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EX-31.1 - EXHIBIT 31.1 - XPO Logistics, Inc.exhibit311-q32015.htm
EX-32.2 - EXHIBIT 32.2 - XPO Logistics, Inc.exhibit322-q32015.htm
EX-10.4 - EXHIBIT 10.4 - XPO Logistics, Inc.exhibit104-q32015.htm
EX-31.2 - EXHIBIT 31.2 - XPO Logistics, Inc.exhibit312-q32015.htm
EX-10.3 - EXHIBIT 10.3 - XPO Logistics, Inc.exhibit103-q32015.htm
EX-32.1 - EXHIBIT 32.1 - XPO Logistics, Inc.exhibit321-q32015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________
Form 10-Q 
_____________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
¨
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 Greenwich Office Park
Greenwich, CT
 
06831
(Address of principal executive offices)
 
(Zip code)
(855) 976-4636
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
 _____________________________________
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 Web site, 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 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.
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 Exchange Act).    Yes  ¨    No  ý
As of November 6, 2015, there were 108,375,625 shares of the registrant’s common stock, par value $0.001 per share, outstanding.



XPO Logistics, Inc.
Form 10-Q
Index
 
 
 
 
 
 


2


Part I—Financial Information
Item 1. Financial Statements.
XPO Logistics, Inc.
Condensed Consolidated Balance Sheets
(In millions, except share and per share data) 
 
September 30, 2015
 
December 31, 2014
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,285.3

 
$
644.1

Accounts receivable, net of allowances of $8.9 and $9.8, respectively
1,647.2

 
543.8

Deferred tax asset, current
23.4

 
9.2

Other current assets
284.8

 
36.0

Total current assets
3,240.7

 
1,233.1

Property and equipment, net of $144.6 and $47.3 in accumulated depreciation, respectively
955.7

 
221.9

Goodwill
3,445.0

 
929.3

Identifiable intangible assets, net of $158.9 and $74.6 in accumulated amortization, respectively
1,159.4

 
341.5

Deferred tax asset, long-term
106.0

 

Other long-term assets
129.8

 
35.4

Total long-term assets
5,795.9

 
1,528.1

Total assets
$
9,036.6

 
$
2,761.2

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
958.4

 
$
252.7

Accrued expenses, other
648.9

 
119.9

Current maturities of long-term debt
120.3

 
1.8

Deferred tax liability, current
28.1

 

Other current liabilities
193.1

 
6.7

Total current liabilities
1,948.8

 
381.1

Long-term debt
3,359.1

 
592.1

Deferred tax liability, long-term
345.3

 
74.5

Employee benefit obligations
106.7

 

Other long-term liabilities
136.9

 
58.4

Total long-term liabilities
3,948.0

 
725.0

Commitments and contingencies

 

Stockholders’ equity:
 
 
 
Convertible perpetual preferred stock, $.001 par value; 10,000,000 shares authorized; 72,885 and 73,335 of Series A shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
42.0

 
42.2

Common stock, $.001 par value; 300,000,000 shares authorized; 108,373,631 and 77,421,683 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
0.1

 
0.1

Additional paid-in capital
3,168.3

 
1,831.9

Accumulated deficit
(402.6
)
 
(219.1
)
Accumulated other comprehensive income
0.4

 

Noncontrolling interests
331.6

 

Total stockholders’ equity
3,139.8

 
1,655.1

Total liabilities and stockholders’ equity
$
9,036.6

 
$
2,761.2

See accompanying notes to condensed consolidated financial statements.

3


XPO Logistics, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In millions, except per share data)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
2,362.1

 
$
662.5

 
$
4,281.0

 
$
1,525.9

Operating expenses
 
 
 
 
 
 
 
Cost of transportation and services
1,237.3

 
487.4

 
2,385.4

 
1,170.5

Direct operating expense
798.1

 
71.0

 
1,267.5

 
102.2

Sales, general and administrative expense
282.6

 
117.7

 
618.7

 
300.1

Total operating expenses
2,318.0

 
676.1

 
4,271.6

 
1,572.8

Operating income (loss)
44.1

 
(13.6
)
 
9.4

 
(46.9
)
Other expense
1.6

 
0.3

 
3.9

 
0.7

Foreign currency loss
14.5

 

 
34.6

 

Interest expense
61.5

 
17.8

 
120.9

 
31.3

Loss before income tax benefit
(33.5
)
 
(31.7
)
 
(150.0
)
 
(78.9
)
Income tax expense (benefit)
1.9

 
(20.1
)
 
(21.3
)
 
(25.2
)
Net loss
(35.4
)
 
(11.6
)
 
(128.7
)
 
(53.7
)
Preferred stock beneficial conversion charge
(52.0
)
 

 
(52.0
)
 

Cumulative preferred dividends
(0.7
)
 
(0.7
)
 
(2.2
)
 
(2.2
)
Net income attributable to noncontrolling interests
(5.0
)
 

 
(0.6
)
 

Net loss attributable to common shareholders
$
(93.1
)
 
$
(12.3
)
 
$
(183.5
)
 
$
(55.9
)
 
 
 
 
 
 
 
 
Basic loss per share
$
(0.94
)
 
$
(0.23
)
 
$
(2.10
)
 
$
(1.13
)
Diluted loss per share
$
(0.94
)
 
$
(0.23
)
 
$
(2.10
)
 
$
(1.13
)
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
98.6

 
54.5

 
87.3

 
49.5

Diluted weighted average common shares outstanding
98.6

 
54.5

 
87.3

 
49.5

See accompanying notes to condensed consolidated financial statements.

4


XPO Logistics, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In millions)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net loss
$
(35.4
)
 
$
(11.6
)
 
$
(128.7
)
 
$
(53.7
)
Less: Net income attributable to noncontrolling interests
(5.0
)
 

 
(0.6
)
 

Net loss attributable to the Company
$
(40.4
)

$
(11.6
)

$
(129.3
)

$
(53.7
)
 
 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
 
Foreign currency translation (losses) gains, net of tax effect of $0.0, $0.0, $0.0 and $0.0
$
(6.3
)
 
$

 
$
(0.6
)
 
$

Unrealized gains (losses) on cash flow and net investment hedges, net of tax effect of $0.1, $0.0, $0.1 and $0.0
16.2

 

 
(17.0
)
 

Change in defined benefit plans liability, net of tax effect of $(2.5), $0.0, $(5.4) and $0.0
9.9

 

 
21.4

 

Other comprehensive income
19.8

 

 
3.8

 

Less: Other comprehensive loss (income) attributable to noncontrolling interests
1.8

 

 
(3.4
)
 

Other comprehensive income attributable to the Company
$
21.6

 
$

 
$
0.4

 
$

 
 
 
 
 
 
 
 
Comprehensive loss
$
(15.6
)
 
$
(11.6
)
 
$
(124.9
)
 
$
(53.7
)
Less: Comprehensive income attributable to noncontrolling interests
(3.2
)
 

 
(4.0
)
 

Comprehensive loss attributable to the Company
$
(18.8
)
 
$
(11.6
)
 
$
(128.9
)
 
$
(53.7
)
See accompanying notes to condensed consolidated financial statements.


5


XPO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In millions)
 
Nine Months Ended September 30,
 
2015
 
2014
Operating activities
 
 
 
Net loss
$
(128.7
)
 
$
(53.7
)
Adjustments to reconcile net loss to net cash from operating activities
 
 
 
Provisions for allowance for doubtful accounts
2.1

 
5.1

Depreciation and amortization
191.9

 
63.8

Stock compensation expense
19.7

 
5.6

Accretion of debt
4.7

 
4.2

Deferred tax benefit
(41.9
)
 
(28.7
)
Gain on sale of assets
(7.6
)
 

Loss on foreign currency transactions
11.9

 

Other
2.5

 
2.3

Changes in assets and liabilities, net of effects of acquisitions:
 
 
 
Accounts receivable
(2.3
)
 
(73.5
)
Income tax receivable
27.5

 
2.9

Prepaid expense and other assets
5.0

 
1.3

Accounts payable
(59.9
)
 
39.7

Accrued expenses and other liabilities
14.5

 
17.7

Cash flows provided (used) by operating activities
39.4

 
(13.3
)
Investing activities
 
 
 
Acquisition of businesses, net of cash acquired
(1,609.8
)
 
(813.7
)
Loss on forward contract related to acquisition
(9.7
)
 

Payment for purchases of property and equipment
(114.4
)
 
(21.6
)
Proceeds from sale of assets
38.7

 
0.4

Cash flows used by investing activities
(1,695.2
)
 
(834.9
)
Financing activities
 
 
 
Proceeds from preferred stock and common stock offerings
1,260.0

 
1,131.3

Payment for equity issuance costs
(31.9
)
 
(33.4
)
Proceeds from issuance of long-term debt
2,596.7

 
500.0

Payment for debt issuance costs
(7.9
)
 
(10.4
)
Repayment of long-term debt
(1,067.4
)
 

Proceeds from borrowing on revolving credit facility

 
130.0

Repayment of borrowings on revolving credit facility

 
(205.0
)
Bank overdrafts
14.4

 

Purchase of noncontrolling interests
(459.7
)
 

Dividends paid to preferred stockholders
(2.2
)
 
(2.2
)
Other
0.2

 
(3.5
)
Cash flows provided by financing activities
2,302.2

 
1,506.8

Effect of exchange rates on cash
(5.2
)
 

Net increase in cash
641.2

 
658.6

Cash and cash equivalents, beginning of period
644.1

 
21.5

Cash and cash equivalents, end of period
$
1,285.3

 
$
680.1

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for interest
$
93.5

 
$
15.3

Cash paid (received) for income taxes
$
0.5

 
$
(1.1
)
Equity portion of acquisition purchase price
$
1.5

 
$
138.3

Equity issued upon conversion of debt
$
42.3

 
$
10.5

See accompanying notes to condensed consolidated financial statements.

6


XPO Logistics, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Nine Months Ended September 30, 2015
(Unaudited)
(In millions, except for share data)
 
 
Series A Preferred Stock
 
Series C Preferred Stock
 
Common Stock
 
 
 
 
 
Accumulated Other Comprehensive Income/(Loss)
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Foreign Currency Translation Adjustments
 
Cash Flow & Net Investment Hedges
 
Employee Benefit Plans
 
Non-controlling Interests
 
Total
Balance, December 31, 2014
73

 
$
42.2

 

 
$

 
77,422

 
$
0.1

 
$
1,831.9

 
$
(219.1
)
 
$

 
$

 
$

 
$

 
$
1,655.1

Net loss

 

 

 

 

 

 

 
(128.7
)
 

 

 

 

 
$
(128.7
)
Other comprehensive income (loss), net of $5.3 total tax effect

 

 

 

 

 

 

 

 
(0.6
)
 
(17.0
)
 
21.4

 

 
$
3.8

Transfer to noncontrolling interest from redeemable noncontrolling interest

 

 

 

 

 

 
4.2

 

 

 

 

 
320.4

 
$
324.6

Acquisition of noncontrolling interests and current year activity

 

 

 

 

 

 

 
(0.6
)
 
0.5

 
0.3

 
(4.2
)
 
11.2

 
$
7.2

Exercise of warrants and stock options and other

 

 

 

 
338

 

 
0.7

 

 

 

 

 

 
$
0.7

Conversion of Series A preferred stock to common stock

 
(0.2
)
 

 

 
64

 

 
0.2

 

 

 

 

 

 
$

Proceeds from issuance of preferred stock, net of issuance costs

 

 
563

 
548.5

 

 

 

 

 

 

 

 

 
$
548.5

Conversion of Series C preferred stock to common stock

 

 
(563
)
 
(548.5
)
 
12,501

 

 
548.5

 

 

 

 

 

 
$

Deemed distribution for recognition of beneficial conversion feature on preferred stock

 

 

 

 

 

 
52.0

 
(52.0
)
 

 

 

 

 
$

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 
15,499

 

 
679.6

 

 

 

 

 

 
$
679.6

Issuance of common stock for acquisitions

 

 

 

 
38

 

 
1.5

 

 

 

 

 

 
$
1.5

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

 

 

 

 
2,512

 

 
40.0

 

 

 

 

 

 
$
40.0

Dividend paid

 

 

 

 

 

 

 
(2.2
)
 

 

 

 

 
$
(2.2
)
Stock compensation expense

 

 

 

 

 

 
9.7

 

 

 

 

 

 
$
9.7

Balance, September 30, 2015
73

 
$
42.0

 

 
$

 
108,374

 
$
0.1

 
$
3,168.3

 
$
(402.6
)
 
$
(0.1
)
 
$
(16.7
)
 
$
17.2

 
$
331.6

 
$
3,139.8

See accompanying notes to condensed consolidated financial statements.

7


XPO Logistics, Inc.
Notes to Condensed Consolidated Financial Statements
Three and Nine Months Ended September 30, 2015 and 2014
(Unaudited)
(In millions)
1. Organization
Nature of Business
As of September 30, 2015, prior to its acquisition of Con-way Inc. (“Con-way”), XPO Logistics, Inc. and its subsidiaries (“XPO” or the “Company”) provide comprehensive supply chain solutions to more than 30,000 customers through an integrated network of over 56,000 employees and 900 locations in 27 countries. The Company's customers are multinational, national, mid-size and small enterprises, and include many of the most prominent companies in the world. XPO runs its business on a global basis, with two reportable segments: Logistics and Transportation. For information regarding the Company's acquisition of Con-way, which was completed on October 30, 2015, and a description of the scope of the Company's businesses following the Con-way acquisition, refer to Note 18—Subsequent Events.
In the Logistics segment, the Company provides a range of contract logistics services, including highly engineered and customized solutions, value-added warehousing and distribution, and other inventory solutions. The Company performs e-commerce fulfillment, reverse logistics, storage, factory support, aftermarket support, integrated manufacturing, packaging, labeling, distribution and transportation, as well as optimization services such as supply chain consulting and production flow management.
As of September 30, 2015, prior to its acquisition of Con-way, the Company operated approximately 129 million square feet (12.1 million square meters) of contract logistics facility space worldwide, with about 50 million square feet (4.7 million square meters) of that capacity in the United States.
In the Transportation segment, the Company provides multiple services to facilitate the movement of raw materials, parts and finished goods. The Company accomplishes this by using its proprietary transportation management technology, third-party carriers and Company-owned trucks. The Company manages all aspects of these services, including the selection of qualified carriers, rate negotiations, the tracking of shipments, billing and dispute resolution. XPO's services encompass:
Truckload and less-than truckload transportation and brokerage, intermodal brokerage, and last mile logistics services, all of which are arranged using relationships with subcontracted motor and rail carriers and independent technicians, as well as independent contract drivers and vehicles that are owned and operated by the Company;
The management of expedite shipments, which are urgent, time-critical shipments sold to customers in North America through direct transacting and through XPO's web-based technology. Expedite ground services are provided through a fleet of vehicles that are owned and operated by independent contract drivers, and through contracted third-party motor carriers. For expedite shipments requiring air charter, service is arranged using the Company's relationships with third-party air carriers; and
Global forwarding, including ground, air and ocean transportation services for customers with domestic and international supply chain requirements. The Company's global forwarding transportation services are sold and facilitated through a network of Company-owned and independently-owned offices in North America, South America, Europe and Asia.
All of the Company’s businesses operate as the single global brand of XPO Logistics. Under the Company’s cross-selling customer service initiative, all services are offered to all customers to fulfill their supply chain requirements.
For specific financial information relating to the above segments, refer to Note 17—Segment Reporting.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with the instructions to Form 10-Q. Certain information and note disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading.
These unaudited condensed consolidated financial statements reflect, in the opinion of the Company, all material adjustments (which include only normal recurring adjustments) necessary to fairly present the Company’s financial position as

8


of September 30, 2015 and December 31, 2014, and results of operations for the three- and nine-month periods ended September 30, 2015 and 2014. Intercompany transactions have been eliminated in the condensed consolidated balance sheets and results of operations. Where the presentation of these intercompany eliminations differs between the consolidated and reportable segment financial statements, reconciliations of certain line items are provided. The results of operations of acquired companies are included in the Company's results from the closing date of the acquisition and forward. Income or loss attributable to noncontrolling interests is deducted from net income/loss to determine net income/loss attributable to common shareholders.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2014 that are set forth in the Company’s Annual Report on Form 10-K, a copy of which is available on the SEC’s website (www.sec.gov). Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.
Consolidation
The Company's financial statements consolidate all of its affiliates in which it has a controlling financial interest, most often because the Company holds a majority voting interest. To determine if the Company holds a controlling financial interest in an entity, the Company first evaluates if it is required to apply the variable interest entity (“VIE”) model to the entity; otherwise the entity is evaluated under the voting interest model.
Where the Company holds current or potential rights that give it the power to direct the activities of a VIE that most significantly impact the VIE's economic performance combined with a variable interest that gives the Company the right to receive potentially significant benefits or the obligation to absorb potentially significant losses, the Company has a controlling financial interest in that VIE. Rights held by others to remove the party with power over the VIE are not considered unless one party can exercise those rights unilaterally. When changes occur to the design of an entity, the Company reconsiders whether it is subject to the VIE model. The Company continuously evaluates whether it has a controlling financial interest in a VIE.
The Company holds a controlling financial interest in other entities where it currently holds, directly or indirectly, more than 50% of the voting rights or where it exercises control through substantive participating rights or as a general partner. Where the Company is a general partner, it considers substantive removal rights held by other partners in determining if it holds a controlling financial interest. The Company reevaluates whether it has a controlling financial interest in these entities when its voting or substantive participating rights change.
Associated companies are unconsolidated VIE's and other entities in which the Company does not have a controlling financial interest, but over which it has significant influence, most often because the Company holds a voting interest of 20% to 50%. Associated companies are accounted for as equity method investments. Results of associated companies are presented on a one-line basis in other income/expense. Investments in, and advances to, associated companies are presented on a one-line basis in the other long-term assets line item in the condensed consolidated balance sheet, net of allowance for losses, which represents the Company's best estimate of probable losses inherent in such assets.
Use of Estimates
The Company prepares its unaudited condensed 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 condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period. The Company reviews its estimates on a regular basis and makes adjustments based on historical experience and existing and expected future conditions. Estimates are made with respect to, among other matters, recognition of revenue, costs of transportation and services, direct operating expenses, estimated useful lives of property and equipment, recoverability of goodwill and long-lived assets, estimated legal accruals, estimated restructuring accruals, estimated employee benefit obligations, valuation allowances for deferred taxes, reserve for uncertain tax positions, probability of achieving performance targets for vesting of performance-based restricted stock units, and allowance for doubtful accounts. These evaluations are performed and adjustments are made as information is available. Management believes that these estimates, which have been discussed with the Audit Committee of the Company’s Board of Directors, are reasonable; however, actual results could differ from these estimates.
Significant Accounting Policies
Revenue Recognition
The Company generally recognizes revenue at the point in time when delivery is completed and the shipping terms of the contract have been satisfied, or in the case of the Company’s Logistics segment, based on specific, objective criteria within the

9


provisions of each contract as described below. Related costs of delivery and service are accrued and expensed in the same period the associated revenue is recognized. Revenue is recognized once the following criteria have been satisfied:
 
Persuasive evidence of an arrangement exists;
Services have been rendered;
The sales price is fixed or determinable; and
Collectability is reasonably assured.
The Company’s Logistics segment recognizes a significant portion of its revenue based on objective criteria that do not require significant estimates or uncertainties. Revenues on cost-reimbursable contracts are recognized by applying a factor to costs as incurred, such factor being determined by the contract provisions. Revenues on unit-price contracts are recognized at the contractual selling prices or as work is completed. Revenues on time and material contracts are recognized at the contractual rates as the labor hours and direct expenses are incurred. Revenues from fixed-price contracts are recognized as services are provided, unless revenues are earned and obligations fulfilled in a different pattern. Certain contracts provide for labor handling charges to be billed for both incoming and outgoing handling of goods at the time the goods are received in a warehouse. For these contracts, revenue is recognized immediately for the amounts representing handling of incoming goods and deferred revenue is recorded for the performance of services related to the handling of outgoing goods, which is recognized once the related goods leave the warehouse. Storage revenue is recognized as it is earned based on the length of time the related product is stored in the warehouse. Generally, the contracts contain provisions for adjustments to future pricing based upon changes in volumes, services and other market conditions, such as inflation. Revenues relating to such incentive or contingency payments are recorded when the contingency is satisfied and the Company concludes the amounts are earned.
For all lines of business (other than the Company's managed expedited freight business and the Company's Logistics segment with respect to those transactions where its contract logistics business is serving as the customer’s agent in arranging purchased transportation), the Company reports revenue on a gross basis in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, “Reporting Revenue Gross as Principal Versus Net as an Agent.” The Company believes presentation on a gross basis is appropriate under ASC Topic 605 in light of the following factors:
 
The Company is the primary obligor and is responsible for providing the service desired by the customer.
The customer holds the Company responsible for fulfillment, including the acceptability of the service (requirements may include, for example, on-time delivery, handling freight loss and damage claims, establishing pick-up and delivery times, tracing shipments in transit, and providing contract-specific services).
For the Company’s expedited, truck brokerage, last mile and intermodal businesses, the Company has complete discretion to select contractors or other transportation providers (collectively, “service providers”). For its freight forwarding business, the Company enters into agreements with significant service providers that specify the cost of services, among other things, and has ultimate authority in providing approval for all service providers that can be used by its independently-owned stations. Independently-owned stations may further negotiate the cost of services with approved service providers for individual customer shipments.
The Company has complete discretion to establish sales and contract pricing. North American independently-owned stations within its global forwarding business have the discretion to establish sales prices.
The Company bears credit risk for all receivables. In the case of global forwarding, the North American independently-owned stations reimburse the Company for a portion (typically 70-80%) of credit losses. The Company retains the risk that the independent station owners will not meet this obligation.
For certain of the Company’s subsidiaries in both of its segments, revenue is recognized on a net basis in accordance with ASC Topic 605 because the Company does not serve as the primary obligor. The Company’s global forwarding operations collects certain taxes and duties on behalf of their customers as part of the services offered and arranged for international shipments. The Company presents these collections on a net basis.
Other Current Assets
Other current assets consist primarily of value-added tax and income tax receivables; prepaid expenses; miscellaneous receivables; inventory; and other current assets. Inventories are stated at cost using the weighted average cost method and consist primarily of diesel fuel, vehicle spare parts and various consumable supplies. The following table outlines the Company’s other current assets as of September 30, 2015 and December 31, 2014 (in millions):

10


 
As of September 30, 2015
 
As of December 31, 2014
Value-added tax and income tax receivables
$
117.9

 
$
15.4

Prepaid expenses
91.3

 
13.2

Miscellaneous receivables
37.5

 
5.4

Inventory
25.5

 
1.3

Other current assets
12.6

 
0.7

   Total Other Current Assets
$
284.8

 
$
36.0

Property and Equipment
Property and equipment are generally recorded at cost or in the case of acquired property and equipment at fair value at the date of acquisition. Maintenance and repair expenditures are charged to expense as incurred. When assets are sold, the applicable costs and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. For internally-developed software, the Company has adopted the provisions of ASC Topic 350, “Intangibles—Goodwill and
Other.” Accordingly, certain costs incurred in the planning and evaluation stage of internally-developed computer software are expensed as incurred. Costs incurred during the application development stage are capitalized and included in property and equipment. Capitalized internally-developed software also includes the fair value of acquired internally-developed technology.
Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:
Classification
Estimated Useful Life
Buildings and leasehold improvements
Term of lease to 40 years
Vehicles, trailers and tankers
5 to 13 years
Rail cars, container and chassis
15 to 30 years
Machinery and equipment
5 to 10 years
Office and warehouse equipment
5 to 10 years
Computer software and equipment
3 to 5 years
For additional information, refer to Note 7—Property and Equipment.
Goodwill
Goodwill consists of the excess of cost over the fair value of net assets acquired in business combinations. The Company follows the provisions of ASC Topic 350, “Intangibles—Goodwill and Other,” which requires an annual impairment test for goodwill. The Company may first choose to perform a qualitative evaluation of the likelihood of goodwill impairment. If the Company determines a quantitative evaluation is necessary, the goodwill at the reporting unit is subject to a two-step impairment test. The first step compares the book value of a reporting unit, including goodwill, with its fair value. If the book value of a reporting unit exceeds its fair value, the Company completes the second step in order to determine the amount of goodwill impairment loss that should be recorded. In the second step, the Company determines an implied fair value of the reporting unit's goodwill by allocating the fair value of the reporting unit to all of the assets and liabilities other than goodwill. The amount of impairment is equal to the excess of the book value of goodwill over the implied fair value of that goodwill. The Company performs the annual impairment testing during the third quarter unless events or circumstances indicate impairment of the goodwill may have occurred before that time. For the periods presented, the Company did not recognize any goodwill impairment as the estimated fair value of its reporting units with goodwill exceeded the book value of these reporting units. For each of the Company's reporting units, the excess of the fair value over the book value ranged from 87% to over 100%. Given the recent June 2015 acquisition of Norbert Dentressangle SA, the Company performed a qualitative evaluation of the likelihood of goodwill impairment on the former Norbert Dentressangle SA, concluding that no goodwill impairment exists at this time. For additional information, refer to Note 9—Goodwill.
Intangible Assets with Definite Lives
The Company’s intangible assets subject to amortization consist of customer relationships, carrier relationships, trade names, non-compete agreements, and other intangibles. Customer relationships and trade names are amortized on an accelerated basis over the period of economic benefit based on the estimated cash flows attributable to the related intangible assets. Non-compete agreements, carrier relationships and other intangibles are amortized on a straight-line basis over the estimated useful lives of the related intangible asset. The range of estimated useful lives and the weighted-average useful lives of the respective intangible assets by type are as follows:

11


Classification
Estimated Useful Life
Weighted-Average Amortization Period
Customer relationships
3 to 14 years
12.05 years
Carrier relationships
2 years
2.00 years
Trade names
3 to 3.5 years
3.06 years
Non-compete agreements
Term of agreement
4.57 years
Other intangible assets
1.5 to 5 years
4.24 years
For additional information, refer to Note 8—Intangible Assets.
Accrued Expenses, Other
Accrued expenses, other consist primarily of accrued salaries and wages; accrued value-added tax and other taxes; accrued interest on the Company's outstanding debt; accrued estimated litigation liabilities; accrued purchased services; accrued insurance claims; and other accrued expenses, including accrued transportation and facility charges accrued equipment costs and maintenance. The following table outlines the Company’s accrued expenses, other as of September 30, 2015 and December 31, 2014 (in millions):

As of September 30, 2015

As of December 31, 2014
Accrued salaries and wages
$
325.1

 
$
50.1

Accrued value-added tax and other taxes
137.9

 
1.3

Accrued interest
49.8

 
15.1

Accrued estimated litigation liabilities
47.8


11.5

Accrued purchased services
24.5

 
18.9

Accrued insurance claims
14.4

 
5.8

Other accrued expenses
49.4

 
17.2

   Total Accrued Expenses, Other
$
648.9

 
$
119.9

Other Current Liabilities
Other current liabilities consist primarily of deferred revenue; bank overdrafts; estimated acquisition earn-out liability; current portion of interest rate swap liability; and other current liabilities. Bank overdrafts represent short-term loans and are classified as liabilities on the condensed consolidated balance sheets and financing cash flows in the condensed consolidated statements of cash flows. The following table outlines the Company’s other current liabilities as of September 30, 2015 and December 31, 2014 (in millions):
 
As of September 30, 2015
 
As of December 31, 2014
Deferred revenue
$
61.0

 
$
0.5

Bank overdrafts
57.5

 

Acquisition earn-out liability
29.1

 

Current portion of interest rate swap liability
5.0

 

Other current liabilities
40.5

 
6.2

   Total Other Current Liabilities
$
193.1

 
$
6.7

Fair Value Measurements
FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and classifies the inputs used to measure fair value into the following hierarchy:
Level 1—Quoted prices for identical instruments in active markets;
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and

12


Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
The aggregate net fair value estimates are based upon certain market assumptions and pertinent information available to management. The respective carrying value of certain financial instruments approximated their fair values as of September 30, 2015 and December 31, 2014, respectively. These financial instruments include cash, accounts receivable, notes receivable, accounts payable, accrued expense, and current maturities of long-term debt. Fair values approximate carrying values for these financial instruments since they are short-term in nature and are receivable or payable on demand. The fair value of the asset financing approximates carrying value since the debt is primarily issued at a floating rate, may be prepaid any time at par without penalty and the remaining life is short-term in nature.
The carrying amounts for money market funds are a reasonable estimate of fair value and quoted market prices are available. The fair value of the Company's Senior Notes due 2022, Senior Notes due 2019, and convertible senior notes was estimated using quoted market prices for identical instruments in active markets. The fair value of the Company's Senior Notes due 2021 and Euro private placement notes due 2020 was estimated using inputs that are readily available market inputs for long-term debt with similar terms and maturities. For additional information refer to Note 6—Debt. The Company's cross-currency swap and interest rate swap derivatives include over-the-counter derivatives that are primarily valued using models that rely on observable market inputs, such as currency exchange rates and yield curves. For additional information refer to Note 15—Derivative Instruments. The following table summarizes the carrying value and estimated fair value of the Company's financial instruments as of September 30, 2015 and December 31, 2014 (in millions):
 
As of September 30, 2015
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
376.4

 
$
376.4

 
$
376.4

 
$

 
$

Derivative instruments
(29.4
)
 
(29.4
)
 

 
(29.4
)
 

Senior notes due 2022
1,600.0

 
1,359.8

 
1,359.8

 

 

Senior notes due 2021
560.2

 
485.9

 

 
485.9

 

Senior notes due 2019
914.0

 
877.5

 
877.5

 

 

Convertible senior notes
59.1

 
98.2

 
98.2

 

 

Euro private placement notes due 2020
14.9

 
13.6

 

 
13.6

 

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Money market funds
$
330.8

 
$
330.8

 
$
330.8

 
$

 
$

Senior notes due 2019
500.0

 
527.5

 
527.5

 

 

Convertible senior notes
91.9

 
271.3

 
271.3

 

 

Derivative Instruments
The Company records all derivative instruments in the condensed consolidated balance sheets as assets or liabilities at fair value. The Company’s accounting treatment for changes in the fair value of derivative instruments depends on whether the instruments have been designated and qualify as part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the derivative based upon the exposure being hedged. The effective portions of cash flow hedges are recorded in accumulated other comprehensive income in the condensed consolidated balance sheets until the hedged item is recognized in earnings. The effective portions of net investment hedges are recorded in accumulated other comprehensive income in the condensed consolidated balance sheets as a part of the cumulative translation adjustment. The ineffective portions of cash flow hedges and net investment hedges are recorded in interest expense in the condensed consolidated statements of operations. Derivatives that are not designated as hedging instruments are adjusted to fair value through earnings and are recorded in other expense in the condensed consolidated statements of operations.
For additional information, refer to Note 15—Derivative Instruments.
Defined Benefit Pension Plans
Defined benefit pension plan obligations 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 the

13


Company's 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 the Company's obligation and future expense amounts.
The impact of plan amendments and actuarial gains and losses are recorded in accumulated other comprehensive income, 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 13—Employee Benefit Plans.
Foreign Currency Translation and Transactions
The assets and liabilities of foreign subsidiaries that use the local currency as their functional currency are translated to U.S. dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in accumulated other comprehensive income in the condensed consolidated balance sheets. The assets and liabilities of foreign subsidiaries whose local currency is not their functional currency are remeasured from their local currency to their functional currency and then translated to USD. The results of operations of the Company's foreign subsidiaries are translated to USD using average exchange rates prevailing for each period presented. Foreign currency transactions recognized in the condensed consolidated statements of operations are converted to USD by applying the exchange rate prevailing on the date of the transaction. Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in foreign currency loss in the condensed consolidated statements of operations.
Foreign currency transaction and remeasurement (gains)/losses were $14.5 million and $0.0 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $34.6 million and $0.0 million for the nine-month periods ended September 30, 2015 and 2014, respectively.
3. Acquisitions
2015 Acquisitions
Norbert Dentressangle SA
On April 28, 2015, XPO entered into (1) a Share Purchase Agreement (the “Share Purchase Agreement”) relating to Norbert Dentressangle SA, a French société anonyme (“ND”), among Dentressangle Initiatives, a French société par actions simplifiée, Mr. Norbert Dentressangle, Mrs. Evelyne Dentressangle, Mr. Pierre-Henri Dentressangle, Ms. Marine Dentressangle and XPO and (2) a Tender Offer Agreement (the “Tender Offer Agreement” and, together with the Share Purchase Agreement, the “ND Transaction Agreements”) between XPO and ND. The ND Transaction Agreements provided for the acquisition of a majority stake in ND by XPO, followed by an all-cash simplified tender offer by XPO to acquire the remaining outstanding shares.
On June 8, 2015, pursuant to the terms and subject to the conditions of the Share Purchase Agreement, Dentressangle Initiatives, Mrs. Evelyne Dentressangle, Mr. Pierre-Henri Dentressangle and Ms. Marine Dentressangle (collectively, the “Sellers”) sold to XPO and XPO purchased from the Sellers (the “Share Purchase”), all of the ordinary shares of ND owned by the Sellers, representing a total of approximately 67% of the share capital of ND and all of the outstanding share subscription warrants granted by ND to employees, directors or other officers of ND and its affiliates. Total cash consideration paid for the majority interest in the share capital of ND and settlement of the warrants was €1,437.0 million, or $1,603.9 million, excluding acquired debt. Consideration included only the portion of the fair value of the warrants attributable to service performed prior to the acquisition date. The remaining balance was recorded as compensation expense in the post-combination period. In conjunction with the Share Purchase Agreement, the Company agreed to settle certain performance stock awards of ND. Similar to the warrants, the consideration of €11.8 million, or $13.2 million, included only the portion of the fair value attributable to service performed prior to the acquisition date with the balance recorded as compensation expense in the post-combination period. The performance share settlement will be paid in cash with 50% of the awards paid 18 months from the acquisition date and the remaining 50% paid in 36 months. Further, as a result of the acquisition, the Company repaid certain indebtedness and related interest rate swap liabilities of ND totaling €634.1 million, or $711.3 million.
On June 11, 2015, XPO filed with the French Autorité des Marchés Financiers (the “AMF”) a mandatory simplified cash offer (the “Tender Offer”) to purchase all of the outstanding ordinary shares of ND (other than the shares already owned by XPO) at a price of €217.50 per share. On June 23, 2015, the Company received the necessary approval from the AMF to launch the Tender Offer and the Tender Offer was launched on June 25, 2015. The Tender Offer remained open for a period of 16 trading days. As of September 30, 2015, the Company purchased 1,921,553 shares under the Tender Offer and acquired a total of approximately 86.25% of the share capital of ND. The total fair value of the consideration provided for the noncontrolling

14


interest in ND at the acquisition date is €702.5 million, or $784.2 million, which is based on the quoted market price of ND shares on the acquisition date. Total consideration is summarized in the table below in Euros (“EUR”) and USD:
 
In EUR
 
In USD
Cash consideration
1,437.0

 
$
1,603.9

Liability for performance share settlement
11.8

 
13.2

Repayment of indebtedness
634.1

 
711.3

Noncontrolling interests
702.5

 
784.2

Cash acquired
(134.6
)
 
(151.0
)
Total consideration
2,650.8

 
$
2,961.6

The ND Share Purchase was accounted for as a business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their estimated fair values as of June 8, 2015, with the remaining unallocated purchase price recorded as goodwill. Goodwill represents the expected synergies and cost rationalization from the merger of operations as well as intangible assets that do not qualify for separate recognition such as an assembled workforce. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of June 8, 2015 (in millions):
Consideration
$
2,961.6

Accounts receivable
1,063.5

Prepaid and other current assets
309.1

Income tax receivable
41.4

Deferred tax assets
120.5

Restricted cash
6.3

Property and equipment
727.6

Trade name covenants
40.0

Non-compete agreements
5.6

Customer relationships
817.0

Other long-term assets
11.5

Accounts payable
(803.7
)
Accrued salaries & wages
(237.0
)
Accrued expenses
(180.1
)
Other current liabilities
(153.0
)
Interest rate swap liabilities
(10.9
)
Long-term debt
(637.2
)
Deferred tax liabilities
(355.3
)
Employee benefit obligations
(141.4
)
Other long-term liabilities
(79.3
)
Noncontrolling interests
(7.8
)
Goodwill
$
2,424.8

As of September 30, 2015, the purchase price allocation is considered final, except for the fair value of property & equipment, favorable and unfavorable leasehold assets and liabilities, definite-lived intangible assets, taxes and assumed liabilities. Based on a preliminary allocation, $1,188.2 million of the goodwill relates to the Transportation reportable segment and $1,236.6 million of the goodwill relates to the Logistics reportable segment. The goodwill as a result of the acquisition is not deductible for local country income tax purposes. ND's revenue and operating income included in the Company's results for the nine-months ended September 30, 2015 were $1,937.3 million and $35.9 million, respectively.
Bridge Terminal Transport, Inc.
On May 4, 2015, the Company entered into a Stock Purchase Agreement with BTTS Holding Corporation to acquire all of the outstanding capital stock of Bridge Terminal Transport, Inc. (“BTT”), a leading asset-light drayage provider in the United States. The closing of the transaction was effective on June 1, 2015. The fair value of the total consideration paid under

15


the BTT Stock Purchase Agreement was $103.8 million and consisted of $103.1 million of cash paid at the time of closing, including an estimate of the working capital adjustment, and $0.7 million of equity.
The BTT acquisition was accounted for as a business combination in accordance with ASC Topic 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their estimated fair values as of June 1, 2015 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $54.1 million and definite-lived intangible assets of $30.0 million. All goodwill relates to the Transportation reportable segment and is not deductible for income tax purposes. As of September 30, 2015, the purchase price allocation is considered final, except for the settlement of any working capital adjustments and the fair value of taxes and assumed liabilities.
UX Specialized Logistics
On February 9, 2015, the Company entered into an Asset Purchase Agreement with Earlybird Delivery Systems, LLC to acquire all of the outstanding capital stock of UX Specialized Logistics, LLC (“UX”). The fair value of the total consideration paid under the UX Asset Purchase Agreement was $58.9 million and consisted of $58.1 million of cash paid at the time of closing, including an estimate of the working capital adjustment, and $0.8 million of equity. UX provides last mile logistics and same day delivery services for major retail chains and e-commerce companies. 
The UX acquisition was accounted for as a business combination in accordance with ASC Topic 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their estimated fair values as of February 9, 2015 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $28.9 million and definite-lived intangible assets of $18.8 million. All goodwill relates to the Transportation reportable segment and is fully deductible for income tax purposes. As of September 30, 2015, the purchase price allocation is considered final, except for the settlement of any working capital adjustments and the fair value of taxes and assumed liabilities.
2014 Acquisitions
New Breed Logistics
On July 29, 2014, the Company entered into a definitive Agreement and Plan of Merger (the “New Breed Merger Agreement”) with New Breed Holding Company (“New Breed”), providing for the Company to acquire all of New Breed (the “New Breed Transaction”). New Breed is a provider of highly engineered contract logistics solutions for multi-national and medium-sized corporations and government agencies in the United States. The closing of the transaction was effective on September 2, 2014. At the closing, the Company paid $615.9 million in cash including a $1.1 million estimate of the working capital adjustment.
In conjunction with the New Breed Merger Agreement, the Company entered into a subscription agreement with Louis DeJoy, the Chief Executive Officer of New Breed. Pursuant to the subscription agreement, Mr. DeJoy purchased $30.0 million of unregistered XPO common stock at a per share purchase price in cash equal to (1) the closing price of XPO common stock on the New York Stock Exchange on July 29, 2014 with respect to 50% of such purchase and (2) the closing price of XPO common stock on the New York Stock Exchange on the trading day immediately preceding September 2, 2014 with respect to the remaining 50% of such purchase. Due to the interrelationship between the New Breed Merger Agreement and the subscription agreement, the Company considers the substance of the consideration paid to be a combination of net cash and equity as described below.
The fair value of the total consideration paid under the New Breed Merger Agreement was $615.9 million and consisted of $585.8 million of net cash paid at the time of closing, including an estimate of the working capital adjustment, and $30.1 million of equity representing the fair value of 1,060,598 shares of the Company’s common stock at the closing market price of $32.45 per share on September 2, 2014 less a marketability discount on the shares issued due to a holding period restriction. The net cash paid at the time of closing consisted of $615.8 million less the $30.0 million used by Louis DeJoy to purchase XPO common stock per the subscription agreement.
The New Breed Transaction was accounted for as a business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their estimated fair values as of September 2, 2014, with the remaining unallocated purchase price recorded as goodwill. Goodwill represents the expected synergies and cost rationalization from the merger of operations as well as intangible assets that do not qualify for separate recognition such as an assembled workforce. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of September 2, 2014 (in millions):

16


Consideration
$
615.9

Cash and cash equivalents
1.8

Accounts receivable
112.1

Prepaid and other current assets
11.7

Income tax receivable
17.9

Restricted cash
8.5

Property and equipment
112.7

Trademarks/trade names
4.5

Contractual customer relationships asset
115.1

Contractual customer relationships liability
(5.6
)
Non-contractual customer relationships
15.2

Other long-term assets
7.3

Accounts payable
(17.7
)
Accrued expenses
(33.4
)
Deferred tax liabilities, non-current
(75.0
)
Other long-term liabilities
(9.3
)
Goodwill
$
350.1

The purchase price allocation is considered final. All goodwill relates to the Logistics reportable segment. The goodwill as a result of the acquisition is not deductible for income tax purposes. The working capital adjustments in connection with this acquisition have been finalized, and there was no material change in the purchase price as a result.
Atlantic Central Logistics
On July 28, 2014, the Company entered into a Stock Purchase Agreement with Perry Barbaruolo, Thomas G. Bartley, Robert Humes II, Jeffrey E. Patterson, Brian Ruane, The Bryn Mawr Trust Company of Delaware, as Trustee of the Perry Barbaruolo 2014 Delaware Trust, Thomas Bartley, as Trustee of the Janice C. Day 2014 Trust, Thomas Bartley, as Trustee of the Jessica M. Clark 2014 Trust, Thomas Bartley, as Trustee of the Jacqueline M. Patterson 2014 Trust, Thomas Bartley, as Trustee of the Patterson 2014 Grandchildren's Trust, The Bryn Mawr Trust Company of Delaware as Trustee of the Brian Ruane 2014 Delaware Trust, and The Bryn Mawr Trust Company of Delaware, as Trustee of the Richard Roberts 2014 Trust to acquire all of the outstanding capital stock of Simply Logistics, Inc. d/b/a Atlantic Central Logistics (“ACL”) for $36.2 million in cash consideration and deferred payments. ACL provides e-commerce fulfillment services by facilitating the time-sensitive, local movement of goods between distribution centers and the end-consumer. 
The ACL acquisition was accounted for as a business combination in accordance with ASC Topic 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their estimated fair values as of July 28, 2014 with the remaining unallocated purchase price recorded as goodwill. As a result of the acquisition, the Company recorded goodwill of $25.1 million and definite-lived intangible assets of $12.5 million. All goodwill relates to the Transportation reportable segment. The goodwill as a result of the acquisition is not deductible for income tax purposes. The purchase price allocation is considered final. The working capital adjustments in connection with this acquisition have been finalized, and there was no material change in the purchase price as a result.
Pacer International
On January 5, 2014, the Company entered into a definitive Agreement and Plan of Merger (the “Pacer Merger Agreement”) with Pacer International, Inc. (“Pacer”), providing for the acquisition of Pacer by the Company (the “Pacer Transaction”). Pacer is an asset-light North American freight transportation and logistics services provider. The closing of the transaction was effective on March 31, 2014 (the “Effective Time”).
At the Effective Time, each share of Pacer’s common stock, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time was converted into the right to receive (i) $6.00 in cash and (ii) 0.1017 of a share of XPO common stock, which amount is equal to $3.00 divided by the average of the volume-weighted average closing prices of XPO common stock for the ten trading days prior to the Effective Time (the “Pacer Merger Consideration”). Pursuant to the terms of the Pacer Merger Agreement, all vested and unvested Pacer options outstanding at the Effective Time were settled in cash based on the value of the Pacer Merger Consideration. In addition, all Pacer restricted stock, and all vested and unvested Pacer restricted stock units and performance units outstanding at the Effective Time were converted into the right to receive the

17


Pacer Merger Consideration. The fair value of the total consideration paid under the Pacer Merger Agreement was $331.5 million and consisted of $223.3 million of cash paid at the time of closing and $108.2 million of equity representing the fair value of 3,688,246 shares of the Company’s common stock at the closing market price of $29.41 per share on March 31, 2014 less a marketability discount on a portion of shares issued to certain former Pacer executives due to a holding period restriction. The marketability discount did not have a material impact on the fair value of the equity consideration provided.
The Pacer Transaction was accounted for as a business combination in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded in the accompanying condensed consolidated balance sheet at their fair values as of March 31, 2014, with the remaining unallocated purchase price recorded as goodwill. Goodwill represents the expected synergies and cost rationalization from the merger of operations as well as intangible assets that do not qualify for separate recognition such as an assembled workforce. The following table outlines the consideration transferred and purchase price allocation at the respective fair values as of March 31, 2014 (in millions):
Consideration
$
331.5

Cash and cash equivalents
22.3

Accounts receivable
119.6

Prepaid and other current assets
9.4

Deferred tax assets, current
1.4

Property and equipment
43.5

Trademarks/trade names
2.8

Non-compete agreements
2.3

Contractual customer relationships
66.3

Non-contractual customer relationships
1.0

Deferred tax assets, long-term
1.4

Other long-term assets
2.4

Accounts payable
(71.6
)
Accrued salaries and wages
(3.1
)
Accrued expenses, other
(50.6
)
Other current liabilities
(2.0
)
Other long-term liabilities
(11.6
)
Goodwill
$
198.0

The purchase price allocation is considered final. All goodwill relates to the Transportation reportable segment. The carryover of the tax basis in goodwill is deductible for income tax purposes while the step-up in goodwill as a result of the acquisition is not deductible for income tax purposes. Total tax deductible goodwill was $323.2 million on the acquisition date of March 31, 2014. The difference between book and tax goodwill represents the tax basis in goodwill from acquisitions made by Pacer prior to the acquisition by XPO.
Pro Forma Financial Information
The following unaudited pro forma consolidated results of operations for the nine-month periods ended September 30, 2015 and 2014 present consolidated information of the Company as if the acquisitions of ND, New Breed and Pacer had occurred as of January 1, 2014 (in millions):
 
Pro Forma Nine
Months Ended
September 30, 2015
 
Pro Forma Nine
Months Ended
September 30, 2014
Revenue
$
6,833.1

 
$
6,725.8

Operating income (loss)
$
83.0

 
$
39.1

Net loss attributable to common shareholders
$
(169.3
)
 
$
(139.6
)
Loss per common share

 

Basic
$
(1.57
)
 
$
(1.68
)
Diluted
$
(1.57
)
 
$
(1.68
)

18


The unaudited pro forma consolidated results for the nine-month periods were prepared using the acquisition method of accounting and are based on the historical financial information of ND, New Breed, Pacer and the Company. The unaudited pro forma consolidated results incorporate historical financial information for all significant acquisitions pursuant to SEC regulations since January 1, 2014. The historical financial information has been adjusted to give effect to pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed these acquisitions on January 1, 2014. As described further in Note 18—Subsequent Events, the Company acquired Con-way on October 30, 2015. The initial accounting for the acquisition of Con-way is incomplete at the time the financial statements are issued given the timing of the closing of the acquisition in relation to the date the financial statements are issued. As a result, the unaudited pro forma consolidated results presented above do not include the historical financial information of Con-way.
4. Restructuring Charges
In conjunction with various acquisitions, the Company has initiated facility rationalization and severance programs to close facilities and reduce employment in order to improve efficiency and profitability or adjust for the loss of certain business. The programs include facility exit activities and employment reduction initiatives.
The amount of restructuring charges incurred during the nine-month period ended September 30, 2015 and included in the Company's condensed consolidated statement of operations as sales, general and administrative expense is summarized below (in millions). The table also includes charges recorded on ND's opening balance sheet which were incurred prior to the acquisition date. Only ND restructuring initiatives in existence at the acquisition date were included in the purchase price allocation.
 
 
 
Nine months ended September 30, 2015
 
 
 
Reserve Balance at December 31, 2014
 
From ND Acquisition
 
Charges Incurred
 
Payments
 
Reserve Balance at September 30, 2015
Transportation
 
 
 
 
 
 
 
 
 
    Contract termination
$

 
$
0.1

 
$

 
$

 
$
0.1

    Facilities

 

 
0.8

 

 
0.8

    Severance

 
5.1

 
0.5

 
(0.4
)
 
5.2

    Total

 
5.2

 
1.3

 
(0.4
)
 
6.1

Logistics
 
 
 
 
 
 
 
 
 
    Contract termination

 
0.3

 
1.0

 
(0.1
)
 
1.2

    Facilities

 

 
0.5

 

 
0.5

    Severance

 
9.4

 
11.8

 
(1.1
)
 
20.1

    Total

 
9.7

 
13.3

 
(1.2
)
 
21.8

Corporate
 
 
 
 
 
 
 
 
 
    Contract termination
3.8

 

 
3.3

 
(2.2
)
 
4.9

    Severance
1.3

 

 

 
(1.0
)
 
0.3

    Total
5.1

 

 
3.3

 
(3.2
)
 
5.2

Total restructuring plans
$
5.1

 
$
14.9

 
$
17.9

 
$
(4.8
)
 
$
33.1


19


5. Commitments and Contingencies
Lease Commitments
As of September 30, 2015, the Company had approximately $1,739.4 million in future minimum payments required under operating leases for various real estate, double-stack railcars, containers, chassis, tractors, data processing equipment, transportation and office equipment leases that have an initial or remaining non-cancellable lease term. Remaining future minimum payments related to these operating leases amount to approximately $420.0 million, $325.9 million, $266.8 million, $205.0 million, and $521.7 million for the twelve-month periods ending September 30, 2016, 2017, 2018, 2019, and 2020 and thereafter, respectively. Actual amounts of operating lease expense may differ from estimated amounts due to changes in foreign currency exchange rates.
Rent expense was approximately $200.0 million and $25.1 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $295.9 million and $48.9 million for the nine-month periods ended September 30, 2015 and 2014, respectively.
Litigation
The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business. These proceedings may include, among other matters, claims for property damage or personal injury incurred in connection with the transportation of freight 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 the Company’s owner operators or contract carriers should be treated as employees, rather than independent contractors, or that certain of the Company's drivers were not paid for all compensable 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.
The Company establishes accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Accruals for loss contingencies are reviewed quarterly and adjusted as additional information becomes available. In connection with certain acquisitions of privately-held businesses, the Company has retained purchase price holdbacks to provide security for a negotiated duration with respect to damages incurred in connection with pre-acquisition claims and litigation matters. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued therefor or the applicable purchase price holdback, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or states that such an estimate cannot be made. The evaluation as to whether a loss is reasonably possible or probable is based on the Company’s assessment, in conjunction with legal counsel, regarding the ultimate outcome of the matter.
The Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. The Company does not believe that the ultimate resolution of any matters to which the Company is presently party will have a material adverse effect on its 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 the Company’s financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
The Company carries liability and excess umbrella insurance policies that it deems sufficient to cover potential legal claims arising in the normal course of conducting its operations as a transportation company. The liability and excess umbrella insurance policies do not cover the misclassification claims described in this Note. In the event the Company is required to satisfy a legal claim in excess of the coverage provided by this insurance, the Company’s financial condition, results of operations or cash flows could be negatively impacted.

20


Intermodal Drayage Classification Claims
Certain of the Company’s intermodal drayage subsidiaries received notices from the California Labor Commissioner, Division of Labor Standards Enforcement (the “DLSE”), that a total of 153 owner operators contracted with these subsidiaries have filed claims with the DLSE in which they assert that they should be classified as employees, as opposed to independent contractors. These claims seek reimbursement for the owner operators’ business expenses, including fuel, tractor maintenance and tractor lease payments. After a decision was rendered by a DLSE hearing officer in seven of these claims, the Company appealed the decision to California Supreme Court, San Diego, where a de novo trial was held on the merits of those claims. On July 17, 2015, the court issued a final statement of decision finding that the seven claimants were employees rather than independent contractors, and awarding an aggregate of $2.0 million to the claimants. The court’s judgment is subject to appeal, and the Company is evaluating its options with respect to these claims. The Company cannot provide assurance that the Company will determine to pursue an appeal or that an appeal will be successful. The remaining DLSE claims have been transferred to California Superior Court in three separate actions involving approximately 200 claimants, including the 153 claimants mentioned above. These matters are in the initial procedural stages.
One of these intermodal drayage subsidiaries also is a party to a putative class action litigation (Manuela Ruelas Mendoza v. Pacer Cartage, Inc.) brought by Edwin Molina in the U.S. District Court, Southern District of California on August 19, 2013. Mr. Molina asserts that he should be classified as an employee, as opposed to an independent contractor, and seeks damages for alleged violation of various California wage and hour laws. Mr. Molina seeks to have the litigation certified as a class action involving all owner-operators contracted with this subsidiary at any time from August 2009 to the present, which could involve as many as 600 claimants. Certain of these potential claimants also may have claims under the actions pending in California Superior Court as described above. This matter is in the initial stages of discovery and the court has not yet determined whether to certify the matter as a class action. The Company has reached a tentative agreement to settle this litigation with the claimant, subject to court approval and acceptance by a minimum percentage of members of the purported class. There can be no assurance that the settlement agreement will be finalized and executed, that the court will approve any such settlement agreement or that it will be accepted by the requisite percentage of members of the purported class.
One of these intermodal drayage subsidiaries is a party to a putative class action litigation (C. Arevalo v. XPO Port Services, Inc.) brought by Carlos Arevalo in the Superior Court for the State of California, County of Los Angeles Central District filed in August 2015. Mr. Arevalo asserts that he should be classified as an employee, as opposed to an independent contractor, and seeks damages for alleged violation of various California wage and hour laws. Mr. Arevalo seeks to have the litigation certified as a class action involving all owner-operators contracted with this subsidiary at any time from August 2011 to the present. Certain of these potential claimants also may have claims under the actions pending in California Superior Court as described above. This matter is in the initial pleading stage and the court has not yet determined whether to certify the matter as a class action. The Company is unable at this time to estimate the amount of the possible loss or range of loss, if any, that it may incur as a result of this matter.
Last Mile Logistics Classification Claims
Certain of the Company’s last mile logistics subsidiaries are party to several putative class action litigations brought by independent contract carriers contracted with these subsidiaries in which the contract carriers assert that they should be classified as employees, as opposed to independent contractors. The particular claims asserted vary from case to case, but the claims generally allege unpaid wages, overtime, alleged failure to provide meal and rest periods and seek reimbursement of the contract carriers’ business expenses. Putative class actions against the Company’s subsidiaries are pending in Massachusetts (Celso Martins, Alexandre Rocha, and Calvin Anderson v. 3PD, Inc.), Illinois (Marvin Brandon, Rafael Aguilera, and Aldo Mendez-Etzig v. 3PD, Inc.), Arizona (Dennis Montoya v. 3PD, Inc.), California (Cesar Ardon et al v 3PD, Inc. and Fernando Ruiz v. Affinity Logistics Corp.), New Jersey (Leonardo Alegre v. Atlantic Central Logistics, Simply Logistics, Inc.), Pennsylvania (Victor Reyes v. XPO Logistics, Inc.) and Connecticut (Carlos Taveras v. XPO Last Mile, Inc.). The Company has reached tentative agreements to settle the Massachusetts, Illinois, Arizona and one of the California (Ardon) litigations with the respective claimants, subject to court approval and acceptance by a minimum percentage of members of the respective purported class (except in the Arizona matter, in which the settlement is of Mr. Montoya’s individual claims). There can be no assurance that the settlement agreements will be finalized and executed, that the respective court will approve any such settlement agreement or that it will be accepted by the requisite percentage of members of the respective purported class. The Company believes that it has adequately accrued for the potential impact of loss contingencies relating to the foregoing last mile logistics claims that are probable and reasonably estimable. The Company is unable at this time to estimate the amount of the possible loss or range of loss, if any, that it may incur as a result of the New Jersey, Pennsylvania and Connecticut claims, which are in preliminary stages.
For information regarding legal contingencies relating to Con-way, which was acquired by the Company on October 30, 2015, refer to Note 18—Subsequent Events.

21


6. Debt
Senior Notes
On August 25, 2014, the Company completed a private placement of $500.0 million aggregate principal amount of 7.875% Senior Notes due 2019. On February 13, 2015, the Company completed an additional private placement of $400.0 million aggregate principal amount of Senior Notes due 2019 for a total issuance of $900.0 million. The additional Senior Notes due 2019 have terms identical to those of the $500.0 million Senior Notes due 2019 and were issued at a premium of 104%, resulting in a $16.0 million premium. On June 4, 2015, the Company completed a private placement of $1,600.0 million aggregate principal amount of 6.5% fixed rate Senior Notes due 2022 and €500.0 million Euro-denominated aggregate principal amount of 5.75% fixed rate Senior Notes due 2021. Total unamortized debt issuance costs related to the Senior Notes classified in other long-term assets at September 30, 2015 are $44.8 million.
The Senior Notes were offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and, outside the United States, only to non-U.S. investors pursuant to Regulation S. The Senior Notes were not registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements or a transaction not subject to the registration requirements of the Securities Act or any state securities laws. The Senior Notes due 2019 bear interest at a rate of 7.875% per annum payable semiannually, in cash in arrears, on March 1 and September 1 of each year, commencing March 1, 2015 and maturing on September 1, 2019. The Senior Notes due 2022 bear interest at a rate of 6.5% per annum payable semiannually, in cash in arrears, on June 15 and December 15 of each year, commencing December 15, 2015 and maturing on June 15, 2022. The Senior Notes due 2021 bear interest at a rate of 5.75% per annum payable semiannually, in cash in arrears, on June 15 and December 15 of each year, commencing December 15, 2015 and maturing on June 15, 2021. The Senior Notes are guaranteed by each of the Company’s direct and indirect wholly-owned restricted subsidiaries (other than certain excluded subsidiaries) that are obligors under, or guarantee obligations under, the Company’s existing credit agreement (or certain replacements thereof) or guarantee certain capital markets indebtedness of the Company or any guarantor of the Senior Notes. The Senior Notes and the guarantees thereof are unsecured, unsubordinated indebtedness of the Company and the guarantors. Among other things, the covenants of the Senior Notes limit the Company’s ability to, with certain exceptions: incur indebtedness or issue disqualified stock; grant liens; pay dividends or make distributions in respect of capital stock; make certain investments or other restricted payments; prepay or repurchase subordinated debt; sell or transfer assets; engage in certain mergers, consolidations, acquisitions and dispositions; and enter into certain transactions with affiliates.
Prior to September 1, 2016, the Company may redeem some or all of the Senior Notes due 2019 at a price equal to 100% of the principal amount of the senior notes plus the applicable “make-whole” premium, as defined in the indenture. On and after September 1, 2016, the Company may redeem some or all of the senior notes for a redemption price that declines each year, as specified in the indenture. In addition, on or prior to September 1, 2016, the Company may redeem up to 40% of the aggregate principal amount of senior notes with the proceeds of certain equity offerings at 107.875% of their principal amount plus accrued interest. The Company may make such redemption only if, after any such redemption, at least 60% of the aggregate principal amount of senior notes originally issued remains outstanding.
The Company may redeem some or all of the Senior Notes due 2022 at any time prior to June 15, 2018 and some or all of the Senior Notes due 2021 at any time prior to December 15, 2017, in each case at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus the applicable “make-whole” premium, as defined in the indenture. On and after June 15, 2018, in the case of the Senior Notes due 2022, and on and after December 15, 2017, in the case of the Senior Notes due 2021, the Company may redeem some or all of the senior notes for a redemption price that declines each year, as specified in the indenture. In addition, on or prior to June 15, 2018 for the Senior Notes due 2022 and on or prior to December 15, 2017 for the Senior Notes due 2021, the Company may redeem up to 40% of the aggregate principal amount of each series of such senior notes with the proceeds of certain equity offerings at 106.5%, in the case of the Senior Notes due 2022, and at 105.75%, in the case of the Senior Notes due 2021, of their principal amount plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The Company may make such redemption only if, after any such redemption, at least 60% of the aggregate principal amount of senior notes of the applicable series remains outstanding.

22


Euro Private Placement Notes
In conjunction with the Company's acquisition of ND described in Note 3—Acquisitions, the Company assumed ND's Euro private placement debt of €75.0 million aggregate principal amount of 3.80% Notes due December 20, 2019 (the “Euro Private Placement Notes due 2019”) and €160.0 million aggregate principal amount of 4.00% Notes due December 20, 2020 (the “Euro Private Placement Notes due 2020” and together with the Euro Private Placement Notes due 2019, the “Euro Private Placement Notes”). The Euro Private Placement Notes due 2019 bear interest at a rate of 3.80% per annum payable annually, in cash in arrears, on December 20 of each year, maturing on December 20, 2019. The Euro Private Placement Notes due 2020 bear interest at a rate of 4.00% per annum payable annually, in cash in arrears, on December 20 of each year, maturing on December 20, 2020.
Under the terms of the Euro Private Placement Notes, the Company is required to give notice of the change of control to the holders of the Euro Private Placement Notes within 30 calendar days following its occurrence and the notice must specify the date fixed for early redemption which will be no earlier than 25 business days and no later than 30 business days from the date of the publication of the notice and the period of at least 15 business days from the publication of the notice during which the holders of the Euro Private Placement Notes may exercise their option. The consummation of the ND Share Purchase constituted a change of control under the terms and conditions of the Euro Private Placement Notes. As a result, each holder of the Euro Private Placement Notes has the option to require the Company to redeem all of the Euro Private Placement Notes held by such holder, at their principal amount plus accrued interest. The Company gave the required notice to the holders of the Euro Private Placement Notes in June 2015. In July 2015, holders of €223.0 million total Euro Private Placement Notes tendered the notes back to the Company, which the Company redeemed at par on July 31, 2015.
The Euro Private Placement Notes are subject to leverage ratio and indebtedness ratio financial covenants, as defined in the agreements. ND is required to maintain a leverage ratio of less than or equal to 3.50 and an indebtedness ratio of less than or equal to 2.00 as of each semi-annual testing date. As of June 30, 2015, the latest semi-annual testing date, ND is in compliance with the financial covenants.
The Company may redeem all, but not some, of the Euro Private Placement Notes at any time prior to the maturity date, at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, plus the applicable “make-whole” premium, as defined in the indenture.
Asset Financing
In conjunction with the Company's acquisition of ND, the Company assumed ND's asset financing arrangements. The financing is unsecured and is used to purchase Company-owned trucks in Europe. The financing arrangements are denominated in USD, EUR, British Pounds Sterling and Romanian New Lei, with primarily floating interest rates. As of September 30, 2015, interest rates on asset financing range from 0.360% to 5.5% and initial terms range from five years to ten years.
Debt Facilities
The Company may from time to time use debt financing for acquisitions and business start-ups, among other things. The Company also enters into long-term debt and capital leases with various third parties from time to time to finance certain operational equipment and other assets used in its business operations. Generally, these loans and capital leases bear interest at market rates, and are collateralized with accounts receivable, equipment and certain other assets of the Company.
As of September 30, 2015, the Company and certain of its wholly-owned subsidiaries, as borrowers, were parties to a $415.0 million multicurrency secured Amended and Restated Revolving Loan Credit Agreement (the “Amended Credit Agreement”) with the lender parties thereto and Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent for such lenders, with a commitment termination date of October 17, 2018. The principal amount of the commitments under the Amended Credit Agreement may be increased by an aggregate amount of up to $100.0 million, subject to certain terms and conditions specified in the Amended Credit Agreement. At September 30, 2015, the Company had outstanding letters of credit of $24.2 million. Total unamortized debt issuance costs related to the Amended Credit Agreement classified in other long-term assets at September 30, 2015 are $2.6 million.
On August 8, 2014, the Company amended its revolving loan facility to permit, among other things, the acquisition of New Breed and the related transactions and the offering of the Senior Notes due 2019. On May 29, 2015, the Company further amended its revolving loan facility to permit, among other things, the acquisition of ND and the related transactions and the offering of the Senior Notes due 2022 and Senior Notes due 2021.
The proceeds of the Amended Credit Agreement may be used by the Company and its subsidiaries for ongoing working capital needs, other general corporate purposes, including strategic acquisitions, and fees and expenses in connection with future transactions. At September 30, 2015, the Company had no amount drawn under the Amended Credit Agreement. Borrowings under the Amended Credit Agreement bear interest at a per annum rate equal to, at the Company’s option, the one,

23


two, three or six month (or such other period less than one month or greater than six months as the lenders may agree) London Interbank Offered Rate (“LIBOR”) plus a margin of 1.75% to 2.25%, or a base rate plus a margin of 0.75% to 1.25%. The Company is required to pay an undrawn commitment fee equal to 0.25% or 0.375% of the quarterly average undrawn portion of the commitments under the Amended Credit Agreement, as well as customary letter of credit fees. The margin added to LIBOR, or base rate, will depend on the quarterly average availability of the commitments under the Amended Credit Agreement.
All obligations under the Amended Credit Agreement are secured by substantially all of the Company’s assets and unconditionally guaranteed by certain of its subsidiaries, provided that no foreign subsidiary guarantees, and no assets of any foreign subsidiary secures, any obligations of any of the Company’s domestic borrower subsidiaries. Within the meaning of Regulation S-X, Rule 3-10, XPO has no independent assets or operations, the guarantees of its subsidiaries are full and unconditional and joint and several, and any subsidiaries other than the guarantor subsidiaries are minor, excluding foreign subsidiaries. The Amended Credit Agreement contains representations, warranties and covenants that are customary for agreements of this type. Among other things, the covenants in the Amended Credit Agreement limit the Company’s ability to, with certain exceptions: incur indebtedness; grant liens; engage in certain mergers, consolidations, acquisitions and dispositions; make certain investments and restricted payments; and enter into certain transactions with affiliates. In certain circumstances, the Amended Credit Agreement also requires the Company to maintain minimum Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) or, at the Company’s election, maintain a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) of not less than 1.00 to 1.00. If an event of default under the Amended Credit Agreement shall occur and be continuing, the commitments thereunder may be terminated and the principal amount outstanding thereunder, together with all accrued unpaid interest and other amounts owed thereunder, may be declared immediately due and payable. Certain subsidiaries acquired by the Company in the future may be excluded from the restrictions contained in certain of the foregoing covenants.
As described in further detail in Note 18—Subsequent Events, on October 30, 2015, the Company entered into the Second Amended and Restated Revolving Loan Credit Agreement that replaces XPO’s existing Amended Credit Agreement, and, among other things, increased the commitment to $1.0 billion.
Convertible Senior Notes
At September 30, 2015, the Company had outstanding $65.5 million aggregate principal amount of Convertible Notes. Total unamortized debt issuance costs classified in other long-term assets at September 30, 2015 are $1.4 million. Interest is payable on the Convertible Notes on April 1 and October 1 of each year.
During the nine-months ended September 30, 2015, the Company issued an aggregate of 2,512,349 shares of the Company’s common stock to certain holders of the Convertible Notes in connection with the conversion of $41.3 million aggregate principal amount of the Convertible Notes. The conversions were allocated to long-term debt and equity in the amounts of $35.1 million and $42.3 million, respectively. A loss on conversion of $8.0 million was recorded as part of the transactions. Certain of these transactions represented induced conversions pursuant to which the Company paid the holder a market-based premium in cash. The negotiated market-based premiums, in addition to the difference between the current fair value and the book value of the Convertible Notes, were reflected in interest expense. The number of shares of common stock issued in the foregoing transactions equals the number of shares of common stock presently issuable to holders of the Convertible Notes upon conversion under the original terms of the Convertible Notes.
Under certain circumstances at the election of the holder, the Convertible Notes may be converted until the close of business on the business day immediately preceding April 1, 2017, into cash, shares of the Company’s common stock, or a combination of cash and shares of common stock, at the Company’s election, at the initial conversion rate of approximately 60.8467 shares of common stock per $1,000 in principal amount, which is equivalent to an initial conversion price of approximately $16.43 per share. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event in certain circumstances. On or after April 1, 2017, until the close of business on the business day immediately preceding the maturity date of October 1, 2017, holders may convert their Convertible Notes at any time.
The Convertible Notes may be redeemed by the Company on or after October 1, 2015 if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption. The Convertible Notes are currently redeemable under this provision. The Company may redeem the Convertible Notes in whole, but not in part, at a redemption price in cash equal to 100% of the principal amount to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus a make-whole premium payment. The “make whole premium” payment or delivery will be made, as the case may be, in cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the

24


Company’s election, equal to the present values of the remaining scheduled payments of interest on the Convertible Notes to be redeemed through October 1, 2017 (excluding interest accrued to, but excluding, the redemption date), computed using a discount rate equal to 4.50%. The make-whole premium is paid to holders whether or not they convert the Convertible Notes following the Company’s issuance of a redemption notice.
The Convertible Notes do not contain any financial or operating covenants or restrictions on the payment of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. If the Company undergoes a fundamental change, holders may, subject to certain conditions, require the Company to repurchase for cash all or part of their Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The following table outlines the Company’s debt obligations as of September 30, 2015 and December 31, 2014 (in millions):
 
Interest rates
 
Term (months)
 
As of September 30, 2015
 
As of December 31, 2014
Revolving credit facility
4.38
%
 
60
 
$

 
$

Senior notes due 2022
6.50
%
 
84
 
1,600.0

 

Senior notes due 2021
5.75
%
 
72
 
560.2

 

Senior notes due 2019
7.88
%
 
60
 
900.0

 
500.0

Convertible senior notes
4.50
%
 
60
 
65.5

 
106.8

Euro private placement notes due 2020
4.00
%
 
84
 
13.4

 

Asset financing
1.40
%
 
66
 
294.9

 

Notes payable
N/A

 
N/A
 
1.7

 
1.8

Capital leases for equipment
1.70
%
 
65
 
34.6

 
0.2

Total debt
 
 
 
 
3,470.3

 
608.8

Plus: unamortized premium on senior notes due 2019
 
 
 
 
14.0

 

Plus: unamortized fair value adjustment on Euro private placement notes
 
 
 
 
1.5

 

Less: unamortized discount on convertible senior notes
 
 
 
 
(6.4
)
 
(14.9
)
Less: current maturities of long-term debt
 
 
 
 
(120.3
)
 
(1.8
)
Total long-term debt, net of current maturities
 
 
 
 
$
3,359.1

 
$
592.1

As described in further detail in Note 18—Subsequent Events, on October 30, 2015, the Company entered into a senior secured term loan credit agreement that provided for a single borrowing of $1.6 billion on the date thereof.
7. Property and Equipment
The following table sets forth the Company’s property and equipment as of September 30, 2015 and December 31, 2014 (in millions):
 
As of September 30, 2015
 
As of December 31, 2014
Property and Equipment, at cost

 

Buildings and leasehold improvements
$
166.4

 
$
33.2

Vehicles, trailers and tankers
362.9

 
4.4

Rail cars, containers and chassis
13.3

 
13.0

Machinery and equipment
239.8

 
44.4

Office and warehouse equipment
69.6

 
32.9

Computer software and equipment
248.3

 
141.3


1,100.3

 
269.2

Less: Accumulated depreciation
(144.6
)
 
(47.3
)
Total Property and Equipment, net
$
955.7

 
$
221.9


25


The net book value of capitalized internally-developed software totaled $99.2 million and $70.1 million as of September 30, 2015 and December 31, 2014, respectively. Depreciation of property and equipment was $56.5 million and $10.8 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $98.8 million and $21.7 million for the nine-month periods ended September 30, 2015 and 2014, respectively.
8. Intangible Assets
The following table sets forth the Company’s identifiable intangible assets as of September 30, 2015 and December 31, 2014 (in millions):
 
As of September 30, 2015
 
As of December 31, 2014
Definite-lived intangibles:
 
 
 
Customer relationships
$
1,241.1

 
$
376.6

Trade name
46.4

 
15.4

Non-compete agreements
16.5

 
9.8

Carrier relationships
12.1

 
12.1

Other intangible assets
2.2

 
2.2

 
1,318.3

 
416.1

Less: Accumulated amortization
(158.9
)
 
(74.6
)
Total Identifiable Intangible Assets, net
$
1,159.4

 
$
341.5

Estimated future amortization expense for the definite-lived intangible assets for the years ending December 31, 2015, 2016, 2017, 2018 and 2019 is as follows (in millions): 
 
2015
 
2016
 
2017
 
2018
 
2019
Estimated amortization expense
$
41.8

 
$
141.5

 
$
127.7

 
$
120.2

 
$
115.3

Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets and other events.
Intangible asset amortization expense recorded in sales, general and administrative expense was $45.5 million and $16.5 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $93.1 million and $42.1 million for the nine-month periods ended September 30, 2015 and 2014, respectively.
9. Goodwill
The following table is a roll-forward of goodwill from December 31, 2014 to September 30, 2015. The current period additions are the result of the goodwill recognized as excess purchase price in the acquisitions of ND, BTT and UX, additional estimated litigation liabilities, and other adjustments related to prior year acquisitions for which the measurement period remained open (in millions). For additional information on the litigation liabilities refer to Note 5—Commitments and Contingencies.
 
Transportation
 
Logistics
 
Total
Goodwill at December 31, 2014
$
577.0

 
$
352.3

 
$
929.3

Acquisitions
1,271.6

 
1,236.6

 
2,508.2

Impact of foreign exchange translation
0.3

 
0.5

 
0.8

Litigation liability adjustments, net of tax
10.5

 

 
10.5

Other adjustments
(1.6
)
 
(2.2
)
 
(3.8
)
Goodwill at September 30, 2015
$
1,857.8

 
$
1,587.2

 
$
3,445.0


26


10. Noncontrolling Interest
On June 11, 2015, in connection with its acquisition of ND, the Company filed with the AMF the Tender Offer to purchase all of the outstanding ordinary shares of ND (other than the shares already owned by XPO) at a price of €217.50 per ND share. On June 23, 2015, the Company received the necessary approvals from the AMF to launch the Tender Offer and the Tender Offer was launched on June 25, 2015. The Tender Offer remained open for a period of 16 trading days until July 17, 2015. During that time, the minority shareholders had the right to sell their shares of ND to the Company and the Company had the obligation to purchase those shares at the Tender Offer price; therefore, as of June 30, 2015, the Company classified the noncontrolling interest as mezzanine equity in the condensed consolidated balance sheet and adjusted the balance to its maximum redemption amount at the balance sheet date. Once the Tender Offer closed on July 17, 2015, the noncontrolling interest was no longer classified as mezzanine equity in the condensed consolidated balance sheet and is classified as noncontrolling interest in equity in the condensed consolidated balance sheet. The financial results of ND are attributed to the noncontrolling interests based on their ownership percentage and are disclosed in the condensed consolidated statement of operations. As of September 30, 2015, the Company had purchased 1,921,553 shares under the Tender Offer and acquired a total of approximately 86.25% of the share capital of ND. The following table is a roll-forward of the redeemable noncontrolling interest from December 31, 2014 to September 30, 2015 (in millions):
As of December 31, 2014
$

ND acquisition noncontrolling interest
784.2

Comprehensive gain attributable to redeemable noncontrolling interest
0.8

Adjustment to record noncontrolling interest at redemption value
(4.9
)
Adjustments for shares purchased, net of currency adjustment
(459.7
)
Transfer to noncontrolling interest within permanent equity
(320.4
)
As of September 30, 2015
$

11. Stockholders' Equity
Series C Convertible Perpetual Preferred Stock and Common Stock
On May 29, 2015, the Company entered into fifteen separate Investment Agreements (the “Investment Agreements”) with sovereign wealth funds and institutional investors (collectively, the “Purchasers”). Pursuant to the Investment Agreements, on June 3, 2015, the Company issued and sold 15,499,445 shares (the “Purchased Common Shares”) in the aggregate of the Company's common stock, par value $0.001 per share (the “Company Common Stock”), and 562,525 shares (the “Purchased Preferred Stock” and, together with the Purchased Common Shares, the “Purchased Securities”) in the aggregate of the Company’s Series C Convertible Perpetual Preferred Stock, par value $0.001 per share, in a private placement. The purchase price per Purchased Common Share was $45.00 (resulting in aggregate gross proceeds to the Company of approximately $697.5 million), and the purchase price per share of Purchased Preferred Stock was $1,000 (resulting in aggregate gross proceeds to the Company of approximately $562.5 million). The Company received net proceeds of $1,228.1 million after equity issuance costs which was initially allocated between common and preferred stock based on the relative fair values of each instrument. The Purchased Preferred Stock was mandatorily convertible into an aggregate of 12,500,546 additional shares of Company common stock subject to the approval of the Company's stockholders. The Company held a special meeting of stockholders of the Company on September 8, 2015 in which the Company's stockholders approved the issuance of shares of Company common stock upon the conversion of the Purchased Preferred Stock. Immediately following the special meeting, the Purchased Preferred Stock was automatically converted into 12,500,546 shares of Company common stock. No additional consideration was received by the Company in connection with the conversion of the Purchased Preferred Stock into Company common stock. The issuance and sale of the Purchased Securities pursuant to the Investment Agreements and the conversion of the Purchased Preferred Stock are exempt from registration under the Securities Act, pursuant to Section 4(a)(2) of the Securities Act, or any state securities laws. The Purchased Securities are “restricted shares” as defined in Rule 144, promulgated under the Securities Act, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The Purchased Preferred Stock was issued with an initial conversion price of $45.00 per share. As of May 29, 2015, the Company's common stock price was $49.16. As a result, the conversion feature was issued “in-the-money” and the Company allocated the beneficial conversion feature of $52.0 million to additional paid-in capital. The beneficial conversion feature was contingent upon receiving approval of the Company's stockholders and was therefore recognized in net loss attributable to common shareholders upon receiving stockholder approval on September 8, 2015.

27


Amendment to Certificate of Incorporation
On September 8, 2015, the Company's stockholders approved an amendment of Article IV of the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock, par value $0.001 per share, from 150,000,000 to 300,000,000.
12. Stock-Based Compensation
During the three- and nine-month periods ended September 30, 2015 and 2014, the Company recognized the following stock-based compensation expense in sales, general and administrative expense:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Stock-based compensation expense
$
2.7

 
$
1.8

 
$
28.1

 
$
5.6

The Company did not realize any excess tax benefit for tax deductions from the stock-based compensation plan in the three- and nine-month periods ended September 30, 2015 and 2014.
As discussed further in Note 3—Acquisitions, the Company settled the outstanding warrants and certain performance stock awards of ND. The portion of the fair value of the warrants and performance shares not attributable to service performed prior to the acquisition date was recorded as stock-based compensation expense in the post-combination period. The amount of stock-based compensation expense related to the settlement of ND stock awards included in the nine-month period ended September 30, 2015 was $18.5 million. The $8.5 million of stock-based compensation expense related to the warrants was settled in cash during the second quarter of 2015 in conjunction with the acquisition.
Stock Options
A summary of stock option award activity for the nine-month period ended September 30, 2015 is presented below:  
 
 Stock Options
 
 
 
Weighted Average Exercise Price
 
 
 
Weighted Average Grant Date Fair Value
 
Weighted Average Remaining Term
 
Stock
 
 
Exercise
 
 
 
Options
 
 
Price Range
 
 
Outstanding at December 31, 2014
1,344,795

 
$
11.70

 
$2.68 - $27.87
 
$
6.04

 
6.84
Granted

 

 
N/A
 

 
 
Exercised
(52,683
)
 
9.22

 
$2.68 - $27.87
 
3.55

 
 
Forfeited
(36,300
)
 
20.11

 
$12.10 - $27.87
 
9.56

 
 
Outstanding at September 30, 2015
1,255,812

 
$
11.57

 
$2.68 - $27.87
 
$
5.57

 
6.20
Options exercisable at September 30, 2015
1,005,812

 
$
11.09

 
$2.68 - $27.87
 
$
5.29

 
6.09
The stock-based compensation expense for stock options was $0.3 million and $0.5 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $1.6 million and $1.3 million for the nine-month periods ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the Company had 1,005,812 options vested and exercisable and $2.3 million of unrecognized compensation cost related to stock options. The intrinsic value of options vested and exercisable at September 30, 2015 was $12.8 million. The remaining estimated compensation expense related to the existing stock options for the periods ended December 31, 2015, 2016, 2017, 2018 and 2019 is as follows:
 
2015
 
2016
 
2017
 
2018
 
2019
Remaining estimated compensation expense related to existing stock options
$
0.3

 
$
1.1

 
$
0.5

 
$
0.3

 
$
0.1

The total intrinsic value of options exercised during the nine-month periods ended September 30, 2015 and 2014 was $1.9 million and $1.7 million, respectively.

28


Restricted Stock Units and Performance-based Restricted Stock Units
A summary of restricted stock units (“RSU”) and performance-based restricted stock units (“PRSU”) award activity for the nine-month period ended September 30, 2015 is presented below:  
 
Restricted Stock Units
 
Performance-based Restricted Stock Units
 
 
 
Weighted Average Grant Date Fair Value
 
Performance-based Restricted
Stock Units
 
Weighted Average Grant Date Fair Value
 
Restricted
 
 
 
 
Stock Units
 
 
 
Outstanding at December 31, 2014
692,823

 
$
15.23

 
1,563,951

 
$
20.86

Granted
35,413

 
39.42

 
291,770

 
29.32

Vested
(219,587
)
 
14.88

 
(79
)
 
27.61

Forfeited
(32,093
)
 
29.03

 
(3,418
)
 
28.47

Outstanding at September 30, 2015
476,556

 
$
16.31

 
1,852,224

 
$
22.19

The stock-based compensation expense for outstanding RSUs was $0.8 million and $1.3 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $3.0 million and $4.3 million for the nine-month periods ended September 30, 2015 and 2014, respectively. The total fair value of RSUs vested during the nine-month periods ended September 30, 2015 and 2014 was $7.9 million and $7.0 million, respectively. Of the 476,556 outstanding RSUs, 235,842 vest subject to service conditions and 240,714 vest subject to service and market conditions.
The stock-based compensation expense for outstanding PRSUs was $1.6 million and $5.0 million for the three- and nine-month periods ended September 30, 2015, respectively. No PRSUs vested during and no stock-based compensation expense was recognized for outstanding PRSUs for the nine-month period ended September 30, 2014. Of the 1,852,224 outstanding PRSUs, 1,741,643 vest subject to service and a combination of market and performance conditions and 110,581 vest subject to service and performance conditions.
As of September 30, 2015, the Company had approximately $13.2 million of unrecognized compensation cost related to non-vested RSU and PRSU compensation that is anticipated to be recognized over a weighted-average period of approximately 1.54 years. Remaining estimated compensation expense related to outstanding RSUs and PRSUs for the years ending December 31, 2015, 2016, 2017, 2018, 2019, and 2020 and thereafter is as follows:
 
2015
 
2016
 
2017
 
2018
 
2019
 
2020 & thereafter
Remaining estimated compensation expense related to outstanding RSUs and PRSUs deemed probable
$
3.1

 
$
5.0

 
$
2.1

 
$
1.2

 
$
0.3

 
$
1.5

The remaining estimated compensation expense excludes the impact of PRSUs not deemed probable as of September 30, 2015. The unrecognized compensation cost related to PRSUs not deemed probable as of September 30, 2015 is $20.0 million.
13. Employee Benefit Plans
As a result of the Company's acquisition of ND as described in Note 3—Acquisitions, the Company maintains defined benefit pension plans for certain employees in the United Kingdom (the “UK”), France, Italy, the Netherlands, Belgium, Poland, Germany, India and Sri Lanka. The largest portion of the Company's total projected benefit obligation is associated with the UK plans, Christian Salvesen Pension Scheme (“CSPS”) and TDG Pension Scheme (“TDGPS”). The pension plans do not allow for new plan participants or additional benefit accruals. Defined benefit pension plan obligations are measured based on the present value of projected future benefit payments for all participants for services rendered to date. The projected benefit obligation is a measure of benefits attributed to service to date assuming that the plan continues in effect and that estimated future events (including turnover and mortality) occur. The net periodic benefit costs are determined using assumptions regarding the projected benefit obligation and the fair value of plan assets as of the ND acquisition date. Net periodic benefit costs are recorded in sales, general and administrative expense. The funded status of the defined benefit pension plans, which represents the difference between the projected benefit obligation and the fair value of plan assets, is calculated on a plan-by-plan basis. The Company did not have defined benefit pension plans prior to its June 2015 acquisition of ND. See Note 13—Employee Benefit Plans in the Company's Form 10-Q for the quarterly period ended June 30, 2015 for additional information concerning its employee benefit plans.

29


The following table sets forth the amount of net periodic benefit cost for the UK plans for the three- and nine-month periods ended September 30, 2015 (in millions):
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Interest cost
$
12.6

 
$
16.0

Expected return on plan assets
(15.1
)
 
(19.4
)
Net periodic benefit cost
$
(2.5
)
 
$
(3.4
)
Estimated employer contributions to the UK plans in 2015 approximate $13.8 million.
14. Income Taxes
The Company has determined its interim tax provision projecting an estimated annual effective tax rate. For the three- and nine-months ended September 30, 2015, the Company recorded an income tax expense of $1.9 million and an income tax benefit of $21.3 million, respectively, yielding an effective tax rate of (5.7)% and 14.2%, respectively. The effective tax rate differs from the U.S. statutory rate of 35% in the three-month period ended September 30, 2015 primarily due to the adjustment of valuation allowances on the Company's net federal, state and foreign deferred tax assets, the non-taxable nature of certain foreign currency transactions, the current U.S. taxation of earnings of its non-U.S. subsidiaries and the mix of income among the jurisdictions in which the Company does business with statutory tax rates that differ from the U.S. rate. The effective tax rate differs from the U.S. statutory rate of 35% in the nine-month period ended September 30, 2015 primarily due to the establishment of valuation allowances on the Company's net federal, state and foreign deferred tax assets, the non-taxable nature of certain foreign currency transactions and last mile holdback liability release, the current U.S. taxation of earnings of its non-U.S. subsidiaries and the mix of income among the jurisdictions in which the Company does business with statutory tax rates that differ from the U.S. rate.
For the three- and nine-months ended September 30, 2014, the Company recorded an income tax benefit of $20.1 million and $25.2 million, respectively, yielding an effective tax rate of 63.4% and 31.9%, respectively. The effective tax rate differs from the U.S. statutory rate of 35% in the three-month period ended September 30, 2014 primarily due to the impact of the release of the previously recorded valuation allowance during the period due to the acquired deferred tax liabilities resulting from the New Breed acquisition, the non-deductible nature of certain expenses and the mix of income among the jurisdictions in which the Company does business with statutory tax rates that differ from the U.S. rate. The effective tax rate differs from the U.S. statutory rate of 35% in the nine-month period ended September 30, 2014 primarily due to the non-deductible nature of certain expenses and the mix of income among the jurisdictions in which the Company does business with statutory tax rates that differ from the U.S. rate.
The Company had valuation allowances of approximately $58.7 million and $7.1 million as of September 30, 2015 and December 31, 2014, respectively, on the deferred tax assets generated for federal, state and foreign net operating losses where it is more likely than not that the deferred tax assets will not be utilized. The portion of these valuation allowances representing activity reported in other comprehensive income is $8.1 million as of September 30, 2015, with no amount represented at December 31, 2014. In evaluating the Company’s ability to realize its deferred income tax assets, the Company considers all available positive and negative evidence, including operating results, ongoing tax planning, and the reversal of deferred tax liabilities on a jurisdiction by jurisdiction basis.
In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of September 30, 2015, the Company has not made a provision for U.S. or additional foreign withholding taxes for financial reporting over the tax basis of investments in foreign subsidiaries that the Company considers to be indefinitely reinvested, if any exists, except on those earnings that are subject to U.S. tax without regard to whether those earnings are actually distributed. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of unrecorded deferred tax liability related to investments in these foreign subsidiaries.