Item 1. Financial Statements
Item 1. Financial Statements.
XPO Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
(In millions, except per share data) 2022 2021
ASSETS
Current assets
Cash and cash equivalents $ 544 $ 260
Accounts receivable, net of allowances of $ 51 and $ 47 , respectively
2,013 2,105
Other current assets 257 286
Current assets of discontinued operations 17 26
Total current assets 2,831 2,677
Long-term assets
Property and equipment, net of $ 1,848 and $ 1,828 in accumulated depreciation, respectively
1,828 1,808
Operating lease assets 816 908
Goodwill 2,229 2,479
Identifiable intangible assets, net of $ 598 and $ 612 in accumulated amortization, respectively
496 580
Other long-term assets 303 255
Total long-term assets 5,672 6,030
Total assets $ 8,503 $ 8,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 1,022 $ 1,110
Accrued expenses 1,087 1,107
Short-term borrowings and current maturities of long-term debt 60 58
Short-term operating lease liabilities 145 170
Other current liabilities 111 69
Current liabilities of discontinued operations 17 24
Total current liabilities 2,442 2,538
Long-term liabilities
Long-term debt 2,848 3,514
Deferred tax liability 334 316
Employee benefit obligations 116 122
Long-term operating lease liabilities 671 752
Other long-term liabilities 306 327
Total long-term liabilities 4,275 5,031
Stockholders’ equity
Common stock, $ 0.001 par value; 300 shares authorized; 115 shares issued and outstanding as of
September 30, 2022 and December 31, 2021
— —
Additional paid-in capital 1,195 1,179
Retained earnings 803 43
Accumulated other comprehensive loss ( 212 ) ( 84 )
Total equity 1,786 1,138
Total liabilities and equity $ 8,503 $ 8,707
See accompanying notes to condensed consolidated financial statements.
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XPO Logistics, Inc.
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except per share data) 2022 2021 2022 2021
Revenue $ 3,042 $ 3,270 $ 9,747 $ 9,445
Cost of transportation and services (exclusive of
depreciation and amortization)
2,044 2,306 6,634 6,545
Direct operating expense (exclusive of depreciation
and amortization)
363 366 1,113 1,058
Sales, general and administrative expense 298 339 966 1,001
Depreciation and amortization expense 118 118 349 357
Gain on sale of business — — ( 434 ) —
Transaction and integration costs 25 15 60 26
Restructuring costs 9 14 19 16
Operating income 185 112 1,040 442
Other income ( 15 ) ( 19 ) ( 44 ) ( 45 )
Debt extinguishment loss — 46 26 54
Interest expense 35 53 103 176
Income from continuing operations before income tax
provision
165 32 955 257
Income tax provision 34 11 194 60
Income from continuing operations 131 21 761 197
Income (loss) from discontinued operations, net of taxes — ( 78 ) ( 1 ) 22
Net income (loss) 131 ( 57 ) 760 219
Net income from discontinued operations attributable
to noncontrolling interests
— — — ( 5 )
Net income (loss) attributable to XPO $ 131 $ ( 57 ) $ 760 $ 214
Net income (loss) attributable to common shareholders
Continuing operations $ 131 $ 21 $ 761 $ 197
Discontinued operations — ( 78 ) ( 1 ) 17
Net income (loss) attributable to common
shareholders
$ 131 $ ( 57 ) $ 760 $ 214
Earnings (loss) per share data
Basic earnings per share from continuing operations $ 1.14 $ 0.19 $ 6.62 $ 1.78
Basic earnings (loss) per share from discontinued
operations
— ( 0.69 ) ( 0.01 ) 0.15
Basic earnings (loss) per share attributable to common
shareholders
$ 1.14 $ ( 0.50 ) $ 6.61 $ 1.93
Diluted earnings per share from continuing operations $ 1.13 $ 0.19 $ 6.58 $ 1.73
Diluted earnings (loss) per share from discontinued
operations
— ( 0.68 ) ( 0.01 ) 0.14
Diluted earnings (loss) per share attributable to
common shareholders
$ 1.13 $ ( 0.49 ) $ 6.57 $ 1.87
Weighted-average common shares outstanding
Basic weighted-average common shares outstanding 115 115 115 111
Diluted weighted-average common shares outstanding 116 116 116 114
See accompanying notes to condensed consolidated financial statements.
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XPO Logistics, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2022 2021 2022 2021
Net income (loss) $ 131 $ ( 57 ) $ 760 $ 219
Other comprehensive loss, net of tax
Foreign currency translation loss, net of tax effect of $( 7 ), $ 7 , $( 18 ) and $ 4
$ ( 60 ) $ ( 47 ) $ ( 132 ) $ ( 74 )
Unrealized gain (loss) on financial assets/liabilities designated as hedging
instruments, net of tax effect of $ — , $ 1 , $( 1 ) and $ 1
— ( 3 ) 4 ( 3 )
Defined benefit plans adjustments, net of tax effect of $ — , $( 9 ), $ —
and $( 9 )
— 28 — 28
Other comprehensive loss ( 60 ) ( 22 ) ( 128 ) ( 49 )
Comprehensive income (loss) $ 71 $ ( 79 ) $ 632 $ 170
Less: Comprehensive income attributable to noncontrolling interests — — — 3
Comprehensive income (loss) attributable to XPO $ 71 $ ( 79 ) $ 632 $ 167
See accompanying notes to condensed consolidated financial statements.
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XPO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(In millions) 2022 2021
Cash flows from operating activities of continuing operations
Net income $ 760 $ 219
Income (loss) from discontinued operations, net of taxes ( 1 ) 22
Income from continuing operations 761 197
Adjustments to reconcile income from continuing operations to net cash from
operating activities
Depreciation, amortization and net lease activity 349 357
Stock compensation expense 26 29
Accretion of debt 12 15
Deferred tax expense 10 5
Debt extinguishment loss 26 54
Gain on sale of business ( 434 ) —
Gains on sales of property and equipment ( 4 ) ( 36 )
Other 29 5
Changes in assets and liabilities
Accounts receivable ( 245 ) ( 371 )
Other assets 30 ( 1 )
Accounts payable 76 133
Accrued expenses and other liabilities 28 171
Net cash provided by operating activities from continuing operations 664 558
Cash flows from investing activities of continuing operations
Proceeds from sale of business 705 —
Payment for purchases of property and equipment ( 394 ) ( 212 )
Proceeds from sale of property and equipment 11 72
Proceeds from settlement of cross currency swaps 29 —
Other — ( 3 )
Net cash provided by (used in) investing activities from continuing operations 351 ( 143 )
Cash flows from financing activities of continuing operations
Repayment of borrowings related to securitization program — ( 24 )
Repurchase of debt ( 651 ) ( 2,769 )
Proceeds from borrowings on ABL facility 275 —
Repayment of borrowings on ABL facility ( 275 ) ( 200 )
Repayment of debt and finance leases ( 47 ) ( 63 )
Payment for debt issuance costs — ( 5 )
Issuance of common stock — 384
Change in bank overdrafts 6 33
Payment for tax withholdings for restricted shares ( 13 ) ( 25 )
Distribution from GXO — 794
Other ( 1 ) ( 5 )
Net cash used in financing activities from continuing operations ( 706 ) ( 1,880 )
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Nine Months Ended September 30,
(In millions) 2022 2021
Cash flows from discontinued operations
Operating activities of discontinued operations ( 5 ) 68
Investing activities of discontinued operations 2 ( 95 )
Financing activities of discontinued operations — ( 302 )
Net cash used in discontinued operations ( 3 ) ( 329 )
Effect of exchange rates on cash, cash equivalents and restricted cash ( 25 ) ( 7 )
Net increase (decrease) in cash, cash equivalents and restricted cash 281 ( 1,801 )
Cash, cash equivalents and restricted cash, beginning of period 273 2,065
Cash, cash equivalents and restricted cash, end of period 554 264
Less: Cash, cash equivalents and restricted cash of discontinued operations, end of
period
— —
Cash, cash equivalents and restricted cash of continued operations, end of period $ 554 $ 264
Supplemental disclosure of cash flow information
Leased assets obtained in exchange for new operating lease liabilities $ 165 $ 140
Leased assets obtained in exchange for new finance lease liabilities 19 54
Cash paid for interest 94 195
Cash paid for income taxes 131 74
See accompanying notes to condensed consolidated financial statements.
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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 June 30, 2022 — $ — 115,033 $ — $ 1,187 $ 672 $ ( 152 ) $ 1,707 $ — $ 1,707
Net income — — — — — 131 — 131 — 131
Other comprehensive loss — — — — — — ( 60 ) ( 60 ) — ( 60 )
Exercise and vesting of stock compensation awards
— — 19 — — — — — — —
Stock compensation expense
— — — — 8 — — 8 — 8
Balance as of September 30, 2022 — $ — 115,052 $ — $ 1,195 $ 803 $ ( 212 ) $ 1,786 $ — $ 1,786
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 — — — — — 760 — 760 — 760
Other comprehensive loss — — — — — — ( 128 ) ( 128 ) — ( 128 )
Exercise and vesting of stock compensation awards
— — 315 — — — — — — —
Tax withholdings related to vesting of stock compensation awards
— — — — ( 13 ) — — ( 13 ) — ( 13 )
Stock compensation expense
— — — — 26 — — 26 — 26
Other
— — — — 3 — — 3 — 3
Balance as of September 30, 2022 — $ — 115,052 $ — $ 1,195 $ 803 $ ( 212 ) $ 1,786 $ — $ 1,786
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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 Deficit) Accumulated Other
Comprehensive Loss Total XPO Stockholders' Equity Non-controlling Interests Total Equity
Balance as of June 30, 2021 — $ — 111,726 $ — $ 1,971 $ 1,139 $ ( 183 ) $ 2,927 $ 40 $ 2,967
Net loss — — — — — ( 57 ) — ( 57 ) — ( 57 )
Other comprehensive loss — — — — — — ( 22 ) ( 22 ) — ( 22 )
Spin-off of GXO — — — — ( 1,199 ) ( 1,161 ) 126 ( 2,234 ) ( 40 ) ( 2,274 )
Exercise and vesting of stock compensation awards
— — 72 — 2 — — 2 — 2
Tax withholdings related to vesting of stock compensation awards
— — — — ( 3 ) — — ( 3 ) — ( 3 )
Issuance of common stock — — 2,875 — 384 — — 384 — 384
Stock compensation expense
— — — — 19 — — 19 — 19
Balance as of September 30, 2021 — $ — 114,673 $ — $ 1,174 $ ( 79 ) $ ( 79 ) $ 1,016 $ — $ 1,016
Series A Preferred Stock Common Stock
(Shares in thousands, dollars in millions) Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit) 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 — — — — — 214 — 214 5 219
Other comprehensive loss — — — — — — ( 47 ) ( 47 ) ( 2 ) ( 49 )
Spin-off of GXO — — — — ( 1,199 ) ( 1,161 ) 126 ( 2,234 ) ( 40 ) ( 2,274 )
Exercise and vesting of stock compensation awards
— — 386 — 2 — — 2 — 2
Tax withholdings related to vesting of stock compensation awards
— — — — ( 25 ) — — ( 25 ) — ( 25 )
Issuance of common stock — — 2,875 — 384 — — 384 — 384
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
— — — — 44 — — 44 — 44
Other — — — — 3 — — 3 — 3
Balance as of September 30, 2021 — $ — 114,673 $ — $ 1,174 $ ( 79 ) $ ( 79 ) $ 1,016 $ — $ 1,016
See accompanying notes to condensed consolidated financial statements.
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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; in North America, we achieved this 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 strategic plan to pursue the spin-off of our tech-enabled brokered transportation platform as a publicly traded company, which we completed in November 2022. In addition, our Board of Directors authorized the planned divestitures of our North American intermodal operation, which we sold in March 2022, and our European business, which we intend to divest. For further information on the sale of intermodal, see Note 3—Divestiture. There can be no assurance that the divestiture of our European business will occur, or of the terms or timing of a transaction.
RXO Spin-Off
We completed the spin-off of our tech-enabled brokered transportation platform on November 1, 2022, which created a new public company, RXO, Inc. (“RXO”), comprised of our former services for truck brokerage, managed transportation, last mile and freight forwarding. The transaction is intended to be tax-free to XPO and our shareholders for U.S. federal income tax purposes. The spin-off was accomplished by the distribution of 100 % of the outstanding common stock of RXO to XPO shareholders, creating a new, independent public company that began trading under the symbol “RXO” on the New York Stock Exchange. XPO shareholders received one share of RXO common stock for every share of XPO common stock held at the close of business on October 20, 2022, the record date for the distribution. XPO does not beneficially own any shares of RXO’s common stock following the spin-off. The historical results of operations and the financial position of RXO are included in the condensed consolidated financial statements in this Form 10-Q. The RXO businesses will not be consolidated in our reporting from November 1, 2022 forward, and such businesses will be reflected as discontinued operations in all periods prior to the spin-off.
In connection with the spin-off, we have entered into a separation and distribution agreement as well as various other agreements with RXO that provide a framework for the relationships between the parties going forward, including, among others, an employee matters agreement, a tax matters agreement, an intellectual property license agreement and a transition services agreement, through which XPO will provide certain services to RXO.
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 nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
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Restricted Cash
As of September 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 $ 196 million as of September 30, 2022). As of September 30, 2022, € 6 million (approximately $ 6 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 1.16 % as of September 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 nine months ended September 30, 2022 and 2021.
Information related to the trade receivables sold was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2022 2021 2022 2021
Securitization programs
Receivables sold in period
$ 418 $ 504 $ 1,323 $ 1,259
Cash consideration
418 504 1,323 1,259
Factoring programs
Receivables sold in period
42 17 102 46
Cash consideration
42 17 102 46
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 September 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. 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.
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The fair value hierarchy of cash equivalents was as follows:
(In millions) Carrying Value Fair Value Level 1
September 30, 2022 $ 502 $ 502 $ 502
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 September 2022, the FASB issued ASU 2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations.” The ASU increases the transparency surrounding supplier finance programs by requiring the buyer to disclose information on an annual basis about the key terms of the program, the outstanding obligation amounts as of the end of the period, a rollforward of such amounts, and the balance sheet presentation of the related amounts. Additionally, the obligation amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for fiscal years beginning after December 15, 2022 except for the requirement to disclose the rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of the new guidance, which is limited to financial statement disclosures.
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
On August 2, 2021, we completed the spin-off of our logistics segment as GXO Logistics, Inc. (“GXO”). In connection with the spin-off, we received a cash distribution of $ 794 million, which we used to repay a portion of our outstanding borrowings. The historical results of our logistics segment are presented as discontinued operations in our Condensed Consolidated Financial Statements.
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The following table summarizes the financial results from discontinued operations of GXO:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2021 2021
Revenue $ 651 $ 4,350
Direct operating expense (exclusive of depreciation and amortization) 544 3,614
Sales, general and administrative expense 53 363
Depreciation and amortization expense 26 185
Transaction and other operating costs 59 101
Operating income (loss) ( 31 ) 87
Other income ( 4 ) ( 27 )
Interest expense 3 12
Income (loss) from discontinued operations before income tax
provision
( 30 ) 102
Income tax provision 48 80
Net income (loss) from discontinued operations, net of taxes ( 78 ) 22
Net income from discontinued operations attributable to
noncontrolling interests
— ( 5 )
Net income (loss) from discontinued operations attributable to GXO $ ( 78 ) $ 17
No costs related to the GXO spin-off were incurred for the three months ended September 30, 2022. For the nine months ended September 30, 2022, we incurred costs of approximately $ 4 million related to the GXO spin-off. For the three and nine months ended September 30, 2021, we incurred costs of approximately $ 68 million and $ 111 million, respectively, related to the GXO spin-off, of which $ 57 million and $ 96 million, respectively, are reflected within income (loss) from discontinued operations in our Condensed Consolidated Statements of Income (Loss).
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 $ 17 million each as of September 30, 2022 and approximately $ 23 million and $ 21 million, respectively, as of December 31, 2021.
3. Divestiture
In March 2022, we sold intermodal 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. Intermodal generated revenue of $ 1.2 billion ($ 1.1 billion excluding intercompany transactions) and operating income of approximately $ 53 million for the year ended December 31, 2021. Intermodal was included in our Brokerage and Other Services segment through the date of the sale.
In conjunction with the RXO spin-off, and effective in the fourth quarter of 2022, the results of intermodal qualify to be accounted for as a discontinued operation because the sale was part of one strategic plan of disposal, and all periods prior to the date of the spin-off will be reflected as a discontinued operation.
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4. Segment Reporting
Effective through September 30, 2022, 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 and freight forwarding. In addition, our European business is reported in this segment, and intermodal 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 operating 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 on sale of business, litigation settlements for significant matters, transaction and integration costs, restructuring costs and other adjustments.
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Selected financial data for our segments is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2022 2021 2022 2021
Revenue
North American LTL $ 1,204 $ 1,071 $ 3,548 $ 3,114
Brokerage and Other Services 1,921 2,261 6,420 6,493
Eliminations ( 83 ) ( 62 ) ( 221 ) ( 162 )
Total $ 3,042 $ 3,270 $ 9,747 $ 9,445
Adjusted EBITDA
North American LTL $ 258 $ 222 $ 757 $ 694
Brokerage and Other Services 123 131 439 386
Corporate ( 29 ) ( 46 ) ( 118 ) ( 164 )
Total adjusted EBITDA 352 307 1,078 916
Less:
Debt extinguishment loss — 46 26 54
Interest expense 35 53 103 176
Income tax provision 34 11 194 60
Depreciation and amortization expense 118 118 349 357
Unrealized loss on foreign currency
option and forward contracts
— — — 1
Gain on sale of business — — ( 434 ) —
Litigation settlements — 29 — 29
Transaction and integration costs (1)
25 15 60 26
Restructuring costs (2)
9 14 19 16
Net income from continuing operations
attributable to common shareholders
$ 131 $ 21 $ 761 $ 197
Depreciation and amortization expense
North American LTL $ 60 $ 57 $ 175 $ 169
Brokerage and Other Services 54 60 168 180
Corporate 4 1 6 8
Total $ 118 $ 118 $ 349 $ 357
(1) Transaction and integration costs for the periods ended September 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 September 30, 2022 and 2021 include $ — million and $ 1 million, respectively, related to our North American LTL segment, $ 3 million and $ 5 million, respectively, related to our Brokerage and Other Services segment and $ 22 million and $ 9 million, respectively, related to Corporate. Transaction and integration costs for the nine months ended September 30, 2022 and 2021 include $ 2 million and $ 1 million, respectively, related to our North American LTL segment, $ 6 million and $ 8 million, respectively, related to our Brokerage and Other Services segment and $ 52 million and $ 17 million, respectively, related to Corporate.
(2) See Note 6— Restructuring Charges for further information on our restructuring actions.
In connection with the RXO spin-off, and effective in the fourth quarter of 2022, we will revise our reportable segments to reflect our new internal organization.
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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 September 30, 2022
(In millions) North American LTL Brokerage and Other Services Eliminations Total
Revenue
United States $ 1,178 $ 1,079 $ ( 83 ) $ 2,174
North America (excluding United States) 26 90 — 116
France — 313 — 313
United Kingdom — 217 — 217
Europe (excluding France and United Kingdom) — 212 — 212
Other — 10 — 10
Total $ 1,204 $ 1,921 $ ( 83 ) $ 3,042
Three Months Ended September 30, 2021
(In millions) North American LTL Brokerage and Other Services Eliminations Total
Revenue
United States $ 1,049 $ 1,384 $ ( 62 ) $ 2,371
North America (excluding United States) 22 73 — 95
France — 330 — 330
United Kingdom — 224 — 224
Europe (excluding France and United Kingdom) — 199 — 199
Other — 51 — 51
Total $ 1,071 $ 2,261 $ ( 62 ) $ 3,270
Nine Months Ended September 30, 2022
(In millions) North American LTL Brokerage and Other Services Eliminations Total
Revenue
United States $ 3,472 $ 3,739 $ ( 221 ) $ 6,990
North America (excluding United States) 76 293 — 369
France — 1,017 — 1,017
United Kingdom — 666 — 666
Europe (excluding France and United Kingdom) — 653 — 653
Other — 52 — 52
Total $ 3,548 $ 6,420 $ ( 221 ) $ 9,747
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Nine Months Ended September 30, 2021
(In millions) North American LTL Brokerage and Other Services Eliminations Total
Revenue
United States $ 3,046 $ 3,881 $ ( 162 ) $ 6,765
North America (excluding United States) 68 212 — 280
France — 1,024 — 1,024
United Kingdom — 655 — 655
Europe (excluding France and United Kingdom) — 627 — 627
Other — 94 — 94
Total $ 3,114 $ 6,493 $ ( 162 ) $ 9,445
Our revenue disaggregated by service offering was as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions) 2022 2021 2022 2021
North America
LTL (1)
$ 1,250 $ 1,091 $ 3,658 $ 3,165
Truck brokerage 686 700 2,265 1,903
Last mile 264 250 784 765
Other brokerage (2)
186 547 936 1,486
Total North America 2,386 2,588 7,643 7,319
Europe 741 757 2,335 2,311
Eliminations ( 85 ) ( 75 ) ( 231 ) ( 185 )
Total $ 3,042 $ 3,270 $ 9,747 $ 9,445
(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 September 30, 2022, the fixed consideration component of our remaining performance obligation was approximately $ 151 million, and we expect approximately 91 % of that amount to be recognized over the next three years and the remainder thereafter. 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.
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Our restructuring-related activity was as follows:
Nine Months Ended September 30, 2022
(In millions) Reserve Balance
as of
December 31, 2021 Charges Incurred Payments Foreign Exchange and Other Reserve Balance
as of
September 30, 2022
Severance
North American LTL $ — $ 2 $ — $ — $ 2
Brokerage and Other Services 6 6 ( 9 ) ( 1 ) 2
Corporate 7 6 ( 6 ) — 7
Total severance 13 14 ( 15 ) ( 1 ) 11
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 $ 19 $ ( 19 ) $ ( 1 ) $ 14
We expect that the majority of the cash outlays related to the charges incurred in the first nine 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:
September 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 $ 332 Other current assets $ 18 Other current liabilities $ —
Cross-currency swap agreements 79 Other long-term assets 10 Other long-term liabilities —
Interest rate swaps 2,003 Other current assets 6 Other current liabilities —
Total $ 34 $ —
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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 (Loss) was as follows:
Amount of Gain Recognized in Other Comprehensive Loss on Derivatives Amount of Gain Reclassified from AOCI into Net Income (Loss) Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Three Months Ended September 30,
(In millions) 2022 2021 2022 2021 2022 2021
Derivatives designated as cash flow hedges
Cross-currency swap agreements $ — $ — $ — $ 3 $ — $ —
Derivatives designated as net investment hedges
Cross-currency swap agreements 25 41 — — 1 1
Total $ 25 $ 41 $ — $ 3 $ 1 $ 1
Amount of Gain Recognized in Other Comprehensive 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)
Nine Months Ended September 30,
(In millions) 2022 2021 2022 2021 2022 2021
Derivatives designated as cash flow hedges
Cross-currency swap agreements $ — $ 4 $ — $ 7 $ — $ —
Interest rate swaps 5 — — — — —
Derivatives designated as net investment hedges
Cross-currency swap agreements 62 76 — — 5 6
Total $ 67 $ 80 $ — $ 7 $ 5 $ 6
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.
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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.
During the first nine months of 2022, we received approximately $ 29 million related to the settlement of certain cross currency swaps that matured during the period. The fair value adjustments related to these swaps remain in AOCI and partially offset foreign currency translation adjustment losses on our net investments in foreign subsidiaries. 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 (Loss) 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
September 30, 2022 December 31, 2021
(In millions) Principal Balance Carrying Value Principal Balance Carrying Value
Term loan facility $ 2,003 $ 1,978 $ 2,003 $ 1,977
6.25 % senior notes due 2025
520 517 1,150 1,141
6.70 % senior debentures due 2034
300 216 300 214
Finance leases, asset financing and other 197 197 240 240
Total debt 3,020 2,908 3,693 3,572
Short-term borrowings and current maturities of long-term debt 60 60 58 58
Long-term debt $ 2,960 $ 2,848 $ 3,635 $ 3,514
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The fair value of our debt and classification in the fair value hierarchy was as follows:
(In millions) Fair Value Level 1 Level 2
September 30, 2022 $ 2,944 $ 808 $ 2,136
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 September 30, 2022, our borrowing base was $ 1 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 September 30, 2022, we were in compliance with the ABL Facility’s financial covenants. In connection with the spin-off, effective November 4, 2022, the commitments under the ABL Facility will automatically be reduced from $ 1 billion to $ 600 million with no further action by any of the parties thereto. Adjusting for this reduction of commitments and the borrowing base, our total liquidity of $ 1.5 billion as of September 30, 2022 would have been $ 1.0 billion.
Letters of Credit Facility
As of September 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 Facility
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 nine months of 2021. The interest rate on our term loan facility was 4.38 % as of September 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 (“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 first nine months of 2022 due to this redemption. In October 2022, we commenced a tender offer to purchase for cash any and all of our outstanding Senior Notes due 2025. See Note 12—Subsequent Events for more information.
Senior Notes Due 2023 and 2024
In the third quarter of 2021, we redeemed our outstanding 6.125 % senior notes due 2023 (“Senior Notes due 2023”) and our outstanding 6.75 % senior notes due 2024 (“Senior Notes due 2024”). The redemption price for the Senior Notes due 2023 was 100.0 % of the principal amount, plus accrued and unpaid interest and the redemption price for the Senior Notes due 2024 was 103.375 % of the principle amount, plus accrued and unpaid interest. We paid for the redemption using approximately $ 794 million of cash received from GXO, proceeds from an equity offering described in Note 9—Stockholders’ Equity and available cash. We recorded debt extinguishment losses in the third quarter of 2021 of $ 3 million and $ 43 million related to the redemption of the Senior Notes due 2023 and Senior Notes due 2024, respectively.
Senior Notes Due 2022
In the first quarter of 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 nine months of 2021 due to this redemption.
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9. Stockholders’ Equity
Share Issuance
In July 2021, we completed a registered underwritten offering of 5.0 million shares of our common stock at a public offering price of $ 138.00 per share, plus an additional 750,000 shares of our common stock through an option granted to underwriters. Of the 5.0 million shares, we offered 2.5 million shares directly and 2.5 million shares were offered by Jacobs Private Equity, LLC (“JPE”), an entity controlled by the Company’s former chief executive officer and current executive chairman. The additional 750,000 purchased shares were also split equally between us and JPE. We received approximately $ 384 million of proceeds, net of fees and expenses, from the sale of the shares and used them to repay a portion of our outstanding borrowings and for general corporate purposes. XPO did not receive any proceeds from the sale of shares by JPE.
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 JPE. Subsequent to the exchange in the second quarter of 2021, there are no shares of preferred stock or warrants outstanding.
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 September 30, 2022.
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10. Earnings (Loss) per Share
The computations of basic and diluted earnings per share were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(In millions, except per share data) 2022 2021 2022 2021
Net income from continuing operations attributable to
common shares
$ 131 $ 21 $ 761 $ 197
Net income (loss) from discontinued operations, net of
amounts attributable to noncontrolling interest
— ( 78 ) ( 1 ) 17
Net income (loss) attributable to common shares, basic $ 131 $ ( 57 ) $ 760 $ 214
Basic weighted-average common shares 115 115 115 111
Dilutive effect of stock-based awards and warrants 1 1 1 3
Diluted weighted-average common shares 116 116 116 114
Basic earnings from continuing operations per share $ 1.14 $ 0.19 $ 6.62 $ 1.78
Basic earnings (loss) from discontinued operations per
share
— ( 0.69 ) ( 0.01 ) 0.15
Basic earnings (loss) per share $ 1.14 $ ( 0.50 ) $ 6.61 $ 1.93
Diluted earnings from continuing operations per share $ 1.13 $ 0.19 $ 6.58 $ 1.73
Diluted earnings (loss) from discontinued operations per
share
— ( 0.68 ) ( 0.01 ) 0.14
Diluted earnings (loss) per share $ 1.13 $ ( 0.49 ) $ 6.57 $ 1.87
11. Commitments and Contingencies
We are involved, and expect to 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.
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 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. 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.
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As of October 31, 2022, the company’s last mile subsidiary was involved in several class action and collective action cases involving claims that the contract carriers with which it contracted for performance of delivery services, or their delivery workers, should be treated as employees, rather than independent contractors (“misclassification claims”). The misclassification claims pertained solely to the company’s last mile services, which operated as a wholly owned subsidiary of the company until the spin-off of RXO was completed. As of November 1, 2022, pursuant to the Separation and Distribution Agreement between the company and RXO, the liabilities of the company’s last mile subsidiary, including legal liabilities, if any, related to the misclassification claims, were spun-off as part of RXO. Pursuant to the Separation and Distribution Agreement, RXO has agreed to indemnify the company for certain matters relating to RXO, including indemnifying the company from and against any liabilities, damages, costs, or expenses incurred by the company arising out of or resulting from the misclassification claims described above.
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 (the “Exchange Act”) and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act. On March 19, 2021, the Court dismissed the complaint with prejudice, and on June 30, 2022, the U.S. Court of Appeals for the Second Circuit affirmed the dismissal. The case is now 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. On July 26, 2022, the Court issued an order dismissing the consolidated derivative complaints with prejudice. The case is now concluded.
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.
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California Environmental Matters
In August 2022, the company received a letter from the San Bernardino County District Attorney’s Office, written in cooperation with certain other California District Attorneys and the Los Angeles City Attorney, notifying the company of an investigation into alleged violations with respect to underground storage tanks, hazardous materials, and hazardous waste in California, and offering a meeting. On October 20, 2022, the company met with the County Attorneys and the Los Angeles City Attorney. We are assessing the allegations and the underlying facts. No discussion of potential monetary sanctions or settlement amount has occurred to date, nor can we reasonably estimate potential costs at this time.
12. Subsequent Events
As described in Note 1—Organization, Description of Business and Basis of Presentation, on November 1, 2022, we completed the spin-off of our tech-enabled brokered transportation platform into an independent public company, RXO, in a transaction intended to be tax-free to XPO and our shareholders for U.S. federal income tax purposes.
RXO Debt
In preparation for the spin-off, in October 2022, a wholly-owned subsidiary of XPO that merged with and into RXO substantially concurrent with the consummation of the spin-off, completed an offering of $ 355 million aggregate principal amount of notes due 2027 (the “RXO Notes”). The RXO Notes bear interest at a rate of 7.50 % per annum payable semiannually in cash in arrears on May 15 and November 15 of each year, beginning May 15, 2023, and mature on November 15, 2027. They were issued at an issue price of 98.962 % of par.
In addition to the RXO Notes, RXO entered into a term loan facility that provides $ 100 million in aggregate principal amount of term loans (the “RXO Term Loan”) and a revolving credit facility that provides $ 500 million in aggregate commitments.
The net proceeds (including any interest thereon) from the issuance of the RXO Notes and incurrence of the RXO Term Loan, together with RXO’s cash and cash equivalents on hand, were used to fund a cash distribution of approximately $ 488 million to XPO in October 2022, which we intend to use to repay existing indebtedness and fund any related fees and expenses prior to the 12-month anniversary of the distribution. As the spin-off has been consummated, the RXO Notes, the RXO Term Loan and RXO’s revolving credit facility are direct obligations of RXO.
Debt Tender Offer
In October 2022, we commenced a tender offer to purchase for cash any and all of our outstanding Senior Notes due 2025, which had a principal balance outstanding of $ 520 million as of September 30, 2022. The tender offer will expire on November 17, 2022, unless extended or earlier terminated by XPO.
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