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 ~~June 30, 2022~~March 31, 2023


☐			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: 001-40470

GXO Logistics, Inc.

(Exact name of registrant as specified in its charter)


Delaware						86-2098312
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
Two American Lane
Greenwich, Connecticut						06831
(Address of principal executive offices)						(Zip Code)

(203) 489-1287

(Registrant’s telephone number, including area ~~code)~~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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

GXO

New 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 filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller 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 ~~August 1, 2022,~~May 8, 2023, there were ~~118,615,116~~181,072,412 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GXO Logistics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
(Dollars in millions, shares in thousands, except per share amounts)	(Dollars in millions, shares in thousands, except per share amounts)	2022		2021		2022		2021		(Dollars in millions, shares in thousands, except per share amounts)	2023		2022
Revenue	Revenue	$	2,156	$	1,882	$	4,239	$	3,704	Revenue	$	2,323	$	2,083
Direct operating expense	Direct operating expense	1,775		1,554		3,523		3,074		Direct operating expense	1,906		1,748
Selling, general and administrative expense	Selling, general and administrative expense	220		177		410		348		Selling, general and administrative expense	258		190
Depreciation and amortization expense	Depreciation and amortization expense	77		95		153		174		Depreciation and amortization expense	83		76
Transaction and integration costs	Transaction and integration costs	24		35		43		53		Transaction and integration costs	13		19
Restructuring costs (credits) and other		1		(1)		14		3
Restructuring costs and other										Restructuring costs and other	21		13
Operating income	Operating income	59		22		96		52		Operating income	42		37
Other income (expense), net		23		(1)		39		—
Other income, net										Other income, net	—		16
Interest expense, net	Interest expense, net	(9)		(6)		(13)		(11)		Interest expense, net	(13)		(4)
Income before income taxes	Income before income taxes	73		15		122		41		Income before income taxes	29		49
Income tax expense	Income tax expense	(21)		(1)		(32)		(10)		Income tax expense	(3)		(11)
Net income	Net income	52		14		90		31		Net income	26		38
Less: Net income attributable to noncontrolling interests		(1)		(3)		(2)		(6)
Net income attributable to noncontrolling interests										Net income attributable to noncontrolling interests	(1)		(1)
Net income attributable to GXO	Net income attributable to GXO	$	51	$	11	$	88	$	25	Net income attributable to GXO	$	25	$	37

Earnings per share data	Earnings per share data									Earnings per share data
Basic earnings per share		$	0.44	$	0.10	$	0.76	$	0.22
Diluted earnings per share		$	0.44	$	0.10	$	0.76	$	0.22

Basic										Basic	$	0.21	$	0.32
Diluted										Diluted	$	0.21	$	0.32
Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic weighted-average common shares outstanding		116,131		114,626		115,435		114,626
Diluted weighted-average common shares outstanding		116,646		114,626		116,111		114,626
Basic										Basic	118,781		114,731
Diluted										Diluted	119,231		115,569

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022
Net income	Net income	$	52	$	14	$	90	$	31	Net income	$	26	$	38

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax									Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax (expense) benefit of $(10), $(1), $(10), and $2, respectively		(75)		19		(120)		(26)

Unrealized gain (loss) on hedging instruments, net of tax (expense) benefit of $—, $—, $—, and $(1), respectively		—		—		—		(1)
Foreign currency translation gain (loss), net of tax of $3 and $0										Foreign currency translation gain (loss), net of tax of $3 and $0	13		(45)
Unrealized loss on cash flow hedges, net of tax of $1 and $0										Unrealized loss on cash flow hedges, net of tax of $1 and $0	(3)		—
Other comprehensive income (loss), net of tax										Other comprehensive income (loss), net of tax	10		(45)
Comprehensive income (loss)	Comprehensive income (loss)	$	(23)	$	33	(30)		4		Comprehensive income (loss)	36		(7)
Less: Comprehensive income (loss) attributable to noncontrolling interest		—		(1)		—		(2)
Less: Comprehensive income attributable to noncontrolling interest										Less: Comprehensive income attributable to noncontrolling interest	1		—
Comprehensive income (loss) attributable to GXO	Comprehensive income (loss) attributable to GXO	$	(23)	$	34	$	(30)	$	6	Comprehensive income (loss) attributable to GXO	$	35	$	(7)

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


							March 31,		December 31,
(Dollars in millions, shares in thousands, except per share amounts)	(Dollars in millions, shares in thousands, except per share amounts)	June 30, 2022		December 31, 2021		(Dollars in millions, shares in thousands, except per share amounts)	2023		2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	384	$	333	Cash and cash equivalents	$	426	$	495
Accounts receivable, net of allowances of $13 and $13, respectively		1,560		1,507
Accounts receivable, net of allowance of $11 and $12						Accounts receivable, net of allowance of $11 and $12	1,605		1,647
Other current assets	Other current assets	312		259		Other current assets	280		286
Total current assets	Total current assets	2,256		2,099		Total current assets	2,311		2,428
Long-term assets	Long-term assets					Long-term assets
Property and equipment, net of $1,172 and $1,128 in accumulated depreciation, respectively		905		863
Property and equipment, net of accumulated depreciation of $1,361 and $1,297						Property and equipment, net of accumulated depreciation of $1,361 and $1,297	964		960
Operating lease assets	Operating lease assets	1,900		1,772		Operating lease assets	2,168		2,227
Goodwill	Goodwill	2,769		2,017		Goodwill	2,765		2,728
Intangible assets, net of $413 and $407 in accumulated amortization, respectively		557		257
Intangible assets, net of accumulated amortization of $477 and $456						Intangible assets, net of accumulated amortization of $477 and $456	555		570
Other long-term assets	Other long-term assets	319		263		Other long-term assets	327		306
Total long-term assets	Total long-term assets	6,450		5,172		Total long-term assets	6,779		6,791
Total assets	Total assets	$	8,706	$	7,271	Total assets	$	9,090	$	9,219
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	592	$	624	Accounts payable	$	652	$	717
Accrued expenses	Accrued expenses	1,012		998		Accrued expenses	908		995
Short-term borrowings and obligations under finance leases		84		34
Current debt						Current debt	84		67
Current operating lease liabilities	Current operating lease liabilities	490		453		Current operating lease liabilities	568		560
Other current liabilities	Other current liabilities	186		220		Other current liabilities	209		193
Total current liabilities	Total current liabilities	2,364		2,329		Total current liabilities	2,421		2,532
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt and obligations under finance leases		1,801		927
Long-term debt						Long-term debt	1,697		1,739
Long-term operating lease liabilities	Long-term operating lease liabilities	1,570		1,391		Long-term operating lease liabilities	1,800		1,853
Other long-term liabilities	Other long-term liabilities	410		234		Other long-term liabilities	453		417
Total long-term liabilities	Total long-term liabilities	3,781		2,552		Total long-term liabilities	3,950		4,009
Commitments and contingencies (Note 11)	Commitments and contingencies (Note 11)	0		0		Commitments and contingencies (Note 11)
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,610 and 114,659 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		1		1
Preferred Stock, $0.01 par value per share; 10,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		—		—
Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,889 and 118,728 issued and outstanding						Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,889 and 118,728 issued and outstanding	1		1
Preferred Stock, $0.01 par value per share; 10,000 shares authorized, none issued and outstanding						Preferred Stock, $0.01 par value per share; 10,000 shares authorized, none issued and outstanding	—		—
Additional paid-in capital	Additional paid-in capital	2,561		2,354		Additional paid-in capital	2,580		2,575
Retained earnings	Retained earnings	214		126		Retained earnings	348		323
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(246)		(130)		Accumulated other comprehensive loss	(244)		(254)
Total stockholders’ equity before noncontrolling interests	Total stockholders’ equity before noncontrolling interests	2,530		2,351		Total stockholders’ equity before noncontrolling interests	2,685		2,645
Noncontrolling interests	Noncontrolling interests	31		39		Noncontrolling interests	34		33
Total equity	Total equity	2,561		2,390		Total equity	2,719		2,678
Total liabilities and equity	Total liabilities and equity	$	8,706	$	7,271	Total liabilities and equity	$	9,090	$	9,219

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Six Months Ended June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		(In millions)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	90	$	31	Net income	$	26	$	38
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities					Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization expense	Depreciation and amortization expense	153		174		Depreciation and amortization expense	83		76
Stock-based compensation expense	Stock-based compensation expense	16		13		Stock-based compensation expense	9		6
Deferred tax benefit		3		3
Deferred tax expense (benefit)						Deferred tax expense (benefit)	(7)		3
Other	Other	1		(6)		Other	9		4
Changes in operating assets and liabilities	Changes in operating assets and liabilities					Changes in operating assets and liabilities
Accounts receivable	Accounts receivable	(20)		(9)		Accounts receivable	57		(33)
Other assets	Other assets	(30)		(73)		Other assets	11		(7)
Accounts payable	Accounts payable	(56)		(40)		Accounts payable	(49)		(39)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	43		53		Accrued expenses and other liabilities	(100)		(2)
Net cash provided by operating activities	Net cash provided by operating activities	200		146		Net cash provided by operating activities	39		46
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(154)		(119)		Capital expenditures	(91)		(65)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	6		2		Proceeds from sales of property and equipment	9		3
Purchase and sale of affiliate trade receivables, net		—		12
Acquisition of businesses, net of cash acquired		(874)		34

Other	Other	19		—		Other	—		18
Net cash used in investing activities	Net cash used in investing activities	(1,003)		(71)		Net cash used in investing activities	(82)		(44)
Cash flows from financing activities
Proceeds from issuance of debt, net		898		—

Repayment of debt related to securitization transactions and other		—		(25)
Repayment of debt and finance leases		(15)		(56)
Purchase of noncontrolling interests		—		(128)
Net transfers from XPO Logistics, Inc.		—		116
Taxes paid related to net share settlement of equity awards		(12)		—
Cash flows from financing activities:						Cash flows from financing activities:
Repayments of debt, net						Repayments of debt, net	(21)		—
Repayments of finance lease obligations						Repayments of finance lease obligations	(8)		(9)
Taxes paid related to stock-based compensation awards						Taxes paid related to stock-based compensation awards	(4)		(11)
Other	Other	(2)		15		Other	4		2
Net cash provided by (used in) financing activities		869		(78)
Net cash used in financing activities						Net cash used in financing activities	(29)		(18)
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(15)		1		Effect of exchange rates on cash and cash equivalents	3		(5)
Net increase (decrease) in cash and cash equivalents		51		(2)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(69)		(21)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	333		328		Cash and cash equivalents, beginning of period	495		333
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	384	$	326	Cash and cash equivalents, end of period	$	426	$	312
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued for acquisition		$	203	$	—

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of December 31, 2022	118,728	$	1	$	2,575	$	323	$	(254)	$	2,645	$	33	$	2,678
Net income	—	—		—		25		—		25		1		26
Other comprehensive income	—	—		—		—		10		10		—		10
Stock-based compensation	—	—		9		—		—		9		—		9
Vesting of stock-based compensation awards	265	—		—		—		—		—		—		—
Tax withholding on vesting of stock-based compensation awards	(104)	—		(4)		—		—		(4)		—		(4)
Balance as of March 31, 2023	118,889	$	1	$	2,580	$	348	$	(244)	$	2,685	$	34	$	2,719

Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity
(Shares in thousands, dollars in millions) Shares Amount
Balance as of March 31, 2022 114,840 $ 1 $ — $ 2,349 $ 163 $ (172) $ 2,341 $ 34 $ 2,375
Net income — — — — 51 — 51 1 52
Other comprehensive (loss) — — — — — (74) (74) (1) (75)
Stock-based compensation — — — 10 — — 10 — 10
Vesting of stock compensation awards 21 — — — — — — — —
Tax withholding on vesting of stock compensation awards — — — (1) — — (1) — (1)
Common stock issued for acquisition 3,749 — — 203 — — 203 — 203
Dividends — — — — — — — (3) (3)
Balance as of June 30, 2022 118,610 $ 1 $ — $ 2,561 $ 214 $ (246) $ 2,530 $ 31 $ 2,561

Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity
(Shares in thousands, dollars in millions) Shares Amount
Balance as of December 31, 2021 114,659 $ 1 $ — $ 2,354 $ 126 $ (130) $ 2,351 $ 39 $ 2,390
Net income — — — — 88 — 88 2 90
Other comprehensive (loss) — — — — — (118) (118) (2) (120)
Stock-based compensation — — — 16 — — 16 — 16
Vesting of stock compensation awards 202 — — — — — — — —
Tax withholding on vesting of stock compensation awards — — — (12) — — (12) — (12)
Common stock issued for acquisition 3,749 — — 203 — — 203 — 203
Deconsolidation of variable interest entity — — — — — 2 2 (5) (3)
Dividends — — — — — — — (3) (3)
Balance as of June 30, 2022 118,610 $ 1 $ — $ 2,561 $ 214 $ (246) $ 2,530 $ 31 $ 2,561

~~GXO Logistics, Inc.~~

~~Condensed Consolidated Statements of Changes in Equity~~

~~(Unaudited)~~

Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity
(Shares in thousands, dollars in millions) Shares Amount
Balance as of March 31, 2021 — $ — $ 2,903 $ — $ — $ 16 $ 2,919 $ 124 $ 3,043
Net income — — 11 — — — 11 3 14
Other comprehensive income (loss) — — — — — 23 23 (4) 19
Purchase of noncontrolling interest — — — — — — — (128) (128)
Net transfers from (to) XPO Logistics, Inc. — — (79) — — — (79) 40 (39)
Other — — — — — — — 5 5
Balance as of June 30, 2021 — $ — $ 2,835 $ — $ — $ 39 $ 2,874 $ 40 $ 2,914

(Shares in thousands, dollars in millions) Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity
Shares Amount
Balance as of December 31, 2020 — $ — $ 2,765 $ — $ — $ 58 $ 2,823 $ 125 $ 2,948
Net income — — 25 — — — 25 6 31
Other comprehensive loss — — — — — (19) (19) (8) (27)
Purchase of noncontrolling interests — — — — — — — (128) (128)
Net transfers from XPO Logistics, Inc. — — 45 — — — 45 40 85
Other — — — — — — 5 5
Balance as of June 30, 2021 — $ — $ 2,835 $ — $ — $ 39 $ 2,874 $ 40 $ 2,914


(Shares in thousands, dollars in millions)	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
	Shares	Amount
Balance as of December 31, 2021	114,659	$	1	$	2,354	$	126	$	(130)	$	2,351	$	39	$	2,390
Net income	—	—		—		37		—		37		1		38
Other comprehensive loss	—	—		—		—		(44)		(44)		(1)		(45)
Stock-based compensation	—	—		6		—		—		6		—		6
Vesting of stock-based compensation awards	318	—		—		—		—		—		—		—
Tax withholding on vesting of stock-based compensation awards	(137)	—		(11)		—		—		(11)		—		(11)
Deconsolidation of variable interest entity	—	—		—		—		2		2		(5)		(3)
Balance as of March 31, 2022	114,840	$	1	$	2,349	$	163	$	(172)	$	2,341	$	34	$	2,375

See accompanying ~~notes~~Notes to ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements of GXO Logistics, Inc. (“GXO” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and ~~footnotes~~notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.

Operating results for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~

~~On August 2, 2021, the Company completed the separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation, the~~2023. The Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. On August 2, 2021, the Company became a standalone publicly-traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared under GAAP.

Prior to the Separation, the Company’s historical assets and liabilities presented were wholly owned by XPO and were reflected on a historical cost basis. In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carryover basis.

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO. The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which include adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs is recorded within Selling, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Condensed Consolidated Financial Statements ~~of Operations.~~

~~The Company’s consolidated financial statements~~ include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.

The accompanying unaudited Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).

The Company presents its operations as 1one reportable segment.

Recently Adopted Accounting Pronouncements

In ~~October 2021,~~2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. On January 1, 2022, the Company adopted the guidance. The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In March 2020, the FASB issued ASU~~ 2020-04, “Reference ~~rate reform~~Rate Reform (Topic 848): Facilitation of the ~~effects~~Effects of ~~reference rate reform~~Reference Rate Reform on ~~financial reporting.~~Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate ~~reform.~~reform if certain criteria are met. The ~~amendments apply~~ASU applies 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~~In 2021, the FASB expanded the scope of the guidance to include derivatives. In 2022, the FASB deferred the expiration date for Topic 848 from December 31, ~~2022.~~2022, until December 31, 2024. On March 9, 2023, the Company entered into Amendment No. 1 to its revolving credit facility replacing LIBOR-based benchmark rates with SOFR-based benchmark rates and other conforming changes (the “Revolving Credit Facility”). The Company ~~intends~~has transitioned its existing contracts to ~~apply this guidance when modifications of contracts that include LIBOR occur, which is~~a replacement index. ASU 2020-04 and its amendments did not ~~expected to~~ have a material impact on the Company’s ~~consolidated financial statements.~~Condensed Consolidated Financial Statements.

2. Revenue Recognition

Revenue disaggregated by geographical area was as follows:


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022
United Kingdom	United Kingdom	$	777	$	615	$	1,481	$	1,167	United Kingdom	$	844	$	704
United States	United States	685		551		1,366		1,135		United States	714		681
France	France	183		190		359		370		France	202		176
Netherlands	Netherlands	163		157		333		305		Netherlands	196		170
Spain	Spain	123		122		243		241		Spain	127		120
Italy										Italy	88		82
Other	Other	225		247		457		486		Other	152		150
Total	Total	$	2,156	$	1,882	$	4,239	$	3,704	Total	$	2,323	$	2,083

The Company’s revenue can also be disaggregated by various verticals, reflecting the ~~customers’~~customer’s principal ~~industry sector.~~industry. Revenue disaggregated by industry ~~sector~~ was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Omnichannel retail	$	968	$	825
Technology and consumer electronics	366		305
Food and beverage	307		338
Industrial and manufacturing	272		263
Consumer packaged goods	253		213
Other	157		139
Total	$	2,323	$	2,083

Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2022 2021 2022 2021
E-commerce, omnichannel retail and consumer technology $ 1,194 $ 999 $ 2,324 $ 1,950
Food and beverage 336 312 674 611
Industrial and manufacturing 269 251 532 499
Consumer packaged goods 223 184 436 370
Other 134 136 273 274
Total $ 2,156 $ 1,882 $ 4,239 $ 3,704
Contract Assets and Liabilities

Contract assets consist of two components, customer acquisition costs and costs to fulfill a contract. Contract assets are primarily amortized to Direct operating expense in the Condensed Consolidated Statements of Operations over the contract term.

Contract liabilities represent the Company’s obligation to transfer services to a customer for which the Company has received consideration or the amount is due from the customer.

The contract asset and contract liability balances from contracts with customers were as follows:


(In millions)	March 31, 2023		December 31, 2022
Contract assets included in:
Other current assets	$	13	$	25
Other long-term assets	163		165
Total contract assets	$	176	$	190
Contract liabilities included in:
Other current liabilities	$	169	$	154
Other long-term liabilities	126		134
Total contract liabilities	$	295	$	288

~~Contract Balances~~

(In millions) June 30, 2022 December 31, 2021
Contract assets(1)
$ 174 $ 147
Contract liabilities(2)
284 220

~~(1) Contract assets are included within Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.~~

~~(2) Contract liabilities are included within Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.~~

Revenue ~~recognized~~ included the following:


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022
Amounts included in the beginning of year contract liability balance		$	8	$	5	$	71	$	65
Amounts included in the beginning-of-year contract liability balance										Amounts included in the beginning-of-year contract liability balance	$	82	$	63

Remaining Performance Obligations

As of ~~June 30, 2022,~~March 31, 2023, the fixed consideration component of the Company’s remaining performance obligation was approximately ~~$2.6~~$3.3 billion, and the Company expects to recognize approximately ~~71%~~73% of that amount over the next three years and the remainder thereafter. The Company estimates 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.

3. ~~Acquisitions~~

~~Clipper Acquisition~~

On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). The Company acquired Clipper for $1,103 million, consisting of $900 million in cash and the issuance of 3,749,266 shares of GXO common stock having a value of $203 million. The Competition and Markets Authority (the “CMA”) in the U.K. is currently reviewing the Clipper Acquisition. The Company estimates that the CMA’s review of the acquisition will be completed during the second half of 2022.

The Company incurred transaction and financing costs related to the Clipper Acquisition of $20 million and $34 million for the three and six months ended June 30, 2022, respectively, which are included in Transaction and integration costs in the Condensed Consolidated Statements of Operations.

In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement; (ii) the Company entered into a Term Loan; (iii) the Company entered into a Five-Year Term Loan; and (iv) the Company terminated its Bridge Term Loan agreement. For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6—Debt and Financing Arrangements.

Clipper’s results of operations are included in our consolidated financial statements from the date of acquisition. The Company recorded $80 million and $1 million of revenue and income before income taxes for both the three and six months ended June 30, 2022, respectively.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting. The fair value of assets acquired and liabilities assumed was based on management’s estimate of the fair values of the assets acquired and liabilities assumed using valuation techniques including income, cost and market approaches.

~~The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the acquisition date:~~


~~(In millions)~~
~~ASSETS~~
~~Current assets~~
~~Cash and cash equivalents~~	$	26
~~Accounts receivable~~	~~146~~
~~Other current assets~~	63
~~Total current assets~~	~~235~~
~~Long-term assets~~
~~Property and equipment~~	83
~~Operating lease assets~~	~~235~~
~~Intangible assets~~	~~340~~
~~Other long-term assets~~	25
~~Total long-term assets~~	~~683~~
~~Total assets~~	$	~~918~~
~~LIABILITIES~~
~~Current liabilities~~
~~Accounts payable~~	$	87
~~Accrued expenses~~	~~104~~
~~Short-term borrowings and obligations under finance leases~~	54
~~Current operating lease liabilities~~	37
~~Other current liabilities~~	45
~~Total current liabilities~~	~~327~~
~~Long-term liabilities~~
~~Long-term debt and obligations under finance leases~~	10
~~Long-term operating lease liabilities~~	~~221~~
~~Other long-term liabilities~~	~~105~~
~~Total long-term liabilities~~	~~336~~
~~Total liabilities~~	$	~~663~~
~~Net assets purchased~~	$	~~255~~
~~Cash paid~~	$	~~900~~
~~Common stock issued(1)~~	~~203~~
~~Purchase price paid~~	$	~~1,103~~
~~Goodwill recorded(2)~~	$	~~848~~

~~(1) Represents the fair value of the Company’s common stock on the acquisition date.~~

(2) Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill acquired was recorded in the European reporting unit and was primarily attributed to anticipated synergies.

The fair values of the assets acquired and liabilities assumed are considered preliminary and subject to adjustment as additional information is obtained and reviewed. The final allocation of the purchase price may differ from the preliminary allocation based on completion of the valuation. The Company expects to finalize purchase price allocation within the measurement period, which will not exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to lease assets and liabilities, intangible assets and goodwill.

The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Clipper occurred on January 1, 2021. The pro forma results reflect the impact of incremental interest expense, net of hedging instruments, to finance the acquisition and amortization expense on acquired intangible assets. Adjustments have also been made to remove transaction related costs. The unaudited pro forma information is not necessarily indicative of what the results of operations of the combined company would have been had the acquisition been completed as of January 1, 2021.

Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2022 2021 2022 2021
Revenue $ 2,334 $ 2,146 $ 4,695 $ 4,236
Income before income taxes 91 15 154 40

~~Kuehne + Nagel Acquisition~~

In January 2021, the Company acquired the majority of Kuehne + Nagel’s contract logistics operations in the U.K. Kuehne + Nagel’s operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management. The Company recorded assets and liabilities at fair value. Operating and finance lease assets and liabilities, goodwill and intangible assets acquired were approximately $300 million, $16 million and $26 million, respectively.

~~4. Restructuring and Other~~

~~Restructuring~~

The Company engages in restructuring actions as part of its ongoing efforts to best use its resources and infrastructure. These actions generally include severance and facility-related costs and are intended to improve efficiency and profitability.

~~The following is a rollforward of the restructuring liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:~~


~~(In millions)~~
~~Balance as of December 31, 2021~~	$	3
~~Charges incurred~~	6
~~Payments~~	~~(6)~~

~~Balance as of June 30, 2022~~	$	3

~~The remaining restructuring liability at June 30, 2022 is primarily related to severance payments and is expected to be substantially paid within the next twelve months.~~

~~Other~~

~~In the first quarter of 2022, the Company deconsolidated a 50% owned joint venture. The deconsolidation resulted in an $8 million charge recorded in the first quarter of 2022.~~

5. Leases

The Company has operating ~~and finance~~ leases primarily for real estate, warehouse equipment, trucks, trailers, containers and material handling equipment. In addition, the Company has finance leases for equipment.

The following amounts related to leases were recorded in the Condensed Consolidated Balance Sheets:


(In millions)	March 31, 2023		December 31, 2022
Operating leases:
Operating lease assets	$	2,168	$	2,227

Current operating lease liabilities	$	568	$	560
Long-term operating lease liabilities	1,800		1,853
Total operating lease liabilities	$	2,368	$	2,413

Finance leases:
Property and equipment, net	$	125	$	123

Current debt	$	38	$	35
Long-term debt	90		97
Total finance lease liabilities	$	128	$	132

(In millions) June 30, 2022 December 31, 2021
Operating leases:
Operating lease assets $ 1,900 $ 1,772
Current operating lease liabilities $ 490 $ 453
Long-term operating lease liabilities 1,570 1,391
Total operating lease liabilities $ 2,060 $ 1,844
Finance leases:
Property and equipment, net $ 145 $ 155
Short-term borrowings and obligations under finance leases $ 37 $ 34
Long-term debt and obligations under finance leases 110 133
Total finance lease liabilities $ 147 $ 167

The components of lease expense recorded in the Condensed Consolidated Statements of Operations were as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Operating leases:
Operating lease cost	$	218	$	169
Short-term lease cost	26		22
Variable lease cost	28		20
Total operating lease cost (1)	$	272	$	211
Finance leases:
Amortization of leases	$	7	$	7
Interest expense on lease liabilities	1		1
Total finance lease cost	$	8	$	8
Total operating and finance lease cost	$	280	$	219

Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2022 2021 2022 2021
Operating leases:
Operating lease cost $ 171 $ 165 $ 340 $ 329
Short-term lease cost 23 18 45 37
Variable lease cost 22 18 42 37
Total operating lease cost $ 216 $ 201 $ 427 $ 403
Finance leases:
Amortization of leased assets $ 11 $ 13 $ 18 $ 17
Interest expense on lease liabilities 2 1 3 2
Total finance lease cost $ 13 $ 14 $ 21 $ 19
Total operating and finance lease cost $ 229 $ 215 $ 448 $ 422
(1) Operating lease cost is primarily included in Direct operating expenses in the Condensed Consolidated Statements of Operations.

Supplemental cash flow information was as follows:

Six Months Ended June 30,
(In millions) 2022 2021
Leased assets obtained in exchange for new operating lease liabilities, including $249 and $281 from an acquisition in 2022 and 2021, respectively $ 559 $ 576
Leased assets obtained in exchange for new finance lease liabilities, including $14 and $23 from an acquisition in 2022 and 2021, respectively 16 33


	Three Months Ended March 31,
(In millions)	2023		2022
Leased assets obtained in exchange for new operating lease liabilities	$	73	$	154
Leased assets obtained in exchange for new finance lease liabilities	3		1

6.4. Debt and Financing Arrangements

The following table summarizes the carrying value of debt:

(In millions)
Rate(1)
June 30, 2022 December 31, 2021
1.65% Unsecured notes due 2026(2)
1.65% $ 397 $ 397
2.65% Unsecured notes due 2031(3)
2.65% 396 396
Two-Year Term Loan due 2024 2.58% 165 —
Three-Year Term Loan due 2025(4)
2.58% 234 —
Five-Year Term Loan due 2027(4)
2.71% 499 —
Finance leases and other Various 194 168
Total debt and obligations under finance leases $ 1,885 $ 961
Less: Short-term borrowings and obligations under finance leases 84 34
Total long-term debt and obligations under finance leases $ 1,801 $ 927


(In millions)	Rate (1)	March 31, 2023		December 31, 2022
1.65% Unsecured notes due 2026 (2)	1.65%	$	397	$	397
2.65% Unsecured notes due 2031 (2)	2.65%	397		397
Two-Year Term Loan due 2024 (3)	6.02%	115		115
Three-Year Term Loan due 2025 (4)	6.02%	234		234
Five-Year Term Loan due 2027 (4)	6.14%	499		499
Finance leases and other	Various	139		164
Total debt		$	1,781	$	1,806
Less: Current debt		84		67
Total Long-term debt		$	1,697	$	1,739

(1) Interest rate as of ~~June 30, 2022.~~March 31, 2023.

(2) Net of unamortized debt issuance costs ~~and discount~~ of $3 million as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

(3) ~~Net~~As of ~~unamortized~~March 31, 2023, $35 million is classified as current debt ~~issuance costs and discount of $4 million~~ as ~~of June 30, 2022 and December 31, 2021.~~it was repaid on April 7, 2023.

(4) Net of unamortized debt issuance costs of $1 million as of ~~June 30,~~March 31, 2023 and December 31, 2022.

~~Five-Year Term Loan~~

On May 25, 2022, the Company entered into a five-year unsecured Term Loan (the “Five-Year Term Loan due 2027”) that provided a $500 million unsecured term loan facility to fund the Clipper Acquisition. On May 26, 2022, the Company borrowed $500 million that will mature on May 26, 2027. The loan bears interest at a fluctuating rate per annum equal to, at the Company’s option, the alternate base rate or the adjusted Secured Overnight Financing Rate (SOFR), plus an applicable margin based on the Company’s credit ratings.

~~Delayed Draw Term Loan~~

On March 22, 2022, the Company entered into an unsecured delayed draw Term Loan (the “Delayed Draw Term Loan”) that provided a £375 million ($457 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The loans were available to the Company in U.S. dollars or British pounds sterling. On May 26, 2022, the Company borrowed, in U.S. dollars, a $165 million 2-year term loan tranche (the “Two-Year Term Loan due 2024”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan due 2025”) that will mature on May 26, 2024 and May 26, 2025, respectively. Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, the alternate base rate or the adjusted SOFR, plus an applicable margin based on the Company’s credit ratings.

~~Bridge Term Loan~~

On February 28, 2022, the Company entered into an unsecured Bridge Term Loan (the “Bridge Term Loan”) that provided a £745 million ($907 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The commitments under the Bridge Term Loan were terminated with the effectiveness of the Five-Year Term Loan and the Delayed Draw Term Loan. NaN amounts were drawn under the Bridge Term Loan credit agreement.

~~Revolving Credit Facility~~

In 2021, the Company entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”). The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit. No amounts were outstanding under the Revolving Credit Facility as of June 30, 2022.

~~Sales of Certain Receivables~~Factoring Programs

The Company sells certain of its trade accounts receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. ~~The Company also sold certain European trade accounts receivables under a securitization program. In the first quarter of 2022, the Company terminated its securitization program.~~ The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows. ~~The Company uses the sale of certain receivables to help manage its working capital.~~

Information related to the trade receivables sold was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Receivables sold in period	$	263	$	229
Cash consideration	261		228
Net cash provided in operating cash flows (1)	—		6

Three Months Ended Six Months Ended
June 30, June 30,
(In millions) 2022 2021 2022 2021
Factoring agreements
Receivables sold in period $ 228 $ 100 $ 457 $ 200
Cash consideration 228 100 456 200
Securitization program
Receivables sold in period $ — $ 474 $ — $ 902
Cash consideration — 474 — 902
(1) The three months ended March 31, 2022 includes $124 million of cash provided by factoring programs, reduced by $118 million used in the securitization program that was terminated in the first quarter of 2022.

Covenants and Compliance

The covenants in the ~~Revolving Credit Facility, the Five-Year Term Loan~~unsecured notes, term loans and ~~the Delayed Draw Term Loan,~~revolving credit facilities, which are customary for financings of this type, limit the Company’s ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require the Company to maintain a consolidated leverage ratio below a specified maximum.

As of ~~June 30, 2022,~~March 31, 2023, the Company was in compliance with the covenants contained in its debt and financing arrangements.

7.5. Fair Value Measurements and Financial Instruments

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.

Assets and liabilities

The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of ~~June 30, 2022~~March 31, 2023, and December 31, ~~2021,~~2022, due to their short-term nature.

Debt

The fair value of debt was as follows:


			June 30, 2022				December 31, 2021						March 31, 2023				December 31, 2022
(In millions)	(In millions)	Level	Fair Value		Carrying Value		Fair Value		Carrying Value		(In millions)	Level	Fair Value		Carrying Value		Fair Value		Carrying Value
1.65% Unsecured notes due 2026	1.65% Unsecured notes due 2026	2	$	346	$	397	$	391	$	397	1.65% Unsecured notes due 2026	2	$	347	$	397	$	342	$	397
2.65% Unsecured notes due 2031	2.65% Unsecured notes due 2031	2	312		396		394		396		2.65% Unsecured notes due 2031	2	312		397		294		397
Two-Year Term Loan due 2024	Two-Year Term Loan due 2024	2	165		165		—		—		Two-Year Term Loan due 2024	2	115		115		115		115
Three-Year Term Loan due 2025	Three-Year Term Loan due 2025	2	235		234		—		—		Three-Year Term Loan due 2025	2	235		234		234		234
Five-Year Term Loan due 2027	Five-Year Term Loan due 2027	2	500		499		—		—		Five-Year Term Loan due 2027	2	500		499		499		499

Financial Instruments

The Company directly manages its exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. The Company uses derivative instruments to manage

the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in 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. The Company does not expect to incur any losses as a result of counterparty default.

~~Net Investment Hedges~~

The Company uses fixed-to-fixed or variable-to-variable cross-currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and the associated foreign currencies. The Company designated these cross-currency swap agreements as qualifying hedging instruments and accounts for them as net investment hedges.

In the first quarter of 2022, the Company extended certain fixed-to-fixed cross-currency swap agreements scheduled to mature between 2022 to 2027, with an aggregate notional amount of $322 million. In the second quarter of 2022, the Company extended a fixed-to-fixed cross-currency swap agreement scheduled to mature in 2026 to 2027, with an aggregate notional amount of $165 million. Additionally, in the second quarter of 2022, the Company entered into multiple cross-currency swap agreements with maturity dates ranging from 2023 to 2027, with an aggregate notional amount of $900 million, of which $250 million was amended during the quarter. In connection with the extensions and amendments, the Company received cash of $2 million and $12 million representing the fair value of the ~~swap and interest accrued through the date of termination for the three and the six months ended June 30, 2022, respectively.~~

~~Interest Rate Swap Agreements~~

The Company uses interest rate swap agreements to hedge the variability of cash flows resulting from floating interest rate borrowings. The Company designated these interest rate swap agreements as qualifying hedging instruments and accounts for them as cash flow hedges. When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of AOCI and are reclassified into Interest expense, net over the life of the underlying debt, as interest on the Company’s ~~floating rate debt is accrued.~~

~~In the second quarter of 2022, the Company entered into multiple interest rate swap agreements with an aggregate notional amount of $250 million.~~

~~Foreign Currency Exchange Rate Risk~~

The Company is exposed to certain risks relating to its ongoing business operations including foreign currency exchange rate risk. The Company uses foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from its operations that use the Euro or British pound sterling as their functional currency. Additionally, the Company uses foreign currency forward contracts to mitigate exposure from variability of cash flows related to the forecasted interest and principal payments on intercompany loans. The foreign currency forward contracts generally expire within 12 months. While these derivatives are hedging the fluctuations in foreign currencies, they do not meet the requirements to be accounted for as hedging instruments.

~~Derivatives~~

~~The fair value of~~ derivative instruments and the related notional amounts were as follows:


	March 31, 2023
	Notional		Derivative Assets(1)		Derivative Liabilities(2)
Designated as hedges
Cross-currency swap agreements	$	1,337	$	22	$	27
Interest rate swaps	250		6		—
Not designated as hedges
Foreign currency option contracts	$	241	$	1	$	5
Foreign currency forward contracts	44		—		—

(1) Derivative assets are included in Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.

(2) Derivative liabilities are included in Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.


		June 30, 2022				December 31, 2021						December 31, 2022
(In millions)		Notional Amount		Fair Value		Notional Amount		Fair Value		Balance Sheet Caption
Derivatives designated as hedges
Assets:
Cross-currency swap agreements		$	1,387	$	28	$	—	$	—	Other long-term assets
Liabilities:
Cross-currency swap agreements		$	—	$	—	$	328	$	4	Other current liabilities
												Notional		Derivative Assets(1)		Derivative Liabilities(2)
Designated as hedges											Designated as hedges
Cross-currency swap agreements	Cross-currency swap agreements	—		—		165		4		Other long-term liabilities	Cross-currency swap agreements	$	1,337	$	22	$	13
Interest rate swaps	Interest rate swaps	250		1		—		—		Other long-term liabilities	Interest rate swaps	250		9		—
Derivatives not designated as hedges
Assets:
Not designated as hedges											Not designated as hedges
Foreign currency option contracts	Foreign currency option contracts	$	215	$	23	$	368	$	11	Other current assets	Foreign currency option contracts	$	354	$	—	$	5
Foreign currency option contracts		—		—		37		1		Other long-term assets
Liabilities:
Foreign currency forward contracts	Foreign currency forward contracts	$	15	$	—	$	—	$	—	Other current liabilities	Foreign currency forward contracts	3		—		—

(1) Derivative assets are included in Other current assets and Other long-term assets in the Condensed Consolidated Balance Sheets.

(2) Derivative liabilities are included in Other current liabilities and Other long-term liabilities in the Condensed Consolidated Balance Sheets.

As of ~~June 30, 2022,~~March 31, 2023 and December 31, ~~2021,~~2022, the derivatives ~~were~~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.~~

~~Derivatives designated as hedges~~

The effect of hedges on ~~AOCI~~AOCL and in the Condensed Consolidated Statements of Operations was as follows:


		Three Months Ended June 30, 2022						Six Months Ended June 30, 2022							Three Months Ended March 31, 2023
(In millions)	(In millions)	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative		Gain or (Loss) Reclassified from AOCI into Net Income(1)		Gain or (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing)(1)		Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative		Gain or (Loss) Reclassified from AOCI into Net Income(1)		Gain or (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing)(1)		(In millions)	Gain (Loss) Recognized in Other Comprehensive Income		Gain (Loss) Reclassified from AOCL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges	Derivatives designated as net investment hedges													Derivatives designated as net investment hedges
Cross-currency swap agreements	Cross-currency swap agreements	$	43	$	2	$	—	$	46	$	2	$	2	Cross-currency swap agreements	$	(16)	$	(3)	$	1
Derivatives designated as cash flow hedges	Derivatives designated as cash flow hedges													Derivatives designated as cash flow hedges
Interest rate swaps	Interest rate swaps	$	(1)	$	—	$	—	$	(1)	$	—	$	—	Interest rate swaps	$	(3)	$	—	$	—

(1) Amounts reclassified to net income are reported within Interest expense, net in the Condensed Consolidated Statements of Operations.

~~There were no derivative instruments recorded~~


	Three Months Ended March 31, 2022
(In millions)	Gain (Loss) Recognized in Other Comprehensive Income		Gain (Loss) Reclassified from AOCL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges
Cross-currency swap agreements	$	3	$	—	$	2

(1) Amounts reclassified to net income are reported within Interest expense, net in the ~~consolidated financial statements on or before June 30, 2021.~~Condensed Consolidated Statements of Operations.

Derivatives not designated as hedges

~~The gains~~Gains and losses recognized in earnings for foreign currency option and forward contracts were $16 million and $24 million, of which $9 million and $15 million were unrealized, for the three and six months ended June 30, 2022, respectively. These amounts are recorded in Other income, ~~(expense),~~ net in the Condensed Consolidated Statements of ~~Operations.~~Operations for foreign currency options and forward contracts were as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Realized gain (loss)	$	(2)	$	2
Unrealized gain	1		6
Total gain (loss)	$	(1)	$	8

8.6. Stockholders’ Equity

The following table summarizes the changes in AOCL by component:


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCL attributable to noncontrolling interest		AOCL attributable to GXO
As of December 31, 2022	$	(149)	$	7	$	(112)	$	—	$	(254)
Unrealized gain (loss), net of tax	11		(3)		—		—		8
Amounts reclassified from AOCL to net income	2		—		—		—		2
Other comprehensive income (loss), net of tax	13		(3)		—		—		10
As of March 31, 2023	$	(136)	$	4	$	(112)	$	—	$	(244)


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCL attributable to noncontrolling interest		AOCL attributable to GXO
As of December 31, 2021	$	(53)	$	—	$	(76)	$	(1)	$	(130)
Unrealized gain (loss), net of tax	(43)		—		—		1		(42)
Amounts reclassified from AOCL to net income	(2)		—		—		—		(2)
Other comprehensive income (loss), net of tax	(45)		—		—		1		(44)
Deconsolidation of variable interest entity	4				—		(2)		2
As of March 31, 2022	$	(94)	$	—	$	(76)	$	(2)	$	(172)

7. Employee Benefit Plans

Defined Benefit Plans

~~In July 2021, the~~The Company ~~became the plan sponsor for~~sponsors a retirement plan in the U.K. (the “U.K. Retirement Plan”). Components of the net periodic benefit cost recognized under the U.K. Retirement Plan were as follows:


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022
Interest cost	Interest cost	$	(5)	$	—	$	(11)	$	—	Interest cost	$	(10)	$	(6)
Expected return on plan assets	Expected return on plan assets	14		—		29		—		Expected return on plan assets	12		15
Net periodic benefit income (1)		$	9	$	—	$	18	$	—
Net periodic pension income (1)										Net periodic pension income (1)	$	2	$	9

(1) Net periodic ~~benefit~~pension income is recorded within Other income, ~~(expense),~~ net in the Condensed Consolidated Statements of Operations.

The Company also maintains defined benefit pension plans for ~~other~~some of its foreign subsidiaries that are excluded from the ~~disclosures~~disclosure due to their immateriality.

Defined Contribution Plans

The ~~Company’s costs for qualified~~Company has defined contribution retirement plans ~~was $4 million~~for its U.S. employees and employees of certain foreign subsidiaries. The Company’s contributions for the three months ended ~~June 30,~~March 31, 2023 and 2022, were $17 million and ~~2021,~~$14 million, respectively, and ~~$8 million for the six months ended June 30, 2022 and 2021. Defined contribution costs~~ were primarily ~~recorded within~~included in Direct operating expenses in the Condensed Consolidated Statements of Operations.

~~9. Earnings per Share~~8. Restructuring Costs and Other

~~The computations of basic~~Restructuring costs are primarily related to severance, including projects to optimize finance, human resource and ~~diluted earnings per share were as follows:~~

Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in millions, shares in thousands, except per share data) 2022
2021(1)
2022
2021(1)
Net income attributable to common shares $ 51 $ 11 $ 88 $ 25
Basic weighted-average common shares 116,131 114,626 115,435 114,626
Dilutive effect of stock-based awards 515 — 676 —
Diluted weighted-average common shares 116,646 114,626 116,111 114,626
Basic earnings per share $ 0.44 $ 0.10 $ 0.76 $ 0.22
Diluted earnings per share $ 0.44 $ 0.10 $ 0.76 $ 0.22

~~(1) On August 2, 2021, 114,626,250 shares of common stock of the Company were distributed~~information technology functions, and ~~began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2021.~~are not associated with customer attrition.

For the three ~~and the six~~ months ended ~~June 30, 2022, approximately 1.8~~March 31, 2023, restructuring costs and other totaled $21 million and ~~1.6~~included severance charges of $15 million ~~shares, respectively, were excluded~~and impairment charges of $6 million as a result of closing certain corporate and administrative offices. For the three months ended March 31, 2022, restructuring costs and other totaled $13 million and included severance charges of $5 million and $8 million related to the deconsolidation of a joint venture.

The following is a roll forward of the restructuring liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:


(In millions)
Balance as of December 31, 2022	$	13
Charges incurred	15
Payments	(8)
Balance as of March 31, 2023	$	20

The remaining restructuring liability at March 31, 2023 primarily relates to severance payments and is expected to be substantially paid within the next twelve months.

9. Income Taxes

The effective tax rate for the first quarter of 2023 was 11.0 percent, a decrease from 22.1 percent in the prior year. The change in our effective tax rate was primarily driven by discrete tax benefits from the ~~calculation~~release of ~~diluted earnings per share because their inclusion would have been anti-dilutive.~~valuation allowances as it is more likely than not that the deferred income tax assets will be realized.

As of March 31, 2023 and December 31, 2022, the Company had valuation allowances of $39 million and $44 million on its deferred income tax asset, respectively.

10. ~~Stockholders’ Equity~~Acquisition

The Company accounted for the Clipper Acquisition as a business combination using the acquisition method of accounting. The fair value of assets acquired and liabilities assumed was based on management’s estimate of the fair value using valuation techniques including income, cost and market approaches.

The following table summarizes the ~~changes in AOCI by component:~~estimated fair value of identifiable assets acquired and liabilities assumed at the acquisition date:


(In millions)
ASSETS
Current assets
Cash and cash equivalents	$	26
Accounts receivable	143
Other current assets	67
Total current assets	236
Long-term assets
Property and equipment	80
Operating lease assets	219
Intangible assets (1)	392
Other long-term assets	30
Total long-term assets	721
Total assets	$	957
LIABILITIES
Current liabilities
Accounts payable	$	81
Accrued expenses	97
Current debt	56
Current operating lease liabilities	43
Other current liabilities	50
Total current liabilities	327
Long-term liabilities
Long-term debt	10
Long-term operating lease liabilities	175
Other long-term liabilities	161
Total long-term liabilities	346
Total liabilities	$	673
Net assets purchased	$	284
Cash paid	$	902
Common stock issued (2)	204
Purchase price paid	$	1,106
Goodwill recorded (3)	$	822

(2) Represents the fair value of the Company’s common stock issued.

1915

(In millions) Foreign Currency Translation Adjustments Derivative Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
As of March 31, 2021 $ 16 $ (1) $ (1) $ 2 $ 16
Unrealized gain (loss), net of tax 26 — — (3) 23
Amounts reclassified from AOCI to net income — — — — —
Other comprehensive income (loss), net of tax 26 — — (3) 23
As of June 30, 2021 $ 42 $ (1) $ (1) $ (1) $ 39
(3) Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill acquired was recorded in the United Kingdom and Ireland reporting unit and was primarily attributed to anticipated synergies. The Company does not expect the goodwill recognized as a part of the acquisition of Clipper to be deductible for income tax purposes.

(In millions) Foreign Currency Translation Adjustments Derivative Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
As of December 31, 2020 $ 61 $ — $ (1) $ (2) $ 58
Unrealized gain (loss), net of tax (19) (1) — 1 (19)
Amounts reclassified from AOCI to net income — — — — —
Other comprehensive income (loss), net of tax (19) (1) — 1 (19)
As of June 30, 2021 $ 42 $ (1) $ (1) $ (1) $ 39
The fair value of the assets acquired and liabilities assumed are considered preliminary and subject to adjustment as additional information is obtained and reviewed. The final allocation of the purchase price may differ from the preliminary allocation based on completion of the valuation. The Company expects to finalize the purchase price allocation within the measurement period, which will not exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to finalization of income taxes and goodwill.

11. Commitments and Contingencies

The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business. These proceedings may include personal injury claims arising from the ~~handling~~transportation and ~~transportation~~handling of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.

The Company establishes 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. The Company reviews and adjusts 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, the Company assesses 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, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or discloses 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 management’s assessment, together with legal counsel, regarding the ultimate outcome of the matter.

Management of the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. Management of the Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its 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 the Company’s financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.

The Company carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting its operations. In the event the Company is required to satisfy a legal claim outside the scope of the coverage provided by insurance, its financial condition, results of operations or cash flows could be negatively impacted.

2016

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Quarterly Report on Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, as filed with the SEC on February ~~17, 2022~~16, 2023 (the ~~“2021~~“2022 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

GXO Logistics, Inc., together with its subsidiaries, (“GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in ~~an industry propelled~~the industry. We provide our customers with high-value-add warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by ~~strong secular tailwinds.~~our ability to deliver technology-enabled, customized solutions at scale. Our customers rely on us to move their goods with high efficiency through their supply chains — from the moment inbound goods arrive at our ~~logistics sites,~~warehouses, through fulfillment and distribution and the management of returned products. Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics and warehousing services.

We strive to provide all of our customers with consistently high levels of service and cutting-edge automation. We also collaborate with our largest customers on planning and forecasting and assist with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as environmental, social and governance. Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.

The most dramatic growth in secular demand in recent years has been in e-commerce and related sectors, including omnichannel retail and other direct-to-consumer channels. We expect to attract new customers and expand the services we provide to existing customers through new projects, thus earning more of their external and internal logistics spending. We use technology to manage advanced automation, labor productivity, sustainability, safety and the complex flow of goods within sophisticated warehouse environments.

Our business model is asset-light and historically resilient in cycles, with high returns, strong free cash flow and visibility into revenue and earnings. The vast majority of our contracts with customers are ~~multi-year agreements,~~long-term in nature, and our facility lease arrangements generally align with contract length. The Company has both fixed-price contracts and cost-plus contracts. Most of our customer contracts contain both fixed and variable components. The fixed component is typically designed to cover facility, technology and equipment costs, ~~and may cover management costs,~~ while the variable component is determined based on expected volumes and associated labor costs.

~~We use technology~~ Under fixed-price contracts (closed book or hybrid contracts), the Company agrees to ~~manage advanced automation, labor productivity, safety and~~perform the complex flow of goods within sophisticated logistics environments. We strive to provide all of our customers with consistently high levels of service and cutting-edge automation managed by our proprietary technology. We also collaborate with our largest customers on planning and forecasting and provide assistance with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as sustainability metrics. Our multidisciplinary, consultative approach has led to many of our key customer relationships extendingspecified work for ~~years and expanding in scope.~~

~~The Separation~~

~~On August 2, 2021, we completed~~a pre-determined price. To the ~~separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation,~~extent the Company’s ~~financial statements were prepared on a standalone combined basis and were derived~~actual costs vary from the ~~consolidated financial statements and accounting records of XPO. On August 2, 2021,~~estimates upon which the price was negotiated, the Company ~~became~~will generate more or less profit. Cost-plus contracts, or open book contracts, provide for the payment of allowable costs incurred during the performance of the contract plus a standalone publicly-traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The Company’s consolidated financial statements include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.

~~We have a single reportable segment.~~

~~Clipper Acquisition~~specified margin.

On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). The Company acquired Clipper for $1,103 million, consisting of $900 million in cash and the issuance of 3,749,266 shares of GXO common stock having a value of $203 million. The Competition and Markets Authority (the “CMA”) in the U.K. is currently reviewingDue to the Clipper ~~Acquisition. The Company estimates that the CMA’s review~~Acquisition, comparisons in our results of ~~the acquisition will be completed during the second half of 2022.~~operations between 2023 and 2022 are less meaningful.

The results of operations of Clipper are included in our consolidated financial statements from the date of acquisition. The Company recorded $80 million and $1 million of revenue and income before income taxes for both the three and six months ended June 30, 2022, respectively.

Results of Operations


		Three Months Ended June 30,								Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		$ Change		% Change			(In millions)	2023		2022		$ Change		% Change
Revenue	Revenue	$	2,156	$	1,882	$	274	15	%		Revenue	$	2,323	$	2,083	$	240	12	%
Direct operating expense	Direct operating expense	1,775		1,554		221		14	%		Direct operating expense	1,906		1,748		158		9	%
Selling, general and administrative expense	Selling, general and administrative expense	220		177		43		24	%		Selling, general and administrative expense	258		190		68		36	%
Depreciation and amortization expense	Depreciation and amortization expense	77		95		(18)		(19)	%		Depreciation and amortization expense	83		76		7		9	%
Transaction and integration costs	Transaction and integration costs	24		35		(11)		(31)	%		Transaction and integration costs	13		19		(6)		(32)	%
Restructuring costs (credits) and other		1		(1)		2		n/m
Restructuring costs and other											Restructuring costs and other	21		13		8		62	%
Operating income	Operating income	59		22		37		n/m			Operating income	42		37		5		14	%
Other income (expense), net		23		(1)		24		n/m
Other income, net											Other income, net	—		16		(16)		(100)	%
Interest expense, net	Interest expense, net	(9)		(6)		(3)		50	%		Interest expense, net	(13)		(4)		(9)		n/m
Income before income taxes	Income before income taxes	73		15		58		n/m			Income before income taxes	29		49		(20)		(41)	%
Income tax expense	Income tax expense	(21)		(1)		(20)		n/m			Income tax expense	(3)		(11)		8		(73)	%
Net income	Net income	$	52	$	14	$	38	n/m			Net income	$	26	$	38	$	(12)	(32)	%

n/m - not meaningful

~~Three Months Ended June 30, 2022 compared with the Three Months Ended June 30, 2021~~

Revenue for the three months ended ~~June 30, 2022,~~March 31, 2023 increased by ~~15%~~12%, or ~~$274~~$240 million, to ~~$2.2~~$2.3 billion compared with ~~$1.9~~$2.1 billion for the same period of 2022. The increase in ~~2021. For~~2023 compared to the ~~three months ended June 30, 2022, our North America, Asia and Pacific operations reported growth~~prior period primarily reflects an increase of ~~22%, and our European operations reported growth of 11%. The~~$224 million due to the Clipper Acquisition ~~contributed 6% to revenue~~and growth in our ~~European operations and 4% to total revenue for the three months ended June 30, 2022.~~business primarily driven by new contract implementations. Foreign currency ~~movements~~movement decreased revenue by ~~approximately 9% for the three months ended June 30, 2022.~~$100 million in 2023.

Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs, ~~and~~ facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses. Direct operating expense for the three months ended ~~June 30, 2022 was $1.8~~March 31, 2023 increased by 9%, or $158 million, to $1.9 billion ~~or 82% of revenue,~~ compared with ~~$1.6~~$1.7 billion ~~or 83% of revenue,~~ for the same period in ~~2021. For~~2022. Direct operating expense increased primarily due to the Clipper Acquisition and growth in our business. As a percentage of revenue, direct operating expense for the three months ended June 30, 2022, direct operating expenses increased by $147 million due to higher personnel and temporary labor expenses, as well as higher third-party facilities and transportation costs of $33 million.March 31, 2023, was 82.0% compared with 83.9% for the same period in 2022.

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the three months ended ~~June 30, 2022,~~March 31, 2023 increased by ~~$43~~36%, or $68 million, to ~~$220~~$258 million compared with ~~$177~~$190 million for the same period in ~~2021.~~2022. SG&A ~~for~~increased due to the ~~three months ended June 30, 2022 increased compared with the same prior year period due to~~Clipper Acquisition and higher personnel costs, primarily for certain administrative functions, reflecting the growth in our business.

Depreciation and amortization expense for the three months ended ~~June 30, 2022, was $77~~March 31, 2023 increased by $7 million to $83 million compared with ~~$95~~$76 million for the same period in ~~2021. The decrease~~2022. Amortization expense was primarily due to allocated corporate charges from XPO before the Separation of $9 million and the impact of foreign currency movements. Depreciation and amortization expense included amortization of intangible assets of $13$17 million and $14 million for the three months ended ~~June 30,~~March 31, 2023 and 2022, respectively. Depreciation and ~~2021, respectively.~~amortization expense increased primarily due to the Clipper Acquisition.

Transaction and integration costs for the three months ended ~~June 30,~~March 31, 2023 were $13 million compared with $19 million for the same period in 2022. Transaction and integration costs in the first quarter of 2023 and 2022 ~~were $24 million and~~ primarily ~~related~~relate to the Clipper Acquisition. ~~Transaction and integration costs for the three months ended June 30, 2021 were $35 million and primarily related to the Separation.~~

Restructuring costs ~~(credits)~~are primarily related to severance, including projects to optimize finance, human resource and information technology functions, and are not associated with customer attrition. Restructuring costs and other for the three months ended ~~June 30, 2022 and 2021 was not material.~~

Other income for the three months ended June 30, 2022 was $23 million. For the three months ended June 30, 2022, pension income was $9 million and the gain on foreign currency contracts was $16 million. Other expense for the three months ended June 30, 2021 was not material.

~~Interest expense, net for the three months ended June 30, 2022 was $9~~March 31, 2023 were $21 million compared with $6$13 million for the same period in ~~2021.~~2022. In the fourth quarter of 2022, the Company initiated a restructuring plan designed to centralize certain processes and standardize operating structures. For the three months ended ~~June 30, 2022, interest expense primarily related to debt issued in the second half~~March 31, 2023, restructuring costs and other included severance charges of ~~2021, debt issued in 2022,~~$15 million and ~~capital lease obligations, partially offset by interest income on the cross-currency swap agreements.~~impairment charges of $6 million as a result of closing certain corporate and administrative offices. For the three months ended ~~June 30, 2021, interest expense primarily~~March 31, 2022, restructuring costs and other included severance charges of $5 million and $8 million related to ~~related-party~~the deconsolidation of a joint venture.

Other income decreased due to foreign currency movements and pension income. Other income, net was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022		$ Change		% Change
Net periodic pension income	$	2	$	9	$	(7)	(78)	%
Foreign currency:
Realized foreign currency contracts gain (loss)	(2)		2		(4)		n/m
Unrealized foreign currency contracts gain	1		6		(5)		(83)	%
Foreign currency remeasurement loss	(1)		(1)		—		—	%
Total foreign currency gain (loss)	$	(2)	$	7	$	(9)	n/m
Other income, net	$	—	$	16	$	(16)	(100)	%

n/m - not meaningful

Interest expense increased primarily due to debt ~~obligations with XPO before~~incurred for the ~~Separation and capital lease obligations.~~Clipper Acquisition. Interest expense, net was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022		$ Change		% Change
Debt and capital leases	$	24	$	9	$	15	n/m
Cross-currency swaps	(8)		(4)		(4)		100	%
Other	(3)		(1)		(2)		n/m
Interest expense, net	$	13	$	4	$	9	n/m

n/m - not meaningful

Income before income taxes for the three months ended ~~June 30, 2022 increased by $58 million,~~March 31, 2023 decreased to ~~$73~~$29 million compared with ~~$15~~$49 million for the same period in ~~2021.~~2022. The ~~increase~~decrease was primarily due to higher ~~revenue and increased other income as a result of~~interest expense, lower pension income and a foreign currency ~~contracts.~~loss, partially offset by higher operating income in 2023.

Income tax expense for the three months ended ~~June 30, 2022~~March 31, 2023 was ~~$21~~$3 million compared with $1$11 million for the same period in ~~2021.~~2022. Our effective tax rate was ~~29.4%~~11.0% for the three months ended ~~June 30, 2022~~March 31, 2023, compared with ~~10.2%~~22.1% for the same period in ~~2021.~~2022. The change in our effective tax rate was primarily driven by ~~an increase in pre-tax losses in certain jurisdictions for which no benefit was recognized, non-deductible transaction cost, offset by~~discrete tax benefits from the release of valuation allowances as it is more likely than not that the deferred ~~true-ups.~~

Six Months Ended June 30,
(In millions) 2022 2021 $ Change % Change
Revenue $ 4,239 $ 3,704 $ 535 14 %
Direct operating expense 3,523 3,074 449 15 %
Selling, general and administrative expense 410 348 62 18 %
Depreciation and amortization expense 153 174 (21) (12) %
Transaction and integration costs 43 53 (10) (19) %
Restructuring costs and other 14 3 11 n/m
Operating income 96 52 44 85 %
Other income (expense), net 39 — 39 n/m
Interest expense, net (13) (11) (2) 18 %
Income before income taxes 122 41 81 n/m
Income tax expense (32) (10) (22) n/m
Net income $ 90 $ 31 $ 59 n/m

~~n/m - not meaningful~~

~~Six Months Ended June 30, 2022 compared with the Six Months Ended June 30, 2021~~

Revenue for the six months ended June 30, 2022, increased by 14%, or $535 million, to $4.2 billion, compared with $3.7 billion for the same period in 2021. For the six months ended June 30, 2022, our North America, Asia and Pacific operations reported growth of 18%, and our European operations reported growth of 12%. The Clipper Acquisition contributed 3% to revenue in our European operations and 2% to total revenue for the six months ended June 30, 2022. Foreign currency movements decreased revenue by approximately 7% for the six months ended June 30, 2022.

Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs and facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses. Direct operating expense for the six months ended June 30, 2022, was $3.5 billion, or 83% of revenue, compared with $3.1 billion, or 83% of revenue for the same period in 2021. For the six months ended June 30, 2022, direct operating expenses increased by $327 million due to higher personnel and temporary labor expenses, as well as higher third-party facilities and transportation costs of $67 million.income tax assets will be realized.

2419

SG&A primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the six months ended June 30, 2022, increased by $62 million, to $410 million, compared with $348 million for the same period in 2021. SG&A for the six months increased compared with the same prior year period due to higher personnel costs, primarily for certain administrative functions, reflecting the growth in our business.

Depreciation and amortization expense for the six months ended June 30, 2022 was $153 million, compared with $174 million for the same period in 2021. The decrease was a result of allocated corporate charges from XPO before the Separation of $14 million and the impact of foreign currency movements. Depreciation and amortization expense included amortization of intangible assets of $27 million and $28 million for the six months ended June 30, 2022 and 2021, respectively.

Transaction and integration costs for the six months ended June 30, 2022 were $43 million and primarily related to the Clipper Acquisition. Transaction and integration costs for the six months ended June 30, 2021 were $53 million and primarily related to the Separation.

Restructuring costs and other for the six months ended June 30, 2022, were $14 million. For the six months ended June 30, 2022, restructuring costs and other included $6 million related to severance costs and $8 million related to the deconsolidation of a joint venture. Restructuring costs and other for the six months ended June 30, 2021 were $3 million and primarily related to severance costs.

Other income for the six months ended June 30, 2022 was $39 million. For the six months ended June 30, 2022, pension income was $18 million and the gain on foreign currency contracts was $24 million. Other income for the six months ended June 30, 2021 was not material.

Interest expense, net for the six months ended June 30, 2022 was $13 million compared with $11 million for the same period in 2021. For the six months ended June 30, 2022, interest expense primarily related to debt issued in the second half of 2021, debt issued in 2022, and capital lease obligations, partially offset by interest income on the cross-currency swap agreements. For the six months ended June 30, 2021, interest expense primarily related to related-party debt obligations with XPO before the Separation and capital lease obligations.

Income before income taxes for the six months ended June 30, 2022 increased by $81 million, to $122 million, compared with $41 million for the same period in 2021. The increase was primarily due to higher revenue and increased other income as a result of pension income and foreign currency contracts, partially offset by the deconsolidation of a joint venture.

Income tax expense for the six months ended June 30, 2022, was $32 million compared with $10 million for the same period in 2021. Our effective tax rate was 26.4% for the six months ended June 30, 2022 compared with 24.9% for the same period in 2021. The change in our effective tax rate was primarily driven by $5 million non-deductible transaction cost, offset by $4 million of deferred true-ups.

Liquidity and Capital Resources

Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our ~~revolving credit facility.~~Revolving Credit Facility. Our principal uses of cash in the future will be to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions. The timing and magnitude of our start-ups can vary and may positively or negatively impact our cash flows.

At March 31, 2023, we held cash and cash equivalents of $426 million, and we had $799 million of borrowing capacity available, net of letters of credit under our Revolving Credit Facility. On April 7, 2023, we repaid $35 million of our Two-Year Term Loan due 2024.

We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

~~Debt and Financing Arrangements~~

~~Five-Year Term Loan~~

On May 25, 2022, we entered into a five-year unsecured Term Loan (the “Five-Year Term Loan due 2027”) that provided a $500 million unsecured term loan facility to fund the Clipper Acquisition. On May 26, 2022, we borrowed $500 million that will mature on May 26, 2027. The loan bears interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted Secured Overnight Financing Rate (SOFR), plus an applicable margin based on the Company’s credit ratings.

~~Delayed Draw Term Loan~~

On March 22, 2022, we entered into an unsecured delayed draw Term Loan (the “Delayed Draw Term Loan”) that provided a £375 million ($457 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The loans were available to us in U.S. dollars or British pounds sterling. On May 26, 2022, we borrowed in U.S. dollars a $165 million 2-year term loan tranche (the “Two-Year Term Loan due 2024”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan due 2025”) that will mature on May 26, 2024, and May 26, 2025, respectively. Loans bear interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted SOFR, plus an applicable margin based on the Company’s credit ratings.

~~Bridge Term Loan~~

On February 28, 2022, we entered into an unsecured Bridge Term Loan (the “Bridge Term Loan”) that provided a £745 million ($907 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The commitments under the Bridge Term Loan were terminated with the effectiveness of the Five-Year Term Loan and the Delayed Draw Term Loan. No amounts were drawn under the Bridge Term Loan credit agreement.

~~Unsecured Notes~~

In 2021, we completed an offering of $800 million aggregate principal amount of notes, consisting of $400 million of notes due 2026 (the “2026 Notes”) and $400 million of notes due 2031 (the “2031 Notes”). The 2026 Notes bear interest at a rate of 1.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2026. The 2031 Notes bear interest at a rate of 2.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2031.

~~Revolving Credit Facility~~

In 2021, we entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”). The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit. No amounts were outstanding under the Revolving Credit Facility as of June 30, 2022.

Sales of Certain Receivables

We sell certain of our trade accounts receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. We ~~also sold certain European trade accounts receivables under a securitization program. In the first quarter of 2022, we terminated our securitization program. 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 use the sale of certain receivables to help manage our working capital.~~

Information related to the trade receivables sold was as follows:


	Three Months Ended March 31,
(In millions)	2023		2022
Receivables sold in period	$	263	$	229
Cash consideration	261		228
Net cash provided in operating cash flows (1)	—		6

Covenants and Compliance

The covenants in the unsecured notes, term loans and revolving credit facilities, which are customary for financings of this type, limit the Company’s ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require the Company to maintain a consolidated leverage ratio below a specified maximum.

As of ~~June 30, 2022, we were~~March 31, 2023, the Company was in compliance with the covenants contained in ~~our~~its debt and financing arrangements.

Financial Condition

The following table summarizes our asset and liability ~~balances as of June 30, 2022 and December 31, 2021:~~balances:


(In millions)	(In millions)	June 30, 2022		December 31, 2021		$ Change		% Change		(In millions)	March 31, 2023		December 31, 2022		$ Change	% Change
Total current assets	Total current assets	$	2,256	$	2,099	$	157	7	%	Total current assets	$	2,311	$	2,428	(117)	(5)	%
Total long-term assets	Total long-term assets	6,450		5,172		1,278		25	%	Total long-term assets	6,779		6,791		(12)	—	%
Total current liabilities	Total current liabilities	2,364		2,329		35		2	%	Total current liabilities	2,421		2,532		(111)	(4)	%
Total long-term liabilities	Total long-term liabilities	3,781		2,552		1,229		48	%	Total long-term liabilities	3,950		4,009		(59)	(1)	%

The ~~increase~~decrease in ~~our~~total assets and total liabilities from December 31, ~~2021~~2022 to ~~June 30, 2022~~March 31, 2023 primarily reflects the ~~assets acquired and liabilities assumed, as well as various debt instruments entered into in connection with the Clipper Acquisition.~~seasonality of our business.

Cash Flow Activity

Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, are summarized as follows:


		Six Months Ended June 30,									Three Months Ended March 31,
(In millions)	(In millions)	2022		2021		$ Change		% Change		(In millions)	2023		2022		$ Change		% Change
Net cash provided by operating activities	Net cash provided by operating activities	$	200	$	146	$	54	37	%	Net cash provided by operating activities	$	39	$	46	$	(7)	(15)	%
Net cash used in investing activities	Net cash used in investing activities	(1,003)		(71)		(932)		n/m		Net cash used in investing activities	(82)		(44)		(38)		86	%
Net cash provided by (used in) financing activities		869		(78)		947		n/m
Net cash used in financing activities										Net cash used in financing activities	(29)		(18)		(11)		61	%
Effect of exchange rates on cash and cash equivalents	Effect of exchange rates on cash and cash equivalents	(15)		1		(16)		n/m		Effect of exchange rates on cash and cash equivalents	3		(5)		8		n/m
Net increase (decrease) in cash and cash equivalents		$	51	$	(2)	$	53	n/m
Net decrease in cash and cash equivalents										Net decrease in cash and cash equivalents	$	(69)	$	(21)	$	(48)	n/m

n/m - not meaningful

Operating Activities

Cash flows ~~from~~provided by operating activities for the ~~six~~three months ended ~~June 30, 2022 increased~~March 31, 2023, decreased by ~~$54~~$7 million compared with the same period in ~~2021. The increase was~~2022, primarily due to ~~a $59 million increase in~~lower net income, ~~partially offset by an $11 million decrease in~~net of non-cash ~~items.~~expenses.

Investing Activities

Investing activities used ~~$1,003~~$82 million of cash for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, compared with ~~$71~~$44 million used for the same period of ~~2021.~~2022. During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, we used ~~$874~~$91 million ~~net~~ of cash ~~received, to fund the Clipper Acquisition, used $154 million~~ to purchase property and equipment ~~received $10 million in proceeds from cross-currency swap agreements, excluding accrued interest,~~ and received $6$9 million of cash from sales of property and equipment. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, we used ~~$119~~$65 million of cash to purchase property and equipment, received ~~$34~~$14 million ~~net cash~~ from the release of an escrow related to the Kuehne + Nagel acquisition ~~received $12 million in connection with the purchase and sale of affiliate trade receivables,~~ and received $2$3 million of cash from sales of property and equipment.

Financing Activities

Financing activities ~~generated $869~~used $29 million of cash for the ~~six~~three months ended ~~June 30, 2022, compared with $78~~March 31, 2023, including $21 million used ~~for the same period of 2021. The primary sources of cash from financing activities in the six months ended June 30, 2022, were $898~~to repay debt, $8 million ~~in proceeds from long-term debt, partially offset by $15 million repayment of debt~~to repay finance lease obligations and ~~finance leases and $12~~$4 million in payments for employee taxes on net settlement of equity awards. ~~The primary uses~~Financing activities used $18 million of cash ~~from financing activities in~~for the ~~six~~three months ended ~~June 30, 2021, were $128~~March 31, 2022, including $11 million in ~~the purchase~~payments for employee taxes on net settlement of ~~a noncontrolling interest, $56~~equity awards and $9 million ~~in repayments of debt and~~to repay finance ~~leases, and $25 million in repayment of debt related to a trade securitization program, partially offset by $116 million of net transfers from XPO.~~lease obligations.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

~~The~~As of March 31, 2023, the Company’s contractual ~~cash requirements have~~obligations had not materially changed ~~materially since the 2021 Form 10-K, except for the new term loan credit agreements described above.~~compared with December 31, 2022.

Critical Accounting Policies and Estimates

Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in “Critical Accounting Policies” in Part II, Item 87 of our ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2021, and that are hereby incorporated by reference.~~2022.

Accounting Pronouncements

Information related to new accounting standards is included in Note 1—1 — Basis of Presentation and Significant Accounting Policies ~~to the condensed consolidated financial statements.~~in Part I, Item 1 of this Quarterly Report on Form 10-Q.

2822

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~Our market risk disclosures involve forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements.~~ We are exposed to market risk ~~related~~that may impact our Condensed Consolidated Financial Statements due primarily to ~~changes~~variable rate long-term debt obligations and fluctuations in certain foreign currencies. To reduce our exposure to market risk associated with interest ~~rates~~ and foreign currency exchange ~~rates.~~

~~Interest Rate Risk~~

~~Our long-term debt portfolio, excluding finance leases~~rate risks, we enter into various derivative instruments to hedge against such risk. There have been no material changes to our exposure from market risk for the three months ended March 31, 2023, from those previously disclosed in “Quantitative and other debt, consists of $800 million fixed rate and $900 million variable rate loans, complemented by a variable-rate revolving credit facility. In the second quarter of 2022, we entered into multiple swap agreements to convert $650 million of variable rate debt from SOFR-indexed to EURIBOR-indexed. A hypothetical 1% increaseQualitative Disclosures About Market Risk” contained in EURIBOR would, among other things, increase our interest expense by approximately $6.5 million. We also entered into multiple swap agreements to convert $250 million of variable rate USD-denominated debt into USD-denominated fixed rate debt. For our fixed rate notes, a 1% increase or decrease in interest rates would decrease or increase the fair valuePart II, Item 7A of our ~~notes by approximately 4.5%.~~

~~Foreign Currency Exchange Risk~~

~~A significant proportion of our net assets and income are in non-U.S. dollar (“USD”) currencies, primarily~~Form 10-K for the Euro (“EUR”) and British pound sterling (“GBP”). We are exposed to currency risk from potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR or the GBP relative to the USD could have an adverse impact on our financial results.

We entered into cross-currency swap agreements to manage our foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated debt, including the interest payments, to fixed-rate EUR-denominated debt and a portion of the floating-rate USD-denominated loans, including the interest payments, to floating-rate EUR-denominated debt. 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 GBP as their functional currency.

As of June 30, 2022, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in an increase in net assets of approximately $57 million. As of June 30, 2022, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of approximately $48 million. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with the history of foreign currency markets. Fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The sensitivity analysis of the impact of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.year ended December 31, 2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of ~~June 30, 2022.~~March 31, 2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of March 31, 2023 were effective as of ~~June 30, 2022,~~such time such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

~~There were no~~Other than the design and implementation of internal controls related to the acquisition of Clipper Logistics plc, there have not been any changes in our internal control over financial reporting ~~as defined in Rules 13a-15(f) and 15d-15(f) of~~during the ~~Exchange Act, during our most recently completed fiscal~~ quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3023

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note ~~11—~~11 — Commitments and Contingencies ~~to the condensed consolidated financial statements included~~ in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of our legal proceedings.

ITEM 1A. RISK FACTORS

There ~~have been~~are no material changes to the risk factors as previously disclosed ~~under~~in “Risk Factors” contained in ~~the 2021~~Part I, Item 1A of our Form 10-K ~~and our Quarterly Report on Form 10-Q~~ for the ~~quarter~~year ended ~~March~~December 31, ~~2022, except as set forth below.~~

~~Risks Related to the Acquisition of Clipper Logistics plc.~~

On February 28, 2022, the Company and the board of directors of Clipper Logistics plc (“Clipper”) reached an agreement on the terms and conditions of a recommended cash and share offer to be made by GXO for the entire issued and to be issued share capital of Clipper. It was intended that the acquisition of Clipper would be effected by means of a Court-sanctioned scheme of arrangement (the “Scheme”). On May 24, 2022, the Company announced that the Scheme had become effective and the acquisition of Clipper had been completed following the sanction of the Scheme by the High Court of Justice in England and Wales on May 20, 2022. The acquisition of Clipper remains subject to the receipt of regulatory approval from the Competition and Markets Authority in the United Kingdom. Regulatory approval for our acquisition of Clipper may not be completed on the currently contemplated timeline or in the currently contemplated form, or at all, and the acquisition may not achieve the intended benefits.

3124

ITEM 6. EXHIBITS


Exhibit Number						Description






































































10.1***10.1						~~Term Loan~~Amendment No. 1 to Credit Agreement, dated as of ~~May 25, 2022,~~March 9, 2023, by and among ~~the Company,~~GXO Logistics, Inc., the lenders and other parties from time to time party thereto, and ~~Barclays Bank plc,~~Citibank, N.A., as Administrative Agent ~~incorporated~~(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (Commission file no. 001-40470) filed with the SEC on ~~May 26, 2022.~~March 10, 2023).





31.1*						Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022.~~March 31, 2023.

31.2*						Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022.~~March 31, 2023.

32.1**						Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022.~~March 31, 2023.

32.2**						Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022.~~March 31, 2023.

101.INS*						Inline XBRL Instance Document.

101.SCH*						Inline XBRL Taxonomy Extension Schema.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase.

104*						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*						Filed herewith.

**						Furnished herewith.

~~***~~						Exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted exhibits to the Securities and Exchange Commission or its staff upon its request.

3225

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		GXO Logistics, Inc.

Date: ~~August 3, 2022~~May 10, 2023	By:	/s/ Malcolm Wilson
		Malcolm Wilson
		(Chief Executive Officer)
		(Principal Executive Officer)

Date: ~~August 3, 2022~~May 10, 2023	By:	/s/ Baris Oran
		Baris Oran
		(Chief Financial Officer)
		(Principal Financial Officer)

3326


GXO Logistics, Inc.
Form 10-Q
For the Quarterly Period Ended ~~June 30, 2022~~March 31, 2023
Table of Contents
						Page
Part I—Financial Information
Item 1. Financial Statements (Unaudited)						2
Condensed Consolidated Statements of Operations						2
Condensed Consolidated Statements of Comprehensive Income (Loss)						3
Condensed Consolidated Balance Sheets						4
Condensed Consolidated Statements of Cash Flows						5
Condensed Consolidated Statements of Changes in Equity						6
Notes to Condensed Consolidated Financial Statements						87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						2117
Item 3. Quantitative and Qualitative Disclosures About Market Risk						2923
Item 4. Controls and Procedures						2923
Part II—Other Information
Item 1. Legal Proceedings						3124
Item 1A. Risk Factors						3124

Item 6. Exhibits						3225
Signatures						3326


	Common Stock			XPO Logistics, Inc. Investment		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of March 31, 2022	114,840	$	1	$	—	$	2,349	$	163	$	(172)	$	2,341	$	34	$	2,375
Net income	—	—		—		—		51		—		51		1		52
Other comprehensive (loss)	—	—		—		—		—		(74)		(74)		(1)		(75)
Stock-based compensation	—	—		—		10		—		—		10		—		10
Vesting of stock compensation awards	21	—		—		—		—		—		—		—		—
Tax withholding on vesting of stock compensation awards	—	—		—		(1)		—		—		(1)		—		(1)
Common stock issued for acquisition	3,749	—		—		203		—		—		203		—		203
Dividends	—	—		—		—		—		—		—		(3)		(3)
Balance as of June 30, 2022	118,610	$	1	$	—	$	2,561	$	214	$	(246)	$	2,530	$	31	$	2,561


(In millions)	Rate(1)	June 30, 2022		December 31, 2021
1.65% Unsecured notes due 2026(2)	1.65%	$	397	$	397
2.65% Unsecured notes due 2031(3)	2.65%	396		396
Two-Year Term Loan due 2024	2.58%	165		—
Three-Year Term Loan due 2025(4)	2.58%	234		—
Five-Year Term Loan due 2027(4)	2.71%	499		—
Finance leases and other	Various	194		168
Total debt and obligations under finance leases		$	1,885	$	961
Less: Short-term borrowings and obligations under finance leases		84		34
Total long-term debt and obligations under finance leases		$	1,801	$	927


(In millions)	Foreign Currency Translation Adjustments		Derivative Hedges		Defined Benefit Plan		Less: AOCI attributable to noncontrolling interest		AOCI attributable to GXO
As of March 31, 2022	$	(94)	$	—	$	(76)	$	(2)	$	(172)
Unrealized gain (loss), net of tax	(73)		—		—		1		(72)
Amounts reclassified from AOCI to net income	(2)		—		—		—		(2)
Other comprehensive income (loss), net of tax	(75)		—		—		1		(74)

As of June 30, 2022	$	(169)	$	—	$	(76)	$	(1)	$	(246)