Item 1. Financial Statements
Item 1. Financial Statements.
XPO, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
(In millions, except per share data) 2023 2022
ASSETS
Current assets
Cash and cash equivalents $ 309 $ 460
Accounts receivable, net of allowances of $ 48 and $ 43 , respectively
1,019 954
Other current assets 221 199
Current assets of discontinued operations 16 17
Total current assets 1,565 1,630
Long-term assets
Property and equipment, net of $ 1,743 and $ 1,679 in accumulated depreciation, respectively
1,978 1,832
Operating lease assets 717 719
Goodwill 1,483 1,472
Identifiable intangible assets, net of $ 407 and $ 392 in accumulated amortization, respectively
396 407
Other long-term assets 209 209
Total long-term assets 4,783 4,639
Total assets $ 6,348 $ 6,269
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable $ 505 $ 521
Accrued expenses 792 774
Short-term borrowings and current maturities of long-term debt 66 59
Short-term operating lease liabilities 110 107
Other current liabilities 58 30
Current liabilities of discontinued operations 15 16
Total current liabilities 1,546 1,507
Long-term liabilities
Long-term debt 2,478 2,473
Deferred tax liability 307 319
Employee benefit obligations 92 93
Long-term operating lease liabilities 606 606
Other long-term liabilities 264 259
Total long-term liabilities 3,747 3,750
Stockholders’ equity
Common stock, $ 0.001 par value; 300 shares authorized; 116 and 115 shares issued and outstanding
as of March 31, 2023 and December 31, 2022, respectively
— —
Additional paid-in capital 1,252 1,238
Retained earnings (accumulated deficit) 10 ( 4 )
Accumulated other comprehensive loss ( 207 ) ( 222 )
Total equity 1,055 1,012
Total liabilities and equity $ 6,348 $ 6,269
See accompanying notes to condensed consolidated financial statements.
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XPO, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
(In millions, except per share data) 2023 2022
Revenue $ 1,907 $ 1,894
Salaries, wages and employee benefits 762 725
Purchased transportation 457 510
Fuel, operating expenses and supplies 427 418
Operating taxes and licenses 15 16
Insurance and claims 44 56
Gains on sales of property and equipment ( 3 ) ( 1 )
Depreciation and amortization expense 101 94
Transaction and integration costs 22 7
Restructuring costs 24 6
Operating income 58 63
Other income ( 5 ) ( 14 )
Interest expense 42 37
Income from continuing operations before income tax provision 21 40
Income tax provision 4 8
Income from continuing operations 17 32
Income (loss) from discontinued operations, net of taxes ( 3 ) 456
Net income attributable to XPO $ 14 $ 488
Net income (loss) attributable to common shareholders
Continuing operations $ 17 $ 32
Discontinued operations ( 3 ) 456
Net income attributable to common shareholders $ 14 $ 488
Earnings (loss) per share data
Basic earnings per share from continuing operations $ 0.15 $ 0.28
Basic earnings (loss) per share from discontinued operations ( 0.02 ) 3.97
Basic earnings per share attributable to common shareholders $ 0.13 $ 4.25
Diluted earnings per share from continuing operations $ 0.15 $ 0.28
Diluted earnings (loss) per share from discontinued operations ( 0.02 ) 3.94
Diluted earnings per share attributable to common shareholders $ 0.13 $ 4.22
Weighted-average common shares outstanding
Basic weighted-average common shares outstanding 116 115
Diluted weighted-average common shares outstanding 116 116
See accompanying notes to condensed consolidated financial statements.
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XPO, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31,
(In millions) 2023 2022
Net income $ 14 $ 488
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax effect of $ 8 and $( 2 )
$ 13 $ ( 26 )
Unrealized gain on financial assets/liabilities designated as hedging
instruments, net of tax effect of $ 1 and $ —
2 1
Other comprehensive income (loss) 15 ( 25 )
Comprehensive income attributable to XPO $ 29 $ 463
See accompanying notes to condensed consolidated financial statements.
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XPO, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
(In millions) 2023 2022
Cash flows from operating activities of continuing operations
Net income $ 14 $ 488
Income (loss) from discontinued operations, net of taxes ( 3 ) 456
Income from continuing operations 17 32
Adjustments to reconcile income from continuing operations to net cash from
operating activities
Depreciation, amortization and net lease activity 101 94
Stock compensation expense 22 6
Accretion of debt 3 4
Deferred tax expense (benefit) ( 2 ) 5
Gains on sales of property and equipment ( 3 ) ( 1 )
Other 17 6
Changes in assets and liabilities
Accounts receivable ( 69 ) ( 154 )
Other assets ( 24 ) ( 37 )
Accounts payable ( 8 ) 117
Accrued expenses and other liabilities 22 116
Net cash provided by operating activities from continuing operations 76 188
Cash flows from investing activities of continuing operations
Payment for purchases of property and equipment ( 224 ) ( 123 )
Proceeds from sale of property and equipment 8 3
Net cash used in investing activities from continuing operations ( 216 ) ( 120 )
Cash flows from financing activities of continuing operations
Repayment of debt and finance leases ( 16 ) ( 16 )
Change in bank overdrafts 19 3
Payment for tax withholdings for restricted shares ( 12 ) ( 12 )
Other ( 1 ) 1
Net cash used in financing activities from continuing operations ( 10 ) ( 24 )
Cash flows from discontinued operations
Operating activities of discontinued operations ( 8 ) 13
Investing activities of discontinued operations 1 691
Net cash provided by (used in) discontinued operations ( 7 ) 704
Effect of exchange rates on cash, cash equivalents and restricted cash 2 ( 3 )
Net increase (decrease) in cash, cash equivalents and restricted cash ( 155 ) 745
Cash, cash equivalents and restricted cash, beginning of period 470 273
Cash, cash equivalents and restricted cash, end of period 315 1,018
Less: Cash, cash equivalents and restricted cash of discontinued operations, end of
period
— 50
Cash, cash equivalents and restricted cash of continued operations, end of period $ 315 $ 968
Supplemental disclosure of cash flow information
Leased assets obtained in exchange for new operating lease liabilities $ 28 $ 22
Leased assets obtained in exchange for new finance lease liabilities 19 4
Cash paid for interest 39 13
Cash paid for income taxes 3 3
See accompanying notes to condensed consolidated financial statements.
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XPO, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
Common Stock
(Shares in thousands, dollars in millions) Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Accumulated Other
Comprehensive Loss Total Equity
Balance as of December 31, 2022 115,435 $ — $ 1,238 $ ( 4 ) $ ( 222 ) $ 1,012
Net income — — — 14 — 14
Other comprehensive income — — — — 15 15
Exercise and vesting of stock compensation awards
315 — — — — —
Tax withholdings related to vesting of stock compensation awards
— — ( 8 ) — — ( 8 )
Stock compensation expense
— — 22 — — 22
Balance as of March 31, 2023 115,750 $ — $ 1,252 $ 10 $ ( 207 ) $ 1,055
Common Stock
(Shares in thousands, dollars in millions) Shares Amount Additional Paid-In Capital Retained Earnings Accumulated Other
Comprehensive Loss Total Equity
Balance as of December 31, 2021 114,737 $ — $ 1,179 $ 43 $ ( 84 ) $ 1,138
Net income — — — 488 — 488
Other comprehensive loss — — — — ( 25 ) ( 25 )
Exercise and vesting of stock compensation awards
245 — — — — —
Tax withholdings related to vesting of stock compensation awards
— — ( 12 ) — — ( 12 )
Stock compensation expense
— — 8 — — 8
Other — — 1 — — 1
Balance as of March 31, 2022 114,982 $ — $ 1,176 $ 531 $ ( 109 ) $ 1,598
See accompanying notes to condensed consolidated financial statements.
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XPO, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization, Description of Business and Basis of Presentation
XPO, 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 and Europe. See Note 3—Segment Reporting for additional information on our operations.
2022 RXO Spin-Off and Intermodal Sale
On November 1, 2022, we completed the spin-off of RXO, Inc. (“RXO”), our tech-enabled brokered transportation platform as a publicly traded company (the “RXO spin-off”). The historical results of operations and the financial positions of RXO and our intermodal operation, which was sold in March 2022, 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, 2022 (the “2022 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 2022 Form 10-K.
The Condensed Consolidated Financial Statements are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of the financial condition, operating results and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
In the first quarter of 2023, we made certain changes to our financial reporting to increase transparency and improve comparability. Specifically, we changed the expense captions within Operating income in the Condensed Consolidated Statements of Income to reflect the nature of the expense. The change to natural expense classification had no impact on consolidated Revenues or Operating income. We have recast prior period amounts to conform to the current year’s presentation.
Restricted Cash
As of March 31, 2023 and December 31, 2022, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $ 6 million and $ 10 million, respectively.
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 a securitization program for our European transportation business. 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 $ 217 million as of March 31, 2023). As of March 31, 2023, the maximum amount available under the program was utilized. The weighted average interest rate was 3.41 % as of March 31, 2023. In May 2023, we entered into an agreement to extend the securitization program, which was scheduled to expire in July 2024, through July 2026. The terms and conditions of the extended securitization program are materially consistent with the prior program.
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Information related to the trade receivables sold was as follows:
Three Months Ended March 31,
(In millions) 2023 2022
Securitization programs
Receivables sold in period
$ 440 $ 447
Cash consideration
440 447
Factoring programs
Receivables sold in period
24 21
Cash consideration
24 21
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
• Level 1—Quoted prices for identical instruments in active markets;
• Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
• Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2023 and December 31, 2022 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 6—Derivative Instruments; and for further information on financial liabilities, see Note 7—Debt.
The fair value hierarchy of cash equivalents was as follows:
(In millions) Carrying Value Fair Value Level 1
March 31, 2023 $ 238 $ 238 $ 238
December 31, 2022 402 402 402
Adoption of New Accounting Standard
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. We adopted this standard on January 1, 2023, on a prospective basis. The adoption, which is limited to financial statement disclosures, did not have a material impact on our financial statements.
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
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are effective upon issuance. In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848): Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022 until December 31, 2024. At December 31, 2022, our revolving loan credit agreement (the “ABL Facility”) and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on LIBOR. In February 2023, we amended the terms of our ABL Facility, including transitioning the interest rate from LIBOR to other base rates, and we expect to similarly modify the interest rate basis in the Term Loan Facility in 2023. We do not expect the modifications of these facilities to have a material impact on our consolidated financial statements.
2. Discontinued Operations
As discussed above, the results of RXO and intermodal are presented as discontinued operations. In addition, discontinued operations include GXO Logistics, Inc. (“GXO”), our former logistics segment that we spun off in August 2021.
The following table summarizes the results of operations from discontinued operations:
Three Months Ended March 31,
(In millions) 2022
Revenue $ 1,645
Salaries, wages and employee benefits 164
Purchased transportation 1,221
Fuel, operating expenses and supplies 115
Operating taxes and licenses 1
Insurance and claims 9
Depreciation and amortization expense 22
Gain on sale of business ( 450 )
Transaction and other operating costs 2
Operating income 561
Income tax provision 105
Net income from discontinued operations attributable to discontinued operations $ 456
For the three months ended March 31, 2023, we incurred approximately $ 24 million of costs related to the RXO spin-off, of which $ 4 million are reflected within income (loss) from discontinued operations in our Condensed Consolidated Statements of Income. For the three months ended March 31, 2022, we incurred approximately $ 4 million of costs related to the GXO spin-off all of which are reflected within income from continuing operations in our Condensed Consolidated Statements of income.
In accordance with a separation and distribution agreement, GXO has agreed to indemnify XPO for payments XPO makes with respect to certain self-insurance matters that were incurred by the logistics segment prior to the spin-off and remain obligations of XPO. The receivable and reserve for these matters was approximately $ 16 million and $ 15 million, respectively, as of March 31, 2023 and approximately $ 17 million and $ 16 million, respectively, as of December 31, 2022.
3. Segment Reporting
We are organized into two reportable segments: North American LTL, the largest component of our business, and European Transportation.
In our asset-based North American LTL segment, we provide shippers with geographic density and day-definite domestic and cross-border services to the U.S., as well as Mexico, Canada and the Caribbean. Our North American LTL segment also includes the results of our trailer manufacturing operations.
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In our European Transportation segment, we serve a large base of customers with consumer, trade and industrial markets. We offer dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and multimodal solutions, such as road-rail and road-short sea combinations.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reportable segments.
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM. We do not provide asset information by segment to the CODM. Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which we define as income from continuing operations before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments. Segment Adjusted EBITDA has historically reflected an allocation of corporate costs. In the first quarter of 2023, we began allocating incremental corporate costs from Corporate to North American LTL. Prior periods have been recast to reflect these incremental allocations, which approximate $ 80 million annually.
Selected financial data for our segments is as follows:
Three Months Ended March 31,
(in millions) 2023 2022
Revenue
North American LTL $ 1,120 $ 1,107
European Transportation 787 787
Total $ 1,907 $ 1,894
Adjusted EBITDA
North American LTL $ 182 $ 186
European Transportation 37 38
Corporate ( 9 ) ( 40 )
Total Adjusted EBITDA 210 184
Less:
Interest expense 42 37
Income tax provision 4 8
Depreciation and amortization expense 101 94
Transaction and integration costs (1)
22 7
Restructuring costs (2)
24 6
Income from continuing operations $ 17 $ 32
Depreciation and amortization expense
North American LTL $ 68 $ 56
European Transportation 32 33
Corporate 1 5
Total $ 101 $ 94
(1) Transaction and integration costs for the first quarter of 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives. Transaction and integration costs for the first quarter of 2022 are primarily comprised of third-party professional fees related to strategic initiatives as well as retention awards paid to certain employees. Transaction and integration costs for the three months ended March 31, 2023 and 2022 include $ 1 million and $ 2 million, respectively, related to our European Transportation segment and $ 21 million and $ 5 million, respectively, related to Corporate.
(2) See Note 5— Restructuring Charges for further information on our restructuring actions.
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4. Revenue Recognition
Disaggregation of Revenues
Our revenue disaggregated by geographic area based on sales office location was as follows:
Three Months Ended March 31, 2023
(In millions) North American LTL European Transportation Total
Revenue
United States $ 1,097 $ — $ 1,097
North America (excluding United States) 23 — 23
France — 340 340
United Kingdom — 224 224
Europe (excluding France and United Kingdom) — 223 223
Total $ 1,120 $ 787 $ 1,907
Three Months Ended March 31, 2022
(In millions) North American LTL European Transportation Total
Revenue
United States $ 1,084 $ — $ 1,084
North America (excluding United States) 23 — 23
France — 352 352
United Kingdom — 225 225
Europe (excluding France and United Kingdom) — 210 210
Total $ 1,107 $ 787 $ 1,894
5. 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 lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability.
Our restructuring-related activity was as follows:
Three Months Ended March 31, 2023
(In millions) Reserve Balance
as of
December 31, 2022 Charges Incurred Payments Foreign Exchange and Other Reserve Balance
as of
March 31, 2023
Severance
North American LTL $ 2 $ — $ ( 1 ) $ — $ 1
European Transportation 1 7 ( 2 ) — 6
Corporate 19 11 ( 6 ) ( 1 ) 23
Total $ 22 $ 18 $ ( 9 ) $ ( 1 ) $ 30
In addition to the severance charges noted in the table above, we recorded a non-cash lease impairment charge of $ 6 million in our North American LTL segment in the first quarter of 2023.
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We expect that the majority of the cash outlays related to the severance charges incurred in the first three months of 2023 will be completed within 12 months.
6. 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:
March 31, 2023
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 $ 617 Other current assets $ — Other current liabilities $ ( 21 )
Cross-currency swap agreements 57 Other long-term assets 2 Other long-term liabilities —
Interest rate swaps 1,882 Other current assets — Other current liabilities —
Total $ 2 $ ( 21 )
December 31, 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 $ — Other current liabilities $ ( 11 )
Cross-currency swap agreements 68 Other long-term assets 3 Other long-term liabilities —
Interest rate swaps 1,882 Other current assets — Other current liabilities ( 1 )
Total $ 3 $ ( 12 )
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 Loss on Derivatives Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Three Months Ended March 31,
(In millions) 2023 2022 2023 2022
Derivatives designated as cash flow hedges
Interest rate swaps 1 1 — —
Derivatives designated as net investment hedges
Cross-currency swap agreements ( 10 ) 9 2 1
Total $ ( 9 ) $ 10 $ 2 $ 1
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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.
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.
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 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 on various dates through 2023.
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.
7. Debt
March 31, 2023 December 31, 2022
(In millions) Principal Balance Carrying Value Principal Balance Carrying Value
Term loan facility $ 2,003 $ 1,983 $ 2,003 $ 1,981
6.25 % senior notes due 2025
112 112 112 111
6.70 % senior debentures due 2034
300 218 300 217
Finance leases, asset financing and other 231 231 223 223
Total debt 2,646 2,544 2,638 2,532
Short-term borrowings and current maturities of long-term debt 66 66 59 59
Long-term debt $ 2,580 $ 2,478 $ 2,579 $ 2,473
The fair value of our debt and classification in the fair value hierarchy was as follows:
(In millions) Fair Value Level 1 Level 2
March 31, 2023 $ 2,616 $ 395 $ 2,221
December 31, 2022 2,601 392 2,209
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.
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ABL Facility
As of March 31, 2023, our borrowing base and availability under our revolving loan credit agreement (the “ABL Facility”) was $ 502 million. Outstanding letters of credit were less than $ 1 million as of March 31, 2023. As of March 31, 2023, we were in compliance with the ABL Facility’s financial covenants.
Letters of Credit Facility
As of March 31, 2023, we had issued $ 154 million in aggregate face amount of letters of credit under our $ 200 million uncommitted secured evergreen letter of credit facility.
Term Loan Facility
The interest rate on our term loan facility was 6.45 % as of March 31, 2023.
8. Earnings (Loss) per Share
The computations of basic and diluted earnings per share were as follows:
Three Months Ended March 31,
(In millions, except per share data) 2023 2022
Net income from continuing operations attributable to common shares $ 17 $ 32
Net income (loss) from discontinued operations, net of amounts attributable
to noncontrolling interest
( 3 ) 456
Net income attributable to common shares, basic $ 14 $ 488
Basic weighted-average common shares 116 115
Dilutive effect of stock-based awards — 1
Diluted weighted-average common shares 116 116
Basic earnings from continuing operations per share $ 0.15 $ 0.28
Basic earnings (loss) from discontinued operations per share ( 0.02 ) 3.97
Basic earnings per share $ 0.13 $ 4.25
Diluted earnings from continuing operations per share $ 0.15 $ 0.28
Diluted earnings (loss) from discontinued operations per share ( 0.02 ) 3.94
Diluted earnings per share $ 0.13 $ 4.22
9. 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.
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We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows. 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.
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 Global Risks US Ins. Co. (“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.
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 and April 6, 2023, the Company met with the County Attorneys and the Los Angeles City Attorney. We are assessing the allegations and the underlying facts, and continue to engage with the County and Los Angeles City Attorneys to address the alleged violations. No discussion of potential monetary sanctions or settlement amount has occurred to date, nor can we reasonably estimate potential costs at this time.
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