XPO, Inc. 10-Q

Item 1. Financial Statements. XPO, Inc. Condensed Consolidated Balance Sheets (Unaudited) June 30, December 31, (In millions, except per share data) 2024 2023 ASSETS Current assets Cash and cash equivalents $ 250 $ 412 Accounts receivable, net of allowances of $ 45 and $ 45 , respectively 1,088 973 Other current assets 210 208 Total current assets 1,548 1,593 Long-term assets Property and equipment, net of $ 1,954 and $ 1,853 in accumulated depreciation, respectively 3,305 3,075 Operating lease assets 742 708 Goodwill 1,481 1,498 Identifiable intangible assets, net of $ 476 and $ 452 in accumulated amortization, respectively 392 422 Other long-term assets 262 196 Total long-term assets 6,182 5,899 Total assets $ 7,729 $ 7,492 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 477 $ 532 Accrued expenses 772 775 Short-term borrowings and current maturities of long-term debt 64 69 Short-term operating lease liabilities 129 121 Other current liabilities 99 93 Total current liabilities 1,542 1,590 Long-term liabilities Long-term debt 3,330 3,335 Deferred tax liability 364 337 Employee benefit obligations 88 91 Long-term operating lease liabilities 613 588 Other long-term liabilities 294 285 Total long-term liabilities 4,688 4,636 Stockholders’ equity Common stock, $ 0.001 par value; 300 shares authorized; 116 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively — — Additional paid-in capital 1,322 1,298 Retained earnings 402 185 Accumulated other comprehensive loss ( 225 ) ( 217 ) Total equity 1,499 1,266 Total liabilities and equity $ 7,729 $ 7,492 Amounts may not add due to rounding. See accompanying notes to condensed consolidated financial statements. 1 Table of Contents XPO, Inc. Condensed Consolidated Statements of Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data) 2024 2023 2024 2023 Revenue $ 2,079 $ 1,917 $ 4,097 $ 3,824 Salaries, wages and employee benefits 854 783 1,688 1,545 Purchased transportation 436 444 874 901 Fuel, operating expenses and supplies 402 390 814 817 Operating taxes and licenses 21 15 40 30 Insurance and claims 33 46 71 90 Gains on sales of property and equipment ( 4 ) ( 2 ) ( 5 ) ( 5 ) Depreciation and amortization expense 122 107 239 208 Transaction and integration costs 12 17 26 39 Restructuring costs 6 10 14 34 Operating income 197 107 335 165 Other income ( 6 ) ( 3 ) ( 16 ) ( 8 ) Debt extinguishment loss — 23 — 23 Interest expense 56 43 114 85 Income from continuing operations before income tax provision 147 44 237 65 Income tax provision (benefit) ( 3 ) 13 20 17 Income from continuing operations 150 31 217 48 Income (loss) from discontinued operations, net of taxes — 2 — ( 1 ) Net income $ 150 $ 33 $ 217 $ 47 Net income (loss) Continuing operations $ 150 $ 31 $ 217 $ 48 Discontinued operations — 2 — ( 1 ) Net income $ 150 $ 33 $ 217 $ 47 Earnings (loss) per share data Basic earnings per share from continuing operations $ 1.29 $ 0.27 $ 1.87 $ 0.42 Basic earnings (loss) per share from discontinued operations — 0.01 — ( 0.01 ) Basic earnings per share $ 1.29 $ 0.28 $ 1.87 $ 0.41 Diluted earnings per share from continuing operations $ 1.25 $ 0.27 $ 1.81 $ 0.41 Diluted earnings (loss) per share from discontinued operations — 0.01 — ( 0.01 ) Diluted earnings per share $ 1.25 $ 0.28 $ 1.81 $ 0.40 Weighted-average common shares outstanding Basic weighted-average common shares outstanding 116 116 116 116 Diluted weighted-average common shares outstanding 120 118 120 117 Amounts may not add due to rounding. See accompanying notes to condensed consolidated financial statements. 2 Table of Contents XPO, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (In millions) 2024 2023 2024 2023 Net income $ 150 $ 33 $ 217 $ 47 Other comprehensive income (loss), net of tax Foreign currency translation gain (loss), net of tax effect of $( 4 ), $ 2 , $( 7 ) and $ 10 $ ( 3 ) $ 14 $ ( 9 ) $ 27 Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $( 1 ), $ — , $( 1 ) and $ 1 — 1 1 3 Other comprehensive income (loss) ( 3 ) 15 ( 8 ) 30 Comprehensive income $ 147 $ 48 $ 209 $ 77 Amounts may not add due to rounding. See accompanying notes to condensed consolidated financial statements. 3 Table of Contents XPO, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, (In millions) 2024 2023 Cash flows from operating activities of continuing operations Net income $ 217 $ 47 Loss from discontinued operations, net of taxes — ( 1 ) Income from continuing operations 217 48 Adjustments to reconcile income from continuing operations to net cash from operating activities Depreciation and amortization 239 208 Stock compensation expense 42 41 Accretion of debt 5 7 Deferred tax expense (benefit) 25 ( 6 ) Gains on sales of property and equipment ( 5 ) ( 5 ) Other 6 39 Changes in assets and liabilities Accounts receivable ( 135 ) ( 64 ) Other assets ( 67 ) ( 31 ) Accounts payable 14 ( 57 ) Accrued expenses and other liabilities 13 27 Net cash provided by operating activities from continuing operations 355 207 Cash flows from investing activities of continuing operations Payment for purchases of property and equipment ( 496 ) ( 355 ) Proceeds from sale of property and equipment 13 13 Net cash used in investing activities from continuing operations ( 483 ) ( 342 ) Cash flows from financing activities of continuing operations Proceeds from issuance of debt — 1,977 Repurchase of debt — ( 2,003 ) Repayment of debt and finance leases ( 39 ) ( 35 ) Payment for debt issuance costs ( 4 ) ( 15 ) Change in bank overdrafts 27 51 Payment for tax withholdings for restricted shares ( 17 ) ( 12 ) Other ( 1 ) 1 Net cash used in financing activities from continuing operations ( 35 ) ( 36 ) Cash flows from discontinued operations Operating activities of discontinued operations — ( 8 ) Investing activities of discontinued operations — 1 Net cash used in discontinued operations — ( 7 ) Effect of exchange rates on cash, cash equivalents and restricted cash — 5 Net decrease in cash, cash equivalents and restricted cash ( 162 ) ( 173 ) Cash, cash equivalents and restricted cash, beginning of period 419 470 Cash, cash equivalents and restricted cash, end of period $ 256 $ 297 Supplemental disclosure of cash flow information Leased assets obtained in exchange for new operating lease liabilities $ 144 $ 46 Leased assets obtained in exchange for new finance lease liabilities 31 36 Cash paid for interest 101 90 Cash paid for income taxes 32 18 Amounts may not add due to rounding. See accompanying notes to condensed consolidated financial statements. 4 Table of Contents 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 Other Comprehensive Loss Total Equity Balance as of March 31, 2024 116,312 $ — $ 1,302 $ 252 $ ( 222 ) $ 1,332 Net income — — — 150 — 150 Other comprehensive loss — — — — ( 3 ) ( 3 ) Exercise and vesting of stock compensation awards 32 — — — — — Tax withholdings related to vesting of stock compensation awards — — ( 3 ) — — ( 3 ) Stock compensation expense — — 23 — — 23 Balance as of June 30, 2024 116,344 $ — $ 1,322 $ 402 $ ( 225 ) $ 1,499 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, 2023 116,073 $ — $ 1,298 $ 185 $ ( 217 ) $ 1,266 Net income — — — 217 — 217 Other comprehensive loss — — — — ( 8 ) ( 8 ) Exercise and vesting of stock compensation awards 271 — — — — — Tax withholdings related to vesting of stock compensation awards — — ( 18 ) — — ( 18 ) Stock compensation expense — — 42 — — 42 Balance as of June 30, 2024 116,344 $ — $ 1,322 $ 402 $ ( 225 ) $ 1,499 5 Table of Contents 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 March 31, 2023 115,750 $ — $ 1,252 $ 10 $ ( 207 ) $ 1,055 Net income — — — 33 — 33 Other comprehensive loss — — — — 15 15 Exercise and vesting of stock compensation awards 189 — — — — — Tax withholdings related to vesting of stock compensation awards — — ( 4 ) — — ( 4 ) Stock compensation expense — — 19 — — 19 Other — — 1 — — 1 Balance as of June 30, 2023 115,939 $ — $ 1,268 $ 43 $ ( 192 ) $ 1,119 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 — — — 47 — 47 Other comprehensive income — — — — 30 30 Exercise and vesting of stock compensation awards 504 — — — — — Tax withholdings related to vesting of stock compensation awards — — ( 12 ) — — ( 12 ) Stock compensation expense — — 41 — — 41 Other — — 1 — — 1 Balance as of June 30, 2023 115,939 $ — $ 1,268 $ 43 $ ( 192 ) $ 1,119 Amounts may not add due to rounding. See accompanying notes to condensed consolidated financial statements. 6 Table of Contents 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,” “we” or the “Company”), 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 2—Segment Reporting for additional information on our operations. Strategic Developments In December 2023, we acquired 28 less-than-truckload (“LTL”) service centers in the U.S. previously operated by Yellow Corporation. In connection with this transaction, we purchased 26 of the service centers and assumed existing leases for the other two locations. This strategic acquisition of assets aligns with our commitment to invest in expanding our LTL network capacity. Our Board of Directors has previously authorized the divestiture of our European business. There can be no assurance that the divestiture will occur, or of the terms or timing of a transaction. 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, 2023 (the “2023 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 2023 Form 10-K. The Condensed Consolidated Financial Statements are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of the financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The historical results of operations and financial positions of RXO, Inc., GXO Logistics, Inc. and our intermodal operation are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented. Within the Condensed Consolidated Financial Statements and associated notes, certain amounts may not add due to the use of rounded numbers. Percentages presented are calculated from the underlying numbers in millions. Restricted Cash As of June 30, 2024 and December 31, 2023, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $ 6 million and $ 7 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 $ 214 million as of June 30, 2024). As of June 30, 2024, € 6 million (approximately $ 6 million) was available under the program. The weighted average interest rate was 5.36 % as of June 30, 2024. The program expires in July 2026. 7 Table of Contents Information related to the trade receivables sold was as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions) 2024 2023 2024 2023 Securitization programs Receivables sold in period $ 449 $ 470 $ 899 $ 910 Cash consideration 449 470 899 910 Factoring programs Receivables sold in period 20 34 41 58 Cash consideration 20 34 41 58 Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are: • Level 1—Quoted prices for identical instruments in active markets; • Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and • Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates. We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of June 30, 2024 and December 31, 2023 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 5—Derivative Instruments and for information on financial liabilities, see Note 6—Debt. The fair value hierarchy of cash equivalents was as follows: (In millions) Carrying Value Fair Value Level 1 June 30, 2024 $ 208 $ 208 $ 208 December 31, 2023 369 369 369 Accounting Pronouncements Issued but Not Yet Effective In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The ASU modifies income tax disclosures by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliations and (ii) the disclosure of income taxes paid disaggregated by jurisdiction, among other requirements. This ASU is effective for annual periods beginning in 2025, and should be applied on a prospective basis, with the option to apply retrospectively. Early adoption is permitted. We are currently evaluating the impact of the new standard, which is limited to financial statement disclosures. 8 Table of Contents In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in the ASU increase reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit and loss, and provide new segment disclosure requirements for entities with a single reportable segment, among other disclosure requirements. This ASU is effective on a retrospective basis for annual periods beginning in 2024, and for interim periods beginning January 1, 2025. Early adoption is permitted. We are currently evaluating the impact of the new standard, which is limited to financial statement disclosures. 2. Segment Reporting We are organized into two reportable segments: North American LTL, the largest component of our business, and European Transportation. In our 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. In our European Transportation segment, we serve an extensive base of customers within the consumer, trade and industrial markets. We offer dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding, warehousing 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 debt extinguishment loss, interest expense, income tax provision (benefit), depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments. Segment Adjusted EBITDA includes an allocation of corporate costs. 9 Table of Contents Selected financial data for our segments is as follows: Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Revenue North American LTL $ 1,272 $ 1,136 $ 2,493 $ 2,256 European Transportation 808 781 1,605 1,568 Total $ 2,079 $ 1,917 $ 4,097 $ 3,824 Adjusted EBITDA North American LTL $ 297 $ 208 $ 551 $ 390 European Transportation 49 46 87 83 Corporate ( 3 ) ( 10 ) ( 8 ) ( 19 ) Total Adjusted EBITDA 343 244 631 454 Less: Debt extinguishment loss — 23 — 23 Interest expense 56 43 114 85 Income tax provision (benefit) ( 3 ) 13 20 17 Depreciation and amortization expense 122 107 239 208 Transaction and integration costs (1) 12 17 26 39 Restructuring costs (2) 6 10 14 34 Income from continuing operations $ 150 $ 31 $ 217 $ 48 Depreciation and amortization expense North American LTL $ 86 71 $ 168 $ 139 European Transportation 35 33 70 65 Corporate 1 3 2 4 Total $ 122 $ 107 $ 239 $ 208 (1) Transaction and integration costs for the periods ended June 30, 2024 and June 30, 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives, while the 2023 periods also include retention awards for certain employees related to strategic initiatives. Transaction and integration costs for the three months ended June 30, 2024 and 2023 include $ 1 million and $ 0 million , respectively, related to our European Transportation segment, and $ 11 million and $ 17 million, respectively, related to Corporate. Transaction and integration costs for the six months ended June 30, 2024 and 2023 include $ 1 million and $ 0 million , respectively, related to our North American LTL segment, $ 1 million and $ 1 million, respectively, related to our European Transportation segment, and $ 24 million and $ 38 million, respectively, related to Corporate. (2) Restructuring costs for the three months ended June 30, 2024 and 2023 include $ 1 million and $ 4 million, respectively, related to our North American LTL segment, $ 3 million and $ 1 million, respectively, related to our European Transportation segment, and $ 1 million and $ 5 million, respectively, related to Corporate. Restructuring costs for the six months ended June 30, 2024 and 2023 include $ 2 million and $ 10 million, respectively, related to our North American LTL segment, $ 11 million and $ 8 million, respectively, related to our European Transportation segment, and $ 1 million and $ 16 million, respectively, related to Corporate. See Note 4— Restructuring Charges for further information on our restructuring actions. 10 Table of Contents 3. Revenue Recognition Disaggregation of Revenues Our revenue disaggregated by geographic area based on sales office location was as follows: Three Months Ended June 30, 2024 (In millions) North American LTL European Transportation Total Revenue United States $ 1,244 $ — $ 1,244 North America (excluding United States) 28 — 28 France — 331 331 United Kingdom — 254 254 Europe (excluding France and United Kingdom) — 222 222 Total $ 1,272 $ 808 $ 2,079 Three Months Ended June 30, 2023 (In millions) North American LTL European Transportation Total Revenue United States $ 1,112 $ — $ 1,112 North America (excluding United States) 24 — 24 France — 331 331 United Kingdom — 226 226 Europe (excluding France and United Kingdom) — 224 224 Total $ 1,136 $ 781 $ 1,917 Six Months Ended June 30, 2024 (In millions) North American LTL European Transportation Total Revenue United States $ 2,438 $ — $ 2,438 North America (excluding United States) 55 — 55 France — 664 664 United Kingdom — 497 497 Europe (excluding France and United Kingdom) — 443 443 Total $ 2,493 $ 1,605 $ 4,097 Six Months Ended June 30, 2023 (In millions) North American LTL European Transportation Total Revenue United States $ 2,209 $ — $ 2,209 North America (excluding United States) 47 — 47 France — 671 671 United Kingdom — 450 450 Europe (excluding France and United Kingdom) — 447 447 Total $ 2,256 $ 1,568 $ 3,824 11 Table of Contents 4. Restructuring Charges We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. 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: Six Months Ended June 30, 2024 (In millions) Reserve Balance as of December 31, 2023 Charges Incurred Payments Foreign Exchange and Other Reserve Balance as of June 30, 2024 Severance North American LTL $ 2 $ — $ ( 2 ) $ 1 $ 2 European Transportation 1 10 ( 8 ) — 2 Corporate 8 1 ( 6 ) ( 1 ) 3 Total $ 11 $ 11 $ ( 16 ) $ — $ 7 In addition to the severance charges noted in the table above, we recorded non-cash charges in our North American LTL and European Transportation segments of $ 2 million and $ 1 million, respectively, during the first six months of 2024. We expect that the majority of the cash outlays related to the severance charges incurred in the first six months of 2024 will be completed within 12 months. 5. Derivative Instruments In the normal course of business, we are exposed to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. We use derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. Historically, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default. The fair value of our derivative instruments and the related notional amounts were as follows: June 30, 2024 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 $ 249 Other current assets $ — Other current liabilities $ ( 7 ) Cross-currency swap agreements 403 Other long-term assets — Other long-term liabilities ( 8 ) Interest rate swaps 550 Other current assets 1 Other current liabilities — Total $ 1 $ ( 15 ) 12 Table of Contents December 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 $ 652 Other current assets $ — Other current liabilities $ ( 34 ) Interest rate swaps 350 Other current assets — Other current liabilities ( 2 ) Interest rate swaps 200 Other long-term assets — Other long-term liabilities — Total $ — $ ( 36 ) The derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves. The effect of derivative and nonderivative instruments designated as hedges on our Condensed Consolidated Statements of Income was as follows: Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Three Months Ended June 30, (In millions) 2024 2023 2024 2023 2024 2023 Derivatives designated as cash flow hedges Interest rate swaps $ — $ 1 $ — $ 1 $ — $ — Derivatives designated as net investment hedges Cross-currency swap agreements 5 ( 3 ) — — 2 2 Total $ 5 $ ( 2 ) $ — $ 1 $ 2 $ 2 Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain Reclassified from AOCI into Net Income Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Six Months Ended June 30, (In millions) 2024 2023 2024 2023 2024 2023 Derivatives designated as cash flow hedges Interest rate swaps $ 2 $ 2 $ 1 $ 1 $ — $ — Derivatives designated as net investment hedges Cross-currency swap agreements 18 ( 13 ) — — 5 4 Total $ 21 $ ( 11 ) $ 1 $ 1 $ 5 $ 4 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 on a quarterly basis from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly basis, to the counterparties based on EUR 13 Table of Contents 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 2027. 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 “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 in 2024 and 2025. 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. 6. Debt June 30, 2024 December 31, 2023 (In millions) Principal Balance Carrying Value Principal Balance Carrying Value Term loan facility $ 1,100 $ 1,088 $ 1,100 $ 1,087 6.25 % senior secured notes due 2028 830 822 830 822 7.125 % senior notes due 2031 450 445 450 445 7.125 % senior notes due 2032 585 576 585 575 6.70 % senior debentures due 2034 300 223 300 221 Finance leases, asset financing and other 240 240 254 254 Total debt 3,505 3,394 3,519 3,404 Short-term borrowings and current maturities of long-term debt 64 64 69 69 Long-term debt $ 3,441 $ 3,330 $ 3,450 $ 3,335 The fair value of our debt and classification in the fair value hierarchy was as follows: (In millions) Fair Value Level 1 Level 2 June 30, 2024 $ 3,546 $ 2,214 $ 1,333 December 31, 2023 3,583 2,235 1,348 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. ABL Facility As of June 30, 2024, our borrowing base was $ 587 million and our availability under our Second Amended and Restated Revolving Credit Agreement, as amended (the “ABL Facility”) was $ 586 million after considering outstanding letters of credit of less than $ 1 million. As of June 30, 2024, we were in compliance with the ABL Facility’s financial covenants. 14 Table of Contents Letters of Credit Facility As of June 30, 2024, we had issued $ 137 million in aggregate face amount of letters of credit under our $ 200 million uncommitted secured evergreen letter of credit facility. Term Loan Facility In 2015, we entered into a Term Loan Credit Agreement that provided for a single borrowing of $ 1.6 billion, which was subsequently amended to increase the principal balance to $ 2.0 billion and to extend the maturity date to February 2025 (the “Existing Term Loan Facility”). In the second quarter of 2023, we amended the Term Loan Credit Agreement to obtain $ 700 million of new term loans (the “New Term Loan Facility”) having substantially similar terms as the Existing Term Loan Facility, except with respect to maturity date, issue price, interest rate, prepayment premiums in connection with certain voluntary prepayments and certain other provisions. The New Term Loan Facility was issued at 99.5 % of the face amount and will mature in May 2028. In the same period, we used net proceeds from the New Term Loan Facility, the Senior Secured Notes due 2028 (as defined below) and the Senior Notes due 2031 (as defined below), together with cash on hand, to repay $ 2.0 billion of outstanding principal under the Existing Term Loan Facility and to pay related fees, expenses and accrued interest. We recorded a debt extinguishment loss of $ 23 million in the second quarter 2023 due to this repayment. In the fourth quarter of 2023, we entered into an incremental amendment to the Term Loan Credit Agreement to obtain $ 400 million of incremental term loans (the “Incremental Term Loans”). The Incremental Term Loans are a new tranche of loans under the Term Loan Credit Agreement and will mature in February 2031. The applicable interest rate for the two tranches of the term loan facility approximated 7.34 % as of June 30, 2024. Senior Notes Due 2028 and 2031 In the second quarter of 2023, we completed private placements of $ 830 million aggregate principal amount of senior secured notes due 2028 (the “Senior Secured Notes due 2028”) and $ 450 million aggregate principal amount of senior notes due 2031 (the “Senior Notes due 2031”). The Senior Secured Notes due 2028 mature in June 2028 and bear interest at a rate of 6.25 % per annum. The Senior Notes due 2031 mature in June 2031 and bear interest at a rate of 7.125 % per annum. Interest is payable semi-annually in cash in arrears and commenced December 1, 2023. These notes were issued at par and were used to repay our Existing Term Loan Facility as described above. 7. Income Taxes During the second quarter of 2024, the Company executed a legal entity reorganization in our European Transportation business that resulted in a one-time tax benefit of $ 41 million in the second quarter of 2024. 15 Table of Contents 8. Earnings (Loss) per Share The computations of basic and diluted earnings per share were as follows: Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share data) 2024 2023 2024 2023 Net income from continuing operations $ 150 $ 31 $ 217 $ 48 Net income (loss) from discontinued operations — 2 — ( 1 ) Net income $ 150 $ 33 $ 217 $ 47 Basic weighted-average common shares 116 116 116 116 Dilutive effect of stock-based awards 4 2 4 1 Diluted weighted-average common shares 120 118 120 117 Basic earnings from continuing operations per share $ 1.29 $ 0.27 $ 1.87 $ 0.42 Basic earnings (loss) from discontinued operations per share — 0.01 — ( 0.01 ) Basic earnings per share $ 1.29 $ 0.28 $ 1.87 $ 0.41 Diluted earnings from continuing operations per share $ 1.25 $ 0.27 $ 1.81 $ 0.41 Diluted earnings (loss) from discontinued operations per share — 0.01 — ( 0.01 ) Diluted earnings per share $ 1.25 $ 0.28 $ 1.81 $ 0.40 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, as appropriate, accruals for loss contingencies at least 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. 16 Table of Contents Insurance Contribution Litigation In April 2012, Allianz Global Risks US Insurance Company sued eighteen insurance companies in a case captioned Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., Multnomah County Circuit Court (Case No. 1204-04552). Allianz 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 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision. In June 2023, the trial court decided the parties’ cross-motions for summary judgment, leaving open the pollution exclusion and allocation issues. The trial on the pollution exclusion issue is scheduled to take place in the fall of 2024, and the trial on allocation of defense costs among the applicable insurance policies is to take place in early 2025. We have accrued an immaterial amount for the potential exposure associated with ultimate allocation to the relevant policies; however, 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. California Environmental Matters In August 2022, the Company received a letter from the San Bernardino County District Attorney’s Office (the “County”), 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. Following meetings between the Company and County attorneys and the Los Angeles City Attorney and an assessment of the allegations and the underlying facts, the Company engaged in negotiations with the County and Los Angeles City Attorneys to address settlement of the alleged violations. The Company previously accrued for this matter, and it was resolved for $ 7.9 million in April 2024. 17 Table of Contents