What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-05-05 · 143 added, 89 removed, 85 unchanged (73% of the section changed)

9 unchanged sentences

All forward-looking statements set forth in this Quarterly Report 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 (“MD&A”) 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, as filed with the SEC on February 17, 2022 (the “2021 Form 10-K”).

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, as filed with the SEC on February 17, 2022 (the “2021 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q.

Business Overview

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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 services.

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 extending for years and expanding in scope.

The most dramatic growth in secular demand in recent years has been in ecommerce and related sectors, including omnichannel retail and other direct-to-consumer channels.

As part of our growth strategy, we intend to develop additional business in consumer and other verticals where we already have deep expertise, prominent customer relationships and a strong track record of successful performance.

We also intend to expand into new verticals by leveraging our capacity and technological strengths and by marketing the benefits of our proprietary platform for warehouse operations.

We use technology to manage advanced automation, labor productivity, safety and the complex flow of goods within sophisticated logistics 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.

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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 to manage advanced automation, labor productivity, safety and 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.

Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.

The Separation

On August 2, 2021, the Company completed the separation from XPO Logistics, Inc.

On August 2, 2021, we completed the separation from XPO Logistics, Inc.

(“XPO”) (the “Separation”).

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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 in accordance with generally accepted accounting principles in the United States of America (“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.

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.

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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;

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 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.

and Transaction and integration costs in the Condensed Consolidated 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 Company has a single reportable segment.

We have a single reportable segment.

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”).

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.

In April 2022, the Clipper Acquisition was approved by Clippers’ shareholders.

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.

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.

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 March 31,

Three Months Ended June 30,

(In millions) 2022 2021 $ Change % Change

4 unchanged sentences

Transaction and integration costs 24 35 (11) (31) %

Restructuring costs (credits) and other 1 (1) 2 n/m

Operating income 59 22 37 n/m

Other income (expense), net 23 (1) 24 n/m

Interest expense, net (9) (6) (3) 50 %

Income before income taxes 73 15 58 n/m

Income tax expense (21) (1) (20) n/m

Net income $ 52 $ 14 $ 38 n/m

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, increased by 15%, or $274 million, to $2.2 billion, compared with $1.9 billion for the same period in 2021.

For the three months ended June 30, 2022, our North America, Asia and Pacific operations reported growth of 22%, and our European operations reported growth of 11%.

The Clipper Acquisition contributed 6% to revenue in our European operations and 4% to total revenue for the three months ended June 30, 2022.

Foreign currency movements decreased revenue by approximately 9% for the three 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 three months ended June 30, 2022 was $1.8 billion, or 82% of revenue, compared with $1.6 billion, or 83% of revenue, for the same period in 2021.

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.

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, increased by $43 million, to $220 million, compared with $177 million for the same period in 2021.

SG&A for the three months ended June 30, 2022 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 three months ended June 30, 2022, was $77 million, compared with $95 million for the same period in 2021.

The decrease 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 million and $14 million for the three months ended June 30, 2022 and 2021, respectively.

Transaction and integration costs for the three months ended June 30, 2022 were $24 million and primarily related 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) 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 million compared with $6 million for the same period in 2021.

For the three 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 three 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 three months ended June 30, 2022 increased by $58 million, to $73 million, compared with $15 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.

Income tax expense for the three months ended June 30, 2022 was $21 million compared with $1 million for the same period in 2021.

Our effective tax rate was 29.4% for the three months ended June 30, 2022 compared with 10.2% for the same period in 2021.

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 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, net 16 1 15 n/m

Other income (expense), net 39 — 39 n/m

Interest expense, net (13) (11) (2) 18 %

Income before income taxes 49 26 23 88 %

Income tax expense (11) (9) (2) 22 %

Net income $ 38 $ 17 $ 21 124 %

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

Revenue for the three months ended March 31, 2022, increased by 14%, or $261 million, to $2.1 billion compared with $1.8 billion for the same period in 2021.

For the three months ended March 31, 2022, our North America, Asia and Pacific operations reported growth of 15% and our European operations reported growth of 14%.

Foreign currency movement decreased revenue by approximately 5% for the three months ended March 31, 2022.

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 expense for the three months ended March 31, 2022 increased by 15%, or $228 million, to $1.7 billion compared with $1.5 billion for the same period in 2021.

As a percentage of revenue, direct operating expense for the three months ended March 31, 2022, was 84% compared with 83% for the same period in 2021.

Direct operating expense increased primarily due to higher personnel and temporary labor expense of $180 million, as well as higher third-party facilities and transportation costs of $42 million.

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administration functions, professional fees and legal costs.

SG&A for the three months ended March 31, 2022, increased by 11%, or $19 million, to $190 million compared with $171 million for the same period in 2021.

SG&A increased due to higher personnel costs, primarily for certain administration functions, reflecting the growth in our business.

Depreciation and amortization expense for the three months ended March 31, 2022, decreased by $3 million to $76 million compared with $79 million for the same period in 2021.

Depreciation and amortization expense included the amortization of intangible assets of $14 million for both the three months ended March 31, 2022, and 2021.

For the three months ended March 31, 2021, depreciation expense included $6 million allocated from XPO before the Separation.

Transaction and integration costs for the three months ended March 31, 2022, were $19 million compared with $18 million for the same period in 2021.

Transaction and integration costs in 2022 relate to the Clipper Acquisition and transaction and integration costs in 2021 primarily relate to the Separation.

Restructuring costs and other for the three months ended March 31, 2022, were $13 million compared with $4 million for the same period in 2021.

For the three months ended March 31, 2022, restructuring costs and other included $5 million primarily related to severance costs and $8 million related to the deconsolidation of a joint venture.

Other income, net consists primarily of pension income and foreign exchange gains and losses.

Other income, net for the three months ended March 31, 2022, was $16 million compared with $1 million for the same period in 2021.

For the three months ended March 31, 2022, pension income was $9 million and the gain on foreign currency options was $8 million.

Interest expense, net for the three months ended March 31, 2022, was $4 million compared with $5 million for the same period in 2021.

For the three months ended March 31, 2022, interest expense primarily relates to debt issued in 2021 and capital lease obligations, partially offset by interest income on the cross-currency swap agreements.

For the three months ended March 31, 2021, interest expense primarily relates to related-party debt obligations with XPO before the Separation and capital lease obligations.

Income before income taxes for the three months ended March 31, 2022, increased by $23 million to $49 million compared with $26 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 options, partially offset by the deconsolidation of a joint venture.

Income tax expense for the three months ended March 31, 2022, was $11 million compared with a $9 million expense for the same period in 2021.

Our effective tax rate was 22.1% for the three months ended March 31, 2022, compared with 33.4% for the same period in 2021.

The effective tax rates for the first quarters of 2022 and 2021 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented.

The effective tax rate for the first quarter of 2022 was driven by pre-tax losses in certain jurisdictions for which no benefit was recognized and offset by discrete items having a tax benefit of $3 million from stock-based compensation.

The effective tax rate for the first quarter of 2021 was driven by pre-tax losses in certain jurisdictions for which no benefit was recognized and discrete items having a tax expense of $2 million for adjustment of prior period taxes offset by a tax benefit of $2 million from stock-based compensation.

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.

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.

Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions.

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.

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We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

Term Loan Credit Agreement

On March 22, 2022, we 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 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) each.

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.

Bridge Term Loan Credit Agreement

On February 28, 2022, we 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, we reduced commitments under the Bridge Term Loan Credit Agreement by the aggregate amount of commitments under the Term Loan Credit Agreement.

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

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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.

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.

The Company also sold certain European trade accounts receivable 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 Consolidated Statements of Cash Flows.

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,

Three Months Ended Six Months Ended

June 30, June 30,

(In millions) 2022 2021 2022 2021

6 unchanged sentences

Covenants and Compliance

As of March 31, 2022, we were in compliance with the covenants contained in our debt and financing arrangements.

As of June 30, 2022, we were in compliance with the covenants contained in our debt and financing arrangements.

Financial Condition

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

(In millions) March 31, 2022 December 31, 2021 $ Change % Change

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

(In millions) June 30, 2022 December 31, 2021 $ Change % Change

Total current assets $ 2,256 $ 2,099 $ 157 7 %

2 unchanged sentences

Total long-term liabilities 3,781 2,552 1,229 48 %

There were no significant changes in our total assets and total liabilities from December 31, 2021 to March 31, 2022.

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

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:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions) 2022 2021 $ Change

Net cash provided by operating activities $ 200 $ 146 $ 54 37 %

Net cash used in investing activities (44) (38) (6) 16 %

Net cash provided by (used in) financing activities (18) 80 (98) (123) %

Effect of exchange rates on cash and cash equivalents (5) (3) (2) 67 %

Net increase (decrease) in cash and cash equivalents $ (21) $ 86 $ (107) (124) %

Net cash used in investing activities (1,003) (71) (932) n/m

Net cash provided by (used in) financing activities 869 (78) 947 n/m

Effect of exchange rates on cash and cash equivalents (15) 1 (16) n/m

Net increase (decrease) in cash and cash equivalents $ 51 $ (2) $ 53 n/m

n/m - not meaningful

Operating Activities

Cash flows from operating activities for the three months ended March 31, 2022, decreased by $1 million compared with the same period in 2021.

The decrease is due to a $28 million decrease in working capital, offset by a $21 million increase in net income.

Cash flows from operating activities for the six months ended June 30, 2022 increased by $54 million compared with the same period in 2021.

The increase was primarily due to a $59 million increase in net income, partially offset by an $11 million decrease in non-cash items.

Investing Activities

Investing activities used $44 million of cash for the three months ended March 31, 2022, compared with $38 million used for the same period of 2021.

During the three months ended March 31, 2022, we used $65 million of cash to purchase property and equipment and received $3 million of cash from sales of property and equipment.

During the three months ended March 31, 2021, we used $67 million of cash to purchase property and equipment, received $20 million in connection with the purchase and sale of affiliate trade receivables and received $9 million from the Kuehne + Nagel acquisition.

Investing activities used $1,003 million of cash for the six months ended June 30, 2022, compared with $71 million used for the same period of 2021.

During the six months ended June 30, 2022, we used $874 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 million from sales of property and equipment.

During the six months ended June 30, 2021, we used $119 million to purchase property and equipment, received $34 million net cash from the Kuehne + Nagel acquisition, received $12 million in connection with the purchase and sale of affiliate trade receivables, and received $2 million from sales of property and equipment.

Financing Activities

Financing activities used $18 million of cash for the three months ended March 31, 2022, including a $9 million use of cash to repay debt and finance leases.

Financing activities generated $80 million of cash for the three months ended March 31, 2021.

The primary sources of cash from financing activities in the three months ended March 31, 2021, were $138 million of net transfers from XPO, partially offset by a $25 million repayment of debt related to securitization transactions and $26 million used to repay debt and finance leases.

Financing activities generated $869 million of cash for the six months ended June 30, 2022, compared with $78 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 million in proceeds from long-term debt, partially offset by $15 million repayment of debt and finance leases and $12 million in payments for employee taxes on net settlement of equity awards.

The primary uses of cash from financing activities in the six months ended June 30, 2021, were $128 million in the purchase of a noncontrolling interest, $56 million in repayments of debt and 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.

Off-Balance Sheet Arrangements

1 unchanged sentence

Contractual Obligations

As of March 31, 2022, the Company’s future contractual obligations had not materially changed as compared with December 31, 2021.

The Company’s contractual cash requirements have not changed materially since the 2021 Form 10-K, except for the new term loan credit agreements described above.

Critical Accounting Policies and Estimates

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis