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10-Q
XPO LOGISTICS, INC. filed this Form 10-Q on 11/05/2018
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Cost of transportation and services includes the cost of providing or procuring freight transportation services for XPO customers, salaries paid to employee drivers in our truckload and LTL businesses, and commissions paid to independent station owners in our global forwarding business.
Cost of transportation and services for the third quarter of 2018 was $2,248.6 million, or 51.9% of revenue, compared to $2,043.4 million, or 52.6% of revenue, in the third quarter of 2017. Cost of transportation and services for the first nine months of 2018 was $6,747.7 million, or 52.3% of revenue, compared to $5,901.8 million, or 52.8% of revenue, in the first nine months of 2017. The decrease as a percentage of revenue in both the third quarter and nine-month periods was primarily driven by a higher mix of contract logistics revenue, and net revenue margin improvement in freight brokerage. Net revenue is defined as Revenue less Cost of transportation and services. Net revenue margin is defined as net revenue as a percentage of Revenue.
Direct operating expenses are both fixed and variable expenses and consist of operating costs related to our contract logistics facilities, last mile warehousing facilities, LTL service centers and European LTL network. Direct operating costs consist mainly of personnel costs, facility and equipment expenses such as rent, equipment maintenance and repair expenses, costs of materials and supplies, information technology expenses, depreciation expense, utilities and other facility related costs and gains and losses on sales of property and equipment.
Direct operating expense for the third quarter of 2018 was $1,430.3 million, or 33.0% of revenue, compared to $1,267.4 million, or 32.6% of revenue, in the third quarter of 2017. Direct operating expense for the first nine months of 2018 was $4,212.7 million, or 32.7% of revenue, compared to $3,616.1 million, or 32.3% of revenue, in the first nine months of 2017. The increase as a percentage of revenue in both the third quarter and nine-month periods was primarily driven by higher payroll and temporary labor expense related to an increase in the number of new Logistics contract startups.
Sales, general and administrative expense (“SG&A”) consists of costs relating to customer acquisition, carrier procurement, billing, customer service, salaries and related expenses of the executive and administrative staff, acquisition-related costs, office expenses, technology services, professional fees and other purchased services relating to the aforementioned functions, legal settlements and depreciation and amortization expense.
SG&A for the third quarter of 2018 was $447.2 million, or 10.3% of revenue, compared to $399.6 million, or 10.3% of revenue, in the third quarter of 2017. SG&A as a percentage of revenue was flat in the third quarter primarily due to higher bad debt expense, lower professional fees and essentially flat employee compensation costs. SG&A for the first nine months of 2018 was $1,351.7 million, or 10.5% of revenue, compared to $1,213.4 million, or 10.8% of revenue, in the first nine months of 2017. The decrease in SG&A as a percentage of revenue in the nine-month period primarily reflects lower professional services and consulting costs and revenue growth of 15.2% for the first nine months of 2018.
Other expense (income) for the third quarter of 2018 was $(18.3) million as compared to $(16.8) million in the third quarter of 2017. Other expense (income) for the first nine months of 2018 was $(68.1) million as compared to $(35.8) million in the first nine months of 2017. Net periodic pension income was $17.8 million and $10.1 million in the third quarter of 2018 and 2017, respectively. Net periodic pension income was $54.5 million and $29.8 million in the first nine months of 2018 and 2017, respectively. Other expense (income) for the nine months ended September 30, 2018 included a gain of approximately $9 million related to a terminated swap.
Foreign currency loss for the third quarter of 2018 was $3.3 million as compared to $15.0 million in the third quarter of 2017. The primary driver of the lower Foreign currency loss was unrealized gains incurred on foreign currency option and forward contracts in the third quarter of 2018 compared to unrealized losses in the third quarter of 2017. Foreign currency loss for the first nine months of 2018 was $5.3 million as compared to $53.9 million in the first nine months of 2017. For the first nine months of 2018, Foreign currency loss reflected realized losses on foreign currency option and forward contracts as well as foreign currency transaction and remeasurement losses, partially offset by unrealized gains incurred on foreign currency option and forward contracts. For the first nine months of 2017, the foreign currency loss primarily reflects unrealized losses on foreign currency option and forward contracts. For additional information on our foreign currency option and forward contracts, see Note 4—Derivative Instruments of the Condensed Consolidated Financial Statements.
Debt extinguishment losses were $16.8 million and $4.6 million for the third quarter of 2018 and 2017, respectively, and $27.1 million and $13.6 million for the first nine months of 2018 and 2017, respectively. Debt extinguishment


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