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10-K
XPO LOGISTICS, INC. filed this Form 10-K on 02/28/2017
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
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
 
XPO Logistics, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
03-0450326
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Five American Lane
Greenwich, Connecticut 06831
(Address of principal executive offices)
(855) 976-6951
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:
 
 
 
Title of Each Class:
 
Name of Each Exchange on Which Registered:
Common Stock, par value $.001 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
__________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ý    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  ý
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No  ¨




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):    Yes  ¨    No  ý
The aggregate market value of the registrant’s common stock, par value $0.001 per share, held by non-affiliates of the registrant was $2,850,700,780 as of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing price of $26.26 per share on the NYSE on that date.
As of February 21, 2017, there were 111,456,669 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 2017 Annual Meeting of Stockholders (the “Proxy Statement”), are incorporated by reference into Part III of this Annual Report on Form 10-K. Except with respect to information specifically incorporated by reference in this Annual Report, the Proxy Statement is not deemed to be filed as part hereof.





XPO LOGISTICS, INC.
FORM 10-K—FOR THE YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS
 
 
PART I
Page No.
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
 
PART II
 
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
 
PART III
 
Item 10
Item 11
Item 12
Item 13
Item 14
 
PART IV
 
Item 15


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PART I
Cautionary Statement Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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” 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 results, levels of activity, performance or achievements to be materially different from any 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, but are not limited to, 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 as required by law.
ITEM 1.    BUSINESS
Company Overview
XPO Logistics, Inc., a Delaware corporation together with its subsidiaries (“XPO,” the “Company,” “we” or “our”), is a top ten global provider of cutting-edge supply chain solutions to the most successful companies in the world. The Company operates as a highly integrated network of people, technology and physical assets. We use our network to help customers manage their goods more efficiently throughout their supply chains. As of December 31, 2016, we served more than 50,000 customers and operated with over 87,000 employees and 1,425 locations in 34 countries.
We run our business on a global basis, with two segments: Transportation and Logistics. Within each segment, we have built robust service offerings that are positioned to capitalize on fast-growing areas of customer demand. Substantially all of our businesses operate under the single brand of XPO Logistics.
In our Transportation segment, we are the second largest freight brokerage provider globally, and we hold industry-leading positions in both North America and Europe. In North America, we are the largest provider of last mile logistics for heavy goods; the largest manager of expedite shipments; the second largest provider of less-than-truckload (LTL) transportation; the third largest provider of intermodal services; and a global freight forwarder with a growing network. In Europe, we have the largest owned road transportation fleet. We offer full truckload, freight brokerage and last mile services, and are the leading LTL provider in Western Europe. Our total lane density in Europe covers the regions that produce approximately 90% of the eurozone’s GDP.
Our Transportation segment uses a blended model of owned, contracted and brokered capacity. This gives us the flexibility to offer solutions that best serve the interests of our customers and the Company. As of December 31, 2016, globally, we had more than 10,000 independent owner operators under contract to provide drayage, expedite, last mile and LTL services to our customers, and more than 50,000 independent brokered carriers representing approximately 1,000,000 trucks on the road.
We employ professional drivers who transport goods for customers using our owned and leased trucks and trailers. This includes a global fleet of approximately 16,000 tractors and 39,500 trailers primarily related to our LTL and full truckload operations. These assets also provide capacity for our freight brokerage operations. Our company overall is asset-light, with assets accounting for just under a third of our revenue.
In our Logistics segment, we provide a range of contract logistics services, including highly engineered and customized solutions, value-added warehousing and distribution, cold chain solutions and other inventory management solutions. We perform e-commerce fulfillment, order personalization, warehousing, reverse logistics, storage, factory support, aftermarket support, manufacturing, distribution, packaging and labeling, as well as supply chain optimization services such as consulting and production flow management.

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XPO operates approximately 157.5 million square feet (14.6 million square meters) of contract logistics facility space globally, with about 81.6 million square feet (7.6 million square meters) of that capacity in the United States, making us the second largest contract logistics provider globally.
Our global logistics footprint makes XPO particularly attractive to multinational customers. Once we secure a contract, the average tenure is approximately five years, and these relationships can lead to a wider use of our services, such as inbound and outbound logistics. Our logistics customers include the preeminent names in aerospace, retail and e-tail, technology, manufacturing, food and beverage, wireless, chemical, agribusiness, life sciences and healthcare.
Our contract logistics operations also benefit from a strong presence in the high-growth e-commerce sector. E-commerce is predicted to continue to grow globally at a double-digit rate through at least 2020 and, increasingly, order fulfillment is being outsourced. We are the largest outsourced e-fulfillment provider in Europe, and we have a major platform for e-fulfillment in North America where we provide highly customized solutions that include reverse logistics and omni-channel services.
We believe that our ability to provide customers with integrated, end-to-end supply chain solutions gives us a competitive advantage. Many customers, particularly large companies, are increasingly turning to multi-modal providers to handle their supply chain requirements. We have built XPO to capitalize on this trend, as well as the trend toward outsourcing in both transportation and logistics, the boom in e-commerce, and the adoption of just-in-time inventory practices.
Our customers are served by well-trained XPO employees who understand the importance of world-class service, and who use our leading-edge, proprietary technology to perform their jobs. We have a global team of approximately 1,600 IT professionals who drive innovation for the benefit of our customers. Our annual investment in technology is among the highest in our industry because we see the ongoing development of our technology as being critical to our ability to continually improve customer service and leverage our scale.
Transportation Services
The Company’s Transportation segment includes five service lines: freight brokerage, last mile, LTL, full truckload and global forwarding.
Freight Brokerage
Our freight brokerage operations encompass truck brokerage globally, as well as intermodal, drayage and expedite services in North America.
Our truck brokerage operations are non-asset-based: we place shippers’ freight with qualified carriers, primarily trucking companies. Customers offer loads to us via telephone, fax, email, electronic data interchange and the internet on a daily basis. These services are priced on either a spot market or contract basis for shippers. We collect payments from our customers and pay the carriers on a spot market basis for transporting customer loads.
Our intermodal operations are asset-light: we provide container capacity - some of which utilizes our 9,900 leased or owned 53-ft. containers and 8,000 chassis - rail brokerage, drayage transportation via independent contractors, and on-site operational services. We contract with railroads to provide the long-haul portion of the shipment of freight in containers, and we contract with trucking companies for the local pickup and delivery legs of the intermodal freight movement. We also provide customized electronic tracking and analysis of market prices and negotiated rail, truck and intermodal rates, in order to determine the optimal transportation routes.
We offer our door-to-door intermodal services to a wide range of customers in North America, including large industrial and retail shippers, transportation intermediaries such as intermodal marketing companies, and steamship lines. As of December 31, 2016, XPO was the third largest provider of intermodal services in North America, with one of the largest U.S. drayage networks, and a leading provider of intermodal services in the cross-border Mexico sector.
Our expedite operations are predominantly non-asset-based: substantially all of the ground transportation equipment is provided by independent owner-operators who own one truck or van, or by independent fleet owners of multiple trucks or vans who employ multiple drivers. We are focused on developing strong, long-term relationships with our independent owner-operators and fleet owners, and incentivizing them to furnish their capacity to us on an exclusive basis. Expedite air charter service is arranged using the Company's relationships with third-party air carriers through our proprietary, web-based platform.
Our expedite services can be characterized as time-critical, time-sensitive or high priority freight shipments, many of which have special handling needs. This urgency typically arises due to tight tolerances in a customer’s supply chain, or an interruption or a failure elsewhere in the supply chain.
Expedite customers most often request our services on a per-load transactional basis through our offices or via our expedite transportation management portal, with only a small percentage of loads scheduled for future delivery dates. We operate an ISO

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9001:2008-certified call center that gives our customers on-demand status updates relating to their expedited shipments. As of December 31, 2016, XPO was the largest manager of expedited freight shipments in North America.
Last Mile
Our last mile services are predominantly asset-light: we utilize independent contractors to perform transportation and over-the-threshold services. Last mile comprises the final stage of the delivery from a local distribution center or retail store to the end-consumer’s home or business, where more services may be required. Last mile is a fast-growing industry sector that serves blue chip retailers, e-commerce companies and smaller retailers with limited in-house capabilities. Important aspects of last mile service are responsiveness to seasonal demand, economies of scale, and an ability to maintain a consistently high quality of customer experience.
In addition, the last mile process often requires incremental services such as pre-scheduled delivery times, unpacking, assembly, utility connection and installation, as well as removal of an old product. These additional services are commonly referred to as white-glove services. We use our proprietary technology platforms to collect customer feedback, monitor carrier performance, manage capacity, and communicate during narrow windows of service to ensure a consumer experience that protects the brands of our retail customers.
Our last mile operations in North America and Europe specialize in heavy goods, including appliances, furniture, large electronics and other goods that are larger-than-parcel. As of December 31, 2016, XPO was the largest provider of last mile services for heavy goods in North America.
Less-Than-Truckload (LTL)
In North America, our LTL operations are asset-based: we utilize employee drivers, our own fleet of tractors and trailers for line-haul, pick-up and delivery, and a network of terminals. We provide our customers with day-definite regional, inter-regional and transcontinental LTL freight services. As of December 31, 2016, XPO was the second largest provider of LTL services in North America, offering more next-day and two-day lanes than any other LTL network. Our coverage area in North America encompasses approximately 99% of all U.S. zip codes, with service in Canada.
In Europe, our LTL operations utilize a blended asset-based and asset-light model of Company fleet and contracted carrier capacity, with a network of terminals. We provide LTL services domestically in France, the United Kingdom and Spain. We also offer international LTL distribution across Europe.
Full Truckload
Our full truckload operations are asset-based: we provide customers in Europe with dedicated contract carrier services by utilizing our fleet of tractors and trailers. In addition, we provide transactional transportation of packaged goods, high cube products, and bulk goods. We provide full truckload services domestically in France, the United Kingdom, Spain, Poland, Romania, Italy, Portugal and Slovakia, and internationally across Europe. As of December 31, 2016, XPO was a leading provider of full truckload transportation in Europe.
Global Forwarding
Our global forwarding operations are asset-light: we provide logistics services for domestic, cross-border and international shipments through our relationships with ground, air and ocean carriers and a network of Company and agent-owned offices. Our forwarding capabilities are not restricted by size, weight, mode or location, and therefore are potentially attractive to a wide market base.
As part of our global forwarding network, we operate a subsidiary as a non-vessel operating common carrier (“NVOCC”) to transport our customers’ freight by contracting with vessel operators. We are also a customs broker, licensed by the U.S. Customs and Border Protection Service. This enables us to provide customs brokerage services to direct domestic importers, other freight forwarders, NVOCCs and vessel operating common carriers.
Logistics Services
The Company’s Logistics segment, which we also refer to as supply chain, encompasses a range of contract logistics services, including highly engineered and customized solutions, as well as managed transportation services. As of December 31, 2016, XPO was the second largest global provider of contract logistics based on square footage, with one of the largest e-fulfillment platforms in Europe.
We provide our logistics customers with integrated services such as dedicated and shared warehousing, e-fulfillment order processing and personalization, reverse logistics, storage, factory support, aftermarket support, manufacturing, packaging, labeling and distribution. In addition, we utilize our technology and expertise to solve complex supply chain challenges and create transformative solutions for our customers, while reducing their operating costs and improving production flow management.

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Our logistics customers primarily operate in industries with high-growth outsourcing opportunities, such as high tech, e-commerce, telecommunications, aerospace and defense, healthcare, medical equipment, agriculture, food and beverage, and select areas of manufacturing. These customers have demanding requirements for quality standards, real-time data visibility, special handling, security, the management of large numbers of stock keeping units (“SKUs”), time-assured deliveries and high transaction volumes, with seasonal surges in the case of retail goods.
The Company is a top five global provider of managed transportation based on the value of freight under management. Our managed transportation offering includes a range of services provided to shippers who want to outsource some or all of their transportation modes, together with associated activities. These activities can include freight handling such as consolidation and deconsolidation, labor planning, inbound and outbound shipment facilitation, documentation and customs management, claims processing, and third party logistics, or 3PL, supplier management, as well as other services.
Our Strategy
Our strategy is to use our highly integrated network of people, technology and physical assets to help customers manage their goods more efficiently throughout their supply chains. We deliver value to customers in the form of cost and risk reductions, process efficiencies, consistently reliable outcomes, technological innovations and customer service that is both highly responsive and proactive.
We continue to optimize our existing operations by growing our sales force, implementing advanced information technology, cross-selling our services and leveraging our Company-wide capacity. In addition, we maintain a disciplined and comprehensive set of processes related to the recruiting, training and mentoring of employees, and for marketing to the hundreds of thousands of prospective customers that can use our services. Most important to our growth, we have instilled a culture of collaboration that focuses our efforts on delivering the results that matter to our customers and Company.
We will continue to grow the business in a disciplined manner, and with a compelling value proposition - integrated, innovative solutions for any company, of any size, with any combination of supply chain needs.
Management’s growth and optimization strategy for the Transportation segment is to:
Market our diversified, multi-modal offering to customers of all sizes, both new and existing accounts;
Cross-sell our Transportation segment solutions to customers of our Logistics segment;
Provide world-class service and solutions that satisfy our customers’ transportation-related supply chain goals;
Recruit and retain quality drivers, and best utilize our transportation assets;
Attract and retain quality independent owner-operators and independent brokered carriers for our carrier network;
Recruit and retain quality sales and customer service representatives, and continuously improve employee productivity with state-of-the-art training and technology;
Continue to develop cutting-edge transportation applications for our proprietary technology platform; and
Integrate industry best practices with a focus on utilizing our advantages of scale to serve our customers and lower our administrative overhead.
Management’s growth and optimization strategy for the Logistics segment is to:
Develop additional business in verticals where the Company already has deep logistics expertise and a strong track record of successful relationships;
Capture more share of spend with existing customers that potentially could use XPO for more of their logistics and/or broader supply chain needs;
Expand our relationships with existing customers that have business interests in both North America, Europe and Asia;
Cross-sell contract logistics and managed transportation solutions to customers of our Transportation segment;
Market the advantages of XPO’s proprietary technology and global network of logistics facilities;
Provide world-class service and solutions that satisfy our customers’ logistics-related supply chain goals; and
Integrate industry best practices with a focus on utilizing our advantages of scale to serve our customers and lower our administrative overhead.
Information Systems and Intellectual Property
One of the ways in which we empower our employees to deliver world-class service is through our information technology (“IT”). We believe that technology is a compelling differentiator in our industry. Technology represents one of the Company’s largest categories of investment within our annual capital expenditure budget, reflecting our belief that the continual enhancement of our cloud-based platform is critical to our success. We have an IT team of approximately 1,600 talented professionals who focus on driving innovation and advancing the effectiveness of our software.
In our Transportation segment, our proprietary Freight Optimizer software for truck brokerage provides actionable pricing information, as well as cost effective, timely and reliable access to carrier capacity. We believe that these capabilities give us a

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competitive advantage. In 2015, we launched our proprietary Rail Optimizer software that optimizes all aspects of intermodal operations, including shipment management, capacity flow and asset management, market-based pricing, and shipment execution with rail providers.
In last mile logistics, our proprietary software provides real-time workflow visibility and customer experience management with superior consumer satisfaction ratings. For expedite, we utilize satellite tracking and communication units on the independently contracted vehicles that transport goods for our customers, thus enabling real-time electronic updates. A large component of our expedite operations is our proprietary bidding platform, which awards loads electronically based on carriers’ online bids and manages the transportation process almost entirely through technology.
In 2016, in our LTL operations, we introduced proprietary pricing systems and deployed new handheld and tablet devices to improve the efficiency of dock workers and drivers. New software releases planned in 2017 include line-haul efficiency measures, dock engineering standards, and pickup and delivery optimization, among other developments.
In our Logistics segment, we have developed proprietary technology for the design and implementation of sophisticated contract logistics solutions for our customers. These solutions are most often utilized by large, multi-national and medium-sized corporations and by government agencies with complex supply chain requirements. The warehouses we run are becoming high-tech hubs, with a combination of automated systems and robotics that have led to important new efficiencies for our customers. Our software supports services such as omni-channel distribution, reverse logistics, transportation management, freight bill audit and payment, lean manufacturing support, aftermarket support and supply chain optimization.
XPO relies on a combination of trademarks, copyrights, trade secrets, nondisclosure agreements and non-competition agreements to establish and protect its intellectual property and proprietary technology. We have numerous registered trademarks, trade names and logos in the United States and international jurisdictions.
Customers, Sales and Marketing
Our Company provides services to a variety of customers ranging in size from small, entrepreneurial organizations to multi-national industry leaders. We have a diversified customer base that minimizes our concentration risk: in 2016, approximately 8% of our revenue was attributable to our top five clients, with our largest customer accounting for approximately 3% of revenue.
Our customers are engaged in a wide range of industries, including high tech, retail, e-commerce, manufacturing, telecommunications, aerospace and defense, life sciences, healthcare, medical equipment, agriculture, and food and beverage. In 2016, retail and e-commerce accounted for the largest portion of our global revenue at 26%, followed by food and beverage at 14%.
XPO is not reliant on the economy of any one country, region or industry. Our transportation services are primarily marketed in North America and Europe, whereas our logistics and global forwarding networks serve global markets with concentrations in North America, Europe and Asia. Based on where orders originated, approximately 60% of our 2016 revenue was generated in the United States, 13% in France, 12% in the United Kingdom, and 15% in other countries.
Competition
The transportation and logistics industry is highly competitive, with thousands of companies competing in domestic and international markets. XPO competes on service, reliability, scope and scale of operations, technological capabilities and price. Our competitors include local, regional, national and international companies that offer the same services we provide - some with larger customer bases, significantly more resources and more experience than we have. In some cases, our customers also have internal resources to provide some of the same transportation and logistics services we provide to them. Due in part to the fragmented nature of the industry, we must strive daily to retain existing business relationships and forge new relationships.
The health of the transportation and logistics industry will continue to be a function of domestic and global economic growth. However, we believe that we have structured the Company to derive additional benefits from the growth of e-commerce, and from a long-term outsourcing trend that should continue to help a number of our service sectors grow faster than the macro-environment.
Regulation
Our operations are regulated and licensed by various governmental agencies in the United States and in the other countries where we operate. Such regulations impact us directly and indirectly by regulating third-party transportation providers we use to transport freight for our customers.
Regulation affecting Motor Carriers, Owner Operators and Transportation Brokers. In the United States, our subsidiaries that operate as motor carriers have licenses to operate as motor carriers from the Federal Motor Carrier Safety Administration (“FMCSA”) of the U.S. Department of Transportation (“DOT”). In addition, our subsidiaries acting as property brokers have property broker licenses from the FMCSA. Our motor carrier subsidiaries and the third-party motor carriers we engage in the

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United States must comply with the safety and fitness regulations of the DOT, including those relating to drug- and alcohol-testing, hours-of-service, records retention, vehicle inspection, driver qualification and minimum insurance requirements. Weight and equipment dimensions also are subject to government regulations. We also may become subject to new or more restrictive regulations relating to emissions, drivers’ hours-of-service, independent contractor eligibility requirements, onboard reporting of operations, air cargo security and other matters affecting safety or operating methods. Other agencies, such as the U.S. Environmental Protection Agency (“EPA”), the Food and Drug Administration (“FDA”), the California Air Resources Board, and the U.S. Department of Homeland Security (“DHS”), also regulate our equipment, operations and independent contractor drivers. We and the third-party carriers we use are also subject to a variety of vehicle registration and licensing requirements of the state or other local jurisdictions in which they operate. In other foreign jurisdictions in which we operate, our operations are regulated, where necessary, by the appropriate governmental authority.
In 2010, the FMCSA introduced the Compliance Safety Accountability program (“CSA”), which uses a Safety Management System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories, or “BASICs,” which data, it is anticipated, will eventually be used for determining a carrier’s DOT safety rating under revisions to existing Safety Fitness Determination (“SFD”) regulations. In December 2015, the Fixing America’s Surface Transportation Act (“FAST Act”) was signed into law, which requires the FMCSA to review the CSA program to ensure that it provides the most reliable analysis possible. During this review period, the FAST Act requires the FMCSA to remove a property carrier’s CSA scores from public view. The FMCSA has since announced an SFD Notice of Proposed Rulemaking (“NPRM”) that would revamp the current three-tier federal rating system for federally regulated commercial motor carriers.
Although the CSA scores are not currently publicly available, this development is likely to be temporary. As a result, once the program has been revamped, our fleet could be ranked worse or better than our competitors, and the safety ratings of our motor carrier operations could be impacted. Our network of third-party transportation providers may experience a similar result. A reduction in safety and fitness ratings may result in difficulty attracting and retaining qualified independent contractors and could cause our customers to direct their business away from XPO and to carriers with more favorable CSA scores, which would adversely affect our results of operations.
In the past, the subsidiaries through which we operate our expedited and intermodal drayage operations have exceeded the established intervention threshold in certain of the BASICs, and we may exceed those thresholds in the future. Depending on our ratings, we may be prioritized for an intervention action or roadside inspection, either of which could adversely affect our results of operations, or customers may be less likely to assign loads to us. We cannot predict the extent to which CSA requirements or safety and fitness ratings under SMS or SFD could adversely affect our business, operations or ability to retain compliant drivers, or those of our subsidiaries, independent contractors or third-party transportation providers.
The FMCSA has proposed new rules that would require nearly all carriers, including XPO, to install and use electronic logging devices (“ELDs”). The proposed regulations would require ELDs to be installed and in use two years after publication of the final regulations. ELD installation will increase costs for, and may not be well-received by, independent contractors.
Our operations providing certain services in California are also subject to various regulatory initiatives such as the Ports of Los Angeles and Long Beach clean truck program effective in 2009, California Air Resources Board (“CARB”) truck regulation effective in 2010, and the Port of Oakland truck ban effective in 2010, each of which banned trucks that did not meet certain emission standards. To comply with these requirements, our motor carrier subsidiaries providing certain services in California have implemented programs to source truck capacity from independent owner-operators that meet these emissions requirements. Furthermore, the State of California has required diesel tractors, as well as 53-foot-long and certain other trailers operated in the state, to comply with designated fuel efficiency and other performance requirements by target dates occurring between 2011 and 2023. Compliance with California state and port regulations has increased rates payable to owner-operators operating in California, as well as new tractor costs; might increase the cost of new trailers operated in California; might require the retrofitting of pre-2011 model year trailers operated in California; and could diminish equipment productivity and increase operating expenses.
Regulations affecting our Subsidiaries Providing Ocean and Air Transportation. XPO Customs Clearance Solutions, Inc. (“XCCS”) and XPO GF America, Inc. (“XGFA”), two of the Company’s subsidiaries, are licensed as customs brokers by U.S. Customs and Border Protection (“CBP”) of DHS in each United States customs district in which they do business. All United States customs brokers are required to maintain prescribed records and are subject to periodic audits by CBP. In other jurisdictions in which we perform customs brokerage services, our operations are licensed, where necessary, by the appropriate governmental authority.
Our subsidiaries offering expedited air charter transportation are subject to regulation by the Transportation Security Administration (“TSA”) of DHS regarding air cargo security for all loads, regardless of origin and destination. XPO Global Forwarding, Inc. (“XGF”), XGFA and XPO Air Charter also are regulated as “indirect air carriers” by the DHS and TSA. These agencies provide requirements, guidance and, in some cases, administer licensing requirements and processes applicable to the freight forwarding industry. We must actively monitor our compliance with such agency requirements to ensure that we have

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satisfactorily completed the security requirements and qualifications and implemented the required policies and procedures. These agencies generally require companies to fulfill these qualifications prior to transacting various types of business. Failure to do so could result in penalties and fines. The air cargo industry is also subject to regulatory and legislative actions that could affect economic conditions within the industry by requiring changes to operating practices or by influencing the demand for and the costs of providing services to customers. We cannot predict the extent to which any such regulatory or legislative actions could adversely affect our business, but we strive to comply with all agency requirements.
For our international operations, XGF, XGFA and XCCS are members of the International Air Transportation Association (“IATA”), a voluntary association of airlines and freight forwarders that outlines operating procedures for forwarders acting as agents or third-party intermediaries for IATA members. A substantial portion of XPO’s international air freight business is transacted with other IATA members.
Additionally, XGF, XGFA and XPO Ocean Lines, Inc. (“XOL”), are each registered as an Ocean Transportation Intermediary (“OTI”) by the U.S. Federal Maritime Commission (“FMC”), which establishes the qualifications, regulations and bonding requirements to operate as an OTI for businesses originating and terminating in the United States. XGL and XOL are also licensed NVOCCs and ocean freight forwarders.
Our international freight forwarding operations make us subject to regulations of the U.S. Department of State, U.S. Department of Commerce and the U.S. Department of Treasury and to various laws and regulations of the other countries where we operate. These regulations cover matters such as what commodities may be shipped to what destinations and to what end-users, unfair international trade practices, and limitations on entities with which we may conduct business.
Other Regulations. The Company is 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 similar anti-bribery and anti-corruption statutes.
Classification of Independent Contractors. Tax and other federal and state regulatory authorities, as well as private litigants, continue to assert that independent contractor drivers in the trucking industry are employees rather than independent contractors. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements for employers of independent contractors and to heighten the penalties for employers who misclassify their employees and are found to have violated employees’ overtime and/or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor allowing taxpayers that meet certain criteria to treat individuals as independent contractors if they are following a longstanding, recognized practice. Federal legislators also sought to expand the Fair Labor Standards Act to cover “non-employees” who perform labor or services for businesses, even if the “non-employees” are properly classified as independent contractors; require taxpayers to provide written notice to workers based upon their classification as either an “employee” or a “non-employee”; and impose penalties and fines for violations of the notice requirements or “employee” or “non-employee” misclassifications. Some states have put initiatives in place to increase their revenues from items such as unemployment, workers’ compensation and income taxes, and a reclassification of independent contractors as employees would help states with this initiative. Taxing and other regulatory authorities and courts apply a variety of standards in their determination of independent contractor status. If XPO’s independent contractor drivers are determined to be employees, we would incur additional exposure under some or all of the following: federal and state tax, workers’ compensation, unemployment benefits, and labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
Environmental Regulations. Our facilities and operations and our independent contractors are subject to various environmental laws and regulations dealing with the hauling, handling and disposal of hazardous materials, emissions from vehicles, engine-idling, fuel tanks and related fuel spillage and seepage, discharge and retention of storm water, and other environmental matters that involve inherent environmental risks. Similar laws and regulations may apply in many of the foreign jurisdictions in which we operate. We have instituted programs to monitor and control environmental risks and maintain compliance with applicable environmental laws and regulations. We may be responsible for the cleanup of any spill or other incident involving hazardous materials caused by our operations or business. In the past, we have been responsible for the costs of cleanup of 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 a small percentage of our total shipments contain hazardous materials. We believe that our operations are in substantial compliance with current laws and regulations and we do not know of any existing environmental condition that reasonably would be expected to have a material adverse effect on our business or operating results. We also do not expect to incur material capital expenditures for environmental controls in 2017. Future changes in environmental regulations or liabilities from newly discovered environmental conditions or violations (and any associated fines and penalties) could have a material adverse effect on our business, competitive position, results of operations, financial condition or cash flows. U.S. federal and state governments, as well as governments in certain foreign jurisdictions where we operate, have also proposed environmental legislation that could, among other things, potentially limit carbon, exhaust and greenhouse gas emissions. If enacted, such legislation could result in higher new tractor and trailer costs, reduced productivity and efficiency, and increased operating expenses, all of which could adversely affect our results of operations.

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Risk Management and Insurance
The Company maintains insurance for commercial automobile liability, truckers’ commercial automobile liability, commercial general liability, cargo/warehouse legal liability, workers’ compensation and employers’ liability, and umbrella and excess umbrella liability, with coverage limits, deductibles and self-insured retention levels that we believe are reasonable given the varying historical frequency, severity and timing of claims. Certain actuarial assumptions and management judgments are made for accruals for insurance reserves and are subject to a high degree of variability.
Seasonality
XPO’s revenue and profitability are typically lower for the first quarter of the calendar year relative to the other quarters. The Company believes this is due in part to the post-holiday reduction in demand experienced by many XPO customers, which leads to more capacity in the non-expedited and service-critical markets and, in turn, less demand for expedited and premium shipping services. In addition, the productivity of the Company’s fleet of tractors and trailers, independent contractors and transportation providers generally decreases during the winter season because inclement weather impedes operations. It is not possible to predict whether the Company’s historical revenue and profitability trends will occur in future periods.
Employees
As of December 31, 2016, the Company had approximately 87,000 full-time and part-time employees. Our employee base is one of our most critical resources, and we view the recruitment, training and retention of qualified employees as being essential to our ongoing success. We believe that we have good relations with our employees, with strong programs in place for communication and professional development.
Executive Officers of the Registrant
We provide below information regarding each of our executive officers.
Name
 
Age
 
Position
Bradley S. Jacobs
 
60
 
Chairman of the Board and Chief Executive Officer
Troy A. Cooper
 
47
 
Chief Operating Officer and Chief Executive Officer - Europe
John J. Hardig
 
52
 
Chief Financial Officer
Scott B. Malat
 
40
 
Chief Strategy Officer
Mario A. Harik
 
36
 
Chief Information Officer
Bradley Jacobs has served as XPO’s chief executive officer and chairman of the board of directors since September 2011. Mr. Jacobs is also the managing director of Jacobs Private Equity, LLC, which is the Company’s second largest stockholder. He has led two public companies: United Rentals, Inc. (NYSE: URI), which he co-founded in 1997, and United Waste Systems, Inc., which he founded in 1989. Mr. Jacobs served as chairman and chief executive officer of United Rentals for its first six years, and as executive chairman for an additional four years. With United Waste Systems, he served eight years as chairman and chief executive officer. Previously, Mr. Jacobs founded Hamilton Resources (UK) Ltd. and served as its chairman and chief operating officer. This followed the co-founding of his first venture, Amerex Oil Associates, Inc., where he was chief executive officer.
Troy Cooper has served as XPO’s chief operating officer since May 2014, and additionally as chief executive officer and chairman of XPO Logistics Europe since September 2015. He joined the Company in September 2011 as vice president of finance. Prior to XPO, he served as vice president-group controller with United Rentals, Inc., where he was responsible for field finance functions and helped to integrate over 200 acquisitions in the United States, Canada and Mexico. Earlier, he held controller positions with United Waste Systems, Inc. and OSI Specialties, Inc. (formerly a division of Union Carbide, Inc.). Mr. Cooper began his career in public accounting with Arthur Andersen and Co. and has a degree in accounting from Marietta College.
John Hardig has served as XPO’s chief financial officer since February 2012. Prior to XPO, Mr. Hardig served as managing director for the Transportation & Logistics investment banking group of Stifel Nicolaus Weisel from 2003 to 2012. Previously, Mr. Hardig was an investment banker in the Transportation and Telecom groups at Alex. Brown & Sons (now Deutsche Bank), and earlier worked as a design engineer with Ford Motor Company. Mr. Hardig holds a master of business administration degree from the University of Michigan Business School and a bachelor’s degree from the U.S. Naval Academy.
Scott Malat has served as XPO’s chief strategy officer since July 2012, after joining the Company in October 2011 as senior vice president of strategic planning. Prior to XPO, Mr. Malat was a senior equity research analyst covering the air, rail, trucking and shipping sectors for Goldman Sachs Group, Inc. Earlier, he served as an equity research analyst with UBS and a strategy manager with JPMorgan Chase & Co. Mr. Malat is a CFA® charterholder and has a degree in statistics with a concentration in business management from Cornell University.

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Mario Harik has served as XPO’s chief information officer since November 2011 with responsibility for the Company’s global technology ecosystem. Mr. Harik has built comprehensive IT organizations, overseen the implementation of extensive proprietary platforms, and consulted 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 architect and consultant with Adea Solutions. Mr. Harik holds a master of engineering degree in information technology from Massachusetts Institute of Technology, and a degree in engineering, computer and communications from the American University of Beirut, Lebanon.
Corporate Information and Availability of Reports
XPO Logistics, Inc. was incorporated in Delaware on May 8, 2000. Our executive office is located in the United States at Five American Lane, Greenwich, Connecticut 06831. Our telephone number is (855) 976-6951. Our stock is listed on the New York Stock Exchange (“NYSE”) under the symbol XPO.
Our corporate website is www.xpo.com. We make available on this website, free of charge, access to our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically submit such material to the SEC. We also make available on our website copies of materials regarding our corporate governance policies and practices, including the XPO Logistics, Inc. Corporate Governance Guidelines, Code of Business Ethics and the charters relating to the committees of our board of directors. You also may obtain a printed copy of the foregoing materials by sending a written request to: Investor Relations, XPO Logistics, Inc., Five American Lane, Greenwich, Connecticut 06831. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. In addition, the SEC’s website is www.sec.gov. The SEC makes available on this website, free of charge, reports, proxy and information statements and other information regarding issuers, such as us, that file electronically with the SEC. Information on our website or the SEC’s website is not part of this document. We are currently classified as a “large accelerated filer” for purposes of filings with the SEC.
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 on Form 10-K or our other filings with the SEC or in oral presentations such as telephone conferences and webcasts open to the public. You should carefully consider the following factors and consider these 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.
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 recession, downturns in the business cycles of our customers, increases in the prices charged by third-party carriers, interest rate fluctuations and other U.S. and global economic factors beyond our control. During economic downturns, reduced overall demand for transportation services will likely reduce demand for our services and exert downward pressures on our rates and margins. In periods of strong economic growth, demand for limited transportation resources can result in increased network congestion and operating inefficiencies. In addition, any deterioration in the economic environment subjects 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 volumes reduces our opportunities for growth. In addition, if a downturn in our customers’ business cycles causes a reduction in the volume of freight shipped by those customers, our operating results could be adversely affected.
Some of our customers may face economic difficulties and may not be able to pay us, and some may go out of business. 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 or other transportation services to meet our commitments to our customers.
We may not be able to appropriately adjust our expenses to changing market demands. In order to maintain high variability in our business model, it is necessary to adjust staffing levels to changing market demands. In periods of rapid change, it is more difficult to match our staffing levels to our business needs. In addition, we have other primarily variable expenses that are fixed for a period of time and certain significant fixed expenses, and we may not be able to adequately adjust them in a period of rapid change in market demand.

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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:
Competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do.
A reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth. Such reductions may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business.
Shippers soliciting bids from multiple transportation providers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors.
The establishment by our competitors of cooperative relationships to increase their ability to address shipper needs.
Our current or prospective customers may decide to develop or expand internal capabilities for some of the services that we provide.
The development of new technologies or business models, which could result in our disintermediation in certain businesses, such as freight brokerage.
Our profitability may be materially adversely impacted if our investments in equipment, service centers and warehouses do not match customer demand for these resources or if there is a decline in the availability of funding sources for these investments.
Our 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 service center and/or fleet requirements differ materially from actual usage, our capital-intensive business units, specifically LTL and full truckload, may have too much or too little capacity. We attempt to mitigate the risk associated with too much or too little capacity by adjusting our capital expenditures and by utilizing short-term equipment rentals and sub-contracted operators in order to match capacity with business volumes. 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 us.
Our contract logistics operations can require a significant commitment of capital in the form of shelving, racking and other warehousing systems that may be required to implement warehouse-management services for our customers. In the event that we are not able to fully amortize the associated cost of capital across the term of the related customer agreement, or to the extent that the customer defaults on its obligations under the agreement, we could be forced to take a significant loss on the unrecovered portion of this capital cost.
Anticipated synergies from any acquisitions that we have undertaken may not materialize in the expected timeframe or at all.
Our 2017 and mid-term financial targets are dependent on our ability to realize significant ongoing synergies with respect to our acquisitions, in particular the Norbert Dentressangle SA (“ND”) and Con-way Inc. (“Con-way”) acquisitions we completed in 2015. We may not realize all synergies we anticipate from the acquisitions we undertook. Among the synergies that we currently expect are cross-selling opportunities to our existing customers, network synergies and other operational synergies. Our estimated synergies from the acquisitions that we have undertaken are subject to a number of assumptions about the timing, execution and costs associated with realizing such synergies. Such assumptions are inherently uncertain and are subject to a wide variety of significant business, economic and competition risks and uncertainties. There can be no assurance that such assumptions turn out to be correct and, as a result, the amount of synergies that we will actually realize and/or the timing of any such realization may differ significantly (and may be significantly lower) from the ones that we currently estimate and we may incur significant costs in reaching the estimated synergies.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions, in particular in 2015, and entering into new markets, and we intend to continue to focus on rapid growth, primarily organically in 2017. 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 and entering into new geographic areas.
Our growth will place a significant strain on our management, operational and financial resources. We will need to continually improve existing procedures and controls as well as implement new transaction processing, operational and financial systems,

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and procedures and controls to expand, train and manage our employee base. Our working capital needs will 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, stock price and financial condition.
Our business will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems.
We rely heavily on our information technology systems to efficiently run our business, and they are a key component of our growth strategy. In general, we expect our customers to continue to demand more sophisticated, fully integrated information systems from their transportation providers. To keep pace with changing technologies and customer demands, we must correctly interpret and address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends. This process of continuous enhancement may lead to significant ongoing software development costs. In addition, we may fail to accurately determine the needs of our customers or the trends in the transportation services industry or we may fail to design and implement the appropriate responsive features and functionality for our technology platform in a timely and cost-effective manner. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.
Despite testing, external and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error pose a direct threat to the stability or effectiveness of our information technology systems and operations. We may also be subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation and increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to resulting claims or liability could similarly involve substantial cost. In addition, recently, there has also been heightened regulatory and enforcement focus on data protection in the U.S. and abroad (particularly in the European Union), and 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 reputation and adversely impact our business, results of operations and financial condition.
We must maintain and enhance the reliability and speed of our information technology systems to remain competitive and effectively handle higher volumes of freight through our network and the various service modes we offer. If our information technology systems are unable to manage additional volume for our operations as our business grows, or if such systems are not suited to manage the various service modes 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 upgrade our systems to meet our customers’ demands, our business and 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 for all of our business segments. 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.
Our substantial indebtedness could adversely affect our financial condition.
We have substantial outstanding indebtedness, which could:
negatively affect our ability to pay principal and interest on our debt or dividends on our Series A Preferred Stock;
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 from operations 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 the covenants under any of 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.

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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 or ability to execute our strategy. Further debt financing may involve restrictive covenants and could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
We depend on third-parties in the operation of our business.
In our global forwarding, last mile and freight brokerage operations, we do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering this freight. In addition, in our freight brokerage businesses (particularly our last mile delivery logistics operations, our over-the-road expedite operations and our intermodal drayage operations), we engage independent contractors who own and operate their own equipment. Accordingly, we are dependent on third-parties to provide truck, rail, ocean, air and other transportation services and to report certain events to us, including delivery information and cargo claims. This reliance on third-parties could cause delays in reporting certain events, including our ability to recognize revenue and claims in a timely manner.
Our inability to maintain positive relationships with independent transportation providers could significantly limit our ability to serve our customers on competitive terms. If we are unable to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms, our operating results could be materially and adversely affected and our customers could shift their business to our competitors temporarily or permanently. Our ability to secure sufficient equipment or other transportation services to meet our commitments to our customers or provide our services on competitive terms is subject to inherent risks, many of which are beyond our control, including the following:
Equipment shortages in the transportation industry, particularly among contracted truckload carriers and railroads;
Interruptions in service or stoppages in transportation as a result of labor disputes, seaport strikes, network congestion, weather-related issues, “Acts of God,” or acts of terrorism;
Changes in regulations impacting transportation;
Increases in operating expenses for carriers, such as fuel costs, insurance premiums and licensing expenses, that result in a reduction in available carriers; and
Changes in transportation rates.
Increases in driver compensation and difficulties attracting and retaining drivers could adversely affect our revenues and profitability.
Our LTL and full truckload operations are conducted primarily with employee drivers. Recently, there has been 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 industry-wide shortage of qualified drivers continues, these business lines will likely continue to experience difficulty in attracting and retaining enough qualified drivers to fully satisfy customer demands. As a result of the current highly-competitive labor market for drivers, our LTL and full truckload operations may be required to increase driver compensation and benefits in the future, or face difficulty meeting customer demands, 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.
Increases in independent contractor driver compensation or other difficulties attracting and retaining qualified independent contractor drivers could adversely affect our profitability and ability to maintain or grow our independent contractor driver fleet.
Our freight brokerage business operate through fleets of vehicles that are owned and operated by independent contractors. Our last mile business also operates through a fleet of independent contract carriers that supply their own vehicles, drivers and helpers. These independent contractors are responsible for maintaining and operating their own equipment and paying their own fuel, insurance, licenses and other operating costs. Turnover and bankruptcy among independent contractor drivers often limit the pool of qualified independent contractor drivers and increase competition for their services. In addition, regulations such as the FMCSA Compliance Safety Accountability program may further reduce the pool of qualified independent contractor

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drivers. Thus, our continued reliance on independent contractor drivers could limit our ability to grow our ground transportation fleet.
We are currently experiencing, and expect to continue to experience from time to time in the future, difficulty in attracting and retaining sufficient numbers of qualified independent contractor drivers. Additionally, our agreements with independent contractor drivers are terminable by either party upon short notice and without penalty. Consequently, we regularly need to recruit new qualified independent contractor drivers to replace those who have left our fleet. If we are unable to retain our existing independent contractor drivers or recruit new independent contractor drivers, our business and results of operations could be adversely affected.
The compensation we offer our independent contractor drivers is subject to market conditions and we may find it necessary to continue to increase independent contractor drivers’ compensation in future periods. If we are unable to continue to attract and retain a sufficient number of independent contractor drivers, we could be required to increase our mileage rates and accessorial pay or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our profitability and ability to maintain our size or to pursue our growth strategy.
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 renegotiations affecting seaports, labor disputes between railroads and their union employees, or by a work stoppage at one or more railroads or local trucking companies servicing rail or port terminals, including work disruptions involving owner operators under contract with our local trucking operations. 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 are unable to negotiate new labor contracts and our clients’ plants experience slowdowns or closures as a result, our revenue and profitability could be negatively impacted. In particular, our Logistics segment derives a substantial portion of its revenue from the operation and management of operating facilities, which are often located in close proximity to a client’s manufacturing plant and are integrated into the client’s production line process. We may experience significant revenue loss and shut-down costs, including costs related to early termination of leases, causing our business to suffer if clients suffer strikes or other labor disputes, close their plants or significantly modify their capacity or supply chains at a plant that our Logistics segment services.
XPO Logistics Europe’s business activities require a significant amount of labor, which represents one of its most significant costs, and 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 that could have a direct impact on customer services. Generally, any deterioration in industrial relations in our European operations 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 result in increased costs and decreased efficiencies at those locations.
Since 2014, in the United States, the International Brotherhood of Teamsters (“Teamsters”) has attempted to organize employees at several LTL locations and one supply chain location that have become part of the Company’s operations through acquisitions. Additionally, the International Association of Machinists (“Machinists”) has attempted to organize a small number of mechanics at two LTL maintenance shops. The majority of employees involved in those organizing efforts rejected union representation. As of January 31, 2017, approximately 124 employees at two LTL locations and approximately 125 employees at one supply chain location have voted for Teamsters representation, and the results of those three elections have been certified by the National Labor Relations Board. At one LTL location, the parties have been in negotiations for an initial contract since February 2015. At the remaining locations, the parties will soon start negotiations. In addition, as of January 31, 2017, an aggregate of approximately 225 employees at three additional LTL locations voted for Teamsters representation, and approximately 11 employees at one LTL location voted for Machinists representation. We are contesting the results of these four elections. We cannot predict with certainty whether further organizing efforts may result in the unionization of any additional locations domestically. If successful, these efforts may result in increased costs and decreased efficiencies at the specific locations where representation is elected. We do not expect the impact, if any, to extend to our larger organization or the service of our customer base.
Certain of our businesses rely on owner-operators and contract carriers to conduct their operations, and the status of these parties as independent contractors, rather than employees, is being challenged.
We are involved in numerous lawsuits, including putative class action lawsuits, multi-plaintiff and individual lawsuits, and state tax and other administrative proceedings that claim that our contract carriers or owner-operators or their drivers should be treated as our employees, rather than independent contractors, or that certain of our drivers were not paid for all compensable

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time or were not provided with required meal or rest breaks. These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both. In addition, we incur certain costs, including legal fees, in defending the status of these parties as independent contractors.
While we believe that our contract carriers and owner-operators and their drivers are properly classified as independent contractors rather than as employees, adverse decisions have been rendered recently in certain cases pending against us, including with respect to class certification of certain contract carriers and determinations that certain of our contract carriers and owner-operators are improperly classified. Certain of these decisions are subject to appeal, but we cannot provide assurance that we will determine to pursue any appeal or that any such appeal will be successful. Adverse final outcomes in these matters could, among other things, entitle certain of our contract carriers and owner-operators and their drivers to reimbursement with respect to certain expenses and to the benefit of wage-and-hour laws and result in employment and withholding tax and benefit liability for us, and could result in changes to the independent contractor status of our contract carriers and owner-operators. Changes to state laws governing the definition of independent contractors could also impact the status of our contract carriers and owner-operators. Adverse final outcomes in these matters or changes to state laws could cause us to change our business model, which could have a material adverse effect on our business strategies, financial condition, results of operations or cash flows. These claims involve potentially significant classes that could involve thousands of claimants and, accordingly, significant potential damages and litigation costs, and could lead others to bring similar claims.
The results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters, or our failure to recover, in full or in part, under the indemnity provisions noted above, could have a material adverse effect on our financial condition, results of operations or cash flows.
Our overseas operations subject us to various operational and financial risks which could adversely affect our business.
The services we provide outside of the United States subject us to risks resulting from changes in tariffs, trade restrictions, trade agreements, tax policies, difficulties in managing or overseeing foreign operations and agents, different liability standards, issues related to compliance with anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act, data protection, trade compliance, and intellectual property laws of countries which do not protect our rights in our intellectual property, including our proprietary information systems, to the same extent as the laws of the United States. The occurrence or consequences of any of these factors may restrict our ability to operate in the affected region and/or decrease the profitability of our operations in that region. As we expand our business in foreign countries, we will also be exposed to increased risk of loss from foreign currency fluctuations and exchange controls.
Our European business heavily relies on subcontracting and we use a large number of temporary employees in these operations. Any failure to properly manage our subcontractors or temporary employees in Europe could have a material adverse impact on XPO Logistics Europe’s revenues, earnings, financial position and outlook.
We operate in Europe through our majority-owned subsidiary, XPO Logistics Europe SA. Subcontracting plays a key role in our European operations and we subcontract approximately 40% of our transport operations in the region. 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. Such failures could compromise our ability to fulfill our commitments to our customers, comply with applicable regulations or otherwise meet our customers’ expectations. In some situations, the poor execution of services by our subcontractors could result in a customer terminating a contract. Such failures by our subcontractors could harm our reputation and ability to win new business and could lead to our being liable for contractual damages. Furthermore, in the event of a failure by our subcontractors 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. Lastly, some of our subcontractors in Europe may not be insured, or may not have sufficient resources available to handle any claims from customers resulting from potential damage and losses relating to their performance of services on our behalf. As a result, the non-compliance by our subcontractors with their contractual or legal obligations may have a material adverse effect on our business and financial condition.
XPO Logistics Europe also makes significant use of temporary staff. 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. If such risks materialize, they could have a material adverse effect on our business and financial condition.
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. In addition to the matters described in the risk factor “Certain of our businesses rely on owner-operators and contract carriers to conduct their operations,

15



and the status of these parties as independent contractors, rather than employees, is being challenged,” we are subject to claims and litigation related to labor and employment, personal injury, traffic accidents, cargo and other property damage, business practices, environmental liability and other matters, including with respect to claims asserted under various theories of agency and employer liability notwithstanding our independent contractor relationships with our transportation providers. 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. A material increase in the frequency or severity of accidents, liability claims, or workers’ compensation claims, or the unfavorable resolution of claims, or our failure to recover, in full or in part, under indemnity provisions with transportation providers could materially and adversely affect our operating results. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.
An increase in the number and/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 large-deductible purchased insurance to provide for the costs of employee medical, vehicular, cargo and workers' compensation claims. Our estimated liability for self-retained insurance claims reflects certain actuarial assumptions and judgments, which are subject to a high degree of variability. We periodically evaluate the level of insurance coverage and adjust insurance levels based on targeted risk tolerance and premium expense. An increase in the number and/or severity of self-insured claims or an increase in insurance premiums could have an adverse effect on us.
We expect costs associated with providing benefits under employee medical plans and postretirement medical plans to increase due to health care reform legislation. Changes made to the design of our medical plans have the potential to mitigate some of the cost impact of the provisions included in the legislation. Ultimately, the cost of providing benefits under our medical plans is dependent on a variety of factors, including governmental laws and regulations, health care cost trends, claims experience and health care 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.
Following our acquisitions of ND and Con-way, we now maintain defined benefit pension plans and a postretirement medical plan. Our defined benefit pension plans include funded and unfunded plans in the United States and the United Kingdom. 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 a significant increase in the expense of these plans and a deterioration in the solvency of these plans, which could significantly increase the Company’s 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.
Because of our floating rate credit facilities, we may be adversely affected by interest rate changes.
Both the Second Amended and Restated Revolving Loan Credit Agreement (the “ABL Facility”) and the senior secured term loan credit agreement (the “Term Loan Facility”) provide for an interest rate based on LIBOR or a Base Rate, as defined in the agreements, plus an applicable margin. Our financial position may be affected by fluctuations in interest rates since the ABL Facility and Term Loan Facility are subject to floating interest rates. Refer to Item 7A. Quantitative and Qualitative Disclosures about Market Risk for the impact on interest expense of a hypothetical 100-basis-point increase in the interest rate. 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.
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 pounds sterling (“GBP”). 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 below under Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The economic uncertainties relating to eurozone monetary policies may cause the value of the euro to fluctuate against other currencies. Currency volatility contributes to variations in our sales of products and services in impacted jurisdictions. For example, in the event that one or more European countries were to replace the euro with another currency, our sales into such

16



countries, or in Europe generally, would likely be adversely affected until stable exchange rates are established. Accordingly, fluctuations in currency exchange rates could adversely affect our business and financial condition and the business of the combined company.
The United Kingdom’s expected exit from the European Union could have a material adverse effect on our business and results of operations.
Following a referendum in June 2016 in which voters in the United Kingdom (“U.K.”) approved an exit from the European Union (“EU”), it is expected that the U.K. government will initiate a process to leave the EU (often referred to as “Brexit”) and begin negotiating the terms of the U.K.’s future relationship with the EU. The likely exit of the U.K. from the EU will have uncertain impacts on our transportation and logistics operations in Europe. In 2016, we derived approximately 36% of our revenue in Europe, including 12% in the U.K. Any adverse consequences of Brexit, such as a deterioration in the U.K.'s and/or EU's economic condition, currency exchange rates, bilateral trade agreements or regulation of trade, including the potential imposition of tariffs, could reduce demand for our services in the U.K. and/or the EU, or otherwise have a negative impact on our operations, financial condition and results of operations.
We may not be able to successfully execute our growth strategy through acquisitions.
We may continue to expand through acquisitions to take advantage of market opportunities we perceive in the transportation and logistics markets, as well as new markets that we may enter. However, if we choose to make acquisitions in the future, we may experience delays or be unable to make the acquisitions we desire for a number of reasons. Suitable acquisition candidates may not be available at purchase prices that are attractive to us or on terms that are acceptable to us. In pursuing acquisition opportunities, we will compete with other companies, some of which have greater financial and other resources than we do.
We are unable to predict the size, timing and number of acquisitions we may complete. In addition, we may incur expenses associated with sourcing, evaluating and negotiating acquisitions (including those that are not completed), and we also may pay fees and expenses associated with obtaining financing for acquisitions and with investment banks and others finding acquisitions for us. Any of these amounts may be substantial, and together with the size, timing and number of acquisitions we pursue, may negatively impact us and cause significant volatility in our financial results.
Sales or issuances of a substantial number of shares of our common stock may adversely affect the market price of our common stock.
We may fund any future acquisitions or our capital requirements from time to time, in whole or part, through sales or issuances of our common stock or equity-based securities, subject to prevailing market conditions and our financing needs. Future equity financing will dilute the interests of our then-existing stockholders, and future sales or issuances of a substantial number of shares of our common stock or other equity-related securities may adversely affect the market price of our common stock.
We do not own, and may not acquire, all of the outstanding shares of XPO Logistics Europe SA, the majority-owned subsidiary through which we conduct our European operations.
We currently own 86.25% of the outstanding shares of XPO Logistics Europe, the majority-owned subsidiary through which we conduct our European operations. We may not acquire the remaining shares of XPO Logistics Europe. French law only permits “squeeze out” mergers when a holder owns more than 95% of the outstanding shares. If we do not wholly-own XPO Logistics Europe, we will not have access to all of its cash flow to service our debt, as we will only receive a prorated portion of any dividend based on our ownership percentage. In addition, we will be subject to limitations on our ability to enter into transactions with XPO Logistics Europe that are not on arms-length terms, which could limit synergies that we could otherwise achieve between our North American and European operations. We also may not be able to consolidate XPO Logistics Europe for tax purposes, and XPO Logistics Europe would be forced to continue as a listed public company in France, thereby incurring certain recurring costs.
Volatility in fuel prices impacts our fuel surcharge revenues and may impact our profitability.
We are subject to risks associated with the availability and price of fuel, 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 and full truckload carrier operations, as well as to our fleet of independent contractor drivers and third-party transportation providers who complete the physical movement of freight arranged by our other business operations. Accordingly, we may be adversely affected by the timing and degree of fluctuations and volatility in fuel prices. As is customary in our industry, most of our customer contracts include fuel-surcharge revenue programs or cost-recovery mechanisms to mitigate the effect of the fuel price increase over base amounts established in the contract. However, these fuel surcharge mechanisms may not capture the entire amount of the increase in fuel prices, and they also feature a lag between the payment for fuel and collection of the surcharge revenue. Market pressures may limit our ability to assess fuel surcharges in the future. The extent to which we are able to recover in full for fuel cost changes may also vary

17



depending on the degree to which we are not compensated due to empty and out-of-route miles or from engine idling during cold or warm weather.
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.
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 technology in conducting our business. Whether internally developed or purchased, it is possible that the user 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, any settlement or adverse judgment against us either in the form of increased costs of licensing or a cease and desist order in using the technology could have an adverse effect on us and our results of operation.
We also rely on a combination of intellectual property rights, including copyrights, trademarks, domain names, trade secrets, intellectual property licenses and other contractual rights, to establish and 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 resources and ultimately be unsuccessful. Moreover, our failure to develop and properly manage new intellectual property could adversely affect our market positions and business opportunities.
Our failure to obtain, maintain and enforce our intellectual property rights could therefore have a material adverse effect on our business, financial condition and results of operations.
We are subject to regulation, which could negatively impact our business.
Our operations are regulated and licensed by various governmental agencies in the United States and in foreign countries in which 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 independent contractors must also comply with applicable regulations and requirements of various agencies. Through our subsidiaries and business units, we hold various licenses required to carry out our domestic and international services. These licenses permit us to provide services as a motor carrier, property broker, indirect air carrier, OTI, NVOCC, freight forwarder, air freight forwarder, and ocean freight forwarder. We also are subject to regulations and requirements promulgated by, among others, the DOT, FMCSA, DHS, CBP, TSA, FMC, IATA, the 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, which subjects us to regulations with respect to transportation of such materials and environmental regulations in the case of any accidents that occur during the transportation of materials and result in discharge of such materials. Our failure to maintain our 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 of this Annual Report on Form 10-K under the caption entitled “Business” for more information.
Future laws and regulations may be more stringent and require changes in our operating practices that influence the demand for transportation 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 businesses. Higher costs incurred by us, or incurred by our independent contractors or third-party transportation providers who pass the increased costs on to us, as a result of future new regulations could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.
Failure to comply with trade compliance laws and regulations applicable to our operations may subject us to liability and result in mandatory or voluntary disclosures to government agencies of transactions or dealings involving sanctioned countries, entities or individuals.
As a result of our acquisition activities, we acquired companies with business operations outside the U.S., some of which were not previously subject to certain U.S. laws and regulations, including trade sanctions administered by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”). In the course of implementing our compliance processes with respect to the operations of these acquired companies, we have identified a number of transactions or dealings involving countries and entities that are subject to U.S. economic sanctions. As disclosed in our Quarterly Reports on Form 10-Q for the periods ended

18



June 30, 2016, and September 30, 2016, we filed initial voluntary disclosure of such matters with OFAC in August 2016. We are continuing to investigate and intend to cooperate with regulatory authorities regarding these matters and to file a full report with OFAC when our investigation is complete. As we investigate, we may identify additional transactions or dealings involving sanctioned countries, entities, or individuals. The transactions or dealings that we have identified to date, or other transactions or dealings that we may identify in the future, could result in negative consequences to us, including government investigations, penalties and reputational harm.
Our Chairman and Chief Executive Officer controls a large portion of our stock and has substantial control over us, which could limit other stockholders’ ability to influence the outcome of key transactions, including changes of control.
Under applicable SEC rules, our Chairman and Chief Executive Officer, Mr. Bradley S. Jacobs, beneficially owns approximately 15% of our outstanding common stock as of December 31, 2016. This concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in companies with concentrated stockholders. Our preferred stock votes together with our common stock on an “as-converted” basis on all matters, except as otherwise required by law, and separately as a class with respect to certain matters implicating the rights of holders of shares of the preferred stock. Accordingly, Mr. Jacobs can exert substantial influence over our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation, or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders. Additionally, significant fluctuations in the levels of ownership of our largest stockholders, including shares beneficially owned by Mr. Jacobs, could impact the volume of trading, liquidity and market price of our common stock.
ITEM 1B.    UNRESOLVED STAFF COMMENTS
None.
ITEM 2.    PROPERTIES
As of December 31, 2016, XPO and its subsidiaries operated approximately 1,425 locations, primarily in North America and Europe, including approximately 200 locations owned or leased by our customers. These facilities are located in all 48 states of the contiguous United States as well as globally.
We lease our current executive office located in Greenwich, Connecticut, as well as our national operations center in Charlotte, North Carolina. As of December 31, 2016, we owned a shared-services center in Portland, Oregon and the facility at which we conduct a portion of our expedited transportation operations in Buchanan, Michigan. In addition, we owned 142 freight service centers for our LTL business and 42 properties throughout Europe. We believe that our facilities are sufficient for our current needs and are in good condition in all material respects.
ITEM 3.    LEGAL PROCEEDINGS
We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business. These proceedings may include, among other matters, claims for property damage or personal injury incurred in connection with the transportation of freight, claims regarding anti-competitive practices, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants and tortious interference with contract. These proceedings also include numerous purported class-action lawsuits, multi-plaintiff and individual lawsuits and state tax and other administrative proceedings that claim either that our owner operators or contract carriers should be treated as employees, rather than independent contractors, or that certain of our drivers were not paid for all compensable time or were not provided with required meal or rest breaks. We are currently engaged in several alleged independent contractor misclassification claims or other wage and hour claims involving certain companies that we have acquired in our last mile, LTL, and intermodal businesses. These lawsuits and proceedings may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest periods, unreimbursed business expenses and other items), injunctive relief, or both. For additional information about these matters, please refer to Note 5—Commitments and Contingencies of Item 8, “Financial Statements and Supplementary Data.”
We do not believe that the ultimate resolution of any matters to which we are presently 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.

19



ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.


20



PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock is listed on the NYSE under the symbol “XPO.” The table below provides the high and low closing sales prices for our common stock for the quarters included within 2016 and 2015.
 
2016
 
First
 
Second
 
Third
 
Fourth
High
$
32.01

 
$
33.89

 
$
37.22

 
$
49.35

Low
19.56

 
23.30

 
24.43

 
32.17

 
 
 
 
 
 
 
 
 
2015
 
First
 
Second
 
Third
 
Fourth
High
$
47.26

 
$
50.56

 
$
46.74

 
$
33.50

Low
35.57

 
41.58

 
21.62

 
25.04

As of February 21, 2017, there were approximately 219 record holders of our common stock, based upon data available to us from our transfer agent. We have never paid, and have no immediate plans to pay, cash dividends on our common stock. We currently plan to retain future earnings, if any, for use in the development of our business and to enhance stockholder value through growth and continued focus on improving profitability. In addition, our current credit agreement imposes, and we expect that any future credit agreement we enter into will impose, restrictions on our ability to pay cash dividends on our common stock. Accordingly, we do not anticipate paying any cash dividends on our common stock in the near future.
The graph below compares the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the Russell 2000 Index and the Dow Jones Transportation Average Index. The graph tracks the performance of a $100 investment in our common stock and in each index from December 31, 2011 to December 31, 2016.
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=11430106&doc=18
 
 
12/31/11
 
12/31/12
 
12/31/13
 
12/31/14
 
12/31/15
 
12/31/16
XPO Logistics, Inc.
$
100

 
$
141

 
$
213

 
$
331

 
$
221

 
$
349

Russell 2000
$
100

 
$
115

 
$
157

 
$
163

 
$
153

 
$
183

Dow Jones Transportation Average
$
100

 
$
106

 
$
147

 
$
182

 
$
150

 
$
180


21



Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended December 31, 2016, the Company issued an aggregate of 2,734 shares of its common stock, par value $0.001 per share, to certain holders of the Company’s 4.50% Convertible Senior Notes due October 1, 2017 (the “Convertible Senior Notes”) in connection with the conversion of $45,000 aggregate principal amount of the Convertible Senior Notes. The number of shares of our common stock issued in the foregoing transactions equals the number of shares of our common stock presently issuable to holders of the Convertible Senior Notes upon conversion under the original terms of the Convertible Senior Notes. During the quarter ended December 31, 2016, pursuant to the Investment Agreement dated as of June 13, 2011 (the “Investment Agreement”), by and among Jacobs Private Equity, LLC (“JPE”), and the other investors party thereto (collectively with JPE, the “Investors”), the Company issued 96,468 unregistered shares of its common stock as a result of the cashless exercise of warrants by a shareholder. The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933, as amended, in accordance with Section 4(a)(2) thereof, as a transaction by an issuer not involving any public offering. The Company did not receive any proceeds from the above transactions.
ITEM 6.    SELECTED FINANCIAL DATA
This table includes selected financial data for the last five years. This financial data should be read together with our Consolidated Financial Statements and related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and other financial data appearing elsewhere in this Annual Report.
 
Year Ended December 31,
(In millions, except per share data)
2016
 
2015
 
2014
 
2013
 
2012
Operating Results:
 
 
 
 
 
 
 
 
 
Revenue
$
14,619.4

 
$
7,623.2

 
$
2,356.6

 
$
702.3

 
$
278.6

Operating income (loss)
488.1

 
(28.6
)
 
(40.9
)
 
(52.3
)
 
(28.0
)
Income (loss) before income taxes
106.8

 
(282.5
)
 
(89.7
)
 
(71.0
)
 
(31.5
)
Net income (loss)
84.5

 
(191.6
)
 
(63.6
)
 
(48.5
)
 
(20.3
)
Net income (loss) attributable to common shareholders
63.1

 
(245.9
)
 
(107.4
)
 
(51.5
)
 
(23.3
)
Per Share Data:
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share
$
0.57

 
$
(2.65
)
 
$
(2.00
)
 
$
(2.26
)
 
$
(1.49
)
Diluted earnings (loss) per share
$
0.53

 
$
(2.65
)
 
$
(2.00
)
 
(2.26
)
 
(1.49
)
Weighted-average common shares outstanding
 
 
 
 
 
 
 
 
 
Basic
110.2

 
92.8

 
53.6

 
22.8

 
15.7

Diluted
122.8

 
92.8

 
53.6

 
22.8

 
15.7

Financial Position:
 
 
 
 
 
 
 
 
 
Property and equipment, net
$
2,537.4

 
$
2,852.2

 
$
221.9

 
$
56.6

 
$
13.1

Total assets
$
11,698.4

 
$
12,643.2

 
$
2,749.4

 
$
777.1

 
$
409.3

Long-term debt, less current portion
$
4,731.5

 
$
5,272.6

 
$
580.3

 
$
178.6

 
$
105.1

Preferred stock
$
41.6

 
$
42.0

 
$
42.2

 
$
42.7

 
$
42.8

Total equity
$
3,037.6

 
$
3,060.8

 
$
1,655.1

 
$
455.9

 
$
245.1

Net income (loss) attributable to XPO for the years ended December 31, 2015 and December 31, 2014 reflect beneficial conversion charges of $52.0 million on the Series C Preferred Stock and $40.9 million on the Series B Preferred Stock, respectively, that were recorded as deemed distributions during the third quarter of 2015 and the fourth quarter of 2014, respectively.


22



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is organized into two reportable segments: Transportation and Logistics. The Transportation segment provides freight brokerage, last mile, LTL, full truckload, and global forwarding services. The Logistics segment provides a range of contract logistics services, including highly engineered and customized solutions, value-added warehousing and distribution, cold chain solutions and other inventory solutions.
The Company's Chief Executive Officer, who is the chief operating decision maker (“CODM”), regularly reviews financial information at the reporting segment level in order to make decisions about resources to be allocated to the segments and to assess their performance. Segment results that are reported to the CODM include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
XPO Logistics, Inc.
Consolidated Summary Financial Table
For the Year Ended December 31,
 
 
 
 
 
 
 
Percent of Revenue
(Dollars in millions)
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Revenue
$
14,619.4

 
$
7,623.2

 
$
2,356.6

 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of transportation and services
7,886.0

 
4,171.4

 
1,701.8

 
53.9
 %
 
54.7
 %
 
72.2
 %
Direct operating expense
4,594.1

 
2,367.0

 
273.2

 
31.4
 %
 
31.0
 %
 
11.6
 %
SG&A expense
1,651.2

 
1,113.4

 
422.5

 
11.3
 %
 
14.6
 %
 
17.9
 %
Operating income (loss)
488.1

 
(28.6
)
 
(40.9
)
 
3.4
 %
 
(0.3
)%
 
(1.7
)%
Other expense (income)
(9.2
)
 
(7.6
)
 
0.4

 
(0.1
)%
 
(0.1
)%
 
 %
Foreign currency loss (gain)
(40.3
)
 
44.8

 
0.4

 
(0.3
)%
 
0.6
 %
 
 %
Debt extinguishment loss
69.7

 

 

 
0.5
 %
 
 %
 
 %
Interest expense
361.1

 
216.7

 
48.0

 
2.5
 %
 
2.8
 %
 
2.0
 %
Income (loss) before income tax provision (benefit)
106.8

 
(282.5
)
 
(89.7
)
 
0.8
 %
 
(3.6
)%
 
(3.7
)%
Income tax provision (benefit)
22.3

 
(90.9
)
 
(26.1
)
 
0.2
 %
 
(1.2
)%
 
(1.1
)%
Net income (loss)
$
84.5

 
$
(191.6
)
 
$
(63.6
)
 
0.6
 %
 
(2.4
)%
 
(2.6
)%
Consolidated Results
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Our consolidated revenue for 2016 increased 91.8% to $14,619.4 million from $7,623.2 million in 2015. This increase was driven by the 2015 acquisitions of ND, Con-way, BTT and UX, as well as organic growth. On October 30, 2015, XPO acquired Con-way Inc. (“Con-way”). Headquartered in Ann Arbor, Michigan, Con-way was a Fortune 500 company with a transportation and logistics network of 582 locations and approximately 30,000 employees serving over 36,000 customers. On June 8, 2015, XPO acquired a majority interest in Norbert Dentressangle SA (“ND”), a leading provider of transportation and logistics services in Western Europe.
The increase in cost of transportation services of 89.0% from 2015 to 2016 was primarily the result of the acquisitions of ND, Con-way and BTT. As a percentage of revenue, cost of transportation and services decreased to 53.9% in 2016 compared to 54.7% in 2015, primarily as a result of a shift in the mix of our business with a more significant component of our revenue being attributable to the LTL and European transportation service offerings following the acquisitions of ND and Con-way. Cost of transportation and services typically represents a lower percentage of revenue in these service offerings than in our legacy asset-light transportation services. Cost of transportation and services is primarily attributable to the cost of providing or procuring freight transportation services for XPO customers, salaries paid to employee drivers in our full truckload and LTL businesses, and commissions paid to independent station owners in our global forwarding business.
Direct operating expense for 2016 was $4,594.1 million, or 31.4% as a percentage of revenue, compared to $2,367.0 million, or 31.0% as a percentage of revenue, for 2015. Direct operating expense increased primarily due to the acquisitions of ND and Con-way and growth to support the last mile business. Direct operating expenses are both fixed and variable expenses and consist of operating costs related to our contract logistics facilities, intermodal equipment lease expense, depreciation expense, maintenance and repair costs, property taxes, operating costs of our local drayage and last mile warehousing facilities, the direct costs related to the LTL service centers and European pallet network, such as direct labor, facilities and forklift trucks, and fixed terminal and cargo handling expenses. Operating costs of our contract logistics facilities consist mainly of personnel costs, facility and equipment expenses, materials and supplies, information technology expenses, depreciation expense and other operating expenses related to our contract logistics facilities. Intermodal equipment maintenance and repair costs consist of the

23



costs related to the maintenance of the intermodal equipment fleet. Operating costs of our local drayage and last mile warehousing facilities consist mainly of personnel costs, rent, maintenance, utilities and other facility related costs. Operating costs of our LTL facilities consist mainly of personnel costs, rent and depreciation of service center equipment. Fixed terminal and cargo handling costs primarily relate to the fixed rent and storage expense charged by terminal operators.
Sales, general and administrative expense (“SG&A”) increased to $1,651.2 million in 2016 from $1,113.4 million in 2015 primarily due to SG&A associated with acquisitions. SG&A as a percentage of revenue decreased to 11.3% in 2016 as compared to 14.6% in 2015. The decrease is attributable to a reduction in acquisition-related costs, a change in the mix of the Company's business operations resulting from the acquisition of Con-way, and the cost saving measures being implemented as part of the integration of acquired businesses, particularly in our LTL service offering. SG&A consists of costs relating to customer acquisition, carrier procurement, billing, customer service, salaries and related expenses of the executive and administrative staff, acquisition-related costs, office expenses, technology services, professional fees and other purchased services relating to the aforementioned functions, and depreciation and amortization expense.
Foreign currency gain was $40.3 million in 2016 compared to foreign currency loss of $44.8 million in 2015. The gain in 2016 was primarily due to a $39.7 million gain on unrealized foreign currency option and forward contracts. The loss in 2015 was primarily due to $31.7 million foreign currency transaction and remeasurement losses on the cash held to purchase ND and a $9.7 million loss on the forward contract related to the ND acquisition.
The debt extinguishment loss of $69.7 million in 2016 includes $35.2 million from the redemption of the Senior Notes due 2019, $18.0 million from the refinancing of the Term Loan, and $16.5 million from the repurchase of Term Loan debt.
Interest expense for 2016 increased 66.6% to $361.1 million from $216.7 million in 2015. The increase in interest expense was primarily attributable to the increased indebtedness incurred by the Company in order to fund the 2015 acquisitions of Con-way and ND. Average total indebtedness increased approximately 72% from 2015 to 2016, consistent with the increase in interest expense.
Our effective income tax rates in 2016 and 2015 were 20.9% and 32.2%, respectively. The 2016 effective tax rate was lower than the U.S. statutory tax rate primarily due to a revaluation of deferred tax liabilities resulting from an enacted tax law change in France that lowers the statutory tax rate, a release of previously provided uncertain tax benefits due to a favorable non-U.S. tax audit settlement, and the recognition of excess tax benefits in 2016. The 2015 effective tax rate was lower than the U.S. statutory tax rate primarily due to a pretax book loss and changes in the geographic earnings mix. For both periods, the effective income tax rates reflect the Company’s intention to permanently reinvest earnings of its foreign subsidiaries.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Our consolidated revenue for 2015 increased 223.5% to $7,623.2 million from $2,356.6 million in 2014. This increase was driven largely by the acquisitions ND, Con-way, BTT and UX and the inclusion of a full year of results from the 2014 acquisitions of New Breed Holding Company (“New Breed”) and Simply Logistics, Inc. d/b/a Atlantic Central Logistics (“ACL”), as well as organic growth.
The increase in cost of transportation services of 145.1% from 2014 to 2015 was primarily the result of the acquisitions of ND, Con-way and BTT. As a percentage of revenue, cost of transportation and services decreased to 54.7% in 2015 compared to 72.2% in 2014, primarily as a result of a shift in the mix of our business with a more significant component of our revenue being attributable to our Logistics segment following the acquisitions of ND and Con-way. Cost of transportation and services typically represents a substantially lower percentage of revenue in our Logistics segment than in our Transportation segment due to the more limited proportional role of transportation services provided to our Logistics segment customers.
Direct operating expense for 2015 was $2,367.0 million, or 31.0% as a percentage of revenue, compared to $273.2 million, or 11.6% as a percentage of revenue, for 2014. Direct operating expense increased due to the acquisitions of ND and Con-way, and the inclusion of a full year of New Breed’s results.
SG&A expense increased by $690.9 million in 2015 compared to 2014. As a percentage of revenue, SG&A expense decreased to 14.6% in 2015 as compared to 17.9% in 2014. SG&A expense increased primarily due to SG&A expense associated with new acquisitions and increased intangible amortization related to acquisitions.
Foreign currency loss increased to $44.8 million from $0.4 million in 2014. The increase was primarily due to $31.7 million foreign currency transaction and remeasurement losses on the cash held to purchase ND and a $9.7 million loss on the forward contract related to the ND acquisition.
Interest expense for 2015 increased 351.5% to $216.7 million from $48.0 million in 2014. The increase in interest expense was primarily attributable to the increased indebtedness incurred by the Company in order to fund the 2015 acquisitions of Con-way and ND.
Our effective income tax rates in 2015 and 2014 were 32.2% and 29.1%, respectively. The effective tax rates were influenced by various non-deductible transaction costs and costs related to conversions of our convertible debt, the change in valuation

24



allowances, and the mix of income among the various jurisdictions in which the Company does business. For both periods, our effective income tax rates reflect the Company’s intention and ability to permanently reinvest earnings of its foreign subsidiaries.
Transportation
Summary Financial Table
For the Year Ended December 31,
 
 
 
 
 
 
 
Percent of Revenue
(Dollars in millions)
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Revenue
$
9,457.3

 
$
4,924.4

 
$
2,140.0

 
100.0
%
 
100.0
%
 
100.0
%
Cost of transportation and services
6,796.4

 
3,718.8

 
1,701.8

 
71.9
%
 
75.5
%
 
79.5
%
Direct operating expense
1,199.2

 
507.1

 
90.0

 
12.7
%
 
10.3
%
 
4.2
%
SG&A expense


 


 
 
 


 


 


Salaries & benefits
560.2

 
340.7

 
175.0

 
5.9
%
 
6.9
%
 
8.2
%
Other SG&A expense
153.6

 
129.4

 
56.4

 
1.6
%
 
2.6
%
 
2.6
%
Purchased services
147.5

 
44.7

 
20.4

 
1.6
%
 
0.9
%
 
1.0
%
Depreciation & amortization
162.4

 
132.1

 
77.5

 
1.7
%
 
2.7
%
 
3.6
%
Total SG&A expense
1,023.7

 
646.9

 
329.3

 
10.8
%
 
13.1
%
 
15.4
%
Operating income
$
438.0

 
$
51.6

 
$
18.9

 
4.6
%
 
1.1
%
 
0.9
%
Note: Total depreciation and amortization for the Transportation segment included in cost of transportation and services, direct operating expense and SG&A was $449.1 million, $226.5 million and $79.5 million for the years ended December 31, 2016, 2015, and 2014, respectively.
Transportation
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue in our Transportation segment increased by 92.0% to $9,457.3 million in 2016 compared to $4,924.4 million in 2015. This increase was driven largely by the acquisitions of ND, Con-way, BTT and UX, as well as organic growth led by the last mile business.
The increase in cost of transportation services of 82.8% from 2015 to 2016 was primarily the result of the acquisitions of ND, Con-way and BTT. As a percentage of revenue, cost of transportation and services decreased to 71.9% in 2016 compared to 75.5% in 2015, primarily the result of lower relative cost of transportation and services within the total cost structure of the acquired asset-based businesses.
Direct operating expense for 2016 was $1,199.2 million, or 12.7% as a percentage of revenue, compared to $507.1 million, or 10.3% as a percentage of revenue, for 2015. Direct operating expense and the related percentage of revenue increased primarily due to the acquisitions of ND, Con-way, BTT and UX and growth to support the last mile business.
SG&A increased to $1,023.7 million in 2016 from $646.9 million in 2015. The increase in SG&A expense was primarily due to the contribution of SG&A associated with new acquisitions and transaction and integration costs. As a percentage of revenue, SG&A expense decreased to 10.8% in 2016 as compared to 13.1% in 2015 as a result of the cost saving measures being implemented as part of the integration of acquired businesses, particularly in our LTL service offering.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenue in our Transportation segment increased by 130.1% to $4,924.4 million in 2015 compared to $2,140.0 million in 2014. This increase was driven largely by the acquisitions of ND, Con-way, BTT and UX, as well as organic growth.
The increase in cost of transportation services of 118.5% from 2014 to 2015 was primarily the result of the acquisitions of ND, Con-way and BTT. As a percentage of revenue, cost of transportation and services decreased to 75.5% in 2015 compared to 79.5% in 2014, primarily the result of lower relative cost of transportation and services within the total cost structure of the acquired asset-based businesses.
Direct operating expense for 2015 was $507.1 million, or 10.3% as a percentage of revenue, compared to $90.0 million, or 4.2% as a percentage of revenue, for 2014. Direct operating expense increased primarily due to the acquisitions of ND, Con-way, BTT and UX.
SG&A expense increased by 96.4% to $646.9 million in 2015 from $329.3 million in 2014. As a percentage of revenue, SG&A expense decreased to 13.1% in 2015 as compared to 15.4% in 2014. The increase in SG&A expense was primarily due to the contribution of SG&A associated with new acquisitions and transaction and integration costs.

25



Logistics
Summary Financial Table
For the Year Ended December 31,

 
 
 
 
 
 
Percent of Revenue
(Dollars in millions)
2016
 
2015
 
2014
 
2016
 
2015
 
2014
Revenue
$
5,323.9

 
$
2,768.4

 
$
216.6

 
100.0
%
 
100.0
%
 
100.0
%
Cost of transportation and services
1,246.8

 
521.6

 

 
23.4
%
 
18.8
%
 
%
Direct operating expense
3,395.5

 
1,859.5

 
183.2

 
63.8
%
 
67.2
%
 
84.6
%
SG&A expense
 
 
 
 
 
 
 
 
 
 
 
  Salaries & benefits
230.2

 
165.1

 
6.3

 
4.3
%
 
6.0
%
 
2.9
%
  Other SG&A expense
76.3

 
34.3

 
1.8

 
1.4
%
 
1.2
%
 
0.8
%
  Purchased services
79.4

 
39.3

 
1.1

 
1.5
%
 
1.4
%
 
0.5
%
  Depreciation & amortization
86.2

 
67.0

 
6.6

 
1.6
%
 
2.4
%
 
3.0
%
Total SG&A expense
472.1

 
305.7

 
15.8

 
8.8
%
 
11.0
%
 
7.2
%
Operating income
$
209.5

 
$
81.6

 
$
17.6

 
4.0
%
 
3.0
%
 
8.2
%
Note: Total depreciation and amortization for the Logistics segment included in cost of transportation and services, direct operating expense and SG&A was $192.3 million, $136.9 million and $16.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Logistics
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenue in our Logistics segment increased by 92.3% to $5,323.9 million in 2016 compared to $2,768.4 million in 2015. This increase was driven by the acquisitions of ND and Con-way.
The increase in cost of transportation services of 139.0% from 2015 to 2016 was primarily the result of the acquisitions of ND and Con-way. As a percentage of revenue, cost of transportation and services increased to 23.4% in 2016 compared to 18.8% in 2015, primarily as a result of the higher relative cost of transportation and services within the acquired businesses, which include managed transportation services that the Logistics segment did not previously provide.
Direct operating expense in 2016 was $3,395.5 million, or 63.8% as a percentage of revenue, compared to $1,859.5 million, or 67.2% as a percentage of revenue, in 2015. Direct operating expense increased due to the acquisitions of ND and Con-way, while direct operating expense as a percentage of revenue declined due to cost saving measures being implemented as part of the integration of acquired businesses.
SG&A increased to $472.1 million in 2016 from $305.7 million in 2015. The increase in SG&A was due to the contribution of SG&A associated with the acquisitions of ND and Con-way. As a percentage of revenue, SG&A expense decreased to 8.8% in 2016 compared to 11.0% in 2015. The decrease is attributable to a change in the mix of the Company’s business operations resulting from the acquisition of Con-way and the cost savings measures being implemented as part of the integration of acquired businesses.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenue in our Logistics segment increased by 1,178.1% to $2,768.4 million in 2015 compared to $216.6 million in 2014. This increase was driven by the acquisitions of ND and Con-way, and the inclusion of a full year of New Breed’s results.
The increase in cost of transportation services from 2014 to 2015 was primarily the result of the acquisitions of ND and Con-way. As a percentage of revenue, cost of transportation and services increased to 18.8% in 2015 compared to 0.0% in 2014, as a result of the acquisitions of ND and Con-way. New Breed, acquired by XPO in 2014, did not have cost of transportation and services.
Direct operating expense in 2015 was $1,859.5 million, or 67.2% as a percentage of revenue, compared to $183.2 million, or 84.6% as a percentage of revenue, in 2014. Direct operating expense increased due to the acquisitions of ND and Con-way, and the inclusion of a full year of New Breed's results.
SG&A expense increased to $305.7 million in 2015 from $15.8 million in 2014. The increase in SG&A expense was due to the contribution of SG&A associated with the acquisitions of ND and Con-way, and the inclusion of a full year of New Breed's results. As a percentage of revenue, SG&A expense increased to 11.0% in 2015 compared to 7.2% in 2015.

26



Liquidity and Capital Resources
Refinancing of Existing Term Loan
On August 17, 2016, the Company completed the pricing of a $1.6 billion refinancing of its existing term loan agreement. The term loan was issued at par with an interest rate of LIBOR plus 3.25%, with a 1.0% LIBOR floor, maturing on October 30, 2021. The proceeds were used to replace the Company's existing $1.6 billion term loan, which bore interest at LIBOR plus 4.5%, with a 1.0% LIBOR floor. The terms of the new term loan facility are otherwise substantially consistent with the term loan that was replaced.
In addition, the Company borrowed an additional $400.0 million of Incremental Term B-1 Loans (the “Incremental Term B-1 Loans”) and an additional $50.0 million of Incremental Term B-2 Loans (the “Incremental Term B-2 Loans”). The New Term Loans, Incremental Term B-1 Loans and Incremental Term B-2 Loans have identical terms, other than with respect to original issue discount, and will mature on October 30, 2021.
Issuance of Senior Notes Due 2023
On August 25, 2016, the Company completed a private placement of $535.0 million in aggregate principal amount of 6.125% senior notes due September 1, 2023 (“Senior Notes due 2023”). The Senior Notes due 2023 bear interest at a rate of 6.125% per annum payable semiannually, in cash in arrears, on March 1 and September 1 of each year, commencing March 1, 2017 and mature on September 1, 2023.
Redemption of Senior Notes due 2019
On September 12, 2016 (the “Redemption Date”), the Company redeemed all of its outstanding 7.875% Notes due 2019 (the “2019 Notes”) issued under the Indenture, dated as of August 25, 2014, between XPO and The Bank of New York Mellon Trust Company, N.A., as Trustee. The redemption price for the 2019 Notes was 103.938% of the principal amount of the 2019 Notes, plus accrued and unpaid interest to, but excluding, the Redemption Date.
North American Truckload Operations
On October 27, 2016, pursuant to a Stock Purchase Agreement of the same date between the Company and a subsidiary of TransForce Inc. (“TransForce”), the Company divested its North American Truckload operations (formerly known as Con-way Truckload) for approximately $558.0 million cash consideration, subject to certain adjustments. On November 3, 2016, the Company used the proceeds from sale of the North American Truckload operations to repurchase $555.0 million of Term Loan debt at par.
General
As of December 31, 2016, we had $342.0 million of working capital, including cash and cash equivalents of $373.4 million, compared to working capital of $262.8 million, including cash and cash equivalents of $289.8 million, as of December 31, 2015. This increase of $79.2 million in working capital during the period was mainly due to an increase in cash and accounts receivable, partially offset by an increase in accrued expenses.
We continually evaluate our liquidity requirements, capital needs and the availability of capital resources based on our operating needs and our planned growth initiatives. In addition to using existing cash balances and net cash provided by operating activities, in certain circumstances we may use debt financings and issuances of equity or equity-related securities to fund our operating needs and growth initiatives. We believe that cash generated from operations, our existing cash balance, and availability of capacity to draw down under our ABL Facility will be sufficient to support our existing operations over the next 12 months.
Cash Flow
During 2016, the Company generated $625.4 million of cash from operations compared to $90.8 million generated in 2015 and $21.3 million used in 2014. Cash flows from operations increased in 2016 primarily due to the improvement in profitability. An increase in the Company's accounts receivable reduced our cash from operations by $153.7 million in 2016 compared to $7.8 million of cash provided in 2015.
Investing activities provided $142.0 million of cash in 2016 compared to $4,085.4 million used in 2015 and $858.3 million used in 2014. During 2016, the Company received $547.7 million from the sale of its North American Truckload operations, used $483.4 million of cash to purchase fixed assets and received $68.9 million from the sale of assets. During 2015, the Company used $3,887.0 million of cash in acquisitions, $249.0 million to purchase fixed assets and received $60.3 million from the sale of assets. During 2014, the Company used $814.0 million of cash in acquisitions and $44.6 million to purchase fixed assets.

27



Financing activities used $680.8 million in 2016 compared to $3,644.9 million generated in 2015 and $1,502.2 million generated in 2014. The primary use of cash in 2016 was the $1,889.2 million repurchase of debt and the $151.4 million repayment of debt and capital leases. The main source of cash from financing activities in 2016 was the $1,352.0 million of net proceeds from the issuance of long-term debt. In 2015, our primary source of cash was the $4,108.9 million of net proceeds from the issuance of long-term debt and $1,228.1 million of net proceeds from the issuance of preferred and common stock. The primary uses of cash from financing activities were the repayment of $1,215.6 million of debt and the purchase of the noncontrolling interest in ND of $459.7 million. During 2014, the Company received $1,097.4 million of net proceeds from the issuance of preferred and common stock and $489.6 million of net proceeds from the issuance of long-term debt.
Debt Facilities
On October 30, 2015, the Company entered into the Second Amended and Restated Revolving Loan Credit Agreement (the “ABL Facility”) among XPO and certain of XPO’s U.S. and Canadian wholly owned subsidiaries (which include the U.S. subsidiaries of the former Con-way), as borrowers, the other credit parties from time to time party thereto, the lenders party thereto and Morgan Stanley Senior Funding, Inc., as agent for such lenders. The ABL Facility replaced XPO’s existing Amended Credit Agreement, and, among other things, (i) increased the commitments under the ABL Facility to $1.0 billion, (ii) permitted the acquisition of Con-way and the transactions relating thereto, (iii) reduced the margin on loans under the ABL Facility by 0.25% from that contained in the existing Amended Credit Agreement and (iv) matures on October 30, 2020. Up to $350 million of the ABL Facility is available for issuance of letters of credit, and up to $50 million of the ABL Facility is available for swing line loans. At December 31, 2016, the Company had a borrowing base of $986.5 million and availability under the ABL Facility of $717.4 million after considering outstanding advances of $30.0 million and outstanding letters of credit of $239.1 million. As of December 31, 2016, the Company was in compliance with the ABL Facility’s financial covenants.
Contractual Obligations
The following table reflects our contractual obligations as of December 31, 2016: 
(Dollars in millions)
Payments Due by Period
Contractual Obligations
Total
 
Less than 1
Year
 
1 to 3
Years
 
3 to 5
Years
 
More than 5
Years
Capital leases payable
$
101.9

 
$
18.3

 
$
34.5

 
$
18.2

 
$
30.9

Operating leases
2,144.3

 
542.1

 
737.3

 
385.6

 
479.3

Purchase commitments
158.6

 
59.0

 
70.8

 
28.8

 

Long-term debt
5,044.2

 
121.7

 
333.2

 
2,055.6

 
2,533.7

Interest on long-term debt
1,640.3

 
275.3

 
515.4

 
484.0

 
365.6

Total contractual cash obligations
$
9,089.3

 
$
1,016.4

 
$
1,691.2

 
$
2,972.2

 
$
3,409.5

Actual amounts of contractual cash obligations may differ from estimated amounts due to changes in foreign currency exchange rates. We do not have any other material commitments that have not been disclosed elsewhere.
Off-Balance Sheet Arrangements
The Company guarantees the lease payments of certain tractor and trailer equipment utilized by subcontract carriers. These guarantees continue through the end of the lease of the equipment, which is typically four years. The maximum amount of the guarantee is limited to the amount of unpaid principal and interest. As of December 31, 2016, the maximum amount of these guarantees was approximately $20.8 million.
Critical Accounting Estimates
We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America. These principles require management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period.
We review our estimates for, including but not limited to: defined benefit pension plans, recoverability of long-lived assets, income taxes, goodwill, and self-insurance accruals, on a regular basis and make adjustments based on historical experiences and existing and expected future conditions. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates are reasonable and has discussed them with the audit committee of our board of directors. However, actual results could differ from these estimates. Note 2 to our Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of our Consolidated Financial Statements. The following is a discussion of our critical accounting estimates.

28



Defined Benefit Pension Plans
Defined benefit pension plan benefits 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 obligation and fair value of plan assets represent our best estimates based on information available regarding historical experience and factors that may cause future expectations to differ from past experiences. Differences in actual experience or changes in assumptions could materially impact our obligation and future expense amounts.
Discount Rate
In determining the appropriate discount rate for the U.S. Plans (which consist of a primary qualified defined benefit pension plan and another qualified defined benefit pension plan (the “U.S. Qualified Plans”)) and non-qualified defined benefit pension plans (collectively, the “U.S. Non-Qualified Pension Plans” and together with the U.S. Qualified Plans, the “U.S. Plans”)), 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 or S&P rating services). The model determines a single equivalent discount rate by applying the yield curve to expected future benefit payments.
In determining the appropriate discount rate for the UK Plan, we are assisted by consultants who utilize a yield-curve model based on the iBoxx 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 benefit obligation are as follows:
 
2016
 
2015
U.S. Plans
4.35
%
 
4.65
%
UK Plan
2.70
%
 
3.75
%
Rate of Return on Plan Assets
For the U.S. Qualified Plans, we set the expected return on plan assets using current market expectations and historical returns. The expected return on plan assets is based on estimates of long-term expected returns and considers the plans' anticipated asset allocation over the course of the next year. The expected return includes the effect of actively managing the plan assets, and is net of fees and expenses. The plan assets are managed pursuant to a long-term allocation strategy that seeks to mitigate the plans' funded status volatility by increasing the plans' investment in fixed-income investments over time. 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, 2016, our expected return on plan assets was $88.4 million for U.S. Qualified Plans and $58.4 million for the UK Plan, compared to the actual return on plan assets of $140.8 million for U.S. Qualified Plans and $291.4 million for the UK Plan. The actual annualized return on plan assets for the U.S. Qualified Plans for the year ended December 31, 2016 was approximately 9%, which was above the expected return on asset assumption for the year as a result of strong performance of the fixed income portfolio, which made up approximately three-fourths of total plan assets. The actual annualized return on plan assets for the UK Plan for the year ended December 31, 2016 was approximately 24%, which was above the expected return on asset assumption for the year as a result of strong performance across all asset classes.
For the UK Plan, we set the expected return on plan assets using market expectations and historical returns. The expected return on plan assets is based on estimates of long-term expected returns and considers the plans’ anticipated asset allocation over the course of the next year. The expected return includes the effect of actively managing the plan assets and is net of fees and expenses.
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 $35.8 million for the U.S. Plans and $28.9 million for the UK Plan at December 31, 2016. The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.
Effect on Operating Results
The effects of the defined benefit pension plans on our operating results consist primarily of the net effect of the interest cost on plan obligations for the U.S. Plans and the UK Plan and the expected return on plan assets for the funded defined benefit pension plans. We estimate that the defined benefit pension plans will result in annual income of $15.4 million for the U.S. Plans and $26.0 million for the UK Plan in 2017. We recognized net periodic benefit income of $27.5 million in 2016 and $8.2 million in 2015.

29



Significant Assumption Sensitivity
The sensitivity analysis below shows the effect on 2017 estimated net periodic benefit income from a 25 basis point change in the assumed discount rate:
(Dollars in millions)
25 Basis Point Increase
 
25 Basis Point Decrease
Discount rate
U.S. Plans
 
UK Plan
 
U.S. Plans
 
UK Plan
Effect on 2017 estimated net periodic benefit expense (income)
$
4.5

 
$
3.1

 
$
(4.5
)
 
$
(3.1
)
The sensitivity analysis below shows the effect on 2017 estimated net periodic benefit income from a 25 basis point change in the expected return on plan assets:
(Dollars in millions)
25 Basis Point Increase
 
25 Basis Point Decrease
Expected return on plan assets
U.S. Qualified Plans
 
UK Plan
 
U.S. Qualified Plans
 
UK Plan
Effect on 2017 estimated net periodic benefit expense (income)
$
(4.3
)
 
$
(3.0
)
 
$
4.3

 
$
3.0

Funding
In determining the amount and timing of pension contributions for the U.S. Plans, we consider our cash position, the funded status as measured by the Pension Protection Act of 2006 (the “PPA”) and generally accepted accounting principles, and the tax deductibility of contributions, among other factors. We made contributions of $5.4 million and $0.9 million to the U.S. Non-Qualified Plans in 2016 and 2015, respectively. We estimate that we will make $5.4 million of contributions to the U.S. Non-Qualified Plans in 2017. We made no contributions to the U.S. Qualified Plans in 2016 and 2015. We do not anticipate making any contributions to the U.S. Qualified Plans in 2017.
For the UK Plan, the amount and timing of pension contributions is determined in accordance with UK pension codes and trustee negotiations. We made contributions of $14.2 million and $10.3 million to the UK Plan in 2016 and 2015, respectively. We estimate that we will make $12.7 million of contributions to the UK Plan in 2017.
The impact of plan amendments and actuarial gains and losses are recorded in accumulated other comprehensive income/loss, 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. For additional information, refer to Note 10—Employee Benefit Plans.
Recoverability of Long-Lived Assets
The depreciation or amortization of our capital assets over their estimated useful lives, and the determination of any salvage values, requires management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods, we periodically evaluate whether adjustments to our estimated service lives or salvage values are necessary to ensure these estimates properly match the economic use of the asset. This evaluation may result in changes in the estimated lives and residual values used to depreciate our tractors, trailers and other equipment. These estimates affect the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods and could have a material impact on our results of operations. Historically, gains and losses on disposals of operating equipment have not been material. However, such amounts may differ materially in the future due to changes in business levels, technological obsolescence, accident frequency, regulatory changes and other factors beyond our control.
Income Taxes
Our annual effective tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. We review our tax positions quarterly as new information becomes available. Our income tax rate is affected by the mix of income between our domestic and foreign operations. In general, deferred tax liabilities have not been recorded for foreign earnings because it is our practice and intention to reinvest the earnings of our non-U.S. subsidiaries in those operations. Due to the uncertainty caused by various methods in which such earnings could be repatriated, it is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
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 loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by

30



assessing all available evidence, including the reversal of the deferred tax liabilities, carrybacks available and historical and projected pre-tax profits generated by our operations. These sources of income rely heavily on estimates. The future settlement of deferred tax liabilities, which will enable the Company to realize its existing deferred tax assets when they reverse, was the most significant factor in our determination of the valuation allowance under the “more likely than not” criteria. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established.
Evaluation of Goodwill Impairment
Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; and a determination of the fair value of each reporting unit.
We estimate the fair value of our reporting units using an income approach based on the present value of estimated future cash flows. We review goodwill for impairment utilizing a two-step process. The first step of the impairment test requires a comparison of the fair value of each of our reporting units' net assets to the respective carrying value of net assets. If the carrying value of a reporting unit's net assets is less than its fair value, no indication of impairment exists and a second step is not performed. If the carrying amount of a reporting unit's net assets is higher than its fair value, there is an indication that an impairment may exist and a second step must be performed. In the second step, the impairment is calculated by comparing the implied fair value of the reporting unit's goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. If the carrying amount of the reporting unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess and charged to operations.
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. We also make certain forecasts about future economic conditions, interest rates and other market data. 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.
We completed our goodwill impairment test for our identified reporting units as of August 31, 2016. Based on the analysis prepared, the fair value of our reporting units substantially exceeded the carrying value at the testing date.
Self-Insurance Accruals
The Company uses a combination of self-insurance programs and large-deductible purchased insurance to provide for the costs of medical, vehicular, cargo and workers' compensation claims. The long-term portion of self-insurance accruals relates primarily to workers' compensation and vehicular claims that are expected to be payable over several years. The Company periodically evaluates the level of insurance coverage and adjusts insurance levels based on risk tolerance and premium expense. The measurement and classification of self-insured costs requires the consideration of historical cost experience, demographic and severity factors, and judgments about the current and expected levels of cost per claim and retention levels. These methods provide estimates of undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of claims incurred but not reported. The Company believes the actuarial methods are appropriate for measuring these highly judgmental self-insurance accruals. However, based on the magnitude of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above. Accordingly, changes in these assumptions and factors can materially affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims.
ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves 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
Term Loan Facility. At December 31, 2016, we had outstanding $1,481.9 million aggregate principal amount on our Term Loan Facility. The interest rate fluctuates based on LIBOR or a Base Rate, as defined in the agreement, plus an applicable margin of 3.25%, in the case of LIBOR loans, and 2.25%, in the case of Base Rate loans. A hypothetical 100-basis-point increase in the interest rate would increase our annual interest expense by $14.8 million.
ABL Facility. We have exposure to changes in interest rates on our ABL Facility. The interest rates on our ABL Facility fluctuate based on LIBOR or a Base Rate plus an applicable margin. Assuming our $1.0 billion ABL Facility was fully drawn at

31



December 31, 2016, a hypothetical 100-basis-point change in the interest rate would have increased our annual interest expense by $7.5 million.
Asset Financing. At December 31, 2016, we had outstanding $145.0 million aggregate principal amount of Asset Financing. While most of the Asset Financing has floating interest rates that subjects us to risk resulting from changes in short-term (primarily Euribor) interest rates, we use interest rate swaps (exchanging a variable rate for a fixed rate) to manage the fixed and floating interest rate mix of our Asset Financing and limit our exposure to interest rate risk.
Foreign Currency Exchange Risk
We have a significant proportion of our net assets and income in non-U.S. dollar currencies, primarily the EUR and British Pound Sterling (“GBP”). We are exposed to currency risk from the potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR and GBP relative to the U.S. dollar could have an adverse impact on our financial results.
In connection with the issuance of the Senior Notes due 2022, we entered into certain cross-currency swap agreements to partially manage the related foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated Senior Notes due 2022, including the semi-annual interest payments, to fixed-rate, EUR-denominated debt. The risk management objective is to manage a portion of the foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies. In addition to the cross-currency swaps, we use foreign currency denominated notes as nonderivative hedging instruments of our net investments in foreign operations with the same risk management objective as the cross-currency swaps.
In order to mitigate against the risk of a reduction in the value of foreign currency earnings before interest, taxes, depreciation and amortization (“EBITDA”) from the Company’s international operations with the EUR and GBP as the functional currency, the Company uses foreign currency option and forward contracts.
As of December 31, 2016, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in a decrease in net assets of approximately $34.1 million. As of December 31, 2016, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of approximately $40.1 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.
Commodity Price Risk
We are exposed to the impact of market fluctuations in the price of diesel fuel purchased for use in Company-owned vehicles. During the year ended December 31, 2016, diesel prices varied by 24.5% in France, 24.7% in the United Kingdom, and 30.6% in the United States. However, the Company includes price adjustment clauses or cost-recovery mechanisms in many of its customer contracts in the event of a change in the fuel purchase price. The clauses mean that substantially all fluctuations in the purchase price of diesel, except for short-term economic fluctuations, can be passed on to customers in the sales price. Therefore, a hypothetical 10% change in the price of diesel would not be expected to materially alter our financial performance over the long term.
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and supplementary data of the Company required by this Item are included at Part IV, Item 15 of this Annual Report on Form 10-K and are incorporated herein by reference.
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
 

32



ITEM 9A.     CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2016, our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), have 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. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2016 were effective.
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 principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2016 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, 2016.
KPMG LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, has issued an audit report, which is included elsewhere within this Form 10-K, on the effectiveness of our internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
Except as described below, there have not been any changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. During the quarter ended December 31, 2016, we completed the control integration for our 2015 acquisitions of UX Specialized Logistics, LLC, Bridge Terminal Transport Services, Inc., Norbert Dentressangle SA, and Con-way Inc.
ITEM 9B.     OTHER INFORMATION
Not applicable.

33



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 of Part I of this Annual Report on Form 10-K) will be set forth in our definitive Proxy Statement for the 2017 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 website at www.xpo.com, under the heading “Corporate Governance” within the “Investors” tab. 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 2017 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 2017 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 2017 Annual Meeting of Stockholders and is incorporated herein by reference.
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 of Part III of Form 10-K will be set forth in our Proxy Statement for the 2017 Annual Meeting of Stockholders and is incorporated herein by reference.

34



PART IV

Item 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Financial Statement Schedules
The list of Consolidated Financial Statements provided in the accompanying Index to Consolidated Financial Statements is incorporated herein by reference. Such Consolidated Financial Statements are filed as part of this Annual Report on Form 10-K. 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
The exhibits listed on the accompanying Exhibit Index starting on page 85 of this Annual Report on Form 10-K are filed or incorporated by reference as part of this Annual Report on Form 10-K and such Exhibit Index is incorporated herein by reference.

35



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.
February 28, 2017
 
 
 
 
 
XPO LOGISTICS, INC.
 
 
 
 
By:
 
/s/ Bradley S. Jacobs
 
 
 
Bradley S. Jacobs
 
 
 
(Chairman of the Board of Directors and Chief Executive Officer)
 
 
 
 
By:
 
/s/ John J. Hardig
 
 
 
John J. Hardig
 
 
 
(Chief Financial Officer)
 
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/ Bradley S. Jacobs
  
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
 
February 28, 2017
Bradley S. Jacobs
 
 
 
 
/s/ John J. Hardig
  
Chief Financial Officer (Principal Financial Officer)
 
February 28, 2017
John J. Hardig
 
 
 
 
/s/ Lance A. Robinson
  
Global Chief Accounting Officer (Principal Accounting Officer)
 
February 28, 2017
Lance A. Robinson
 
 
 
 
/s/ Gena L. Ashe
 
Director
 
 
February 28, 2017
Gena L. Ashe
 
 
 
 
/s/ Louis DeJoy
 
Director
 
 
February 28, 2017
Louis DeJoy
 
 
 
 
/s/ Michael G. Jesselson
  
Director
 
 
February 28, 2017
Michael G. Jesselson
 
 
 
 
/s/ Adrian P. Kingshott
  
Director
 
 
February 28, 2017
Adrian P. Kingshott
 
 
 
 
/s/ Jason D. Papastavrou
  
Director
 
 
February 28, 2017
Jason D. Papastavrou
 
 
 
 
/s/ Oren G. Shaffer
  
Director
 
 
February 28, 2017
Oren G. Shaffer
 
 
 
 

36






37



Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
XPO Logistics, Inc.:
We have audited the accompanying consolidated balance sheets of XPO Logistics, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss, cash flows and changes in equity for each of the years in the three-year period ended December 31, 2016. We also have audited XPO Logistics, Inc.’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). XPO Logistics, Inc.’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 these consolidated financial statements and an opinion on XPO Logistics, Inc.’s internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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.
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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of XPO Logistics, Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also in our opinion, XPO Logistics, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
/s/ KPMG LLP
Charlotte, North Carolina
February 28, 2017



38



XPO Logistics, Inc.
Consolidated Balance Sheets
 
 
December 31,
(In millions, except share and per share data)
2016
 
2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
373.4

 
$
289.8

Accounts receivable, net of allowances of $26.3 and $16.9, respectively
2,313.3

 
2,266.4

Other current assets
386.9

 
401.0

Total current assets
3,073.6

 
2,957.2

Property and equipment, net of $589.9 and $209.3 in accumulated depreciation, respectively
2,537.4

 
2,852.2

Goodwill
4,325.8

 
4,610.6

Identifiable intangible assets, net of $377.1 and $210.2 in accumulated amortization, respectively
1,534.7

 
1,876.5

Deferred tax asset
2.7

 
113.6

Other long-term assets
224.2

 
233.1

Total long-term assets
8,624.8

 
9,686.0

Total assets
$
11,698.4

 
$
12,643.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
1,056.3

 
$
1,063.7

Accrued expenses
1,382.1

 
1,291.8

Current maturities of long-term debt
136.5

 
135.3

Other current liabilities
156.7

 
203.6

Total current liabilities
2,731.6

 
2,694.4

Long-term debt
4,731.5

 
5,272.6

Deferred tax liability
572.4

 
933.3

Employee benefit obligations
251.4

 
312.6

Other long-term liabilities
373.9

 
369.5

Total long-term liabilities
5,929.2

 
6,888.0

Stockholders’ equity:
 
 
 
Convertible perpetual preferred stock, $.001 par value; 10,000,000 shares authorized; 72,235 and 72,885 of Series A shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
41.6

 
42.0

Common stock, $.001 par value; 300,000,000 shares authorized; 111,087,027 and 109,523,493 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
0.1

 
0.1

Additional paid-in capital
3,244.9

 
3,212.3

Accumulated deficit
(392.9
)
 
(465.0
)
Accumulated other comprehensive loss
(193.7
)
 
(72.3
)
Total stockholders’ equity before noncontrolling interests
2,700.0

 
2,717.1

Noncontrolling interests
337.6

 
343.7

Total equity
3,037.6

 
3,060.8

Total liabilities and equity
$
11,698.4

 
$
12,643.2


See accompanying notes to consolidated financial statements.

39



XPO Logistics, Inc.
Consolidated Statements of Operations
 
 
Year Ended December 31,
(In millions, except per share data)
2016
 
2015
 
2014
Revenue
$
14,619.4

 
$
7,623.2

 
$
2,356.6

Operating expenses
 
 
 
 
 
Cost of transportation and services
7,886.0

 
4,171.4

 
1,701.8

Direct operating expense
4,594.1

 
2,367.0

 
273.2

Sales, general and administrative expense
1,651.2

 
1,113.4

 
422.5

              Total operating expenses
14,131.3

 
7,651.8

 
2,397.5

Operating income (loss)
488.1

 
(28.6
)
 
(40.9
)
Other expense (income)
(9.2
)
 
(7.6
)
 
0.4

Foreign currency loss (gain)
(40.3
)
 
44.8

 
0.4

Debt extinguishment loss
69.7

 

 

Interest expense
361.1

 
216.7

 
48.0

Income (loss) before income tax provision (benefit)
106.8

 
(282.5
)
 
(89.7
)
Income tax provision (benefit)
22.3

 
(90.9
)
 
(26.1
)
Net income (loss)
84.5

 
(191.6
)
 
(63.6
)
Net (income) loss attributable to noncontrolling interests
(15.5
)
 
0.5

 

Net income (loss) attributable to XPO
$
69.0

 
$
(191.1
)
 
$
(63.6
)
 
 
 
 
 
 
Earnings per share data:
 
 
 
 
 
Net income (loss) attributable to common shareholders (Note 16)
$
63.1

 
$
(245.9
)
 
$
(107.4
)
 
 
 
 
 
 
Basic earnings (loss) per share (Note 16)
$
0.57

 
$
(2.65
)
 
$
(2.00
)
Diluted earnings (loss) per share (Note 16)
$
0.53

 
$
(2.65
)
 
$
(2.00
)
 
 
 
 
 
 
Weighted-average common shares outstanding
 
 
 
 
 
Basic weighted-average common shares outstanding
110.2

 
92.8

 
53.6

Diluted weighted-average common shares outstanding
122.8

 
92.8

 
53.6

See accompanying notes to consolidated financial statements.


40



XPO Logistics, Inc.
Consolidated Statements of Comprehensive Loss

 
Year Ended December 31,
(In millions)
2016
 
2015
 
2014
Net income (loss)
$
84.5

 
$
(191.6
)
 
$
(63.6
)
 
 
 
 
 
 
Other comprehensive income (loss)
 
 
 
 
 
Foreign currency translation losses
$
(137.7
)
 
$
(68.5
)
 
$

Unrealized gains (losses) on financial assets/liabilities designated as hedging instruments, net of tax effect of $0.1, $2.2 and $0.0
(7.1
)
 
6.9

 

Change in defined benefit plans liability, net of tax benefit of $3.7, $9.8 and $0.0
4.7

 
(17.0
)
 

Other comprehensive loss
(140.1
)
 
(78.6
)
 

Comprehensive loss
$
(55.6
)
 
$
(270.2
)
 
$
(63.6
)
Less: Comprehensive loss attributable to noncontrolling interests
3.2

 
6.8

 

Comprehensive loss attributable to XPO
$
(52.4
)
 
$
(263.4
)
 
$
(63.6
)

See accompanying notes to consolidated financial statements.

41



XPO Logistics, Inc.
Consolidated Statements of Cash Flows

 
Year Ended December 31,
(In millions)
2016
 
2015
 
2014
Operating activities

 

 

Net income (loss)
$
84.5

 
$
(191.6
)
 
$
(63.6
)
Adjustments to reconcile net income (loss) to net cash from operating activities

 

 

Depreciation and amortization
643.4

 
364.9

 
98.3

Stock compensation expense
54.5

 
27.9

 
7.5

Accretion of debt
17.0

 
6.4

 
7.3

Deferred tax benefit
(20.9
)
 
(91.9
)
 
(30.0
)
Loss on extinguishment of debt
69.7

 

 

Unrealized (gain) loss on foreign currency option and forward contracts
(39.7
)
 
1.0

 

Other
7.4

 
9.4

 
11.2

Changes in assets and liabilities:

 

 

Accounts receivable
(153.7
)
 
7.8

 
(143.9
)
Other assets
17.2

 
(35.3
)
 
9.2

Accounts payable
1.7

 
(51.3
)
 
53.9

Accrued expenses and other liabilities
(55.7
)
 
43.5

 
28.8

Cash flows provided (used) by operating activities
625.4

 
90.8

 
(21.3
)
Investing activities

 

 

Acquisition of businesses, net of cash acquired

 
(3,887.0
)
 
(814.0
)
Proceeds from sale of business, net of $10.5 cash divested
547.7

 

 

Loss on forward contract related to acquisition

 
(9.7
)
 

Payment for purchases of property and equipment
(483.4
)
 
(249.0
)
 
(44.6
)
Proceeds from sale of assets
68.9

 
60.3

 

Other
8.8

 

 
0.3

Cash flows provided (used) by investing activities
142.0

 
(4,085.4
)
 
(858.3
)
Financing activities


 


 


Proceeds from preferred stock and common stock offerings

 
1,260.0

 
1,131.3

Payment for equity issuance costs

 
(31.9
)
 
(33.9
)
Proceeds from issuance of long-term debt
1,377.8

 
4,151.8

 
500.0

Payment of debt issuance costs
(25.8
)
 
(42.9
)
 
(10.4
)
Repurchase of debt
(1,889.2
)
 

 

Repayment of long-term debt and capital leases
(151.4
)
 
(1,215.6
)
 

Proceeds from borrowings on revolving credit facility
360.0

 

 
130.0

Repayment of borrowings on revolving credit facility
(330.0
)
 

 
(205.0
)
Bank overdrafts
(16.5
)
 
(12.3
)
 

Purchase of noncontrolling interests
(1.4
)
 
(459.7
)
 

Dividends paid
(5.4
)
 
(2.8
)
 
(2.9
)
Other
1.1

 
(1.7
)
 
(6.9
)
Cash flows provided (used) by financing activities
(680.8
)
 
3,644.9

 
1,502.2

Effect of exchange rates on cash
(3.0
)
 
(4.6
)
 

Net increase (decrease) in cash
83.6

 
(354.3
)
 
622.6

Cash and cash equivalents, beginning of year
289.8

 
644.1

 
21.5

Cash and cash equivalents, end of year
$
373.4

 
$
289.8

 
$
644.1

Supplemental disclosure of cash flow information:


 


 


Cash paid for interest
$
363.1

 
$
168.2

 
$
19.0

Cash paid for income taxes
$
40.7

 
$
14.5

 
$
2.3

See accompanying notes to consolidated financial statements.


42



XPO Logistics, Inc.
Consolidated Statements of Changes in Equity
For the Three Years Ended December 31, 2016, 2015 and 2014

(Shares in thousands, dollars in millions)
Series A Preferred Stock
 
Series B Preferred Stock
 
Common Stock
 
Treasury Stock
 
Additional Paid-In Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
Non-controlling Interests
 
Total Equity
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2013
74

 
$
42.7

 

 
$

 
30,583

 
$

 
(45
)
 
$
(0.1
)
 
$
525.0

 
$
(111.7
)
 
$

 
$
455.9

 
$

 
$
455.9

Net loss

 

 

 

 

 

 

 

 

 
(63.6
)
 

 
(63.6
)
 

 
$
(63.6
)
Exercise and vesting of stock compensation awards

 

 

 

 
293

 

 

 

 
(4.5
)
 

 

 
(4.5
)
 

 
$
(4.5
)
Conversion of Series A preferred stock to common stock
(1
)
 
(0.5
)
 

 

 
120

 

 

 

 
0.5

 

 

 

 

 
$

Proceeds from issuance of preferred stock, net of issuance costs

 

 
400

 
363.6

 

 

 

 

 

 

 

 
363.6

 

 
$
363.6

Conversion of Series B preferred stock to common stock

 

 
(400
)
 
(363.6
)
 
12,128

 

 

 

 
363.6

 

 

 

 

 
$

Deemed distribution for recognition of beneficial conversion feature on preferred stock

 

 

 

 

 

 

 

 
40.9

 
(40.9
)
 

 

 

 
$

Proceeds from common stock offering, net of issuance costs

 

 

 

 
27,953

 
0.1

 

 

 
733.7

 

 

 
733.8

 

 
$
733.8

Issuance of common stock for acquisitions

 

 

 

 
4,704

 

 
45

 
0.1

 
138.1

 

 

 
138.2

 

 
$
138.2

Issuance of common stock upon conversion of senior notes, net of tax

 

 

 

 
1,641

 

 

 

 
27.1