XPO Inc.

02/05/2026 | Press release | Distributed by Public on 02/05/2026 15:23

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
XPO is a leading provider of freight transportation services, with company-specific avenues for value creation. We use our proprietary technology to move goods efficiently through supply chains for approximately 55,000 customers in North America and Europe.
Our company has two reportable segments: North American Less-Than-Truckload ("LTL"), the largest component of our business; and European Transportation. Our North American LTL segment includes the results of our trailer manufacturing operation.
Within the tables presented, certain amounts may not add due to the use of rounded numbers. Unless otherwise indicated, percentages presented are calculated from the underlying numbers in millions.
Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, for a discussion of our financial condition and results of operations for full year 2024, compared with full year 2023.
Impacts of Notable External Conditions
As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. The overall freight environment continues to be recessionary, due to a mix of macroeconomic pressures on supply and demand. Importantly, we see significant growth potential ahead in our major markets, and we intend to continue expanding our business by investing in capacity for the long-term, gaining profitable market share and aligning price with the value we provide.
Examples of factors that may affect our results include elevated interest rates; economic inflation, which may have a negative effect on certain of our operating costs, such as salaries, wages and employee benefits, fuel and insurance; uncertainty regarding the impacts of tariffs imposed, revoked or reciprocated between the U.S. and its trading partners, including impacts on import costs, export competitiveness and end-market demand for our customers' products; and the ongoing reluctance of some shippers to route goods through areas unsettled by conflict.
We mitigate inflationary pressure with mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases; and we believe that U.S. demand for LTL services may increase when interest rates decrease or tariff uncertainties subside, as both dynamics historically correlate to a rebound in industrial activity.
We cannot predict how future macroeconomic conditions, supply chain constraints or conflicts may adversely affect our results of operations.
Consolidated Summary Financial Results
Years Ended December 31, Percent of Revenue
(Dollars in millions)
2025
2024
2025 2024
Revenue $ 8,157 $ 8,072
Salaries, wages and employee benefits 3,424 3,377 42.0 % 41.8 %
Purchased transportation 1,662 1,701 20.4 % 21.1 %
Fuel, operating expenses and supplies 1,571 1,589 19.3 % 19.7 %
Operating taxes and licenses 83 80 1.0 % 1.0 %
Insurance and claims 167 134 2.0 % 1.7 %
Gains on sales of property and equipment (17) (40) (0.2) % (0.5) %
Depreciation and amortization expense 521 490 6.4 % 6.1 %
Pre-Con-way acquisition environmental matter 35 - 0.4 % - %
Legal matters (13) - (0.2) % - %
Transaction and integration costs 8 53 0.1 % 0.7 %
Restructuring costs 59 27 0.7 % 0.3 %
Operating income 656 660 8.0 % 8.2 %
Other income (6) (37) (0.1) % (0.5) %
Debt extinguishment loss 6 - 0.1 % - %
Interest expense 219 223 2.7 % 2.8 %
Income before income tax provision 437 473 5.4 % 5.9 %
Income tax provision 121 86 1.5 % 1.1 %
Net income $ 316 $ 387 3.9 % 4.8 %
Year Ended December 31, 2025 Compared with Year Ended December 31, 2024
Our consolidated revenue for 2025 increased by 1.1% to $8.2 billion, compared with 2024. Foreign currency movement increased revenue by approximately 1.4 percentage points in 2025. After taking into effect the impact of foreign currency movements, revenue was essentially flat compared with 2024.
Salaries, wages and employee benefits includes compensation-related costs for our employees, including salaries, wages, incentive compensation, healthcare-related costs and payroll taxes, and covers drivers and dockworkers, operations and facility workers and employees in support roles and other positions. Salaries, wages and employee benefits in 2025 was $3.42 billion, or 42.0% of revenue, compared with $3.38 billion, or 41.8% of revenue, in 2024. The year-over-year increase as a percentage of revenue primarily reflects higher costs due to the insourcing of a greater proportion of linehaul from third-party transportation providers in our North American LTL segment and wage inflation.
Purchased transportation includes costs of procuring third-party freight transportation. Purchased transportation in 2025 was $1.66 billion, or 20.4% of revenue, compared with $1.70 billion, or 21.1% of revenue, in 2024. The year-over-year decrease as a percentage of revenue primarily reflects the insourcing of a greater proportion of linehaul from third-party transportation providers in our North American LTL segment, partially offset by higher purchased transportation in our European Transportation segment.
Fuel, operating expenses and supplies includes the cost of fuel purchased for use in our vehicles as well as related taxes, maintenance and lease costs for our equipment, including tractors and trailers, costs related to operating our owned and leased facilities, bad debt expense, third-party professional fees, information technology expenses and supplies expense. Fuel, operating expenses and supplies was $1.57 billion in 2025, or 19.3% of revenue, compared with $1.59 billion, or 19.7% of revenue, in 2024. The year-over-year decrease as a percentage of revenue primarily reflects lower fuel costs.
Operating taxes and licenses includes tax expenses related to our vehicles and our owned and leased facilities as well as license expenses to operate our vehicles. Operating taxes and licenses in 2025 was $83 million, compared with $80 million in 2024.
Insurance and claims includes costs related to vehicular and cargo claims for both purchased insurance and self-insurance programs. Insurance and claims in 2025 was $167 million, compared with $134 million in 2024. The year-over-year increase primarily reflects higher vehicular insurance costs in our North American LTL segment.
Gains on sales of property and equipment in 2025 was $17 million, compared with $40 million in 2024. The year-over-year decrease primarily reflects lower gains on real estate transactions in our North American LTL segment in 2025 compared with 2024.
Depreciation and amortization expense in 2025 was $521 million, compared with $490 million in 2024. The year-over-year increase reflects the impact of capital investments in property, tractors and trailers in our North American LTL segment.
Pre-Con-way acquisition environmental matter for 2025 was a charge of $35 million, with no comparable charges in 2024. This matter relates to environmental and product liability claims involving truck and part manufacturing plants of a former subsidiary of Con-way, which they sold in 1981 long before XPO's acquisition of Con-way in 2015. The matter is solely related to a legacy Con-way truck manufacturing business and is unrelated to the operations of our North American LTL segment.
Legal matters was a gain of $13 million in 2025, with no comparable gain in 2024. The gain recognized in 2025 reflects the settlement of claims against certain truck manufacturers related to purchases by our European Transportation segment covering periods prior to our acquisition of Norbert Dentressangle SA in 2015.
Transaction and integration costs in 2025 were $8 million, compared with $53 million in 2024. The year-over-year decrease primarily relates to no further stock-based compensation costs in the current year for certain employees related to strategic initiatives.
Restructuring costs in 2025 were $59 million, compared with $27 million in 2024. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. In 2025, restructuring costs primarily reflect share-based compensation in Corporate, and severance and related charges incurred in connection with headcount reduction initiatives in our European Transportation segment. In 2024, restructuring costs primarily related to headcount reduction initiatives in our European Transportation segment. For more information, see Note 5-Restructuring Charges to our Consolidated Financial Statements.
Other income primarily consists of pension income for both 2025 and 2024, while 2024 also includes investment income. Other income for 2025 was $6 million, compared with $37 million in 2024. The year-over-year decrease reflects a $19 million decline in pension income and a $13 million decline in investment income related to the sale of a past investment in a private company in 2024.
Debt extinguishment loss was $6 million in 2025, which related to the refinancing of our term loan facility in the first quarter of 2025. There was no debt extinguishment loss in 2024.
Interest expense for 2025 decreased 1.8% to $219 million, from $223 million in 2024. The decrease is primarily due to a reduction in our debt coupled with lower interest rates on our variable rate debt, partially offset by lower interest income. We anticipate interest expense to be between $205 million and $215 million in 2026.
Our consolidated income before income tax provision in 2025 was $437 million, compared with $473 million in 2024. The decrease was primarily driven by lower other income and operating income. With respect to our U.S. operations, income before income tax provision was $456 million in 2025, compared with income of $486 million in 2024. The decrease was primarily due to lower revenue, higher insurance and claims, lower gains on real estate transactions, higher depreciation and amortization, higher costs related to legal matters, higher restructuring costs, and lower other income, partially offset by lower purchased transportation and lower transaction and integration costs. With respect to our non-U.S. operations, loss before income tax provision was $19 million in 2025, compared
with a loss of $13 million in 2024. The increase in the loss is primarily due to higher purchased transportation, salaries, wages and employee benefits, and restructuring costs, partially offset by higher revenue and a gain on legal matters in 2025.
Our effective income tax rates were 27.8% and 18.1% in 2025 and 2024, respectively. The increase in our effective income tax rate for 2025 compared to 2024 was primarily driven by a one-time tax benefit of $41 million associated with the legal entity reorganization in our European Transportation business that occurred in the second quarter of 2024, partially offset by $6 million in U.S. foreign tax credits recognized in 2025. For 2025, our effective tax rate was impacted by $12 million from non-deductible compensation and $12 million from losses for which no tax benefit can be recognized partially offset by $6 million in U.S. foreign tax credits. For 2024, our effective tax rate was impacted by $49 million of discrete tax benefits, the largest of which was a $41 million benefit from the legal entity reorganization in our European Transportation business, offset by $16 million from non-deductible compensation and $9 million from losses for which no tax benefit can be recognized.
As previously disclosed, we expected the legal entity reorganization in our European Transportation business to generate a net cash refund of approximately $45 million. In 2024, we made tax payments of $7 million and in 2025 we received a cash refund of $49 million. We expect to receive the remaining $3 million cash refund in 2026.
Segment Financial Results
Our chief operating decision maker ("CODM") regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. For our North American LTL and European Transportation segments, our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), which we define as income from continuing operations before debt extinguishment loss, interest expense, income tax provision, depreciation and amortization expense, legal matters, transaction and integration costs, restructuring costs and other adjustments. Segment adjusted EBITDA includes an allocation of corporate costs. See Note 3-Segment Reporting and Geographic Information for further information and a reconciliation of adjusted EBITDA to Income from continuing operations.
North American Less-Than-Truckload Segment
Years Ended December 31, Percent of Revenue
(Dollars in millions) 2025 2024 2025 2024
Revenue $ 4,832 $ 4,899
Adjusted EBITDA (1)
1,142 1,115 23.6 % 22.8 %
Depreciation and amortization expense 381 346 7.9 % 7.1 %
(1) Percent of Revenue is calculated using the underlying unrounded amounts.
Year Ended December 31, 2025 Compared with Year Ended December 31, 2024
Revenue in our North American LTL segment decreased 1.4% to $4.8 billion in 2025, compared with $4.9 billion in 2024. Revenue included fuel surcharge revenue of $731 million and $785 million, respectively, for the years ended December 31, 2025 and 2024. The decrease in fuel surcharge revenue was primarily driven by lower diesel prices and lower volume.
We evaluate the revenue performance of our LTL business using several commonly used metrics, including tonnage (weight per day in pounds) and yield, which is a commonly used measure of LTL pricing trends. We measure yield using gross revenue per hundredweight, excluding fuel surcharges. Impacts on yield can include weight per shipment and length of haul, among other factors, while impacts on tonnage can include shipments per day and weight per shipment. The following table summarizes our key revenue metrics:
Years Ended December 31,
2025 2024 Change %
Pounds per day (thousands) 65,268 69,606 (6.2) %
Shipments per day 49,420 51,508 (4.1) %
Average weight per shipment (in pounds) 1,321 1,351 (2.3) %
Gross revenue per hundredweight, excluding fuel surcharges $ 25.39 $ 23.94 6.0 %
Percentages presented are calculated using the underlying unrounded amounts.
The year-over-year decrease in revenue for 2025, excluding fuel surcharge revenue, reflects lower tonnage, almost entirely offset by higher yield, primarily related to our improvements in service quality and the benefit of numerous pricing initiatives. The decrease in tonnage per day reflects lower shipments per day and lower average weight per shipment.
Adjusted EBITDA was $1.14 billion in 2025, compared with $1.12 billion in 2024. Adjusted EBITDA included gains from real estate transactions of $15 million for the year ended December 31, 2025 and $34 million in 2024. Excluding these gains, the increase in adjusted EBITDA reflected higher yield, lower purchased transportation, productivity improvements and lower maintenance costs, partially offset by lower tonnage, lower fuel surcharge revenue, wage inflation, higher vehicular insurance costs and lower pension income.
Depreciation and amortization expense increased to $381 million in 2025 compared with $346 million in 2024 due to the impact of capital investments in property, tractors and trailers.
European Transportation Segment
Years Ended December 31, Percent of Revenue
(Dollars in millions) 2025 2024 2025 2024
Revenue $ 3,324 $ 3,173
Adjusted EBITDA (1)
147 158 4.4 % 5.0 %
Depreciation and amortization expense 136 140 4.1 % 4.4 %
(1) Percent of Revenue is calculated using the underlying unrounded amounts.
Year Ended December 31, 2025 Compared with Year Ended December 31, 2024
Revenue in our European Transportation segment increased 4.8% to $3.3 billion in 2025, compared with $3.2 billion in 2024. Foreign currency movement increased revenue by approximately 3.6 percentage points in 2025.
Adjusted EBITDA was $147 million in 2025, compared with $158 million in 2024. The decrease in adjusted EBITDA was primarily driven by higher purchased transportation and salaries, wages and employee benefits, partially offset by higher revenue.
Depreciation and amortization expense decreased to $136 million in 2025 compared with $140 million in 2024.
Liquidity and Capital Resources
Our cash and cash equivalents balance was $310 million as of December 31, 2025, compared to $246 million as of December 31, 2024. Our principal existing sources of cash are (i) cash generated from operations; (ii) borrowings available under our Revolving Credit Facility (as defined below); and (iii) proceeds from the issuance of other debt. As of December 31, 2025, we have $600 million available to draw under our Revolving Credit Facility, after considering outstanding letters of credit of less than $1 million. Additionally, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $133 million in aggregate face amount of letters of credit as of December 31, 2025.
In February 2025, we terminated our Second Amended and Restated Revolving Credit Agreement, as amended, and entered into a Revolving Credit Agreement (the "Revolving Credit Agreement"). The Revolving Credit Agreement provides for revolving credit commitments in an aggregate amount of $600 million (the "Revolving Credit Facility"). See Note 11-Debt to our Consolidated Financial Statements for further information.
As of December 31, 2025, we had approximately $910 million of total liquidity. We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We also sell trade accounts receivable under a securitization program for our European transportation business. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers. For more information, see Note 2 -Significant Accounting Policies to our Consolidated Financial Statements.
The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $235 million as of December 31, 2025). As of December 31, 2025, the maximum amount available under the program was utilized. Under the securitization program, we service the receivables we sell on behalf of the purchasers. In January 2026, the program was amended to extend the maturity date through March 2029.
Information related to the trade receivables sold was as follows:
Years Ended December 31,
(In millions) 2025 2024
Securitization programs
Receivables sold in period
$ 1,881 $ 1,762
Cash consideration
1,881 1,762
Factoring programs
Receivables sold in period
70 79
Cash consideration
67 78
Term Loan Facility
In February 2025, we amended our Senior Secured Term Loan Credit Agreement. Pursuant to the amendment, the lenders provided the company (a) a term loan B facility in an aggregate principal amount of $700 million, maturing on May 24, 2028 (the "Refinancing Term Loan B-2 Facility"), and (b) a term loan B facility in an aggregate principal amount of $400 million, maturing on February 1, 2031 (the "Refinancing Term Loan B-3 Facility" and together with the Refinancing Term Loan B-2 Facility, the "Refinancing Term Loan Facilities"). The proceeds of the Refinancing Term Loan Facilities were used to refinance our existing term loans. We recorded a debt extinguishment loss of $5 million in the first quarter of 2025 due to this refinancing.
In the second half of 2025, we used cash on hand to repay $115 million of outstanding principal under the Refinancing Term Loan B-2 Facility, which was scheduled to mature in 2028.
The Refinancing Term Loan Facilities bear interest at a rate per annum equal to, at the Company's option, either alternate base rate ("ABR") or Term Secured Overnight Financing Rate ("SOFR") plus (i) in the case of ABR Loans, 0.75% or, (ii) in the case of Term SOFR Loans, 1.75%, which shall be reduced by 0.25% upon the achievement of a Consolidated First Lien Net Leverage Ratio (as defined in the Amended Term Loan Credit Agreement) of less than or equal to 1.21 to 1.00. The Refinancing Term Loan Facilities are secured by a lien on substantially all of our assets and the assets of our guarantors, with certain exceptions.
The Amended Term Loan Credit Agreement contains customary mandatory prepayment requirements, representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, dividends, repayments of junior financings and asset sales, in each case subject to a number of important exceptions and qualifications.
The weighted average interest rate of our term loans was approximately 5.4% as of December 31, 2025.
Share Repurchases
In March 2025, our Board of Directors authorized repurchases of up to $750 million of our common stock. The repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business and market conditions, alternative investment opportunities and funding considerations. We retire common shares that we repurchase upon settlement. The new share repurchase program has no expiration date and may be utilized over time, with no obligation to repurchase any specific number of shares. We may suspend or discontinue this program at any time. This plan replaced our previous share repurchase plan, authorized in February 2019.
During 2025, we repurchased 954 thousand shares of common stock with an aggregate value of $125 million at an average price of $130.96 per share. The share repurchases were funded by cash on hand. There were no share repurchases in 2024 and 2023. As of December 31, 2025, our remaining share repurchase authorization was $625 million.
Loan Covenants and Compliance
As of December 31, 2025, we were in compliance with the covenants and other provisions of our debt agreements. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
Sources and Uses of Cash
Our cash flows from operating, investing and financing activities from continuing operations, as reflected on our Consolidated Statements of Cash Flows, are summarized as follows:
Years Ended December 31,
(In millions) 2025 2024
Net cash provided by operating activities from continuing operations 986 808
Net cash used in investing activities from continuing operations (616) (702)
Net cash provided by (used in) financing activities from continuing operations (339) (226)
During 2025, we: (i) generated cash from operating activities from continuing operations of $986 million and (ii) generated proceeds from sales of property and equipment of $41 million. We used cash during this period primarily to: (i) purchase property and equipment of $657 million; (ii) repurchase common stock of $125 million; (iii) repay $115 million of outstanding principal under the Refinancing Term Loan B-2 Facility; (iv) make payments on debt and finance leases of $73 million; and (v) make net payments of $50 million related to tax withholding obligations in connection with the vesting of restricted shares.
During 2024, we: (i) generated cash from operating activities from continuing operations of $808 million and (ii) generated proceeds from sales of property and equipment of $75 million. We used cash during this period primarily to: (i) purchase property and equipment of $789 million; (ii) make payments of $129 million related to tax withholding obligations in connection with the vesting of restricted shares; and (iii) make payments on debt and finance leases of $82 million.
Cash flows from operating activities from continuing operations for 2025 increased by $178 million compared with 2024. The increase in 2025 compared with 2024 reflects: (i) the impact of operating assets and liabilities utilizing $45 million of cash in 2025, compared with utilizing $194 million in 2024; (ii) higher deferred tax expense of $42 million, that is added back in the determination of operating cash flows; (iii) higher non-cash depreciation and
amortization of $31 million, that is added back in the determination of operating cash flows; and (iv) lower gains on sales of property and equipment of $23 million, that is subtracted in the determination of operating cash flows. These items were partially offset by lower net income of $71 million.
As of December 31, 2025, we had $941 million of operating lease and related interest payment obligations, of which $204 million is due within the next twelve months. Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $75 million. These operating leases will commence in 2026 with initial lease terms of 4 years to 15 years. For further information on our operating leases and their maturities, see Note 7-Leases to our Consolidated Financial Statements. As of December 31, 2025, we have approximately $75 million of purchase commitments, of which approximately $40 million is due within the next twelve months.
Investing activities from continuing operations used $616 million of cash in 2025 compared with $702 million used in 2024. During 2025, we used $657 million of cash to purchase property and equipment and received $41 million from sales of property and equipment. During 2024, we used $789 million of cash to purchase property and equipment and received $75 million of cash from sales of property and equipment, including $47 million related to the sale of a service center in our North American LTL segment in December 2024 from a planned service center relocation. In January 2025, the proceeds from this sale were used to purchase four new service centers that were previously leased. We anticipate gross capital expenditures to be between $500 million and $600 million in 2026, funded by cash on hand and available liquidity.
Financing activities from continuing operations used $339 million of cash in 2025 compared with $226 million of cash used in 2024. The primary uses of cash from financing activities during 2025 were $125 million to repurchase common stock, $115 million to repay outstanding principal under the Refinancing Term Loan B-2 Facility, which was scheduled to mature in 2028, $73 million to repay borrowings, primarily related to finance lease obligations, and $50 million to make net payments for tax withholdings on restricted shares, primarily during the first quarter of 2025. The primary uses of cash from financing activities during 2024 was $129 million to make payments for tax withholdings on restricted shares, primarily driven by a payment of approximately $85 million for tax withholdings on XPO restricted stock units that vested during December, and $82 million used to repay borrowings, primarily related to finance lease obligations.
As of December 31, 2025, we had $3.2 billion total outstanding principal amount of debt, excluding finance leases. We have no significant debt maturities until 2028. Interest on our Revolving Credit Facility and the Refinancing Term Loan Facilities is variable, while interest on our senior notes is at fixed rates. Future interest payments associated with our debt total $947 million at December 31, 2025, with $202 million payable within 12 months, and are estimated based on the principal amount of debt and applicable interest rates as of December 31, 2025. Additionally, as of December 31, 2025, we have $294 million of finance lease and related interest payment obligations, of which $62 million is due within the next twelve months. For further information on our debt facilities and maturities, see Note 11-Debt to our Consolidated Financial Statements. For further information on our finance lease maturities, see Note 7-Leases to our Consolidated Financial Statements.
Defined Benefit Pension Plans
We sponsor both funded and unfunded defined benefit plans for some employees in the U.S. Historically, we have realized income, rather than expense, from these plans. We generated aggregate income from our plans of $6 million in 2025, $25 million in 2024 and $18 million in 2023. The plans have been generating income due to their funded status and because they do not allow for new plan participants or additional benefit accruals.
Defined benefit pension plan amounts are calculated using various actuarial assumptions and methodologies. Assumptions include discount rates, inflation rates, expected long-term rate of return on plan assets, mortality rates, and other factors. The assumptions used in recording the projected benefit obligations and fair value of plan assets represent our best estimates based on available information regarding historical experience and factors that may cause future expectations to differ. Differences in actual experience or changes in assumptions could materially impact our obligation and future expense or income.
Discount Rate
In determining the appropriate discount rate, we are assisted by actuaries who utilize a yield-curve model based on a universe of high-grade corporate bonds (rated AA or better by Moody's, S&P or Fitch rating services). The model determines a single equivalent discount rate by applying the yield curve to expected future benefit payments.
The discount rates used in determining the net periodic benefit costs and benefit obligations are as follows:
Qualified Plans Non-Qualified Plans
2025 2024 2025 2024
Discount rate - net periodic benefit costs 5.33 % 5.08 % 4.99% - 5.25%
5.02% - 5.05%
Discount rate - benefit obligations 5.40 % 5.63 % 4.60% - 5.20%
5.21% - 5.55%
An increase or decrease of 25 basis points in the discount rate would increase or decrease our 2025 pre-tax pension income by less than $1 million.
We use a full yield curve approach to estimate the interest cost component of net periodic benefit cost by applying specific spot rates along the yield curve used to determine the benefit obligation to each of the underlying projected cash flows based on time until payment.
Rate of Return on Plan Assets
We estimate the expected return on plan assets using current market data as well as historical returns. The expected return on plan assets is based on estimates of long-term returns and considers the plans' anticipated asset allocation over the course of the next year. The plan assets are managed using a long-term liability-driven investment strategy that seeks to mitigate the funded status volatility by increasing participation in fixed-income investments generally as funded status increases. This strategy was developed by analyzing a variety of diversified asset-class combinations in conjunction with the projected liabilities of the plans.
For the year ended December 31, 2025, our expected return on plan assets was $77 million, compared to the actual return on plan assets of $130 million. The actual annualized return on plan assets for 2025 was approximately 10%, which was above the expected return on asset assumption for the year due to strong equity and fixed income market returns. An increase or decrease of 25 basis points in the expected return on plan assets would increase or decrease our 2025 pre-tax pension income by approximately $3 million.
Actuarial Gains and Losses
Changes in the discount rate and/or differences between the expected and actual rate of return on plan assets results in unrecognized actuarial gains or losses. For our defined benefit pension plans, accumulated unrecognized actuarial losses were $167 million as of December 31, 2025. The portion of the unrecognized actuarial gain/loss that exceeds 10% of the greater of the projected benefit obligation or the fair value of plan assets at the beginning of the year is amortized and recognized as income/expense over the estimated average remaining life expectancy of plan participants.
Effect on Results
The effects of the defined benefit pension plans on our results consist primarily of the net effect of the interest cost on plan obligations and the expected return on plan assets. We estimate that the defined benefit pension plans will contribute annual pre-tax income in 2026 of approximately $14 million.
Funding
In determining the amount and timing of pension contributions, we consider our cash position, the funded status as measured by the Pension Protection Act of 2006 and generally accepted accounting principles, and the tax deductibility of contributions, among other factors. We made benefit payments of $5 million in both 2025 and 2024 under the non-qualified plans and we estimate that we will make benefit payments of $5 million in 2026.
For additional information, see Note 12-Employee Benefit Plans to our Consolidated Financial Statements.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles. A summary of our significant accounting policies is contained in Note 2-Significant Accounting Policies to our Consolidated Financial Statements. The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. We have identified below our accounting policies that we believe could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.
Evaluation of Goodwill
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually as of August 31, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. We measure goodwill impairment, if any, at the amount a reporting unit's carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. Application of the goodwill impairment test requires judgment, including the identification of reporting units, the assignment of assets and liabilities to reporting units, the assignment of goodwill to reporting units, and a determination of the fair value of each reporting unit.
Accounting guidance allows entities to perform a qualitative assessment (a "step-zero" test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. The qualitative assessment includes a review of macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors.
For our 2025 annual goodwill assessment, we performed a step-zero qualitative analysis for four of our reporting units. Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of these reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment. For our other reporting unit, we performed a quantitative analysis using a combination of income and market approaches. The fair value of the reporting unit exceeded its carrying value, resulting in no impairment of goodwill.
For our 2024 annual goodwill assessment, we performed a step-zero qualitative analysis for two of our reporting units. Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of these reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment. For our other three reporting units, we performed a quantitative analysis using a combination of income and market approaches. All reporting units had fair values in excess of their carrying values, resulting in no impairment of goodwill.
For our 2023 annual goodwill assessment, we performed a step-zero qualitative analysis for our five reporting units. Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.
The income approach of determining fair value is based on the present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. The discount rates reflect management's judgment and are based on a risk adjusted weighted-average cost of capital utilizing industry market data of businesses similar to the reporting units. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of
our operating results, business plans, expected growth rates, cost of capital and tax rates. Our forecasts also reflect expectations concerning future economic conditions, interest rates and other market data. The market approach of determining fair value is generally based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.
Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of potential impairment.
Self-Insurance Accruals
We use a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, liability, vehicular, cargo, workers' compensation, cyber risk and property claims. We periodically evaluate our level of insurance coverage and adjust our insurance levels based on risk tolerance, premium expense, and insurance availability. Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Additionally, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections. We believe the actuarial methods are appropriate for measuring these self-insurance accruals. However, because of the number of claims and the length of time from incurrence of the claims to ultimate settlement, the use of any estimation method is sensitive to the assumptions and factors described above along with other external factors. Accordingly, changes in these assumptions and factors can affect the estimated liability and those amounts may be different than the actual costs paid to settle the claims.
Income Taxes
Our annual effective tax rate is based on our income and statutory tax rates in the various jurisdictions in which we operate. Judgment and estimates are required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties. Evaluating our tax positions would include but not be limited to our tax positions on internal restructuring transactions as well as the spin-offs of RXO and GXO. We review our tax positions quarterly and as new information becomes available. Our effective tax rate in any financial statement period may be materially impacted by changes in the mix and/or level of earnings by taxing jurisdiction.
Deferred income tax assets represent amounts available to reduce income taxes payable in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing all available evidence, including the reversal of deferred tax liabilities, carrybacks available, and historical and projected pre-tax profits generated by our operations. Valuation allowances are established when, in management's judgment, it is more likely than not that our deferred tax assets will not be realized. In assessing the need for a valuation allowance, management weighs the available positive and negative evidence, including limitations on the use of tax losses and other carryforwards due to changes in ownership, historic information, and projections of future sources of taxable income that include and exclude future reversals of taxable temporary differences.
New Accounting Standards
Information related to new accounting standards is included in Note 2-Significant Accounting Policies.
XPO Inc. published this content on February 05, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 05, 2026 at 21:23 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]