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Item 1. Financial Statements

2020-08-03 compared with 2020-05-05 · 282 added, 181 removed, 378 unchanged (55% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

June 30, December 31,

(In millions, except per share data) 2020 2019

4 unchanged sentences

Total current assets 5,030 3,342

Long-term assets

Property and equipment, net of $ 2,291 and $ 2,054 in accumulated depreciation, respectively

Operating lease assets 2,226 2,245

Goodwill 4,422 4,450

Identifiable intangible assets, net of $ 864 and $ 850 in accumulated amortization, respectively

1 unchanged sentence

Total long-term assets 10,611 10,786

Total assets $ 15,641 $ 14,128

LIABILITIES AND STOCKHOLDERS’ EQUITY

6 unchanged sentences

Total current liabilities 3,329 3,258

Long-term liabilities

Long-term debt 6,939 5,182

7 unchanged sentences

10 shares authorized;

0.07 of Series A shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

0.07 of Series A shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Common stock, $ 0.001 par value;

300 shares authorized;

91 and 92 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

91 and 92 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital 1,963 2,061

3 unchanged sentences

Noncontrolling interests 150 153

Total equity 2,634 2,896

Total liabilities and equity $ 15,641 $ 14,128

1 unchanged sentence

XPO Logistics, Inc.

Condensed Consolidated Statements of Income

Three Months Ended March 31,

Condensed Consolidated Statements of (Loss) Income

Three Months Ended June 30, Six Months Ended June 30,

(In millions, except per share data) 2020 2019 2020 2019

Revenue $ 3,502 $ 4,238 $ 7,366 $ 8,358

Operating expenses

3 unchanged sentences

Total operating expenses 3,643 3,980 7,426 7,968

Operating income

Operating (loss) income ( 141 ) 258 ( 60 ) 390

Other expense (income) ( 21 ) ( 13 ) ( 39 ) ( 30 )

Foreign currency (gain) loss

Foreign currency loss (gain) 3 8 ( 5 ) 10

Debt extinguishment loss — — — 5

Interest expense 82 72 154 143

Income before income tax provision

Income tax provision

Net income attributable to noncontrolling interests

Net income attributable to XPO

Earnings per share data:

Net income attributable to common shareholders

Basic earnings per share

Diluted earnings per share

(Loss) income before income tax (benefit) provision ( 205 ) 191 ( 170 ) 262

Income tax (benefit) provision ( 71 ) 46 ( 61 ) 65

Net (loss) income ( 134 ) 145 ( 109 ) 197

Net loss (income) attributable to noncontrolling interests 3 ( 10 ) 1 ( 15 )

Net (loss) income attributable to XPO $ ( 131 ) $ 135 $ ( 108 ) $ 182

Earnings (loss) per share data

Net (loss) income attributable to common shareholders $ ( 132 ) $ 122 $ ( 110 ) $ 165

Basic (loss) earnings per share $ ( 1.45 ) $ 1.32 $ ( 1.20 ) $ 1.66

Diluted (loss) earnings per share $ ( 1.45 ) $ 1.19 $ ( 1.20 ) $ 1.51

Weighted-average common shares outstanding

4 unchanged sentences

Condensed Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2020 2019 2020 2019

Other comprehensive loss, net of tax

Foreign currency translation loss, net of tax effect of $(11) and $(6)

Unrealized loss on financial assets/liabilities designated as hedging instruments, net of tax effect of $— and $1

Net (loss) income $ ( 134 ) $ 145 $ ( 109 ) $ 197

Other comprehensive income (loss), net of tax

Foreign currency translation gain (loss), net of tax effect of $ 4 , $ — , $( 7 ) and $( 6 )

$ 21 $ ( 1 ) $ ( 44 ) $ ( 2 )

Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $ — , $( 1 ), $ — and $ —

Defined benefit plans adjustments, net of tax effect of $ — , $ — , $ 2 and $ —

Other comprehensive loss

Other comprehensive income (loss) 21 3 ( 49 ) ( 1 )

Comprehensive (loss) income $ ( 113 ) $ 148 $ ( 158 ) $ 196

Comprehensive loss attributable to noncontrolling interests

Comprehensive income (loss) attributable to noncontrolling interests — 13 ( 3 ) 13

Comprehensive (loss) income attributable to XPO $ ( 113 ) $ 135 $ ( 155 ) $ 183

2 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2020 2019

Operating activities

Adjustments to reconcile net income to net cash from operating activities

Net (loss) income $ ( 109 ) $ 197

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

Depreciation, amortization and net lease activity 379 360

1 unchanged sentence

Accretion of debt 8 9

Deferred tax benefit

Deferred tax expense 3 12

Debt extinguishment loss — 5

3 unchanged sentences

Accounts receivable 186 ( 289 )

Other assets ( 84 ) ( 23 )

Accounts payable ( 277 ) ( 81 )

Accrued expenses and other liabilities 247 ( 49 )

Net cash provided by (used in) operating activities

Net cash provided by operating activities 394 164

Investing activities

4 unchanged sentences

Financing activities

Proceeds from borrowings related to securitization program

Proceeds from issuance of debt 1,161 1,758

Proceeds from borrowings related to securitization program 109 —

Proceeds from borrowings on ABL facility 620 1,355

18 unchanged sentences

Condensed Consolidated Statements of Changes in Equity

Series A Preferred Stock

(Shares in thousands, dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Total XPO Stockholders' Equity

Non-controlling Interests

Series A Preferred Stock Common Stock

(Shares in thousands, dollars in millions) Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Total XPO Stockholders' Equity Non-controlling Interests Total Equity

Balance as of March 31, 2020 72 $ 41 91,044 $ — $ 1,943 $ 804 $ ( 210 ) $ 2,578 $ 150 $ 2,728

— — — — — ( 131 ) — ( 131 ) ( 3 ) ( 134 )

Other comprehensive income

— — — — — — 18 18 3 21

Exercise and vesting of stock compensation awards

— — 216 — — — — — — —

Tax withholdings related to vesting of stock compensation awards

— — — — ( 2 ) — — ( 2 ) — ( 2 )

Dividend declared

— — — — — ( 1 ) — ( 1 ) — ( 1 )

Stock compensation expense

— — — — 20 — — 20 — 20

— — 62 — 2 — — 2 — 2

Balance as of June 30, 2020 72 $ 41 91,322 $ — $ 1,963 $ 672 $ ( 192 ) $ 2,484 $ 150 $ 2,634

Series A Preferred Stock Common Stock

Balance as of December 31, 2019 72 $ 41 92,342 $ — $ 2,061 $ 786 $ ( 145 ) $ 2,743 $ 153 $ 2,896

— — — — — ( 108 ) — ( 108 ) ( 1 ) ( 109 )

Other comprehensive loss

— — — — — — ( 47 ) ( 47 ) ( 2 ) ( 49 )

Exercise and vesting of stock compensation awards

— — 633 — — — — — — —

Tax withholdings related to vesting of stock compensation awards

— — — — ( 18 ) — — ( 18 ) — ( 18 )

Retirement of common stock

— — ( 1,715 ) — ( 114 ) — — ( 114 ) — ( 114 )

Dividend declared

— — — — — ( 2 ) — ( 2 ) — ( 2 )

Stock compensation expense

— — — — 32 — — 32 — 32

Adoption of new accounting standard and other

— — 62 — 2 ( 4 ) — ( 2 ) — ( 2 )

Balance as of June 30, 2020 72 $ 41 91,322 $ — $ 1,963 $ 672 $ ( 192 ) $ 2,484 $ 150 $ 2,634

XPO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity (continued)

Series A Preferred Stock Common Stock

Balance as of March 31, 2019 72 $ 41 93,207 $ — $ 2,122 $ 428 $ ( 153 ) $ 2,438 $ 395 $ 2,833

Series A Preferred Stock

(Shares in thousands, dollars in millions)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Loss

Total XPO Stockholders' Equity

Non-controlling Interests

— — — — — 135 — 135 10 145

Other comprehensive income

— — — — — — — — 3 3

Exercise and vesting of stock compensation awards

— — 87 — — — — — — —

Tax withholdings related to vesting of stock compensation awards

— — — — ( 2 ) — — ( 2 ) — ( 2 )

Retirement of common stock — — ( 1,362 ) — ( 80 ) — — ( 80 ) — ( 80 )

Dividend declared

— — — — — — — — ( 1 ) ( 1 )

Stock compensation expense

— — — — 11 — — 11 — 11

Other — — 60 — 3 — — 3 — 3

Balance as of June 30, 2019 72 $ 41 91,992 $ — $ 2,054 $ 563 $ ( 153 ) $ 2,505 $ 407 $ 2,912

Series A Preferred Stock Common Stock

Balance as of December 31, 2018 72 $ 41 115,683 $ — $ 3,311 $ 377 $ ( 154 ) $ 3,575 $ 395 $ 3,970

— — — — — 182 — 182 15 197

Other comprehensive income (loss)

— — — — — — 1 1 ( 2 ) ( 1 )

Exercise and vesting of stock compensation awards

— — 181 — — — — — — —

Tax withholdings related to vesting of stock compensation awards

— — — — ( 4 ) — — ( 4 ) — ( 4 )

Retirement of common stock

— — ( 23,932 ) — ( 1,275 ) — — ( 1,275 ) — ( 1,275 )

Dividend declared

— — — — — ( 1 ) — ( 1 ) ( 1 ) ( 2 )

Stock compensation expense

— — — — 19 — — 19 — 19

Adoption of new accounting standard and other

Balance as of March 31, 2019

— — 60 — 3 5 — 8 — 8

Balance as of June 30, 2019 72 $ 41 91,992 $ — $ 2,054 $ 563 $ ( 153 ) $ 2,505 $ 407 $ 2,912

See accompanying notes to condensed consolidated financial statements.

14 unchanged sentences

The Condensed Consolidated Financial Statements are not audited but 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, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 , particularly in light of the outbreak of a new strain of coronavirus, COVID-19, in the first quarter of 2020.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020, particularly in light of the outbreak of a strain of coronavirus, COVID-19, in the first quarter of 2020.

The rapid escalation of COVID-19 into a pandemic in the first quarter of 2020 has affected, and will continue to affect, economic activity broadly and customer sectors served by our industry.

We expect that COVID-19 will have significant effects on economic activity, on demand for our services, and on our results of operations in 2020.

COVID-19 has had, and we expect will continue to have, significant effects on economic activity, on demand for our services, and on our results of operations in 2020.

Restricted Cash

As of March 31, 2020 and December 31, 2019 , our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $ 10 million .

As of June 30, 2020 and December 31, 2019, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $ 10 million.

Accounts Receivable and Allowance for Doubtful Accounts

9 unchanged sentences

XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by Crédit Agricole, BNP Paribas and HSBC (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom a nd France to unaffiliated entities managed by the Purchasers .

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom and France to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.

4 unchanged sentences

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets.

These borrowings amounted to € 164 million ( $ 181 million ) as of March 31, 2020 .

These borrowings amounted to € 98 million ($ 110 million) as of June 30, 2020.

See Note 6—Debt for additional information on these borrowings.

1 unchanged sentence

The deferred purchase price receivable was not a trade receivable and was recorded based on its fair value and reported within Other current assets on our Condensed Consolidated Balance Sheets.

The cash payment which we received on the date of the transfer was reflected within Net cash provided by (used in) operating activities on our Condensed Consolidated Statements of Cash Flows .

The cash payment which we received on the date of the transfer was reflected within Net cash provided by operating activities on our Condensed Consolidated Statements of Cash Flows.

As we received cash payments on the deferred purchase price receivable, it was reflected as an investing activity.

The new program does not include a deferred purchase price mechanism.

The maximum amount of net cash proceeds available at any one time under the program is € 400 million (approximately $ 441 million as of March 31, 2020 ) and this amount includes any unsecured borrowings related to the program.

As of March 31, 2020 , € 88 million (approximately $ 98 million ) was available to us based on the level of receivables sold and outstanding as of that date.

The weighted average interest rate was 0.80 % as of March 31, 2020 .

Charges for commitment fees, which are based on a percentage of available amounts, and charges for administrative fees were not material to our results of operations for the three months ended March 31, 2020 and 2019 .

The maximum amount of net cash proceeds available at any one time under the current securitization program is € 400 million (approximately $ 449 million as of June 30, 2020), and this amount includes any unsecured borrowings related to the program.

As of June 30, 2020, € 161 million (approximately $ 181 million) was available to us based on the level of receivables sold and outstanding as of that date.

The weighted average interest rate was 0.73 % as of June 30, 2020.

The securitization program expires in July 2022 and contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

Information related to the trade receivables sold was as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2020 2019 2020 2019

1 unchanged sentence

Receivables sold in period

$ 598 $ 338 $ 1,289 $ 661

Cash consideration

598 269 1,289 529

Deferred purchase price

1 unchanged sentence

Receivables sold in period

$ 199 $ 235 $ 463 $ 419

Cash consideration

In addition to the cash considerations referenced above, we received $ 71 million in the three months ended March 31, 2019 , for the realization of cash on the deferred purchase price receivable for our prior securitization program.

199 234 462 417

In addition to the cash considerations referenced above, we received $ 66 million and $ 137 million in the three and six months ended June 30, 2019, respectively, for the realization of cash on the deferred purchase price receivable for our prior securitization program.

In March 2020, XPO Logistics Europe announced that it has entered into a definitive agreement to acquire the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom.

The operations provide a range

of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management, and generated annual revenues in 2019 of approximately £ 500 million ($ 639 million).

The transaction is subject to customary closing conditions, including regulatory approvals.

The transaction, which is expected to close in the second half of 2020, is not expected to be material to our 2020 operating results.

Fair Value Measurements

7 unchanged sentences

We base our 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, 2020 and December 31, 2019 due to their short-term nature and/or being receivable or payable on demand.

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 June 30, 2020 and December 31, 2019 due to their short-term nature and/or being receivable or payable on demand.

The Level 1 cash equivalents included money market funds valued using quoted prices in active markets.

2 unchanged sentences

The fair value hierarchy of cash equivalents was as follows:

(In millions)

Carrying Value

March 31, 2020

(In millions) Carrying Value Fair Value Level 1 Level 2

June 30, 2020 $ 1,900 $ 1,900 $ 1,900 $ —

December 31, 2019 144 144 127 17

Cash equivalents at June 30, 2020 include the majority of the net proceeds from the issuance of senior notes due 2025 (the “Senior Notes due 2025”) which were invested in money market funds.

For further information, see Note 6—Debt.

Adoption of New Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” The ASU , as subsequently modified, amends the current incurred losses impairment method with a method that reflects expected credit losses on certain types of financial instruments, including trade receivables.

Measurement of Credit Losses on Financial Instruments.” The ASU, as subsequently modified, amends the incurred losses impairment method with a method that reflects expected credit losses on certain types of financial instruments, including trade receivables.

We adopted this standard on January 1, 2020 and recorded an immaterial adjustment to total equity for the cumulative impact of adoption.

11 unchanged sentences

We are currently evaluating the impact of this standard on our consolidated financial statements.

GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform.

The amendments apply only to contracts and hedging relationships that reference London Inter-bank Offered Rate (“ LIBOR ”) or another reference rate expected to be discontinued due to reference rate reform.

In March 2020, the FASB issued ASU 2020-04, Reference rate reform (Topic 848)—“Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform.

The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform.

The amendments are elective and are effective upon issuance through December 31, 2022.

24 unchanged sentences

Selected financial data for our segments is as follows:

(In millions)

Transportation

Eliminations/Other

Three months ended March 31, 2020

(In millions) Transportation Logistics Corporate Eliminations/Other Total

Three months ended June 30, 2020

Revenue $ 2,127 $ 1,404 $ — $ ( 29 ) $ 3,502

Operating loss (1)

( 15 ) ( 43 ) ( 83 ) — ( 141 )

Depreciation and amortization 113 80 3 — 196

Three months ended June 30, 2019

Revenue $ 2,747 $ 1,526 $ — $ ( 35 ) $ 4,238

Operating income (loss) (2)

243 61 ( 46 ) — 258

Depreciation and amortization 108 67 5 — 180

Three months ended March 31, 2019

Six months ended June 30, 2020

Revenue $ 4,586 $ 2,841 $ — $ ( 61 ) $ 7,366

Operating income (loss) (3)

105 ( 5 ) ( 160 ) — ( 60 )

Depreciation and amortization 223 149 7 — 379

Six months ended June 30, 2019

Revenue $ 5,406 $ 3,020 $ — $ ( 68 ) $ 8,358

Operating income (loss) (4)

371 107 ( 88 ) — 390

Depreciation and amortization 224 128 8 — 360

(1) Consolidated operating loss for the three months ended June 30, 2020 includes $ 50 million of restructuring expense and $ 46 million of transaction and integration costs.

(2) Consolidated operating income for the three months ended June 30, 2019 includes $ 4 million of restructuring expense and $ 1 million of transaction and integration costs.

(3) Consolidated operating loss for the six months ended June 30, 2020 includes $ 90 million of transaction and integration costs and $ 53 million of restructuring expense.

(4) Consolidated operating income for the six months ended June 30, 2019 includes $ 17 million of restructuring expense and $ 2 million of transaction and integration costs.

The transaction and integration costs for the second quarter and first six months of 2020 are primarily related to our previously announced exploration of strategic alternatives.

The review of strategic alternatives was terminated in March 2020, but certain of these costs continued into the second quarter of 2020.

For further information on our restructuring actions, see Note 4—Restructuring Charges.

We also incurred in the second quarter and first six months of 2020, net incremental and direct costs as a result of the COVID-19 pandemic, including costs for personal protective equipment, site cleanings and enhanced employee benefits, such as appreciation pay.

Revenue Recognition

2 unchanged sentences

Our revenue disaggregated by geographical area, based on sales office location, was as follows:

Three Months Ended March 31, 2020

(In millions)

Transportation

Three Months Ended June 30, 2020

(In millions) Transportation Logistics Eliminations Total

United States $ 1,505 $ 509 $ ( 10 ) $ 2,004

North America (excluding United States) 71 10 — 81

France 255 142 ( 3 ) 394

United Kingdom 125 338 ( 11 ) 452

Europe (excluding France and United Kingdom) 146 383 ( 4 ) 525

Three Months Ended March 31, 2019

(In millions)

Transportation

Other 25 22 ( 1 ) 46

Total $ 2,127 $ 1,404 $ ( 29 ) $ 3,502

Three Months Ended June 30, 2019

(In millions) Transportation Logistics Eliminations Total

United States $ 1,924 $ 570 $ ( 7 ) $ 2,487

North America (excluding United States) 73 15 — 88

France 351 172 ( 6 ) 517

United Kingdom 186 350 ( 18 ) 518

Europe (excluding France and United Kingdom) 207 397 ( 4 ) 600

Other 6 22 — 28

Total $ 2,747 $ 1,526 $ ( 35 ) $ 4,238

Six Months Ended June 30, 2020

(In millions) Transportation Logistics Eliminations Total

United States $ 3,207 $ 1,045 $ ( 19 ) $ 4,233

North America (excluding United States) 142 24 — 166

France 566 292 ( 6 ) 852

United Kingdom 307 667 ( 27 ) 947

Europe (excluding France and United Kingdom) 334 769 ( 7 ) 1,096

Other 30 44 ( 2 ) 72

Total $ 4,586 $ 2,841 $ ( 61 ) $ 7,366

Six Months Ended June 30, 2019

(In millions) Transportation Logistics Eliminations Total

United States $ 3,760 $ 1,127 $ ( 12 ) $ 4,875

North America (excluding United States) 140 33 — 173

France 715 341 ( 11 ) 1,045

United Kingdom 374 685 ( 36 ) 1,023

Europe (excluding France and United Kingdom) 408 789 ( 8 ) 1,189

Other 9 45 ( 1 ) 53

Total $ 5,406 $ 3,020 $ ( 68 ) $ 8,358

Our revenue disaggregated by service offering was as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2020 2019 2020 2019

1 unchanged sentence

Freight brokerage and truckload $ 818 $ 1,094 $ 1,841 $ 2,186

LTL 979 1,261 2,114 2,440

Last mile (1)

218 212 419 436

Managed transportation 74 142 157 266

10 unchanged sentences

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

On March 31, 2020 , the fixed consideration component of our remaining performance obligation was approximately $ 1.7 billion , and we expect to recognize approximately 70 % of that amount over the next three years and the remainder thereafter.

On June 30, 2020, the fixed consideration component of our remaining performance obligation was approximately $ 1.6 billion, and we expect to recognize approximately 75 % of that amount over the next three years and the remainder thereafter.

The majority of the remaining performance obligation relates to our Logistics reportable segment.

1 unchanged sentence

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 and are intended to improve our efficiency and profitability.

Restructuring charges were recorded on our Condensed Consolidated Statements of Income as follows:

Three Months Ended March 31,

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to COVID-19.

These actions generally include severance and facility-related costs, including impairment of right-of-use assets, and are intended to improve our efficiency and profitability.

Restructuring charges were recorded on our Condensed Consolidated Statements of (Loss) Income as follows:

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2020 2019 2020 2019

Cost of transportation and services $ 1 $ — $ 1 $ 3

Direct operating expense 6 — 6 —

Sales, general and administrative expense 43 4 46 14

Total $ 50 $ 4 $ 53 $ 17

Our restructuring-related activity was as follows:

Three Months Ended March 31, 2020

(In millions)

Reserve Balance as of December 31, 2019

Charges Incurred

Reserve Balance as of March 31, 2020

Six Months Ended June 30, 2020

(In millions) Reserve Balance as of December 31, 2019 Charges Incurred Payments Foreign Exchange and Other Reserve Balance as of June 30, 2020

Transportation $ 12 $ 18 $ ( 11 ) $ ( 1 ) $ 18

We expect the majority of the cash outlays related to the charges incurred in the first quarter of 2020 will be complete within twelve months.

Logistics 11 21 ( 7 ) 1 26

Corporate 2 8 ( 4 ) — 6

Total severance 25 47 ( 22 ) — 50

Transportation — 6 — ( 1 ) 5

Total $ 25 $ 53 $ ( 22 ) $ ( 1 ) $ 55

We expect to incur additional restructuring charges during the remainder of fiscal 2020 of approximately $ 15 million under previously approved restructuring actions.

We expect the majority of the cash outlays related to the charges incurred in 2020 will be complete within twelve months.

Derivative Instruments

4 unchanged sentences

Historically, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default.

The fair value of our derivative instruments and the related notional amounts were as follows:

March 31, 2020

Derivative Assets

Derivative Liabilities

(In millions)

Notional Amount

Balance Sheet Caption

The fair value of our derivative instruments and the related notional amounts was as follows:

June 30, 2020

Derivative Assets Derivative Liabilities

(In millions) Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value

Derivatives designated as hedges

Cross-currency swap agreements

Other current assets

Other current liabilities

Cross-currency swap agreements

Other long-term assets

Other long-term liabilities

Cross-currency swap agreements $ 135 Other current assets $ — Other current liabilities $ ( 5 )

Cross-currency swap agreements 1,074 Other long-term assets 13 Other long-term liabilities ( 2 )

Interest rate swaps 2,003 Other current assets — Other current liabilities ( 5 )

Derivatives not designated as hedges

Foreign currency option contracts

Other current assets

Other current liabilities

Foreign currency option contracts 212 Other current assets 1 Other current liabilities —

Total $ 14 $ ( 12 )

December 31, 2019

Derivative Assets

Derivative Liabilities

(In millions)

Notional Amount

Balance Sheet Caption

Derivative Assets Derivative Liabilities

(In millions) Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value

Derivatives designated as hedges

Cross-currency swap agreements

Other long-term assets

Other long-term liabilities

Interest rate swap

Other current assets

Other current liabilities

Cross-currency swap agreements $ 1,233 Other long-term assets $ — Other long-term liabilities $ ( 18 )

Interest rate swap 2,003 Other current assets — Other current liabilities ( 7 )

Derivatives not designated as hedges

Foreign currency option contracts

Other current assets

Other current liabilities

Foreign currency option contracts 365 Other current assets 1 Other current liabilities —

Total $ 1 $ ( 25 )

The derivatives are classified as Level 2 within the fair value hierarchy.

The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.

The effect of derivative and nonderivative instruments designated as hedges on our Condensed Consolidated Statements of Income were as follows:

Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives

Amount of Gain Reclassified from AOCI into Net Income

Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Three Months Ended March 31,

The effect of derivative and nonderivative instruments designated as hedges on our Condensed Consolidated Statements of (Loss) Income was as follows:

Amount of (Loss) Gain Recognized in Other Comprehensive Income on Derivatives Amount of Loss Reclassified from AOCI into Net (Loss) Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Three Months Ended June 30,

(In millions) 2020 2019 2020 2019 2020 2019

1 unchanged sentence

Cross-currency swap agreements $ ( 3 ) $ ( 1 ) $ ( 3 ) $ ( 3 ) $ — $ —

Interest rate swap

Interest rate swaps — 5 — — — —

Derivatives designated as net investment hedges

Cross-currency swap agreements ( 19 ) ( 7 ) — — — 3

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a gain of $ 4 million and a loss of $ 2 million for the three months ended March 31, 2020 and 2019 , respectively .

These amounts are recorded in Foreign currency (gain) loss on our Condensed Consolidated Statements of Income .

Total $ ( 22 ) $ ( 3 ) $ ( 3 ) $ ( 3 ) $ — $ 3

Amount of Gain (Loss) Recognized in Other Comprehensive Loss on Derivatives Amount of Gain Reclassified from AOCI into Net (Loss) Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

Six Months Ended June 30,

(In millions) 2020 2019 2020 2019 2020 2019

Derivatives designated as cash flow hedges

Cross-currency swap agreements $ 5 $ 5 $ — $ 2 $ — $ —

Interest rate swaps ( 5 ) ( 1 ) — — — —

Derivatives designated as net investment hedges

Cross-currency swap agreements 19 28 — — 4 5

Total $ 19 $ 32 $ — $ 2 $ 4 $ 5

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a loss of $ 2 million and a gain of $ 2 million for the three and six months ended June 30, 2020, respectively, and losses of $ 8 million and $ 10 million for the three and six months ended June 30, 2019, respectively.

These amounts are recorded in Foreign currency loss (gain) on our Condensed Consolidated Statements of (Loss) Income.

Cross-Currency Swap Agreements

We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate U.S.

Dollar (“USD”)-denominated debt, including the associated interest payments, to fixed-rate, euro (“EUR”)-denominated debt.

The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.

The risk management objective of

these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.

During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates.

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We apply the simplified method of assessing the effectiveness of our net investment hedging relationships.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps are initially recognized in Accumulated other comprehensive income (“ AOCI ”).

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in Accumulated other comprehensive income (“AOCI”).

The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner.

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We designated these cross-currency swaps as qualifying hedging instruments and account for them as cash flow hedges.

Gains and losses resulting from the change in the fair value of the cross-currency swaps are initially recognized in AOCI and reclassified to Foreign currency (gain) loss to offset the foreign exchange impact in earnings created by the intercompany loans.

Gains and losses resulting from the change in the fair value of the cross-currency swaps are initially recognized in AOCI and reclassified to Foreign currency loss (gain) to offset the foreign exchange impact in earnings created by the intercompany loans.

Cash flows related to these cash flow hedges are included in Operating activities on our Condensed Consolidated Statements of Cash Flows.

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We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges.

The interest rate swaps matured in the first quarter of 2020.

The interest rate swaps mature on various dates through 2020.

We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue.

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Additionally, we use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings.

The foreign currency contracts (both option and forward contracts) were not designated as qualifying hedging instruments as of March 31, 2020 .

The foreign currency contracts (both option and forward contracts) were not designated as qualifying hedging instruments as of June 30, 2020.

The contracts are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative.

The contracts generally expire in 12 months or less.

Gains or losses on the contracts are recorded in Foreign currency (gain) loss on our Condensed Consolidated Statements of Income .

Gains or losses on the contracts are recorded in Foreign currency loss (gain) on our Condensed Consolidated Statements of (Loss) Income.

Cash flows related to the foreign currency contracts are included in Investing activities on our Condensed Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired.

March 31, 2020

December 31, 2019

(In millions)

Principal Balance

Carrying Value

Principal Balance

Carrying Value

June 30, 2020 December 31, 2019

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

ABL facility $ 600 $ 600 $ — $ —

Term loan facility 2,003 1,971 2,003 1,969

6.50 % Senior notes due 2022

1,200 1,194 1,200 1,192

6.125 % Senior notes due 2023

6.70% Senior debentures due 2034

535 531 535 530

6.75 % Senior notes due 2024

1,000 988 1,000 987

6.25 % Senior notes due 2025

1,150 1,137 — —

6.70 % Senior debentures due 2034

300 209 300 208

Borrowings related to securitization program 110 110 — —

Finance leases, asset financing and other 397 397 380 380

Total debt 7,295 7,137 5,418 5,266

Short-term borrowings and current maturities of long-term debt 198 198 84 84

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

(In millions)

March 31, 2020

(In millions) Fair Value Level 1 Level 2

June 30, 2020 $ 7,421 $ 4,354 $ 3,067

December 31, 2019 5,580 3,190 2,390

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The fair value of the asset financing arrangements approximates carrying value as the debt is primarily issued at a floating rate, the debt may be prepaid at any time at par without penalty, and the remaining life of the debt is short-term in nature.

As of March 31, 2020 , we had a borrowing base of $ 1.0 billion and availability under our revolving loan credit agreement (the “ ABL Facility ”) of $ 186 million after considering outstanding letters of credit on the ABL Facility of $ 214 million .

The average interest rate on borrowings at March 31, 2020 was 2.30 % .

As of March 31, 2020 , we were in compliance with the ABL Facility ’s financial covenants.

As of June 30, 2020, we had a borrowing base of $ 969 million and availability under our revolving loan credit agreement (the “ABL Facility”) of $ 354 million after considering outstanding letters of credit on the ABL Facility of $ 15 million.

The average interest rate on outstanding borrowings as of June 30, 2020 was 1.44 %.

As of June 30, 2020, we were in compliance with the ABL Facility’s financial covenants.

In April 2020, we entered into a Senior Secured Term Loan Credit Agreement, comprised of a $ 150 million committed secured term loan facility and a $ 200 million uncommitted secured evergreen letter of credit facility.

The term loan facility is available to be drawn upon, subject to customary conditions, in multiple borrowings within six months of the closing date.

Any term loans thereunder will bear interest at a rate equal to LIBOR or base rate, at our election, plus an applicable margin of 3.00 % to 4.50 %, for LIBOR loans, or 2.00 % to 3.50 %, for base rate loans, in each case depending upon the time elapsed since the closing date.

The term loan facility matures in April 2021.

Letters of credit under the letter of credit facility shall expire within one year of issuance and may contain automatic one-year renewals until the letter of credit facility terminates.

As of June 30, 2020, we have issued $ 199 million in aggregate face amount of letters of credit, which replaced letters of credit outstanding under our ABL Facility, and have not drawn on the term loan commitments.

The credit agreement governing the term loan and letter of credit facilities contains representations and warranties and affirmative and negative covenants customary for financings of this type as well as customary events of default.

Term Loan Facility

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The incremental loans under the Incremental Term Loan Facility were issued at a price of 99.50 % of par.

The interest rates on the Term Loan Facility and the Incremental Term Loan Facility were 3.61 % and 4.19 % , respectively, as of March 31, 2020 .

The interest rates on the Term Loan Facility and the Incremental Term Loan Facility were 2.18 % and 2.69 %, respectively, as of June 30, 2020.

Senior Notes due 2025

In the second quarter of 2020, we completed private placements of $ 1.15 billion aggregate principal amount of Senior Notes due 2025.

The Senior Notes due 2025 mature on May 1, 2025 and bear interest at a rate of 6.25 % per annum.

Interest on the notes is paid semi-annually.

$ 850 million of the notes were issued at par, and $ 300 million of the notes were issued subsequently at 101.75 % of face value.

Net proceeds from the notes have been invested in cash and cash equivalents.

The Senior Notes due 2025 are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than some excluded subsidiaries) that are obligors under, or guarantee obligations under, our ABL Facility or existing term loan facility or guarantee certain of our other indebtedness.

The Senior Notes due 2025 and the related guarantees are unsecured, unsubordinated indebtedness for us and our guarantors.

The Senior Notes due 2025 contain covenants customary for notes of this nature.

Senior Notes due 2024

In February 2019, we completed a private placement of $ 1.0 billion aggregate principal amount of senior notes (“Senior Notes due 2024”), which bear interest at a rate of 6.75 % per annum.

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In December 2018, our Board of Directors authorized the repurchase of up to $ 1 billion of our common stock (the “2018 Program”), which was completed in the first quarter of 2019.

The share repurchases were funded by an unsecured credit facility and our available cash.

The share repurchases under the 2018 Program were funded by an unsecured credit facility and our available cash.

In February 2019, our Board of Directors authorized additional repurchases of up to $ 1.5 billion of our common stock (the “2019 Program”).

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The share purchases under the 2019 Program were funded by our available cash and proceeds from our 2019 debt offerings.

Information regarding our shares repurchased, based on settlement date, were as follows:

Information regarding our shares repurchased, based on settlement date, is as follows:

Three Months Ended June 30, Six Months Ended June 30,

(In millions, except per share data) 2020 2019 2020 2019

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

2019 Program 2019 Program 2019 Program 2019 Program 2018 Program

Shares purchased and retired — 2 2 17 8

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and (ii) 4 % of the then-applicable liquidation preference per annum.

Earnings per Share

Earnings (Loss) per Share

We compute basic and diluted earnings per share using the two-class method, which allocates earnings to participating securities.

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In millions, except per share data) 2020 2019 2020 2019

Basic earnings per common share

Net income attributable to XPO

Basic (loss) earnings per common share

Net (loss) income attributable to XPO $ ( 131 ) $ 135 $ ( 108 ) $ 182

Series A preferred stock dividends ( 1 ) — ( 2 ) ( 1 )

Non-cash allocation of undistributed earnings

Net income attributable to common shares, basic

Non-cash allocation of undistributed loss (earnings) — ( 13 ) — ( 16 )

Net (loss) income attributable to common shares, basic $ ( 132 ) $ 122 $ ( 110 ) $ 165

Basic weighted-average common shares 91 92 92 100

Basic earnings per share

Diluted earnings per common share

Net income attributable to common shares, diluted

Basic (loss) earnings per share $ ( 1.45 ) $ 1.32 $ ( 1.20 ) $ 1.66

Diluted (loss) earnings per common share

Net (loss) income attributable to common shares, diluted $ ( 132 ) $ 122 $ ( 110 ) $ 165

Basic weighted-average common shares 91 92 92 100

Dilutive effect of non-participating stock-based awards and equity forward

Dilutive effect of non-participating stock-based awards — 10 — 10

Diluted weighted-average common shares 91 102 92 110

Diluted earnings per share

Diluted (loss) earnings per share $ ( 1.45 ) $ 1.19 $ ( 1.20 ) $ 1.51

Potential common shares excluded 20 10 21 10

Certain shares were not included in the computation of diluted earnings per share because the effect was anti-dilutive.

Certain shares were not included in the computation of Diluted (loss) earnings per share because the effect was anti-dilutive.

Legal and Regulatory Matters

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We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable.

We do not believe that the ultimate resolution of any matters to which we are presently a party

will have a material adverse effect on our results of operations, financial condition or cash flows.

We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows.

However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.

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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.

Subsequent Events

In March 2020, XPO Logistics Europe announced that it has entered into a definitive agreement to acquire the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom.

The operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management and generated revenues in 2019 of approximately £ 500 million ( $ 639 million ) .

The transaction is subject to customary closing conditions, including regulatory approvals.

The transaction, which is expected to close in the second half of 2020, is not expected to be material to our operating results.

In April 2020, we and certain of our subsidiaries entered into a Senior Secured Term Loan Credit Agreement ( the “ Bilateral Credit Agreement ”) , comprised of a $ 150 million committed secured term loan facility and a $ 200 million uncommitted secured evergreen letter of credit facility.

The term loan facility is available to be drawn upon, subject to customary conditions, in multiple borrowings within six months of the closing date.

Any term loans thereunder will bear interest at a rate equal to LIBOR or base rate, at our election, plus an applicable margin of 3.00 % to 4.50 % , for LIBOR loans, or 2.00 % to 3.50 % , for base rate loans, in each case depending upon the time elapsed since the closing date.

The term loan facility matures in April 2021.

Letters of credit under the letter of credit facility shall expire within one year of issuance and may contain automatic one -year renewals until the letter of credit facility terminates.

As of the date of this Report on Form 10-Q, we have issued $ 200 million in aggregate face amount of letters of credit, which replaced letters of credit outstanding under our ABL Facility , and have not drawn upon the term loan commitments.

Also in April 2020, we completed a private placement of $ 850 million aggregate principal amount of 6.25 % senior notes due 2025 (the “ Notes ”).

We intend to use the net proceeds from the issuance of the Notes for general corporate purposes, which may include the repayment of amounts outstanding under our existing ABL Facility , the repayment and/or redemption of our 6.50 % senior notes due 2022 and/or the repayment of other existing indebtedness.

Interest on the debt is paid semi-annually in arrears.

The Notes mature on May 1, 2025.

The net proceeds from the offering, after deducting debt issuance costs, were approximately $ 837 million .

The Notes are guaranteed by each of our direct and indirect wholly-owned restricted subsidiaries (other than some excluded subsidiaries) that are obligors under, or guarantee obligations under, our ABL Facility or existing term loan facility (or certain of its replacements) or guarantee certain of our other indebtedness.

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

The Notes contain covenants customary for notes of this nature.

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