., Spain and Portugal. Additionally, we have environmentally-sound fleet initiatives ranging from government-approved mega-trucks in Spain, which can
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transport more freight with fewer trips, to fully electric vehicles for certain “last mile” home deliveries. We are also testing the use of duo-trailer vehicles that have the potential to reduce CO2 emissions, compared with using traditional trucks for the same freight.
Electric vehicles show promise in commercial transport applications as an alternative to diesel, particularly in urban areas. Our fleet experts are working with manufacturers of larger electric trucks, and we have completed two pilot programs to advance our understanding of the commercial viability of these vehicles. In the U.S., we have placed an order for six all-electric trucks to deploy in California, and we announced an agreement to purchase more than 100 all-electric trucks in France supported by the ongoing installation of more than 80 electric charging stations at our facilities.
Facilities
Our expertise in the circular economy helps us to continually improve the eco-profile of our facilities. We have ongoing initiatives underway to install LED lighting in our buildings, reuse pallets, right-size packaging and incorporate other environmentally friendly practices in our operations. We also reduce waste by recycling or reusing materials where feasible.
Our Strategy
XPO’s strategy is to help customers move goods efficiently through their supply chains by using our transportation capacity, organizational strengths and proprietary technology. We deliver value in the form of technological innovations, process efficiencies, cost efficiencies and reliable outcomes. Our services are both highly responsive to customer goals, such as mitigating environmental impacts over time, and proactive in identifying potential improvements. Most important, we have instilled a culture that defines success as mutually beneficial results for our company and our customers.
In late 2021, we launched our LTL 2.0 growth plan in North America to focus on four pillars of value creation: provide best-in-class customer service, invest in adding capacity and enhancing our network for the long term, accelerate yield growth, and drive cost efficiencies. We made considerable progress with these initiatives in 2022 and again in 2023, and we see significant potential for further improvements with all four pillars of our plan:
•Provide best-in-class service. We are committed to building a premium service organization by aligning employee incentives and accountability with tangible quality-of-service results for our customers. In 2023, we improved our damage claims ratio to 0.3% in the fourth quarter, from 1.2% at the launch of LTL 2.0, and we improved our full year on-time performance by 8% year-over-year. We support our team with ongoing investments in employee training programs, state-of-the-art equipment and technological enhancements to elevate service quality and productivity.
•Invest in network capacity for the long-term. We are expanding our linehaul fleet with fuel-efficient tractors and in-house trailer manufacturing and adding new doors in capacity-constrained markets. Since the launch of LTL 2.0, we have added more than 11,000 trailers — including over 6,400 in 2023 — as well as more than 2,400 tractors and 551 net new doors through organic expansion. Our average tractor age at year-end 2023 was 5.0 years, compared with 5.9 years at year-end 2022. Together, these investments enable us to transport more freight while improving service and maintaining strong network fluidity. Excluding the Yellow Asset Acquisition, more than two-thirds of our capital expenditures in 2023 were deployed to increase the capacity of our fleet.
•Accelerate yield growth. We are intently focused on customer service excellence as our most powerful lever to grow yield, which we measure as gross revenue per hundredweight, excluding fuel surcharges. Our service improvements and, to a lesser extent, the expansion of both our accessorial services and local customer base, accelerated yield growth throughout the year, driving full year growth of 4.9%, compared with 2022.
•Drive cost efficiencies. We aim to improve cost efficiency by optimizing our purchased transportation, variable costs and overhead. In the fourth quarter of 2023, we lowered our cost for third-party purchased
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transportation by reducing the number of outsourced linehaul miles as a percentage of total linehaul miles to 19.6%, compared with 22.7% at the start of LTL 2.0, and by negotiating lower contract rates for the miles we outsourced. We expect that the investments we are making in expanding capacity will enhance our network fluidity and drive productivity gains, thereby accelerating cost efficiencies.
Customers and Markets
We provide services to approximately 52,000 customers ranging in size from small, entrepreneurial businesses to Fortune 500 companies. Our customers span every major industry, giving us a presence in verticals that are bedrocks of the economy, such as industrial and manufacturing, retail and e-commerce, food and beverage, and consumer goods. Our revenue is derived primarily from the United States and Europe — in 2023, we generated approximately 59% of our revenue in the U.S., 17% in France, 12% in the U.K. and 11% in the rest of Europe.
The diversification of our customer base minimizes concentration risk. Globally, the combined revenue from our top five customers in 2023 accounted for approximately 7% of revenue, with our largest customer accounting for less than 2% of revenue. In North American LTL, the combined revenue from our top five customers accounted for approximately 8% of segment revenue in 2023, with our largest customer accounting for less than 3% of revenue.
Competition
We operate in highly competitive marketplaces where customers can choose from among many different transportation providers with distinct value propositions. We compete on quality and reliability of service, scope and scale of operations, technological capabilities, expertise and price.
Our competitors in North America include local, regional and national LTL carriers that offer the same services we provide, such as Old Dominion Freight Line and Saia. Our competitors in Europe vary based on the types of services provided; for example, LTL transportation versus dedicated or brokered full truckload transportation or multimodal solutions. Due to the competitive nature of our marketplaces, we strive daily to strengthen existing business relationships and forge new relationships.
In 2023, the market environment was significantly hampered by the ongoing freight recession, which continues to impact industry volumes. In the third quarter of 2023, Yellow Corporation, a national LTL provider in North America, ceased operations and filed for bankruptcy. This exit of a major competitor temporarily disrupted supply and demand in the industry and diverted more freight to other large LTL carriers, including XPO.
We believe that we have positioned XPO to benefit from secular trends in the retail and industrial economies, such as the shipper trend toward outsourcing freight transportation in all parts of the cycle, and the trend in some sectors toward more frequent shipments of freight volumes that are smaller than a full truckload, and that our ongoing expansion of capacity will facilitate the onboarding of significantly more freight when market conditions improve. Our ability to continually invest in the business is a compelling competitive strength of XPO, because we can increasingly provide our customers with the reliable capacity, technological solutions and problem-solving expertise they value.
Regulation
Our operations are regulated and licensed by various governmental agencies in the U.S. and in other countries where we conduct business. These regulations impact us directly and also indirectly when they regulate third-party transportation providers we arrange and/or contract with to transport freight for our customers.
Regulations Affecting Motor Carriers and Transportation Brokers. In the U.S., our subsidiaries that operate as motor carriers and freight transportation brokers are licensed by the Federal Motor Carrier Safety Administration (“FMCSA”) of the U.S. Department of Transportation (“DOT”). Our motor carrier subsidiaries and the third-party motor carriers we contract with in the U.S. must comply with the safety and fitness regulations of the DOT, including those related to, without limitation, controlled substances and alcohol, hours-of-service compliance, vehicle maintenance, hazardous materials compliance, driver fitness, unsafe driving, and minimum insurance requirements, as well as the Compliance Safety Accountability (“CSA”) program, which uses a Safety Measurement
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System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories (“BASICs”).
Other federal and state agencies, such as the U.S. Environmental Protection Agency (“EPA”), the U.S. Food and Drug Administration (“FDA”), the U.S. Department of Homeland Security (“DHS”) and the California Air Resources Board (“CARB”), also regulate our equipment, operations, and cargo. In 2021, CARB adopted more stringent standards to reduce nitrogen oxide emissions from heavy-duty trucks and also adopted regulations to accelerate large-scale transition in California to zero-emission medium and heavy-duty trucks, including trucks of a type used in our operations in California. While CARB’s Advanced Clean Truck regulation and proposed Advanced Clean Fleets regulation may permit companies to seek exemptions or relief, there are no assurances that relief from either regulation will be obtained and there are virtually no zero-emissions vehicles currently widely available that are suitable replacements for current technology used in less-than-truckload operations. We are also subject to a variety of vehicle registration and licensing requirements in certain states and local jurisdictions where we operate, as are the third-party transportation providers with which we contract. In foreign jurisdictions where we operate, our operations are regulated by the appropriate governmental authorities. We may become subject to new or more restrictive regulations relating to emissions, drivers’ hours-of-service, onboard reporting of operations, cargo security and other matters affecting safety or operating methods. Regulatory requirements, and changes to the regulatory environment, may affect our business or the economics of the transportation industry by requiring changes in operating practices that could impact the demand for, and increase the costs of providing, transportation services.
Environmental Regulations. We are subject to various environmental laws and regulations in the jurisdictions where we operate. In the U.S., these laws and regulations deal with the hauling, handling and disposal of hazardous materials, emissions from vehicles, engine-idling, storage tanks (fuel, oil, antifreeze and other products) and related fuel spillage and seepage, discharge and retention of storm water, and other environmental matters. We may be responsible for the cleanup of any spill or other incident involving hazardous materials caused by our business. In the past, we have been responsible for the cost to clean up diesel fuel spills caused by traffic accidents or other events, and none of these incidents materially affected our business or operations. We generally transport only hazardous materials rated as low-to-medium-risk, and only a small percentage of our total loads contain hazardous materials. We do not know of any existing environmental law, regulation or condition that reasonably would be expected to have a material adverse effect on our business, capital expenditures, or operating results. However, future changes to environmental laws or regulations may impact our operations and could result in increased costs.
Other Regulations. We are subject to a variety of other U.S. and foreign laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption statutes, and trade compliance laws. We are also subject to state and U.S. federal laws and regulations addressing some types of cargo transported or stored by our subsidiaries, or transported pursuant to a government contract or subcontract. Violations or noncompliance could result in significant fines from governmental authorities and negatively impact our reputation, operations and financial condition.
Risk Management and Insurance
We maintain insurance for commercial automobile and trucker’s liability, commercial general liability, cargo legal liability, workers’ compensation and employers’ liability, umbrella and excess liability, cyber risk, and property coverage with coverage limits, deductibles and self-insured retention levels that we believe are reasonable given the varying historical frequency, severity and timing of claims.
Seasonality
Our revenue and profitability in the first and fourth quarters of the calendar year are typically lower than in the second and third quarters. The productivity of our transportation fleet historically decreases during the winter season, as it does for the industry in general, because inclement weather impedes operations. Additionally, we believe that many of our customers historically ship less freight in the first quarter, due in part to lower post-holiday demand for their products. It is not possible to reliably predict whether our historical revenue and profitability trends will continue to occur in future periods.
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Human Capital Management
As a people-driven company with a strong customer service culture, our ability to be an employer of choice and a business partner of choice are intertwined. We have an unwavering commitment to a workplace culture that places a premium on safety, as well as professional growth, engagement and competitive total compensation and benefits for our employees. These and many other aspects of our culture help us attract and retain a high caliber of talent to our organization.
Our Chief Human Resources Officer (“CHRO”) has primary responsibility for our human capital management strategy, including recruiting, developing, engaging and retaining employees who share our work ethic and values. The CHRO is also responsible for the design of employee compensation and benefits programs.
In addition to our employment culture, our success relies on our company’s robust governance structure, our Code of Business Ethics and the importance we place on being a good corporate citizen. Ultimately, our decisions and actions are guided by XPO’s values — overachieve for customers, be safe, be accountable, always improve, respect each other and be world-class in every way.
Employee Base Profile
Based on December 31, 2023 data, XPO has locations in 17 countries, with approximately 23,300 employees in North America, 14,300 employees in Europe and 400 employees in Asia, supplemented by approximately 2,900 temporary workers.
By geography, approximately 61% of our global employees are based in North America, 38% in Europe and 1% in Asia. By job description, approximately 65% of our employees work as drivers and dockworkers, 23% as operations and facility workers, and the remainder in support roles and other positions. In North America, approximately 85% of our employees have hourly roles and 15% have salaried positions.
By gender, approximately 14% of our global employees are women — this increases to 37% when excluding drivers, dockworkers and technicians. In North America, 52% of our professional management positions are held by women, representing an increase of 2.9% from 2022.
We are continuing to make steady progress on being an employer of choice for employees of all races and backgrounds. In 2023, 56% of our newly hired U.S. employees self-identified as ethnically or racially diverse, representing a 1.4% increase from 2022, and approximately 43% of our total U.S. employee population was ethnically or racially diverse. This includes 20% of U.S. employees who self-identified as Black or African American, which is eight percentage points higher than the U.S. population, based on the most recent census data.
Additionally, we continued to expand our pipeline of women and ethnically or racially diverse employees at the middle and senior management levels (manager or supervisor and above). In our total workforce, the absolute number of females in managerial positions grew by 20% cumulatively from 2021 to 2023; the absolute number of ethnically or racially diverse employees in managerial positions grew by 20% cumulatively in the same period. Ethnically or racially diverse employees earned 34% of managerial promotions in 2023, up significantly from 9% in 2022, and held 17% of executive leadership positions (vice president and above), 28% of professional management roles and 31% of operational management roles.
XPO is committed to being transparent about the composition of our workforce. We have publicly disclosed our 2023 EEO-1 report on our website, and expect to publish our 2024 EEO-1 report in the second quarter of this year.
As of December 31, 2023, none of our employees were represented by a union in the U.S. and 85% of our employees in Europe were covered by a collective bargaining or similar agreement, consistent with our December 31, 2022 position.
Throughout 2023, we continued to make substantial investments in direct employee communications, conducting both quarterly and annual engagement surveys and holding approximately 8,000 roundtable discussions and safety and engagement committee meetings across our North American LTL network. The employee feedback we receive is often instrumental in driving new initiatives that strengthen our culture of respect, appreciation and opportunity.
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Health and Safety
The physical and emotional safety of our employees is paramount, and we have numerous protocols in place to ensure a safe work environment. We developed our Road to Zero program to decrease occupational injuries and illnesses through education, mentoring, communication and on-the-job training that instills awareness and reduces risk. These same priorities are emphasized when we train new commercial driver candidates at our inhouse, LTL driver training schools nationwide, where veteran XPO driver-instructors reinforce our safety culture.
As part of Road to Zero, we track accident-free miles and recognize XPO drivers who have achieved million-mile safety milestones. As of December 31, 2023, more than 2,475 of our LTL drivers have achieved a safety designation of at least one million accident-free miles, with 194 of these drivers meeting this threshold in 2023. In 2022, we announced a landmark achievement by a driver on our team — our first driver to reach four million accident-free miles, which is the highest driver safety record in XPO’s history.
In addition to physical well-being, we consider emotional well-being to be an important part of workplace safety. Our Code of Business Ethics mandates zero tolerance of discrimination, harassment, retaliation, bullying and other unacceptable behaviors. We want our employees to feel welcome at work, and we give them multiple channels to report any incidents. This includes an open-door policy that encourages employees to speak with any supervisor, manager or member of the HR team, and our EthicsPoint hotline and website for reporting incidents anonymously.
We are diligent about evaluating new programs as they become available to support the physical and mental health of our employees. In our open enrollment period for 2024 benefit plans, we introduced new options for virtual physical therapy and “physicals on the go,” and enhanced our employee assistance programs specifically for mental health.
Employee Engagement and Development
XPO executive leadership regularly solicits feedback from employees to gauge our progress, assess satisfaction and encourage constructive suggestions. Each quarter, we ask our “wired” employees to submit their input through an anonymous online satisfaction survey. In the U.S., we also conduct an annual satisfaction survey of our “non-wired” frontline employees, and hold regular roundtables and town halls. Based on employee feedback, we develop action plans at the business unit and facility levels to implement targeted improvements.
In 2023, our annual engagement survey yielded a participation rate of over 80%, and employee satisfaction scores rose to their highest historical levels. XPO was named a 2023 “Top Company for Women to Work for in Transportation” by the Women in Trucking Association, a 2024 “Top 25 Veteran Employer” by military.com, and one of “America’s Best Large Employers” by Forbes for the third time.
Additionally, we foster career development at all levels to recruit and retain high-caliber employees. Our career development infrastructure includes these nine areas of focus, among others:
Recruitment. We tailor our recruitment efforts by geography and job function using an array of channels and recruiting partnerships. This enables us to reach a diversity of candidates with tailored messaging. For example, we advertise open positions on recruitment websites designed to reach women, the LGBTQ+ community, Blacks and African Americans, Hispanics, military veterans and individuals with disabilities. Our goal is to identify candidates who have the skills our customers need, or the desire to learn those skills. In 2023, we partnered with Partnership for Your Success to attract military veterans, and worked with Women in Trucking to engage more women in transportation industry careers.
Interactive Hiring. Our integrated approach to talent development begins with our robust digital recruitment platform, which includes online job previews and pre-employment assessments for key positions. Our platform provides an efficient way for candidates to learn about XPO at their convenience and explore positions that match their interests and abilities. This is a more stress-free entry into the recruitment process for job candidates, and improves both the onboarding experience and retention rates for new hires.
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Grow at XPO. Data from our new hire survey indicates that the majority of hourly employees join XPO for professional growth and learning opportunities. The Grow at XPO program is structured to cultivate continuous learning for our hourly population — it includes development tracks that teach, for example, computer skills, safety knowledge, people skills, work-life integration and commercial driving fundamentals. Employees are paid while completing the courses and are supported by on-site management and our field HR team. As of December 31, 2023, 93% of employees who completed the Grow at XPO program have been retained.
XPO Accelerate. Launched in September 2022, XPO Accelerate prepares high-potential service center, sales and support staff leaders to be “ready now” successors for director-level roles. This program helps retain and promote promising leadership talent by building relevant strategic skills.
XPO Field Management Training. XPO maintains a strong “ready now” pipeline of future leaders for our operations through a comprehensive, 14-week, blended learning approach. Our Field Management Training program graduated over 60 supervisors in 2023, of which more than two-thirds were ethnically or racially diverse, or female.
Frontline Leadership Training. XPO’s Freight Leadership Certification is part of a robust onboarding process for newly hired frontline leaders. The program equips employees with fundamental skills to succeed in our operations, and offers weekly live, instructor-led training sessions to reinforce those skills. Freight operations supervisors who complete all sessions and achieve certification have an 83% retention rate.
LTL Driver Training Schools. XPO’s commercial truck driver training schools are an essential channel for recruiting new drivers to XPO, as well as providing new careers for employees currently in other roles, such as dockworkers. Trainees attend our driver school tuition-free, receive pay while training and have an opportunity for full-time employment with XPO after earning a CDL-A license. We also offer employees tuition reimbursement of up to $5,000 for any approved non-XPO driver training school. In 2023, we graduated nearly 800 students from our LTL driver training locations.
Maintenance Training. Well-maintained tractors and trailers are an essential component of both safety and customer service in LTL transportation. Our in-house maintenance training school enhances technical skills for new hires and provides continuous learning for our field maintenance personnel to stay abreast of maintenance developments and warranty recovery requirements.
XPO University. Our learning and development platform, XPO University, delivers approximately 25,000 online and in-person learning and assessment programs in areas such as onboarding, management training and professional skills development. XPO University supports approximately 38,000 employees in North America and Europe, and tracks their progress. In 2023, more than a million training hours were completed by our employees worldwide.
Expansive Total Rewards
Our total compensation package is instrumental in providing a superior employment experience, and conveys how much we appreciate each employee’s choice of XPO. The pillars of the expansive total rewards we offer are:
Competitive Wages and Jobs Creation. In addition to our annual merit and hourly pay increases that broadly cover our employee population in North America, approximately 1,000 eligible LTL employees at over 35 locations received additional wage increases throughout 2023. Further, across our North American and European operations, our ongoing investments in growth expanded our total permanent workforce by 1.4% year-over-year with a net 401 new permanent employees.
Comprehensive Benefits. We offer an extensive suite of benefits to support the health and well-being of our employees and their families, often reflecting responsiveness to employee feedback. In the U.S., examples include:
•Pregnancy Care Policy: Guarantees up to 80 hours of paid prenatal leave and certain automatic accommodations, plus consideration of more significant accommodations while preserving existing wage rates.
•Family Bonding Policy: Provides an additional six weeks of 100% paid time off for the primary caregiver of a newborn or newly adopted child, and two weeks of 100% paid time off for a secondary caregiver.
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•Tuition Reimbursement: Provides for up to $5,250 of annual reimbursement for continuing education, academic discounts in more than 80 fields of online study and tuition-free commercial driver training.
•Additional Benefits: Includes virtual preventive health care, pelvic health management, physical therapy services and diabetes management services at no cost to employees, as well as supplemental insurance, short-term loans and a personalized Total Rewards Statement.
In Europe, XPO’s benefit programs vary by country and are tailored to the needs of local markets. Examples include comprehensive health and risk insurances, employee assistance programs covering mental, physical and financial well-being, commercial driver training, vocational coaching and training, and a fully flexible benefits program in the U.K.
Community Outreach
XPO continues to support organizations that reflect the interests of our employees and the communities where we operate. In 2023, our company served as official transportation partner for the Susan G. Komen 3-Day Walks to end breast cancer, and partnered with Truckers Against Trafficking to educate our employees about human trafficking. We supported homeless shelters by donating more than 60,000 pairs of socks, and participated in the Pat Tillman Run. Local teams from our North American LTL service centers helped Scouts complete their Trucking Merit Badge in Oregon, assisted Habitat for Humanity with a build in Wisconsin, and cleaned up trash in an Illinois community, as a few examples. On the safety front, our employees take pride in XPO being the official transport partner for the Tour de France competition for 43 years.
Information about our Executive Officers
The following information relates to each of our executive officers:
| Name | Age | Position | ||||||||||||
| Brad Jacobs | 67 | Executive Chairman of the Board | ||||||||||||
| Mario Harik | 43 | Chief Executive Officer | ||||||||||||
| Kyle Wismans | 40 | Chief Financial Officer | ||||||||||||
| David Bates | 58 | Chief Operating Officer | ||||||||||||
| Wendy Cassity | 48 | Chief Legal Officer and Corporate Secretary | ||||||||||||
Brad Jacobs has served as XPO’s executive chairman since November 2022, and served as the Company’s chairman and chief executive officer from September 2011 through October 2022. Mr. Jacobs led the spin-offs of GXO Logistics, Inc. and RXO, Inc. from XPO as separate public companies and has served as non-executive chairman of GXO and RXO from August 2021 and November 2022, respectively. Additionally, he is the managing member of Jacobs Private Equity, LLC. Prior to XPO, Mr. Jacobs led two other public companies: United Rentals, Inc., which he founded in 1997, and United Waste Systems, Inc., which he founded in 1989. He served as chairman of United Rentals from 1997 to 2007, and as chief executive officer from 1997 to 2003. He served as chairman and chief executive officer of United Waste Systems from 1989 to 1997.
Mario Harik has served as XPO’s chief executive officer since November 2022, after previously leading the Company’s North American less-than-truckload segment as president from October 2021 to October 2022. Additionally, he served as XPO’s chief information officer from November 2011 to October 2022 and XPO’s chief customer officer from February 2021 to January 2022. Mr. Harik has led numerous technological developments for global transportation and logistics operations, built comprehensive technology organizations and consulted to Fortune 100 companies. His prior positions include chief information officer and senior vice president of research and development with Oakleaf Waste Management; chief technology officer with Tallan, Inc.; co-founder of G3 Analyst, where he served as chief architect of web and voice applications; and solutions architect and consultant with Adea Solutions. Mr. Harik holds a master’s degree in engineering – information technology from Massachusetts Institute of Technology, and a degree in engineering – computer and communications from the American University of Beirut, Lebanon.
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Kyle Wismans has served as XPO’s chief financial officer since August 2023, after being promoted from our senior vice president of revenue management and finance, a position he held from February 2023 to August 2023. Additionally, he served as XPO’s senior vice president, financial planning and analysis from September 2019 to February 2023. Mr. Wismans has played a vital role in the implementation of our LTL growth strategy, as well as our spin-offs of GXO and RXO. He was previously an executive with General Electric Company for over a decade, including most recently as head of global financial planning and analysis for Baker Hughes Oilfield Services, a GE company, from August 2017 to August 2019. Mr. Wismans holds a degree in business administration from the University of Michigan, Stephen M. Ross School of Business.
David Bates joined XPO as chief operating officer in April 2023. He previously served as senior vice president – operations at Old Dominion Freight Line, Inc. from November 2011 to April 2023. From July 2007 to November 2011, Mr. Bates served as a regional vice president, and from December 1995 to July 2007 as a manager, at Old Dominion. Prior to joining Old Dominion, Mr. Bates served in supervisory roles with Carolina Freight Carriers and YRC Freight. Mr. Bates received his Bachelor's degree in Business Management from Junita College.
Wendy Cassity joined XPO in March 2023 as chief legal officer and corporate secretary. Prior to joining XPO, she was chief legal officer of Nuance Communications, Inc. from September 2018 to March 2023. Nuance was publicly traded until it was acquired in March 2022. Prior to joining Nuance, she was general counsel of Zayo Group, a publicly traded communications infrastructure company, from January 2016 to August 2018, and general counsel of Thompson Creek Metals Company, a publicly traded natural resources company, from 2010 to January 2016. Prior to joining Thompson Creek Metals Company, Ms. Cassity was in private practice as a corporate transactional attorney at McDermott Will & Emery, LLP and Cravath Swaine & Moore, LLP in their New York offices. Ms. Cassity holds a B.A. from the University of Arizona in English and History and received her J.D. from Columbia Law School.
Available Information
Our corporate website is www.xpo.com. On this website, you can access, free of charge, our Annual Report on Form 10–K, Quarterly Reports on Form 10–Q, and Current Reports on Form 8–K, as well as specialized disclosure reports on Form SD, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Materials are available online as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You can also access materials on our website regarding our corporate governance policies and practices, including our Corporate Governance Guidelines, Code of Business Ethics and the charters relating to the committees of our Board of Directors. You may request a printed copy of these materials without charge by writing to: Investor Relations, XPO, Inc., Five American Lane, Greenwich, Connecticut 06831. Information filed electronically with, or furnished to, the SEC is also available at www.sec.gov. References to these websites do not constitute incorporation by reference of the information contained therein and should not be considered part of this document.
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ITEM 1A. RISK FACTORS
The following are important factors that could affect our financial performance and could cause actual results for future periods to differ materially from our anticipated results or other expectations, including those expressed in any forward-looking statements made in this Annual Report or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public. You should carefully consider the following factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related Notes in Item 8.
COMPANY RISK
Risks related to Our Business Model
Economic recessions and other factors that reduce freight volumes, both in North America and Europe, could have a material adverse impact on our business.
The transportation industry in North America and Europe historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in the business cycles of our customers, increases in the prices charged by third-party carriers, interest rate fluctuations, changes in international trade policies and other U.S. and global economic factors beyond our control. Our business levels are directly tied to the purchase and production of goods and the rate of growth of global trade — key macroeconomic measurements influenced by, among other things, inflation and deflation, supply chain disruptions, interest rates and currency exchange rates, labor costs and unemployment levels, fuel and energy prices, pandemics and other public health crises, inventory levels, buying patterns and disposable income, debt levels, and credit availability. When individuals and companies purchase and produce fewer goods, we transport fewer goods, and as companies move manufacturing closer to consumer markets and expand the number of distribution centers, we transport goods shorter distances, which adversely affects our yields and profitability. During economic downturns, a reduction in overall demand for transportation services will likely reduce demand for our services and exert downward pressures on our rates and margins. In addition, in periods of strong economic growth, overall demand may exceed the available supply of transportation resources, resulting in increased network congestion and operating inefficiencies. Additional changes in international trade policies could significantly reduce the volume of goods transported globally and adversely affect our business and results of operations. These factors subject our business to various risks that may have a material impact on our operating results and future prospects. These risks may include the following:
•A reduction in overall freight volume reduces our opportunities for growth. In addition, if a downturn in our customers’ business causes a reduction in the volume of freight shipped by those customers, our operating results could be adversely affected;
•Some of our customers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their business and may be unable to pay us. In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase;
•A significant number of our transportation providers may go out of business and we may be unable to secure sufficient equipment capacity or services to meet our commitments to our customers;
•A pandemic or other public health epidemic poses the risk that we or our employees, customers, suppliers, manufacturers and other commercial partners may be prevented from conducting business activities for an indefinite period of time, including due to the spread of the disease or shutdowns requested or mandated by governmental authorities;
•We may not be able to appropriately adjust our expenses to rapid changes in market demand. In order to maintain high variability in our business model, it is necessary to adjust staffing levels when market demand changes. In periods of rapid change, it is more difficult to match our staffing levels to our business needs. In addition, we have other expenses that are primarily variable but are fixed for a period of time, as well as certain significant fixed expenses; we may be unable to adequately adjust these expenses to match a rapid change in demand;
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•The U.S. government has made significant changes in U.S. trade policy and has taken certain actions that have negatively impacted U.S. trade, including imposing tariffs on certain goods imported into the U.S. To date, several governments, including the European Union (“EU”) have imposed tariffs on certain goods imported from the U.S. These actions may contribute to weakness in the global economy that could adversely affect our results of operations. Any further changes in U.S. or international trade policy could trigger additional retaliatory actions by affected countries, resulting in “trade wars” and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with countries that impose anti-trade measures. Such conditions could have an adverse effect on our business, results of operations and financial condition, as well as on the price of our common stock; and
•Governmental authorities have implemented and are continuing to implement various anti-terrorism measures, including checkpoints and travel restrictions on trucks. If such measures or new anti-terrorism measures disrupt or impede our operations, we may fail to timely deliver products to our customers or incur increased expenses to do so. Such measures could have an adverse effect on our business, results of operations and financial condition, as well as on the price of our common stock.
Risks related to Our Strategy and Operations
Our company-specific action plan to enhance network efficiencies and drive growth in our North American LTL business, and other management actions to improve our North American LTL business, may not be effective or timely, and may not improve our results of operations or cash flow from operations as planned.
We have undertaken a company-specific action plan to enhance network operating efficiencies and drive growth in our North American LTL business, including by, among other actions, growing yield by providing best-in-class customer service and enhancing business mix, expanding our tractor fleet, increasing production capacity of our trailer manufacturing facility, investing in the door count in our network of service center facilities, and driving cost efficiencies through, among other actions, insourcing linehaul from third-party transportation providers and improving productivity. The effectiveness and timeliness of these actions, which are and will be costly, and other management actions to improve our North American LTL business, may not result in the expected improvements in our results of operations or cash flow from operations in our North American LTL business.
Our profitability may be materially adversely impacted if our investments in equipment and service centers do not match customer demand for these resources or if there is a decline in the availability of funding sources for these investments.
Our LTL and full truckload operations require significant investments in equipment and freight service centers. The amount and timing of our capital investments depend on various factors, including anticipated freight volume levels and the price and availability of appropriate property for service centers and newly manufactured tractors. If our anticipated requirements for service centers or fleet differ materially from actual usage, our capital-intensive operations, specifically LTL and full truckload, may have more or less capacity than is optimal.
Our investments in equipment and service centers depend on our ability to generate cash flow from operations and our access to credit, debt and equity capital markets. A decline in the availability of these funding sources could adversely affect our financial condition and results of operations.
Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.
We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, cross-selling to strategic accounts, LTL process improvements, workforce productivity, European margin expansion, global procurement and further back-office optimization. If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.
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Our past acquisitions, as well as any acquisitions that we may complete in the future, may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.
While we intend for our acquisitions to enhance our competitiveness and profitability, we cannot be certain that our past or future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations. Special risks, including accounting, regulatory, compliance, information technology or human resources issues, may arise in connection with, or as a result of, an acquisition, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired assets or businesses, possible management distractions, or the inability of acquired assets or businesses to achieve the levels of revenue, profit, productivity or synergies we anticipate or otherwise perform as we expect on the timeline contemplated. We are unable to predict all of the risks that could arise as a result of our acquisitions.
In December 2023, we completed our acquisition of 28 service centers, including the assumption of certain leases, of Yellow Corporation (the “Yellow Service Centers”). The ultimate success of the acquisition of the Yellow Service Centers will depend on, among other things, the ability to integrate the Yellow Service Centers into our LTL network in a manner that supports our North American LTL business and facilitates growth opportunities. It is possible that the integration process could result in the loss of customers, the disruption of ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues and delays, potential environmental liabilities and higher than expected integration costs.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on growth, including organic growth through new customer wins and increased business with existing customers, as well as additional acquisitions. We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entry into new geographic areas and increased pressure on our existing infrastructure and information technology systems from multiple customer project implementations.
Our growth may place a significant strain on our management, operational, financial and information technology resources. We seek to continually improve existing procedures and controls, as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs may continue to increase as our operations grow. Failure to manage our growth effectively, or obtain necessary working capital, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
We may sell or otherwise divest our European business, which may have an adverse effect on our results of operations and cash flows, the market price of our common stock, and on our North American LTL business.
In potentially selling or otherwise divesting our European business, we may not realize the price we expect to receive when contemplating the divestment of the business, we may incur a loss in connection with a sale or other divestiture of the business, the market price of our common stock and the multiples at which our common stock trades may not increase following a sale or other divestiture of our European business, and/or we may incur ongoing transition obligations and costs that adversely impact our operations following a sale or other divestiture of our European business. We also would anticipate incurring material compensation, transactional and other expenses, in connection with entering into and/or completing a sale of our European business. Certain of these factors could have an adverse effect on our results of operations and cash flows, and the market price of our common stock.
A sale or other divestiture of our European business will result in us being a smaller, less diversified company with a more concentrated area of focus and less geographical diversification, as North American LTL would be our only remaining business. Following a potential sale or other divestiture of our European business, our Company likely would become more vulnerable to changing market conditions in the U.S., which could have a material adverse effect on our business, financial condition and results of operations. The diversification of our revenues, costs and cash flows will diminish as a result of a sale or other divestiture of our European business, and our ability to fund capital expenditures, investments and service our debt may be diminished. We may also incur ongoing costs and
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retain certain liabilities that were previously allocated to entities that are sold or otherwise divested. Those costs may exceed our estimates or could diminish the benefits we expect to realize.
Further, a sale or other divestiture of one or more of our business units may subject us to litigation. An unfavorable outcome of such litigation may result in a material adverse impact on our business, financial condition, cash flows or results of operations. In addition, regardless of the outcome, litigation proceedings can be costly, time-consuming, disruptive to our operations, and distracting to management.
There can be no assurance that a sale or other divestiture of our European business will occur, or the terms or timing of a potential transaction.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
At December 31, 2023, we had $1.5 billion of goodwill on our consolidated balance sheet. Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. We assess potential impairment of our goodwill annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. Impairment may result from significant changes in the manner or use of the acquired assets, in connection with the sale, spin off or other divestiture of a business unit, negative industry or economic trends and/or significant underperformance relative to historic or projected operating results. For a discussion of our goodwill impairment testing, see “Critical Accounting Policies and Estimates - Evaluation of Goodwill” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We have recently experienced changes in management and our future success will depend in part on our ability to manage these transitions successfully.
We have experienced recent changes in management, including our chief executive officer, chief financial officer, chief operating officer, and a number of our other executive and non-executive officers. Changes in management have the potential to disrupt our business, and any such disruption could adversely affect our operations, growth, financial condition and results of operations. Further, new members of management may have different perspectives on our operations and opportunities for our business, which may cause us to reduce or change the emphasis on the vision for our company.
Our success is dependent upon our ability to attract and retain qualified management in a highly competitive environment. Qualified individuals are in high demand, and we may incur significant costs to attract them, particularly at the executive level. We may face difficulty in attracting, retaining and compensating key talent for a number of reasons, including competitive market conditions and the need to align the vision of a new executive team with our Board of Directors’ vision for our company.
Replacing departing executives or directors can involve organizational disruption and uncertainty. If we fail to manage this transition successfully, we could experience significant delays or difficulty in the achievement of our strategic objectives and our business, financial condition and results of operations could be materially and adversely harmed.
Issues related to the intellectual property rights on which our business depends, whether related to our failure to enforce our own rights or infringement claims brought by others, could have a material adverse effect on our business, financial condition and results of operations.
We use both internally developed and purchased technologies in conducting our business. Whether internally developed or purchased, it is possible that users of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties. In the event that a claim is made against us by a third party for the infringement of intellectual property rights, a settlement or adverse judgment against us could result in increased costs to license the technology or a legal prohibition against our use of the technology. Thus, our failure to obtain, maintain or enforce our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
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We rely on a combination of intellectual property rights, including patents, copyrights, trademarks, domain names, trade secrets, intellectual property licenses and other contractual rights, to protect our intellectual property and technology. Any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated; our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties; or we may fail to secure the rights to intellectual property developed by our employees, contractors and others. Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention and divert our resources, and ultimately be unsuccessful. Moreover, should we fail to develop and properly manage future intellectual property, this could adversely affect our market positions and business opportunities.
Our overseas operations are subject to various operational and financial risks that could adversely affect our business.
The services we provide outside the U.S. are subject to risks resulting from changes in tariffs, trade restrictions, trade agreements, tax policies, difficulties in managing or overseeing foreign operations and external agents, different liability standards, issues related to compliance with data protection laws, competition laws, and intellectual property laws of countries that do not protect our rights relating to our intellectual property, including our proprietary information systems, to the same extent as do U.S. laws. The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region or decrease the profitability of our operations in that region. In addition, as we expand our business in foreign countries, we will be exposed to increased risk of loss from foreign currency fluctuations and exchange controls.
We are exposed to currency exchange rate fluctuations because a significant proportion of our assets, liabilities and earnings are denominated in foreign currencies.
We present our financial statements in U.S. dollars, but we have a significant proportion of our net assets and income in non-U.S. dollar currencies, primarily the euro and British pound sterling. Consequently, a depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have an adverse impact on our financial results as further discussed in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk.”
Volatility in fuel prices impacts our fuel surcharge revenue and may impact our profitability.
We are subject to risks associated with the availability and price of fuel, all of which are subject to political, economic and market factors that are outside of our control.
Fuel expense constitutes one of the greatest costs to our LTL carrier operations, as well as to third-party linehaul and transportation providers. Accordingly, we may be adversely affected by the timing and degree of fuel price fluctuations. As is customary in our industry, most of our customer contracts include fuel surcharge programs or other cost-recovery mechanisms to mitigate the effect of any fuel price increases over base amounts established in the contract. However, these mechanisms may not fully capture an increase in fuel price. Furthermore, market pressures may limit our ability to assess fuel surcharges in the future. The extent to which we are able to recover increases in fuel costs may be impacted by the amount of empty or out-of-route truck miles or engine idling time.
Decreases in fuel prices reduce the cost of transportation services and accordingly, will reduce our revenues and may reduce margins for certain lines of business. Significant changes in the price or availability of fuel in future periods, or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a material adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.
Productivity of our fleet historically decreases during the winter season and extreme or unusual weather conditions, whether due to climate change or otherwise, can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
Our business depends, in part, on predictable temperate weather patterns. Our productivity historically decreases during the winter season, as it does for the industry in general, because inclement weather impedes operations. Certain seasonal weather conditions and isolated weather events can disrupt our operations and further impact productivity. We frequently incur costs related to snow and ice removal, towing and other maintenance activities during winter months. At least some of our operations are constantly at risk of extreme adverse weather conditions.
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Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate change or otherwise, can temporarily impact freight volumes and increase our costs.
Also, concerns relating to climate change have led to a range of local, state, federal, and international regulatory and policy efforts to seek to address greenhouse gas (“GHG”) emissions. In the U.S., various approaches are being proposed or adopted at the federal, state, and local government levels. These efforts could lead to additional costs on the Company now or in the future, including increased fuel and other capital or operational costs, compliance costs, or additional legal requirements on the Company. In addition to the potential for additional GHG regulation or incentives, enhanced corporate, public, and stakeholder awareness of climate change could affect the Company's reputation or customer demand such as customers requesting more fuel-efficient transportation or increased transparency to carbon emissions in their supply chains. Climate change concerns and GHG regulatory efforts could also affect the Company's customers themselves. Any of these factors, individually or combined with one or more factors, or other unforeseen factors or other impacts of climate change, could affect the Company and have an effect on our business, operations, or financial condition.
Our reputation could be harmed if we fail to satisfy evolving stakeholder expectations regarding environmental, social and governance matters.
Companies across all industries are facing scrutiny from stakeholders related to ESG matters, including practices and disclosures related to environmental stewardship; social responsibility; diversity, equity and inclusion; and workplace rights. If we are unable to meet stakeholder expectations and industry standards, or if we are perceived to have not responded appropriately, our reputation could be negatively impacted. In addition, in recent years, investor advocacy groups and certain institutional investors have placed increasing importance on ESG matters. If, as a result of their assessment of our ESG practices, certain investors are unsatisfied with our actions, they may reconsider their investment in our company. As the nature, scope and complexity of ESG reporting, diligence and disclosure requirements expand, including the SEC’s recently proposed disclosure requirements regarding, among other matters, GHG emissions, we may have to undertake additional costs to control, assess and report on ESG metrics. Any failure or perceived failure, whether or not valid, to pursue or fulfill our ESG expectations or to satisfy various ESG reporting standards within the timelines we announce, or at all, could increase the risk of litigation.
Risks related to Our Use of Technology
Our business will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems, including those systems of any businesses that we acquire.
We rely heavily on our information technology systems in managing our business; they are a key component of our customer-facing services and internal growth strategy. In general, we expect our customers to continue to demand more sophisticated, fully integrated technology from their transportation providers. This process of continuous enhancement may lead to significant ongoing software development costs, which will continue to increase if we pursue new acquisitions of companies and their current systems. Technology and new market entrants may also disrupt the way we and our competitors operate. In addition, we may fail to accurately determine the needs of our customers or trends in the transportation industry. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.
We must ensure that our information technology systems remain competitive. If our information technology systems are unable to manage high volumes with reliability, accuracy and speed as we grow, or if such systems are not suited to manage the various services we offer, our service levels and operating efficiency could decline. In addition, if we fail to hire and retain qualified personnel to implement, protect and maintain our information technology systems, or if we fail to enhance our systems to meet our customers’ needs, our results of operations could be seriously harmed. This could result in a loss of customers or a decline in the volume of freight we receive from customers.
We are developing proprietary information technology. Our technology may not be successful or may not achieve the desired results and we may require additional training or different personnel to successfully implement this technology. Our technology development process may be subject to cost overruns or delays in obtaining the expected results, which may result in disruptions to our operations.
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A significant breach of our information security systems, networks or processes could materially adversely affect our business.
We process and maintain certain information that is confidential, proprietary, personal, or otherwise sensitive, including financial and confidential business information. Our information technology systems, devices, storage and applications, as well as those maintained by our third-party providers, are susceptible to damage, disruptions and shutdowns due to computer viruses, cyberattacks, ransomware or malware attacks, phishing, denial of service attacks, malicious social engineering, attacks by foreign actors, and other attempts to gain unauthorized access. Our systems and the systems maintained by our third-party providers have been subject to attempts to gain unauthorized access, breaches, and other system disruptions, and these and similar incidents could happen again. These events could, from time to time, cause material service outages, allow inappropriate or block legitimate access to systems or information, or result in other material interruptions to our business, our customers and other stakeholders could be impacted, and our reputation could be harmed. The techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and the frequency and sophistication of cyber-attacks globally have increased over time. As a result, we may be unable to anticipate these attacks or techniques or to implement adequate measures to recognize, detect or prevent the occurrence of any of the events described above or to adequately mitigate their effects. We also may not discover the occurrence of any of the events described above for a significant period of time after the event occurs. These risks, as well as the number and frequency of cybersecurity events globally, may also be heightened during times of geopolitical tension or instability between countries.
We depend on and interact with the information technology networks and systems of third parties for many aspects of our operations, including our customers and service providers such as cloud service providers and third-party delivery services. These third parties are subject to risks resulting from data breaches, cyberattacks, and other events or actions that could damage or disrupt their networks or systems, which could adversely affect our operations and have an impact on our business.
Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation or increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to the resulting claims or liability could similarly involve substantial cost, and the costs related to cybersecurity threats or disruptions may not be fully insured or indemnified by other means. While we have dedicated significant resources to security and privacy and to incident response capabilities, our response processes may not be adequate, may fail to accurately assess the severity of an incident, may not be sufficient to prevent or limit harm, or may fail to sufficiently remediate an incident in a timely fashion, any of which could harm our business, reputation, results of operations and financial condition.
A failure of our information technology infrastructure may materially adversely affect our business.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our order entry and fulfillment, communications, labor management, sales and marketing, financial, legal and compliance functions, engineering and product development tasks, research and development data, and other business processes. We also rely on third parties and virtualized infrastructure to operate our information technology systems. Despite significant testing, external and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error, pose a direct threat to the stability and effectiveness of our information technology systems and operations. The failure of our information technology systems to perform as we anticipate has in the past adversely affected, and could in the future adversely affect our business, including through service delays, delayed communications, loss and delay of sales, transaction errors, billing and invoicing errors, processing inefficiencies and delayed receivables collection. Any such failure could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failure has been remedied. Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.
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Also, due to recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists to breach data security of companies, we face risks associated with potential failure to adequately protect critical corporate, customer and employee data, which, if released, could adversely impact our customer and employee relationships, our reputation, and even violate privacy laws. Recently, regulatory and enforcement focus on data protection has heightened in the United States and abroad, particularly in the EU. Failure to comply with applicable U.S. or foreign data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our business, reputation, results of operations and financial condition.
Risks related to Our Credit and Liquidity
Our indebtedness could adversely affect our financial condition.
We have outstanding indebtedness, which could: negatively affect our ability to pay principal and interest on our debt; increase our vulnerability to general adverse economic and industry conditions; limit our ability to fund future capital expenditures and working capital, to engage in future acquisitions or development activities, or to otherwise realize the value of our assets and opportunities fully because of the need to dedicate a substantial portion of our cash flow to payments of interest and principal or to comply with any restrictive terms of our debt; limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; impair our ability to obtain additional financing or to refinance our indebtedness in the future; and place us at a competitive disadvantage compared to our competitors that may have proportionately less debt.
Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, could materially and adversely affect our financial position and results of operations. Further, failure to comply with the covenants under our indebtedness may have a material adverse impact on our operations. If we fail to comply with any of the covenants under our indebtedness, and are unable to obtain a waiver or amendment, such failure may result in an event of default under our indebtedness. We may not have sufficient liquidity to repay or refinance our indebtedness if such indebtedness were accelerated upon an event of default.
Under the terms of our outstanding indebtedness, we may not be able to incur substantial additional indebtedness in the future, which could further exacerbate the risks described above.
The execution of our strategy could depend on our ability to raise capital in the future, and our inability to do so could prevent us from achieving our growth objectives.
We may in the future be required to raise capital through public or private financing or other arrangements in order to pursue our growth strategy or operate our businesses. Such financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could harm our business and/or our ability to execute our strategy. Further debt financing may involve restrictive covenants and could reduce our profitability. We currently have investment grade credit ratings for our secured debt, however, we may not be able to maintain these ratings or obtain investment grade credit ratings for our unsecured debt or corporate ratings. Without investment grade credit ratings, we incur increased interest expense and borrowing costs and may have reduced access to financial markets to obtain additional debt financing or refinance our existing debt, potentially adversely affecting our financial condition and results of operations. If we cannot raise funds on acceptable terms, we may not be able to grow our business as planned or respond to competitive pressures.
We may be adversely affected by interest rate changes because of our floating rate credit facilities.
The Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”), and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on the Secured Overnight Offering Rate (“SOFR”) or a Base Rate, as defined in the agreements, plus an applicable margin. Our European trade receivables securitization program (the “Receivables Securitization Program”) provides for an interest rate at lenders’ cost of funds plus an applicable margin. Our financial position may be affected by fluctuations in interest rates since the ABL Facility, Term Loan Facility and Receivables Securitization Program are subject to floating interest rates. Refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for
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the impact on interest expense of a hypothetical 1% increase in the interest rate. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A significant increase in interest rates could have an adverse effect on our financial position and results of operations.
Risks related to Third-Party Relationships
We depend on third parties in the operation of our business.
Our European business heavily relies on subcontracting and we use a large number of temporary employees in these operations. As a result, we are exposed to various risks related to managing our subcontractors, such as the risk that they do not fulfill their assignments in a satisfactory manner or within the specified deadlines. Moreover, we cannot guarantee that temporary employees are as well-trained as our other employees. Specifically, we may be exposed to the risk that temporary employees may not perform their assignments in a satisfactory manner or may not comply with our safety rules in an appropriate manner, whether as a result of their lack of experience or otherwise. Such failures could compromise our ability to fulfill our commitments to our customers, comply with applicable regulations or otherwise meet our customers’ expectations. Such failures could also harm our reputation and ability to win new business and could lead to us being liable for contractual damages. Furthermore, in the event of a failure by our subcontractors or temporary employees to fulfill their assignments in a satisfactory manner, we could be required to perform unplanned work or additional services in line with the contracted service, without receiving any additional compensation. As a result, any failure to properly manage our subcontractors or temporary employees in Europe or elsewhere could have a material adverse impact on our revenues, earnings, financial position and outlook.
Increases in driver compensation and difficulties with attracting and retaining drivers could adversely affect our revenues and profitability.
Our LTL services in North America and Europe and our full truckload services in Europe are conducted primarily with employee drivers. Our industry is currently experiencing and may, in the future, experience intense competition for qualified drivers in the transportation industry due to a shortage of drivers. The availability of qualified drivers may be affected from time to time by changing workforce demographics, competition from other transportation companies and industries for employees, the availability and affordability of driver training schools, changing industry regulations, and the demand for drivers in the labor market. If the current industry-wide shortage of qualified drivers continues, our global LTL operations and our European truckload operation could experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demand. During periods of increased competition in the labor market for drivers, our LTL and full truckload operations may be required to increase driver compensation and benefits in the future to attract and retain a sufficient number of qualified drivers or face difficulty meeting customer demand, all of which could adversely affect our profitability. Additionally, a shortage of drivers could result in the underutilization of our truck fleet, lost revenue, increased costs for purchased transportation or increased costs for driver recruitment.
If we are unable to retain our key employees, our business, results of operations and financial position could be adversely affected.
Our success will continue to depend upon the experience and leadership of our key employees. In that regard, the loss of the services of any of our key personnel could have a material adverse effect on our financial condition, results of operations and liquidity if we are unable to secure replacement personnel who have sufficient experience in our industry and in the management of our business. The competition for these employees is intense and the labor market is tight. The loss of key personnel, the inability to attract, timely hire and retain key employees with critical technical skills, or unforeseen difficulties associated with the transition of key employees, could negatively impact our business.
Our business may be materially adversely affected by labor disputes.
Our business in the past has been, and in the future could be, adversely affected by strikes and labor negotiations at seaports, labor disputes between railroads and their union employees, or by a work stoppage at one or more railroads or local trucking companies servicing rail or port terminals. Strikes and work stoppages also could occur at our own
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facilities. Port shutdowns and similar disruptions to major points in national or international transportation networks, most of which are beyond our control, could result in terminal embargoes, disrupt equipment and freight flows, depress volumes and revenues, increase costs and have other negative effects on our operations and financial results.
Labor disputes involving our customers could affect our operations. If our customers experience plant slowdowns or closures because they are unable to negotiate labor contracts, our revenue and profitability could be negatively impacted.
Our European business activities require a large amount of labor, which represents one of our most significant costs. It is essential that we maintain good relations with employees, trade unions and other staff representative institutions. A deteriorating economic environment may result in tensions in industrial relations, which may lead to industrial action within our European operations; this could have a direct impact on our business operations. Generally, any deterioration in industrial relations in our European operations, such as general strike activities or other material labor disputes, could have an adverse effect on our revenues, earnings, financial position and outlook.
Efforts by labor organizations to organize employees at certain locations in North America, if successful, may impact costs and efficiencies at those locations.
Since 2014, in the U.S., the International Brotherhood of Teamsters (“Teamsters”) has attempted to organize employees at dozens of our LTL locations, and the International Association of Machinists (“Machinists”) has attempted to organize a small number of mechanics at three LTL maintenance shops.
The majority of our employees involved in these organizing efforts rejected union representation. As of December 31, 2023, our employees had voted against union representation in 19 of the 28 union elections held since 2014.
In May 2020, LTL technicians at our Gary Hammond, IN shop ratified a contract negotiated between XPO and the Machinists union. In November 2021, the Gary Hammond facility lease expired and XPO closed that shop and the contract was therefore rendered null and void. In July 2021, LTL drivers and dockworkers at our Miami, FL service center and drivers at our Trenton, NJ service center ratified contracts negotiated between XPO and the Teamsters. Less than a year later, in April 2022, the Teamsters disclaimed interest in the Trenton, NJ service center and no longer represent our employees in Trenton. In June 2023, Miami employees submitted a decertification petition and voted to remove the Teamsters union.
In 2019, a majority of employees at our LTL service centers in Laredo, TX and Aurora, IL, voted to decertify the Teamsters as the employees’ representative. In December 2020, a majority of employees at our LTL service center in Cinnaminson, NJ also voted to decertify the Teamsters as their bargaining representative. Since August 2021, the Teamsters disclaimed interest in five of our LTL locations, including Bakersfield, CA, Los Angeles, CA, Trenton, NJ, Albany, NY and most recently, King of Prussia, PA.
Since 2014, the Teamsters have withdrawn seven petitions seeking elections on behalf of LTL employees prior to the election being held, and the Machinists withdrew one petition for an LTL election on behalf of a small group of shop employees. Today, none of the Company’s employees in the U.S. are represented by a union or subject to a collective bargaining agreement.
In January 2022, LTL employees at our Trenton, NJ service center filed a deauthorization petition with the National Labor Relations Board seeking to withdraw the authority of the Teamsters to require union employees to pay union dues to retain their XPO jobs. The employees voted to remove the requirement that they pay dues and then, in April 2022, the Teamsters disclaimed interest in representing employees in Trenton, NJ.
The White House Task Force on Worker Organizing and Empowerment released a report on February 7, 2022, with numerous pro-labor recommendations regarding, among others, federal government support of union organizing efforts. There can be no assurance that increased government regulation and enforcement in this area will not increase our costs or have an adverse effect on our results of operations, cash flows and business.
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We cannot predict with certainty whether further organizing efforts may result in the unionization of any additional locations in the U.S. If union efforts are successful, these efforts may impact costs and efficiencies at the specific locations where representation is elected and have an adverse effect on our results of operations, cash flows and business.
Risks related to the Spin-Offs
We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-offs of GXO or RXO and may be required to indemnify GXO or RXO for certain liabilities.
Although we believe that separating our logistics segment and tech-enabled broker transportation platform into stand-alone, publicly traded companies (the “Spin-offs”) has provided financial, operational and other benefits to us and our stockholders, we cannot provide assurance that we will achieve the full strategic and financial benefits expected from the spin-offs. If we do not realize the intended benefits of the spin-offs, we could suffer a material adverse effect on our business, financial conditions, results of operations and cash flows.
Pursuant to the separation and distribution agreements and certain other agreements between XPO and GXO and XPO and RXO, each party agrees to indemnify the other for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide GXO and RXO are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that GXO or RXO has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnities from GXO or RXO for our benefit may not be sufficient to protect us against the full amount of such liabilities, and GXO or RXO may not be able to fully satisfy its indemnification obligations.
Moreover, even if we ultimately succeed in recovering from GXO or RXO any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
If the spin-offs of GXO and/or RXO, together with certain related transactions, do not qualify as transactions that are generally tax-free for U.S. federal income tax purposes, XPO and XPO stockholders could be subject to significant tax liabilities. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we could be subject to significant tax liabilities.
In connection with the spin-offs of GXO and RXO, we received opinions from outside counsel regarding the qualification of each spin-off, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code. The opinions of counsel were based upon and relied on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of XPO, GXO, and RXO, including those relating to the past and future conduct of each company. If any of these facts, assumptions, representations, statements or undertakings was, or becomes, inaccurate or incomplete, or if XPO, GXO, or RXO breaches any of its representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the related opinion of counsel, the opinion of counsel may be invalid, and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the opinion of counsel, there can be no assurance that the U.S. Internal Revenue Service (the “IRS”) will not assert that either spin-off and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, XPO and XPO stockholders could be subject to significant U.S. federal income tax liability.
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Risks related to Litigation and Regulations
We are involved in multiple lawsuits and are subject to various claims that could result in significant expenditures and impact our operations.
The nature of our business exposes us to the potential for various types of claims and litigation, including matters related to commercial disputes, labor and employment, workers’ compensation, personal injury, cargo and other property damage, environmental liability, insurance coverage, securities and other matters, including with respect to claims asserted under various other theories of agency or employer liability. Claims against us may exceed the amount of insurance coverage that we have or may not be covered by insurance at all. Businesses that we acquire also increase our exposure to litigation. Material increases in the frequency or severity of vehicular accidents, liability claims or workers’ compensation claims, or the unfavorable resolution of claims, or our failure to recover, in full or in part, under indemnity provisions with third-party transportation providers, could materially and adversely affect our operating results. Our involvement in the transportation of certain goods, including but not limited to hazardous materials, could also increase our exposure in the event that we or one of our third-party transportation providers is involved in an accident resulting in injury or contamination. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability. Under some agreements, we maintain the inventory of our customers, some of which may be significant in value. Our failure to properly handle and safeguard such inventory exposes us to potential claims and expenses.
An increase in the number or severity of self-insured claims or an increase in insurance premiums could have an adverse effect on us.
We use a combination of self-insurance programs and purchased insurance to provide for the costs of employee medical, vehicular collision and accident, cargo loss and damage, property damage, and workers’ compensation claims. Our estimated liability for self-retained insurance claims reflects certain actuarial assumptions and judgments, which are subject to a degree of variability. We reserve for anticipated losses and expenses and periodically evaluate and adjust our claims reserves to reflect our experience. Estimating the number and severity of claims, as well as related judgment or settlement amounts, is inherently difficult. This inherent difficulty, along with legal expenses, incurred but not reported claims, and other uncertainties can cause unfavorable differences between actual self-insurance costs and our reserve estimates. Our operating results could be adversely affected if any of the following were to occur: (i) the number or the severity of claims increases; (ii) we are required to accrue or pay additional amounts because claims prove to be more severe than our original assessment; or (iii) claims exceed our coverage amounts. Accordingly, our ultimate results may differ from our estimates, which could result in losses over our reserved amounts. We periodically evaluate our level of insurance coverage and adjust insurance levels based on targeted risk tolerance and premium expense. An increase in the number or severity of self-insured claims or an increase in insurance premiums could have an adverse effect on us, while higher self-insured retention levels may increase the impact of loss occurrences on our results of operations.
In addition, the cost of providing benefits under our medical plans is dependent on a variety of factors, including governmental laws and regulations, healthcare cost trends, claims experience and healthcare decisions by plan participants. As a result, we are unable to predict how the cost of providing benefits under medical plans will affect our financial condition, results of operations or cash flows.
We are subject to risks associated with defined benefit plans for our current and former employees, which could have a material adverse effect on our earnings and financial position.
We maintain defined benefit pension plans and a postretirement medical plan. Our defined benefit pension plans include funded and unfunded plans in the U.S. A decline in interest rates and/or lower returns on funded plan assets may cause increases in the expense and funding requirements for these defined benefit pension plans and for our postretirement medical plan. Despite past amendments that froze our defined benefit pension plans to new participants and curtailed benefits, these pension plans remain subject to volatility associated with interest rates, inflation, returns on plan assets, other actuarial assumptions and statutory funding requirements. In addition to being subject to volatility associated with interest rates, our postretirement medical plan remains subject to volatility associated with actuarial assumptions and trends in healthcare costs. Any of the aforementioned factors could lead to
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a significant increase in the expense of these plans and a deterioration in the solvency of these plans, which could significantly increase our contribution requirements. As a result, we are unable to predict the effect on our financial statements associated with our defined benefit pension plans and our postretirement medical plan.
Changes in income tax regulations for U.S. and multinational companies may increase our tax liability.
We are subject to income taxes in the United States and many foreign jurisdictions. Changes to income tax laws and regulations, or the interpretation of such laws, in any of the jurisdictions in which we operate could significantly increase our effective tax rate and ultimately reduce our cash flows from operating activities and otherwise have a material adverse effect on our financial condition, results of operations and cash flows. The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”), the EU and other government agencies in jurisdictions in which we and our affiliates do business have maintained a focus on the taxation of multinational companies. The OECD has recommended changes to numerous long-standing international tax principles through its base erosion and profit shifting (“BEPS”) project, and many jurisdictions have begun codifying those recommendations into law. These and other tax laws and related regulations changes, to the extent adopted, may increase tax uncertainty and/or our effective tax rate, result in higher compliance cost and adversely affect our provision for income taxes, results of operations and/or cash flows.
We are subject to governmental regulations, political conditions, and emissions-control regulations which could substantially increase operating expenses or negatively impact our business.
Our operations are regulated and licensed by various governmental agencies in the U.S. and in foreign countries where we operate. These regulatory agencies have authority and oversight of domestic and international transportation services and related activities, licensure, motor carrier operations, safety and security and other matters. We must comply with various insurance and surety bond requirements to act in the capacities for which we are licensed. Our subsidiaries and third-party transportation providers must also comply with applicable regulations and requirements of various agencies. Through our subsidiaries and operations, we hold various licenses required to carry out our domestic and international services. These licenses permit us to provide services as a motor carrier and property broker. In addition, we are subject to regulations and requirements promulgated by the DOT, EPA, FMCSA, DHS, CBP, Canada Border Services Agency and various other international, domestic, state and local agencies and port authorities.
Certain of our businesses engage in the transportation of hazardous materials, the movement, handling and accidental discharge of which are highly regulated. Our failure to maintain the required licenses, or to comply with applicable regulations, could have a material adverse impact on our business and results of operations. See the “Regulation” section under Item 1, “Business” for more information.
In 2021, the EPA announced a series of regulations to be implemented to decrease emissions from new heavy-duty vehicles and, in 2022, finalized new stringent emission standards to reduce nitrogen oxides and establish new standards for greenhouse gas emissions from heavy-duty engines. In December 2021, CARB adopted more stringent standards to reduce nitrogen oxide emissions from heavy-duty trucks and also adopted regulations to accelerate large-scale transition in California to zero-emission medium and heavy-duty trucks, including trucks of a type used in our operations in California. CARB’s Advanced Clean Truck regulation is designed to ensure that zero-emission vehicles are brought to market in California and regulation requires manufacturers to sell zero-emission trucks as an increasing percentage of their annual California sales. While CARB’s Advanced Clean Truck regulation and proposed Advanced Clean Fleets regulation may permit companies to seek exemptions or relief, there are no assurances that relief from either regulation will be obtained. At this point, there are virtually no zero-emissions vehicles widely available that are suitable replacements for current technology used in less-than-truckload operations. If zero-emission vehicles are not available or not commercially viable for the less-than-truckload market, we may be required to modify or curtail our operations in California. The transition to utilizing zero-emission vehicles could have a material adverse effect on our financial condition, results of operations, and cash flows or may require us to incur significant additional costs, any of which could negatively impact our business.
Future laws and regulations may be more stringent and may require changes to our operating practices that influence the demand for our services or require us to incur significant additional costs. We are unable to predict the impact that recently enacted and future regulations may have on our business. In particular, it is difficult to predict which,
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and in what form, FMCSA regulations may be modified or enforced, and what impact these regulations may have on motor carrier operations. If higher costs are incurred by us as a result of future changes in regulations, or by third-party transportation providers who pass increased costs on to us, this could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.
Furthermore, political conditions may increase the level of intensity of regulations that impact our business, may require changes to our operating practices, may influence demand for our services, or may require us to incur significant additional costs, any of which could negatively impact our business.
Failure to comply with trade compliance and anti-corruption laws and regulations applicable to our operations could expose us to potential fines, criminal sanctions, or reputational harm.
We are a global company subject to changing laws, policies, sanctions, and other regulatory requirements in the U.S., the U.K. and the E.U. relating to trade compliance and anti-corruption. Economic sanctions and other trade compliance restrictions in the U.S., the U.K., the E.U., and other countries may prohibit us from engaging in business activities with restricted entities or sanctioned countries. The U.S. and other export controls may restrict us from exporting specific products or arranging transportation or other services to or for the benefit of certain entities in specified countries. Global developments such as the ongoing conflict in Ukraine may result in new and evolving sanctions and trade restrictions. Non-compliance with trade compliance laws, policies, sanctions, and other regulatory requirements could result in reputational harm, operational delays, monetary fines and penalties, loss of revenues, increased costs, loss of export privileges, and criminal sanctions.
The U.S. Foreign Corrupt Practices Act (“FCPA”), the U.K. Bribery Act, Sapin II and other anti-corruption laws and regulations prohibit corrupt payments by our employees, vendors, or agents. While we have implemented policies, training, and internal controls designed to reduce the risk of corrupt payments, our employees, vendors, or agents may violate our policies and controls. Our failure to comply with anti-corruption laws and regulations could result in monetary fines and penalties, criminal sanctions against us, our officers, or our employees, restrictions on the conduct of our business, and reputational harm.
INDUSTRY RISK
Risks related to Our Markets and Competition
We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
Competition in the transportation services industry is intense. Increased competition may lead to a reduction in revenues, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our profitability, including the following: (i) competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do; (ii) a reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business; (iii) shippers soliciting bids from multiple transportation providers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors; (iv) the establishment by our competitors of cooperative relationships to increase their ability to address shipper needs; (v) decisions by our current or prospective customers to develop or expand internal capabilities for some of the services we provide; and (vi) the development of new technologies or business models that could result in our disintermediation in certain services we provide.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C. CYBERSECURITY
XPO employs a robust system of information technology and information security controls and measures to assess, identify, and mange risks from cybersecurity threats which we consider to be critically important to maintaining our business and ensuring our business continuity. Our information security program is managed by a dedicated Chief Information Security Officer (“CISO”), whose team is responsible for leading enterprise-wide cybersecurity strategy, policy, standards, architecture, threat detection, and incident response processes. Our CISO has a background in cybersecurity and risk management, including assessing, designing, building and operating security platforms. He has over 10 years of information technology and information security experience having successfully built and led security programs on areas relating to cybersecurity, risk management, identity and access, data protection, product and software security, cyber engineering, cyber defense, automation, and compliance initiatives. The CISO, who reports directly to our Chief Information Officer, provides periodic reports to our Board of Directors, as well as our Chief Executive Officer, Chief Information Officer, and other members of our senior management as appropriate. Our CISO meets regularly with his team as well as other key personnel to share information about potential cybersecurity events and monitor, prevent, and detect potential cybersecurity incidents and develop reports for our senior management. These reports include updates on the Company’s cyber risks and threats, the status of projects to strengthen our information security systems, assessments of the information security program, including the results of security breach simulations, and the emerging threat landscape. Our Board of Directors will be informed of all material cybersecurity incidents and our information security program includes procedures for calling a special session of the Board of Directors in the event of a high or critical-risk cybersecurity incident. The Board of Directors also discusses relevant incidents in the industry and the evolving threat landscape.
As part of our information security program, our CISO and his team integrate our information security measures into our overall risk management processes to identify, evaluate, and quantify risks based on available information and classify the severity of potential cybersecurity incidents. XPO employs technical measures to protect against cybersecurity attacks that align with functions identified in the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. The information security team continuously reviews our information security systems for unauthorized system access, cybersecurity incidents, and unusual traffic on our systems and meets regularly to identify, assess, and manage cybersecurity threats, including those posed by third-party service providers who provide services to our business. Our information security team also reviews relevant legislative and regulatory developments and conducts regular and tailored information security training for our global workforce, in various formats.
In the event of a cybersecurity incident, our incident response team, composed of members of our information security team as well as other key personnel, identifies, evaluates, and quantifies the relevant risks based on the available information and classifies the severity of the cybersecurity incident based on the level of risk to the Company. Our incident response measures include procedures to provide incident updates and developments to our senior management and the Board of Directors in the event of an ongoing cybersecurity incident. We also maintain an information security risk insurance policy. We conduct internal exercises to prepare our leadership and cross-functional teams to respond in the event of a cybersecurity incident and to help us test and consider revisions to our incident response procedures. We also actively engage with key consultants, auditors, industry participants, and intelligence and law enforcement communities as part of our continuing efforts to evaluate and enhance the effectiveness of our information security program. Our program is regularly evaluated by internal and external experts, with the results of those reviews reported to senior management and the Board of Directors. To date, we have not experienced any cybersecurity threats or incidents which have materially affected or are reasonably likely to materially affect the Company.
While we have dedicated significant resources to identifying, assessing, and managing material risks from cybersecurity threats, our efforts may not be adequate, may fail to accurately assess the severity of an incident, may not be sufficient to prevent or limit harm, or may fail to sufficiently remediate an incident in a timely fashion, any of which could harm our business, reputation, results of operations and financial condition. For an additional discussion of certain risks associated with cybersecurity see Item 1A, “Risk Factors” above.
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ITEM 2. PROPERTIES
As of December 31, 2023, we had approximately 596 locations, primarily in North America and Europe. These facilities are located in all 48 contiguous U.S. states, as well as globally.
| Segment | Leased Facilities | Owned Facilities | Customer Facilities (1) | Total | ||||||||||||||||||||||
North American LTL(2) | 231 | 140 | — | 371 | ||||||||||||||||||||||
| European Transportation | 202 | 13 | 4 | 219 | ||||||||||||||||||||||
| Corporate | 6 | — | — | 6 | ||||||||||||||||||||||
| Total | 439 | 153 | 4 | 596 | ||||||||||||||||||||||
(1) Includes locations owned or leased by customers.
(2) Includes 26 owned facilities and 2 leased facilities acquired in December 2023 in connection with the Yellow Asset Acquisition.
We lease our current executive office located in Greenwich, Connecticut, as well as various office facilities in the U.S., France, the U.K. and India to support our global executive and shared-services functions. We believe that our facilities are sufficient for our current needs.
ITEM 3. LEGAL PROCEEDINGS
Information with respect to certain legal proceedings is included in Note 18—Commitments and Contingencies to our Consolidated Financial Statements and as a Litigation matter in our Consolidated Statements of Income (included in Part II, Item 8 of this Annual Report) and is incorporated herein by reference. For an additional discussion of certain risks associated with legal proceedings, see Item 1A, “Risk Factors” above.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is listed on the New York Stock Exchange (“NYSE”) under the symbol XPO.
As of February 1, 2024, there were approximately 70 registered holders of our common stock. We have never paid, and have no immediate plans to pay, cash dividends on our common stock.
Stock Performance Graph
The graph below compares the cumulative five-year total return of holders of our common stock with the cumulative performance of the Dow Jones Transportation Average index, the S&P 400 MidCap index and the S&P Transportation Select Industry index. The graph assumes that the value of the investment in our common stock and each index was $100 on December 31, 2018 and that all dividends and other distributions, including the effect of spin-offs, were reinvested. The comparisons in the graph below are based on historical data and not indicative of, or intended to forecast, future performance of our common stock.
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The graph in our 2022 Annual Report on Form 10-K included a comparison of our common stock with the Dow Jones Transportation Average index and the S&P 400 MidCap index. Going forward, our performance graphs will use the S&P Transportation Select Industry index rather than the Dow Jones Transportation Average index. We believe that the S&P Transportation Select Industry is a more appropriate index as our outstanding performance-based restricted stock units (“PRSUs”) generally measure our performance compared to this index, of which we are a component.
| 12/31/18 | 12/31/19 | 12/31/20 | 12/31/21 | 12/31/22 | 12/31/23 | |||||||||||||||||||||||||||||||||
| XPO, Inc. | $ | 100.00 | $ | 139.73 | $ | 208.98 | $ | 237.73 | $ | 162.15 | $ | 426.64 | ||||||||||||||||||||||||||
| Dow Jones Transportation Average | $ | 100.00 | $ | 120.83 | $ | 140.80 | $ | 187.56 | $ | 154.62 | $ | 186.46 | ||||||||||||||||||||||||||
| S&P 400 MidCap | $ | 100.00 | $ | 126.20 | $ | 143.44 | $ | 178.95 | $ | 155.58 | $ | 181.15 | ||||||||||||||||||||||||||
| S&P Transportation Select Industry | $ | 100.00 | $ | 122.05 | $ | 136.78 | $ | 183.86 | $ | 132.35 | $ | 166.38 | ||||||||||||||||||||||||||
Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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.
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.
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 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.
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.
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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
| Years Ended December 31, | Percent of Revenue | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 7,744 | $ | 7,718 | $ | 7,202 | ||||||||||||||||||||||||||||||||
| 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 | % | |||||||||||||||||||||||||||||
| Restructuring costs | 44 | 50 | 19 | 0.6 | % | 0.6 | % | 0.3 | % | |||||||||||||||||||||||||||||
| Operating income | 438 | 377 | 312 | 5.7 | % | 4.9 | % | 4.3 | % | |||||||||||||||||||||||||||||
| Other income | (15) | (55) | (60) | (0.2) | % | (0.7) | % | (0.8) | % | |||||||||||||||||||||||||||||
| Debt extinguishment loss | 25 | 39 | 54 | 0.3 | % | 0.5 | % | 0.7 | % | |||||||||||||||||||||||||||||
| Interest expense | 168 | 135 | 211 | 2.2 | % | 1.7 | % | 2.9 | % | |||||||||||||||||||||||||||||
Income from continuing operations before income tax provision | 260 | 258 | 107 | 3.4 | % | 3.3 | % | 1.5 | % | |||||||||||||||||||||||||||||
| 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 of taxes | (3) | 482 | 245 | — | % | 6.2 | % | 3.4 | % | |||||||||||||||||||||||||||||
| Net income | $ | 189 | $ | 666 | $ | 341 | 2.4 | % | 8.6 | % | 4.7 | % | ||||||||||||||||||||||||||
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
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.
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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. 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.
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. 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. 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.
Other income primarily consists of pension income. 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. 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
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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 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 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 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 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 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 2022 are primarily comprised of stock-based compensation and third-party professional fees
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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 spin-offs and divestment activities. For more information, see Note 6—Restructuring Charges to our Consolidated Financial Statements.
Other income primarily consists of pension income. Other income for 2022 was $55 million, compared with $60 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 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 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 $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 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 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 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 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.
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North American Less-Than-Truckload Segment
| Years Ended December 31, | Percent of Revenue | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 4,671 | $ | 4,645 | $ | 4,125 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA | 864 | 932 | 826 | 18.5 | % | 20.1 | % | 20.0 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization expense | 291 | 239 | 227 | 6.2 | % | 5.1 | % | 5.5 | % | |||||||||||||||||||||||||||||
Year Ended December 31, 2023 Compared with Year Ended December 31, 2022
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 $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, while impacts on volume can include shipments per day and weight per shipment. The following table summarizes our key revenue metrics:
| Years Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | Change % | ||||||||||||||||||
| 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 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.
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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 $1.0 billion and $632 million, respectively, for the years ended December 31, 2022 and 2021.
The following table summarizes our key revenue metrics:
| Years Ended December 31, | ||||||||||||||||||||
| 2022 | 2021 | Change % | ||||||||||||||||||
| 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 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. 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
| Years Ended December 31, | Percent of Revenue | |||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||
| Revenue | $ | 3,073 | $ | 3,073 | $ | 3,077 | ||||||||||||||||||||||||||||||||
| Adjusted EBITDA | 163 | 169 | 165 | 5.3 | % | 5.5 | % | 5.4 | % | |||||||||||||||||||||||||||||
| Depreciation and amortization expense | 136 | 128 | 140 | 4.4 | % | 4.2 | % | 4.5 | % | |||||||||||||||||||||||||||||
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.
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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. 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 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.
Liquidity and Capital Resources
Our cash and cash equivalents balance was $412 million as of December 31, 2023, compared to $460 million as of December 31, 2022. 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, 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. There were no other significant changes made to the terms of the facility at that time. 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 SOFR-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, 2023, we had approximately $920 million of total liquidity. We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We 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. 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 $221 million as of December 31, 2023). 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.
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Information related to the trade receivables sold was as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Securitization programs | ||||||||||||||||||||
Receivables sold in period | $ | 1,815 | $ | 1,744 | $ | 1,726 | ||||||||||||||
Cash consideration | 1,815 | 1,744 | 1,726 | |||||||||||||||||
| Factoring programs | ||||||||||||||||||||
Receivables sold in period | 103 | 111 | 64 | |||||||||||||||||
Cash consideration | 103 | 111 | 64 | |||||||||||||||||
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.
Senior Notes
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.
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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. 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 principal 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.
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
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, there are no shares of Preferred Stock or warrants outstanding.
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Share Repurchases
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.
There were no share repurchases in 2023, 2022 or 2021. Our remaining share repurchase authorization as of December 31, 2023 is $503 million.
Loan Covenants and Compliance
As of December 31, 2023, we were in compliance with the covenants and other provisions of our debt agreements. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
LIBOR
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
Our cash flows from operating, investing and financing activities from continuing operations, as reflected on our Consolidated Statements of Cash Flows, are summarized as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Net cash provided by operating activities from continuing operations | $ | 694 | $ | 824 | $ | 490 | ||||||||||||||
| Net cash used in investing activities from continuing operations | (1,502) | (404) | (141) | |||||||||||||||||
| Net cash provided by (used in) financing activities from continuing operations | 761 | (861) | (1,933) | |||||||||||||||||
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. 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; (iii) received a distribution from GXO of $794 million and (iv) generated proceeds of $384 million from the issuance of common stock. We used cash during this period primarily to: (i) purchase property and equipment of $269 million; (ii) redeem our Senior Notes due 2022, 2023 and 2024 for $2.8 billion; (iii) repay our ABL Facility borrowings of $200 million and (iv) make payments on debt and finance leases of $80 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
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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. 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.
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 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 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 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 the issuance of common stock. In 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO.
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 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 finance lease maturities, see Note 8—Leases to our Consolidated Financial Statements.
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Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit plans for some employees in the U.S. Historically, we have realized income, rather than expense, from these plans. We generated aggregate income from our plans of $18 million in 2023, $60 million in 2022 and $61 million in 2021. The plans have been generating income due to their funded status and because they do not allow for new plan participants or additional benefit accruals.
Defined benefit pension plan amounts are calculated using various actuarial assumptions and methodologies. Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors. The assumptions used in recording the projected benefit obligations and fair value of plan assets represent our best estimates based on available information regarding historical experience and factors that may cause future expectations to differ. Differences in actual experience or changes in assumptions could materially impact our obligation and future expense or income.
Discount Rate
In determining the appropriate discount rate, we are assisted by actuaries who utilize a yield-curve model based on a universe of high-grade corporate bonds (rated AA or better by Moody’s, S&P or Fitch rating services). The model determines a single equivalent discount rate by applying the yield curve to expected future benefit payments.
The discount rates used in determining the net periodic benefit costs and benefit obligations are as follows:
| Qualified Plans | Non-Qualified Plans | |||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||
| Discount rate - net periodic benefit costs | 5.36 | % | 2.43 | % | 5.26% - 5.33% | 1.70% - 2.23% | ||||||||||||||||||||
| Discount rate - benefit obligations | 5.15 | % | 5.42 | % | 4.98% - 5.12% | 5.29% - 5.42% | ||||||||||||||||||||
An increase or decrease of 25 basis points in the discount rate would decrease or increase our 2023 pre-tax pension income by approximately $1 million.
We use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment.
Rate of Return on Plan Assets
We estimate the expected return on plan assets using current market data as well as historical returns. The expected return on plan assets is based on estimates of long-term returns and considers the plans’ anticipated asset allocation over the course of the next year. The plan assets are managed using a long-term liability-driven investment strategy that seeks to mitigate the funded status volatility by increasing participation in fixed-income investments generally as funded status increases. This strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the plans.
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 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.
Actuarial Gains and Losses
Changes in the discount rate and/or differences between the expected and actual rate of return on plan assets results in unrecognized actuarial gains or losses. 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
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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 2024 of approximately $25 million.
Funding
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 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.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. A summary of our significant accounting policies is contained in Note 2—Basis of Presentation and Significant Accounting Policies to our Consolidated Financial Statements. The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. We have identified below our accounting policies that we believe could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.
Evaluation of Goodwill
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We allocate goodwill to our reporting units for the purpose of impairment testing. 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. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. Application of the goodwill impairment test requires judgment, including the identification of reporting units, the assignment of assets and liabilities to reporting units, the assignment of goodwill to reporting units, and a determination of the fair value of each reporting unit.
Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.
For our 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
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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.
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. The discount rates reflect management’s judgment and are based on a risk adjusted weighted-average cost of capital utilizing industry market data of businesses similar to the reporting units. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. Our forecasts also reflect expectations concerning future economic conditions, interest rates and other market data. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.
Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of potential impairment.
Self-Insurance Accruals
We use a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, workers’ compensation, cyber risk and property claims. We periodically evaluate our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense. Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Additionally, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections. 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 along with other external factors. 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.
Income Taxes
Our annual effective tax rate is based on our income and statutory tax rates in the various jurisdictions in which we operate. 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-offs of RXO and GXO. We review our tax positions quarterly and as new information becomes available. Our effective tax rate in any financial statement period may be materially impacted by changes in the mix and/or level of earnings by taxing jurisdiction.
Deferred income tax assets represent amounts available to reduce income taxes payable in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses and tax credit carryforwards. 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,
46 | ||||||||||||||
historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.
New Accounting Standards
Information related to new accounting standards is included in Note 2—Basis of Presentation and Significant Accounting Policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk disclosures involve forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity price risk.
Interest Rate Risk
We have exposure to changes in interest rates on our debt, as follows:
Term Loan Facility. As of December 31, 2023, we had an aggregate principal amount outstanding of $1.1 billion on our Term Loan Facility. The interest rate fluctuates based on SOFR or a Base Rate, as defined in the agreement, plus an applicable margin. Assuming an average annual aggregate principal amount outstanding of $1.1 billion, a hypothetical 1% increase in the interest rate would have increased our annual interest expense by $11 million. Additionally, we utilize short-term interest rate swaps to mitigate variability in forecasted interest payments on our Term Loan Facility. The interest rate swaps convert floating-rate interest payments into fixed rate interest payments.
ABL Facility. The interest rates on our ABL Facility fluctuate based on SOFR or a Base Rate, as defined in the agreement, plus an applicable margin. Assuming our ABL Facility was fully drawn throughout 2023, a hypothetical 1% increase in the interest rate would have increased our annual interest expense by $6 million.
Fixed Rate Debt. As of December 31, 2023, we had $2.2 billion of fair value of indebtedness (excluding finance leases and asset financings) that bears interest at fixed rates. A 1% decrease in market interest rates as of December 31, 2023 would increase the fair value of our fixed-rate indebtedness by approximately 4%. For additional information concerning our debt, see Note 12—Debt to our Consolidated Financial Statements.
We also have exposure to changes in interest rates as a result of our cash balances, which totaled $412 million as of December 31, 2023 and generally earn interest income that approximates the federal funds rate. Assuming an annual average cash balance of $412 million, a hypothetical 1% increase in the interest rate would reduce our net interest expense by $4 million.
Foreign Currency Exchange Risk
A proportion of our net assets and income are in non-U.S. dollar (“USD”) currencies, primarily the euro (“EUR”) and British pound sterling (“GBP”). We are exposed to currency risk from potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR or the GBP relative to the USD could have an adverse impact on our financial results.
As of December 31, 2023, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in an increase in net assets of $7 million. As of December 31, 2023, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of $34 million. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with our actual experience in foreign currency transactions. Fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The sensitivity analysis of the impact of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.
47 | ||||||||||||||
Commodity Price Risk
We are exposed to price fluctuations for diesel fuel purchased for use in our vehicles. During the year ended December 31, 2023, diesel prices fluctuated by as much as 19% in France, 21% in the United Kingdom, and 23% in the United States. We include fuel surcharge programs or other cost-recovery mechanisms in many of our customer contracts to mitigate the effect of any fuel price increases over base amounts established in the contract. For our North American LTL business, pricing agreements with customers include a fuel surcharge that is typically indexed to fuel prices published weekly by the U.S. Department of Energy. The extent to which we are able to recover increases in fuel costs may also be impacted by the amount of empty or out-of-route truck miles or engine idling time. See the applicable discussion under Item 1A, “Risk Factors.”
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
| Page No. | |||||
49 | ||||||||||||||
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
XPO, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of XPO, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.
Liabilities for self-insured claims
As discussed in Note 2 to the consolidated financial statements, the Company uses a combination of self-insurance programs and purchased insurance to provide for the costs of liability, vehicular, and workers’ compensation claims (self-insured claims). The Company records estimates of the undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of claims incurred but not reported, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. These liabilities are recorded within accrued liabilities and other long-term liabilities as of December 31, 2023.
We identified the assessment of the estimated liabilities for self-insured claims as a critical audit matter. The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective auditor judgment. Assumptions that may affect the estimated liability of claims include the consideration of historical cost experience, severity factors, and judgments about current and expected levels of cost per claims that have uncertainty related to future occurrences or events and conditions. Additionally, the Company’s liabilities for self-insured claims included estimates for expenses of claims that have been incurred but have not been reported, and specialized skills were needed to evaluate the actuarial methods and assumptions used to make these estimates.
51 | ||||||||||||||
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s self-insurance process. This included controls over the assumptions used in estimating the liabilities for self-insured claims. In addition, for a sample of claims, we compared the Company’s estimates of liabilities for individual self-insured claims to current available information, which included legal claims, incident and case reports, current and historical cost experience, or other evidence. We involved an actuarial professional with specialized skills and knowledge, who assisted in:
•comparing the Company’s actuarial reserving methodologies with accepted actuarial methods and procedures
•evaluating assumptions used in determining the liability, including expected level of cost per claim in relation to recent historical loss payment trends and demographic and severity factors
•developing an independent expected range of liabilities, including liabilities for claims that have been incurred but have not been recorded, based on actuarial methodologies
•comparing the Company’s recorded liability to the independently developed liability range.
/s/ KPMG LLP
We have served as the Company’s auditor since 2011.
February 8, 2024
52 | ||||||||||||||
XPO, Inc.
Consolidated Balance Sheets
| December 31, | ||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Accounts receivable, net of allowances of $ | ||||||||||||||
| Other current assets | ||||||||||||||
| Current assets of discontinued operations | ||||||||||||||
| Total current assets | ||||||||||||||
| Long-term assets | ||||||||||||||
Property and equipment, net of $ | ||||||||||||||
| Operating lease assets | ||||||||||||||
| Goodwill | ||||||||||||||
Identifiable intangible assets, net of $ | ||||||||||||||
| Total long-term assets | ||||||||||||||
| Total assets | $ | $ | ||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities | ||||||||||||||
| Accounts payable | $ | $ | ||||||||||||
| Accrued expenses | ||||||||||||||
| Short-term borrowings and current maturities of long-term debt | ||||||||||||||
| Short-term operating lease liabilities | ||||||||||||||
| Other current liabilities | ||||||||||||||
| Current liabilities of discontinued operations | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Long-term liabilities | ||||||||||||||
| Long-term debt | ||||||||||||||
| Deferred tax liability | ||||||||||||||
| Employee benefit obligations | ||||||||||||||
| Long-term operating lease liabilities | ||||||||||||||
| Other long-term liabilities | ||||||||||||||
| Total long-term liabilities | ||||||||||||||
| Stockholders’ equity | ||||||||||||||
Common stock, $ outstanding as of December 31, 2023 and 2022, respectively | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings (accumulated deficit) | ( | |||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total equity | ||||||||||||||
| Total liabilities and equity | $ | $ | ||||||||||||
See accompanying notes to consolidated financial statements.
53 | ||||||||||||||
XPO, Inc.
Consolidated Statements of Income
| Years Ended December 31, | ||||||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | 2021 | |||||||||||||||||
| Revenue | $ | $ | $ | |||||||||||||||||
| Salaries, wages and employee benefits | ||||||||||||||||||||
| Purchased transportation | ||||||||||||||||||||
| Fuel, operating expenses and supplies | ||||||||||||||||||||
| Operating taxes and licenses | ||||||||||||||||||||
| Insurance and claims | ||||||||||||||||||||
| Gains on sales of property and equipment | ( | ( | ( | |||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||
| Litigation matter | ||||||||||||||||||||
| Transaction and integration costs | ||||||||||||||||||||
| Restructuring costs | ||||||||||||||||||||
| Operating income | ||||||||||||||||||||
| Other income | ( | ( | ( | |||||||||||||||||
| Debt extinguishment loss | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income from continuing operations before income tax provision | ||||||||||||||||||||
| Income tax provision | ||||||||||||||||||||
| Income from continuing operations | ||||||||||||||||||||
| Income (loss) from discontinued operations, net of taxes | ( | |||||||||||||||||||
| Net income | ||||||||||||||||||||
Net income from discontinued operations attributable to noncontrolling interests | ( | |||||||||||||||||||
| Net income attributable to XPO | $ | $ | $ | |||||||||||||||||
| Net income (loss) attributable to common shareholders | ||||||||||||||||||||
| Continuing operations | $ | $ | $ | |||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||
| Net income attributable to common shareholders | $ | $ | $ | |||||||||||||||||
| Earnings (loss) per share data | ||||||||||||||||||||
| Basic earnings per share from continuing operations | $ | $ | $ | |||||||||||||||||
| Basic earnings (loss) per share from discontinued operations | ( | |||||||||||||||||||
| Basic earnings per share attributable to common shareholders | $ | $ | $ | |||||||||||||||||
| Diluted earnings per share from continuing operations | $ | $ | $ | |||||||||||||||||
| Diluted earnings (loss) per share from discontinued operations | ( | |||||||||||||||||||
| Diluted earnings per share attributable to common shareholders | $ | $ | $ | |||||||||||||||||
| Weighted-average common shares outstanding | ||||||||||||||||||||
| Basic weighted-average common shares outstanding | ||||||||||||||||||||
| Diluted weighted-average common shares outstanding | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
54 | ||||||||||||||
XPO, Inc.
Consolidated Statements of Comprehensive Income
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||
Foreign currency translation gain (loss), net of tax effect of $ | $ | $ | ( | $ | ( | |||||||||||||||
Unrealized loss on financial assets/liabilities designated as hedging instruments, net of tax effect of $ | ( | ( | ||||||||||||||||||
Defined benefit plans adjustment, net of tax effect of $ | ( | ( | ||||||||||||||||||
| ( | ( | |||||||||||||||||||
| Comprehensive income | $ | $ | $ | |||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | ||||||||||||||||||||
| Comprehensive income attributable to XPO | $ | $ | $ | |||||||||||||||||
See accompanying notes to consolidated financial statements.
55 | ||||||||||||||
| XPO, Inc. | ||||||||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Cash flows from operating activities of continuing operations | ||||||||||||||||||||
| Net income | $ | $ | $ | |||||||||||||||||
| Income (loss) from discontinued operations, net of taxes | ( | |||||||||||||||||||
| Income from continuing operations | ||||||||||||||||||||
Adjustments to reconcile income (loss) from continuing operations to net cash from operating activities | ||||||||||||||||||||
| Depreciation, amortization and net lease activity | ||||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||
| Accretion of debt | ||||||||||||||||||||
| Deferred tax expense | ||||||||||||||||||||
| Gains on sales of property and equipment | ( | ( | ( | |||||||||||||||||
| Other | ||||||||||||||||||||
| Changes in assets and liabilities | ||||||||||||||||||||
| Accounts receivable | ( | ( | ( | |||||||||||||||||
| Other assets | ( | ( | ||||||||||||||||||
| Accounts payable | ( | |||||||||||||||||||
| Accrued expenses and other liabilities | ||||||||||||||||||||
| Net cash provided by operating activities from continuing operations | ||||||||||||||||||||
| Cash flows from investing activities of continuing operations | ||||||||||||||||||||
| Payment for purchases of property and equipment | ( | ( | ( | |||||||||||||||||
| Proceeds from sale of property and equipment | ||||||||||||||||||||
| Proceeds from settlement of cross currency swaps | ||||||||||||||||||||
| Other | ( | |||||||||||||||||||
| Net cash used in investing activities from continuing operations | ( | ( | ( | |||||||||||||||||
| Cash flows from financing activities of continuing operations | ||||||||||||||||||||
| Proceeds from issuance of debt | ||||||||||||||||||||
| Repayment of borrowings related to securitization program | ( | |||||||||||||||||||
| Repurchase of debt | ( | ( | ( | |||||||||||||||||
| Proceeds from borrowings on ABL facility | ||||||||||||||||||||
| Repayment of borrowings on ABL facility | ( | ( | ||||||||||||||||||
| Repayment of debt and finance leases | ( | ( | ( | |||||||||||||||||
| Payment of debt issuance costs | ( | ( | ||||||||||||||||||
| Issuance of common stock | ||||||||||||||||||||
| Change in bank overdrafts | ( | |||||||||||||||||||
| Payment for tax withholdings for restricted shares | ( | ( | ( | |||||||||||||||||
| Distribution from RXO and GXO spins, net | ||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||
| Net cash provided by (used in) financing activities from continuing operations | ( | ( | ||||||||||||||||||
56 | ||||||||||||||
| XPO, Inc. | ||||||||||||||||||||
| Consolidated Statements of Cash Flows (continued) | ||||||||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Cash flows from discontinued operations | ||||||||||||||||||||
| Operating activities of discontinued operations | ( | |||||||||||||||||||
| Investing activities of discontinued operations | ( | |||||||||||||||||||
| Financing activities of discontinued operations | ( | ( | ||||||||||||||||||
| Net cash provided by (used in) discontinued operations | ( | ( | ||||||||||||||||||
| Effect of exchange rates on cash, cash equivalents and restricted cash | ( | ( | ||||||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ( | ||||||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash, end of year | ||||||||||||||||||||
Less: Cash, cash equivalents and restricted cash of discontinued operations, end of year | ||||||||||||||||||||
Cash, cash equivalents and restricted cash of continuing operations, end of year | $ | $ | $ | |||||||||||||||||
| Supplemental disclosure of cash flow information from continuing operations: | ||||||||||||||||||||
| Cash paid for interest | ||||||||||||||||||||
| Cash paid for income taxes | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
57 | ||||||||||||||
XPO, Inc.
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2023, 2022 and 2021
| Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Shares in thousands, dollars in millions) | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Total XPO Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Spin-off of GXO | — | — | — | — | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and vesting of stock compensation awards | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to vesting of stock compensation awards | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ( | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Purchase of noncontrolling interests | — | — | — | — | ( | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dividend declared | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Spin-off of RXO | — | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and vesting of stock compensation awards | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to vesting of stock compensation awards | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
58 | ||||||||||||||
XPO, Inc.
Consolidated Statements of Changes in Equity (continued)
For the Years Ended December 31, 2023, 2022 and 2021
| Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Shares in thousands, dollars in millions) | Shares | Amount | Shares | Amount | Additional Paid-In Capital | Retained Earnings (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Total XPO Stockholders’ Equity | Non-controlling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise and vesting of stock compensation awards | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax withholdings related to vesting of stock compensation awards | — | — | — | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
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XPO, Inc.
Notes to Consolidated Financial Statements
Years Ended December 31, 2023, 2022 and 2021
1. Organization
Nature of Operations
XPO, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services. We use our proprietary technology to move goods efficiently through our customers’ supply chains in North America and Europe. See Note 4—Segment Reporting and Geographic Information for additional information on our operations.
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 (the “Yellow Asset Acquisition”). 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.
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. For information on our discontinued operations, see Note 3—Discontinued Operations.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our consolidated financial statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions.
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.
Consolidation
Our consolidated financial statements include the accounts of XPO, our wholly-owned subsidiaries, and our majority-owned subsidiaries and variable interest entity (“VIE”) where we are the primary beneficiary. We have eliminated intercompany accounts and transactions.
To determine if we are a primary beneficiary of a VIE, we evaluate whether we are able to direct the activities that significantly impact the VIE’s economic performance, including whether we control the operations of each VIE and
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whether we can operate the VIE under our brand or policies. Investors in the VIE only have recourse to the assets owned by the VIE and not to our general credit. We do not have implicit support arrangements with the VIE. We consolidate the VIE, which is comprised of the special purpose entity related to the European trade securitization program discussed below.
Significant Accounting Policies
Revenue Recognition
We recognize revenue when we transfer control of promised products or services to customers in an amount equal to the consideration we expect to receive for those products or services.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied.
We generate revenue by providing less-than-truckload and other transportation services for our customers. Additional services may be provided to our customers under their transportation contracts, including unloading and other incidental services. The transaction price is based on the consideration specified in the customer’s contract.
A performance obligation is created when a customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. We recognize transportation revenue proportionally as a shipment moves from origin to destination and the related costs are recognized as incurred. Some of our customer contracts contain our promise to stand ready to provide transportation services. For these contracts, we recognize revenue on a straight-line basis over the term of the contract because the pattern of benefit to the customer, and our efforts to fulfill the contract, are generally distributed evenly throughout the period. Performance obligations are generally short-term, with transit times usually less than one week. Generally, customers are billed on shipment of the freight or on a monthly basis and make payment according to approved payment terms. When we do not control the specific services, we recognize revenue as the difference between the amount the customer pays us for the service less the amount we are charged by third parties who provide the service.
Generally, we can adjust our pricing based on contractual provisions related to achieving agreed-upon performance metrics, changes in volumes, services and market conditions. Revenue relating to these pricing adjustments is estimated and included in the consideration if it is probable that a significant revenue reversal will not occur in the future. The estimate of variable consideration is determined by the expected value or most likely amount method and factors in current, past and forecasted experience with the customer. Customers are billed based on terms specified in the revenue contract and they pay us according to approved payment terms.
Contract Costs
We expense the incremental costs of obtaining contracts when incurred if the amortization period of the assets is one year or less. These costs are included in Salaries, wages and employee benefits on our Consolidated Statements of Income.
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Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2023, 2022 and 2021, our restricted cash included in on our Consolidated Balance Sheets was $7 million, $10 million and $10 million, respectively.
Accounts Receivable and Allowance for Credit Losses
We record accounts receivable at the contractual amount and we record an allowance for credit losses for the amount we estimate we may not collect. In determining the allowance for credit losses, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay. We also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses. We write off accounts receivable balances once the receivables are no longer deemed collectible.
The roll-forward of the allowance for credit losses was as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Beginning balance | $ | $ | $ | |||||||||||||||||
| Provision charged to expense | ||||||||||||||||||||
| Write-offs, less recoveries, and other adjustments | ( | ( | ( | |||||||||||||||||
| Ending balance | $ | $ | $ | |||||||||||||||||
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows. 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.
Under the trade receivables securitization program, a wholly-owned bankruptcy-remote special purpose entity of XPO sells trade receivables that originate with wholly-owned subsidiaries to unaffiliated entities. The program expires in July 2026 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.
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 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, 2023, €1 million (approximately $1 million) was available under the program. The weighted average interest rate was 5.35 % as of December 31, 2023.
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Information related to the trade receivables sold was as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Securitization programs | ||||||||||||||||||||
Receivables sold in period | $ | $ | $ | |||||||||||||||||
Cash consideration | ||||||||||||||||||||
| Factoring programs | ||||||||||||||||||||
Receivables sold in period | ||||||||||||||||||||
Cash consideration | ||||||||||||||||||||
Property and Equipment
We generally record property and equipment at cost, or in the case of property and equipment acquired in a business combination, at fair value at the date of acquisition.
In connection with the Yellow Asset Acquisition, on December 20, 2023, we acquired 28 LTL service centers for a purchase price of $918 million, including a cash payment of $870 million, the assumption of certain liabilities and direct transaction costs. Under the transaction, we purchased 26 of the service centers, primarily consisting of land and buildings, and assumed existing leases for the other two locations. The transaction was accounted for as an asset acquisition, with the assets recorded at cost. The Consolidated Statements of Cash Flows for the year ended December 31, 2023 reflects an $878 million investing cash outflow for this transaction.
We compute depreciation expense on a straight-line basis over the estimated useful lives of the assets as follows:
| Classification | Estimated Useful Life | |||||||
Buildings and leasehold improvements | Term of lease to | |||||||
| Vehicles, tractors and trailers | ||||||||
Machinery and equipment | ||||||||
Computer software and equipment | ||||||||
Leases
We determine if an arrangement is a lease at inception. We recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use incremental borrowing rates based on the information available at commencement date to determine the present value of future lease payments. This rate is determined from a hypothetical yield curve that takes into consideration market yield levels of our relevant debt outstanding as well as the index that matches our credit rating, and then adjusts as if the borrowings were collateralized.
We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options. We exclude variable lease payments (such as payments not based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability. We recognize leases with an initial term of 12 months or less as lease expense over the lease term and those leases are not recorded on our Consolidated Balance Sheets. We account for lease and non-lease components within a contract as a single lease component for our real estate leases. For additional information on our leases, see Note 8—Leases.
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Asset Retirement Obligations
Goodwill
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We allocate goodwill to our reporting units for the purpose of impairment testing. 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. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management.
Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.
For our 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.
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. We use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term outlook for our business. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry.
Intangible Assets
Our intangible assets subject to amortization consist primarily of customer relationships and favorable leases. In connection with the Yellow Asset Acquisition, the assumed leases contained favorable terms compared to market terms for similar leases and, as result, we recognized a $65 million favorable lease intangible asset in December 2023.
We review long-lived assets to be held-and-used, including tangible assets and intangible assets subject to amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is considered to be impaired if the sum of the undiscounted expected future
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Accrued Expenses
The components of accrued expenses as of December 31, 2023 and 2022 are as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Accrued salaries and wages | $ | $ | ||||||||||||
| Accrued transportation and facility charges | ||||||||||||||
| Accrued insurance claims | ||||||||||||||
| Accrued taxes | ||||||||||||||
| Other accrued expenses | ||||||||||||||
| Total accrued expenses | $ | $ | ||||||||||||
Self-Insurance
We use a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, workers’ compensation, cyber risk and property claims. We periodically evaluate our level of insurance coverage and adjust our insurance levels based on risk tolerance and premium expense.
Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than our estimates.
Advertising Costs
Advertising costs are expensed as incurred.
Stockholders’ Equity
We retire shares purchased under our share repurchase program and return them to authorized and unissued status. We charge any excess of cost over par value to Additional paid-in capital if a balance is present. If Additional paid-in capital is fully depleted, any remaining excess of cost over par value will be charged to Retained earnings.
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Accumulated Other Comprehensive Income (Loss)
The components of and changes in accumulated other comprehensive income (loss) (“AOCI”), net of tax, for the years ended December 31, 2023 and 2022, are as follows:
| (In millions) | Foreign Currency Translation Adjustments | Derivative Hedges | Defined Benefit Plans Liability | AOCI Attributable to XPO | ||||||||||||||||||||||||||||
| As of December 31, 2021 | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | ||||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Spin-off of RXO | ||||||||||||||||||||||||||||||||
| As of December 31, 2022 | ( | ( | ( | ( | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | |||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | ( | ( | ( | |||||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | |||||||||||||||||||||||||||||||
| As of December 31, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||||||
Income Taxes
We account for income taxes using the asset and liability method on a legal entity and jurisdictional basis, under which we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. Our calculation relies on several factors, including pre-tax earnings, differences between tax laws and accounting rules, statutory tax rates, tax credits, uncertain tax positions, and valuation allowances. We use judgment and estimates in evaluating our tax positions. Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-offs of RXO and GXO. Valuation allowances are established when, in our judgment, it is more likely than not that our deferred tax assets will not be realized based on all available evidence. We record Global Intangible Low-Taxed Income (“GILTI”) tax as a period cost.
Our tax returns are subject to examination by U.S. Federal, state and foreign taxing jurisdictions. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years. We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. We adjust these tax liabilities, including related interest and penalties, based on the current facts and circumstances. We report tax-related interest and penalties as a component of income tax expense.
Foreign Currency Translation and Transactions
The assets and liabilities of our foreign subsidiaries that use their local currency as their functional currency are translated to U.S. dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in AOCI on our Consolidated Balance Sheets. The assets and liabilities of our foreign subsidiaries whose local currency is not their functional currency are remeasured from their local currency to their functional currency and then translated to USD. The results of operations of our foreign subsidiaries are translated to USD using average exchange rates prevailing for each period presented.
We convert foreign currency transactions recognized on our Consolidated Statements of Income to USD by applying the exchange rate prevailing on the date of the transaction. Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Other income on our Consolidated Statements of Income.
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Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of December 31, 2023 and 2022 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents include money market funds valued using quoted prices in active markets and a cash deposit for the securitization program. For information on the fair value hierarchy of our derivative instruments, see Note 11—Derivative Instruments and for information on financial liabilities, see Note 12—Debt.
The fair value hierarchy of cash equivalents was as follows:
| (In millions) | Carrying Value | Fair Value | Level 1 | |||||||||||||||||||||||
| December 31, 2023 | $ | $ | $ | |||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||
Derivative Instruments
We record all derivative instruments on our Consolidated Balance Sheets as assets or liabilities at fair value. Our accounting treatment for changes in the fair value of derivative instruments depends on whether the instruments have been designated and qualify as part of a hedging relationship and on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, we must designate the derivative based on the exposure being hedged and assess, both at the hedge’s inception and on an ongoing basis, whether the designated derivative instruments are highly effective in offsetting changes in earnings and cash flows of the hedged items. When a derivative instrument is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively. We link cash flow hedges to specific forecasted transactions or variability of cash flow to be paid.
The gain or loss resulting from fair value adjustments on cash flow hedges are recorded in AOCI on our Consolidated Balance Sheets until the hedged item is recognized in earnings and is presented in the same income statement line item as the earnings effect of the hedged item. The gains and losses on the net investment hedges are recorded as cumulative translation adjustments in AOCI to the extent that the instruments are effective in hedging the designated risk. Gains and losses on cash flow hedges and net investment hedges representing hedge components excluded from the assessment of effectiveness will be amortized into Interest expense on our Consolidated Statements of Income in a systematic manner. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recorded in Other income on our Consolidated Statements of Income.
Defined Benefit Pension Plans
We calculate defined benefit pension plan obligations using various actuarial assumptions and methodologies. Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors. The assumptions used in recording the projected benefit obligation and fair value of plan assets represent our best estimates based on available information regarding historical experience and factors that may
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cause future expectations to differ. Our obligation and future expense amounts could be materially impacted by differences in actual experience or changes in assumptions.
The impact of plan amendments, actuarial gains and losses and prior-service costs are recorded in AOCI and are generally amortized as a component of net periodic benefit cost over the remaining service period of the active employees covered by the defined benefit pension plans. Unamortized gains and losses are amortized only to the extent they exceed 10% of the higher of the fair value of plan assets or the projected benefit obligation of the respective plan.
Stock-Based Compensation
We account for stock-based compensation based on the equity instrument’s grant date fair value. For grants of restricted stock units (“RSUs”) subject to service-based or performance-based vesting conditions only, we establish the fair value based on the market price on the date of the grant. For grants of RSUs subject to market-based vesting conditions, we establish the fair value using the Monte Carlo simulation lattice model. We determined the fair value of our stock-based awards based on our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We account for forfeitures as they occur.
We recognize the grant date fair value of equity awards as compensation cost over the requisite service period. We recognize expense for our performance-based restricted stock units (“PRSUs”) over the awards’ requisite service period based on the number of awards expected to vest with consideration to the actual and expected financial results. We do not recognize expense until achievement of the performance targets for a PRSU award is considered probable.
Adoption of New Accounting Standard
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance. In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848): Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022 until December 31, 2024. At December 31, 2022, our revolving loan credit agreement (the “ABL Facility”) and senior secured term loan credit agreement, as amended (the “Existing Term Loan Facility”), provided for an interest rate based on LIBOR. In 2023, we amended the terms of our ABL Facility and Existing Term Loan Facility, including transitioning the interest rate from LIBOR to other base rates. See Note 12—Debt for further information. The modifications of these facilities to transition from LIBOR to other base rates did not have a material impact on our consolidated financial statements.
Accounting Pronouncements Issued but Not Yet Effective
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU modifies income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliations and (ii) the disclosure of income taxes paid disaggregated by jurisdiction, among other requirements. This ASU is effective for fiscal years beginning after December 31, 2024 and should be applied on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. We are currently evaluating the impact of the new standard, which is limited to financial statement disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in the ASU improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit and loss, and provide new segment disclosure requirements for entities with a single reportable segment, among other disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2023 and should
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be applied retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating the impact of the new standard, which is limited to financial statement disclosures.
3. Discontinued Operations
As discussed above, the results of RXO, our intermodal operation and GXO are presented as discontinued operations.
The following table summarizes the results of operations from discontinued operations:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2022 | 2021 | ||||||||||||||||||
| Revenue | $ | $ | ||||||||||||||||||
| Salaries, wages and employee benefits | ||||||||||||||||||||
| Purchased transportation | ||||||||||||||||||||
| Fuel, operating expenses and supplies | ||||||||||||||||||||
| Operating taxes and licenses | ||||||||||||||||||||
| Insurance and claims | ||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
| Gain on sale of business | ( | |||||||||||||||||||
| Transaction and other operating costs | ||||||||||||||||||||
| Operating income | ||||||||||||||||||||
| Other income | ( | ( | ||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income from discontinued operations before income tax provision | ||||||||||||||||||||
| Income tax provision | ||||||||||||||||||||
| Net income from discontinued operations, net of taxes | ||||||||||||||||||||
| Net income from discontinued operations attributable to noncontrolling interests | ( | |||||||||||||||||||
| Net income from discontinued operations | $ | $ | ||||||||||||||||||
During the years ended December 31, 2023, 2022 and 2021, we incurred approximately $57 million, $152 million and $125 million, respectively, of costs related to the spin-offs, of which $6 million, $120 million and $101 million, respectively, are reflected within in our Consolidated Statements of Income.
In 2022, 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 adjustment.
Additionally, in 2022, RXO completed debt offerings and used the net proceeds of $446 million to fund a cash payment from RXO to XPO, which we used to repay a portion of our outstanding borrowings and fund any related fees and expenses. Similarly, in 2021, GXO completed a debt offering and used the net proceeds to fund a cash payment from GXO to XPO of $794 million, which we used to repay a portion of our outstanding borrowings. For further information, see Note 12—Debt.
Prior to the spin-off of GXO, the pension plan for some employees in the United Kingdom was sold to a GXO entity and approximately $82 million of AOCI, net of tax, was transferred to GXO.
In connection with both spin-offs, we entered into separation and distribution agreements as well as various other agreements that provided a framework for the relationships between the parties going forward, including, among others, an employee matters agreement (“EMA”), a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO agreed to provide certain services for a period of time specified in the applicable agreement following the spin-offs. The impact of these services on the consolidated financial statements was immaterial.
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4. Segment Reporting and Geographic Information
We are organized into two reportable segments: North American Less-Than-Truckload (“LTL”), the largest component of our business, and European Transportation.
In our asset-based North American LTL segment, we provide shippers with geographic density and day-definite domestic and cross-border services to the U.S., as well as Mexico, Canada and the Caribbean. Our North American LTL segment also includes the results of our trailer manufacturing operations.
In our European Transportation segment, we serve an extensive base of customers within the consumer, trade and industrial markets. We offer dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and multimodal solutions, such as road-rail and road-short sea combinations.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reportable segments.
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM. We do not provide asset information by segment to the CODM. 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.
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Selected financial data for our segments is as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Revenue | ||||||||||||||||||||
| North American LTL | $ | $ | $ | |||||||||||||||||
| European Transportation | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
| Adjusted EBITDA | ||||||||||||||||||||
North American LTL (1) | $ | $ | $ | |||||||||||||||||
| European Transportation | ||||||||||||||||||||
Corporate (1) | ( | ( | ( | |||||||||||||||||
| Total Adjusted EBITDA | ||||||||||||||||||||
| Less: | ||||||||||||||||||||
| Debt extinguishment loss | ||||||||||||||||||||
| Interest expense | ||||||||||||||||||||
| Income tax provision | ||||||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
Goodwill impairment (2) | ||||||||||||||||||||
Litigation matter (3) | ||||||||||||||||||||
Transaction and integration costs (4) | ||||||||||||||||||||
Restructuring costs (5) | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Income from continuing operations | $ | $ | $ | |||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||||||
| North American LTL | $ | $ | $ | |||||||||||||||||
| European Transportation | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||
(1) In the first quarter of 2023, we began allocating incremental corporate costs from Corporate to North American LTL. Prior periods have been recast to reflect these incremental allocations.
(2) See Note 9— Goodwill for further information on the impairment charge.
(3) See Note 18— Commitments and Contingencies for further information on the litigation matter.
(4) 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 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees. Transaction and integration costs for 2023, 2022 and 2021 include $0 million , $3 million and $1 million, respectively, related to our North American LTL segment; $2 million, $6 million and $14 million, respectively, related to our European Transportation segment and $56 million, $49 million and $21 million, respectively, related to Corporate.
(5) See Note 6— Restructuring Charges for further information on our restructuring actions.
As of December 31, 2023 and 2022, we held long-lived tangible assets outside of the U.S. of $427 million and $397 million, respectively.
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5. Revenue Recognition
Disaggregation of Revenues
Our revenue disaggregated by geographic area based on sales office location was as follows:
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||
| (In millions) | North American LTL | European Transportation | Total | |||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| United States | $ | $ | $ | |||||||||||||||||||||||
| North America (excluding United States) | ||||||||||||||||||||||||||
| France | ||||||||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||||||||
| Europe (excluding France and United Kingdom) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||
| (In millions) | North American LTL | European Transportation | Total | |||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| United States | $ | $ | $ | |||||||||||||||||||||||
| North America (excluding United States) | ||||||||||||||||||||||||||
| France | ||||||||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||||||||
| Europe (excluding France and United Kingdom) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||
| Year Ended December 31, 2021 | ||||||||||||||||||||||||||
| (In millions) | North American LTL | European Transportation | Total | |||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||
| United States | $ | $ | $ | |||||||||||||||||||||||
| North America (excluding United States) | ||||||||||||||||||||||||||
| France | ||||||||||||||||||||||||||
| United Kingdom | ||||||||||||||||||||||||||
| Europe (excluding France and United Kingdom) | ||||||||||||||||||||||||||
| Total | $ | $ | $ | |||||||||||||||||||||||
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6. Restructuring Charges
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 other divestment activities. These actions generally include severance and facility-related costs, including impairment of lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability.
Our restructuring-related activity was as follows:
| Year Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| (In millions) | Reserve Balance as of December 31, 2022 | Charges Incurred | Payments | Foreign Exchange and Other | Reserve Balance as of December 31, 2023 | |||||||||||||||||||||||||||
| Severance | ||||||||||||||||||||||||||||||||
| North American LTL | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||
| European Transportation | ( | |||||||||||||||||||||||||||||||
| Corporate | ( | ( | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||
In addition to the severance charges noted in the table above, we recorded a non-cash lease impairment charge of $6 million in our North American LTL segment in the first quarter of 2023.
We expect the majority of the cash outlays related to the charges incurred in 2023 will be complete within twelve months.
| Year Ended December 31, 2022 | ||||||||||||||||||||||||||||||||
| (In millions) | Reserve Balance as of December 31, 2021 | Charges Incurred | Payments | Foreign Exchange and Other | Reserve Balance as of December 31, 2022 | |||||||||||||||||||||||||||
| Severance | ||||||||||||||||||||||||||||||||
| North American LTL | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
| European Transportation | ( | ( | ||||||||||||||||||||||||||||||
Corporate (1) | ( | ( | ||||||||||||||||||||||||||||||
| Total severance | ( | ( | ||||||||||||||||||||||||||||||
| Contract termination | ||||||||||||||||||||||||||||||||
| North American LTL | ( | |||||||||||||||||||||||||||||||
| Total contract termination | ( | |||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||
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7. Property and Equipment
| December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Property and equipment | ||||||||||||||
Land (1) | $ | $ | ||||||||||||
| Buildings and leasehold improvements | ||||||||||||||
| Vehicles, tractors and trailers | ||||||||||||||
| Machinery and equipment | ||||||||||||||
| Computer software and equipment | ||||||||||||||
| Less: accumulated depreciation and amortization | ( | ( | ||||||||||||
| Total property and equipment, net | $ | $ | ||||||||||||
| Net book value of capitalized internally-developed software included in property and equipment, net | $ | $ | ||||||||||||
(1) The increase in Land as of December 31, 2023 compared to December 31, 2022 reflects land acquired in December 2023 as part of the Yellow Asset Acquisition.
Depreciation of property and equipment and amortization of computer software was $376 million, $336 million and $327 million for the years ended December 31, 2023, 2022 and 2021, respectively.
In connection with the Yellow Asset Acquisition, in December 2023, we recognized approximately $850 million of Land and Buildings and leasehold improvements, including amounts related to assumed finance leases.
8. Leases
Most of our leases are real estate leases. In addition, we lease trucks, trailers and material handling equipment.
The components of our lease expense and gain realized on sale-leaseback transactions were as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Operating lease cost | $ | $ | $ | |||||||||||||||||
| Short-term lease cost | ||||||||||||||||||||
| Variable lease cost | ||||||||||||||||||||
Total operating lease cost | $ | $ | $ | |||||||||||||||||
| Finance lease cost: | ||||||||||||||||||||
Amortization of leased assets | $ | $ | $ | |||||||||||||||||
Interest on lease liabilities | ||||||||||||||||||||
Total finance lease cost | $ | $ | $ | |||||||||||||||||
| Total lease cost | $ | $ | $ | |||||||||||||||||
Gain recognized on sale-leaseback transactions (1) | $ | $ | $ | |||||||||||||||||
(1) For the year ended December 31, 2023 we did not complete any sale-leaseback transactions. For the years ended December 31, 2022 and 2021, we completed multiple sale-leaseback transactions primarily for land and buildings. We received aggregate cash proceeds of $49 million and $96 million in 2022 and 2021, respectively. Gains on sale-leaseback transactions are included in Gains on sales of property and equipment in our Consolidated Statements of Income.
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Supplemental balance sheet information related to leases was as follows:
| December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Operating leases: | ||||||||||||||
| Operating lease assets | $ | $ | ||||||||||||
| Short-term operating lease liabilities | $ | $ | ||||||||||||
| Operating lease liabilities | ||||||||||||||
Total operating lease liabilities | $ | $ | ||||||||||||
| Finance leases: | ||||||||||||||
| Property and equipment, gross | $ | $ | ||||||||||||
| Accumulated depreciation | ( | ( | ||||||||||||
| $ | $ | |||||||||||||
| $ | $ | |||||||||||||
Total finance lease liabilities | $ | $ | ||||||||||||
| Weighted-average remaining lease term: | ||||||||||||||
Operating leases | ||||||||||||||
Finance leases | ||||||||||||||
| Weighted-average discount rate: | ||||||||||||||
Operating leases | % | % | ||||||||||||
Finance leases | % | % | ||||||||||||
In connection with the Yellow Asset Acquisition, in December 2023, we recognized $23 million of Property and equipment, net and Long-term debt for finance leases assumed and $3
Supplemental cash flow information related to leases was as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
Operating cash flows for operating leases | $ | $ | $ | |||||||||||||||||
Operating cash flows for finance leases | ||||||||||||||||||||
Financing cash flows for finance leases | ||||||||||||||||||||
| Leased assets obtained in exchange for new lease obligations: | ||||||||||||||||||||
Operating leases | ||||||||||||||||||||
Finance leases | ||||||||||||||||||||
Net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Consolidated Statements of Cash Flows.
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Maturities of lease liabilities as of December 31, 2023 were as follows:
| (In millions) | Finance Leases | Operating Leases | ||||||||||||
| 2024 | $ | $ | ||||||||||||
| 2025 | ||||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| 2028 | ||||||||||||||
| Thereafter | ||||||||||||||
Total lease payments | ||||||||||||||
| Less: interest | ( | ( | ||||||||||||
Present value of lease liabilities | $ | $ | ||||||||||||
As of December 31, 2023, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $72 million. These operating leases will commence at various times beginning in 2024 through 2025 with initial lease terms of 4.5 years to 15 years.
9. Goodwill
| (In millions) | North American LTL | European Transportation | Total | |||||||||||||||||
| Goodwill as of December 31, 2021 | $ | $ | $ | |||||||||||||||||
| Goodwill impairment | ( | ( | ||||||||||||||||||
| Impact of foreign exchange translation | ( | ( | ||||||||||||||||||
| Goodwill as of December 31, 2022 | ||||||||||||||||||||
| Impact of foreign exchange translation | ||||||||||||||||||||
| Goodwill as of December 31, 2023 | $ | $ | $ | |||||||||||||||||
As described in Note 2— Basis of Presentation and Significant Accounting Policies, we recorded no impairment losses in 2023, while we recorded an aggregate impairment charge of $64 million in 2022 related to reporting units within our European Transportation reportable segment. Prior to the 2022 impairment, there were no accumulated impairment losses.
10. Intangible Assets
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (In millions) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||||
| Definite-lived intangibles | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | $ | $ | ||||||||||||||||||||||
| Favorable leases | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
In connection with the Yellow Asset Acquisition, in December 2023, we recognized $65 million of Favorable leases. For further information, see Note 2—Basis of Presentation and Significant Accounting Policies.
We did no
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Estimated future amortization expense for amortizable intangible assets for the next five years is as follows:
| (In millions) | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||||||||||||||||||
| Estimated amortization expense | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, future impairment of intangible assets, accelerated amortization of intangible assets and other events.
Intangible asset amortization expense was $54 million, $54 million and $56 million for the years ended December 31, 2023, 2022 and 2021, respectively.
11. Derivative Instruments
In the normal course of business, we are exposed to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. We use derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. Historically, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
The fair value of our derivative instruments and the related notional amounts were as follows:
| December 31, 2023 | ||||||||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||||||||
| (In millions) | Notional Amount | Balance Sheet Caption | Fair Value | Balance Sheet Caption | Fair Value | |||||||||||||||||||||||||||||||||
| Derivatives designated as hedges | ||||||||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | $ | Other current assets | $ | Other current liabilities | $ | ( | ||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | Other long-term assets | Other long-term liabilities | ||||||||||||||||||||||||||||||||||||
| Interest rate swaps | Other current assets | Other current liabilities | ( | |||||||||||||||||||||||||||||||||||
| Interest rate swaps | Other long-term assets | Other long-term liabilities | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||||||||
| (In millions) | Notional Amount | Balance Sheet Caption | Fair Value | Balance Sheet Caption | Fair Value | |||||||||||||||||||||||||||
| Derivatives designated as hedges | ||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | $ | Other current assets | $ | Other current liabilities | $ | ( | ||||||||||||||||||||||||||
| Cross-currency swap agreements | Other long-term assets | Other long-term liabilities | ||||||||||||||||||||||||||||||
| Interest rate swaps | Other current assets | Other current liabilities | ( | |||||||||||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||||||||
The derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.
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The effect of derivative and nonderivative instruments designated as hedges on our Consolidated Statements of Income was as follows:
| Amount of Gain (Loss) Recognized in Other Comprehensive Loss on Derivatives | Amount of Gain Reclassified from AOCI into Net Income | Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Years Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivatives designated as cash flow hedges | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate swaps | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives designated as net investment hedges | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cross-currency swap agreements | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
Cross-Currency Swap Agreements
We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate USD-denominated debt, including the associated interest payments, to fixed-rate, euro (“EUR”)-denominated debt. The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.
During the term of the swap contracts, we will receive interest on a quarterly basis from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly basis, to the counterparties based on EUR fixed interest rates. At maturity, we will repay the original principal amount in EUR and receive the principal amount in USD. These agreements expire at various dates through 2024.
We designated these cross-currency swaps as qualifying hedging instruments and account for them as net investment hedges. We apply the simplified method of assessing the effectiveness of our net investment hedging relationships. Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in AOCI. The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner. Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.
During 2023 and 2022, we received approximately $2 million and $29 million, respectively, related to cross-currency swaps that were settled during the period. The fair value adjustments related to these swaps remain in AOCI and partially offset foreign currency translation adjustment losses on our net investments in foreign subsidiaries. The proceeds were included in Cash flows from investing activities of continuing operations on our Consolidated Statements of Cash Flows.
Interest Rate Hedging
We execute short-term interest rate swaps to mitigate variability in forecasted interest payments on our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”). The interest rate swaps convert floating-rate interest payments into fixed rate interest payments. We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges. The outstanding interest rate swaps mature in 2024 and 2025.
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We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue. Cash flows related to the interest rate swaps are included in Cash flows from operating activities of continuing operations on our Consolidated Statements of Cash Flows.
12. Debt
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||
| (In millions) | Principal Balance | Carrying Value | Principal Balance | Carrying Value | ||||||||||||||||||||||
| Term loan facility | $ | $ | $ | $ | ||||||||||||||||||||||
| Finance leases, asset financing and other | ||||||||||||||||||||||||||
| Total debt | ||||||||||||||||||||||||||
| Short-term borrowings and current maturities of long-term debt | ||||||||||||||||||||||||||
| Long-term debt | $ | $ | $ | $ | ||||||||||||||||||||||
The fair value of our debt and classification in the fair value hierarchy was as follows:
| (In millions) | Fair Value | Level 1 | Level 2 | |||||||||||||||||
| December 31, 2023 | $ | $ | $ | |||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
We valued Level 1 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics. The fair value of the asset financing arrangements approximates carrying value as the debt is primarily issued at a floating rate, the debt may be prepaid at any time at par without penalty, and the remaining life of the debt is short-term in nature.
Our principal payment obligations on debt (excluding finance leases and asset financing) for the next five years and thereafter was as follows:
| (In millions) | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | ||||||||||||||||||||||||||||||||
| Principal payments on debt | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
ABL Facility
In 2015, we entered into the ABL Facility which provided commitments of up to $1.0 billion with a maturity date of October 30, 2020. This facility was subsequently amended to adjust the amount of the commitment and to extend the maturity date to April 30, 2024.
In connection with the spin-off of RXO, effective November 4, 2022, the commitments under the 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 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 (“SOFR”)-based rates; (iii) reduce the sublimit for issuance of letters of credit to $200 million; (iv) reduce the
79 | ||||||||||||||
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.
Our availability under the ABL Facility is equal to the borrowing base less advances and outstanding letters of credit. Our borrowing base includes a fixed percentage of: (i) our eligible U.S. and Canadian accounts receivable; plus (ii) any of our eligible U.S. and Canadian rolling stock and equipment. A maximum of 30 % of our borrowing base can be equipment and rolling stock in the aggregate. As of December 31, 2023, our borrowing base under the ABL facility was $508 million and our availability was $508 million after considering outstanding letters of credit of less than $1 million. As of December 31, 2023, we were in compliance with the ABL Facility’s financial covenants.
Our loans under the ABL Facility bear interest at a rate equal to: SOFR or base rate plus (i) an applicable margin of 1.25 % to 1.50 % for SOFR loans or (ii) 0.25 % to 0.50 %, for base rate loans.
The ABL Facility is secured on a first lien basis by the assets of the credit parties as priority collateral and on a second lien basis by certain other assets. The priority collateral consists primarily of our U.S. and Canadian accounts receivable and any of our U.S. and Canadian rolling stock and equipment included in our borrowing base. The ABL Facility contains representations and warranties, affirmative and negative covenants, and events of default customary for agreements of this nature.
The covenants in the ABL Facility can limit our ability to incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. We may also be required to maintain a Fixed Charge Coverage Ratio (as defined in the ABL Facility) of not less than 1.00 if availability under the ABL Facility is below certain thresholds. As of December 31, 2023, we were compliant with this financial covenant.
Letters of Credit Facility
In 2020, we entered into a $200 million uncommitted secured evergreen letter of credit facility. The letter of credit facility had an initial one-year term, which automatically renews with one-year terms until the letter of credit facility terminates. As of December 31, 2023, we have $139 million in aggregate face amount of letters of credit outstanding under the facility.
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.
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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.
We must prepay an aggregate principal amount of the term loan facility equal to (a) 50 % of any Excess Cash Flow, as defined in the agreement, for the most recent fiscal year ended, minus (b) the sum of (i) all voluntary prepayments of loans during the fiscal year and (ii) all voluntary prepayments of loans under the ABL Facility or any other revolving credit facilities during the fiscal year if accompanied by a corresponding permanent reduction in the commitments under the credit agreement or any other revolving credit facilities in the case of each of the immediately preceding clauses (i) and (ii), if such prepayments are funded with internally generated cash flow, as defined in the agreement. If our Consolidated Secured Net Leverage Ratio, as defined in the agreement, for the fiscal year was less than or equal to 3.00 :1.00 and greater than 2.50 :1.00, the Excess Cash Flow percentage will be 25 %. If our Consolidated Secured Net Leverage Ratio for the fiscal year was less than or equal to 2.50 :1.00, the Excess Cash Flow percentage will be 0 %. The remaining principal is due at maturity. As of December 31, 2023, our Consolidated Secured Net Leverage Ratio was less than 2.50 :1.00, and no excess cash payment was required.
Senior Notes
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 6.25 % Senior Notes due 2025 (the “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. 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.
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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 principal 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.
The senior notes are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than certain excluded subsidiaries) that are obligors under, or guarantee obligations under, our existing secured ABL Facility or the Term Loan Credit Agreement (or certain replacements thereof) or guarantee certain of our other indebtedness.
The Senior Secured Notes due 2028 and the guarantees thereof are secured by substantially all of our assets and our guarantors equally and ratably with the indebtedness under the Term Loan Credit Agreement (subject to permitted liens and certain other exceptions). All other senior notes and the guarantees thereof are unsecured, unsubordinated indebtedness for us and our guarantors.
The senior notes contain covenants and events of default customary for notes of this nature. If the Senior Secured Notes due 2028 and the Company are each assigned investment grade ratings from at least two of the major rating agencies and no default has occurred, then certain covenant requirements will permanently cease to be in effect, and the collateral, security interests, and guarantees securing the Senior Secured Notes due 2028 will automatically be released.
Senior Debentures
In conjunction with a 2015 acquisition, we assumed 6.70 % Senior Debentures due 2034 (the “Senior Debentures”) with an aggregate principal amount of $300 million. The Senior Debentures bear interest payable semiannually, in cash in arrears, and mature on May 1, 2034. Including amortization of the fair value adjustment recorded on the acquisition date, interest expense on the Senior Debentures is recognized at an annual effective interest rate of 10.96 %.
13. Employee Benefit Plans
Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit pension plans for some employees in the U.S. These pension plans include qualified plans that are eligible for beneficial treatment under the Internal Revenue Code and non-qualified plans that provide additional benefits for employees who are impacted by limitations on compensation eligible for benefits available under the qualified plans. We also maintain defined benefit pension plans for some of our foreign subsidiaries that are excluded from the disclosures below due to their immateriality.
We measure defined benefit pension plan obligations based on the present value of projected future benefit payments for all participants for services rendered to date. The projected benefit obligation is a measure of benefits attributed to service to date, assuming that the plan continues in effect and that estimated future events (including turnover and mortality) occur. We determine the net periodic benefit costs using assumptions regarding the projected benefit obligation and the fair value of plan assets as of the beginning of the year. Net periodic benefit costs are recorded in Other income on our Consolidated Statements of Income. We calculate the funded status of the defined benefit pension plans, which represents the difference between the projected benefit obligation and the fair value of plan assets, on a plan-by-plan basis.
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Funded Status of Defined Benefit Pension Plans
The reconciliation of the changes in the plans’ projected benefit obligations as of December 31 was as follows:
| (In millions) | 2023 | 2022 | ||||||||||||
| Projected benefit obligation at beginning of year | $ | $ | ||||||||||||
| Interest cost | ||||||||||||||
| Actuarial (gain) loss | ( | |||||||||||||
| Benefits paid | ( | ( | ||||||||||||
| Projected benefit obligation at end of year | $ | $ | ||||||||||||
The actuarial loss in 2023 was a result of assumption changes, including a decrease in the discount rate and other changes to assumptions for plan participants.
The reconciliation of the changes in the fair value of plan assets as of December 31 was as follows:
| (In millions) | 2023 | 2022 | ||||||||||||
| Fair value of plan assets at beginning of year | $ | $ | ||||||||||||
| Actual return on plan assets | ( | |||||||||||||
| Employer contributions to non-qualified plans | ||||||||||||||
| Benefits paid | ( | ( | ||||||||||||
| Fair value of plan assets at end of year | $ | $ | ||||||||||||
The funded status of the plans as of December 31 was as follows:
| (In millions) | 2023 | 2022 | ||||||||||||
| Funded status at end of year | $ | $ | ||||||||||||
| Amount recognized in balance sheet: | ||||||||||||||
| Long-term assets | $ | $ | ||||||||||||
| Current liabilities | ( | ( | ||||||||||||
| Long-term liabilities | ( | ( | ||||||||||||
| Net pension asset recognized | $ | $ | ||||||||||||
| Plans with projected and accumulated benefit obligation in excess of plan assets: | ||||||||||||||
Projected and accumulated benefit obligation (1) | $ | $ | ||||||||||||
(1) Relates to our non-qualified plans which are unfunded.
The funded status of our qualified plans and non-qualified plans was $95 million and $(54 ) million, respectively, as of December 31, 2023.
The actuarial loss included in AOCI that has not yet been recognized in net periodic benefit expense was $174 million and $142 million as of December 31, 2023 and 2022, respectively.
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The net periodic benefit cost and amounts recognized in for the years ended December 31 was as follows:
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Net periodic benefit income: | ||||||||||||||||||||
| Interest cost | $ | $ | $ | |||||||||||||||||
| Expected return on plan assets | ( | ( | ( | |||||||||||||||||
| Amortization of actuarial loss | ||||||||||||||||||||
| Net periodic benefit income | $ | ( | $ | ( | $ | ( | ||||||||||||||
| Amounts recognized in Other comprehensive income (loss): | ||||||||||||||||||||
| Actuarial (gain) loss | $ | $ | $ | ( | ||||||||||||||||
| Reclassification of recognized AOCI gain due to settlements | ||||||||||||||||||||
| (Gain) loss recognized in Other comprehensive income (loss) | $ | $ | $ | ( | ||||||||||||||||
The weighted-average assumptions used to determine the net periodic benefit costs and benefit obligations for the year ended December 31 were as follows:
| Qualified Plans | Non-Qualified Plans | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2023 | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Discount rate - net periodic benefit costs | % | % | ||||||||||||||||||||||||||||||||||||
| Discount rate - benefit obligations | % | % | ||||||||||||||||||||||||||||||||||||
| Expected long-term rate of return on plan assets | % | % | ||||||||||||||||||||||||||||||||||||
No rate of compensation increase was assumed as the plans are frozen to additional participant benefit accruals.
We use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment.
Expected benefit payments for the defined benefit pension plans for the years ended December 31 are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.
| (In millions) | 2024 | 2025 | 2026 | 2027 | 2028 | 2029-2033 | ||||||||||||||||||||||||||||||||
| Expected benefit payments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Plan Assets
We manage the assets in the U.S. plans using a long-term liability-driven investment strategy that seeks to mitigate the funded status volatility by increasing participation in fixed income investments as the plan’s funded status increases. We developed this strategy by analyzing a variety of diversified asset-class combinations with the projected liabilities.
Our current investment strategy is to achieve an investment mix of approximately 90 % in fixed income securities and 10 % of investments in equity securities. The fixed income allocation consists primarily of domestic fixed income securities and targets to hedge approximately 100 % of domestic projected liabilities. The target allocations for equity securities includes approximately 50 % in U.S. equities and approximately 50 % in non-U.S. equities. Investments in equity and fixed income securities consist of individual securities held in managed separate accounts and commingled investment funds. Generally, our investment strategy does not include an allocation to cash and cash equivalents, but a cash allocation may arise periodically in response to timing considerations regarding contributions, investments, and the payment of benefits and eligible plan expenses. We periodically evaluate our
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defined benefit plans’ asset portfolios for significant concentrations of risk. Types of investment concentration risks that are evaluated include concentrations in a single issuer, specific security, asset class, credit rating, duration, industry/sector, currency, foreign country or individual fund manager. As of December 31, 2023, our defined benefit plan assets had no significant concentrations of risk.
Our investment policy does not allow investment managers to use market-timing strategies or financial derivative instruments for speculative purposes but financial derivative instruments are used to manage risk and achieve stated investment objectives for duration, yield curve, credit, foreign exchange and equity exposures. Generally, our investment managers are prohibited from short selling, trading on margin, and trading commodities, warrants or other options, except when acquired as a result of the purchase of another security, or in the case of options, when sold as part of a covered position.
The assumption of 6.40 % for the overall expected long-term rate of return on plan assets in 2023 was developed using asset allocation and return expectations. The return expectations are created using long-term historical and expected returns for the various asset classes and current market expectations for inflation, interest rates and economic growth.
The fair values of investments held in the qualified pension plans by major asset category as of December 31, 2023 and 2022, and the percentage that each asset category comprises of total plan assets were as follows:
| (Dollars in millions) | Level 1 | Level 2 | Not Subject to Leveling (1) | Total | Percentage of Plan Assets | |||||||||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
| Short-term investment fund | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
| Equity: | ||||||||||||||||||||||||||||||||
| U.S. large companies | % | |||||||||||||||||||||||||||||||
| U.S. small companies | % | |||||||||||||||||||||||||||||||
| International | % | |||||||||||||||||||||||||||||||
| Fixed income securities | % | |||||||||||||||||||||||||||||||
| Derivatives | ( | ( | ( | % | ||||||||||||||||||||||||||||
| Total plan assets | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents: | ||||||||||||||||||||||||||||||||
| Short-term investment fund | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
| Equity: | ||||||||||||||||||||||||||||||||
| U.S. large companies | % | |||||||||||||||||||||||||||||||
| U.S. small companies | % | |||||||||||||||||||||||||||||||
| International | % | |||||||||||||||||||||||||||||||
| Fixed income securities | % | |||||||||||||||||||||||||||||||
| Derivatives | ( | ( | ( | % | ||||||||||||||||||||||||||||
| Total plan assets | $ | $ | $ | $ | % | |||||||||||||||||||||||||||
(1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.
For the periods ended December 31, 2023 and 2022, we had no investments held in the pension plans within Level 3 of the fair value hierarchy. Our common stock was not a plan asset as of December 31, 2023 or 2022. The non-qualified plans are unfunded.
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Funding
Our funding practice is to evaluate our tax and cash position, and the funded status of our plans, in determining our planned contributions. We estimate that we will contribute $5 million to our non-qualified plans in 2024 but this could change based on variations in interest rates, asset returns and other factors.
Defined Contribution Retirement Plans
Our costs for defined contribution retirement plans were $55 million, $52 million and $53 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Postretirement Medical Plan
We provide health benefits through a postretirement medical plan for eligible employees hired before 1993 (the “Postretirement Plan”).
Funded Status of Postretirement Medical Plan
The reconciliation of the changes in the plan’s benefit obligation and the determination of the amounts recognized on our Consolidated Balance Sheets were as follows:
| As of December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Projected benefit obligation at beginning of year | $ | $ | ||||||||||||
| Interest cost on projected benefit obligation | ||||||||||||||
| Actuarial gain | ( | ( | ||||||||||||
| Participant contributions | ||||||||||||||
| Benefits paid | ( | ( | ||||||||||||
| Projected and accumulated benefit obligation at end of year | $ | $ | ||||||||||||
| Funded status of the plan | $ | ( | $ | ( | ||||||||||
| Amounts recognized in the balance sheet consist of: | ||||||||||||||
| Current liabilities | $ | ( | $ | ( | ||||||||||
| Long-term liabilities | ( | ( | ||||||||||||
| Net amount recognized | $ | ( | $ | ( | ||||||||||
| Discount rate assumption as of December 31 | % | % | ||||||||||||
The amount included in AOCI that has not yet been recognized in net periodic benefit income (expense) was $6 million and the net periodic benefit expense was less than $1 million for the Postretirement Plan for the year ended December 31, 2023. The amount included in AOCI that has not yet been recognized in net periodic benefit income (expense) was $9 million and the net periodic benefit expense was less than $1 million for the Postretirement Plan for the year ended December 31, 2022. The discount rates assumptions used to calculate the interest cost were 5.32 % - 5.41 %, 2.14 % - 2.79 % and 1.56 % - 2.34 % for the years ended December 31, 2023, 2022 and 2021, respectively.
Expected benefit payments, which reflect expected future service, as appropriate, for the years ended December 31 are summarized below. These estimates are based on assumptions about future events. Actual benefit payments may vary from these estimates.
| (In millions) | 2024 | 2025 | 2026 | 2027 | 2028 | 2029-2033 | ||||||||||||||||||||||||||||||||
| Expected benefit payments | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
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14. Stockholders’ Equity
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
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, there are no shares of Preferred Stock or warrants outstanding.
Share Repurchases
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.
15. Stock-Based Compensation
We grant various types of stock-based compensation awards to directors, officers and key employees under our 2016 incentive plan. These awards have included stock options, restricted stock, restricted stock units, performance-based units, cash incentive awards and other equity-related awards (collectively, “Awards”).
As a result of the RXO spin-off and in accordance with plan rules, the shares remaining for future issuance under the 2016 incentive plan were equitably adjusted. With this adjustment, and an amendment to the 2016 incentive plan approved by stockholders in May 2022 which increased the 2016 incentive plan’s number of authorized shares by 2.3 million shares, up to 11.4 million shares of our common stock have been authorized for issuance as Awards. Shares awarded may consist of authorized and unissued shares or treasury shares. In May 2022, the stockholders also approved an amendment to the 2016 incentive plan to extend its term by three years so the 2016 incentive plan will terminate on May 18, 2032, unless terminated earlier by our Board of Directors. As of December 31, 2023, 3.6 million shares of our common stock were available for the grant of Awards under the 2016 incentive plan.
For the March 2023 and prior offering periods, our employee stock purchase plan offered eligible employees, excluding our executive officers and directors, the right to purchase our common stock using up to 10 % of each employee’s compensation. Shares were purchased at 5 % below fair market value on the last trading day of each six-month offering period. The plan authorized the purchase of up to two million shares of our common stock. We did not recognize stock-based compensation expense as the plan was non-compensatory. During the first quarter of 2023, the Compensation Committee of the Board of Directors approved the suspension of our employee stock purchase plan, effective after the March 2023 offering period was completed.
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Our stock-based compensation expense is recorded in Salaries, wages and employee benefits or Transaction and integration costs on our Consolidated Statements of Income:
| Years ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Restricted stock and restricted stock units | $ | $ | $ | |||||||||||||||||
| Performance-based restricted stock units | ||||||||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | |||||||||||||||||
| Tax benefit on stock-based compensation | $ | ( | $ | ( | $ | ( | ||||||||||||||
Stock Options
Our stock options typically vested over to five years after the grant date for our employees and officers and one year after the grant date for our Board of Directors. The stock options had a 10 -year contractual term and the exercise price equaled our stock price on the grant date. No stock option awards were outstanding as of December 31, 2023.
The total intrinsic value of options exercised during 2023, 2022 and 2021 was $0 million , less than $1 million and $4 million, respectively. The total cash received from options exercised during 2023, 2022 and 2021 was $0 million , less than $1 million and less than $2 million, respectively.
Restricted Stock Units and Performance-Based Restricted Stock Units
We grant RSUs and PRSUs to our key employees, officers and directors with various vesting requirements. RSUs generally vest based on the passage of time (service conditions) and PRSUs generally vest based on the achievement of our financial targets (performance conditions). PRSUs may also be subject to stock price (market conditions), employment and other non-financial conditions. The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards.
The number of RSUs and PRSUs vested includes shares of our common stock that we withheld on behalf of our employees to satisfy the minimum tax withholdings. We estimate the fair value of PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model.
A summary of RSU and PRSU award activity for the year ended December 31, 2023 is presented below:
| RSUs | PRSUs | |||||||||||||||||||||||||
| Number of RSUs | Weighted-Average Grant Date Fair Value | Number of PRSUs | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Vested | ( | ( | ||||||||||||||||||||||||
| Forfeited and canceled | ( | ( | ||||||||||||||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||||||||||||
The total fair value of RSUs that vested during 2023, 2022 and 2021 was $23 million, $46 million and $69 million, respectively. All of the outstanding RSUs as of December 31, 2023 vest subject to service conditions.
The total fair value of PRSUs that vested during 2023, 2022 and 2021 was $27 million, $8 million and $2 million, respectively. Of the outstanding PRSUs as of December 31, 2023, 193,702 vest subject to service and performance conditions, 886,462 vest subject to service and a combination of market and performance conditions and 138,364 vest subject to service and market conditions.
As of December 31, 2023, unrecognized compensation cost related to non-vested RSUs and PRSUs of $92 million is anticipated to be recognized over a weighted-average period of approximately 2.03 years.
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16. Income Taxes
Income (loss) from continuing operations before taxes related to our U.S. and foreign operations was as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| U.S. | $ | $ | $ | |||||||||||||||||
| Foreign | ( | ( | ( | |||||||||||||||||
| Income from continuing operations before income tax provision | $ | $ | $ | |||||||||||||||||
The income tax provision is comprised of the following:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| U.S. Federal | $ | $ | ( | $ | ||||||||||||||||
| State | ( | |||||||||||||||||||
| Foreign | ||||||||||||||||||||
| Total current income tax provision (benefit) | $ | $ | ( | $ | ||||||||||||||||
| Deferred: | ||||||||||||||||||||
| U.S. Federal | $ | $ | $ | ( | ||||||||||||||||
| State | ( | |||||||||||||||||||
| Foreign | ( | ( | ||||||||||||||||||
| Total deferred income tax provision | ||||||||||||||||||||
| Total income tax provision | $ | $ | $ | |||||||||||||||||
The effective tax rate reconciliations were as follows:
| Years Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| U.S. federal statutory tax rate | % | % | % | |||||||||||||||||
| State taxes, net of U.S. federal benefit | ( | |||||||||||||||||||
Foreign operations (1) | ( | ( | ||||||||||||||||||
| Contribution- and margin-based taxes | ||||||||||||||||||||
| Changes in uncertain tax positions | ( | ( | ||||||||||||||||||
| Non-deductible compensation | ||||||||||||||||||||
| Provision to return adjustments | ( | ( | ||||||||||||||||||
| Effect of law changes | ( | |||||||||||||||||||
| Stock-based compensation | ( | ( | ||||||||||||||||||
| Long-term capital loss | ( | |||||||||||||||||||
| Non-deductible goodwill impairment charge | ||||||||||||||||||||
Other (2) | ( | ( | ||||||||||||||||||
| Effective tax rate | % | % | % | |||||||||||||||||
(1) Foreign operations include the net impact of changes to valuation allowances, the cost of inclusion of foreign income in the U.S. net of foreign taxes, the impact of foreign tax rate differences from the U.S. Federal rate and permanent items related to foreign operations.
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(2) In the year ended December 31, 2021, the impact of “Other” on the effective tax rate was disproportionately high compared to 2022 and 2023 due to the low income from continuing operations before income tax provision in 2021. For 2021, “Other” is primarily composed of (3.6 )% of U.S. Federal tax credits and (1.8 )% of U.S. Federal tax permanent adjustments.
Components of the Net Deferred Tax Asset or Liability
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability were as follows:
| Years Ended December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| Deferred tax asset | ||||||||||||||
| Net operating loss and other tax attribute carryforwards | $ | $ | ||||||||||||
| Accrued expenses | ||||||||||||||
| Pension and other retirement obligations | ||||||||||||||
| Other | ||||||||||||||
| Total deferred tax asset | ||||||||||||||
| Valuation allowance | ( | ( | ||||||||||||
| Total deferred tax asset, net | ||||||||||||||
| Deferred tax liability | ||||||||||||||
| Intangible assets | ( | ( | ||||||||||||
| Property and equipment | ( | ( | ||||||||||||
| Other | ( | ( | ||||||||||||
| Total deferred tax liability | ( | ( | ||||||||||||
| Net deferred tax liability | $ | ( | $ | ( | ||||||||||
The deferred tax asset and deferred tax liability above are reflected on our Consolidated Balance Sheets as follows:
| December 31, | ||||||||||||||
| (In millions) | 2023 | 2022 | ||||||||||||
| $ | $ | |||||||||||||
| Deferred tax liability | ( | ( | ||||||||||||
| Net deferred tax liability | $ | ( | $ | ( | ||||||||||
Operating Loss and Tax Credit Carryforwards
Our operating loss and tax credit carryforwards were as follows:
| December 31, | ||||||||||||||||||||
| (In millions) | Expiration Date | 2023 | 2022 | |||||||||||||||||
Tax effect (before federal benefit) of state net operating losses | Various times starting in 2024 (1) | $ | $ | |||||||||||||||||
| Federal tax credit carryforwards | Various times starting in 2033 | |||||||||||||||||||
| State tax credit carryforward | Various times starting in 2024 (1) | |||||||||||||||||||
Foreign net operating losses available to offset future taxable income | Various times starting in 2025 (1) | |||||||||||||||||||
(1) Some credits and losses have unlimited carryforward periods.
90 | ||||||||||||||
Valuation Allowance
We established a valuation allowance for some of our deferred tax assets as it is more likely than not that these assets will not be realized in the foreseeable future. We concluded that the remaining deferred tax assets will more likely than not be realized, though this is not assured, and as such no valuation allowance has been provided on these assets.
The balances and activity related to our valuation allowance were as follows:
| (In millions) | Beginning Balance | Additions | Reductions | Ending Balance | ||||||||||||||||||||||
| Year Ended December 31, 2023 | $ | $ | $ | ( | $ | |||||||||||||||||||||
| Year Ended December 31, 2022 | ( | |||||||||||||||||||||||||
| Year Ended December 31, 2021 | ( | |||||||||||||||||||||||||
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| Years Ended December 31, | ||||||||||||||||||||
| (In millions) | 2023 | 2022 | 2021 | |||||||||||||||||
| Beginning balance | $ | $ | $ | |||||||||||||||||
| Additions for tax positions of prior years | ||||||||||||||||||||
| Reductions for tax positions of prior years | ( | ( | ||||||||||||||||||
| Settlements with tax authorities | ( | |||||||||||||||||||
| Reductions due to the statute of limitations | ( | ( | ||||||||||||||||||
| Ending balance | $ | $ | $ | |||||||||||||||||
| Interest and penalties | ||||||||||||||||||||
| Gross unrecognized tax benefits | $ | $ | $ | |||||||||||||||||
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year | $ | $ | $ | |||||||||||||||||
We could reflect a reduction to unrecognized tax benefits of up to $1 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.
We are subject to taxation in the United States and various state and foreign jurisdictions. As of December 31, 2023, we have no tax years under examination by the IRS. We have various U.S. state and local examinations and non-U.S. examinations in process. The U.S. federal tax returns after 2020, state and local returns after 2016, and non-U.S. returns after 2014 are open under relevant statutes of limitations and are subject to audit.
17. Earnings (Loss) Per Share
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive potential common shares include unvested stock-based compensation awards.
91 | ||||||||||||||
The computations of basic and diluted earnings per share were as follows:
| Years Ended December 31, | |||||||||||||||||||||||
| (In millions, except per share data) | 2023 | 2022 | 2021 | ||||||||||||||||||||
| Net income from continuing operations attributable to common shares | $ | $ | $ | ||||||||||||||||||||
Net income (loss) from discontinued operations attributable to common shares | ( | ||||||||||||||||||||||
| Net income attributable to common shares, basic | $ | $ | $ | ||||||||||||||||||||
| Basic weighted-average common shares | |||||||||||||||||||||||
| Dilutive effect of stock-based awards | |||||||||||||||||||||||
| Diluted weighted-average common shares | |||||||||||||||||||||||
| Basic earnings from continuing operations per share | $ | $ | $ | ||||||||||||||||||||
| Basic earnings (loss) from discontinued operations per share | ( | ||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | ||||||||||||||||||||
| Diluted earnings from continuing operations per share | $ | $ | $ | ||||||||||||||||||||
| Diluted earnings (loss) from discontinued operations per share | ( | ||||||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | ||||||||||||||||||||
18. Commitments and Contingencies
We are involved, and expect to continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes, insurance coverage disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants.
We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We review and adjust accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
92 | ||||||||||||||
Insurance Contribution Litigation
In April 2012, Allianz Global Risks US Insurance Company sued eighteen insurance companies in a case captioned Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., Multnomah County Circuit Court (Case No. 1204-04552). Allianz Global Risks US Ins. Co. (“Allianz”) sought contribution on environmental and product liability claims that Allianz agreed to defend and indemnify on behalf of its insured, Daimler Trucks North America (“DTNA”). Defendants had insured Freightliner’s assets, which DTNA acquired in 1981. Con-way, Freightliner’s former parent company, intervened. We acquired Con-way in 2015. Con-way and Freightliner had self-insured under fronting agreements with defendant insurers ACE, Westport, and General. Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies. Con-way’s captive insurer, Centron, was also a named defendant. After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner. In June 2015, Allianz appealed to the Oregon Court of Appeals. In May 2019, the Oregon Court of Appeals upheld the jury verdict. In September 2019, Allianz appealed to the Oregon Supreme Court. In March 2021, the Oregon Supreme Court reversed the jury verdict, holding that it was an error to allow the jury to decide how the parties intended the fronting policies to operate, and also holding that the trial court improperly instructed the jury concerning one of the pollution exclusions at issue. In July 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision. In June 2023, the trial court decided the parties’ cross-motions for summary judgment, leaving open the pollution exclusion and allocation issues. The trial on the pollution exclusion issue is scheduled to take place in the spring of 2024, and the trial on allocation of defense costs among the applicable insurance policies is set for the fall of 2024. We have accrued an immaterial amount for the potential exposure associated with ultimate allocation to the relevant policies; however, any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time.
California Environmental Matters
In August 2022, the Company received a letter from the San Bernardino County District Attorney’s Office (the “County”), written in cooperation with certain other California District Attorneys and the Los Angeles City Attorney, notifying the Company of an investigation into alleged violations with respect to underground storage tanks, hazardous materials, and hazardous waste in California, and offering a meeting. The Company has met with the County attorneys and the Los Angeles City Attorney on multiple occasions. We are assessing the allegations and the underlying facts and continue to engage with the County and Los Angeles City Attorneys to address the alleged violations and negotiate potential monetary sanctions or settlement amount. We have accrued an immaterial amount for the potential exposure associated with this matter.
93 | ||||||||||||||
19. Quarterly Financial Data (Unaudited)
Our unaudited results of operations for each of the quarters in the years ended December 31, 2023 and 2022 are summarized below:
| (In millions, except per share data) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Income from continuing operations | ||||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of taxes | ( | ( | ||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Net income (loss) attributable to common shareholders: | ||||||||||||||||||||||||||
| Continuing operations | ||||||||||||||||||||||||||
| Discontinued operations | ( | ( | ||||||||||||||||||||||||
| Net income attributable to common shareholders | ||||||||||||||||||||||||||
Basic earnings (loss) per share: (1) | ||||||||||||||||||||||||||
| Continuing operations | ||||||||||||||||||||||||||
| Discontinued operations | ( | ( | ||||||||||||||||||||||||
Basic earnings per share attributable to common shareholders | ||||||||||||||||||||||||||
Diluted earnings (loss) per share: (1) | ||||||||||||||||||||||||||
| Continuing operations | ||||||||||||||||||||||||||
| Discontinued operations | ( | ( | ||||||||||||||||||||||||
Diluted earnings per share attributable to common shareholders | ||||||||||||||||||||||||||
(1) The sum of the quarterly earnings (loss) per share may not equal year-to-date amounts due to differences in the weighted-average number of shares outstanding during the respective periods.
94 | ||||||||||||||
| (In millions, except per share data) | First Quarter (2) | Second Quarter | Third Quarter | Fourth Quarter (3) | ||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Income (loss) from continuing operations | ( | |||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of taxes | ( | |||||||||||||||||||||||||
| Net income (loss) | ( | |||||||||||||||||||||||||
| Net income (loss) attributable to common shareholders: | ||||||||||||||||||||||||||
| Continuing operations | ( | |||||||||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
| Net income (loss) attributable to common shareholders | ( | |||||||||||||||||||||||||
Basic earnings (loss) per share: (1) | ||||||||||||||||||||||||||
| Continuing operations | ( | |||||||||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
Basic earnings (loss) per share attributable to common shareholders | ( | |||||||||||||||||||||||||
Diluted earnings (loss) per share: (1) | ||||||||||||||||||||||||||
| Continuing operations | ( | |||||||||||||||||||||||||
| Discontinued operations | ( | |||||||||||||||||||||||||
Diluted earnings (loss) per share attributable to common shareholders | ( | |||||||||||||||||||||||||
(1) The sum of the quarterly earnings (loss) per share may not equal year-to-date amounts due to differences in the weighted-average number of shares outstanding during the respective periods.
(2) Income from discontinued operations, net of tax during the first quarter of 2022 included the gain on the sale of our intermodal business of approximately $372 million.
(3) The fourth quarter of 2022 included a goodwill impairment charge of $64 million, transaction and integration costs of $42 million and restructuring costs of $35 million.
95 | ||||||||||||||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of December 31, 2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2023, such that the information required to be included in our SEC reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to XPO, including our consolidated subsidiaries; and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2023.
KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an audit report, which is included elsewhere within this Annual Report, on the effectiveness of our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On February 5, 2024, as part of its periodic review of corporate governance matters, the Board of Directors (the “Board”) of the Company approved and adopted amendments to the Company’s Bylaws (as so amended and restated, the “Bylaws”), which became effective immediately (the “Bylaw Amendments”). The Bylaw Amendments make the Company’s Bylaws more consistent with current practice for Delaware corporations of similar size.
Among other things, the Bylaw Amendments:
•clarify the procedural mechanics for meetings of stockholders and specify the powers of the Board and the chair of a stockholder meeting to regulate conduct at a meeting;
•revise the procedures and requirements in connection with stockholder action by written consent;
•make certain updates to the procedures and disclosure requirements in the advance notice Bylaw provisions for director nominations made and business proposals submitted by stockholders (other than proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended);
96 | ||||||||||||||
•address the adoption by the U.S. Securities and Exchange Commission of “universal proxy” rules and related requirements (the “Universal Proxy Rules”), including to provide that a stockholder nomination will be deemed null and void if the nominating stockholder fails to comply with the Universal Proxy Rules and to address the color of proxy cards reserved for use by the Board;
•clarify the Board’s authority to conduct meetings of the Board and of the committees of the Board by video or telephone conference;
•make certain updates to the exclusive forum provision; and
•update and clarify certain titles of the Company, and clarify the process for automatic removal of certain officers.
The Bylaw Amendments also include other conforming, technical and ministerial changes.
The foregoing description of the Bylaw Amendments does not purport to be complete and is qualified in its entirety by reference to the full text of the Bylaws, a copy of which is attached as Exhibit 3.8 and is incorporated by reference herein.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
97 | ||||||||||||||
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 of Part III of Form 10-K (other than certain information required by Item 401 of Regulation S-K with respect to our executive officers, which is provided under Item 1, “Business” of Part I of this Annual Report) will be set forth in our definitive Proxy Statement for the 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
We have adopted a Code of Business Ethics (the “Code”), which is applicable to our principal executive officer, principal financial officer, principal accounting officer and other senior officers. The Code is available on our Investor Relations website at investors.xpo.com, under the heading “Corporate Governance Highlights”. In the event that we amend or waive any of the provisions of the Code that relate to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K, we intend to disclose the same on our website at the web address specified above.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Part III of Form 10-K will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 of Part III of Form 10-K, including information regarding security ownership of certain beneficial owners and management and information regarding securities authorized for issuance under equity compensation plans, will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Part III of Form 10-K will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP , Dallas, TX, Auditor ID: 185 .
The information required by Item 14 of Part III of Form 10-K will be set forth in our Proxy Statement for the 2024 Annual Meeting of Stockholders and is incorporated herein by reference.
98 | ||||||||||||||
PART IV
Item 15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
The list of Consolidated Financial Statements provided in the Index to Consolidated Financial Statements is incorporated herein by reference. Such Consolidated Financial Statements are filed as part of this Annual Report. All financial statement schedules are omitted because the required information is not applicable, or because the information required is included in the Consolidated Financial Statements and notes thereto.
Exhibits
| Exhibit Number | Description | |||||||
| 2.1 | ||||||||
| 2.2 | ||||||||
| 2.3 | ||||||||
| 2.4*** | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 3.3 | ||||||||
| 3.4 | ||||||||
| 3.5 | ||||||||
| 3.6 | ||||||||
| 3.7 | ||||||||
| 3.8* | ||||||||
99 | ||||||||||||||
| Exhibit Number | Description | |||||||
| 4.1 | ||||||||
| 4.2 | ||||||||
| 4.3 | ||||||||
| 4.4 | ||||||||
| 4.5* | ||||||||
| 4.6 | Indenture, dated May 24, 2023, by and among XPO, Inc., the guarantors party thereto from time to time and U.S. Bank Trust Company, National Association, as trustee and notes collateral agent (incorporated herein by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC on May 25, 2023). | |||||||
| 4.7 | ||||||||
| 4.8 | ||||||||
| 10.1 + | ||||||||
| 10.2 + | ||||||||
| 10.3 + | ||||||||
| 10.4 + | ||||||||
| 10.5 + | ||||||||
| 10.6 + | ||||||||
| 10.7 + | ||||||||
| 10.8 + | ||||||||
100 | ||||||||||||||
| Exhibit Number | Description | |||||||
| 10.9 + | ||||||||
| 10.10 + | ||||||||
| 10.11 + | ||||||||
| 10.12 + | ||||||||
| 10.13 + | ||||||||
| 10.14 + | ||||||||
| 10.15 + | ||||||||
| 10.16 + | ||||||||
| 10.17 + | ||||||||
| 10.18 + | ||||||||
| 10.19 + | ||||||||
| 10.20 + | ||||||||
| 10.21 + | ||||||||
| 10.22 + | ||||||||
| 10.23 + | ||||||||
101 | ||||||||||||||
102 | ||||||||||||||
| Exhibit Number | Description | |||||||
| 10.39 + | ||||||||
| 10.40 + | ||||||||
| 10.41 + | ||||||||
| 10.42 + | ||||||||
| 10.43 | ||||||||
| 10.44 | ||||||||
| 10.45 | ||||||||
| 10.46 | ||||||||
| 10.47 | ||||||||
| 10.48 | ||||||||
| 10.49 | ||||||||
| 10.50 | ||||||||
| 10.51 | Amendment No. 6 to Second Amended and Restated Revolving Loan Credit Agreement, dated July 30, 2021, by and among the registrant and certain subsidiaries signatory thereto, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as agent (incorporated herein by reference to Exhibit 10.5 to the registrant’s Current Report on Form 8-K filed with the SEC on August 3, 2021). | |||||||
103 | ||||||||||||||
104 | ||||||||||||||
| Exhibit Number | Description | |||||||
| 10.63 | ||||||||
| 10.64 | ||||||||
| 10.65 | ||||||||
| 10.66 | ||||||||
| 10.67 | ||||||||
| 10.68 | ||||||||
| 19.1 * | ||||||||
| 21 * | ||||||||
| 23 * | ||||||||
| 31.1 * | ||||||||
| 31.2 * | ||||||||
| 32.1** | ||||||||
| 32.2** | ||||||||
| 97.1 | ||||||||
| 101.INS * | Inline XBRL Instance Document. | |||||||
| 101.SCH * | Inline XBRL Taxonomy Extension Schema. | |||||||
| 101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase. | |||||||
| 101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase. | |||||||
| 101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase. | |||||||
| 101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase. | |||||||
| 104 * | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
105 | ||||||||||||||
| Exhibit Number | Description | |||||||
| * | Filed herewith. | |||||||
| ** | Furnished herewith. | |||||||
| *** | Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally to the SEC a copy of any omitted schedules upon request. | |||||||
| + | This exhibit is a management contract or compensatory plan or arrangement. | |||||||
Item 16. FORM 10-K SUMMARY
None.
106 | ||||||||||||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| XPO, INC. | |||||
| By: | /s/ Mario Harik | ||||
| Mario Harik | |||||
| (Chief Executive Officer) | |||||
| By: | /s/ Kyle Wismans | ||||
| Kyle Wismans | |||||
| (Chief Financial Officer) | |||||
February 8, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on the dates indicated.
| Signature | Title | Date | ||||||||||||
| /s/ Brad Jacobs | Executive Chairman of the Board of Directors | February 8, 2024 | ||||||||||||
| Brad Jacobs | ||||||||||||||
| /s/ Mario Harik | Director and Chief Executive Officer (Principal Executive Officer) | February 8, 2024 | ||||||||||||
| Mario Harik | ||||||||||||||
| /s/ Kyle Wismans | Chief Financial Officer (Principal Financial Officer) | February 8, 2024 | ||||||||||||
| Kyle Wismans | ||||||||||||||
| /s/ Christopher Brown | Chief Accounting Officer (Principal Accounting Officer) | February 8, 2024 | ||||||||||||
| Christopher Brown | ||||||||||||||
| /s/ Allison Landry | Vice Chair of the Board of Directors | February 8, 2024 | ||||||||||||
| Allison Landry | ||||||||||||||
| /s/ Johnny C. Taylor, Jr. | Lead Independent Director | February 8, 2024 | ||||||||||||
| Johnny C. Taylor, Jr. | ||||||||||||||
| /s/ Jason Aiken | Director | February 8, 2024 | ||||||||||||
| Jason Aiken | ||||||||||||||
| /s/ Bella Allaire | Director | February 8, 2024 | ||||||||||||
| Bella Allaire | ||||||||||||||
| /s/ J. Wes Frye | Director | February 8, 2024 | ||||||||||||
| J. Wes Frye | ||||||||||||||
| /s/ Michael Jesselson | Director | February 8, 2024 | ||||||||||||
| Michael Jesselson | ||||||||||||||
| /s/ Irene Moshouris | Director | February 8, 2024 | ||||||||||||
| Irene Moshouris | ||||||||||||||
107 | ||||||||||||||
Exhibit 3.8
4th AMENDED AND RESTATED
BYLAWS
OF
XPO, INC.
Effective February 5, 2024
TABLE OF CONTENTS
ARTICLE I - OFFICES
Section 1. Registered Office 1
Section 2. Other Offices 1
ARTICLE II - STOCKHOLDERS
Section 1. Place of Meetings 1
Section 2. Annual Meeting 1
Section 3. List of Stockholders 1
Section 4. Special Meetings 1
Section 5. Notice 2
Section 6. Quorum 2
Section 7. Voting 2
Section 8. Method of Voting 2
Section 9. Record Date 3
Section 10. Action by Consent 3
Section 11. Inspectors of Written Consent 3
Section 12. Stockholder Proposals 4
Section 13. Nomination of Directors 6
Section 14. Organization 8
ARTICLE III - BOARD OF DIRECTORS
Section 1. Management 8
Section 2. Qualification; Election; Term 8
Section 3. Number 10
Section 4. Removal 10
Section 5. Vacancies 10
Section 6. Place of Meetings 10
Section 7. Annual Meeting 10
Section 8. Regular Meetings 10
Section 9. Special Meetings 10
Section 10. Quorum 11
Section 11. Interested Directors 11
Section 12. Committees 11
Section 13. Action by Consent 11
Section 14. Compensation of Directors 11
ARTICLE IV - NOTICE
Section 1. Form of Notice 12
Section 2. Waiver 12
ARTICLE V - OFFICERS AND AGENTS
Section 1. In General 12
Section 2. Election 12
Section 3. Other Officers and Agents 12
Section 4. Compensation 12
Section 5. Term of Office and Removal 12
Section 6. Employment and Other Contracts 13
Section 7. Chair of the Board of Directors 13
Section 8. Chief Executive Officer 13
Section 9. President 13
Section 10. Chief Financial Officer 13
Section 11. Secretary 14
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Section 12. Bonding 14
ARTICLE VI - CERTIFICATES REPRESENTING SHARES
Section 1. Form of Certificates 14
Section 2. Lost Certificates 14
Section 3. Transfer of Shares 15
Section 4. Registered Stockholders 15
ARTICLE VII - GENERAL PROVISIONS
Section 1. Dividends 15
Section 2. Reserves 15
Section 3. Telephone and Similar Meetings 15
Section 4. Books and Records 16
Section 5. Fiscal Year 16
Section 6. Seal 16
Section 7. Advances of Expenses 16
Section 8. Indemnification 17
Section 9. Insurance 17
Section 10. Resignation 17
Section 11. Amendment of Bylaws 17
Section 12. Invalid Provisions 17
Section 13. Relation to the Certificate 17
Section 14. Exclusive Forum 17
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4th AMENDED AND RESTATED
BYLAWS
OF
XPO, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office and registered agent of XPO, Inc. (the “Corporation”) will be as from time to time set forth in the Corporation’s Certificate of Incorporation (as may be amended from time to time, the “Certificate of Incorporation”) or in any certificate filed with the Secretary of State of the State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors (the “Board of Directors” or the “Board”) may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All meetings of the stockholders for the election of Directors will be held at such place, within or without the State of Delaware, as may be fixed from time to time by the Board of Directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as may be stated in the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders will be held at such time as may be determined by the Board of Directors, at which meeting the stockholders will elect Directors as set forth in the Certificate of Incorporation and these Bylaws, and transact such other business as may properly be brought before the meeting.
SECTION 3. LIST OF STOCKHOLDERS. At least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, with the address of and the number of voting shares registered in the name of each, will be prepared by the officer or agent having charge of the stock transfer books. Such list will be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the applicable meeting. Such list will be produced and kept open at the time and place of the meeting during the whole time thereof, and will be subject to the inspection of any stockholder who may be present.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law, the Certificate of Incorporation or these Bylaws, may be called by the Chair of the Board, the Chief Executive Officer, the President or the Board of Directors. Business transacted at all special meetings will be confined to the purposes stated in the notice of the meeting unless all stockholders entitled to vote are present and consent.
SECTION 5. NOTICE. Written or printed notice stating the place, day and hour of any meeting of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be delivered not less than ten nor more than sixty days before the date
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of the meeting, either personally or by mail, by or at the direction of the Chair of the Board, the Chief Executive Officer, the President, the Secretary, or the officer or person calling the meeting, to each stockholder of record entitled to vote at the meeting. If mailed, such notice will be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders.
SECTION 6. QUORUM. At all meetings of the stockholders, the presence in person or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote will be necessary and sufficient to constitute a quorum for the transaction of business except as otherwise provided by law, the Certificate of Incorporation or these Bylaws. If, however, such quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, will have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum is presented or represented, any business may be transacted that might have been transacted at the meeting as originally notified.
SECTION 7. VOTING. When a quorum is present at any meeting of the Corporation’s stockholders, the vote of the holders of a majority of the shares entitled to vote on, and voted for or against, any matter will decide any questions brought before such meeting, unless the question is one upon which, by express provision of law, the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision will govern and control the decision of such question. The stockholders present in person or by proxy at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 8. METHOD OF VOTING. Each outstanding share of the Corporation’s capital stock, regardless of class, will be entitled to one vote on each matter submitted to a vote at a meeting of stockholders, except to the extent that the voting rights of the shares of any class or classes are limited or denied by the Certificate of Incorporation. At any meeting of the stockholders, every stockholder having the right to vote will be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to such meeting, unless such instrument provides for a longer period. Each proxy will be revocable unless expressly provided therein to be irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally. Such proxy will be filed with the Secretary of the Corporation prior to or at the time of the meeting. Voting on any question or in any election, other than for directors, may be by voice vote or show of hands unless the presiding officer orders, or any stockholder demands, that voting be by written ballot. Any stockholder directly or indirectly soliciting proxies from other stockholders must use a proxy card color other than white, which shall be reserved for exclusive use by the Board of Directors.
SECTION 9. RECORD DATE. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, which record date will not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date will not be less than ten
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nor more than sixty days prior to such meeting. In the absence of any action by the Board of Directors, the close of business on the date next preceding the day on which the notice is given will be the record date, or, if notice is waived, the close of business on the day next preceding the day on which the meeting is held will be the record date.
SECTION 10. ACTION BY CONSENT. Any action required or permitted by law, the Certificate of Incorporation or these Bylaws to be taken at a meeting of the stockholders of the Corporation may be taken without a meeting if a consent or consents in writing, setting forth the action so taken, is signed by the holders of record of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and will be delivered to the Corporation within sixty days of the earliest dated written consent received by the Corporation in connection therewith, by delivery to and receipt by the Secretary of the Corporation at the Corporation’s principal office by hand or by certified or registered mail (return receipt requested), and such written consent shall set forth the name and address, as they appear in the Corporation’s books, of each stockholder signing such consent and the class and number of shares of the Corporation that are owned of record and beneficially by each such stockholder.
SECTION 11. INSPECTORS OF WRITTEN CONSENT. In the event of the delivery, in the manner provided by Article II, Section 10 of these Bylaws, to the Corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the Corporation may engage nationally recognized independent inspectors of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the Corporation that the consents delivered to the Corporation in accordance with Article II, Section 10 of these Bylaws represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this Article II, Section 11 of these Bylaws shall in any way be construed to suggest or imply that the Corporation or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).
SECTION 12. STOCKHOLDER PROPOSALS. No proposal by a stockholder made pursuant to this Article II may be voted upon at a meeting of stockholders unless such stockholder shall have delivered or mailed in a timely manner (as set herein) and in writing to the Secretary of the Corporation (i) notice of such proposal, (ii) the text of the proposed alteration, amendment or repeal, if such proposal relates to a proposed change to the Corporation’s Certificate of Incorporation or Bylaws, (iii) evidence reasonably satisfactory to the Secretary of the Corporation of such stockholder’s status as such and of the number of shares of each class of capital stock of the Corporation of which such stockholder is the beneficial owner, (iv) as to such stockholder, (a) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any security of the Corporation or with a value derived, in whole or in part, from the value of any security of the Corporation, or any derivative or synthetic arrangement having the characteristics of a long position in any security of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any security of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any security of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying securities of the Corporation,
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through the delivery of cash or other property, or otherwise, and without regard to whether the stockholder of record, the beneficial owner, if any, or any of their respective affiliates or associates, or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of securities of the Corporation (any of the foregoing, a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder, the beneficial owner, if any, or any of their respective affiliates or associates, or others acting in concert therewith, (b) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith has or pursuant to any proxy, contract, understanding or relationship may acquire any right to vote any security of the Corporation, (c) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, directly or indirectly, the intent, purpose or effect of which may be to mitigate loss to, transfer to or from any such person, in whole or in part, any of the economic consequences of ownership, or reduce the economic risk (of ownership or otherwise) of any security of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, with respect to any security of the Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any securities of the Corporation (any of the foregoing, a “Short Interest”), (d) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, that are separated or separable from the underlying shares of the Corporation, (e) any proportionate interest in securities of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership or similar entity in which such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, is a general partner or, directly or indirectly, beneficially owns an interest in a general partner or is the manager or managing member or, directly or indirectly, beneficially owns any interest in the manager or managing member of such general or limited partnership or similar entity and, (f) any performance-related fees (other than an asset-based fee) that such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, is entitled to based on any increase or decrease in the value of securities of the Corporation or Derivative Instruments or Short Interests, if any (sub-clauses (a) through (f) above shall be referred, collectively, as the “Ownership Information”), (v) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Corporation, if any, with whom such stockholder is acting in concert, and the number of shares of each class of capital stock of the Corporation beneficially owned by each such beneficial owner, (vi) a representation that the stockholder giving the notice is a holder of record of stock entitled to vote at such meeting, will continue to be a stockholder of record of stock entitled to vote at such meeting through the date of such meeting and intends to appear in person or by proxy at the meeting to make such nomination or to propose such business, (vii) a certification that each such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, has complied with all applicable federal, state and other legal requirements in connection with its acquisition of shares or other securities of the Corporation and such person’s acts or omissions as a stockholder of the Corporation, (viii) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder by such stockholder, such beneficial owner and their respective affiliates or associates, or others acting in concert therewith, if any, (ix) any other information relating to such stockholder, such beneficial owner or any of their respective
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affiliates or associates or others acting in concert therewith, if any, that would be required to be disclosed in a proxy statement and form or proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the business proposal and/or for the election of directors in a contested election pursuant to the Exchange Act and the rules and regulations promulgated thereunder and (x) an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Corporation, to the effect that the Certificate of Incorporation or Bylaws resulting from the adoption of such proposal would not be in conflict with the laws of the State of Delaware, if such proposal relates to a proposed change to the Corporation’s Certificate of Incorporation or Bylaws. To be timely in connection with an annual meeting of stockholders, a stockholder’s notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety nor more than one hundred eighty days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year’s annual meeting of stockholders was held. To be timely in connection with the voting on any such proposal at a special meeting of the stockholders, a stockholder’s notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than forty days nor more than sixty days prior to the date of such meeting, provided, however, that in the event that less than fifty days’ notice or prior public disclosure of the date of the special meeting of the stockholders is given or made to the stockholders, such stockholder’s notice and other aforesaid items to be timely must be so received not later than the close of business on the seventh day following the day on which such notice of date of the meeting was mailed or such public disclosure was made. Within thirty days (or such shorter period that may exist prior to the date of the meeting) after such stockholder shall have submitted the aforesaid items, the Secretary and the Board of Directors of the Corporation shall respectively determine whether the items to be ruled upon by them are reasonably satisfactory and shall notify such stockholder in writing of their respective determinations. If such stockholder fails to submit a required item in the form or within the time indicated, or if the Secretary or the Board of Directors of the Corporation determines that the items to be ruled upon by them are not reasonably satisfactory, then such proposal by such stockholder may not be voted upon by the stockholders of the Corporation at such meeting of stockholders. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a proposal was not made in accordance with the procedure prescribed by these Bylaws, and if he should so determine, he shall so declare to the meeting and the defective proposal shall be disregarded. The requirements of this Section 12 of Article II shall be in addition to any other requirements imposed by these Bylaws, by the Corporation’s Certificate of Incorporation or the law.
SECTION 13. NOMINATION OF DIRECTORS. Nominations for the election of directors may be made by the Board of Directors or by any stockholder (a “Nominator”) entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Corporation as set forth in this Section 13 of Article II. To be timely in connection with an annual meeting of stockholders, a Nominator’s notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than one hundred eighty days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding years annual meeting of stockholders was held. To be timely in connection with any election of a director at a special meeting of the stockholders, a Nominator’s notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such notice of date of the meeting was mailed or such public disclosure was made, whichever first occurs. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Secretary of the Corporation, that the Nominator is a stockholder of the Corporation and shall identify in writing
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(i) the name and address of the Nominator, (ii) the number of shares of each class of capital stock of the Corporation of which the Nominator is the beneficial owner and the other Ownership Information, (iii) the name and address of each of the persons with whom the Nominator is acting in concert, (iv) a representation that the stockholder giving the notice is a holder of record of stock entitled to vote at such meeting, will continue to be a stockholder of record of stock entitled to vote at such meeting through the date of such meeting and intends to appear in person or by proxy at the meeting to make such nomination or to propose such business, (v) a certification that each such stockholder, such beneficial owner or any of their respective affiliates or associates, or others acting in concert therewith, has complied with all applicable federal, state and other legal requirements in connection with its acquisition of shares or other securities of the Corporation and such person’s acts or omissions as a stockholder of the Corporation, (vi) all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Exchange Act and the rules and regulations promulgated thereunder by such stockholder, such beneficial owner and their respective affiliates or associates, or others acting in concert therewith, if any, (vii) any other information relating to such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith, if any, that would be required to be disclosed in a proxy statement and form or proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the business proposal and/or for the election of directors in a contested election pursuant to the Exchange Act and the rules and regulations promulgated thereunder and (viii) the number of shares of capital stock of which each such person with whom the Nominator is acting in concert, or is the beneficial owner pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (a) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Exchange Act (including without limitation the nominee’s written consent to being named in any proxy materials relating to the Corporation’s next annual meeting or special meeting, as applicable, as a nominee and to serving as a director if elected), (b) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors, and (c) a completed director questionnaire signed by such nominee (a form of which shall be provided by the Secretary of the Corporation promptly following a request therefor). In addition, to be considered timely, a stockholder’s notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for determining the stockholders of record entitled to notice of the meeting (or and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than (1) the later of (A) ten days after the record date for determining the stockholders of record entitled to notice of the meeting (or any adjournment, recess, rescheduling or postponement thereof) or (B) the first public announcement of the date of notice of such record date in the case of the update and supplement required to be made as of the record date, and (2) not later than eight days prior to the date for the meeting (or any adjournment, recess, rescheduling or postponement thereof) in the case of the update and supplement required to be made as of ten days prior to the meeting or any adjournment, recess, rescheduling or postponement thereof. The obligation to update and supplement as set forth in this Section 13 of Article II or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or under any other provision of these Bylaws or enable or be deemed to permit a stockholder who has previously submitted notice hereunder or under any other provision of these Bylaws to amend or update any nomination or business proposal or to submit any new nomination or business proposal, including by changing or adding nominees, matters, business and or resolutions proposed to be brought before a meeting of the stockholder. In addition, if the stockholder giving the notice has delivered to the Corporation a notice relating to the nomination of directors, the stockholder giving the notice
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shall deliver to the Corporation no later than five business days prior to the date of the meeting or, if practicable, any adjournment, recess, rescheduling or postponement thereof (or, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned, recessed, rescheduled, or postponed) reasonable evidence that it has complied with the requirements of Rule 14a-19 of the Exchange Act). Within thirty days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Secretary of the Corporation, the Secretary of the Corporation shall determine whether the evidence of the Nominators status as a stockholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of his determination. If the Secretary of the Corporation finds that such evidence is not reasonably satisfactory, or if the Nominator fails to submit the requisite information in the form or within the time indicated, such nomination shall be ineffective for the election at the meeting at which such person is proposed to be nominated. The presiding person at each meeting of stockholders shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by these bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. The requirements of this Section 13 of Article II shall be in addition to any other requirements imposed by these bylaws, by the Certificate of Incorporation or by law. In no event may a stockholder be entitled or permitted to make additional, alternate or substitute nominations if the nomination is made in accordance with this Section 13 of Article II at the time that the notice of nomination is first delivered to the Secretary of the Corporation or thereafter. Notwithstanding anything to the contrary in these Bylaws, unless otherwise required by law, if any stockholder (x) provides notice pursuant to Rule 14a-19 promulgated under the Exchange Act and (y) subsequently (a) notifies the Corporation that such stockholder no longer intends to solicit proxies in support of director nominees other than the Corporation’s director nominees in accordance with Rule 14a-19 or (b) fails to comply with the requirements of Rule 14a-19, such stockholder’s nomination(s) shall be deemed null and void and the Corporation shall disregard any proxies or votes solicited for any nominee proposed by such stockholder.
SECTION 14. ORGANIZATION. The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chair of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chair, are necessary, appropriate or convenient for the proper conduct of the meeting. Unless and to the extent determined by the Board of Directors or the chair of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. MANAGEMENT. The business and affairs of the Corporation will be managed by or under the direction of its Board of Directors who may exercise all such powers of the Corporation and do such lawful acts and things as are not by law, by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
SECTION 2. QUALIFICATION; ELECTION; TERM. None of the directors need to be a stockholder of the Corporation or a resident of the State of Delaware. Each director shall be elected at the annual meeting of stockholders and hold office until the next annual meeting and until his successor shall be elected and qualified, subject, however, to such director’s prior death, resignation, retirement, disqualification or removal from office. Subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances and
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except in the case of a “contested election,” directors shall be elected by the affirmative vote of a majority of the votes cast at a stockholders meeting for the election of directors at which a quorum is present. For purposes of this Article III, Section 2, a “majority of the votes cast” means that the number of shares voted “for” a nominee exceeds the shares voted “against” the nominee, and abstentions and broker non-votes shall not be deemed to be votes cast for purposes of tabulating such vote. For purposes of this Article III, Section 2, a “contested election” shall mean any election of directors in which the number of nominees to be considered at the meeting exceeds the number of directors to be elected, with the determination thereof being made by the Secretary as of the close of the applicable notice of nomination period set forth in Article II, Section 13 of these Bylaws or under applicable law, based on whether one or more notice(s) of nomination were timely filed in accordance with Article II, Section 13 of these Bylaws; provided, however, that the determination that an election is a “contested election” shall be determinative only as to the timeliness of a notice of nomination and not otherwise as to its validity. If by the day before the Corporation commences mailing (or, if furnished to stockholders electronically, commences electronic distribution or accessibility of) its notice of meeting for the meeting at which the nomination would be considered, one or more notices of nomination are withdrawn such that the number of nominees to be considered at the meeting no longer exceeds the number of directors to be elected, the election shall not be considered a contested election, but in all other cases, once an election is determined to be a contested election, directors shall be elected by a plurality of the votes cast at the meeting at which a quorum is present.
If a nominee for director is not elected and the nominee is an incumbent director and no successor has been elected at an annual meeting, the director shall promptly tender his resignation to the Board of Directors, subject to acceptance by the Board of Directors. The committee delegated responsibility for director nominations and governance matters shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors will act on the tendered resignation, taking into account the recommendation of any committee delegated responsibility for director nominations and governance matters, and publicly disclose (by a press release, a filing with the Securities and Exchange Commission or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within ninety days from the date of the certification of the election results. Any committee in making its recommendation and the Board of Directors in making its decision may each consider any factors or other information that they consider appropriate and relevant. The director who tenders his or her resignation shall not participate in the recommendation of the committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier death, resignation, retirement, disqualification or removal from office. If a director’s resignation is accepted by the Board of Directors pursuant to this Section 2 of Article III of these Bylaws, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors may, in its sole discretion, fill the resulting vacancy pursuant to the provisions of Article III, Section 5 of these Bylaws or may decrease the size of the Board of Directors pursuant to the provisions of Article III, Section 3 of these Bylaws.
SECTION 3. NUMBER. The number of Directors of the Corporation will be at least one and not more than nine. The number of Directors authorized will be fixed as the Board of Directors may from time to time designate, or if no such designation has been made; the number of Directors will be the same as the number of members of the initial Board of Directors as set forth in the Certificate of Incorporation.
SECTION 4. REMOVAL. Except as otherwise provided by the Certificate of Incorporation or applicable law, any director may be removed with or without cause by the
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affirmative vote of a majority in voting power of the outstanding stock entitled to vote on the election of such director.
SECTION 5. VACANCIES. Any director elected to fill a vacancy shall hold office until the next annual meeting of stockholders and until his successor shall be elected and qualified, subject, however, to such director’s prior death, resignation, retirement, disqualification or removal from office. In no event will a decrease in the number of directors shorten the term of any incumbent director. Any vacancy on the Board of Directors, whether resulting from an increase in the number of directors or otherwise, shall be filled by the affirmative vote of a majority of the directors then holding office, even if less than a quorum, or by a sole remaining director.
SECTION 6. PLACE OF MEETINGS. Meetings of the Board of Directors, regular or special, may be held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors.
SECTION 7. ANNUAL MEETING. The first meeting of each newly elected Board of Directors will be held without further notice immediately, following the annual meeting of stockholders and at the same place unless, by unanimous consent, the Directors then elected and serving change such time or place.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as is from time to time determined by resolution of the Board of Directors. Directors and committee members may participate in and hold meetings by means of conference telephone, video conference or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chair of the Board, the Chief Executive Officer or the President on oral or written notice to each Director, given either personally, by telephone, video conference, by telegram or by mail; special meetings will be called by the Chair of the Board, Chief Executive Officer, President or Secretary in like manner and on like notice on the written request of at least three Directors. The purpose or purposes of any special meeting will be specified in the notice relating thereto.
SECTION 10. QUORUM. At all meetings of the Board of Directors the presence of a majority of the number of Directors fixed by these Bylaws will be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the Directors present at any meeting at which there is a quorum will be the act of the Board of Directors, except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws. If a quorum is not present at any meeting of the Board of Directors, the Directors present thereat may adjourn the meeting from time to time without notice other than announcement at the meeting, until a quorum is present.
SECTION 11. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its Directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of the Corporation’s Directors or officers are directors or officers or have a financial interest, will be void or voidable solely for this reason, solely because the Director or officer is present at or participates in the meeting of the Board of Directors or committee thereof that authorizes the
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contract or transaction, or solely because his or their votes are counted for such purpose if: (i) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors, even though the disinterested Directors be less than a quorum, (ii) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the contract or transaction.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the entire Board, designate committees, each committee to consist of two or more Directors of the Corporation, which committees will have such power and authority and will perform such functions as may be provided in such resolution. Such committee or committees will have such name or names as may be designated by the Board and will keep regular minutes of their proceedings and report the same to the Board of Directors when required.
SECTION 13. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee of the Board of Directors may be taken without such a meeting if a consent or consents in writing, setting forth the action so taken, is signed by (including by electronic transmission or transmissions), all the members of the Board of Directors or such committee, as the case may be.
SECTION 14. COMPENSATION OF DIRECTORS. Directors will receive such compensation for their services and reimbursement for their expenses as the Board of Directors, by resolution, may establish; provided that nothing herein contained will be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore.
ARTICLE IV
NOTICE
SECTION 1. FORM OF NOTICE. Whenever by law, the Certificate of Incorporation or of these Bylaws, notice is to be given to any Director or stockholder, and no provision is made as to how such notice will be given, such notice may be given in writing, by mail, postage prepaid, addressed to such Director or stockholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail will be deemed to be given at the time the same is deposited in the United States mail.
SECTION 2. WAIVER. Whenever any notice is required to be given to any stockholder or Director of the Corporation as required by law, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated in such notice, will be equivalent to the giving of such notice. Attendance of a stockholder or Director at a meeting will constitute a waiver of notice of such meeting, except where such stockholder or Director attends for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
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ARTICLE V
OFFICERS AND AGENTS
SECTION 1. IN GENERAL. The officers of the Corporation will consist of a Chief Executive Officer, President, Chief Financial Officer and Secretary and such other officers as shall be elected by the Board of Directors or the Chief Executive Officer. Any two or more offices may be held by the same person.
SECTION 2. ELECTION. The Board of Directors, at its first meeting after each annual meeting of stockholders, will elect the officers, none of whom need be a member of the Board of Directors.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors and Chief Executive Officer may also elect and appoint such other officers and agents as it or he deems necessary, who will be elected and appointed for such terms and will exercise such powers and perform such duties as may be determined from time to time by the Board or the Chief Executive Officer.
SECTION 4. COMPENSATION. The compensation of all officers and agents of the Corporation will be fixed by the Board of Directors or any committee of the Board, if so authorized by the Board.
SECTION 5. TERM OF OFFICE AND REMOVAL. Each officer of the Corporation will hold office until his death, his resignation or removal from office, or the election and qualification of his successor, whichever occurs first. Any officer or agent elected or appointed by the Board of Directors or the Chief Executive Officer may be removed at any time, for or without cause, by the affirmative vote of a majority of the entire Board of Directors or at the discretion of the Chief Executive Officer (without regard to how the agent or officer was elected), but such removal will not prejudice the contract rights, if any, of the person so removed. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors or, in the case of a vacancy in the office of officer other than Chief Executive Officer and President, such vacancy may be filled by the Chief Executive Officer. Except to the extent otherwise specifically provided by the Board of Directors or the Chief Executive Officer, any officer that is also an employee of the Corporation will cease to be an officer at such time as he or she ceases to be an employee of the Corporation.
SECTION 6. EMPLOYMENT AND OTHER CONTRACTS. The Board of Directors may authorize any officer or officers or agent or agents to enter into any contract or execute and deliver any instrument in the name or on behalf of the Corporation, and such authority may be general or confined to specific instances. The Board of Directors may, when it believes the interest of the Corporation will best be served thereby, authorize executive employment contracts that will have terms no longer than ten years and contain such other terms and conditions as the Board of Directors deems appropriate. Nothing herein will limit the authority of the Board of Directors to authorize employment contracts for shorter terms.
SECTION 7. CHAIR OF THE BOARD OF DIRECTORS. If the Board of Directors has elected a Chair of the Board, he or she will preside at all meetings of the stockholders and the Board of Directors.
SECTION 8. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer will be the chief executive officer of the Corporation and, subject to the control of the Board of Directors, will supervise and control all of the business and affairs of the Corporation. The Chief Executive Officer shall have the authority to elect any officer of the Corporation other than the Chief Executive Officer or President. He or she will, in the absence of the Chair of the Board,
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preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer will have all powers and perform all duties incident to the office of Chief Executive Officer and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe. During the absence or disability of the President, the Chief Executive Officer will exercise the powers and perform the duties of President,
SECTION 9. PRESIDENT. The President will have responsibility, for oversight of the Corporation’s operating and development activities. In the absence or disability of the Chief Executive Officer and the Chair of the Board, the President will exercise the powers and perform the duties of the Chief Executive Officer. The President will render to the Directors whenever they may requires it an account of the operating and development activities of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer will have principal responsibility for the financial operations of the Corporation. The Chief Financial Officer will render to the Directors whenever they may require it an account of the operating results and financial condition of the Corporation and will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him.
SECTION 11. SECRETARY. The Secretary will attend all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary will perform like duties for the Board of Directors and committees thereof when required. The Secretary will give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors. The Secretary will keep in safe custody the seal of the Corporation. The Secretary will be under the supervision of the Chief Executive Officer. The Secretary will have such other powers and perform such other duties as the Board of Directors may from time to time prescribe or as the Chief Executive Officer may from time to time delegate to him.
SECTION 12. BONDING. The Corporation may secure a bond to protect the Corporation from loss in the event of defalcation by any of the officers, which bond may be in such form and amount and with such surety as the Board of Directors may deem appropriate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
SECTION 1. FORM OF CERTIFICATES. The Corporation may issue certificates, in such form as may be determined by the Board of Directors, representing shares to which stockholders are entitled, but is not required to do so. Any certificate so issued will state on the face thereof the holder’s name, the number, class of shares, and the par value of such shares or a statement that such shares are without par value. They will be signed by the Chief Executive Officer or President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof. If any certificate is countersigned by a transfer agent, or an assistant transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation’s officers may be by electronic signature or facsimiles. In case any officer or officers who have signed, or whose electronic or facsimile signature or signatures have been used on such certificate or certificates, ceases to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the
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Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose electronic or facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of such lost or destroyed certificate, or his legal representative, to advertise the same in such manner as it may require and/or to give the Corporation a bond, in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. When a certificate has been lost, apparently destroyed or wrongfully taken, and the holder of record fails to notify the Corporation within a reasonable time after such holder has notice of it, and the Corporation registers a transfer of the shares represented by the certificate before receiving such Notification, the holder of record is precluded from making any claim against the Corporation for the transfer of a new certificate.
SECTION 3. TRANSFER OF SHARES. Shares of stock will be transferable only on the books of the Corporation by the holder thereof in person or by such holder’s duly authorized attorney. Upon surrender to the Corporation or the transfer agent of the Corporation of the shares accompanied by proper evidence of succession, assignment or authority to transfer, it will be the duty of the Corporation or the transfer agent of the Corporation to transfer the shares to the person entitled thereto and to record the transaction upon its books.
SECTION 4. REGISTERED STOCKHOLDERS. The Corporation will be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by law.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, subject to the provisions or the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”) and the Certificate of Incorporation. The Board of Directors may fix in advance a record date for the purpose of determining stockholders entitled to receive payment of any dividend, such record date will not precede the date upon which the resolution fixing the record date is adopted, and such record date will not be more than sixty days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the close of business on the date upon which the Board of Directors adopts the resolution declaring such dividend will be the record date.
SECTION 2. RESERVES. There may be created by resolution of the Board of Directors out of the surplus of the Corporation such reserve or reserves as the Directors from time to time, in their discretion, deem proper to provide for contingencies, or to equalize dividends, or to repair or maintain any property of the Corporation, or for such other purpose as the Directors may deem beneficial to the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. Surplus of the Corporation to the extent
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so reserved will not be available for the payment of dividends or other distributions by the Corporation.
SECTION 3. TELEPHONE AND SIMILAR MEETINGS. Stockholders may participate in and hold meetings by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other. Participation in such a meeting will constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the ground that the meeting has not been lawfully called or convened.
SECTION 4. BOOKS AND RECORDS. The Corporation will keep correct and complete books and records of account and minutes of the proceedings of its stockholders and Board of Directors, and will keep at its registered office or principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of the shares held by each.
SECTION 5. FISCAL YEAR. The fiscal year of the Corporation will be fixed by resolution of the Board of Directors.
SECTION 6. SEAL. The Corporation may have a seal, and the seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Any officer of the Corporation will have authority to affix the seal to any document requiring it.
SECTION 7. ADVANCES OF EXPENSES. The Corporation will advance to its directors and officers expenses incurred by them in connection with any “Proceeding,” which term includes any threatened, pending or completed action, suit or proceeding, whether brought by or in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature (including all appeals therefrom), in which a director or officer may be or may, have been involved as a party or otherwise, by reason of the fact that he is or was a director or officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (“Official,” which term also includes directors and officers of the Corporation in their capacities as directors and officers of the Corporation), whether or not he is serving in such capacity at the time any liability or expense is incurred; provided that the Official undertakes to repay all amounts advanced unless:
(i) in the case of all Proceedings other than a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, that he did not have reasonable cause to believe his conduct was unlawful, provided that the termination of any such Proceeding by judgment, order of court, settlement. conviction, or upon a plea of nolo contendere or its equivalent, shall not by itself create a presumption as to whether the Official acted in good faith or in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, as to whether he had reasonable cause to believe his conduct was unlawful; or
(ii) in the case of a Proceeding by or in the right of the Corporation, the Official establishes to the satisfaction of the disinterested members of the Board of Directors that he acted in good faith or in a manner he reasonably believed to
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be in or not opposed to the best interests of the Corporation, provided that if in such a Proceeding the Official is adjudged to be liable to the Corporation, all amounts advanced to the Official for expenses must be repaid except to the extent that the court in which such adjudication was made shall determine upon application that despite such adjudication, in view of all the circumstances, the Official is fairly and reasonably entitled to indemnity for such expenses as the court may deem proper.
SECTION 8. INDEMNIFICATION. The Corporation will indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law and may, if and to the extent authorized by the Board of Directors, so indemnify such other persons whom it has the power to indemnify against any liability, reasonable expense or other matter whatsoever.
SECTION 9. INSURANCE. The Corporation may at the discretion of the Board of Directors purchase and maintain insurance on behalf of the Corporation and any person whom it has the power to indemnify pursuant to law, the Certificate of Incorporation, these Bylaws or otherwise.
SECTION 10. RESIGNATION. Any director, officer or agent may resign by giving written notice to the President or the Secretary. Such resignation will take effect at the time specified therein or immediately if no time is specified therein. Unless otherwise specified therein, the acceptance of such resignation will not be necessary, to make it effective.
SECTION 11. AMENDMENT OF BYLAWS. Other than as set forth herein, these Bylaws may be altered, amended, or repealed at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the Directors present at such meeting.
SECTION 12. INVALID PROVISIONS. If any part of these Bylaws is held invalid or inoperative for any reason, the remaining parts, so far as possible and reasonable, will be valid and operative.
SECTION 13. RELATION TO THE CERTIFICATE OF INCORPORATION. These Bylaws are subject to, and governed by, the Certificate of Incorporation of the Corporation as amended from time to time.
SECTION 14. EXCLUSIVE FORUM. Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or agent of the Corporation to the Corporation or the Corporation’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against the Corporation or any current or former director or officer or other employee or agent of the Corporation arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s Certificate of Incorporation or Bylaws (as either may be may be amended, restated, modified, supplemented or waived from time to time), (iv) any action to interpret, apply, enforce or determine the validity of the Corporation’s Certificate of Incorporation or these Bylaws (as either may be amended from time to time), (v) any action asserting a claim related to or involving the Corporation or any current or former director or officer or other employee or agent of the Corporation that is governed by the internal affairs doctrine of the State of Delaware, or (vi) any action asserting an “internal corporate claim” as the term is defined in Section 115 of the Delaware General Corporation Law shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be the federal court for the District of Delaware).
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Exhibit 4.5
DESCRIPTION OF COMMON STOCK
The following is a description of the material terms of the common stock of XPO, Inc. (the “Company,” “we,” “us” or “our”), as well as other material terms of the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Company Certificate”), the Company’s 4th Amended and Restated Bylaws, as amended (the “Bylaws”) and other relevant documents. This description is only a summary. You should read it together with the Company Certificate and Bylaws, which are included as exhibits to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and incorporated by reference herein.
General
We currently have 300,000,000 authorized shares of common stock, par value $0.001 per share (“Common Stock”), of which 116,087,137 shares were issued and outstanding as of December 31, 2023. As of December 31, 2023, 3,827,977 shares of Common Stock were reserved for issuance upon exercise of outstanding equity awards.
Other than as described herein, no stockholder has any preemptive right or other similar right to purchase or subscribe for any additional securities issued by the Company, and no stockholder has any right to convert Common Stock into other securities. No shares of Common Stock are subject to redemption or any sinking fund provisions. All of the outstanding shares of Common Stock are fully paid and non-assessable. Subject to the rights of the holders of the Preferred Stock, the holders of Common Stock are entitled to dividends when, as and if declared by the Board of Directors from funds legally available therefor and, upon liquidation, to a pro rata share in any distribution to stockholders.
Pursuant to Delaware law and the Company Certificate, our Board of Directors by resolution may establish one or more series of Preferred Stock and fix the number of shares constituting such series, the designation of such series, the voting powers (if any) of the shares of such series and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series, such rights and preferences being senior to the rights of holders of Common Stock. As of December 31, 2023, no shares of Preferred Stock are currently outstanding.
Voting and Other Rights
Each share of Common Stock entitles the holder thereof to one vote on all matters upon which stockholders are permitted to vote. Except as otherwise required by law, whenever any corporate action other than the election of directors is to be taken, it shall be authorized by a majority of the votes cast at a meeting of stockholder by the stockholders entitled to vote thereon.
The election of directors in an uncontested election requires the affirmative vote of a majority of the votes cast (meaning the number of shares voted "for" a nominee must exceed the number of shares voted "against" such nominee) by holders of shares of our Common Stock at the meeting at which a quorum is present. If any incumbent director standing for re-election receives a greater number of votes "against" his or her election than votes "for" such election, the Bylaws require that such person must promptly tender his or her resignation to our Board of Directors. Once an election is determined to be a contested election, directors shall be elected by a plurality of the votes cast at the meeting at which a quorum is present.
Provisions of Delaware Law, the Company Certificate, Bylaws and Other Relevant Documents
Provisions of the Delaware General Corporation Law (the “DGCL”), the Company Certificate, the Bylaws and other relevant documents described below could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of us to first negotiate with us. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute. We have elected to be subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a
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financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15 percent or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors, including discouraging attempts that might result in a premium over the market price for the shares of Common Stock.
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Company Certificate prohibits cumulative voting.
Limitation of Liability and Indemnification of Officers and Directors. The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. The Company Certificate and Bylaws include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of the Company, or for serving at our request as a director or officer or in another position at another corporation or enterprise, as the case may be. The Company Certificate and Bylaws also provide that we must indemnify and advance expenses to our directors and officers, subject to our receipt of an undertaking from the indemnitee as may be required under the DGCL. We are also expressly authorized to carry directors’ and officers’ insurance to protect the Company and our directors, officers, employees and agents from certain liabilities.
The limitation of liability and indemnification provisions in the Company Certificate and the Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. We may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Except as set forth in the Company’s periodic reports as incorporated herein by reference, there is currently no pending material litigation or proceeding involving any of our directors, officers, employees or agents for which indemnification is sought.
Authorized but Unissued Shares of Common Stock. Our authorized but unissued shares of Common Stock will be available for future issuance without approval by the holders of Common Stock. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, employee benefit plans and as consideration for or to finance future acquisitions, investments or other purposes. The existence of authorized but unissued shares of Common Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Undesignated Preferred Stock. Our Company Certificate and Bylaws authorize 10,000,000 shares of undesignated Preferred Stock. As a result, our Board of Directors may, without the approval of holders of Common Stock, issue shares of Preferred Stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers or changes in control or management of the Company. As of December 31, 2023, no shares of Preferred Stock are currently outstanding, and we had 9,925,000 shares of undesignated Preferred Stock available for future issuance.
Investment Agreement. Under the terms of an Investment Agreement, dated June 13, 2011 (the “Investment Agreement”), by and among Jacobs Private Equity, LLC (“JPE”), the other investors party thereto (collectively with JPE, the “Investors”), and the Company, JPE has the right to designate certain percentages of the nominees for our Board of Directors so long as JPE owns securities (including preferred stock convertible into, or warrants exercisable for, securities) representing specified percentages of the total voting power of our capital stock on a fully-diluted basis. JPE does not currently own securities representing the required voting power to qualify for the right to designate nominees for our Board of Directors. The foregoing rights of JPE under the Investment Agreement are in addition to, and not in limitation of, JPE’s voting rights as a holder of capital stock of the Company. JPE is controlled by Bradley S. Jacobs, our chairman and chief executive officer. The Investment Agreement and the terms contemplated therein were approved by our stockholders at a special meeting on September 1, 2011.
Exclusive Forum. Unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or agent of the Company to the Company or the Company’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against the Company or any current or former director or officer or other employee or agent of the Company arising pursuant to any provision of the DGCL or the Company’s Certificate of Incorporation or Bylaws (as either may be amended, restated, modified, supplemented or waived from time to time), (iv) any action to interpret, apply, enforce or determine the validity of the Company's Certificate of Incorporation or the Bylaws (as either may be amended from time to time), (v) any action asserting a claim
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related to or involving the Company or any current or former director or officer or other employee or agent of the Company that is governed by the internal affairs doctrine of the State of Delaware, or (vi) any action asserting an “internal corporate claim” as the term is defined in Section 115 of the DGCL shall be a state court located within the State of Delaware (or if no state court located within the State of Delaware has jurisdiction over any such action or proceeding, the sole and exclusive forum for such action or proceeding shall be the federal court for the District of Delaware). Section 27 of the Securities Exchange Act of 1934, as amended, provides for exclusive federal jurisdiction over suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and as such the exclusive jurisdiction clauses set forth above would not apply to such suits. Furthermore, Section 22 of the Securities Act of 1933, as amended, provides for concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and as such the exclusive jurisdiction clauses set forth above would not apply to such suits.
Amendments to Organizational Documents
The DGCL provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws.
Listing
Our Common Stock is listed on the NYSE under the trading symbol “XPO.”
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Computershare Trust Company, N.A., whose principal executive office is located at 250 Royall Street, Canton, MA 02021.
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Exhibit 10.29
RESTRICTED STOCK UNIT AWARD AGREEMENT UNDER THE XPO LOGISTICS, INC. 2016 OMNIBUS INCENTIVE COMPENSATION PLAN (AS AMENDED), dated as of ###GRANT_DATE###, between XPO, Inc., a Delaware corporation (the “Company”), and ###PARTICIPANT_NAME###
This Restricted Stock Unit Award Agreement (this “Award Agreement”) sets forth the terms and conditions of an award of ###TOTAL_AWARDS### restricted stock units (this “Award”) that are subject to the terms and conditions specified herein (each such restricted stock unit, an “RSU”) and that are granted to you under the XPO Logistics, Inc. 2016 Omnibus Incentive Compensation Plan, as amended (the “Plan”). This Award constitutes an unfunded and unsecured promise of the Company to deliver (or cause to be delivered) to you, subject to the terms of this Award Agreement, shares of the Company’s Common Stock, $0.001 par value (“Shares”), or cash, as set forth in Section 3 of this Award Agreement.
THIS AWARD IS SUBJECT TO ALL TERMS AND CONDITIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING THE DISPUTE RESOLUTION PROVISIONS SET FORTH IN SECTION 10 OF THIS AWARD AGREEMENT. BY SIGNING YOUR NAME BELOW, YOU SHALL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT.
SECTION 1. The Plan. This Award is made pursuant to the Plan, all the terms of which are hereby incorporated in this Award Agreement. In the event of any conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan shall govern.
SECTION 2. Definitions. Capitalized terms used in this Award Agreement that are not defined in this Award Agreement have the meanings as used or defined in the Plan. As used in this Award Agreement, the following terms have the meanings set forth below:
“Business Day” means a day that is not a Saturday, a Sunday or a day on which banking institutions are legally permitted to be closed in the City of New York.
“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and other interpretive guidance promulgated thereunder, as in effect from time to time.
SECTION 3. Vesting and Settlement. (a) Vesting. Except as otherwise provided herein, the RSUs shall vest on January 2, 2025 (the “Vesting Date”), provided that you continue to serve as a member of the Board of Directors of the Company (the “Board”) through and until the Vesting Date.
(a) Settlement of RSU Award. Within 30 days following the Vesting Date (the “Settlement Date”), the Company shall deliver to you or your legal representative either (x) one Share or (y) a cash payment equal to the Fair Market Value determined as of the Settlement Date of one Share, in each case, for each RSU that is scheduled to be settled on such date in accordance with the terms of this Award Agreement; provided that, the Company shall have sole discretion to determine whether to settle such RSUs in Shares, cash or a combination thereof.
(b) Change of Control. In the event of a Change of Control, all outstanding RSUs shall accelerate vesting as of immediately prior to such Change of Control, in which case all outstanding RSUs shall be settled no later than the tenth (10th) day following the date of such Change of Control.
SECTION 4. Forfeiture of RSUs. Unless the Committee determines otherwise, if the Vesting Date with respect to the RSUs has not occurred prior to the date on which you
cease to be a member of the Board for any reason, your rights with respect to such RSUs shall immediately terminate and you shall be entitled to no further payments or benefits with respect thereto.
SECTION 5. No Rights as a Stockholder until Delivery. You shall not have any rights or privileges of a stockholder with respect to the RSUs subject to this Award Agreement unless and until certificates representing Shares are actually issued and delivered to you or your legal representative in settlement of this Award. On or after delivery of Shares, you shall have, with respect to Shares delivered, all of the rights of a stockholder of the Company, including the right to vote Shares.
SECTION 6. Non-Transferability of RSUs. Unless otherwise provided by the Committee in its discretion, RSUs may not be sold, assigned, alienated, transferred, pledged, attached or otherwise encumbered except as provided in Section 9(a) of the Plan. Any purported sale, assignment, alienation, transfer, pledge, attachment or other encumbrance of RSUs in violation of the provisions of this Section 6 and Section 9(a) of the Plan shall be void.
SECTION 7. Withholding; Consents and Legends. (a) Withholding. Subject to applicable law, you shall be permitted to elect to have the Company retain from the Shares that would otherwise be delivered to you pursuant to the RSUs a number of Shares having a Fair Market Value that is sufficient to satisfy any Federal, state, local or foreign taxes that you reasonably estimate that you will be required to pay as a result of delivery to you of the Shares subject to the RSUs; provided, however, that in order for you to make any such election, not less than 10 Business Days prior to the date that the Shares would otherwise be deliverable to you, you must notify the Company in writing of your desire to exercise such election and such notice must include the percentage of the otherwise deliverable Shares that you would like the Company to withhold. Upon receipt of such notice, the Company shall be permitted to request from you information about how the relevant percentage was determined. In the event that the number of Shares that would be withheld pursuant to your election is not a whole number, such number shall be rounded down to the nearest whole Share. Within 15 Business Days following the Settlement Date, the Company will pay to you an amount in cash equal to the Fair Market Value (determined as of the Settlement Date) of the Shares that the Company withheld.
(a) Consents. Your rights in respect of the RSUs are conditioned on the receipt to the full satisfaction of the Committee of any required consents that the Committee may determine to be necessary or advisable (including your consenting to the Company’s supplying to any third-party recordkeeper of the Plan such personal information as the Committee deems advisable to administer the Plan).
(b) Legends. The Company may affix to certificates for Shares issued pursuant to this Award Agreement any legend that the Committee determines to be necessary or advisable (including to reflect any restrictions to which you may be subject under any applicable securities laws). The Company may advise the transfer agent to place a stop order against any legended Shares.
SECTION 8. Successors and Assigns of the Company. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns.
SECTION 9. Committee Discretion. The Committee shall have full and plenary discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive.
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SECTION 10. Dispute Resolution. (a) Jurisdiction and Venue. You and the Company irrevocably submit to the exclusive jurisdiction of (i) the United States District Court for the Southern District of New York and (ii) the courts of the State of New York for the purposes of any suit, action or other proceeding arising out of this Award Agreement or the Plan. You and the Company agree to commence any such action, suit or proceeding either in the United States District Court for the Southern District of New York or, if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the courts of the State of New York. You and the Company further agree that service of any process, summons, notice or document by U.S. registered mail to the other party’s address set forth below shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which you have submitted to jurisdiction in this Section 10(a). You and the Company irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Award Agreement or the Plan in (A) the United States District Court for the Southern District of New York or (B) the courts of the State of New York, and hereby and thereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
(a) Waiver of Jury Trial. You and the Company hereby waive, to the fullest extent permitted by applicable law, any right either of you may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Award Agreement or the Plan.
(b) Confidentiality. You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Section 10, except that you may disclose information concerning such dispute to the court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).
SECTION 11. Notice. All notices, requests, demands and other communications required or permitted to be given under the terms of this Award Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three Business Days after they have been mailed by U.S. certified or registered mail, return receipt requested, postage prepaid, addressed to the other party as set forth below:
If to the Company: | XPO, Inc. Five American Lane Greenwich, CT 06831 Attention: Chief Human Resources Officer | ||||
If to you: | To your address as most recently supplied to the Company and set forth in the Company’s records | ||||
The parties may change the address to which notices under this Award Agreement shall be sent by providing written notice to the other in the manner specified above.
SECTION 12. Governing Law. This Award Agreement shall be deemed to be made in the State of Delaware, and the validity, construction and effect of this Award Agreement in all respects shall be determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.
SECTION 13. Headings and Construction. Headings are given to the Sections and subsections of this Award Agreement solely as a convenience to facilitate
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reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Award Agreement or any provision thereof. Whenever the words “include”, “includes” or “including” are used in this Award Agreement, they shall be deemed to be followed by the words “but not limited to”. The term “or” is not exclusive. This Award Agreement, any Award and any amounts received hereunder, shall be subject to recovery or other penalties pursuant to (i) any Company clawback policy, as may be adopted or amended from time to time, or (ii) any applicable law, rule or regulation or applicable stock exchange rule.
SECTION 14. Amendment of this Award Agreement. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Award Agreement prospectively or retroactively; provided, however, that, except as set forth in Section 15(d) of this Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair your rights under this Award Agreement shall not to that extent be effective without your consent (it being understood, notwithstanding the foregoing proviso, that this Award Agreement and the RSUs shall be subject to the provisions of Section 7(c) of the Plan).
SECTION 15. Section 409A. (a) It is intended that the provisions of this Award Agreement comply with Section 409A, and all provisions of this Award Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
(a) Neither you nor any of your creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A) payable under this Award Agreement to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to you or for your benefit under this Award Agreement may not be reduced by, or offset against, any amount owing by you to the Company or any of its Affiliates.
(b) If, at the time of your separation from service (within the meaning of Section 409A), (i) you shall be a specified employee (within the meaning of Section 409A and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the first business day after such six-month period.
(c) Notwithstanding any provision of this Award Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A, the Company reserves the right to make amendments to this Award Agreement as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A. In any case, you shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you or for your account in connection with this Award Agreement (including any taxes and penalties under Section 409A), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.
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SECTION 16. Counterparts. This Award Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. You and the Company hereby acknowledge and agree that signatures delivered by facsimile or electronic means (including by “pdf”) shall be deemed effective for all purposes.
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IN WITNESS WHEREOF, the parties have duly executed this Award Agreement as of the date first written above.
XPO, INC.
Carolyn Roach
Chief Human Resources Officer
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Exhibit 19.1
Insider Trading Policy
Effective as of December 19, 2022
Directors, officers and key employees of XPO, Inc. and its subsidiaries (collectively, the “Company”) are likely from time to time to become aware of material nonpublic information about the Company. In view of the legal prohibitions on trading in securities while in possession of material non-public information concerning an issuer, and the significant interest of the Company in preventing even the appearance of trading impropriety, the Company has adopted this Insider Trading Policy (this “Policy”).
This Policy applies to the Company’s directors, officers and certain employees as designated from time to time by the Company (collectively, “Covered Individuals”).
Do Not Trade Company Securities when Aware of Material Non-Public Information
No Covered Individual may purchase or sell securities of the Company (including in connection with the exercise of stock options) when he/she is aware of material non-public information about the Company.1 “Material” information means information relating to the Company, its business operations or securities that, if made public, would likely affect the market price of the Company’s securities, or would likely be considered important by a reasonable investor in determining whether to buy, sell or hold such securities. Material information is not limited to historical facts but may also include projections and forecasts. Examples of information ordinarily deemed “material” include, without limitation:
•earnings information and financial results;
•Company strategic plans;
•significant changes in corporate objectives;
•potential significant mergers, acquisitions or divestitures;
•significant finance transactions;
•significant changes in senior management or control of the Company;
•significant changes in accounting methods or policies;
•award or loss of a significant contract;
•cybersecurity risks and incidents, including vulnerabilities and breaches;
•offerings of Company securities; and
•actual or threatened major litigation or governmental investigations.
The information becomes “public” once it has been broadly disseminated to and digested by the public (generally by means of a Company press release).
Trading while in possession of such information may only commence on the third trading day that follows two full trading days after such information has been publicly disclosed. For example, if information is publicly released prior to market open on a Monday, trading may not commence until Wednesday.
1 For purposes of this Policy, purchases and sales of securities by a Covered Individual include, without limitation, any purchase or sale (i) by, for or at the direction of such Covered Individual, (ii) entered into by any person or entity directly or indirectly controlled by such Covered Individual, such as a family member who does not reside with such Covered Individual but whose transactions in securities are directed by the Covered Individual or are subject to the Covered Individual’s influence or control, and (iii) by, for or at the direction of any member of such Covered Individual’s family who resides with such Covered Individual or any person residing in the same household as such Covered Individual.
Additionally, Covered Individuals may not trade in the securities of other companies as to which they have obtained material non-public information by reason of their employment with the Company.
“Securities” mean any equity securities issued by the Company, including any subsidiary of the Company, any parent of the Company or any subsidiary of any parent of the Company, that are registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
This restriction continues to apply to transactions in Company securities even after termination of a Covered Individual’s service with the Company. If a Covered Individual possesses material, non-public information when his or her service to the Company terminates, the Covered Individual may not trade in Company securities until that information has become public or is no longer material.
For purposes of this Policy, the Company considers that bona fide gifts of the securities of the Company are exempt from this Policy.
Trading Company Securities Is Prohibited Except During a Trading Window and After Obtaining Pre-Clearance
In view of the Company’s significant interest in avoiding even the appearance of trading impropriety, Covered Individuals may purchase or sell securities of the Company (i) only during the Company’s quarterly trading window and (ii) only after obtaining pre-clearance from the Company’s Chief Compliance Officer or his or her designee. These trading restrictions apply to all purchases or sales of Company securities, including open-market purchases and sales of the Company’s common stock, as well as transactions involving derivatives of the Company’s securities, including exercises of stock options. Please note, however, that it is the Covered Individual’s sole responsibility to comply with all applicable securities laws. The Company does not undertake any obligation with respect to a Covered Individual’s securities law compliance by virtue of pre-clearing any particular trade, and the Company urges each Covered Individual to consult his or her legal counsel before engaging in transactions. Any advice regarding pre-clearance of a proposed transaction will relate solely to the restraints imposed by law and will not constitute advice regarding the investment aspects of any such trade. Clearance of a proposed transaction is valid for five (5) business days. If the transaction order is not completed within that period, clearance of the transaction must be re-requested. If clearance is denied, the fact of such denial must be kept confidential by the Covered Individual requesting such clearance.
The quarterly trading window for the Company opens on the third trading day following the day that the Company publicly announces its quarterly or annual financial results and the trading window closes two weeks before the end of such quarter. However, even during this trading window, a Covered Individual who is in possession of any material non-public information should not trade in the Company's securities until the information has been made publicly available or is no longer material.
In addition, from time to time, other types of material non-public information regarding the Company (such as negotiation of mergers, acquisitions or dispositions, or investigation and assessment of cybersecurity incidents) may be pending and not be publicly disclosed. While such material non-public information is pending, the Company may impose special blackout periods during which Covered Individuals are prohibited from trading in the Company's securities. If the Company imposes a special blackout period, it will notify the Covered Individuals affected.
Pre-clearance for all trades or transactions described in this section must be obtained by contacting the Trading Compliance Team by e-mail at stocktrading@xpo.com.
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There are no exceptions to the policy of restricting trading to the quarterly trading window. Transactions that may be necessary or justifiable for independent reasons (such as the need to raise money for an emergency expenditure), or small transactions, are not excepted from this policy. The securities laws do not recognize any mitigating circumstances to insider trading liability.
Employee Stock Purchase Plan
This Policy also applies to transactions by a Covered Individual in connection with the Company’s Employee Stock Purchase Plan (the “ESPP”). For clarification purposes, in addition to the terms of the ESPP, please see below regarding enrollment, contribution changes and withdrawals from the ESPP:
•A Covered Individual may enroll in the ESPP only during a quarterly trading window.
•If a Covered Individual is enrolled in the ESPP, the Covered Individual is permitted to change the contribution rate or withdraw from the ESPP only during a quarterly trading window.
Also, all Securities purchased through the ESPP are subject to the terms of this Policy.
Rule 10b5-1 Plans
The Securities and Exchange Commission (the “SEC”), has adopted a safe harbor rule, Rule 10b5-1, which provides a defense against insider trading liability for trades that are effected pursuant to a pre-arranged trading plan that meets specified conditions. The trading plan must be properly documented and all of the procedural conditions of the Rule must be satisfied to avoid liability.
Rule 10b5-1 plans allow transactions for the account of an insider to occur during blackout periods or while the insider has material nonpublic information provided the insider has previously given instructions or other control to effect pre-planned transactions in securities of the Company to a third party. The insider must establish the plan at a time when he or she is not in possession of material nonpublic information and the insider may not exercise any subsequent influence over how, when or whether to effect transactions. In addition to other specified conditions, a Rule 10b5-1 plan would specify in writing in advance the amount and price of the securities to be sold and the date for the sale (or a formula for determining the amount, price and date) or would otherwise not permit the insider to exercise any subsequent influence over how, when or whether to effect the sales. After adopting a valid Rule 10b5-1 plan, the insider will have an affirmative defense that a sale under the plan was not made “on the basis of” material nonpublic information.
The Company will treat the creation, modification or termination of a pre-planned trading program or arrangement established to meet the requirements of Rule 10b5-1 as a transaction subject to the blackout period rules set forth this Policy. Transactions effected pursuant to a properly established Rule 10b5-1 plan however will not be subject to the blackout periods under this Policy.
The Company will treat the creation, modification or termination of a pre-planned trading program or arrangement established to meet the requirements of Rule 10b5-1 as a transaction subject to the approval of the Company at the time the plan is established, modified or terminated. Persons subject to the approval requirements should coordinate any such plans or arrangements with the Company’s Legal Department. Even though each transaction effected under a Rule 10b5-1 plan does not need to be approved, it nonetheless must be made in accordance with Rule 144 and must be reported on a Form 4 under Section 16 of the Exchange Act.
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Do Not Pledge or Hold Company Securities in a Margin Account
As a general matter, securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to meet a margin call. Similarly, securities pledged as collateral for a loan may be sold in foreclosure if the borrower defaults on the loan. Because a margin sale or foreclosure sale could occur at a time when a Covered Individual has material, nonpublic information or is otherwise not permitted to trade in Company securities, Covered Individuals are prohibited from purchasing securities of the Company on margin, holding securities of the Company in a margin account or pledging Company securities as collateral for a loan.
Do Not Hedge or Engage in Certain Other Transactions
Hedging or monetization transactions can be accomplished through a number of possible mechanisms, including through the use of financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds. All hedging transactions, including the foregoing or any other transactions that are designed to or have the effect of hedging or offsetting any decrease in the market value of equity securities, are prohibited.
Do Not Trade in Publicly-Traded Options on the Company’s Securities
Given the relatively short term of publicly-traded options, transactions in options may cause Covered Individuals to focus on short-term performance at the expense of the Company’s long-term objectives. Accordingly, Covered Individuals are prohibited from trading in put options, call options or other derivative securities related to the Company’s securities, on an exchange or in any other organized market. This restriction does not apply to the grant or exercise of employee or director stock options issued by the Company.
Do Not Short-Sell the Company’s Securities
Short sales of Company securities (i.e., the sale of a security that the seller does not own) may evidence the seller’s expectation that the securities will decline in value, and therefore have the potential to signal to the market that the seller lacks confidence in the Company’s prospects. Short sales may also reduce a seller’s incentive to seek to improve the Company’s performance. Section 16(c) of the Exchange Act prohibits officers and directors from engaging in short sales. For these reasons, short sales of Company stock are prohibited by Covered Individuals.
Do Not Disclose Material Non-Public Information to Anyone Outside the Company for the Purpose of Trading
In addition to the trading restrictions set forth above, Covered Individuals may not disclose or “tip” material information concerning the Company to an outsider. An outsider can include friends, business associates, a spouse or other family member. Both the tipper and the tippee can be held liable under federal securities laws for violations of this kind even when the tipper did not profit from the transaction.
Penalties for Violating Securities Laws or this Policy
The SEC and the Department of Justice actively enforce insider trading laws, including by actively monitoring trading activity. Federal law imposes heavy penalties on individuals who either buy or sell securities while in possession of material non-public information or pass the material non-public information along to others who use it to buy or sell securities. The penalties for insider trading apply with equal force whether trading or passing information is done to generate gains or avoid losses. Tippers can be subject to the same penalties and sanctions as the tipees even when the tipper did not profit from the transaction. Potential penalties include:
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•civil penalties of up to three times the amount of profit gained or loss avoided as a result of the unlawful action;
•a criminal fine of up to $5 million (no matter how small the profit);
•a jail term of up to 20 years, and in some cases 25 years;
•private suits for damages equal to the profit gained or loss avoided; and
•disgorgement of ill-gotten gains.
In addition, the Company and any supervisor of a Company associate who trades with or tips material non-public information may face “controlling person” liability in the form of civil penalties of up to the greater of $1 million or three times the amount of profit gained or loss avoided as a result of the unlawful action and criminal penalties of up to $25 million for the Company and up to $5 million for the individual supervisor(s).
Violations of this Policy by a Covered Individual may subject such person to disciplinary action by the Company, up to and including termination for cause.
Do Not Answer Questions by Outsiders Regarding the Company’s Business
From time to time, Covered Individuals may be asked questions concerning various activities of the Company outside the scope of the employee’s regular duties. Such inquiries may come from the media, stock exchanges, analysts and others regarding the Company’s business, rumors, trading activity, current and future prospects and plans, acquisition or divestiture activities and other similar important information.
It is very important that all such communications on behalf of the Company be made through an appropriately designated officer. Failure to do so could result in violations of federal securities laws, including Regulation FD, which was enacted by the SEC to prohibit companies from disclosing material information to analysts and shareholders prior to public release of the information. Accordingly, all inquiries of this nature must be forwarded to Michael Abrahams, Chief Communications Officer, at (203) 489-1596.
Federal and state securities laws are technical in nature and can be difficult to navigate. Accordingly, a Covered Individual is advised to consult with his or her own legal counsel or contact the Trading Compliance Team by e-mail at stocktrading@xpo.com with any questions about the law or this Policy or its application to a particular situation.
Updated on November 17, 2023
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
XPO, Inc. maintains approximately 95 subsidiaries. Set forth below are the names of certain wholly owned or at least 90% owned subsidiaries of XPO, Inc., as of December 31, 2023, that provide freight transportation or support services. The names of certain consolidated wholly or at least 90% owned subsidiaries that carry on the same line of business have been omitted.
| Name | Country or State of Incorporation | ||||
| XPO, Inc. | Delaware | ||||
| XPO CNW, Inc. | Delaware | ||||
| XPO Logistics Freight, Inc. | Delaware | ||||
| XPO Enterprise Services, LLC | Delaware | ||||
| XPO LTL Properties, LLC | Delaware | ||||
| XPO Holdings UK I Limited | United Kingdom | ||||
| XPO Logistics UK III Limited | United Kingdom | ||||
| XPO Global Forwarding International | France | ||||
| XPO Logistics Europe | France | ||||
Exhibit 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
XPO, Inc.:
We consent to the incorporation by reference in the registration statements (No. 333-255016, 333-202748, and 333-112899) on Form S-3 and (No. 333-240288, 333-232964, 333-222985, 333-216334, 333-207708, 333-183648, and 333-266655) on Form S-8 of our report dated February 8, 2024, with respect to the consolidated financial statements of XPO, Inc. and the effectiveness of internal control over financial reporting.
/s/ KPMG LLP
Stamford, Connecticut
February 8, 2024
Exhibit 31.1
CERTIFICATION
I, Mario Harik, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2023 of XPO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Mario Harik | |||||
| Mario Harik | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: February 8, 2024 | |||||
Exhibit 31.2
CERTIFICATION
I, Kyle Wismans, certify that:
1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2023 of XPO, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Kyle Wismans | |||||
Kyle Wismans | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: February 8, 2024 | |||||
Exhibit 32.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Executive Officer of XPO, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Mario Harik | |||||
| Mario Harik | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: February 8, 2024 | |||||
Exhibit 32.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. Section 1350
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Solely for the purposes of complying with 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned Chief Financial Officer of XPO, Inc. (the “Company”), hereby certify, based on my knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Kyle Wismans | |||||
Kyle Wismans | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||
| Date: February 8, 2024 | |||||