GXO Logistics, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS GXO Logistics, Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, (Dollars in millions, shares in thousands, except per share amounts) 2022 2021 Revenue $ 2,083 $ 1,822 Direct operating expense 1,748 1,520 Selling, general and administrative expense 190 171 Depreciation and amortization expense 76 79 Transaction and integration costs 19 18 Restructuring costs and other 13 4 Operating income 37 30 Other income, net 16 1 Interest expense, net ( 4 ) ( 5 ) Income before income taxes 49 26 Income tax expense ( 11 ) ( 9 ) Net income 38 17 Less: Net income attributable to noncontrolling interests ( 1 ) ( 3 ) Net income attributable to GXO $ 37 $ 14 Earnings per share data Basic earnings per share $ 0.32 $ 0.12 Diluted earnings per share $ 0.32 $ 0.12 Weighted-average common shares outstanding Basic weighted-average common shares outstanding 114,731 114,626 Diluted weighted-average common shares outstanding 115,569 114,626 See accompanying notes to condensed consolidated financial statements. 2 GXO Logistics, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended March 31, (In millions) 2022 2021 Net income $ 38 $ 17 Other comprehensive loss, net of tax Foreign currency translation loss, net of tax benefit of $ — and $ 3 , respectively ( 45 ) ( 45 ) Unrealized gain (loss) on hedging instruments, net of tax expense of $ — and $( 1 ), respectively — ( 1 ) Other comprehensive loss ( 45 ) ( 46 ) Comprehensive loss ( 7 ) ( 29 ) Less: Comprehensive income attributable to noncontrolling interest — ( 1 ) Comprehensive loss attributable to GXO $ ( 7 ) $ ( 28 ) See accompanying notes to condensed consolidated financial statements. 3 GXO Logistics, Inc. Condensed Consolidated Balance Sheets (Unaudited) March 31, December 31, (Dollars in millions, shares in thousands, except per share amounts) 2022 2021 ASSETS Current assets Cash and cash equivalents $ 312 $ 333 Accounts receivable, net of allowances of $ 13 and $ 13 , respectively 1,492 1,507 Other current assets 226 259 Total current assets 2,030 2,099 Long-term assets Property and equipment, net of $ 1,145 and $ 1,128 in accumulated depreciation, respectively 833 863 Operating lease assets 1,771 1,772 Goodwill 1,986 2,017 Intangible assets, net of $ 414 and $ 407 in accumulated amortization, respectively 239 257 Other long-term assets 267 263 Total long-term assets 5,096 5,172 Total assets $ 7,126 $ 7,271 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 549 $ 624 Accrued expenses 940 998 Short-term borrowings and obligations under finance leases 32 34 Current operating lease liabilities 455 453 Other current liabilities 146 220 Total current liabilities 2,122 2,329 Long-term liabilities Long-term debt and obligations under finance leases 907 927 Long-term operating lease liabilities 1,388 1,391 Other long-term liabilities 334 234 Total long-term liabilities 2,629 2,552 Commitments and contingencies (Note 11) Stockholders’ Equity Common Stock, $ 0.01 par value per share, 300,000 shares authorized, 114,840 and 114,659 shares issued and outstanding, as of March 31, 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 March 31, 2022 and December 31, 2021, respectively — — Additional paid-in capital 2,349 2,354 Retained earnings 163 126 Accumulated other comprehensive loss ( 172 ) ( 130 ) Total stockholders’ equity before noncontrolling interests 2,341 2,351 Noncontrolling interests 34 39 Total equity 2,375 2,390 Total liabilities and equity $ 7,126 $ 7,271 See accompanying notes to condensed consolidated financial statements. 4 GXO Logistics, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, (In millions) 2022 2021 Cash flows from operating activities: Net income $ 38 $ 17 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization expense 76 79 Stock-based compensation expense 6 5 Deferred tax benefit 3 6 Other 4 ( 7 ) Changes in operating assets and liabilities Accounts receivable ( 33 ) 3 Other assets ( 7 ) ( 65 ) Accounts payable ( 39 ) ( 17 ) Accrued expenses and other liabilities ( 2 ) 26 Net cash provided by operating activities 46 47 Cash flows from investing activities: Capital expenditures ( 65 ) ( 67 ) Proceeds from sales of property and equipment 3 — Purchase and sale of affiliate trade receivables, net — 20 Acquisition of businesses, net of cash acquired — 9 Other 18 — Net cash used in investing activities ( 44 ) ( 38 ) Cash flows from financing activities Repayment of debt related to securitization transactions and other — ( 25 ) Repayment of debt and finance leases ( 9 ) ( 26 ) Net transfers from XPO Logistics, Inc. — 138 Other ( 9 ) ( 7 ) Net cash provided by (used in) financing activities ( 18 ) 80 Effect of exchange rates on cash and cash equivalents ( 5 ) ( 3 ) Net increase (decrease) in cash and cash equivalents ( 21 ) 86 Cash and cash equivalents, beginning of period 333 328 Cash and cash equivalents, end of period $ 312 $ 414 See accompanying notes to condensed consolidated financial statements. 5 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 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 — — — — 37 — 37 1 38 Other comprehensive loss — — — — — ( 44 ) ( 44 ) ( 1 ) ( 45 ) Stock-based compensation — — — 6 — — 6 — 6 Vesting of stock compensation awards 181 — — — — — — — — Tax withholding on vesting of stock compensation awards — — — ( 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 (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 — — 14 — — — 14 3 17 Other comprehensive loss — — — — — ( 42 ) ( 42 ) ( 4 ) ( 46 ) Net transfers from XPO Logistics, Inc. — — 124 — — — 124 — 124 Balance as of March 31, 2021 — $ — $ 2,903 $ — $ — $ 16 $ 2,919 $ 124 $ 3,043 See accompanying notes to condensed consolidated financial statements. 6 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 of the Company (“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 required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with 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 months ended March 31, 2022, 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 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 carry-over 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 are recorded within Selling, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Consolidated Statements of Operations. The Company’s consolidated financial statements include the accounts of GXO Logistics, Inc. and its majority-owned subsidiaries and variable interest entities where the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions. The Company presents its operations as one reportable segment. Recently Adopted Accounting Pronouncements In October 2021, 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 7 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 (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. The Company intends to apply this guidance when modifications of contracts that include LIBOR occur, which is not expected to have a material impact on the Company’s condensed consolidated financial statements. 2. Revenue Recognition Revenue disaggregated by geographical area was as follows: Three Months Ended March 31, (In millions) 2022 2021 United Kingdom $ 704 $ 552 United States 681 584 France 176 180 Netherlands 170 148 Spain 120 119 Other 232 239 Total $ 2,083 $ 1,822 The Company’s revenue can also be disaggregated by various verticals, reflecting the customers’ principal industry sector. Revenue disaggregated by industry sector was as follows: Three Months Ended March 31, (In millions) 2022 2021 E-commerce, omnichannel retail and consumer technology $ 1,130 $ 951 Food and beverage 338 299 Industrial and manufacturing 263 248 Consumer packaged goods 213 186 Other 139 138 Total $ 2,083 $ 1,822 Contract Balances (In millions) March 31, 2022 December 31, 2021 Contract assets (1) $ 146 $ 147 Contract liabilities (2) 228 220 (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. 8 Revenue included the following: Three Months Ended March 31, (In millions) 2022 2021 Amounts included in the beginning of year contract liability balance $ 63 $ 60 Remaining Performance Obligations As of March 31, 2022, the fixed consideration component of the Company’s remaining performance obligation was approximately $ 2.6 billion, and the Company expects to recognize approximately 69 % 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 February 28, 2022, the Company and the board of directors of Clipper Logistics plc, a retail logistics company based in Leeds, England (“Clipper”), reached an agreement on the terms of a cash and share offer by the Company for the acquisition of the entire issued ordinary share capital of Clipper for approximately £ 1.0 billion (approximately $ 1.3 billion) (the “Clipper Acquisition”). Under the terms of the agreement, Clipper shareholders will be entitled to receive 690 pence (approximately $ 9.06 as of March 31, 2022) in cash and 0.0359 of a share of GXO common stock per share. In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement, (ii) the Company entered into a Bridge Term Loan Credit Agreement and (iii) the Company entered into a Term Loan Credit Agreement. For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6. Debt and Financing Arrangements. In April 2022, the Clipper Acquisition was approved by Clippers’ shareholders. Kuehne + Nagel Acquisition In 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 $ 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. 9 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 5 Payments ( 4 ) Balance as of March 31, 2022 $ 4 The remaining restructuring liability at March 31, 2022, primarily relates 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 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, 2022 December 31, 2021 Operating leases: Operating lease assets $ 1,771 $ 1,772 Current operating lease liabilities $ 455 $ 453 Long-term operating lease liabilities 1,388 1,391 Total operating lease liabilities $ 1,843 $ 1,844 Finance leases: Property and equipment, net $ 136 $ 155 Short-term borrowings and obligations under finance leases $ 32 $ 34 Long-term debt and obligations under finance leases 114 133 Total finance lease liabilities $ 146 $ 167 10 The components of lease expense recorded in the Condensed Consolidated Statements of Operations were as follows: Three Months Ended March 31, (In millions) 2022 2021 Operating leases: Operating lease cost $ 169 $ 164 Short-term lease cost 22 19 Variable lease cost 20 19 Total operating lease cost $ 211 $ 202 Finance leases: Amortization of leased assets $ 7 $ 4 Interest expense on lease liabilities 1 1 Total finance lease cost $ 8 $ 5 Total operating and finance lease cost $ 219 $ 207 Supplemental cash flow information was as follows: Three Months Ended March 31, (In millions) 2022 2021 Leased assets obtained in exchange for new operating lease liabilities $ 154 $ 412 Leased assets obtained in exchange for new finance lease liabilities 1 30 6. Debt and Financing Arrangements The following table summarizes the carrying value of debt: (In millions) March 31, 2022 December 31, 2021 1.65 % Unsecured notes due 2026 (1) $ 397 $ 397 2.65 % Unsecured notes due 2031 (2) 396 396 Finance leases and other 146 168 Total debt and obligations under finance leases 939 961 Less: Short-term borrowings and obligations under finance leases 32 34 Total long-term debt and obligations under finance leases $ 907 $ 927 (1) The carrying value of the 1.65 % Unsecured Notes due 2026 is presented net of unamortized debt issuance cost and discount of $ 3 million and $ 3 million as of March 31, 2022, and December 31, 2021, respectively. (2) The carrying value of the 2.65 % Unsecured Notes due 2031 is presented net of unamortized debt issuance cost and discount of $ 4 million and $ 4 million as of March 31, 2022, and December 31, 2021, respectively. Term Loan Credit Agreement On March 22, 2022, the Company entered into a Term Loan Credit Agreement that provides a £ 375 million ($ 493 million as of March 31, 2022) unsecured term loan facility, which will partially fund the Clipper Acquisition. The Term Loan Credit Agreement consists of two delayed draw term loans of £ 187.5 million ($ 246 million as of March 31, 2022). The loans may be borrowed in multiple draws beginning on the acquisition date. The loans mature on the second and third anniversary following the funding date, respectively. Loans under the Term Loan Credit Agreement bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S. dollars, at our option, the alternate base rate or the adjusted secured overnight financing rate and (b) with respect to borrowings in British Pounds Sterling, the daily simple Sterling Overnight Interbank Average rate (“SONIA”), in each case, plus an applicable margin based on the Company’s credit ratings. 11 The Term Loan Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for unsecured financings of this type, including negative covenants that, among other things, limit the ability of the Company and its subsidiaries to incur liens, limit the ability of the Company to make certain fundamental changes and limit the ability of certain of its subsidiaries to incur indebtedness, in each case subject to a number of important exceptions and qualifications. In addition, the Term Loan Credit Agreement requires the Company, beginning with the last day of the first full fiscal quarter following the initial funding of loans under the Term Loan Credit Agreement, to maintain a consolidated leverage ratio less than or equal to a specified maximum consolidated leverage ratio. Bridge Term Loan Credit Agreement On February 28, 2022, the Company entered into a Bridge Term Loan Credit Agreement that provided a £ 745 million ($ 979 million as of March 31, 2022) unsecured term loan facility for the Clipper Acquisition. The Bridge Term Loan Credit Agreement matures 364 days after an advance. Loans under the Bridge Term Loan Credit Agreement bear interest at the daily simple SONIA rate plus an applicable margin calculated based on the Company’s credit ratings. Interest will be paid in arrears, initially on the three-month anniversary of the acquisition closing date and thereafter on the date that is three months following the previous payment date. Concurrently with the effectiveness of the Term Loan Credit Agreement, the Company reduced commitments under the Bridge Term Loan Credit Agreement by the aggregate amount of commitments under the 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 March 31, 2022. Sales of Certain Receivables 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 receivable 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 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) 2022 2021 Factoring agreements Receivables sold in period $ 229 $ 100 Cash consideration 228 100 Securitization program Receivables sold in period $ — $ 428 Cash consideration — 428 12 Covenants and Compliance As of March 31, 2022, the Company was in compliance with the covenants contained in its debt and financing arrangements. 7. 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 March 31, 2022 and December 31, 2021, due to their short-term nature. Debt The fair value of debt was as follows: March 31, 2022 December 31, 2021 (In millions) Level Fair Value Carrying Value Fair Value Carrying Value 1.65 % Unsecured notes due 2026 2 $ 364 $ 397 $ 391 $ 397 2.65 % Unsecured notes due 2031 2 351 396 394 396 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. 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. 13 Derivatives The fair value of the Company’s derivative instruments and the related notional amounts were as follows: March 31, 2022 (In millions) Notional Amount Balance Sheet Caption Fair Value Derivatives designated as hedges Liabilities: Cross-currency swap agreements (1) $ 487 Other long-term liabilities $ 13 Derivatives not designated as hedges Assets: Foreign currency option contracts $ 315 Other current assets $ 16 (1) In the first quarter of 2022, the Company extended certain cross-currency swap agreements scheduled to mature in 2022. The new maturity of these cross-currency swap agreements is 2027. December 31, 2021 (In millions) Notional Amount Balance Sheet Caption Fair Value Derivatives designated as hedges Liabilities: Cross-currency swap agreements $ 328 Other current liabilities $ 4 Cross-currency swap agreements 165 Other long-term liabilities 4 Derivatives not designated as hedges Assets: Foreign currency option contracts $ 368 Other current assets $ 11 Foreign currency option contracts 37 Other long-term assets 1 As of March 31, 2022 and December 31, 2021, the derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves. The effect of net investment hedges on Accumulated Other Comprehensive Income (“AOCI”) and the Condensed Consolidated Statements of Operations was as follows: Three Months Ended March 31, 2022 (In millions) Gain or (Loss) Recognized in Other Comprehensive Income Gain or (Loss) Reclassified from AOCI into Net Income (1) Gain or (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1) Derivatives designated as hedges Cross-currency swap agreements $ 3 $ — $ 2 Total $ 3 $ — $ 2 (1) Amounts reclassified to net income are reported within Interest expense in the Condensed Consolidated Statements of Operations. The gain recognized in earnings for foreign currency option contracts not designated as hedging instruments was $ 8 million for the three months ended March 31, 2022, of which $ 6 million was unrealized. These amounts are recorded in Other income, net in the Condensed Consolidated Statements of Operations. There were no derivative instruments in the condensed consolidated financial statements as of March 31, 2021. 14 8. Employee Benefit Plans Defined Benefit Plans In July 2021, the Company became the plan sponsor for a retirement plan in the U.K. (the “U.K. Retirement Plan”). Components of the net periodic benefit cost under the U.K. Retirement Plan were as follows: Three Months Ended March 31, (In millions) 2022 2021 Interest cost $ ( 6 ) $ — Expected return on plan assets 15 — Net periodic benefit income (1) $ 9 $ — (1) Net periodic benefit income is recorded within Other income, net in the Condensed Consolidated Statements of Operations. The Company also maintains defined benefit pension plans for some of its foreign subsidiaries that are excluded from the disclosures due to their immateriality. Defined Contribution Plans The Company’s costs for defined contribution plans were $ 4 million for the three months ended March 31, 2022 and 2021, and were primarily included within Direct operating expenses in the Condensed Consolidated Statements of Operations. 9. Earnings per Share The computations of basic and diluted earnings per share were as follows: Three Months Ended March 31, (Dollars in millions, shares in thousands, except per share data) 2022 2021 Net income attributable to common shares $ 37 $ 14 Basic weighted-average common shares (1) 114,731 114,626 Diluted effect of stock-based awards 838 — Diluted weighted-average common shares (1) 115,569 114,626 Basic earnings per share $ 0.32 $ 0.12 Diluted earnings per share $ 0.32 $ 0.12 (1) On August 2, 2021, 114,626,250 shares of common stock of the Company were distributed and began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for the three months ended March 31, 2021. For the three months ended March 31, 2022, approximately 1.4 million shares are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive. 15 10. Stockholders’ Equity The following table summarizes the changes in AOCI by component: (In millions) Foreign Currency Translation Adjustments Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO As of December 31, 2021 $ ( 53 ) $ ( 76 ) $ ( 1 ) $ ( 130 ) Unrealized gain (loss), net of tax ( 43 ) — 1 ( 42 ) Amounts reclassified from AOCI 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 ) (In millions) Foreign Currency Translation Adjustments 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 ( 46 ) — 4 ( 42 ) Amounts reclassified from AOCI to net income — — — — Other comprehensive income (loss), net of tax ( 46 ) — 4 ( 42 ) As of March 31, 2021 $ 15 $ ( 1 ) $ 2 $ 16 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 transportation and 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 16 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. 17