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Item 1. Financial Statements

2023-05-03 compared with 2022-11-30 · 207 added, 212 removed, 135 unchanged (76% of the section changed)

FINANCIAL STATEMENTS

Condensed Combined Balance Sheets

September 30, December 31,

(In millions) 2022 2021

Condensed Consolidated Balance Sheets

March 31, December 31,

(Dollars in millions, shares in thousands, except per share amounts) 2023 2022

Current assets

15 unchanged sentences

Accrued expenses 265 256

Short-term borrowings and current finance lease liabilities 5 —

Current maturities of long-term debt 4 4

Short-term operating lease liabilities 46 48

2 unchanged sentences

Long-term liabilities

Long-term debt and finance lease liabilities 6 —

Long-term debt and obligations under finance leases 451 451

Deferred tax liability 16 16

2 unchanged sentences

Total long-term liabilities 613 621

XPO investment 1,148 1,072

Commitments and Contingencies (Note 8)

Preferred stock, $ 0.01 par value;

10,000 shares authorized;

0 shares issued and

outstanding as of March 31, 2023 and December 31, 2022

Common stock, $ 0.01 par value;

300,000 shares authorized;

116,853 and 116,400 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital 586 588

Retained earnings 2 2

Accumulated other comprehensive loss ( 4 ) ( 4 )

1 unchanged sentence

Total liabilities and equity $ 2,018 $ 2,031

See accompanying notes to Condensed Combined Financial Statements.

Condensed Combined Statements of Operations

Three Months Ended September 30, Nine Months Ended September 30,

(In millions, except per share data) 2022 2021 2022 2021

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Operations

Three Months Ended March 31,

(Dollars in millions, shares in thousands, except per share amounts) 2023 2022

Revenue $ 1,010 $ 1,312

6 unchanged sentences

Operating income $ 5 $ 51

Other expense 1 — — 1

Interest income ( 1 ) — ( 1 ) —

Income before income taxes $ 15 $ 38 $ 125 $ 136

Income tax provision 2 5 29 28

Interest expense, net 8 —

Income (loss) before income taxes $ ( 3 ) $ 51

Income tax provision (benefit) ( 3 ) 12

Net income $ — $ 39

Earnings per share data

Basic and Diluted earnings per share $ 0.11 $ 0.29 $ 0.83 $ 0.94

Common shares outstanding

Number of Basic and Diluted shares outstanding 115 115 115 115

See accompanying notes to Condensed Combined Financial Statements.

Condensed Combined Statements of Comprehensive Income

Three Months Ended September 30, Nine Months Ended September 30,

Basic earnings per share $ — $ 0.34

Diluted earnings per share $ — $ 0.34

Weighted-average common shares outstanding

Basic weighted-average common shares outstanding 116,600 115,163

Diluted weighted-average common shares outstanding 119,369 115,163

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Comprehensive Income

Three Months Ended March 31,

(In millions) 2023 2022

Net income $ — $ 39

Other comprehensive (loss) income, net of tax

Foreign currency translation (loss) gain, net of tax effect of $ — , $ — , $ — , and $ —

$ ( 2 ) $ 6 $ ( 2 ) $ 7

Other comprehensive (loss) income ( 2 ) 6 ( 2 ) 7

Other comprehensive income, net of tax

Foreign currency translation gain, net of tax effect of $ — and $ —

Other comprehensive income — 2

Comprehensive income $ — $ 41

See accompanying notes to Condensed Combined Financial Statements.

Condensed Combined Statements of Cash Flows

Nine Months Ended September 30,

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(In millions) 2023 2022

2 unchanged sentences

Adjustments to reconcile net income to net cash from operating activities

Depreciation, amortization and net lease activity 65 62

Depreciation and amortization expense 18 21

Stock compensation expense 5 2

Deferred tax expense ( 8 ) 1

Changes in assets and liabilities

6 unchanged sentences

Payment for purchases of property and equipment ( 12 ) ( 12 )

Proceeds from sale of property and equipment 1 1

Net cash used in investing activities ( 12 ) ( 12 )

Financing activities

Payment for tax withholdings related to vesting of stock compensation awards ( 7 ) —

Net transfers to XPO — ( 74 )

Other ( 1 ) —

Net cash used in financing activities ( 8 ) ( 74 )

Effect of exchange rates on cash, cash equivalents and restricted cash 1 —

Net increase (decrease) in cash, cash equivalents and restricted cash 158 ( 39 )

Net increase in cash, cash equivalents and restricted cash 23 17

Cash, cash equivalents, and restricted cash, beginning of period 98 29

2 unchanged sentences

Leased assets obtained in exchange for new operating lease liabilities $ 10 $ 23

Leased assets obtained in exchange for new finance lease liabilities 8 —

Cash paid for income taxes 3 3

See accompanying notes to Condensed Combined Financial Statements.

Condensed Combined Statements of Changes in Equity

(In millions) XPO Investment Accumulated Other Comprehensive Loss Total Equity

Balance as of June 30, 2022 $ 1,201 $ ( 2 ) $ 1,199

Net income 13 — 13

Other comprehensive loss — ( 2 ) ( 2 )

Stock compensation expense 3 — 3

Net transfers to XPO ( 69 ) — ( 69 )

Balance as of September 30, 2022 $ 1,148 $ ( 4 ) $ 1,144

(In millions) XPO Investment Accumulated Other Comprehensive Loss Total Equity

Cash paid for income taxes, net 6 1

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Changes in Equity

(Dollars in millions, shares in thousands) Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Equity

Balance as of December 31, 2022 116,400 $ 1 $ 588 $ 2 $ ( 4 ) $ 587

Net income — — — — — —

Other comprehensive loss — ( 2 ) ( 2 )

Stock compensation expense 9 — 9

Net transfers to XPO ( 29 ) — ( 29 )

Balance as of September 30, 2022 $ 1,148 $ ( 4 ) $ 1,144

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Total Equity

Balance as of June 30, 2021 $ 1,060 $ ( 1 ) $ 1,059

Net income 33 — 33

Other comprehensive income — — — — — —

Stock compensation expense — — 5 — — 5

Net transfers to XPO ( 47 ) — ( 47 )

Balance as of September 30, 2021 $ 1,049 $ 5 $ 1,054

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Total Equity

Vesting of stock compensation awards 453 — — — — —

Tax withholdings related to vesting of stock compensation awards — — ( 7 ) — — ( 7 )

Balance as of March 31, 2023 116,853 $ 1 $ 586 $ 2 $ ( 4 ) $ 585

(Dollars in millions, shares in thousands) Shares Amount Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss XPO Investment Total Equity

Balance as of December 31, 2021 — $ — $ — $ — $ ( 2 ) $ 1,072 $ 1,070

3 unchanged sentences

Net transfers to XPO — — — — — ( 70 ) ( 70 )

Balance as of September 30, 2021 $ 1,049 $ 5 $ 1,054

See accompanying notes to Condensed Combined Financial Statements.

Notes to Condensed Combined Financial Statements

(“RXO”, the “Company” or “we”), is a brokered transportation platform defined by cutting-edge technology and an asset-light business model, with the largest component being our core truck brokerage business.

Our operations also include three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business:

Balance as of March 31, 2022 — $ — $ — $ — $ — $ 1,043 $ 1,043

See accompanying notes to condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(“RXO”, the “Company” or “we”) is a brokered transportation platform defined by cutting-edge technology and an asset-light business model.

The largest component is our core truck brokerage business.

Our operations also include three asset-light, brokered transportation services, all of which complement our truck brokerage business:

managed transportation, last mile and freight forwarding.

We present our operations in the Condensed Combined Financial Statements as one reportable segment.

On November 1, 2022, XPO Logistics, Inc.

(together with its subsidiaries, “XPO”) completed the spin-off of RXO in a transaction intended to be tax-free for U.S.

federal income tax purposes, which was accomplished by the distribution of 100 % of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution.

XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date.

RXO is now a standalone publicly traded company, and, on November 1, 2022, regular-way trading of RXO’s common stock commenced on the New York Stock Exchange (the “NYSE”) under the ticker symbol “RXO.”

The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”).

See Note 8 —Subsequent Events for additional details.

We present our operations in the condensed consolidated financial statements as one reportable segment.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The Condensed Combined Financial Statements of RXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO.

These financial statements reflect the combined historical results of operations, financial position and cash flows of RXO in accordance with U.S.

generally accepted accounting principles (“GAAP”).

Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO.

The Condensed Combined Financial Statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company.

All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the Condensed Combined Financial Statements, as they are to be considered effectively settled upon effectiveness of the spin-off.

The Condensed Combined Financial Statements are presented as if the RXO businesses had been combined for all periods presented.

The assets and liabilities in the Condensed Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the spin-off all of the assets and liabilities presented were wholly owned by XPO and were transferred to RXO at a carry-over basis.

The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable to RXO, and the Condensed Combined Statements of Operations include allocations of XPO costs and expenses, as described below.

XPO’s third-party debt and the related interest expense were not allocated to us for any of the periods presented as XPO’s borrowings are not our legal obligation.

XPO’s corporate function (“Corporate”) incurs a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications.

For purposes of the Condensed Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations.

The charges reflected have either been specifically identified or allocated using drivers including (i) proportional adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments, or (ii) headcount.

These allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Depreciation and amortization expense, Transaction and integration costs, and Restructuring costs in the Condensed Combined Statements of Operations.

We believe the assumptions regarding allocations of XPO corporate expenses are reasonable.

Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.

XPO investment represents XPO’s historical investment in RXO and includes the net effects of transactions with and allocations from XPO as well as RXO’s accumulated earnings.

Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded.

The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment.

The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.

Principles of Combination

The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of RXO.

Significant intercompany balances and transactions among the operations of the RXO legal entities have been eliminated in the Condensed Combined Financial Statements.

All significant related party transactions between RXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment.

The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented.

Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”).

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the 2022 Form 10-K.

The Company’s condensed consolidated financial statements include the accounts of RXO, Inc.

and its majority-owned subsidiaries.

All intercompany accounts and transactions have been eliminated.

The condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented.

Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

On November 1, 2022, the Company completed the separation (the “Separation”) from XPO, Inc.

(formerly known as XPO Logistics, Inc.) (“XPO”).

The Separation was accomplished by the distribution of 100 percent of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution.

XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date.

The Separation was completed under a Separation and Distribution Agreement and various other agreements that govern aspects of the Company’s relationship with XPO.

On November 1, 2022, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis.

Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO (the “historical financial statements”).

The combined financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements,” and have been prepared in accordance with GAAP.

In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis.

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications.

An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including RXO.

The charges reflected have either been specifically identified or allocated using drivers including proportionally adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount.

The Company believes the assumptions regarding allocations of XPO corporate expenses are reasonable.

Nevertheless, the condensed consolidated financial statements may not reflect the results of operations, financial position and cash flows had the Company been a standalone entity during the prior periods presented.

The majority of these allocated costs are recorded within Sales, general and administrative expense;

Depreciation and amortization expense;

and Transaction and integration costs in the Condensed Consolidated Statements of Operations.

All charges and allocations for facilities, functions and services performed by XPO organizations have been deemed settled in cash by RXO to XPO in the year in which the cost was recorded in the Condensed Consolidated Statements of Operations.

For the periods ended before the Separation, XPO investment represents XPO’s historical investment in RXO and includes the net effects of transactions with and allocations from XPO as well as RXO’s accumulated earnings.

Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these condensed consolidated financial statements, and are considered to be effectively settled at the time the transaction is recorded.

The total net effect of the cash settlement of these transactions is reflected in the Condensed Consolidated Statements of Cash Flows as a financing activity and in the Condensed Consolidated Statements of Changes in Equity as XPO investment.

The components of the net transfers to and from XPO include certain costs allocated from XPO’s corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.

For the periods ended before the Separation, the Company was a member of the XPO consolidated group, and its U.S.

taxable income was included in XPO’s consolidated U.S.

federal income tax return as well as in the tax returns filed by XPO with certain state and local taxing jurisdictions.

For the periods ended after the Separation, the Company will file a consolidated U.S.

federal income tax return as well as state and local income tax returns.

The Company’s foreign income tax returns are filed on a full-year basis.

Significant Accounting Policies

Our significant accounting policies are disclosed in Note 2 to the Combined Financial Statements for the year ended December 31, 2021, included in the Form 10.

There have been no material changes to the Company’s significant accounting policies as of September 30, 2022.

Additional information related to certain significant accounting policies is as follows:

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The levels of inputs used to measure fair value are:

• Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs are observable in active markets;

• Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

We base our fair value estimates on market assumptions and available information.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated their fair values as of September 30, 2022 and December 31, 2021 due to their short-term nature and/or being receivable or payable on demand.

We determine if an arrangement is a lease at inception.

For leases with terms greater than 12 months, we recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term.

For most of our leases, the implicit rate cannot be readily determined and, as a result, we use the incremental borrowing rates of XPO at the commencement date to determine the present value of future lease payments.

We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options.

We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability.

We account for lease and non-lease components within a contract as a single lease component for our real estate leases.

Lease expense for our operating leases is recognized on a straight-line basis over the lease term, with the exception of variable lease costs, which are expensed as incurred.

For finance leases, amortization of the right-of-use asset is recognized in Depreciation and amortization expense on a straight-line basis over the lease term, and interest expense is accreted on the lease liability using the effective interest method.

During the third quarter of 2022 we entered into new finance lease agreements, resulting in a total finance lease liability of $ 6 million, with $ 1 million recorded in short-term borrowings and current finance lease liabilities and $ 5 million recorded in long-term debt and finance lease liabilities within the Condensed Combined Balance Sheets as of September 30, 2022.

Additionally, as of September 30, 2022 finance lease liabilities of $ 2 million were allocated to the Company from XPO, with $ 1 million recorded in short-term borrowings and current finance lease liabilities and $ 1 million recorded in long-term debt and finance lease liabilities within the Condensed Combined Balance Sheets as of September 30, 2022.

Our significant accounting policies are disclosed in Note 2 to the 2022 Form 10-K.

There have been no material changes to the Company’s significant accounting policies as of March 31, 2023.

Adoption of New Accounting Standards

In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring annual disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements.

We adopted this standard on January 1, 2022, on a prospective basis.

The adoption did not have a material impact on our financial statement disclosures.

Accounting Pronouncement Issued but Not Yet Effective

In September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50):

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations.” The ASU increases the transparency surrounding supplier finance programs by requiring the buyer to disclose information on an annual basis about the key terms of the program, the outstanding obligation amounts as of the end of the period, a roll-forward of such amounts, and the balance sheet presentation of the related amounts.

1 unchanged sentence

The amendments are effective for fiscal years beginning after December 15, 2022 except for the requirement to disclose the roll-forward information, which is effective for fiscal years beginning after December 15, 2023.

We adopted this standard on January 1, 2023, on a prospective basis.

The adoption did not have an impact on our financial statement disclosures.

Accounting Pronouncements Issued but Not Yet Effective

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) - Common Control Arrangements”.

The amendments in this update improve current GAAP by clarifying the accounting treatment for leasehold improvements associated with common control leases in order to create uniformity in practice.

The ASU seeks to provide guidance to more accurately match the amortization expense of leasehold improvements under common control arrangements with the useful life of the improvements to the consolidated entity as a whole.

The amendments are effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

We are currently evaluating the impact of the new guidance, which is limited to financial statement disclosures.

We are currently evaluating the impact of the new guidance.

Revenue Recognition

3 unchanged sentences

Approximately 7 % and 9 % of our revenues were generated outside the U.S.

(primarily in North America, excluding the U.S., and Asia) for the three months ended September 30, 2022 and 2021, respectively.

Approximately 9 % of our revenues were generated outside the U.S.

(primarily in North America, excluding the U.S., and Asia) in each of the nine months ended September 30, 2022 and 2021.

Our revenue disaggregated by service offering was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(primarily in North America, excluding the U.S., and Asia) for the three months ended March 31, 2023 and 2022, respectively.

Our revenue disaggregated by service offering is as follows:

Three Months Ended March 31,

(In millions) 2023 2022

5 unchanged sentences

Total $ 1,010 $ 1,312

Our revenue by industry sector was approximately as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Our revenue disaggregated by industry sector is as follows:

Three Months Ended March 31,

(In millions) 2023 2022

10 unchanged sentences

(i) have original expected durations of one year or less or (ii) contain variable consideration.

On September 30, 2022, the fixed consideration component of our remaining performance obligation was approximately $ 151 million, and we expect approximately 91 % of that amount to be recognized over the next three years and the remainder thereafter.

As of March 31, 2023, the fixed consideration component of our remaining performance obligation was approximately $ 153 million, and we expect approximately 97 % of that amount to be recognized over the next 3 years and the remainder thereafter.

We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.

Restructuring

Restructuring Charges

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure.

These actions generally include severance and facility-related costs, including impairment of operating lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability going forward.

Our restructuring-related activity was as follows:

Nine Months Ended September 30, 2022

(In millions) Reserve Balance

December 31, 2021 Charges Incurred Payments Other Reserve Balance

September 30, 2022

Severance $ — $ 7 $ ( 6 ) $ — $ 1

Facilities 2 1 ( 1 ) — 2

Contract termination — 1 — — 1

Total $ 2 $ 9 $ ( 7 ) $ — $ 4

Nine Months Ended September 30, 2021

These actions generally include severance and facility-related costs, including impairment of operating lease assets, and are intended to improve our efficiency and profitability going forward.

The following is a roll-forward of the Company’s restructuring liability, which is included in Accrued expenses in the Condensed Consolidated Balance Sheets:

Three Months Ended March 31, 2023

(In millions) Reserve Balance

December 31, 2020 Charges Incurred Payments Other Reserve Balance

September 30, 2021

December 31, 2022 Charges Incurred Payments Reserve Balance

March 31, 2023

Severance $ 2 $ 8 $ ( 3 ) $ 7

1 unchanged sentence

Total $ 3 $ 8 $ ( 3 ) $ 8

We expect the majority of the cash outlays related to the charges incurred in the first nine months of 2022 will be completed by September 30, 2023.

We expect the majority of the cash outlays related to the remaining restructuring liability at March 31, 2023 to be complete within twelve months.

The following table summarizes the principal balance and carrying value of our debt:

March 31, 2023 December 31, 2022

(In millions) Principal Balance Carrying Value Principal Balance Carrying Value

Term Loan $ 100 $ 100 $ 100 $ 100

7.50 % Notes due 2027 (1)

355 346 355 346

Finance leases, asset financing and other 9 9 9 9

Total debt and obligations under finance leases 464 455 464 455

Current maturities of long-term debt 4 4 4 4

Total long-term debt and obligations under finance leases $ 460 $ 451 $ 460 $ 451

(1) The carrying value of the 7.50 % Notes due 2027 is presented net of unamortized debt issuance cost and discount of $ 9 million and $ 9 million as of March 31, 2023 and December 31, 2022, respectively.

Revolving Credit Agreement

On October 18, 2022, we entered into a five-year , unsecured multi-currency revolving credit facility (the “Revolver”).

The Revolver borrowing capacity is up to $ 500 million, of which $ 50 million is available for the issuance of letters of credit.

Loans under the Revolver bear interest at a fluctuating rate plus an applicable margin based on the Company’s credit ratings.

The Company is required to pay a commitment fee on any unused commitment, based on pricing levels set forth in the agreement.

The covenants in the Revolver are customary for financings of this type.

The Revolver requires the Company to maintain a maximum consolidated leverage ratio and minimum interest coverage ratio.

At March 31, 2023, the Company was in compliance with the covenants of the Revolver.

There were no amounts outstanding under the Revolver as of March 31, 2023 or December 31, 2022.

Term Loan Credit Agreement

On October 18, 2022, we entered into a five-year $ 100 million unsecured term loan facility (the “Term Loan”).

The Term Loan bears interest at a fluctuating rate plus an applicable margin calculated based on the Company’s credit ratings, payable at least quarterly.

Beginning with the fiscal quarter ending March 31, 2025, the Term Loan will amortize on a quarterly basis in an amount equal to (i) 5 % per annum for the first eight fiscal quarters ending on or after such date and (ii) 10 % per annum for each fiscal quarter ending thereafter.

The Term Loan matures on November 1, 2027.

The effective interest rate on the Term Loan was 5.93 % as of March 31, 2023.

The covenants in the Term Loan are customary for financings of this type.

In addition, the Term Loan requires the Company to maintain a maximum consolidated leverage ratio and minimum interest coverage ratio.

At March 31, 2023, the Company was in compliance with the covenants of the credit agreement governing the Term Loan.

On October 25, 2022, we completed an offering of $ 355 million in unsecured notes (the “Notes” or the “ 7.50 % Notes due 2027”).

The Notes bear interest at a rate of 7.50 % per annum payable semiannually in cash in arrears on May 15 and November 15 of each year, beginning May 15, 2023, and mature on November 15, 2027, unless earlier repurchased or redeemed, if applicable.

The Notes were issued at an issue price of 98.962 % of par.

The effective interest rate on the Notes was 8.14 % as of March 31, 2023.

The Notes are guaranteed by each of our direct and indirect wholly owned domestic subsidiaries (other than certain excluded subsidiaries).

The Notes and its guarantees are unsecured, senior indebtedness for us and our guarantors.

The Notes contain covenants customary for debt securities of this nature.

At March 31, 2023, the Company was in compliance with the covenants of the Notes.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The levels of inputs used to measure fair value are:

• Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs are observable in active markets;

• Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

Assets and Liabilities

The Company bases its fair value estimates on market assumptions and available information.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2023 and December 31, 2022, due to their short-term nature and/or being receivable or payable on demand.

The fair value of our debt and classification in the fair value hierarchy is as follows:

(In millions) Level March 31, 2023 December 31, 2022

Term Loan 2 $ 95 $ 95

7.50 % Notes due 2027

We valued Level 1 debt using quoted prices in active markets.

We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics.

Earnings per Share

On November 1, 2022, the date of the spin-off, 115,162,555 shares of the common stock of RXO were distributed to XPO shareholders of record as of the record date.

This share count is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the spin-off.

For the three and nine months ended September 30, 2022 and 2021, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share.

For periods prior to the spin-off, it is assumed that there are no dilutive equity instruments as there were no equity awards of RXO outstanding prior to the spin-off.

On November 1, 2022, the date of the Separation, 115,162,555 shares of common stock of the Company were distributed to XPO stockholders of record as of the record date and began regular-way trading.

This share amount is utilized for the calculation of basic and diluted earnings per share for the three months ended March 31, 2022.

The computations of basic and diluted earnings per share are as follows:

Three Months Ended March 31,

(Dollars in millions, shares in thousands, except per share data) 2023 2022

Net income $ — $ 39

Basic weighted-average common shares 116,600 115,163

Dilutive effect of stock-based awards 2,769 —

Diluted weighted-average common shares 119,369 115,163

Basic earnings per share $ — $ 0.34

Diluted earnings per share $ — $ 0.34

For the three months ended March 31, 2023, approximately 0.9 million shares are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Commitments and Contingencies

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We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We review and adjust accruals for loss contingencies quarterly and as additional information becomes available.

If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred.

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Legal costs incurred related to these matters are expensed as incurred.

XPO carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company.

We carry liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company.

The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note.

In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.

XPO’s last mile subsidiary is involved in several class action and collective action cases involving misclassification claims.

The misclassification claims related solely to XPO’s last mile services, which operated as a wholly owned subsidiary of XPO until the spin-off of RXO was completed.

Our last mile subsidiary is involved in several class action and collective action cases involving misclassification claims.

The misclassification claims related solely to our last mile business, which operated as a wholly owned subsidiary of XPO until the spin-off of RXO was completed.

As of November 1, 2022, pursuant to the Separation and Distribution Agreement between XPO and RXO, the liabilities of XPO’s last mile subsidiary, including legal liabilities, if any, related to the misclassification claims, were spun-off as part of RXO.

Pursuant to the Separation and Distribution Agreement, RXO has agreed to indemnify XPO for certain matters relating to RXO, including indemnifying XPO from and against any liabilities, damages, costs, or expenses incurred by XPO arising out of or resulting from the misclassification claims described above.

Related Party Transactions

Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, are deemed related-party transactions.

Related-party transactions are comprised of the following:

(i) those that have been effectively settled or are expected to be settled for cash, and (ii) those which have historically not been settled and which have been or are expected to be forgiven by either party.

For those that have been or are expected to be cash settled, we have recorded related-party receivables (assets) or payables (liabilities) in the Condensed Combined Balance Sheets as of September 30, 2022 and December 31, 2021.

For those that have been or are expected to be forgiven, the amounts have been recorded as an adjustment of XPO Investment in the Condensed Combined Balance Sheets as of September 30, 2022 and December 31, 2021.

We believe these suits are without merit and we intend to defend the Company vigorously.

We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.

Related Party

Prior to the Separation, the Company did not operate as a standalone business and the condensed consolidated financial statements were derived from the consolidated financial statements and accounting records of XPO.

Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, that occurred prior to the Separation have been classified as related-party transactions.

Transactions that originated with XPO prior to the Separation were cash settled or forgiven as of November 1, 2022.

For amounts that were forgiven, the amounts have been recorded as an adjustment to XPO Investment.

Allocation of General Corporate Expenses

The Condensed Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company.

In addition, for purposes of preparing these Condensed Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to the Company.

See Note 2 — Basis of Presentation for a discussion of the methodology used to allocate such costs for purposes of preparing these Condensed Combined Financial Statements.

Costs included in our Condensed Combined Statements of Operations for our allocated share of XPO’s corporate overhead are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Post-Separation, general shared costs from XPO were no longer allocated to the company, therefore no related amounts were reflected on the Company’s financial statements for the three months ended March 31, 2023.

Prior to the Separation, certain shared costs were allocated to the Company from XPO’s corporate overhead.

The Condensed Consolidated Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that were charged directly to the Company.

In addition, for purposes of preparing these condensed consolidated financial statements, a portion of XPO’s total corporate expenses have been allocated to the Company.

See Note 2 - Basis of Presentation and Significant Accounting Policies for a discussion of the methodology used to allocate such costs for purposes of preparing these condensed consolidated financial statements.

Costs included in our Condensed Consolidated Statements of Operations for our allocated share of XPO’s corporate overhead are as follows:

Three Months Ended March 31,

(In millions) 2022

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Transaction and integration costs 3

Restructuring costs 5 — 5 —

Total $ 39 $ 19 $ 101 $ 51

Transactions with XPO and its non-RXO Subsidiaries

Revenue and costs generated from related parties were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2022 2021 2022 2021

Revenue $ 26 $ 42 $ 101 $ 116

Cost of transportation and services (exclusive of depreciation and amortization) 15 22 47 61

Balances with XPO and its non-RXO Subsidiaries

Assets and liabilities on the Condensed Combined Balance Sheets include the following related-party amounts that are expected to be cash settled:

September 30, December 31,

Revenue and costs generated from related parties are as follows:

Three Months Ended March 31,

(In millions) 2022

Amounts due from XPO and its affiliates

Trade receivables (1)

Amounts due to XPO and its affiliates

Trade payables (2)

_________________

(1) Represents trade receivables generated from revenue with XPO.

(2) Represents trade payables due to XPO.

Subsequent Events

On October 25, 2022, we completed an offering of $ 355 million in aggregate principal amount of notes (the “Notes”).

RXO is permitted to redeem some or all of the Notes prior to their maturity at redemption prices described in the indenture.

The Notes were issued at an issue price of 98.962 % of par.

Term Loan Credit Agreement

On October 18, 2022, we entered into a five-year $ 100 million unsecured term loan facility (the “Term Loan”).

The Term Loan bears interest at a fluctuating rate per annum equal to, at RXO’s option, the alternate base rate or a rate referencing the Secured Overnight Funding Rate (“SOFR”), in each case, plus an applicable margin calculated based on RXO’s credit ratings, payable quarterly.

The Term Loan matures on November 1, 2027.

Revolving Credit Agreement

On October 18, 2022, we entered into a five-year unsecured, multicurrency Revolving Credit Agreement (the “Revolver”) with initial aggregate commitments from all lenders of $ 500 million, of which $ 50 million will be available for the issuance of letters of credit.

Loans under the Revolver will bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S.

dollars, at RXO’s option, the alternate base rate or a rate referencing the SOFR and (b) with respect to borrowings in Canadian Dollars, the reserve adjusted Canadian Dollar Offered Rate (“CDOR”), in each case, plus an applicable margin calculated based on RXO’s credit ratings.

Cash Distribution to XPO

Net proceeds from the issuance of the Notes and the incurrence of the Term Loan, together with cash on RXO’s balance sheet, were used to fund a net cash distribution of $ 604 million from RXO to XPO, in the fourth quarter of 2022.

Distribution from XPO

On November 1, 2022, XPO completed the spin-off of RXO in a transaction intended to be tax-free for U.S.

XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date.

RXO is now a standalone publicly traded company, and, on November 1, 2022, regular-way trading of RXO’s common stock commenced on the NYSE under the ticker symbol “RXO.”

The Separation and Distribution Agreement contains provisions that, among other things, relate to (i) the transfer, assumption and allocation of assets, liabilities and contracts to each of RXO and XPO as part of the spin-off, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities arising out of or resulting from the RXO business with RXO and to place financial responsibility for the obligations and liabilities arising out of or resulting from XPO’s retained business with XPO, (iii) the allocation between RXO and XPO of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the spin-off, and (iv) procedures governing the resolution of disputes, controversies or claims that may arise between RXO and XPO related to the separation or distribution.

Under the TSA, (i) XPO will provide RXO and certain of its affiliates, on an interim, transitional basis, various services and (ii) RXO will provide XPO and certain of its affiliates, on an interim, transitional basis, various services.

The services to be provided will include, among others, employee benefits administration, information technology services, regulatory services, accounting support, general administrative services and other support services.

The TMA governs XPO’s and RXO’s rights, responsibilities and obligations with respect to tax matters;

including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax, contests and other tax matters.

The EMA allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the spin-off.

The IPLA between an RXO subsidiary and XPO provides such RXO subsidiary licenses to certain XPO software and other intellectual property rights retained by XPO, and provides XPO licenses to certain software, patents and other intellectual property owned by RXO subsidiaries.

Stock Compensation Expense

On November 1, 2022, upon completion of the spin-off, the performance condition on certain outstanding performance-based restricted stock units became probable of occurrence, resulting in expense of $ 19 million, to be recorded in Transaction and integration costs in the consolidated statements of operations during the quarter ended December 31, 2022.

On May 2, 2023, the RXO Board of Directors authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate purchase price of up to $ 125 million (the “2023 Share Repurchase Program”).

The 2023 Share Repurchase Program does not have an expiration date and may be suspended or discontinued at any time.

We are not obligated to repurchase any specific number of shares.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements