XPO, Inc. 10-Q

Item 1. Financial Statements. XPO Logistics, Inc. Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, (In millions, except per share data) 2022 2021 ASSETS Current assets Cash and cash equivalents $ 1,004 $ 260 Accounts receivable, net of allowances of $ 47 and $ 47 , respectively 2,248 2,105 Other current assets 279 286 Current assets of discontinued operations 24 26 Total current assets 3,555 2,677 Long-term assets Property and equipment, net of $ 1,790 and $ 1,828 in accumulated depreciation, respectively 1,796 1,808 Operating lease assets 821 908 Goodwill 2,332 2,479 Identifiable intangible assets, net of $ 578 and $ 612 in accumulated amortization, respectively 548 580 Other long-term assets 268 255 Total long-term assets 5,765 6,030 Total assets $ 9,320 $ 8,707 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,330 $ 1,110 Accrued expenses 1,084 1,107 Short-term borrowings and current maturities of long-term debt 682 58 Short-term operating lease liabilities 134 170 Other current liabilities 178 69 Current liabilities of discontinued operations 24 24 Total current liabilities 3,432 2,538 Long-term liabilities Long-term debt 2,877 3,514 Deferred tax liability 300 316 Employee benefit obligations 120 122 Long-term operating lease liabilities 682 752 Other long-term liabilities 311 327 Total long-term liabilities 4,290 5,031 Stockholders’ equity Common stock, $ 0.001 par value; 300 shares authorized; 115 shares issued and outstanding as of March 31, 2022 and December 31, 2021 — — Additional paid-in capital 1,176 1,179 Retained earnings 531 43 Accumulated other comprehensive loss ( 109 ) ( 84 ) Total equity 1,598 1,138 Total liabilities and equity $ 9,320 $ 8,707 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended March 31, (In millions, except per share data) 2022 2021 Revenue $ 3,473 $ 2,989 Cost of transportation and services (exclusive of depreciation and amortization) 2,437 2,053 Direct operating expense (exclusive of depreciation and amortization) 385 334 Sales, general and administrative expense 344 338 Depreciation and amortization expense 116 119 Gain on sale of business ( 450 ) — Transaction and integration costs 10 5 Restructuring costs 6 1 Operating income 625 139 Other income ( 14 ) ( 16 ) Debt extinguishment loss — 8 Interest expense 37 65 Income from continuing operations before income tax provision 602 82 Income tax provision 113 19 Income from continuing operations 489 63 Income (loss) from discontinued operations, net of taxes ( 1 ) 55 Net income 488 118 Net income from discontinued operations attributable to noncontrolling interests — ( 3 ) Net income attributable to XPO $ 488 $ 115 Net income (loss) attributable to common shareholders Continuing operations $ 489 $ 63 Discontinued operations ( 1 ) 52 Net income attributable to common shareholders $ 488 $ 115 Earnings (loss) per share data Basic earnings per share from continuing operations $ 4.26 $ 0.59 Basic earnings (loss) per share from discontinued operations ( 0.01 ) 0.49 Basic earnings per share attributable to common shareholders $ 4.25 $ 1.08 Diluted earnings per share from continuing operations $ 4.23 $ 0.56 Diluted earnings (loss) per share from discontinued operations ( 0.01 ) 0.46 Diluted earnings per share attributable to common shareholders $ 4.22 $ 1.02 Weighted-average common shares outstanding Basic weighted-average common shares outstanding 115 106 Diluted weighted-average common shares outstanding 116 112 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 31, (In millions) 2022 2021 Net income $ 488 $ 118 Other comprehensive loss, net of tax Foreign currency translation loss, net of tax effect of $( 2 ) and $( 6 ) $ ( 26 ) $ ( 42 ) Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $ — and $ — 1 — Other comprehensive loss ( 25 ) ( 42 ) Comprehensive income $ 463 $ 76 Less: Comprehensive loss attributable to noncontrolling interests — ( 2 ) Comprehensive income attributable to XPO $ 463 $ 78 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (In millions) 2022 2021 Cash flows from operating activities of continuing operations Net income $ 488 $ 118 Income (loss) from discontinued operations, net of taxes ( 1 ) 55 Income from continuing operations 489 63 Adjustments to reconcile income from continuing operations to net cash from operating activities Depreciation, amortization and net lease activity 116 119 Stock compensation expense 8 6 Accretion of debt 4 5 Deferred tax (benefit) expense ( 12 ) 9 Debt extinguishment loss — 8 Gain on sale of business ( 450 ) — Gains on sales of property and equipment ( 1 ) ( 23 ) Other 10 2 Changes in assets and liabilities Accounts receivable ( 405 ) ( 198 ) Other assets 94 ( 21 ) Accounts payable 366 34 Accrued expenses and other liabilities ( 19 ) 73 Net cash provided by operating activities from continuing operations 200 77 Cash flows from investing activities of continuing operations Proceeds from sale of business 705 — Payment for purchases of property and equipment ( 137 ) ( 74 ) Proceeds from sale of property and equipment 3 36 Net cash provided by (used in) investing activities from continuing operations 571 ( 38 ) Cash flows from financing activities of continuing operations Repayment of borrowings related to securitization program — ( 24 ) Repurchase of debt — ( 1,200 ) Repayment of borrowings on ABL facility — ( 200 ) Repayment of debt and finance leases ( 16 ) ( 24 ) Payment for debt issuance costs — ( 5 ) Change in bank overdrafts 3 8 Payment for tax withholdings for restricted shares ( 12 ) ( 21 ) Other 1 2 Net cash used in financing activities from continuing operations ( 24 ) ( 1,464 ) 4 Table of Contents Three Months Ended March 31, (In millions) 2022 2021 Cash flows from discontinued operations Operating activities of discontinued operations 1 96 Investing activities of discontinued operations — ( 57 ) Financing activities of discontinued operations — ( 37 ) Net cash provided by discontinued operations 1 2 Effect of exchange rates on cash, cash equivalents and restricted cash ( 3 ) ( 2 ) Net increase (decrease) in cash, cash equivalents and restricted cash 745 ( 1,425 ) Cash, cash equivalents and restricted cash, beginning of period 273 2,065 Cash, cash equivalents and restricted cash, end of period 1,018 640 Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period 4 407 Cash, cash equivalents and restricted cash of continued operations, end of period $ 1,014 $ 233 Supplemental disclosure of cash flow information Leased assets obtained in exchange for new operating lease liabilities $ 46 $ 79 Leased assets obtained in exchange for new finance lease liabilities 4 16 Cash paid for interest 13 74 Cash paid for income taxes 5 1 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Changes in Equity (Unaudited) 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 December 31, 2021 — $ — 114,737 $ — $ 1,179 $ 43 $ ( 84 ) $ 1,138 $ — $ 1,138 Net income — — — — — 488 — 488 — 488 Other comprehensive loss — — — — — — ( 25 ) ( 25 ) — ( 25 ) Exercise and vesting of stock compensation awards — — 245 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 12 ) — — ( 12 ) — ( 12 ) Stock compensation expense — — — — 8 — — 8 — 8 Other — — — — 1 — — 1 — 1 Balance as of March 31, 2022 — $ — 114,982 $ — $ 1,176 $ 531 $ ( 109 ) $ 1,598 $ — $ 1,598 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 December 31, 2020 1 $ 1 102,052 $ — $ 1,998 $ 868 $ ( 158 ) $ 2,709 $ 140 $ 2,849 Net income — — — — — 115 — 115 3 118 Other comprehensive loss — — — — — — ( 37 ) ( 37 ) ( 5 ) ( 42 ) Exercise and vesting of stock compensation awards — — 270 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 21 ) — — ( 21 ) — ( 21 ) Conversion of preferred stock to common stock ( 1 ) ( 1 ) 139 — 1 — — — — — Exercise of warrants — — 9,215 — — — — — — — Stock compensation expense — — — — 10 — — 10 — 10 Balance as of March 31, 2021 — $ — 111,676 $ — $ 1,988 $ 983 $ ( 195 ) $ 2,776 $ 138 $ 2,914 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents XPO Logistics, Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization, Description of Business and Basis of Presentation XPO Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services. We use our proprietary technology to move goods efficiently through our customers’ supply chains, primarily by providing less-than-truckload (“LTL”) and truck brokerage services. See Note 4—Segment Reporting for additional information on our operations. 2022 Strategic Plan On March 8, 2022, we announced that our Board of Directors approved a plan to pursue the strategic spin-off of our tech-enabled brokered transportation platform in North America as a publicly traded company and to pursue two divestitures: the sale of our North American intermodal operation and the sale or listing of our European business. We sold our intermodal operation, which provides rail brokerage and drayage services, in March 2022. For further information, see Note 3—Divestiture. If the spin-off to XPO shareholders is completed, the transaction will result in two pure-play, publicly traded companies with simplified business models and clearly delineated value propositions. The core business of the spin-off will be our truck brokerage service, with complementary brokered services for managed transportation, last mile logistics and global forwarding. The remaining company will be an asset-based provider of LTL service in North America. The planned spin-off transaction, which is intended to be tax-free to XPO and our shareholders for U.S. federal income tax purposes, would result in XPO shareholders owning stock in both companies. In connection with the transaction, it is anticipated that a portion of XPO’s outstanding debt may be repaid using proceeds from borrowings incurred and debt securities to be issued by the spun-off company. We currently expect to complete the spin-off in the fourth quarter of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO’s debt on terms satisfactory to the XPO Board of Directors, and final approval by the XPO Board of Directors, among other requirements. There can be no assurance that any strategic transaction will occur, or if one or more do occur, of the terms or timing. 2021 Spin-Off of the Logistics Segment On August 2, 2021, we completed the spin-off of our Logistics segment as GXO Logistics, Inc. (“GXO”). The historical results of our Logistics segment are presented as discontinued operations in our Condensed Consolidated Financial Statements. For information on our discontinued operations, see Note 2—Discontinued Operations. Basis of Presentation We prepared our Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and on the same basis as the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). The interim reporting requirements of Form 10-Q allow certain information and note disclosures normally included in annual consolidated financial statements to be condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the 2021 Form 10-K. 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 the financial condition, operating results and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. We have recast prior period amounts to conform to the current period’s presentation. 7 Table of Contents Restricted Cash As of March 31, 2022 and December 31, 2021, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $ 10 million. Trade Receivables Securitization and Factoring Programs We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We also sell trade accounts receivable under our securitization program. 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. The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is € 200 million (approximately $ 221 million as of March 31, 2022). As of March 31, 2022, € 1 million (approximately $ 1 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously purchased. The weighted average interest rate was 0.53 % as of March 31, 2022. 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, 2022 and 2021. Information related to the trade receivables sold was as follows: Three Months Ended March 31, (In millions) 2022 2021 (1) Securitization programs Receivables sold in period $ 447 $ 347 Cash consideration 447 347 Factoring programs Receivables sold in period 27 16 Cash consideration 27 16 (1) Information for the three months ended March 31, 2021 excludes the Logistics segment. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are: • Level 1—Quoted prices for identical instruments in active markets; • Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and • Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates. We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2022 and December 31, 2021 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents include money market funds valued using quoted prices in active markets and a cash deposit for the securitization program. Our derivative instruments are classified as Level 2 and are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves. For information on financial liabilities, see Note 7—Debt. 8 Table of Contents The fair value hierarchy of cash equivalents was as follows: (In millions) Carrying Value Fair Value Level 1 March 31, 2022 $ 931 $ 931 $ 931 December 31, 2021 181 181 181 Cash equivalents at March 31, 2022 include the cash proceeds from the sale of our intermodal operation in March 2022. For further information, see Note 3—Divestiture. Adoption of New Accounting Standard In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring annual disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements. We adopted this standard on January 1, 2022, on a prospective basis. The adoption did not have a material impact on our financial statement disclosures. Accounting Pronouncement Issued but Not Yet Effective In 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. We intend to apply this guidance if modifications of contracts that include LIBOR occur, which is not expected to have a material impact on our consolidated financial statements. 2. Discontinued Operations The following table summarizes the financial results from discontinued operations of GXO: Three Months Ended March 31, (In millions) 2021 Revenue $ 1,818 Direct operating expense (exclusive of depreciation and amortization) 1,514 Sales, general and administrative expense 150 Depreciation and amortization expense 73 Transaction and other operating costs 17 Operating income 64 Other income ( 11 ) Interest expense 4 Income from discontinued operations before income tax provision 71 Income tax provision 16 Net income from discontinued operations, net of taxes 55 Net income from discontinued operations attributable to noncontrolling interests ( 3 ) Net income from discontinued operations attributable to GXO $ 52 During the three months ended March 31, 2022 and 2021, we incurred approximately $ 4 million and $ 13 million, respectively, of costs related to the GXO spin-off. For the three months ended March 31, 2021, $ 12 million of these 9 Table of Contents costs are reflected within income from discontinued operations in our Condensed Consolidated Statements of Income. In accordance with a separation and distribution agreement, GXO has agreed to indemnify XPO for payments XPO makes with respect to certain self-insurance matters that were incurred by GXO prior to the spin-off and remain obligations of XPO. The receivable and reserve for these matters was approximately $ 20 million each as of March 31, 2022 and approximately $ 23 million and $ 21 million, respectively, as of December 31, 2021. 3. Divestiture In March 2022, we sold our North American intermodal operation for cash proceeds of approximately $ 705 million, net of cash disposed and subject to a customary post-closing purchase price adjustment. We recorded a pre-tax gain on the sale of $ 450 million, net of transaction costs, for the three months ended March 31, 2022. We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale. The intermodal operation generated revenue of $ 1.2 billion and operating income of $ 53 million for the year ended December 31, 2021. The intermodal operation was included in our Brokerage and Other Services segment through the date of the sale. 4. Segment Reporting We are organized into two reportable segments: (i) North American LTL and (ii) Brokerage and Other Services. In our asset-based North American LTL segment, we provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services. Our services include cross-border U.S. freight movements to and from Mexico and Canada, as well as intra-Canada service. In our asset-light Brokerage and Other Services segment, shippers create demand for our technology-enabled services and we place their freight with qualified independent carriers, pricing the transactions on either a contract or a spot basis. Our truck brokerage business is the largest component of the segment, which also includes three complementary brokered services: managed transportation, last mile logistics for heavy goods and global forwarding. Our European business, which we plan to divest through either a sale or a listing on a European stock exchange, is also currently reported within this segment. Some of our operating units provide services to our other operating units outside of their reportable segment. Billings for such services are based on negotiated rates and are reflected as revenues of the billing segment. We adjust these rates from time to time based on market conditions. We eliminate intersegment revenues and expenses in our consolidated results. Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reporting segments. Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM. We do not provide asset information by segment to the CODM. Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as income from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, gain on sale of business, transaction and integration costs, restructuring costs and other adjustments. 10 Table of Contents Selected financial data for our segments is as follows: Three Months Ended March 31, (in millions) 2022 2021 Revenue North American LTL $ 1,105 $ 962 Brokerage and Other Services 2,432 2,071 Eliminations ( 64 ) ( 44 ) Total $ 3,473 $ 2,989 Adjusted EBITDA North American LTL $ 205 $ 214 Brokerage and Other Services 164 125 Corporate ( 48 ) ( 60 ) Total adjusted EBITDA 321 279 Less: Debt extinguishment loss — 8 Interest expense 37 65 Income tax provision 113 19 Depreciation and amortization expense 116 119 Unrealized (gain) loss on foreign currency option and forward contracts — ( 1 ) Gain on sale of business ( 450 ) — Transaction and integration costs (1) 10 5 Restructuring costs (2) 6 1 Income from continuing operations $ 489 $ 63 Depreciation and amortization expense North American LTL $ 55 $ 55 Brokerage and Other Services 60 60 Corporate 1 4 Total $ 116 $ 119 (1) Transaction and integration costs for the three months ended March 31, 2022 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-offs and other disposal activities, as well as retention awards paid to certain employees. Transaction and integration costs for the three months ended March 31, 2022 and 2021 include $ 2 million and $ 1 million, respectively, related to our Brokerage and Other Services segment and $ 8 million and $ 4 million, respectively, related to Corporate. (2) See Note 6— Restructuring Charges for further information on our restructuring actions. 11 Table of Contents 5. Revenue Recognition Disaggregation of Revenues We disaggregate our revenue by geographic area and service offering. Our revenue disaggregated by geographical area, based on sales office location, was as follows: Three Months Ended March 31, 2022 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 1,082 $ 1,519 $ ( 64 ) $ 2,537 North America (excluding United States) 23 101 — 124 France — 352 — 352 United Kingdom — 225 — 225 Europe (excluding France and United Kingdom) — 210 — 210 Other — 25 — 25 Total $ 1,105 $ 2,432 $ ( 64 ) $ 3,473 Three Months Ended March 31, 2021 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 940 $ 1,221 $ ( 44 ) $ 2,117 North America (excluding United States) 22 69 — 91 France — 342 — 342 United Kingdom — 209 — 209 Europe (excluding France and United Kingdom) — 213 — 213 Other — 17 — 17 Total $ 962 $ 2,071 $ ( 44 ) $ 2,989 12 Table of Contents Our revenue disaggregated by service offering was as follows: Three Months Ended March 31, (In millions) 2022 2021 North America LTL (1) $ 1,133 $ 976 Truck brokerage 824 596 Last mile 246 246 Other brokerage (2) 551 453 Total North America 2,754 2,271 Europe 787 763 Eliminations ( 68 ) ( 45 ) Total $ 3,473 $ 2,989 (1) LTL revenue is before intercompany eliminations and includes revenue from our trailer manufacturing business. (2) Other brokerage includes intermodal, expedite, freight forwarding and managed transportation services. Freight forwarding includes operations conducted outside of North America but managed by our North American entities. In March 2022, we sold our intermodal operation. For further information, see Note 3—Divestiture. Performance Obligations Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On March 31, 2022, the fixed consideration component of our remaining performance obligation was approximately $ 120 million, and we expect approximately 89 % of that amount to be recognized over the next three years and the remainder thereafter. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations. 6. Restructuring Charges We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and other disposal activities. These actions generally include severance and facility-related costs, including impairment of operating lease assets, as well as contract termination costs and are intended to improve our efficiency and profitability. 13 Table of Contents Our restructuring-related activity was as follows: Three Months Ended March 31, 2022 (In millions) Reserve Balance as of December 31, 2021 Charges Incurred Payments Reserve Balance as of March 31, 2022 Severance Brokerage and Other Services $ 6 $ 2 $ ( 3 ) $ 5 Corporate 7 1 ( 2 ) 6 Total severance 13 3 ( 5 ) 11 Facilities Brokerage and Other Services 2 — — 2 Total facilities 2 — — 2 Contract termination North American LTL — 3 ( 3 ) — Total contract termination — 3 ( 3 ) — Total $ 15 $ 6 $ ( 8 ) $ 13 We expect the majority of the cash outlays related to the charges incurred in the first quarter of 2022 will be complete within 12 months. 7. Debt March 31, 2022 December 31, 2021 (In millions) Principal Balance Carrying Value Principal Balance Carrying Value Term loan facilities $ 2,003 $ 1,979 $ 2,003 $ 1,977 6.25 % Senior notes due 2025 1,150 1,141 1,150 1,141 6.70 % Senior debentures due 2034 300 215 300 214 Finance leases, asset financing and other 224 224 240 240 Total debt 3,677 3,559 3,693 3,572 Short-term borrowings and current maturities of long-term debt 682 682 58 58 Long-term debt $ 2,995 $ 2,877 $ 3,635 $ 3,514 The fair value of our debt and classification in the fair value hierarchy was as follows: (In millions) Fair Value Level 1 Level 2 March 31, 2022 $ 3,717 $ 1,500 $ 2,217 December 31, 2021 3,811 1,571 2,240 We valued Level 1 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics. 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. ABL Facility As of March 31, 2022, our borrowing base was $ 1.0 billion and our availability under our revolving loan credit agreement (the “ABL Facility”) was $ 996 million after considering outstanding letters of credit of $ 4 million. As of March 31, 2022, we were in compliance with the ABL Facility’s financial covenants. 14 Table of Contents Letters of Credit Facility As of March 31, 2022, we have issued $ 185 million in aggregate face amount of letters of credit under our $ 200 million uncommitted secured evergreen letter of credit facility. Term Loan Facilities In the first quarter of 2021, we amended our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) and recorded a debt extinguishment loss of $ 3 million. The interest rate on our term loan facility was 1.99 % as of March 31, 2022. Senior Notes Due 2025 In March 2022, we provided notice to redeem $ 630 million of the $ 1.15 billion principal amount of our outstanding 6.25 % senior notes due 2025. See Note 11—Subsequent Events for more information. Senior Notes Due 2022 In January 2021, we redeemed our outstanding 6.50 % senior notes due 2022. The redemption price for the notes was 100 % of the principal amount, plus accrued and unpaid interest. We paid for the redemption with available cash. We recorded a debt extinguishment loss of $ 5 million in the first quarter of 2021 due to this redemption. 8. Stockholders’ Equity Series A Convertible Perpetual Preferred Stock and Warrants Commencing in the fourth quarter of 2020, holders of our convertible preferred stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment. In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock and 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock. The warrants exchanged included holdings of Jacobs Private Equity, LLC, an entity controlled by the Company’s chairman and chief executive officer. Share Repurchases 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. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time. There have been no share repurchases since the first quarter of 2020. Our remaining share repurchase authorization was $ 503 million as of March 31, 2022. 15 Table of Contents 9. Earnings per Share The computations of basic and diluted earnings per share were as follows: Three Months Ended March 31, (In millions, except per share data) 2022 2021 Basic earnings (loss) per common share Net income from continuing operations attributable to common shares $ 489 $ 63 Income (loss) from discontinued operations, net of taxes $ ( 1 ) $ 55 Net income from discontinued operations attributable to noncontrolling interests — ( 3 ) Net income (loss) from discontinued operations attributable to common shares $ ( 1 ) $ 52 Net income from continuing operations attributable to common shares, basic $ 489 $ 63 Net income (loss) from discontinued operations attributable to common shares, basic ( 1 ) 52 Net income attributable to common shares, basic $ 488 $ 115 Basic weighted-average common shares 115 106 Basic earnings from continuing operations per share $ 4.26 $ 0.59 Basic earnings (loss) from discontinued operations per share ( 0.01 ) 0.49 Basic earnings per share $ 4.25 $ 1.08 Diluted earnings (loss) per common share Net income from continuing operations attributable to common shares, diluted $ 489 $ 63 Net income (loss) from discontinued operations attributable to common shares, diluted ( 1 ) 52 Net income attributable to common shares, diluted $ 488 $ 115 Basic weighted-average common shares 115 106 Dilutive effect of stock-based awards and warrants 1 6 Diluted weighted-average common shares 116 112 Diluted earnings from continuing operations per share $ 4.23 $ 0.56 Diluted earnings (loss) from discontinued operations per share ( 0.01 ) 0.46 Diluted earnings per share $ 4.22 $ 1.02 10. Commitments and Contingencies We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings include claims for property damage or personal injury incurred in connection with the transportation of freight, commercial disputes, insurance coverage disputes, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several collective and class action cases involving claims that our owner-operators or contract carriers should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest breaks, unreimbursed business expenses, penalties and other items), injunctive relief, or both. We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We review and adjust accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility 16 Table of Contents that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter. 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. 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. Legal costs incurred related to these matters are expensed as incurred. We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted. Shareholder Litigation On December 14, 2018, a putative class action captioned Labul v. XPO Logistics, Inc. et al. , was filed in the U.S. District Court for the District of Connecticut against us and some of our current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, based on alleged material misstatements and omissions in our public filings with the U.S. Securities and Exchange Commission. On June 3, 2019, lead plaintiffs Local 817 IBT Pension Fund, Local 272 Labor-Management Pension Fund, and Local 282 Pension Trust Fund and Local 282 Welfare Trust Fund (together, the “Pension Funds”) filed a consolidated class action complaint. Defendants moved to dismiss the consolidated class action complaint on August 2, 2019. On November 4, 2019, the Court dismissed the consolidated class action complaint without prejudice to the filing of an amended complaint. The Pension Funds, on January 3, 2020, filed a first amended consolidated class action complaint against us and a current executive. Defendants moved to dismiss the first amended consolidated class action complaint on March 3, 2020. On March 19, 2021, the Court dismissed the first amended consolidated class action complaint with prejudice and closed the case. On April 29, 2021, the Pension Funds filed a notice of appeal, and the appellate process is ongoing. Also, on May 13, 2019, Adriana Jez filed a purported shareholder derivative action captioned Jez v. Jacobs, et al. , (the “Jez complaint”) in the U.S. District Court for the District of Delaware, alleging breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Exchange Act against some of our current and former directors and officers, with the company as a nominal defendant. The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler and Kevin Rose under the caption In re XPO Logistics, Inc. Derivative Litigation. On December 12, 2019, the Court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days. On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases. Defendants moved to dismiss the operative complaint on February 26, 2020. Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss. The Court granted plaintiffs’ motion on July 6, 2020. On April 14, 2021, the Court issued an order staying proceedings pending resolution of an appeal in the Labul action. Plaintiffs stipulated that they will dismiss the shareholder derivative action with prejudice if the Labul dismissal is affirmed on appeal. We believe these suits are without merit and we intend to defend the company vigorously. We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters. Insurance Contribution Litigation In April 2012, Allianz Global Risks US Insurance Company sued eighteen insurance companies in a case captioned Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., Multnomah County Circuit Court (Case No. 1204-04552). Allianz sought contribution on environmental and product liability claims that Allianz 17 Table of Contents agreed to defend and indemnify on behalf of its insured, Daimler Trucks North America (“DTNA”). Defendants had insured Freightliner’s assets, which DTNA acquired in 1981. Con-way, Freightliner’s former parent company, intervened. We acquired Con-way in 2015. Con-way and Freightliner had self-insured under fronting agreements with defendant insurers ACE, Westport, and General. Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies. Con-way’s captive insurer, Centron, was also a named defendant. After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner. In June 2015, Allianz appealed to the Oregon Court of Appeals. In May 2019, the Oregon Court of Appeals upheld the jury verdict. In September 2019, Allianz appealed to the Oregon Supreme Court. In March 2021, the Oregon Supreme Court reversed the jury verdict, holding that it was an error to allow the jury to decide how the parties intended the fronting policies to operate, and also holding that the trial court improperly instructed the jury concerning one of the pollution exclusions at issue. In July of 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision. There is no date yet set for the next stages of the proceeding. The parties have filed cross-motions for summary judgment concerning the interpretation of certain of the fronting policies, which are yet to be decided. Following summary judgment, we anticipate a jury trial on the pollution exclusion, then a bench trial on allocation of defense costs among the subject insurance policies. We have accrued an immaterial amount for the potential exposure associated with Centron in the bench trial regarding allocation. As any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time, no liability has been accrued in the accompanying interim consolidated financial statements for those potential exposures. 11. Subsequent Events In March 2022, we provided notice to redeem $ 630 million (“Redeemed Notes”) of the $ 1.15 billion principal amount of our outstanding 6.25 % senior notes due 2025. The redemption price for the Redeemed Notes was 100 % of the principal amount plus a premium as defined in the indenture and accrued and unpaid interest. In April 2022, we completed the redemption of the Redeemed Notes using available liquidity. The loss on debt extinguishment of approximately $ 26 million will be reflected in the second quarter of 2022 results of operations. 18 Table of Contents