XPO, Inc. 10-Q

Item 1. Financial Statements. XPO Logistics, Inc. Condensed Consolidated Balance Sheets (Unaudited) June 30, December 31, (In millions, except per share data) 2022 2021 ASSETS Current assets Cash and cash equivalents $ 436 $ 260 Accounts receivable, net of allowances of $ 47 and $ 47 , respectively 2,190 2,105 Other current assets 271 286 Current assets of discontinued operations 19 26 Total current assets 2,916 2,677 Long-term assets Property and equipment, net of $ 1,823 and $ 1,828 in accumulated depreciation, respectively 1,799 1,808 Operating lease assets 832 908 Goodwill 2,284 2,479 Identifiable intangible assets, net of $ 589 and $ 612 in accumulated amortization, respectively 522 580 Other long-term assets 287 255 Total long-term assets 5,724 6,030 Total assets $ 8,640 $ 8,707 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,153 $ 1,110 Accrued expenses 1,106 1,107 Short-term borrowings and current maturities of long-term debt 55 58 Short-term operating lease liabilities 142 170 Other current liabilities 159 69 Current liabilities of discontinued operations 19 24 Total current liabilities 2,634 2,538 Long-term liabilities Long-term debt 2,857 3,514 Deferred tax liability 325 316 Employee benefit obligations 118 122 Long-term operating lease liabilities 689 752 Other long-term liabilities 310 327 Total long-term liabilities 4,299 5,031 Stockholders’ equity Common stock, $ 0.001 par value; 300 shares authorized; 115 shares issued and outstanding as of June 30, 2022 and December 31, 2021 — — Additional paid-in capital 1,187 1,179 Retained earnings 672 43 Accumulated other comprehensive loss ( 152 ) ( 84 ) Total equity 1,707 1,138 Total liabilities and equity $ 8,640 $ 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 June 30, Six Months Ended June 30, (In millions, except per share data) 2022 2021 2022 2021 Revenue $ 3,232 $ 3,186 $ 6,705 $ 6,175 Cost of transportation and services (exclusive of depreciation and amortization) 2,153 2,186 4,590 4,239 Direct operating expense (exclusive of depreciation and amortization) 365 358 750 692 Sales, general and administrative expense 324 324 668 662 Depreciation and amortization expense 115 120 231 239 (Gain) loss on sale of business 16 — ( 434 ) — Transaction and integration costs 25 6 35 11 Restructuring costs 4 1 10 2 Operating income 230 191 855 330 Other income ( 15 ) ( 10 ) ( 29 ) ( 26 ) Debt extinguishment loss 26 — 26 8 Interest expense 31 58 68 123 Income from continuing operations before income tax provision 188 143 790 225 Income tax provision 47 30 160 49 Income from continuing operations 141 113 630 176 Income (loss) from discontinued operations, net of taxes — 45 ( 1 ) 100 Net income 141 158 629 276 Net income from discontinued operations attributable to noncontrolling interests — ( 2 ) — ( 5 ) Net income attributable to XPO $ 141 $ 156 $ 629 $ 271 Net income (loss) attributable to common shareholders Continuing operations $ 141 $ 113 $ 630 $ 176 Discontinued operations — 43 ( 1 ) 95 Net income attributable to common shareholders $ 141 $ 156 $ 629 $ 271 Earnings (loss) per share data Basic earnings per share from continuing operations $ 1.23 $ 1.01 $ 5.49 $ 1.61 Basic earnings (loss) per share from discontinued operations — 0.38 ( 0.01 ) 0.87 Basic earnings per share attributable to common shareholders $ 1.23 $ 1.39 $ 5.48 $ 2.48 Diluted earnings per share from continuing operations $ 1.22 $ 1.00 $ 5.45 $ 1.56 Diluted earnings (loss) per share from discontinued operations — 0.38 ( 0.01 ) 0.84 Diluted earnings per share attributable to common shareholders $ 1.22 $ 1.38 $ 5.44 $ 2.40 Weighted-average common shares outstanding Basic weighted-average common shares outstanding 115 112 115 109 Diluted weighted-average common shares outstanding 116 113 116 113 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 June 30, Six Months Ended June 30, (In millions) 2022 2021 2022 2021 Net income $ 141 $ 158 $ 629 $ 276 Other comprehensive income (loss), net of tax Foreign currency translation gain (loss), net of tax effect of $( 9 ), $ 3 , $( 11 ) and $( 3 ) $ ( 46 ) $ 15 $ ( 72 ) $ ( 27 ) Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $( 1 ), $ — , $( 1 ) and $ — 3 — 4 — Other comprehensive income (loss) ( 43 ) 15 ( 68 ) ( 27 ) Comprehensive income $ 98 $ 173 $ 561 $ 249 Less: Comprehensive income attributable to noncontrolling interests — 5 — 3 Comprehensive income attributable to XPO $ 98 $ 168 $ 561 $ 246 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, (In millions) 2022 2021 Cash flows from operating activities of continuing operations Net income $ 629 $ 276 Income (loss) from discontinued operations, net of taxes ( 1 ) 100 Income from continuing operations 630 176 Adjustments to reconcile income from continuing operations to net cash from operating activities Depreciation, amortization and net lease activity 231 239 Stock compensation expense 18 13 Accretion of debt 8 10 Deferred tax expense 6 10 Debt extinguishment loss 26 8 Gain on sale of business ( 434 ) — Gains on sales of property and equipment ( 2 ) ( 30 ) Other 17 11 Changes in assets and liabilities Accounts receivable ( 382 ) ( 223 ) Other assets 57 ( 45 ) Accounts payable 203 19 Accrued expenses and other liabilities 21 120 Net cash provided by operating activities from continuing operations 399 308 Cash flows from investing activities of continuing operations Proceeds from sale of business 705 — Payment for purchases of property and equipment ( 267 ) ( 135 ) Proceeds from sale of property and equipment 7 60 Proceeds from settlement of cross currency swaps 19 — Net cash provided by (used in) investing activities from continuing operations 464 ( 75 ) Cash flows from financing activities of continuing operations Repayment of borrowings related to securitization program — ( 24 ) Repurchase of debt ( 651 ) ( 1,200 ) Proceeds from borrowings on ABL facility 275 — Repayment of borrowings on ABL facility ( 275 ) ( 200 ) Repayment of debt and finance leases ( 32 ) ( 43 ) Payment for debt issuance costs — ( 5 ) Change in bank overdrafts 25 — Payment for tax withholdings for restricted shares ( 13 ) ( 22 ) Other ( 2 ) 5 Net cash used in financing activities from continuing operations ( 673 ) ( 1,489 ) 4 Table of Contents Six Months Ended June 30, (In millions) 2022 2021 Cash flows from discontinued operations Operating activities of discontinued operations ( 3 ) 231 Investing activities of discontinued operations — ( 70 ) Financing activities of discontinued operations — ( 159 ) Net cash provided by (used in) discontinued operations ( 3 ) 2 Effect of exchange rates on cash, cash equivalents and restricted cash ( 14 ) 1 Net increase (decrease) in cash, cash equivalents and restricted cash 173 ( 1,253 ) Cash, cash equivalents and restricted cash, beginning of period 273 2,065 Cash, cash equivalents and restricted cash, end of period 446 812 Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period — 318 Cash, cash equivalents and restricted cash of continued operations, end of period $ 446 $ 494 Supplemental disclosure of cash flow information Leased assets obtained in exchange for new operating lease liabilities $ 114 $ 111 Leased assets obtained in exchange for new finance lease liabilities 10 31 Cash paid for interest 73 133 Cash paid for income taxes 74 43 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 March 31, 2022 — $ — 114,982 $ — $ 1,176 $ 531 $ ( 109 ) $ 1,598 $ — $ 1,598 Net income — — — — — 141 — 141 — 141 Other comprehensive loss — — — — — — ( 43 ) ( 43 ) — ( 43 ) Exercise and vesting of stock compensation awards — — 51 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 1 ) — — ( 1 ) — ( 1 ) Stock compensation expense — — — — 10 — — 10 — 10 Other — — — — 2 — — 2 — 2 Balance as of June 30, 2022 — $ — 115,033 $ — $ 1,187 $ 672 $ ( 152 ) $ 1,707 $ — $ 1,707 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 — — — — — 629 — 629 — 629 Other comprehensive loss — — — — — — ( 68 ) ( 68 ) — ( 68 ) Exercise and vesting of stock compensation awards — — 296 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 13 ) — — ( 13 ) — ( 13 ) Stock compensation expense — — — — 18 — — 18 — 18 Other — — — — 3 — — 3 — 3 Balance as of June 30, 2022 — $ — 115,033 $ — $ 1,187 $ 672 $ ( 152 ) $ 1,707 $ — $ 1,707 6 Table of Contents XPO Logistics, Inc. Condensed Consolidated Statements of Changes in Equity (continued) (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 March 31, 2021 — $ — 111,676 $ — $ 1,988 $ 983 $ ( 195 ) $ 2,776 $ 138 $ 2,914 Net income — — — — — 156 — 156 2 158 Other comprehensive income — — — — — — 12 12 3 15 Exercise and vesting of stock compensation awards — — 44 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 1 ) — — ( 1 ) — ( 1 ) Conversion of preferred stock to common stock — — 6 — — — — — — — Purchase of noncontrolling interests — — — — ( 34 ) — — ( 34 ) ( 100 ) ( 134 ) Dividend declared — — — — — — — — ( 3 ) ( 3 ) Stock compensation expense — — — — 15 — — 15 — 15 Other — — — — 3 — — 3 — 3 Balance as of June 30, 2021 — $ — 111,726 $ — $ 1,971 $ 1,139 $ ( 183 ) $ 2,927 $ 40 $ 2,967 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 — — — — — 271 — 271 5 276 Other comprehensive loss — — — — — — ( 25 ) ( 25 ) ( 2 ) ( 27 ) Exercise and vesting of stock compensation awards — — 314 — — — — — — — Tax withholdings related to vesting of stock compensation awards — — — — ( 22 ) — — ( 22 ) — ( 22 ) Conversion of preferred stock to common stock ( 1 ) ( 1 ) 145 — 1 — — — — — Purchase of noncontrolling interests — — — — ( 34 ) — — ( 34 ) ( 100 ) ( 134 ) Dividend declared — — — — — — — — ( 3 ) ( 3 ) Exercise of warrants — — 9,215 — — — — — — — Stock compensation expense — — — — 25 — — 25 — 25 Other — — — — 3 — — 3 — 3 Balance as of June 30, 2021 — $ — 111,726 $ — $ 1,971 $ 1,139 $ ( 183 ) $ 2,927 $ 40 $ 2,967 See accompanying notes to condensed consolidated financial statements. 7 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 Planned RXO Spin-Off On March 8, 2022, we announced that our Board of Directors approved a strategic plan to pursue the spin-off of our tech-enabled brokered transportation platform in North America as a publicly traded company. In addition, the Board of Directors authorized two divestitures: our North American intermodal operation, which we sold in March 2022, and the divestiture of our European business. For further information on the sale of our intermodal operation, see Note 3—Divestiture. The spin-off to XPO shareholders, if completed as planned, will result in two independent, publicly traded companies. The spin-off company will be RXO, Inc. (“RXO”) and will be comprised of our asset-light core truck brokerage business and complementary brokered services for managed transportation, last mile logistics and global forwarding. The remaining company, XPO, will be a pure-play provider of asset-based 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, will result in XPO shareholders owning stock in both XPO and RXO. In connection with the transaction, it is anticipated that a portion of XPO’s outstanding debt will be repaid using proceeds from debt incurred by RXO. We currently expect to complete the RXO spin-off transaction 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 our Board of Directors, and final approval by the 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 and six months ended June 30, 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. 8 Table of Contents Restricted Cash As of June 30, 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 $ 210 million as of June 30, 2022). As of June 30, 2022, less than € 1 million (less than $ 1 million) was available under the program, subject to having sufficient receivables available to sell and with consideration to amounts previously sold. The weighted average interest rate was 0.78 % as of June 30, 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 and six months ended June 30, 2022 and 2021. Information related to the trade receivables sold was as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2022 2021 (1) 2022 2021 (1) Securitization programs Receivables sold in period $ 458 $ 408 $ 905 $ 755 Cash consideration 458 408 905 755 Factoring programs Receivables sold in period 33 13 60 29 Cash consideration 33 13 60 29 (1) Information for the three and six months ended June 30, 2021 exclude 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 June 30, 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 the fair value hierarchy of our derivative instruments, see Note 7—Derivative Instruments; and for further information on financial liabilities, see Note 8—Debt. 9 Table of Contents The fair value hierarchy of cash equivalents was as follows: (In millions) Carrying Value Fair Value Level 1 June 30, 2022 $ 377 $ 377 $ 377 December 31, 2021 181 181 181 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. Adoption of the standard 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 June 30, Six Months Ended June 30, (In millions) 2021 2021 Revenue $ 1,881 $ 3,699 Direct operating expense (exclusive of depreciation and amortization) 1,557 3,071 Sales, general and administrative expense 160 310 Depreciation and amortization expense 85 158 Transaction and other operating costs 25 42 Operating income 54 118 Other income ( 12 ) ( 23 ) Interest expense 5 9 Income from discontinued operations before income tax provision 61 132 Income tax provision 16 32 Net income from discontinued operations, net of taxes 45 100 Net income from discontinued operations attributable to noncontrolling interests ( 2 ) ( 5 ) Net income from discontinued operations attributable to GXO $ 43 $ 95 No costs related to the GXO spin-off were incurred for the three months ended June 30, 2022. For the six months ended June 30, 2022, we incurred costs of approximately $ 4 million related to the GXO spin-off. For the three and six months ended June 30, 2021, we incurred costs of approximately $ 30 million and $ 43 million, respectively, related to the GXO spin-off, of which $ 27 million and $ 39 million, respectively, are reflected within income from discontinued operations in our Condensed Consolidated Statements of Income. 10 Table of Contents 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 the logistics segment prior to the spin-off and remain obligations of XPO. The receivable and accrued expense for these matters was approximately $ 19 million each as of June 30, 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 customary post-closing working capital adjustments that remain ongoing. We recorded a $ 450 million pre-tax gain on the sale, net of transaction costs, during the first quarter of 2022. During the second quarter of 2022, we recognized a working capital adjustment of $ 16 million, which reduced the gain initially recognized in the first quarter of 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, national and cross-border LTL freight services. In our asset-light Brokerage and Other Services segment, our core truck brokerage business places shippers’ freight with qualified independent carriers using our XPO Connect ® technology platform. Truck brokerage is the largest component of the segment, which also includes complementary brokered transportation services for managed transportation, last mile logistics and global forwarding. In addition, our European business is reported in this segment, and our North American intermodal operation was included in the segment through its date of sale in March 2022. 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 net income from continuing operations attributable to common shareholders before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, (gain) loss on sale of business, transaction and integration costs, restructuring costs and other adjustments. 11 Table of Contents Selected financial data for our segments is as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2022 2021 2022 2021 Revenue North American LTL $ 1,239 $ 1,081 $ 2,344 $ 2,043 Brokerage and Other Services 2,067 2,161 4,499 4,232 Eliminations ( 74 ) ( 56 ) ( 138 ) ( 100 ) Total $ 3,232 $ 3,186 $ 6,705 $ 6,175 Adjusted EBITDA North American LTL $ 294 $ 258 $ 499 $ 472 Brokerage and Other Services 152 130 316 255 Corporate ( 41 ) ( 58 ) ( 89 ) ( 118 ) Total adjusted EBITDA 405 330 726 609 Less: Debt extinguishment loss 26 — 26 8 Interest expense 31 58 68 123 Income tax provision 47 30 160 49 Depreciation and amortization expense 115 120 231 239 Unrealized loss on foreign currency option and forward contracts — 2 — 1 (Gain) loss on sale of business 16 — ( 434 ) — Transaction and integration costs (1) 25 6 35 11 Restructuring costs (2) 4 1 10 2 Net income from continuing operations attributable to common shareholders $ 141 $ 113 $ 630 $ 176 Depreciation and amortization expense North American LTL $ 60 $ 57 $ 115 $ 112 Brokerage and Other Services 54 60 114 120 Corporate 1 3 2 7 Total $ 115 $ 120 $ 231 $ 239 (1) Transaction and integration costs for the periods ended June 30, 2022 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives, including the spin-offs and other divestment activities, as well as retention awards paid to certain employees. Transaction and integration costs for the three months ended June 30, 2022 and 2021 include $ 2 million and $ — million , respectively, related to our North American LTL segment, $ 1 million and $ 2 million, respectively, related to our Brokerage and Other Services segment and $ 22 million and $ 4 million, respectively, related to Corporate. Transaction and integration costs for the six months ended June 30, 2022 and 2021 include $ 2 million and $ — million , respectively, related to our North American LTL segment, $ 3 million and $ 3 million, respectively, related to our Brokerage and Other Services segment and $ 30 million and $ 8 million, respectively, related to Corporate. (2) See Note 6— Restructuring Charges for further information on our restructuring actions. 12 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 June 30, 2022 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 1,212 $ 1,141 $ ( 74 ) $ 2,279 North America (excluding United States) 27 102 — 129 France — 352 — 352 United Kingdom — 224 — 224 Europe (excluding France and United Kingdom) — 231 — 231 Other — 17 — 17 Total $ 1,239 $ 2,067 $ ( 74 ) $ 3,232 Three Months Ended June 30, 2021 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 1,057 $ 1,276 $ ( 56 ) $ 2,277 North America (excluding United States) 24 70 — 94 France — 352 — 352 United Kingdom — 222 — 222 Europe (excluding France and United Kingdom) — 215 — 215 Other — 26 — 26 Total $ 1,081 $ 2,161 $ ( 56 ) $ 3,186 Six Months Ended June 30, 2022 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 2,294 $ 2,660 $ ( 138 ) $ 4,816 North America (excluding United States) 50 203 — 253 France — 704 — 704 United Kingdom — 449 — 449 Europe (excluding France and United Kingdom) — 441 — 441 Other — 42 — 42 Total $ 2,344 $ 4,499 $ ( 138 ) $ 6,705 13 Table of Contents Six Months Ended June 30, 2021 (In millions) North American LTL Brokerage and Other Services Eliminations Total Revenue United States $ 1,997 $ 2,497 $ ( 100 ) $ 4,394 North America (excluding United States) 46 139 — 185 France — 694 — 694 United Kingdom — 431 — 431 Europe (excluding France and United Kingdom) — 428 — 428 Other — 43 — 43 Total $ 2,043 $ 4,232 $ ( 100 ) $ 6,175 Our revenue disaggregated by service offering was as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2022 2021 2022 2021 North America LTL (1) $ 1,275 $ 1,098 $ 2,408 $ 2,074 Truck brokerage 755 607 1,579 1,203 Last mile 274 269 520 515 Other brokerage (2) 199 486 750 939 Total North America 2,503 2,460 5,257 4,731 Europe 807 791 1,594 1,554 Eliminations ( 78 ) ( 65 ) ( 146 ) ( 110 ) Total $ 3,232 $ 3,186 $ 6,705 $ 6,175 (1) LTL revenue is before intercompany eliminations and includes revenue from our trailer manufacturing business. (2) Other brokerage includes expedite, freight forwarding and managed transportation services, and intermodal through its date of sale in March 2022. For further information, see Note 3—Divestiture. Freight forwarding includes operations conducted outside of North America but managed by our North American entities. 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 June 30, 2022, the fixed consideration component of our remaining performance obligation was approximately $ 139 million, and we expect approximately 91 % 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; 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 divestment 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 going forward. 14 Table of Contents Our restructuring-related activity was as follows: Six Months Ended June 30, 2022 (In millions) Reserve Balance as of December 31, 2021 Charges Incurred Payments Reserve Balance as of June 30, 2022 Severance Brokerage and Other Services $ 6 $ 4 $ ( 6 ) $ 4 Corporate 7 1 ( 4 ) 4 Total severance 13 5 ( 10 ) 8 Facilities Brokerage and Other Services 2 1 ( 1 ) 2 Total facilities 2 1 ( 1 ) 2 Contract termination North American LTL — 3 ( 3 ) — Brokerage and Other Services — 1 — 1 Total contract termination — 4 ( 3 ) 1 Total $ 15 $ 10 $ ( 14 ) $ 11 We expect that the majority of the cash outlays related to the charges incurred in the first six months of 2022 will be completed within 12 months. 7. Derivative Instruments In the normal course of business, we are exposed to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. We use derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. Historically, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default. The fair value of our derivative instruments and the related notional amounts were as follows: June 30, 2022 Derivative Assets Derivative Liabilities (In millions) Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value Derivatives designated as hedges Cross-currency swap agreements $ 343 Other current assets $ 8 Other current liabilities $ — Cross-currency swap agreements 89 Other long-term assets 6 Other long-term liabilities — Interest rate swaps 2,003 Other current assets 4 Other current liabilities — Total $ 18 $ — 15 Table of Contents December 31, 2021 Derivative Assets Derivative Liabilities (In millions) Notional Amount Balance Sheet Caption Fair Value Balance Sheet Caption Fair Value Derivatives designated as hedges Cross-currency swap agreements $ 362 Other current assets $ — Other current liabilities $ ( 4 ) Cross-currency swap agreements 110 Other long-term assets — Other long-term liabilities — Interest rate swaps 2,003 Other current assets — Other current liabilities — Total $ — $ ( 4 ) The derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves. The effect of derivative and nonderivative instruments designated as hedges on our Condensed Consolidated Statements of Income was as follows: Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Loss Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Three Months Ended June 30, (In millions) 2022 2021 2022 2021 2022 2021 Derivatives designated as cash flow hedges Cross-currency swap agreements $ — $ ( 2 ) $ — $ ( 2 ) $ — $ — Interest rate swaps 4 — — — — — Derivatives designated as net investment hedges Cross-currency swap agreements 28 ( 13 ) — — 2 2 Total $ 32 $ ( 15 ) $ — $ ( 2 ) $ 2 $ 2 Amount of Gain Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Six Months Ended June 30, (In millions) 2022 2021 2022 2021 2022 2021 Derivatives designated as cash flow hedges Cross-currency swap agreements $ — $ 4 $ — $ 4 $ — $ — Interest rate swaps 5 — — — — — Derivatives designated as net investment hedges Cross-currency swap agreements 37 35 — — 4 5 Total $ 42 $ 39 $ — $ 4 $ 4 $ 5 Cross-Currency Swap Agreements We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate USD-denominated debt, including the associated interest payments, to fixed-rate, euro (“EUR”)-denominated debt. The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt. 16 Table of Contents During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates. At maturity, we will repay the original principal amount in EUR and receive the principal amount in USD. These agreements expire at various dates through 2024. We designated these cross-currency swaps as qualifying hedging instruments and account for them as net investment hedges. We apply the simplified method of assessing the effectiveness of our net investment hedging relationships. Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in Accumulated other comprehensive income (“AOCI”). The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner. Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Cash flows from operating activities of continuing operations on our Condensed Consolidated Statements of Cash Flows. In the second quarter of 2022, we received approximately $ 19 million related to the settlement of certain cross currency swaps that matured during the quarter. The proceeds were included in Cash flows from investing activities of continuing operations on our Condensed Consolidated Statements of Cash Flows. Prior to the spin-off of GXO in 2021, we held cross-currency swap agreements to manage the related foreign currency exposure from intercompany loans. We designated these cross-currency swaps as qualifying hedging instruments and accounted for them as cash flow hedges. Gains and losses resulting from the change in the fair value of the cross-currency swaps was initially recognized in AOCI and reclassified to Other income on our Condensed Consolidated Statements of Income to offset the foreign exchange impact in earnings created by settling intercompany loans. Cash flows related to these cash flow hedges was included in Cash flows from operating activities of continuing operations on our Condensed Consolidated Statements of Cash Flows. These swaps were re-designated as net investment hedges in the third quarter of 2021. Interest Rate Hedging We execute short-term interest rate swaps to mitigate variability in forecasted interest payments on our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”). The interest rate swaps convert floating-rate interest payments into fixed rate interest payments. We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges. The outstanding interest rate swaps mature in the fourth quarter of 2022. We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue. Cash flows related to the interest rate swaps are included in Cash flows from operating activities of continuing operations on our Condensed Consolidated Statements of Cash Flows. 8. Debt June 30, 2022 December 31, 2021 (In millions) Principal Balance Carrying Value Principal Balance Carrying Value Term loan facilities $ 2,003 $ 1,976 $ 2,003 $ 1,977 6.25 % senior notes due 2025 520 516 1,150 1,141 6.70 % senior debentures due 2034 300 215 300 214 Finance leases, asset financing and other 205 205 240 240 Total debt 3,028 2,912 3,693 3,572 Short-term borrowings and current maturities of long-term debt 55 55 58 58 Long-term debt $ 2,973 $ 2,857 $ 3,635 $ 3,514 17 Table of Contents The fair value of our debt and classification in the fair value hierarchy was as follows: (In millions) Fair Value Level 1 Level 2 June 30, 2022 $ 2,927 $ 799 $ 2,128 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 June 30, 2022, our borrowing base was $ 1 billion and our availability under our revolving loan credit agreement (the “ABL Facility”) was $ 995 million after considering outstanding letters of credit of $ 5 million. As of June 30, 2022, we were in compliance with the ABL Facility’s financial covenants. Letters of Credit Facility As of June 30, 2022, we had 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 Term Loan Credit Agreement and recorded a debt extinguishment loss of $ 3 million in the first six months of 2021. The interest rate on our term loan facility was 2.87 % as of June 30, 2022. Senior Notes Due 2025 In April 2022, we redeemed $ 630 million of the then $ 1.15 billion outstanding principal amount of our 6.25 % senior notes due 2025. The redemption price for the notes was 100 % of the principal amount plus a premium, as defined in the indenture, of approximately $ 21 million and accrued and unpaid interest. We paid for the redemption using available liquidity. We recorded a debt extinguishment loss of $ 26 million in the second quarter of 2022 due to this redemption. 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 six months of 2021 due to this redemption. 9. 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 approximately 139 thousand 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. The warrants exchanged included holdings of Jacobs Private Equity, LLC, an entity controlled by the Company’s chairman and chief executive officer. Subsequent to the exchange in the second quarter of 2021, there are no shares of preferred stock or warrants outstanding. 18 Table of Contents 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 June 30, 2022. 10. Earnings per Share The computations of basic and diluted earnings per share were as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data) 2022 2021 2022 2021 Net income from continuing operations attributable to common shares $ 141 $ 113 $ 630 $ 176 Net income (loss) from discontinued operations, net of amounts attributable to noncontrolling interest — 43 ( 1 ) 95 Net income attributable to common shares, basic $ 141 $ 156 $ 629 $ 271 Basic weighted-average common shares 115 112 115 109 Dilutive effect of stock-based awards and warrants 1 1 1 4 Diluted weighted-average common shares 116 113 116 113 Basic earnings from continuing operations per share $ 1.23 $ 1.01 $ 5.49 $ 1.61 Basic earnings (loss) from discontinued operations per share — 0.38 ( 0.01 ) 0.87 Basic earnings per share $ 1.23 $ 1.39 $ 5.48 $ 2.48 Diluted earnings from continuing operations per share $ 1.22 $ 1.00 $ 5.45 $ 1.56 Diluted earnings (loss) from discontinued operations per share — 0.38 ( 0.01 ) 0.84 Diluted earnings per share $ 1.22 $ 1.38 $ 5.44 $ 2.40 11. 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 may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes, insurance coverage disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several class action and collective action cases involving claims that the contract carriers with which we contract for performance of delivery services, or their delivery workers, should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, unreimbursed business expenses, deductions from wages, 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 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 19 Table of Contents 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 Securities Exchange Act of 1934, as amended (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. On June 30, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal with prejudice of the first amended consolidated compliant. The Pension Funds did not petition for rehearing of the appellate decision by the July 14, 2022 deadline. The Pension Funds’ deadline to petition the U.S. Supreme Court for review is September 28, 2022. If the Pension Funds do not file such petition by that date, the case will be concluded. 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 would dismiss the shareholder derivative action with prejudice if the Labul dismissal was affirmed on appeal, including any petitions for rehearing. The Labul dismissal was affirmed on appeal on June 30, 2022, and the deadline for a rehearing petition passed on July 14, 2022. On July 26, 2022, the Court issued an order dismissing the Jez case with prejudice. 20 Table of Contents 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 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. 21 Table of Contents