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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
Form 10-Q
___________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________to____________
Commission File Number: 001-32172
_______________________________________________________
https://cdn.kscope.io/1e50f34df240d657f0f3026da8207f15-xpo-20210331_g1.jpg
XPO Logistics, Inc.
(Exact name of registrant as specified in its charter)
_______________________________________________________
Delaware03-0450326
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Five American Lane
Greenwich,CT06831
(Address of principal executive offices)(Zip Code)
(855) 976-6951
(Registrant’s telephone number, including area code)
______________________________________________________________________________________________________________
N/A
______________________________________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, par value $0.001 per shareXPONew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of April 27, 2021, there were 111,710,560 shares of the registrant’s common stock, par value $0.001 per share, outstanding.



XPO Logistics, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2021
Table of Contents
 
Page No.


Table of Contents
Part I—Financial Information
Item 1. Financial Statements.
XPO Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
March 31,December 31,
(In millions, except per share data)20212020
ASSETS
Current assets
Cash and cash equivalents$629 $2,054 
Accounts receivable, net of allowances of $60 and $65, respectively
3,137 2,886 
Other current assets505 430 
Total current assets4,271 5,370 
Long-term assets
Property and equipment, net of $2,653 and $2,568 in accumulated depreciation, respectively
2,651 2,661 
Operating lease assets2,602 2,278 
Goodwill4,554 4,599 
Identifiable intangible assets, net of $944 and $909 in accumulated amortization, respectively
955 974 
Other long-term assets336 287 
Total long-term assets11,098 10,799 
Total assets$15,369 $16,169 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$1,329 $1,255 
Accrued expenses1,966 1,814 
Short-term borrowings and current maturities of long-term debt88 1,338 
Short-term operating lease liabilities533 483 
Other current liabilities260 263 
Total current liabilities4,176 5,153 
Long-term liabilities
Long-term debt5,162 5,369 
Deferred tax liability378 371 
Employee benefit obligations178 192 
Long-term operating lease liabilities2,086 1,795 
Other long-term liabilities475 440 
Total long-term liabilities8,279 8,167 
Stockholders’ equity
Convertible perpetual preferred stock, $0.001 par value; 10 shares authorized; and 0.001 of Series A shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
 1 
Common stock, $0.001 par value; 300 shares authorized; 112 and 102 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively
  
Additional paid-in capital1,988 1,998 
Retained earnings983 868 
Accumulated other comprehensive loss(195)(158)
Total stockholders’ equity before noncontrolling interests2,776 2,709 
Noncontrolling interests138 140 
Total equity2,914 2,849 
Total liabilities and equity$15,369 $16,169 
See accompanying notes to condensed consolidated financial statements.

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XPO Logistics, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
(In millions, except per share data)20212020
Revenue$4,774 $3,864 
Cost of transportation and services2,328 1,898 
Direct operating expense1,656 1,360 
Sales, general and administrative expense588 525 
Operating income202 81 
Other income(26)(18)
Foreign currency gain(2)(8)
Debt extinguishment loss8  
Interest expense69 72 
Income before income tax provision153 35 
Income tax provision35 10 
Net income118 25 
Net income attributable to noncontrolling interests(3)(2)
Net income attributable to XPO$115 $23 
Net income attributable to common shareholders $115 $21 
Earnings per share data
Basic earnings per share $1.08 $0.23 
Diluted earnings per share $1.02 $0.20 
Weighted-average common shares outstanding
Basic weighted-average common shares outstanding106 92 
Diluted weighted-average common shares outstanding112 103 
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 March 31,
(In millions)20212020
Net income$118 $25 
Other comprehensive income (loss), net of tax
Foreign currency translation loss, net of tax effect of $(6) and $(11)
$(42)$(65)
Defined benefit plans adjustments, net of tax effect of $ and $2
 (5)
Other comprehensive loss(42)(70)
Comprehensive income (loss)$76 $(45)
Less: Comprehensive loss attributable to noncontrolling interests(2)(3)
Comprehensive income (loss) attributable to XPO$78 $(42)
See accompanying notes to condensed consolidated financial statements.

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XPO Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
(In millions)20212020
Operating activities
Net income$118 $25 
Adjustments to reconcile net income to net cash from operating activities
Depreciation, amortization and net lease activity192 183 
Stock compensation expense10 18 
Accretion of debt5 4 
Deferred tax benefit(4)(2)
Debt extinguishment loss8  
Unrealized gain on foreign currency option and forward contracts(1)(4)
Gains on sales of property and equipment(24)(27)
Other(2)5 
Changes in assets and liabilities
Accounts receivable(196)44 
Other assets(21)(16)
Accounts payable12 (69)
Accrued expenses and other liabilities76 19 
Net cash provided by operating activities173 180 
Investing activities
Payment for purchases of property and equipment(140)(139)
Proceeds from sale of property and equipment36 54 
Other9 6 
Net cash used in investing activities(95)(79)
Financing activities
Proceeds from (repayment of) borrowings related to securitization program(49)182 
Repurchase of debt(1,200) 
Proceeds from borrowings on ABL facility 620 
Repayment of borrowings on ABL facility(200)(20)
Repayment of debt and finance leases(29)(25)
Payment for debt issuance costs(5) 
Repurchase of common stock (114)
Change in bank overdrafts1 42 
Payment for tax withholdings for restricted shares(21)(16)
Other2 (1)
Net cash provided by (used in) financing activities(1,501)668 
Effect of exchange rates on cash, cash equivalents and restricted cash(2)(19)
Net increase (decrease) in cash, cash equivalents and restricted cash(1,425)750 
Cash, cash equivalents and restricted cash, beginning of period2,065 387 
Cash, cash equivalents and restricted cash, end of period$640 $1,137 
Supplemental disclosure of cash flow information
Leased assets obtained in exchange for new operating lease liabilities, including $306 million related an acquisition
$513 $156 
Leased assets obtained in exchange for new finance lease liabilities23 8 
Cash paid for interest76 76 
Cash paid for income taxes7 7 
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 StockCommon Stock 
(Shares in thousands, dollars in millions)SharesAmountSharesAmountAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal XPO Stockholders' EquityNon-controlling InterestsTotal Equity
Balance as of December 31, 20201 $1 102,052 $ $1,998 $868 $(158)$2,709 $140 $2,849 
Net income— — — — — 115 — 115 3 118 
Other comprehensive loss— — — — — — (37)(37)(5)(42)
Exercise and vesting of stock compensation awards
— — 270 — — — — — — — 
Tax withholdings related to vesting of stock compensation awards
— — — — (21)— — (21)— (21)
Conversion of preferred stock to common stock(1)(1)139 — 1 — — — —  
Exercise of warrants— — 9,215 — — — — — — — 
Stock compensation expense
— — — — 10 — — 10 — 10 
Balance as of March 31, 2021 $ 111,676 $ $1,988 $983 $(195)$2,776 $138 $2,914 
Series A Preferred StockCommon Stock
(Shares in thousands, dollars in millions)SharesAmountSharesAmountAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossTotal XPO Stockholders' EquityNon-controlling InterestsTotal Equity
Balance as of December 31, 201972 $41 92,342 $ $2,061 $786 $(145)$2,743 $153 $2,896 
Net income
— — — — — 23 — 23 2 25 
Other comprehensive loss
— — — — — — (65)(65)(5)(70)
Exercise and vesting of stock compensation awards
— — 417 — — — — — — — 
Tax withholdings related to vesting of stock compensation awards
— — — — (16)— — (16)— (16)
Retirement of common stock
— — (1,715)— (114)— — (114)— (114)
Dividend declared
— — — — — (1)— (1)— (1)
Stock compensation expense
— — — — 12 — — 12 — 12 
Adoption of new accounting standard and other
— — — — — (4)— (4)— (4)
Balance as of March 31, 202072 $41 91,044 $ $1,943 $804 $(210)$2,578 $150 $2,728 
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”), provides cutting-edge supply chain solutions to the most successful companies in the world. We use our integrated network of people, technology and physical assets to help customers manage their goods most efficiently throughout their supply chains. Our customers are multinational, national, mid-size and small enterprises. We run our business on a global basis, with two reportable segments: Transportation and Logistics. See Note 3—Segment Reporting for additional information on our operations.
In December 2020, we announced that our Board of Directors unanimously approved a plan to pursue a spin-off of 100% of our Logistics segment as a separate publicly traded company. The spin-off, which we intend to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes to XPO shareholders, would result in XPO shareholders owning stock in both companies.
If completed, the spin-off will result in separate public companies with clearly delineated service offerings. XPO will be a global provider of primarily less-than-truckload (“LTL”) transportation and truck brokerage services, and GXO Logistics, Inc. (“GXO”), the planned spin-off, will be a global provider of contract logistics services. Both companies’ stocks are expected to trade on the New York Stock Exchange, and we plan to consider a dual listing on the London Stock Exchange for GXO in due course.
The transaction is currently expected to be completed in the second half of 2021, subject to various conditions, including the approval of XPO’s board of directors. There can be no assurance that the spin-off will occur or, if it does occur, of its terms or timing.
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, 2020 (the “2020 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 2020 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 financial condition, operating results and cash flows for the interim periods presented. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Restricted Cash
As of March 31, 2021 and December 31, 2020, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $11 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 account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows. We also sell trade accounts receivable under a securitization program described below. 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.
XPO Logistics Europe SA (“XPO Logistics Europe”), one of our majority-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that

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originate with wholly-owned subsidiaries of XPO Logistics Europe in the United Kingdom and France to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and is consolidated by XPO based on our control of the entity’s activities.
We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer. In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Condensed Consolidated Balance Sheets. We had no such borrowings outstanding as of March 31, 2021 and had borrowings of €41 million ($50 million) as of December 31, 2020. See Note 7—Debt for additional information on these borrowings.
The maximum amount of net cash proceeds available at any one time under the securitization program, inclusive of any unsecured borrowings, is €400 million (approximately $469 million as of March 31, 2021). As of March 31, 2021, €82 million (approximately $96 million) was available to us, subject to having sufficient receivables available to sell to the Purchasers. The weighted average interest rate was 0.58% as of March 31, 2021. Charges for commitment fees, which are based on a percentage of available amounts, and charges for administrative fees were not material to our results of operations for the three months ended March 31, 2021 and 2020.
Information related to the trade receivables sold was as follows:
Three Months Ended March 31,
(In millions)20212020
Securitization programs
Receivables sold in period
$775 $691 
Cash consideration
775 691 
Factoring programs
Receivables sold in period
$116 $264 
Cash consideration
116 263 
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, 2021 and December 31, 2020 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. For information on the fair value hierarchy of our derivative instruments, see Note 6—Derivative Instruments and for information on financial liabilities, see Note 7—Debt.

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The fair value hierarchy of cash equivalents was as follows:
(In millions)Carrying ValueFair ValueLevel 1
March 31, 2021$249 $249 $249 
December 31, 20201,738 1,738 1,738 
The decrease in cash equivalents from December 31, 2020 was primarily due to the redemption of our senior notes due 2022 and the repayment of borrowings under our revolving loan credit agreement (the “ABL Facility”). For further information, See Note 7—Debt for further information.
Adoption of New Accounting Standard
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to enhance consistency and comparability among reporting entities. We adopted this standard on January 1, 2021 on a prospective basis. The adoption did not have a material effect on our consolidated financial statements.
Accounting Pronouncement Issued but Not Yet Effective
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impact of the new guidance.
2. Acquisition
In January 2021, our XPO Logistics Europe subsidiary acquired the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom and Ireland, which generated annual revenues in 2020 of approximately £450 million ($585 million). The operations, which provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management, are included in our Logistics segment from the acquisition date. Pro forma results of operations for this acquisition have not been presented as it is not material to the condensed consolidated results of operations.
3. Segment Reporting
We are organized into two reportable segments: Transportation and Logistics. We evaluate our performance in large part based on the various financial measures of our two reporting segments.
In our Transportation segment, we provide multiple services to facilitate the movement of raw materials, parts and finished goods. We accomplish this by using our proprietary technology, third-party independent carriers and our transportation assets and service centers. Our transportation services include LTL, truck brokerage services and other transportation services.
In our Logistics segment, which we sometimes refer to as supply chain, we provide a wide range of services differentiated by our proprietary technology and our ability to customize solutions for individual customers. Our services include value-added warehousing and distribution, e-commerce and omnichannel fulfillment, cold-chain logistics, packaging and labeling, factory support, aftermarket support, inventory management, order personalization and supply chain optimization, such as product flow management. In addition, our Logistics segment provides reverse logistics, which is also called returns management.
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

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adjust these rates from time to time based on market conditions. We eliminate intersegment revenues and expenses in our consolidated results.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reporting segments.
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM. We do not provide asset information by segment to the CODM.
Selected financial data for our segments is as follows:
(In millions)TransportationLogisticsCorporateEliminations/OtherTotal
Three months ended March 31, 2021
Revenue$2,989 $1,818 $ $(33)$4,774 
Operating income (loss) (1)
209 68 (75) 202 
Depreciation and amortization115 74 3  192 
Three months ended March 31, 2020
Revenue $2,459 $1,437 $ $(32)$3,864 
Operating income (loss) (2)
120 38 (77) 81 
Depreciation and amortization 110 69 4  183 
(1)Consolidated operating income for the three months ended March 31, 2021 includes $18 million of transaction and integration costs and $4 million of restructuring expense. $1 million of the transaction and integration costs relate to our Transportation segment, $5 million relate to our Logistics segment and $12 million relate to Corporate.
(2)Consolidated operating income for the three months ended March 31, 2020 includes $44 million of transaction and integration costs and $3 million of restructuring expense. $7 million of the transaction and integration costs relate to our Transportation segment, $7 million relate to our Logistics segment and $30 million relate to Corporate.
The transaction and integration costs for the first three months of 2021 are primarily related to the planned spin-off of the Logistics segment and our acquisition of the Kuehne + Nagel business. The transaction and integration costs for the first three months of 2020 are primarily related to our previously announced exploration of strategic alternatives that was terminated in March 2020. For further information on our restructuring actions, see Note 5—Restructuring Charges. We also incurred in the first three months of 2021 and 2020, net incremental and direct costs as a result of the COVID-19 pandemic, including costs for personal protective equipment, site cleanings and enhanced employee benefits, such as appreciation pay.
4. 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:

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Three Months Ended March 31, 2021
(In millions)TransportationLogisticsEliminationsTotal
Revenue
United States$2,118 $584 $(9)$2,693 
North America (excluding United States)90 14  104 
France342 180 (3)519 
United Kingdom209 552 (15)746 
Europe (excluding France and United Kingdom)213 465 (5)673 
Other17 23 (1)39 
Total$2,989 $1,818 $(33)$4,774 
Three Months Ended March 31, 2020
(In millions)TransportationLogisticsEliminationsTotal
Revenue
United States$1,702 $536 $(9)$2,229 
North America (excluding United States)71 14  85 
France311 150 (3)458 
United Kingdom182 329 (16)495 
Europe (excluding France and United Kingdom)188 386 (3)571 
Other5 22 (1)26 
Total$2,459 $1,437 $(32)$3,864 
Our revenue disaggregated by service offering was as follows:
Three Months Ended March 31,
(In millions)20212020
Transportation segment:
LTL$1,221 $1,135 
Freight brokerage and truckload1,384 1,023 
Last mile (1)
246 201 
Managed transportation97 83 
Global forwarding100 61 
Transportation eliminations(59)(44)
Total Transportation segment revenue2,989 2,459 
Total Logistics segment revenue1,818 1,437 
Intersegment eliminations(33)(32)
Total revenue$4,774 $3,864 
(1)    Comprised of our North American last mile operations.
Performance Obligations
Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On March 31, 2021, the fixed consideration component of our remaining performance obligation was approximately $2.1 billion, and we expect to recognize approximately 66% of that amount over the next three years and the

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remainder thereafter. The remaining performance obligation at March 31, 2021 includes contracts related to the Kuehne + Nagel acquisition. The majority of the remaining performance obligation relates to our Logistics reportable segment. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
5. 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 right-of-use assets, and are intended to improve our efficiency and profitability.
We recorded restructuring charges of $4 million and $3 million in Sales, general and administrative expense on our Condensed Consolidated Statements of Income for the first three months of 2021 and 2020, respectively.
Our restructuring-related activity was as follows:
Three Months Ended March 31, 2021
(In millions)Reserve Balance as of December 31, 2020Charges IncurredPaymentsForeign Exchange and OtherReserve Balance as of March 31, 2021
Severance
Transportation$7 $1 $(4)$ $4 
Logistics19  (4)(1)14 
Corporate2 3 (1) 4 
Total severance28 4 (9)(1)22 
Facilities
Transportation5    5 
Total facilities5    5 
Total$33 $4 $(9)$(1)$27 
We expect the majority of the cash outlays related to the charges incurred in the first quarter of 2021 will be complete within twelve 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.

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The fair value of our derivative instruments and the related notional amounts were as follows:
March 31, 2021
Derivative AssetsDerivative Liabilities
(In millions)Notional AmountBalance Sheet CaptionFair ValueBalance Sheet CaptionFair Value
Derivatives designated as hedges
Cross-currency swap agreements$450 Other current assets$ Other current liabilities$(25)
Cross-currency swap agreements730 Other long-term assets Other long-term liabilities(29)
Interest rate swaps2,003 Other current assets Other current liabilities 
Derivatives not designated as hedges
Foreign currency option contracts178 Other current assets3 Other current liabilities 
Total$3 $(54)
December 31, 2020
Derivative AssetsDerivative Liabilities
(In millions)Notional AmountBalance Sheet CaptionFair ValueBalance Sheet CaptionFair Value
Derivatives designated as hedges
Cross-currency swap agreements$450 Other current assets$ Other current liabilities$(44)
Cross-currency swap agreements740 Other long-term assets Other long-term liabilities(65)
Interest rate swaps2,003 Other current assets Other current liabilities(4)
Total$ $(113)
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 DerivativesAmount of Gain Reclassified from AOCI into Net IncomeAmount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Three Months Ended March 31,
(In millions)202120202021202020212020
Derivatives designated as cash flow hedges
Cross-currency swap agreements$6 $8 $6 $3 $ $ 
Interest rate swaps (5)    
Derivatives designated as net investment hedges
Cross-currency swap agreements48 38   3 4 
Total$54 $41 $6 $3 $3 $4 
The pre-tax gain recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments were gains of $1 million and $4 million for the three months ended March 31, 2021 and 2020, respectively. These amounts are recorded in Foreign currency gain on our Condensed Consolidated Statements of Income.

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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. For net investment hedges that were de-designated prior to their maturity, the amounts in AOCI will remain in AOCI until the subsidiary is sold or substantially liquidated. Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Operating activities on our Condensed Consolidated Statements of Cash Flows.
We also enter into 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 account for them as cash flow hedges. Gains and losses resulting from the change in the fair value of the cross-currency swaps are initially recognized in AOCI and reclassified to Foreign currency gain to offset the foreign exchange impact in earnings created by the intercompany loans. Cash flows related to these cash flow hedges are included in Operating activities 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 interest rate swaps mature on various dates through 2021.
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 Operating activities on our Condensed Consolidated Statements of Cash Flows.
Foreign Currency Option and Forward Contracts
We use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or the British pound sterling as their functional currency. Additionally, we use foreign currency forward contracts to mitigate exposure from intercompany loans that are not designated as permanent and can create volatility in earnings. The foreign currency contracts (both option and forward contracts) were not designated as qualifying hedging instruments as of March 31, 2021. The contracts are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative. The contracts generally expire in 12 months or less. Gains or losses on the contracts are recorded in Foreign currency gain on our Condensed Consolidated Statements of Income. Cash flows related to the foreign currency contracts are included in Investing activities on our Condensed Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired.

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Table of Contents
7. Debt
March 31, 2021December 31, 2020
(In millions)Principal BalanceCarrying ValuePrincipal BalanceCarrying Value
ABL facility$