What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-04 · 199 added, 118 removed, 164 unchanged (66% of the section changed)

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Within each segment, we are positioned to capitalize on fast-growing areas of demand.

In December 2020, we announced that our Board of Directors unanimously approved a plan to pursue a spin-off of 100% of our Logistics segment as a separate publicly traded company.

We intend to structure the spin-off as a distribution that is generally tax-free for U.S.

federal income tax purposes to XPO shareholders (except with respect to any cash received in lieu of fractional shares) and would result in XPO shareholders owning stock in both companies.

If completed, the spin-off will result in separate public companies with clearly delineated service offerings.

XPO will be a global provider of primarily less-than-truckload (“LTL”) transportation and truck brokerage services, and GXO Logistics, Inc.

(“GXO”), the planned spin-off, will be the second largest contract logistics provider in the world.

Both companies’ stocks are expected to trade on the New York Stock Exchange, and we plan to consider a dual listing on the London Stock Exchange for GXO in due course.

The transaction is currently expected to be completed in the second half of 2021, subject to various conditions, including the approval of XPO’s board of directors.

There can be no assurance that the spin-off will occur or, if it does occur, of its terms or timing.

Separately, we acquired the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom and Ireland in January 2021.

The operations, which include roughly 5,700 employees and provide a range of logistics

services, including inbound and outbound distribution, reverse logistics management and inventory management, are included in our Logistics segment.

As of March 31, 2021, we had approximately 140,000 team members (comprised of approximately 108,000 full-time and part-time employees and 32,000 third-party, temporary workers), and 1,621 locations in 30 countries.

On August 2, 2021, we completed the previously announced spin-off of our Logistics segment in a transaction intended to qualify as tax-free to our stockholders for U.S.

federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO Logistics, Inc.

(“GXO”) to XPO stockholders.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on July 23, 2021, the record date for the distribution.

XPO does not beneficially own any shares of GXO’s common stock following the spin-off.

GXO, a global provider of contract logistics services, is an independent public company trading under the symbol “GXO” on the New York Stock Exchange.

The historical results of operations and the financial position of GXO are included in these condensed consolidated financial statements.

After the spin-off, we will no longer consolidate GXO, and all periods prior to the spin-off will reflect our Logistics segment as a discontinued operation.

In connection with the spin-off, we have entered into a separation and distribution agreement as well as various other agreements with GXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement, a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will continue to provide certain services to GXO following the spin-off.

With the completion of the spin-off, XPO is a leading provider of transportation services, primarily less-than-truckload (“LTL”) transportation and truck brokerage services.

As of June 30, 2021, we had approximately 141,000 team members (comprised of approximately 107,000 full-time and part-time employees and 34,000 third-party, temporary workers), and 1,623 locations in 30 countries.

Substantially all of our services operate under the single brand of XPO Logistics.

We use our highly integrated network to help more than 50,000 customers operate their supply chains most efficiently.

Maintaining strong liquidity has been and will continue to be a top priority for XPO, and is consistent with our pursuit of investment-grade ratings for both XPO and GXO.

As discussed in greater detail below, as of March 31, 2021, we had $1.7 billion of available liquidity, including $629 million of cash and cash equivalents.

We use our highly extensive network to help more than 50,000 customers operate their supply chains most efficiently.

Maintaining strong liquidity has been and will continue to be a top priority for XPO, and we are targeting for XPO to receive investment-grade credit ratings in the future.

As discussed in greater detail below, as of June 30, 2021, we had $1.9 billion of available liquidity, including $801 million of cash and cash equivalents.

Transportation Segment

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We are the second largest brokerage provider globally and the third largest brokerage provider in North America.

As of March 31, 2021, we had truck brokerage relationships with approximately 81,000 independent carriers representing over 1,000,000 trucks.

The results of our truck brokerage operations are included as part of our freight brokerage services, which include additional, asset-light services for expedite, intermodal and drayage.

The owned capacity of our transportation model includes approximately 13,000 tractors and 35,000 trailers operated by professional drivers employed by XPO.

As of June 30, 2021, we had truck brokerage relationships with approximately 85,000 independent carriers representing over 1,000,000 trucks.

Our truck brokerage operations are a central part of the freight brokerage services we provide, which also include additional, asset-light services for expedite, intermodal and drayage.

The owned capacity of our Transportation segment includes approximately 13,000 tractors and 35,000 trailers operated by professional drivers employed by XPO.

This equipment is related primarily to our LTL operations in North America.

Our fleet also supports our brokerage operations as needed.

Logistics Segment

Our Logistics segment, which we sometimes refer to as supply chain, provides order fulfillment and other distribution services differentiated by our ability to deliver technology-enabled, customized solutions.

XPO is the second largest provider of contract logistics globally, with one of the largest outsourced e-fulfillment platforms.

Our Logistics segment provides order fulfillment and other distribution services differentiated by our ability to deliver technology-enabled, customized solutions.

XPO is the second largest provider of contract logistics globally as of June 30, 2021, with one of the largest outsourced e-fulfillment platforms.

Our logistics services include high-value-add warehousing and distribution, order fulfillment and personalization, cold-chain logistics, packaging and labeling, aftermarket support, inventory management and supply chain optimization.

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Reverse logistics services are mission-critical for companies with consumer end-markets, as shoppers increasingly “test-drive” the merchandise they buy online.

As of March 31, 2021, we operated 210 million square feet (20 million square meters) of logistics warehouse space worldwide.

As of June 30, 2021, we operated 208 million square feet (19 million square meters) of logistics warehouse space worldwide.

Approximately 97 million square feet (8 million square meters) was located in North America;

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When developing our technology, we concentrate our efforts in four areas that can create value for our shareholders and our customers, primarily by creating “smart” supply chains:

our digital freight marketplace, automation and intelligent machines, dynamic data science, and visibility, particularly as it affects customer service in the e-commerce supply chain.

our digital freight marketplace, automation and

intelligent machines, dynamic data science, and visibility, particularly as it affects customer service in the e-commerce supply chain.

Environmental sustainability is a significant priority for us.

In the U.S., XPO has been named a Top 75 Green Supply Chain Partner by Inbound Logistics for five consecutive years.

In the U.S., XPO has been named a Top 75 Green Supply Chain Partner by Inbound Logistics for six consecutive years.

In France, we have renewed our commitment to the CO2 Charter for another three years.

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As a global provider of supply chain solutions, our business can be impacted to varying degrees by factors beyond our control.

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

We believe the COVID-19 pandemic and associated impacts on economic activity had an adverse effect on our results of operations and financial condition for the three months ended March 31, 2021 and 2020, as discussed below.

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

We believe the COVID-19 pandemic and associated impacts on economic activity had adverse effects on our results of operations and financial condition for the three and six months ended June 30, 2020, and to a lesser extent for the three and six months ended June 30, 2021, as discussed below.

Due to the evolving nature of the pandemic, it remains difficult to predict the extent of the impact on our industry generally and our business in particular.

Furthermore, the extent and pace of a recovery remains uncertain and may differ significantly among the countries in which we operate.

We expect that our results of operations will continue to be impacted by the pandemic throughout 2021.

Our results of operations may continue to be impacted by the pandemic throughout 2021.

We have incurred net incremental and direct costs related to COVID-19 to ensure that we meet the needs of our employees and customers;

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Consolidated Summary Financial Table

Three Months Ended March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2021 (1)

2021 2020 2021 vs.

2020 2021 (3)

2021 2020 2021 vs.

Revenue $ 5,036 $ 3,502 100.0 % 100.0 % 43.8 % $ 9,810 $ 7,366 100.0 % 100.0 % 33.2 %

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Sales, general and administrative expense 594 632 11.8 % 18.0 % (6.0) % 1,182 1,157 12.0 % 15.7 % 2.2 %

Operating income 202 81 4.2 % 2.1 % 149.4 %

Operating income (loss) 246 (141) 4.9 % (4.0) % NM 448 (60) 4.6 % (0.8) % NM

Other income (24) (21) (0.5) % (0.6) % 14.3 % (50) (39) (0.5) % (0.5) % 28.2 %

Foreign currency gain (2) (8) — % (0.2) % (75.0) %

Foreign currency (gain) loss 3 3 0.1 % 0.1 % — % 1 (5) — % (0.1) % (120.0) %

Debt extinguishment loss — — — % — % — % 8 — 0.1 % — % NM

Interest expense 63 82 1.3 % 2.3 % (23.2) % 132 154 1.3 % 2.1 % (14.3) %

Income before income tax provision 153 35 3.2 % 0.9 % 337.1 %

Income tax provision 35 10 0.7 % 0.3 % 250.0 %

Net income $ 118 $ 25 2.5 % 0.6 % 372.0 %

Income (loss) before income tax provision (benefit) 204 (205) 4.1 % (5.9) % NM 357 (170) 3.6 % (2.3) % NM

Income tax provision (benefit) 46 (71) 0.9 % (2.0) % NM 81 (61) 0.8 % (0.8) % NM

Net income (loss) $ 158 $ (134) 3.1 % (3.8) % NM $ 276 $ (109) 2.8 % (1.5) % NM

NM - Not meaningful

(1) Consolidated operating income for the three months ended March 31, 2021 includes $18 million of transaction and integration costs and $4 million of restructuring expense.

(1) Consolidated operating income for the three months ended June 30, 2021 includes $35 million of transaction and integration costs and $2 million of restructuring income.

$2 million of the transaction and integration costs relate to our Transportation segment, $7 million relate to our Logistics segment and $26 million relate to Corporate.

(2) Consolidated operating income for the three months ended March 31, 2020 includes $44 million of transaction and integration costs and $3 million of restructuring expense.

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

$13 million of the transaction and integration costs relate to our Transportation segment, $18 million relate to our Logistics segment and $15 million relate to Corporate.

The transaction and integration costs for the first three months of 2021 are primarily related to the planned spin-off of the Logistics segment and our acquisition of the Kuehne + Nagel business.

The transaction and integration costs for the first three months of 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

(3) Consolidated operating income for the six months ended June 30, 2021 includes $53 million of transaction and integration costs and $2 million of restructuring expense.

$3 million of the transaction and integration costs relate to our Transportation segment, $12 million relate to our Logistics segment and $38 million relate to Corporate.

(4) 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.

$20 million of the transaction and integration costs relate to our Transportation segment, $25 million relate to our Logistics segment and $45 million relate to Corporate.

The transaction and integration costs for the first six months of 2021 are primarily related to the spin-off of the Logistics segment and our acquisition of the Kuehne + Nagel business in January 2021.

The transaction and integration costs for the first six months of 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020.

For further information on our restructuring actions, see Note 5—Restructuring Charges to the Condensed Consolidated Financial Statements.

We also incurred in the first three months of 2021 and 2020, net incremental and direct costs as a result of the COVID-19 pandemic.

Three Months Ended March 31, 2021 Compared with Three Months Ended March 31, 2020

Revenue for the first quarter of 2021 increased 23.6% to $4.8 billion, compared with the same period in 2020.

The increase in revenue in the first three months of 2021 compared to the same period in 2020 reflects strong growth in both our transportation and logistics businesses, including the impact of the acquired Kuehne + Nagel business in January 2021, which contributed approximately 3.1 percentage points to revenue growth.

Additionally, foreign currency movement increased revenue by approximately 3.2 percentage points in the first quarter of 2021.

We also incurred net incremental and direct costs as a result of the COVID-19 pandemic in the second quarter and first six months of 2021 and 2020.

Three and Six Months Ended June 30, 2021 Compared with Three and Six Months Ended June 30, 2020

Revenue for the second quarter of 2021 increased 43.8% to $5.0 billion, compared with the same quarter in 2020.

Revenue for the first six months of 2021 increased 33.2% to $9.8 billion compared with the same period in 2020.

The increase in revenue in the second quarter and first six months of 2021 compared to the same periods in 2020 reflects the impact of COVID-19 on our results in 2020 and strong growth in both our transportation and logistics businesses, including the impact of the acquired Kuehne + Nagel business in January 2021.

The Kuehne + Nagel business contributed approximately 4.3 percentage points to revenue growth for the second quarter of 2021 and 3.6 percentage points for the first six months of 2021.

Additionally, foreign currency movement increased revenue by approximately 4.5 percentage points in the second quarter of 2021 and 3.8 percentage points in the first six months of 2021.

Cost of transportation and services includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truckload businesses.

Cost of transportation and services for the first quarter of 2021 was $2.3 billion, or 48.8% of revenue, compared with $1.9 billion, or 49.1% of revenue, for the same period in 2020.

The year-over-year decrease as a percentage of revenue for the first three months of 2021 was primarily driven by a higher mix of logistics revenue, partially offset by increased third-party transportation costs in our transportation segment.

Cost of transportation and services for the second quarter of 2021 was $2.5 billion, or 49.9% of revenue, compared with $1.6 billion, or 46.9% of revenue, for the same period in 2020.

Cost of transportation and services for the first six months of 2021 was $4.8 billion, or 49.4% of revenue, compared with $3.5 billion or 48.0% of revenue, for the same period in 2020.

The year-over-year increase as a percentage of revenue in both periods reflects higher costs in both segments, as well as the impact of a higher proportion of revenue from our Transportation segment in 2021 as compared to prior year.

These increases were partially offset by lower COVID-19-related costs.

Direct operating expenses are comprised of both fixed and variable expenses and consist of operating costs related to our warehousing facilities and LTL service centers.

Direct operating expenses consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, depreciation expense, and gains and losses on sales of property and equipment.

Direct operating expense for the first three months of 2021 was $1.7 billion, or 34.7% of revenue, compared with $1.4 billion, or 35.2% of revenue, for the same period in 2020.

The year-over-year decrease as a percentage of revenue was primarily driven by lower personnel and facilities costs as a percentage of revenue as we leveraged our fixed costs across increased revenues this quarter, partially offset by a higher mix of logistics revenue.

Additionally, the first quarters of 2021 and 2020 included $24 million and $27 million, respectively, from gains on sales of property and equipment.

Direct operating expense for the second quarter of 2021 was $1.7 billion, or 33.4% of revenue, compared with $1.4 billion, or 39.1% of revenue, for the same quarter in 2020.

Direct operating expense for the first six months of 2021 was $3.3 billion, or 34.0% of revenue, compared with $2.7 billion, or 37.1% of revenue, for the same period in 2020.

The year-over-year decrease as a percentage of revenue in both periods was primarily driven by the impact of higher proportion of revenue from our Transportation segment in 2021 as compared to prior year as well as lower COVID-19-related, personnel and facilities costs as a percentage of revenue as we leveraged our fixed costs across increased revenues this quarter and six month period.

Direct operating expense for the second quarters of 2021 and 2020 included $7 million and $12 million, respectively, and the first six months of 2021 and 2020 included $31 million and $39 million, respectively, of gains on sales of property and equipment.

Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, depreciation and amortization expense, professional fees, facility costs, bad debt expense and legal costs.

SG&A for the first quarter of 2021 was $588 million, or 12.3% of revenue, compared with $525 million, or 13.6% of revenue, for the same period in 2020.

SG&A for the first three months of 2021 included approximately $13 million of expenses related to the planned spin-off of our Logistics segment, including professional service fees.

In comparison, SG&A for the first three months of 2020 included approximately $40 million of expenses related to our exploration of strategic alternatives that was terminated in March 2020, including professional service fees and employee retention costs.

SG&A for the second quarter of 2021 was $594 million, or 11.8% of revenue, compared with $632 million, or 18.0% of revenue, for the same period in 2020.

SG&A for the first six months of 2021 was $1.18 billion, or 12.0% of revenue, compared with $1.16 billion, or 15.7% of revenue, for the same period in 2020.

SG&A for the second quarter and first six months of 2021 included approximately $31 million and $44 million, respectively, of expenses related to the spin-off of our Logistics segment, including professional service fees.

In comparison, SG&A for the second quarter and first six months of 2020 included approximately $33 million and $73 million, respectively, of expenses related to our exploration of strategic alternatives, including professional service fees and employee retention costs.

Further impacting the decrease in SG&A as a percentage of revenue were lower restructuring charges, COVID-19-related costs and bad debt expense in the second quarter and first six months of 2021.

Other income primarily consists of pension income.

Other income for the first quarter of 2021 was $26 million of income, compared with $18 million of income for the same period in 2020.

The year-over-year increase primarily reflects higher net periodic pension income in the first quarter of 2021, compared with the same period in 2020.

Foreign currency gain was a $2 million gain for the first quarter of 2021, compared with an $8 million gain for the same period in 2020.

Foreign currency gain in the first quarter of 2021 primarily reflected foreign currency transaction and measurement gains.

Foreign currency gain in the first quarter of 2020 primarily reflected realized and unrealized gains on foreign currency option and forward contracts and other derivative contracts, including a gain on a terminated net investment hedge.

Other income for the second quarter of 2021 was $24 million, compared with $21 million for the same period in 2020.

Other income for the first six months of 2021 was $50 million, compared with $39 million for the same period in 2020.

The year-over-year increase primarily reflects higher net periodic pension income in the second quarter and first six months of 2021, compared with the same periods in 2020.

Foreign currency (gain) loss was a $3 million loss for both the second quarter of 2021 and 2020.

Foreign currency (gain) loss was a $1 million loss for the first six months of 2021, compared with an $5 million gain for the same period in 2020.

Foreign currency loss in the first six months of 2021 primarily reflected unrealized losses on foreign currency option and forward contracts.

Foreign currency gain in the first six months of 2020 primarily reflected realized gains on foreign currency option and forward contracts and other derivative contracts, including a gain on a terminated net investment hedge on foreign currency option and forward contracts.

For additional information on our foreign currency option and forward contracts, see Note 6—Derivative Instruments to our Condensed Consolidated Financial Statements.

Debt extinguishment loss was $8 million for the first three months of 2021 and related to the write-off of debt issuance costs for the redemption of our outstanding senior notes due 2022, as well as costs related to the amendment of our term loan credit agreement.

There were no debt extinguishment losses in the first quarter of 2020.

Interest expense decreased to $69 million for the first quarter of 2021 from $72 million for the first quarter of 2020.

Interest expense reflected the issuance of the senior notes due 2025 in the second quarter of 2020, partially offset by the redemption of the senior notes due 2022 in the first quarter of 2021.

Our effective income tax rates were 22.8% and 30.2% for the first three months of 2021 and 2020, respectively.

The effective tax rates for the first quarter of 2021 and 2020 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The change in our effective tax rate for the first quarter of 2021 compared to the same quarter in 2020 was primarily driven by higher pre-tax book income which diluted the impact of contribution- and margin-based taxes.

The primary discrete item impacting the effective tax rate for the first quarter of 2021 was a tax benefit of $4 million from stock-based compensation.

There were no material discrete items impacting the effective tax rate for the first quarter of 2020.

Debt extinguishment loss was $8 million for the first six months of 2021 and related to the write-off of debt issuance costs for the redemption of our outstanding senior notes due 2022, as well as costs related to the amendment of our

term loan credit agreement.

There were no debt extinguishment losses in the second quarter of 2021 or the first six months of 2020.

Interest expense decreased to $63 million for the second quarter of 2021 from $82 million for the second quarter of 2020.

Interest expense decreased to $132 million for the first six months of 2021 from $154 million for the first six months of 2020.

The declines in interest expense reflected the lower debt balances, including the redemption of our senior notes due 2022 in the first quarter of 2021.

Our effective income tax rates were 22.4% and 34.8% for the second quarter of 2021 and 2020, respectively, and 22.5% and 35.8% for the first six months of 2021 and 2020, respectively.

The effective tax rates for the second quarter and six-month periods of 2021 and 2020 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The change in our effective tax rate for the second quarter of 2021 compared to the same quarter in 2020 was primarily driven by higher pre-tax book income which diluted the impact of contribution- and margin-based taxes.

The primary discrete item impacting the effective tax rate for the second quarter of 2021 was a tax benefit of $6 million from changes in reserves for uncertain tax positions.

The primary items impacting the effective tax rate for the first six months of 2021 included discrete tax benefits of $6 million from changes in reserves for uncertain tax positions and $4 million of excess tax benefit from stock-based compensation.

There were no material discrete items impacting the effective tax rate for the second quarter and first six months of 2020.

In July 2021, in connection with the spin-off of our Logistics segment, we amended our legal entity structure.

These changes will result in one-time cash and non-cash tax expenses in the second half of 2021.

Restructuring Charges

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

We recorded restructuring charges of $4 million and $3 million in Sales, general and administrative expense on our Condensed Consolidated Statements of Income for the first three months of 2021 and 2020, respectively.

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.

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

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

(In millions) 2021 2020 2021 2020

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

Direct operating expense — 6 — 6

Sales, general and administrative expense (2) 43 2 46

Total $ (2) $ 50 $ 2 $ 53

For more information, see Note 5—Restructuring Charges to the Condensed Consolidated Financial Statements.

We may incur incremental restructuring costs in 2021 in connection with the planned spin-off of our Logistics segment or for other reasons;

We may incur incremental restructuring costs in 2021 in connection with the spin-off of our Logistics segment or for other reasons;

however, we are currently unable to reasonably estimate these costs.

Transportation Segment

Three Months Ended March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2021 2020 2021 2020 2021 vs.

2020 2021 2020 2021 2020 2021 vs.

Revenue $ 3,186 $ 2,127 100.0 % 100.0 % 49.8 % $ 6,175 $ 4,586 100.0 % 100.0 % 34.6 %

Operating income 209 120 7.0 % 4.9 % 74.2 %

Operating income (loss) 255 (15) 8.0 % (0.7) % NM 464 105 7.5 % 2.3 % 341.9 %

Depreciation and amortization 117 113 3.5 % 232 223 4.0 %

Revenue in our Transportation segment increased 21.6% to $3.0 billion for the first quarter of 2021, compared with $2.5 billion for the same period in 2020.

The increase in revenue in the first quarter of 2021 reflected strong growth in freight brokerage and LTL revenues.

Additionally, foreign currency movement increased revenue by approximately 2.5 percentage points in the first quarter of 2021.

Operating income in our Transportation segment was $209 million, or 7.0% of revenue, for the first quarter of 2021, compared with $120 million, or 4.9% of revenue, for the same period in 2020.

The increase in operating income in the first three months of 2021 was primarily driven by higher revenue, partially offset by higher third-party transportation and personnel costs.

Additionally, the first quarter of 2020 included approximately $7 million of expenses related to our exploration of strategic alternatives.

Revenue in our Transportation segment increased 49.8% to $3.2 billion for the second quarter of 2021, compared with $2.1 billion for the same quarter in 2020.

Revenue increased 34.6% to $6.2 billion for the first six months of 2021, compared with $4.6 billion for the same period in 2020.

The increase in revenue in the second quarter and first six months of 2021 reflected the impact of COVID-19 on our results in 2020 and strong growth in all of our

transportation businesses.

Additionally, foreign currency movement increased revenue by approximately 2.5 percentage points in the second quarter of 2021 and 2.1 percentage points in the first six months of 2021.

Operating income in our transportation segment was $255 million, or 8.0% of revenue, for the second quarter of 2021, compared with the operating loss of $15 million, or 0.7% of revenue, for the same quarter in 2020.

Operating income was $464 million, or 7.5% of revenue, for the first six months of 2021, compared with $105 million, or 2.3% of revenue, for the same period in 2020.

The increase in both periods was primarily driven by significantly higher revenue and lower restructuring charges and COVID-19-related costs.

Additionally, expenses related to our exploration of strategic alternatives were approximately $8 million in the second quarter of 2020 and $15 million in the first six months of 2020.

Logistics Segment

Three Months Ended March 31, Percent of Revenue Change

Three Months Ended June 30, Percent of Revenue Change Six Months Ended June 30, Percent of Revenue Change

(Dollars in millions) 2021 2020 2021 2020 2021 vs.

2020 2021 2020 2021 2020 2021 vs.

Revenue $ 1,881 $ 1,404 100.0 % 100.0 % 34.0 % $ 3,699 $ 2,841 100.0 % 100.0 % 30.2 %

Operating income 68 38 3.7 % 2.6 % 78.9 %

Operating income (loss) 71 (43) 3.8 % (3.1) % NM 139 (5) 3.8 % (0.2) % NM

Depreciation and amortization 85 80 6.3 % 159 149 6.7 %

Revenue in our Logistics segment increased 26.5% to $1.8 billion for the first quarter of 2021, compared with $1.4 billion for the same period in 2020.

The increase in revenue in the first quarter of 2021 compared to the same period in 2020 reflects strong growth in our European business, including the impact of the acquired Kuehne + Nagel business in January 2021, which contributed approximately 8.2 percentage points to segment revenue growth.

Additionally, foreign currency movement increased revenue by approximately 5.5 percentage points in the first quarter of 2021.

Operating income in our Logistics segment was $68 million, or 3.7% of revenue, for the first quarter of 2021, compared with operating income of $38 million, or 2.6% of revenue, for the same period in 2020.

The increase was primarily driven by higher revenue, partially offset by higher personnel and facilities costs.

Revenue in our Logistics segment increased 34.0% to $1.9 billion for the second quarter of 2021, compared with $1.4 billion for the same quarter in 2020.

Revenue increased 30.2% to $3.7 billion for the first six months of 2021, compared with $2.8 billion for the same period in 2020.

The increases in revenue in the second quarter and first six months of 2021 compared to the same period in 2020 reflect the impact of COVID-19 on our results in 2020 and strong growth in our European business, including the impact of the acquired Kuehne + Nagel business in January 2021.

The Kuehne + Nagel business contributed approximately 10.7 percentage points to segment revenue growth in the second quarter of 2021 and 9.4 percentage points for the first six months of 2021.

Additionally, foreign currency movement increased revenue by approximately 7.6 percentage points in the second quarter of 2021 and 6.6 percentage points in the first six months of 2021.

Operating income in our Logistics segment was $71 million, or 3.8% of revenue, for the second quarter of 2021, compared with a loss of $43 million, or 3.1% of revenue, for the same quarter in 2020.

Operating income was $139 million, or 3.8% of revenue, for the first six months of 2021, compared with a loss of $5 million, or 0.2% of revenue, for the same period in 2020.

The increase in both periods was primarily driven by significantly higher revenue and lower restructuring charges and COVID-19-related costs.

Operating income for the second quarter and first six months of 2021 included $7 million and $12 million, respectively, of transaction and integration costs, including amounts related to our acquisition of the Kuehne + Nagel business.

In comparison, operating loss for the second quarter and first six months of 2020 included $11 million and $17 million, respectively, of expenses related to our exploration of strategic alternatives.

Liquidity and Capital Resources

As of March 31, 2021, we had cash and cash equivalents of $629 million.

As of June 30, 2021, we had cash and cash equivalents of $801 million.

Our principal existing sources of cash are (i) cash generated from operations;

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and (iii) proceeds from the issuance of other debt.

As of March 31, 2021, we have $1.084 billion available to draw under our ABL Facility, based on a borrowing base of $1.1 billion and outstanding letters of credit of $16 million.

Additionally, under our Senior Secured Term Loan Credit Agreement, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we have issued $198 million in aggregate face amount of letters of credit as of March 31, 2021.

As of June 30, 2021, we have $1.084 billion available to draw under our ABL Facility, based on a borrowing base of $1.1 billion and outstanding letters of credit of $16 million.

In July 2021, we amended our existing ABL facility which matures in April 2024 to reduce the commitments from $1.1 billion to $1.0 billion.

There were no other significant changes made to the terms of the facility, including the maturity date, the interest rate margin, and financial covenants.

We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources.

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We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (the “Purchasers”).

XPO Logistics Europe SA (“XPO Logistics Europe”) participates in a trade receivables securitization program co-arranged by three European banks (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.

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For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer.

In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables.

In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables and, in the case of the securitization arrangements, providing recourse in certain defined circumstances.

The fair value of any servicing assets and liabilities is immaterial.

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.

We had no such borrowings outstanding as of March 31, 2021 and €41 million ($50 million) as of December 31, 2020.

The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is €400 million (approximately $469 million as of March 31, 2021).

As of March 31, 2021, €82 million (approximately $96 million) was available to us, subject to having sufficient receivables available to sell to the Purchasers.

We had no such borrowings outstanding as of June 30, 2021 and €41 million ($50 million) as of December 31, 2020.

The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is €400 million (approximately $474 million as of June 30, 2021).

As of June 30, 2021, €59 million (approximately $70 million) was available to us, subject to having sufficient receivables available to sell to the Purchasers.

Under the program, we service the receivables we sell on behalf of the Purchasers, which gives us visibility into the timing of customer payments.

The benefit to our cash flow includes the difference between the cash consideration in the table below and the amount we collected as a servicer on behalf of the Purchasers.

In the first quarter of 2021 and 2020, we collected cash as servicer of $770 million and $690 million, respectively.

In the first six months of 2021 and 2020, we collected cash as servicer of $1.7 billion and $1.3 billion, respectively.

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) 2021 2020 2021 2020

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Receivables sold in period

$ 882 $ 598 $ 1,657 $ 1,289

Cash consideration

882 598 1,657 1,289

Factoring programs

Receivables sold in period

$ 113 $ 199 $ 229 $ 463

Cash consideration

112 199 228 462

In July 2021, in connection with the spin-off of our Logistics segment, the existing trade receivables securitization program was amended;

the existing €400 million program is now comprised of two separate €200 million programs, one of which will continue to be available to us and one of which will be part of GXO following the spin-off.

The new program expires in July 2024.

Term Loan Facilities

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December 31, 2020

(In millions) March 31, 2021 First Tranche Second Tranche

(In millions) June 30, 2021 First Tranche Second Tranche

Principal balance $ 2,003 $ 1,503 $ 500

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Maturity date February 2025 February 2025 February 2025

We recorded a debt extinguishment loss of $3 million in the first quarter of 2021 due to this amendment.

We recorded a debt extinguishment loss of $3 million in the first six months of 2021 due to this amendment.

Senior Notes Due 2022

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We paid for the redemption with available cash.

We recorded a debt extinguishment loss of $5 million in our first quarter 2021 results of operations due to this redemption.

We recorded a debt extinguishment loss of $5 million in the first six months of 2021 due to this redemption.

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.

Net proceeds from the notes were initially invested in cash and cash equivalents and were subsequently used to redeem our outstanding senior notes due 2022 in January 2021.

GXO Revolving Credit Facility

In June 2021, in preparation for the spin-off, GXO, which was our wholly-owned subsidiary at the time, entered into a five-year, unsecured, multi-currency revolving credit facility (the “GXO Facility”).

Initially, the GXO Facility provides commitments up to $800 million, of which $60 million will be available for the issuance of letters of credit.

Loans under the GXO Facility will bear interest at a fluctuating rate equal to:

(i) with respect to borrowings in dollars, at GXO’s option, the alternate base rate or the reserve-adjusted LIBOR, (ii) with respect to borrowings in Canadian dollars, the reserve-adjusted Canadian Dollar Offered Rate and (iii) with respect to borrowings in Euros, the reserve-adjusted Euro Interbank Offered Rate, in each case, plus an applicable margin calculated based on GXO’s credit ratings.

The availability of the GXO Facility was subject to the spin-off occurring.

The covenants in the GXO Facility, which are customary for financings of this type, can limit the ability to incur indebtedness and grant liens, among other restrictions.

In addition, the GXO Facility requires GXO to maintain a consolidated leverage ratio below a stated maximum consolidated leverage ratio.

There was no amount outstanding under the GXO Facility at June 30, 2021.

Following the spin-off, the GXO Facility is not available to us.

In preparation for the spin-off, in July 2021, GXO completed an offering of $800 million aggregate principal amount of notes, consisting of $400 million of notes due 2026 (the “GXO 2026 Notes”) and $400 million of notes due 2031 (the “GXO 2031 Notes”, and together with the GXO 2026 Notes, the “GXO Notes”).

The GXO 2026 Notes will bear interest at a rate of 1.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and will mature on July 15, 2026.

The GXO 2031 Notes will bear interest at a rate of 2.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and will mature on July 15, 2031.

The net proceeds from the sale of the GXO Notes were used to fund a cash payment from GXO to XPO of $794 million, which we intend to use to repay a portion of our outstanding borrowings as noted below.

Following the completion of the spin-off, the GXO Notes are no longer an obligation of XPO.

Equity Offering

In July 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters.

Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s chairman and Chief Executive Officer.

The additional 750,000 purchased shares were also split equally between us and JPE.

We received approximately $385 million of proceeds, net of fees and expenses, from the sale of the shares and intend to use them to repay a portion of our outstanding borrowings as noted below and for general corporate purposes.

XPO did not receive any proceeds from the sale of shares by JPE.

Debt Redemption

In July 2021, we issued notice to redeem our outstanding 6.75% senior notes due 2024 that had a principal balance of $1.0 billion as of June 30, 2021.

Also, in August 2021, we issued notice to redeem our outstanding 6.125% senior notes due 2023 that had a principal balance of $535 million as of June 30, 2021.

The redemption price for our senior notes due 2024 was 103.375%, plus accrued and unpaid interest.

The redemption price for our senior notes due 2023 was 100.0% of the principal amount, plus accrued and unpaid interest.

We expect to pay for these redemptions using the cash payment of $794 million received from GXO, the proceeds from the July 2021 equity offering and available cash.

Preferred Stock and Warrant Exchanges

In December 2020, some holders of our convertible preferred stock exchanged their holdings for a combination of our common stock, based on the stated conversion price, and a lump-sum payment that represents an approximation of the net present value of the future dividends payable on the preferred stock.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions) their holdings, including Jacobs Private Equity, LLC, an entity controlled by the Company’s chairman and chief executive officer, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

Additionally, some holders of our warrants exchanged (or committed to exchange subject to the satisfaction of certain customary closing conditions) their holdings, including JPE, for a number of shares of our common stock equal to the number of shares of common stock that such holder would be entitled to receive upon an exercise of the warrants less the number of shares of common stock that have an approximate value equal to the exercise price of the warrants.

With respect to the preferred stock, through December 31, 2020, 69,445 shares were exchanged, and we issued 9.9 million shares of common stock and paid $22 million of cash.

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In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock.

In the second quarter of 2021, the remaining 40 preferred shares were exchanged, and we issued 5,714 shares of common stock.

With respect to the warrants, in the first quarter of 2021, 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.

These exchanges are intended to simplify our equity capital structure, including in contemplation of our previously announced plan to pursue a spin-off of our Logistics segment.

These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment.

As of June 30, 2021, there were no shares of preferred stock or warrants outstanding.

Share Repurchases

In February 2019, our Board of Directors authorized additional repurchases of up to $1.5 billion of our common stock.

In February 2019, our Board of Directors authorized repurchases of up to $1.5 billion of our common stock.

Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations.

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

There were no share purchases in the first quarter of 2021.

Our remaining share repurchase authorization was $503 million as of March 31, 2021.

There were no share purchases in the first six months of 2021 or in the second quarter of 2020.

Our remaining share repurchase authorization was $503 million as of June 30, 2021.

Loan Covenants and Compliance

As of March 31, 2021, we were in compliance with the covenants and other provisions of our debt agreements.

As of June 30, 2021, we were in compliance with the covenants and other provisions of our debt agreements.

Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

Sources and Uses of Cash

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2021 2020

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Net increase (decrease) in cash, cash equivalents and restricted cash $ (1,253) $ 1,908

During the three months ended March 31, 2021, we:

During the six months ended June 30, 2021, we:

(i) generated cash from operating activities of $539 million and (ii) generated proceeds from sales of property and equipment of $62 million.

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(iii) repay our ABL Facility borrowings of $200 million;

and (iv) repay borrowings related to our securitization program of $49 million.

During the three months ended March 31, 2020, we:

(iv) purchase noncontrolling interests of $128 million;

and (v) repay borrowings related to our securitization program of $49 million.

During the six months ended June 30, 2020, we:

(i) generated cash from operating activities of $394 million;

(ii) received net proceeds of $782 million from our issuances of debt and short-term borrowings and (iii) generated proceeds from sales of property and equipment (primarily real estate) of $54 million.

(ii) received net proceeds of $1.8 billion from our issuances of debt and short-term borrowings and (iii) generated proceeds from sales of property and equipment (primarily real estate) of $77 million.

We used cash during this period primarily to:

(i) purchase property and equipment of $255 million and (ii) repurchase common stock of $114 million.

Cash flows from operating activities for the three months ended March 31, 2021 decreased by $7 million, compared with the same period in 2020.

Accounts receivable were a use of cash for the three months ended March 31, 2021, as compared to a source of cash in the prior period, reflecting higher revenues in the current period and a year-over-year decrease in proceeds from factoring.

Partially offsetting the impact of accounts receivable was higher net income of $93 million for the three months ended March 31, 2021, compared with the same period in 2020.

Investing activities used $95 million and $79 million of cash in the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021, we used $140 million of cash to purchase property and equipment and received $36 million from sales of property and equipment.

During the three months ended March 31, 2020, we used $139 million of cash to purchase property and equipment and received $54 million from sales of property and equipment.

Financing activities used $1.5 billion of cash in the three months ended March 31, 2021 and provided $668 million of cash in the three months ended March 31, 2020.

The primary uses of cash from financing activities during the first three months of 2021 were $1.2 billion used to redeem the senior notes due 2022, $200 million used to repay borrowings under our ABL Facility and $49 million used to repay our borrowings related to our securitization

The primary sources and uses of cash from financing activities during the three months ended March 31, 2020 were $600 million of proceeds from borrowings on our ABL Facility, net of payments and $182 million of net proceeds from borrowings related to our securitization program, partially offset by $114 million used to purchase XPO common stock.

Cash flows from operating activities for the six months ended June 30, 2021 increased by $145 million, compared with the same period in 2020.

The increase reflects higher net income of $385 million for the six months ended June 30, 2021, compared with the same period in 2020 partially offset by a greater use of cash for working capital in the first half of 2021 than in the prior-year period.

Additionally, the first six months of 2021 included payments of approximately $10 million related to the spin-off, as compared to payments of approximately $75 million related to the exploration of strategic alternatives in the first six months of 2020.

Additionally, cash paid for taxes was $55 million higher in the six months ended June 30, 2021, compared with the same period in 2020.

Investing activities used $154 million and $172 million of cash in the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, we used $250 million of cash to purchase property and equipment and received $62 million from sales of property and equipment.

During the six months ended June 30, 2020, we used $255 million of cash to purchase property and equipment and received $77 million from sales of property and equipment.

Financing activities used $1.6 billion of cash in the six months ended June 30, 2021 and provided $1.7 billion of cash in the six months ended June 30, 2020.

The primary uses of cash from financing activities during the first six months of 2021 were $1.2 billion used to redeem the senior notes due 2022, $200 million used to repay borrowings under our ABL Facility, and $49 million used to repay our borrowings related to our securitization program.

Additionally, we used $128 million to purchase the remaining non-controlling interest in XPO Logistics Europe SA that we did not own.

The primary sources and uses of cash from financing activities during the six months ended June 30, 2020 were $1.1 billion of net proceeds from the issuance of senior notes due 2025;

$600 million of

proceeds from borrowings on our ABL Facility, net of payments, and $109 million of net proceeds from borrowings related to our securitization program, partially offset by $114 million used to purchase XPO common stock.

Contractual Obligations

During the three months ended March 31, 2021, there were no material changes to our December 31, 2020 contractual obligations.

We anticipate net capital expenditures to be between $500 million and $550 million in 2021 (without giving effect to the planned spin-off of our Logistics segment), which reflects an increase of approximately $25 million from the estimate provided in our 2020 Form 10-K.

During the six months ended June 30, 2021, there were no material changes to our December 31, 2020 contractual obligations.

GXO’s debt and operating lease obligations of approximately $181 million and $1.8 billion as of June 30, 2021, respectively, will not be part of our contractual obligations following the spin-off.

We anticipate full year net capital expenditures to be between $250 million and $275 million in 2021 (excluding any net capital expenditures associated with our spun-off Logistics segment).

New Accounting Standards

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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 2. Management’s Discussion and Analysis