What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-15 compared with 2023-02-16 · 394 added, 414 removed, 744 unchanged (52% of the section changed)

8 unchanged sentences

Notes to Consolidated Financial Statements

Note 1 - Organization

Note 2 - Basis of Presentation and Significant Accounting Policies

Note 3 - Revenue Recognition

Note 4 - Acquisitions

Note 5 - Goodwill

Note 6 - Intangible Assets

Note 7 - Property and Equipment

Note 8 - Leases

Note 9 - Debt and Financing Arrangements

Note 10 - Fair Value Measurements and Financial Instruments

Note 11 - Accrued Expenses

Note 1 2 - Stockholders ’ Equity

Note 1 3 - Stock-Based Compensation

Note 1 4 - Employee Benefit Plans

Note 1 5 - Restructuring Charges and Other

Note 1 6 - Income Taxes

Note 1 7 - Commitments and Contingencies

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

To the Stockholders and the Board of Directors

GXO Logistics, Inc.:

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We have audited the accompanying consolidated balance sheets of GXO Logistics, Inc.

and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, cash flows, and changes in equity for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Clipper Logistics plc during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, Clipper Logistics plc’s internal control over financial reporting associated with approximately 6% of total assets, excluding associated goodwill and intangible assets, and approximately 6% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2022.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Clipper Logistics plc.

The Company acquired PFSweb, Inc.

during 2023, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023, PFSweb, Inc.’s internal control over financial reporting associated with approximately 1.8% of total assets, excluding associated goodwill and intangible assets, and approximately 0.8% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2023.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over the financial reporting of PFSweb, Inc.

Basis for Opinions

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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition-date fair value of a certain customer relationship intangible asset

As discussed in Note 4 to the consolidated financial statements, on May 24, 2022, the Company acquired Clipper Logistics plc in a business combination for consideration of approximately $1,106 million.

As a result of the transaction, the Company acquired customer relationship intangible assets associated with the generation of future income from the acquirees’ existing customers.

The acquisition-date fair value of intangible assets recorded by the Company was $392 million, which included customer relationship intangible assets.

We identified the evaluation of the acquisition-date fair value of a certain customer relationship intangible asset as a critical audit matter.

There was a high degree of subjective auditor judgment in evaluating certain assumptions used to estimate the acquisition-date fair value of the customer relationship intangible asset.

Specifically, there was limited observable market information for the forecasted revenue and customer attrition assumptions, and evaluation of the discount rate assumption required specialized skills and knowledge.

Changes in these assumptions could have had a significant impact on the acquisition-date fair value of the intangible asset.

Sufficiency of audit evidence over revenue from contracts with customers

As discussed in Notes 2 and 3 to the consolidated financial statements, revenue is recognized over the period in which services are provided under the terms of the Company’s contractual relationship with its customers.

For the year ended December 31, 2023, the Company reported $9.8 billion of revenue.

We identified the evaluation of the sufficiency of audit evidence over revenue from contracts with customers (revenue) as a critical audit matter.

Subjective auditor judgment and IT professionals with specialized skills and knowledge were required to evaluate the sufficiency of audit evidence obtained over revenue due to the number and dispersion of warehouse management and other IT systems used in the processing and recording of revenue.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design of certain internal controls related to the Company’s process to estimate the acquisition-date fair value of the customer relationship intangible asset.

This included controls over the determination of the forecasted revenue, customer attrition, and discount rate assumptions used in the Company’s model.

We evaluated the Company’s forecasted revenue of the acquired company by comparing it to (1) past performance of the acquired company, (2) actual and forecasted revenue trends of the acquirees’ peers, and (3) analyst reports of the acquiree.

We evaluated the Company’s customer attrition assumption by comparing it to historical attrition experienced by the acquired company.

We involved valuation professionals with specialized skills and

knowledge, who assisted in evaluating the Company’s discount rate used by comparing it against a discount rate that was developed using publicly available market data for comparable entities.

We applied auditor judgment to determine the nature and extent of procedures to be performed over the processing and recording of revenue.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the processing and recording of revenue, including manual controls related to the examination of revenue contracts and detection of revenues recorded outside of expectations.

We involved IT professionals with specialized skills and knowledge to test certain manual and automated controls, including general IT controls, over multiple relevant IT systems and information used in internal control.

We compared certain revenue activity recorded during the year to cash received, adjusted for reconciling items.

We evaluated the relevance and reliability of certain reconciling items to underlying documentation, including the changes in accounts receivable and deferred revenue.

We examined a selection of revenue contracts and transactions to assess that revenue was recorded in accordance with the Company’s accounting policy.

Additionally, for a sample of accrued revenue at year-end, we confirmed with the Company’s customers the amount of revenue billed subsequent to year-end and compared the result to the Company’s accounting records.

We evaluated the sufficiency of audit evidence

obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of such evidence.

We have served as the Company’s auditor since 2021.

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( 53 ) ( 29 ) ( 21 )

Income (loss) before income taxes 264 153 ( 6 )

Income before income taxes 266 264 153

Income tax (expense) benefit

( 33 ) ( 64 ) 8

Net income (loss) 200 161 ( 22 )

Net income attributable to noncontrolling interests

Net income 233 200 161

Net income attributable to Noncontrolling Interests (“NCI”)

( 4 ) ( 3 ) ( 8 )

Net income (loss) attributable to GXO $ 197 $ 153 $ ( 31 )

Earnings (loss) per share data

Net income attributable to GXO

$ 229 $ 197 $ 153

Earnings per share

$ 1.93 $ 1.68 $ 1.33

$ 1.92 $ 1.67 $ 1.32

Weighted-average common shares outstanding

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(In millions) 2023 2022 2021

Net income (loss) $ 200 $ 161 $ ( 22 )

$ 233 $ 200 $ 161

Other comprehensive income (loss), net of tax

Foreign currency translation gain (loss), net of tax of $( 8 ), $( 3 ) and $( 3 ), respectively

Foreign currency translation adjustments

19 ( 98 ) ( 46 )

Unrealized gain on cash flow hedges, net of tax of $( 2 ), $ — and $ — , respectively

Unrealized gain (loss) on defined benefit plans, net of tax of $ 13 , $( 2 ) and $ — , respectively

Cash flow hedges ( 2 ) 7 —

Pension plans ( 1 ) ( 36 ) 7

Other comprehensive income (loss), net of tax

Comprehensive income

Comprehensive income attributable to noncontrolling interests 2 7 17

16 ( 127 ) ( 39 )

Comprehensive income, net of tax

Comprehensive income attributable to NCI 5 2 7

Comprehensive income attributable to GXO $ 244 $ 71 $ 115

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Cash and cash equivalents $ 468 $ 495

Accounts receivable, net of allowances of $ 12 and $ 13 , respectively

Accounts receivable, net of allowance of $ 11 and $ 12

Other current assets 347 286

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Long-term assets

Property and equipment, net of $ 1,297 and $ 1,128 in accumulated depreciation, respectively

Property and equipment, net of accumulated depreciation of $ 1,545 and $ 1,297

Operating lease assets 2,201 2,227

Goodwill 2,891 2,728

Intangible assets, net of $ 456 and $ 407 in accumulated amortization, respectively

Intangible assets, net of accumulated amortization of $ 528 and $ 456

Other long-term assets 327 306

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Accrued expenses 966 995

Short-term borrowings and obligations under finance leases 67 34

Current debt 27 67

Current operating lease liabilities 597 560

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Long-term liabilities

Long-term debt and obligations under finance leases 1,739 927

Long-term debt 1,620 1,739

Long-term operating lease liabilities 1,842 1,853

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Stockholders’ Equity

Common Stock, $ 0.01 par value per share, 300,000 shares authorized, 118,728 and 114,659 shares issued and outstanding, as of December 31, 2022 and 2021, respectively

Preferred Stock, $ 0.01 par value per share, 10,000 shares authorized, 0 shares issued and outstanding, as of December 31, 2022 and 2021

Additional paid-in capital 2,575 2,354

Common Stock, $ 0.01 par value per share;

300,000 shares authorized, 119,057 and 118,728 shares issued and outstanding

Preferred Stock, $ 0.01 par value per share;

10,000 shares authorized, none issued and outstanding

Additional Paid-In Capital (“APIC”) 2,598 2,575

Retained earnings 552 323

Accumulated other comprehensive loss ( 254 ) ( 130 )

Total stockholders’ equity before noncontrolling interests 2,645 2,351

Noncontrolling interests 33 39

Accumulated Other Comprehensive Income (Loss) (“AOCIL”) ( 239 ) ( 254 )

Total stockholders’ equity before NCI 2,912 2,645

Total equity 2,946 2,678

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Cash flows from operating activities:

Net income (loss) $ 200 $ 161 $ ( 22 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities

$ 233 $ 200 $ 161

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization expense

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Acquisition of business, net of cash acquired ( 149 ) ( 876 ) 32

Net proceeds from cross-currency swap agreements 21 — —

Purchase and sale of affiliate trade receivables, net — — ( 40 )

Cross-currency swap agreements settlement ( 3 ) 21 —

Other ( 2 ) 8 —

Net cash used in investing activities ( 410 ) ( 1,149 ) ( 207 )

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Proceeds from debt, net — 917 794

Repayments of debt and finance leases ( 115 ) ( 72 ) ( 123 )

Repayments of debt, net

( 140 ) ( 82 ) ( 47 )

Repayment of finance lease obligations

( 29 ) ( 33 ) ( 25 )

Taxes paid related to net share settlement of equity awards ( 12 ) ( 16 ) ( 1 )

Proceeds (repayments) related to trade securitization program — ( 26 ) 24

Purchase of noncontrolling interests — ( 128 ) ( 21 )

Net transfers (to) from XPO — ( 774 ) 168

Repayments related to trade securitization program — — ( 26 )

Purchase of NCI — — ( 128 )

Net transfers to XPO — — ( 774 )

Other ( 5 ) 1 ( 34 )

Net cash provided by (used in) financing activities 787 ( 241 ) 67

Net cash (used in) provided by financing activities

( 186 ) 787 ( 241 )

Effect of exchange rates on cash and cash equivalents 13 ( 18 ) ( 2 )

Net increase (decrease) in cash and cash equivalents 162 5 128

Cash and cash equivalents, beginning of year 333 328 200

Cash and cash equivalents, end of year $ 495 $ 333 $ 328

Net (decrease) increase in cash, restricted cash and cash equivalents

Cash, restricted cash and cash equivalents, beginning of year 495 333 328

Cash, restricted cash and cash equivalents, end of year $ 470 $ 495 $ 333

Reconciliation of cash, restricted cash and cash equivalents

Cash and cash equivalents $ 468 $ 495 $ 333

Restricted cash (included in Other long-term assets) 2 — —

Total cash, restricted cash and cash equivalents

$ 470 $ 495 $ 333

See accompanying Notes to the Consolidated Financial Statements.

GXO Logistics, Inc.

Consolidated Statements of Cash Flows

Year Ended December 31,

(In millions) 2023 2022 2021

Supplemental cash flow information:

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Common stock issued for acquisition

$ — $ 204 $ —

Settlement of related party debt due to the Separation

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Consolidated Statements of Changes in Equity

Additional Paid-in Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interest

Noncontrolling Interests

(Shares in thousands, dollars in millions) Shares

Balance as of December 31, 2019

— $ — $ 2,633 $ — $ — $ ( 66 ) $ 2,567 $ 130 $ 2,697

Net income (loss)

— — ( 31 ) — — — ( 31 ) 9 ( 22 )

Other comprehensive income — — — — — 124 124 8 132

Purchase of noncontrolling interests — — ( 1 ) — — — ( 1 ) ( 20 ) ( 21 )

Net transfers from (to) XPO

— — 164 — — — 164 ( 2 ) 162

Balance as of December 31, 2020

— $ — $ 2,765 $ — $ — $ 58 $ 2,823 $ 125 $ 2,948

December 31, 2020 — $ — $ 2,765 $ — $ — $ 58 $ 2,823 $ 125 $ 2,948

Net income — — 27 — 126 — 153 8 161

Other comprehensive loss — — — — — ( 38 ) ( 38 ) ( 1 ) ( 39 )

— — — — — ( 38 ) ( 38 ) ( 1 ) ( 39 )

Stock-based compensation — — — 11 — — 11 — 11

Vesting of stock compensation awards 33 — — — — — — — —

33 — — — — — — — —

Tax withholding related to vesting of stock compensation awards — — — ( 1 ) — — ( 1 ) — ( 1 )

— — — ( 1 ) — — ( 1 ) — ( 1 )

Purchase of noncontrolling interests — — — — — — — ( 128 ) ( 128 )

Purchase of NCI — — — — — — — ( 128 ) ( 128 )

Net transfers from (to) XPO, including separation adjustments — — ( 447 ) — — ( 150 ) ( 597 ) 40 ( 557 )

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Other — — — — — — — ( 5 ) ( 5 )

Balance as of December 31, 2021

114,659 $ 1 $ — $ 2,354 $ 126 $ ( 130 ) $ 2,351 $ 39 $ 2,390

— — — — 197 — 197 3 200

December 31, 2021 114,659 $ 1 $ — $ 2,354 $ 126 $ ( 130 ) $ 2,351 $ 39 $ 2,390

Net income — — — — 197 — 197 3 200

Other comprehensive loss

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Stock-based compensation — — — 33 — — 33 — 33

— — — 33 — — 33 — 33

Vesting of stock compensation awards

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Tax withholding on vesting of stock compensation awards ( 246 ) — — ( 16 ) — — ( 16 ) — ( 16 )

( 246 ) — — ( 16 ) — — ( 16 ) — ( 16 )

Common stock issued for acquisition 3,758 — — 204 — — 204 — 204

— — — — — 2 2 ( 8 ) ( 6 )

December 31, 2022 118,728 $ 1 $ — $ 2,575 $ 323 $ ( 254 ) $ 2,645 $ 33 $ 2,678

— — — — 229 — 229 4 233

Balance as of December 31, 2022

Other comprehensive income

— — — — — 15 15 1 16

Stock-based compensation

— — — 35 — — 35 — 35

Vesting of stock compensation awards

555 — — — — — — — —

Tax withholding on vesting of stock compensation awards

( 226 ) — — ( 12 ) — — ( 12 ) — ( 12 )

— — — — — — — ( 4 ) ( 4 )

December 31, 2023 119,057 $ 1 $ — $ 2,598 $ 552 $ ( 239 ) $ 2,912 $ 34 $ 2,946

See accompanying Notes to the Consolidated Financial Statements.

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Nature of Operations

GXO Logistics, Inc., together with its subsidiaries (“GXO” or the “Company”), is the largest pure-play contract logistics provider in the world and the foremost innovator in the logistics industry.

The Company provides its customers with high-value-add warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by its ability to deliver technology-enabled, customized solutions at scale.

GXO Logistics, Inc., together with its subsidiaries (“GXO” or the “Company”), is the largest pure-play contract logistics provider in the world.

The Company provides its customers with high-value-added warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by its ability to deliver technology-enabled, customized solutions at scale.

The Company serves a broad range of customers across a range of industries, such as e-commerce, omnichannel retail, technology and consumer electronics, food and beverage, industrial and manufacturing, and consumer packaged goods, among others.

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Basis of Presentation

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 (the “historical financial statements”).

Before 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 (the “historical financial statements”).

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 “Consolidated Financial Statements” and have been prepared under the U.S.

The combined Consolidated Financial Statements for all periods presented before the Separation are now also referred to as “Consolidated Financial Statements” and have been prepared under the U.S.

generally accepted accounting principles (“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.

Before 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.

Before 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.

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The Company bases its estimates and judgments on historical information and on various other assumptions that it believes are reasonable under the circumstances.

GAAP requires the Company to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, income taxes, loss contingencies, valuation of long-lived assets including goodwill and intangible assets and their associated estimated useful lives, collectability of accounts receivable and the fair value of financial instruments.

GAAP requires the Company to make estimates and judgments in several areas, including, but not limited to, those related to revenue recognition, income taxes, loss contingencies, defined benefit plans, valuation of long-lived assets including goodwill and intangible assets and their associated estimated useful lives, collectability of accounts receivable and the fair value of financial instruments.

Actual results may vary from those estimates.

The COVID-19 pandemic and Russia’s invasion of Ukraine has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the logistics business, and adversely impact the Company’s estimates, particularly those that require consideration of forecasted financial information.

The business and economic uncertainty resulting from the COVID-19 pandemic and Russia’s invasion of Ukraine has made calculating estimates and assumptions more difficult.

Significant Accounting Policies

Cash and Cash Equivalents

Cash, Restricted Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents.

Bank overdraft positions occur when total outstanding issued checks exceed available cash balances at a single financial institution.

Restricted cash is included within Other long-term assets on the Consolidated Balance sheets and consists primarily of cash that collateralizes certain operating obligations.

Accounts Receivable and Allowance for Credit Losses

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The Company writes off accounts receivable balances once the receivables are no longer deemed collectible.

The rollforward of the allowance for doubtful accounts was as follows:

The roll forward of the allowance for doubtful accounts was as follows:

Year Ended December 31,

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Property and Equipment

Property and equipment, which includes assets recorded under finance leases, are stated at cost less accumulated depreciation or, in the case of acquired property and equipment, at fair value at the date of acquisition.

Property and equipment, which includes assets recorded under finance leases, are stated at cost less accumulated depreciation or, in the case of property and equipment acquired in a business combination, at fair value at the date of acquisition.

Maintenance and repair expenditures are charged to expenses as incurred.

For computer software developed, all costs incurred during the planning and evaluation stages are expensed as incurred.

For internally developed computer software, all costs incurred during the planning and evaluation stages are expensed as incurred.

Software development costs are capitalized once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.

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For leases with terms greater than 12 months, the Company recognizes lease assets and liabilities at the lease commencement date based on the present value of the lease payments over the lease term.

For most of the Company’s leases, the implicit rate cannot be readily determined and, as a result, the Company uses the incremental borrowing rates at commencement date to determine the present value of future lease payments.

For most of the Company’s leases, the implicit rate cannot be readily determined and, as a result, the Company uses the incremental borrowing rates at the commencement date to determine the present value of future lease payments.

For leases that include fixed rental payments for both the use of the asset (“lease costs”) as well as for other occupancy or service costs relating to the asset (“non-lease costs”), the Company generally includes both the lease costs and non-lease costs as a single lease component in the measurement of the lease asset and liability.

The Company excludes variable lease payments (such as payments based on an index) from its initial measurement of the lease liability.

Certain lease agreements include rental payments based on changes in the consumer price index (“CPI”).

Lease liabilities are not remeasured as a result of changes in the CPI;

instead, changes in the CPI are treated as variable lease payments and are excluded from the measurement of the right-of-use asset and lease liability.

These payments are recognized in the period in which the related obligation is incurred.

Lease agreements may contain rent escalation clauses, renewal or termination options, rent holidays or certain landlord incentives, including tenant improvement allowances.

Lease expense is recognized on a straight-line basis over the non-cancelable lease term and renewal periods that are considered reasonably certain.

Amounts received from a landlord are included as a reduction to the lease asset and are included within operating activities on the Consolidated Statement of Cash Flows.

Segment Reporting

The Company is comprised of three operating segments based on the operating results regularly reviewed by the chief operating decision-maker (“CODM”) to make decisions about resource allocation and the performance of the business.

These three operating segments have been aggregated into a single reporting segment.

Long-lived assets geographic information

The Company’s long-lived assets for this disclosure is defined as Property and equipment, net of accumulated depreciation, and operating lease assets.

The Company’s long-lived assets by geographic region were as follows:

(In millions) 2023 2022

United States $ 1,545 $ 1,532

United Kingdom 772 834

Other 837 821

Total $ 3,154 $ 3,187

Goodwill and Intangible Assets

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The Company has three reporting units:

i) Americas and Asia-Pacific;

ii) United Kingdom and Ireland and iii) Continental Europe.

i) Americas and Asia-Pacific, ii) United Kingdom and Ireland and iii) Continental Europe.

The Company measures goodwill impairment, if any, as the amount by which the carrying amount of the reporting unit exceeds its fair value, not to exceed the carrying amount of goodwill.

As a result of the change in our operating segments and reporting units, we elected to change our annual goodwill impairment test date from August 31 to November 1 to align with the Company’s budgeting process.

an annual goodwill impairment test on August 31, 2022 and on November 1, 2022.

For changes in reporting units, we reassign goodwill using a relative fair value allocation approach.

The Company performed its annual goodwill impairment test on November 1.

The review of goodwill impairment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a one-step quantitative impairment test.

In performing the qualitative assessment, the Company considers many factors in evaluating whether the carrying value of goodwill may not be recoverable, including declines in the Company’s stock price and market capitalization of the Company and macroeconomic conditions.

In performing the qualitative assessment, the Company considers many factors in evaluating whether the carrying value of goodwill may not be recoverable, including declines in the Company’s stock price, market capitalization of the Company and macroeconomic conditions.

If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.

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If the carrying value of a reporting unit is greater than its fair value, a goodwill impairment charge will be recorded for the difference (up to the carrying value of goodwill).

The Company uses the income approach and/or a market-based approach to determine the reporting units’ fair values, which are based on discounted cash flows.

The determination of discounted cash flows of the reporting units and assets and liabilities within the reporting units requires significant estimates and assumptions.

The Company uses the income approach and/or a market-based approach to determine the reporting units’ fair values.

The determination of discounted cash flows used in the income approach requires significant estimates and assumptions.

Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

The Company’s intangible assets consist of customer relationships and trade names which are amortized on a straight-line basis or over their respective useful life using patterns that reflect the economic benefits of the assets are expected to be realized.

The Company’s intangible assets consist of customer relationships, trade names, trademarks, and developed technology which are amortized on a straight-line basis or over the period the economic benefits are expected to be realized.

The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

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The Company estimates fair value using the expected future cash flows discounted at a rate consistent with the risks associated with the recovery of the asset.

Insurance liabilities

The Company participates in a combination of self-insurance programs and purchased insurance to provide for the costs of medical, casualty, property, general liability, vehicular, cargo, cyber-attacks and workers’ compensation claims.

The Company estimates insurance liabilities using several factors, primarily based on independent third-party actuary determined amounts, historical claims experience, estimates of incurred but not reported claims, demographic and severity factors.

Liabilities for the risks the Company retains, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels.

Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than estimates.

Segment Reporting

The Company is comprised of three operating segments based on the operating results regularly reviewed by the chief operating decision-maker (“CODM”), who is the Chief Executive Officer (“CEO”), to make decisions about resource allocation and the performance of the business.

These three operating segments have been aggregated into a single reporting segment.

Revenue Recognition

The Company generates revenue by providing supply chain services for its customers, including warehousing and distribution, order fulfillment, reverse logistics, packaging and labeling, factory and aftermarket support, and inventory management ranging from a few months to a few years.

The Company generates revenue by providing logistics services for its customers, including warehousing and distribution, order fulfillment, reverse logistics, packaging and labeling, factory and aftermarket support and inventory management ranging from a few months to a few years.

Generally, the Company’s contracts provide the customer an integrated service that includes two or more services, including but not limited to facility and equipment costs, construction, repair and maintenance services and labor.

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The transaction price is based on the amount specified in the contract with the customer and contains fixed and variable consideration.

In general, the fixed consideration in a contract represents reimbursement for facility, technology and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract.

The variable consideration is comprised of cost reimbursement based on the costs incurred, per-unit pricing is determined based on units provided, and time and materials pricing is based on the hours of services provided.

In general, the fixed consideration in a contract represents reimbursement for warehouse, technology and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract.

The variable consideration is comprised of cost reimbursement based on the costs incurred, per-unit pricing is determined based

on units provided and time and materials pricing is based on the hours of services provided.

The variable consideration component is recognized over time based on the level of activity.

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Customers are billed based on terms specified in the revenue contract and they pay us according to approved payment terms.

Contract Assets

Contract assets consist of two components, customer acquisition costs and costs to fulfill a contract.

Contract Assets and Liabilities

Contract assets consist of two components:

customer acquisition costs and costs to fulfill a contract.

The Company capitalizes direct and incremental costs incurred to obtain and to fulfill a contract in advance of revenue recognition, such as certain labor, third-party service and related product costs.

These costs are recognized as an asset if the Company expects to recover them.

Contract fulfillment costs are recognized consistent with the transfer of the underlying performance obligations to the customer based on the specific contracts to which they relate.

Contract assets are recognized consistent with the transfer of the underlying performance obligations to the customer based on the specific contracts to which they relate.

Contract assets are primarily amortized to Direct operating expense in the Consolidated Statements of Operations over the contract term.

Contract Liabilities

Contract liabilities, which are recorded within Other current liabilities and Other long-term liabilities on the Consolidated Balance Sheets, 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.

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

Derivative Instruments

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For derivatives designated as a hedge, and effective as part of a hedge transaction, the effective portion of the gain or loss on the hedging derivative instrument is reported as a component of other comprehensive income or as a basis adjustment to the underlying hedged item and reclassified to earnings in the year in which the hedged item affects earnings.

The effective portion of the gain or loss on hedges of foreign net investments is generally not reclassified to earnings unless the net investment is disposed of.

The effective portion of the gain or loss on hedges of foreign net investments is generally not reclassified to earnings unless the net investment is disposed.

To the extent derivatives do not qualify or are not designated as hedges, or are ineffective, their changes in fair value are recorded in earnings immediately, which may subject us to increased earnings volatility.

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Stock compensation expense is recognized using the straight-line method, based on the grant date fair value, over the requisite service period of the award, which is generally the vesting term.

For grants of restricted stock units (“RSUs”) subject to service-based or performance-based vesting conditions only, the Company establishes the fair

value based on the market price on the date of the grant.

For grants of RSUs subject to market-based vesting conditions (“PRSUs”) and stock options, the Company determines the fair value based on its stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends.

For grants of restricted stock units (“RSU”) subject to service-based or performance-based vesting conditions only, the Company establishes the fair value based on the market price on the date of the grant.

For grants of awards subject to market-based vesting conditions (“PSU”), the Company determines the fair value based on a Monte Carlo simulation model.

The Company accounts for forfeitures as they occur.

Defined Benefit Plan

Earnings per Share

Basic earnings per share (“EPS”) is based upon net earnings available to common stockholders divided by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that were outstanding.

The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive.

For the years ended December 31, 2023, 2022 and 2021, the number of common shares excluded from diluted shares outstanding was 1.5 million, 2.0 million and 0.1 million, respectively, because the effect of including those common shares in the calculation would have been anti-dilutive.

On August 2, 2021, the date of the Separation, 114.6 million shares of the Company’s common stock were distributed to XPO stockholders.

These 114.6 million shares have been utilized for the calculation of basic and diluted earnings per share for all periods prior to the date of the Separation as no shares of common stock or equity-based awards of the Company were outstanding before that date.

Defined Benefit Plans

The Company calculates its employer-sponsored retirement plan obligations using various actuarial assumptions and methodologies.

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The Company’s obligation and future expense amounts could be materially impacted by differences in experience or changes in assumptions.

The impact of plan amendments, actuarial gains and losses and prior-service costs are recorded in Accumulated other comprehensive income (loss) (“AOCI”) and are generally amortized as a component of net periodic benefit cost over the remaining service period of the active employees covered by the defined benefit pension plans.

The Company determines the net periodic benefit cost of the plans using assumptions regarding the projected benefit obligation and the fair value of the plan assets as of the beginning of the year.

Net periodic benefit cost is recorded within Other income, net in the Consolidated Statement of Operations.

The Company calculates the funded status of the defined benefit plan as the difference between the projected benefit obligation and the fair value of the plan assets.

The impact of plan amendments, actuarial gains and losses and prior-service costs are recorded in AOCIL and are generally amortized as a component of net periodic benefit cost over the remaining service period of the active employees covered by the defined benefit pension plans.

Cumulative gains and losses over 10% of the greater of the beginning of year benefit obligation or fair value of the plan assets are amortized over the expected average life expectancy.

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The Company’s tax returns are subject to examination by U.S.

Federal, state and local, foreign taxing jurisdictions.

Federal, state and local and foreign taxing jurisdictions.

The Company regularly assesses the potential outcomes of these examinations and any future examinations for the current or prior years.

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The assets and liabilities of the Company’s foreign subsidiaries that use their local currency as their functional currency are translated to U.S.

dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in AOCI in the Consolidated Balance Sheets.

dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in AOCIL in the Consolidated Balance Sheets.

The Company converts foreign currency transactions recognized in the Consolidated Statements of Operations to USD by applying the exchange rate prevailing on the date of the transaction.

Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Other income, net in the Consolidated Statements of Operations and were not material for any of the years presented.

Adoption of New Accounting Standards

In October 2021, the 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 Issued But Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848):

In 2020, the Financial Accounting Standards Board (“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 if certain criteria are met.

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.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform (Topic 848):

Scope” to expand the scope of this guidance to include derivatives.

In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848):

Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022 until December 31, 2024.

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 consolidated financial statements.

The 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.

In 2021, the FASB expanded the scope of the guidance to include derivatives.

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 has transitioned its existing contracts to a replacement index.

ASU 2020-04 and its amendments did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Accounting Pronouncements Issued But Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements.

Early adoption is permitted.

The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which provides for expanded disclosures primarily related to income taxes paid and the rate reconciliation.

The amendments are effective prospectively for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted.

The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

Revenue Recognition

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United States 2,909 2,861 2,469

France 729 734 643

Netherlands 831 699 651

France 830 729 734

Spain 529 488 479

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Other 775 689 595

$ 8,993 $ 7,940 $ 6,195

Total $ 9,778 $ 8,993 $ 7,940

Contract Balances

Year Ended December 31,

(In millions) 2023 2022

Contract assets (1)

Contract liabilities (2)

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

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

Contract assets included in:

Other current assets $ 21 $ 25

Other long-term assets 160 165

Total contract assets $ 181 $ 190

Contract liabilities included in:

Other current liabilities $ 210 $ 154

Other long-term liabilities 115 134

Total contract liabilities $ 325 $ 288

Revenue recognized included the following:

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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.

PFSweb Acquisition

On September 13, 2023, the Company entered into an Agreement and Plan of Merger to acquire PFSweb, Inc., a Delaware corporation headquartered in Irving, Texas (“PFS”), and on October 23, 2023, the Company completed its acquisition of PFS (the “PFS Acquisition”).

The Company acquired the shares of PFS at a price per share of $ 7.50 in cash, totaling approximately $ 149 million, net of cash acquired.

PFS is a global provider of omnichannel commerce solutions, including a broad range of technology, infrastructure and professional services, in the United States, Canada and Europe.

PFS’s service offerings include order fulfillment, fulfillment-as-a-service, order management and customer care.

The Company recorded the preliminary fair value of assets acquired and liabilities assumed on the date of acquisition, including intangible assets comprising customer relationships, trademarks, trade names and developed technology of $ 56 million with a weighted-average amortization period of 13 years.

Goodwill acquired in connection with the acquisition was $ 76 million, recorded in the Americas and Asia-Pacific reporting unit, and was attributed to anticipated synergies.

The Company expects to finalize the purchase price allocation within the measurement period, which will not exceed one year from the acquisition date.

The Company does not expect the goodwill recognized in connection with the PFS Acquisition to be deductible for income tax purposes.

For the year ended December 31, 2023, PFS generated revenues of $ 82 million and income before income taxes was not material.

Pro forma results of operations for this acquisition have not been presented as they are not material to the Consolidated Financial Statements.

Clipper Acquisition

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The Company acquired Clipper for $ 1,106 million, consisting of $ 902 million in cash and the issuance of 3,757,657 shares of GXO common stock having a value of $ 204 million.

The Clipper Acquisition was subject to review by the CMA.

On October 4, 2022, the CMA approved the Clipper Acquisition.

The Company incurred acquisition and integration costs related to the Clipper Acquisition of $ 46 million for the year ended December 31, 2022.

These costs are included within Transaction and integration costs in the 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 Delayed Draw Term Loan;

(iii) the Company entered into a Five-Year Term Loan;

and (iv) the Company terminated its Bridge Term Loan.

For additional information regarding the financing agreements entered into in connection with the Clipper Acquisition, see Note 9.

Debt and Financing Arrangements.

The Company included Clipper’s results of operations from the date of acquisition.

For the year ended December 31, 2022, the Company recorded $ 569 million and $ 4 million of revenue and income before income taxes, respectively.

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

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 identifiable assets acquired and liabilities assumed at the acquisition date:

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 fair values of assets acquired and liabilities assumed at the acquisition date:

(In millions)

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Accrued expenses 96

Short-term borrowings and obligations under finance leases 56

Current debt 55

Current operating lease liabilities 43

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Long-term liabilities

Long-term debt and obligations under finance leases 10

Long-term debt 10

Long-term operating lease liabilities 176

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Goodwill recorded (3)

(1) The Company acquired $ 392 million of intangible assets comprised of customer relationships and trade names, with weighted-average useful lives of 15 years.

(1) The Company acquired $ 392 million of intangible assets comprising customer relationships and trade names, with weighted-average useful lives of 15 years.

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

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Goodwill acquired was recorded in the United Kingdom and Ireland 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 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 lease assets and liabilities, certain long term liabilities, income taxes and goodwill.

The following unaudited pro forma information presents the Company’s results of operations as if the Clipper Acquisition 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 expenses 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 if the acquisition had been completed on January 1, 2021.

Year Ended December 31,

(In millions) 2022 2021

Revenue $ 9,449 $ 9,074

Income before income taxes 295 155

European Acquisition

In January 2021, the Company acquired the majority of Kuehne + Nagel’s contract logistics operations in the U.K.

(the “K + N Acquisition”).

For the year ended December 31, 2021, the K + N Acquisition generated revenues of $ 604 million, primarily recorded in the food and beverage vertical, and income before income taxes was not material.

The operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management.

The Company recorded the fair value of assets and liabilities assumed, including $ 281 million of operating and finance lease assets and liabilities.

The Company acquired intangibles of $ 26 million with a weighted-average amortization period of 9 years.

Goodwill acquired in connection with the acquisition was $ 16 million, recorded in the European reporting unit.

Pro forma results of operations for this acquisition have not been presented as they are not material to the Consolidated Financial Statements.

The Company does not expect the goodwill recognized in connection with the Clipper Acquisition to be deductible for income tax purposes.

The following tables present the changes in goodwill for the years ended December 31, 2023 and 2022.

(In millions)

Goodwill as of December 31, 2020

Balance as of December 31, 2021

Acquisition 796

Impact of foreign exchange translation (1)

Goodwill as of December 31, 2021

Acquisition (1)

Balance as of December 31, 2022

Acquisitions (2)

Impact of foreign exchange translation (1)

Goodwill as of December 31, 2022

Balance as of December 31, 2023

(1) Changes to goodwill amounts resulting from foreign currency translation after the acquisition date are presented as the impact of foreign exchange translation.

(2) Includes $ 44 million adjustment from the finalization of the purchase price allocation for the Clipper Acquisition.

As of December 31, 2023 and 2022, there were no accumulated goodwill impairment losses.

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December 31, 2023 December 31, 2022

(In millions) Gross Carrying Amount Accumulated Amortization Net Value Gross Carrying Amount Accumulated Amortization Net Value

(In millions) Gross

Amount Accumulated

Amortization Net

Amount Accumulated

Amortization Net

Customer relationships $ 1,046 $ ( 524 ) $ 522 $ 978 $ ( 451 ) $ 527

Trade names 48 ( 5 ) 43 — — —

Trade names and trademarks 42 ( 4 ) 38 48 ( 5 ) 43

Developed technology 7 — 7 — — —

Total $ 1,095 $ ( 528 ) $ 567 $ 1,026 $ ( 456 ) $ 570

For the years ended December 31, 2022, 2021 and 2020, there were no intangible assets impairment losses.

Intangible asset amortization expense was $ 71 million, $ 68 million and $ 61 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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(In millions) 2023 2022

Buildings and leasehold improvements 364 326

Land, buildings and leasehold improvements $ 440 $ 364

Warehouse equipment and other

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Depreciation of property and equipment was $ 290 million, $ 261 million and $ 274 million for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the Company held long-lived tangible assets outside the U.S.

of $ 475 million and $ 428 million, respectively.

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

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Property and equipment, net $ 107 $ 123

Short-term borrowings and obligations under finance leases $ 35 $ 34

Long-term debt and obligations under finance leases 97 133

Current debt $ 26 $ 35

Long-term debt 90 97

Total finance lease liabilities $ 116 $ 132

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Total operating lease cost (1)

$ 1,105 $ 921 $ 812

Finance leases:

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Total finance lease cost $ 35 $ 35 $ 38

Total lease cost $ 956 $ 850 $ 680

Total operating and finance lease cost $ 1,140 $ 956 $ 850

(1) Operating lease cost is primarily included in Direct operating expense in the Consolidated Statements of Operations.

Supplemental cash flow information related to leases was as follows:

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Present value of lease liabilities $ 116 $ 2,439

As of December 31, 2022, the Company had additional operating leases that have not yet commenced with future undiscounted lease payments of approximately $ 15 million.

These operating leases will begin in 2023, with initial lease terms ranging from 5 to 6 years.

As of December 31, 2023, the Company does not have any material leases that have been signed but have yet to commence.

Debt and Financing Arrangements

The following table summarizes the carrying value of our debt:

The following table summarizes the carrying value of the Company’s debt:

(In millions) Rate (1)

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Three-Year Term Loan due 2025 (4)

6.58 % 235 234

Five-Year Term Loan due 2027 (5)

6.71 % 499 499

Finance leases and other debt Various 118 164

Total debt and obligations under finance leases 1,806 961

Short-term borrowings and obligations under finance leases 67 34

Total long-term debt and obligations under finance leases $ 1,739 $ 927

(1) Interest rate as of December 31, 2022.

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

(3) Net of unamortized debt issuance costs and discount of $ 3 million and $ 4 million as of December 31, 2022 and 2021, respectively.

Total debt $ 1,647 $ 1,806

Current debt 27 67

Total Long-term debt $ 1,620 $ 1,739

(1) Interest rates as of December 31, 2023.

(2) Net of unamortized debt issuance costs of $ 2 million and $ 3 million, as of December 31, 2023 and 2022, respectively.

(3) Net of unamortized debt issuance costs of $ 3 million as of December 31, 2023 and 2022.

(4) Net of unamortized debt issuance costs of $ 1 million as of December 31, 2022.

(5) Net of unamortized debt issuance costs of $ 1 million as of December 31, 2023 and 2022.

Five-Year Term Loan

On May 25, 2022, the Company entered into a five-year unsecured Term Loan (the “ Five-Year Term Loan”) 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.

In 2022, the Company entered into a $ 500 million five-year unsecured term loan (the “ Five-Year Term Loan”) 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 unsecured term loan facility to fund the Clipper Acquisition.

The loan was 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 two-year term loan tranche (the “ Two-Year Term Loan”) and a $ 235 million three-year term loan tranche (the “ Three-Year Term Loan”) that will mature on May 26, 2024 and May 26, 2025, respectively.

The Two-Year Term Loan and Three-Year Term Loan 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.

In December 2022, the Company repaid $ 50 million against the Two-Year Term Loan.

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 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.

In 2022, the Company borrowed a $ 165 million two-year term loan tranche (the “ Two-Year Term Loan”) and a $ 235 million three-year term loan tranche (the “ Three-Year Term Loan”).

In 2022, $ 50 million of the Two-Year Term Loan was repaid, with the remaining $ 115 million repaid in the second quarter of 2023.

The Three-Year Term Loan will mature on May 26, 2025.

The Delayed Draw Term Loan bears 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.

Unsecured Notes

In July 2021, prior to the Separation, the Company 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”).

In 2021, before the Separation, the Company 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 arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2026.

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Revolving Credit Facilities

In June 2021, prior to the Separation, 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 will be available for the issuance of letters of credit.

Loans under the Revolving Credit Facility bear interest at a fluctuating rate equal to (i) with respect to borrowings in dollars, at the Company’s option, the alternate base rate or the reserve-adjusted LIBOR, (ii) with respect to borrowings in Canadian dollars, the reserve-adjusted Canadian Dollar Offered Rate, and (iii) with respect to borrowings in Euros, the reserve-adjusted Euro Interbank Offered Rate, in each case, plus an applicable margin calculated based on the Company’s credit ratings.

In 2021, before the Separation, 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.

Loans under the Revolving Credit Facility bear interest at a fluctuating rate equal to (i) with respect to borrowings in dollars, at the Company’s option, the alternate base rate or the adjusted SOFR, (ii) with respect to borrowings in Canadian dollars, the reserve-adjusted Canadian Dollar Offered Rate and (iii) with respect to borrowings in Euros, the reserve-adjusted Euro Interbank Offered Rate, in each case, plus an applicable margin calculated based on the Company’s credit ratings.

In addition, the Company is paying a commitment fee of 0.15 % per annum on the unused portion of the commitments under the Revolving Credit Facility.

No amounts were outstanding under the Revolving Credit Facility as of December 31, 2023, or December 31, 2022.

In addition, pursuant to the Clipper Acquisition, the Company assumed a revolving credit facility agreement under which it may borrow up to approximately £ 45 million ($ 54 million as of December 31, 2022) in aggregate at any time, expiring in November 2023.

In 2022, in connection with the Clipper Acquisition, the Company assumed a revolving credit facility agreement under which it may borrow up to approximately £ 45 million ($ 54 million as of December 31, 2022) in aggregate at any time, which expired in November 2023.

As of December 31, 2022, the Company had $ 18 million of borrowings outstanding under this agreement.

Amounts drawn and repaid in 90 days or less under the revolving credit facilities are presented net in the Consolidated Statement of Cash Flows.

Factoring Programs and Trade Receivables Securitization

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 that was terminated in the first quarter of 2022.

Factoring Programs

The Company sells certain of its trade receivables on a non-recourse basis to third-party financial institutions under various factoring programs.

The Company also sold certain European trade accounts receivables under a securitization program terminated in the first quarter of 2022.

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.

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(In millions) 2023 2022 2021

Factoring agreements

Factoring program

Receivables sold in period $ 1,110 $ 992 $ 450

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Cash consideration — — 1,850

Deferred purchase price — — 80

Net cash provided by (used in) operating cash flows 21 35 ( 5 )

Covenants and Compliance

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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 and $ 165 million were amended during the second and third quarters of 2022, respectively.

In the fourth quarter of 2022, the Company amended certain fixed-to-fixed cross-currency swap agreements scheduled to mature in 2027 to 2026, with aggregate notional amounts of $ 322 million, these amendments were not material to the Consolidated Financial Statements.

Concurrent with the $ 50 million Two-Year Term Loan repayment, $ 50 million of a variable-to-variable cross-currency swap agreement notional amount was reduced.

In connection with the extensions, amendments and reduction, the Company received net cash of $ 21 million representing the fair value of the swap plus interest accrued through the date of termination for the year ended December 31, 2022.

In October 2023, the Company terminated a hedge with a notional amount of $ 115 million and amended a $ 235 million hedge to extend its maturity from 2024 to 2025.

Also, the Company entered into various hedges for an aggregate notional amount of $ 313 million that will mature from 2025 to 2028.

Interest Rate Swap Agreements

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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.

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 AOCIL 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 January 2024, the Company entered into an interest rate swap schedule to mature in 2025, with a notional amount of $ 125 million.

Foreign Currency Exchange Rate Risk

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While these derivatives are hedging the fluctuations in foreign currencies, they do not meet the requirements to be accounted for as hedging instruments.

The gross notional and fair value of derivative instruments were as follows:

The notional amount and fair value of derivative instruments were as follows:

(In millions) Notional Amount Fair Value Notional Amount Fair Value Balance Sheet Location

Derivatives designated as hedges

Cross-currency swap agreements $ 1,222 $ 22 $ — $ — Other long-term assets

Interest rate swaps $ 125 $ 2 $ — $ — Other current assets

Interest rate swaps 125 3 250 9 Other long-term assets

Cross-currency swap agreements 487 3 1,222 22 Other long-term assets

Cross-currency swap agreements $ 165 $ 7 $ 115 $ 13 Other current liabilities

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Foreign currency option contracts $ 397 $ 8 $ — $ — Other current assets

Foreign currency option contracts — — 37 1 Other long-term assets

Foreign currency forward contracts 1 — — — Other current assets

Foreign currency option contracts $ — $ — $ 354 $ 5 Other current liabilities

2 unchanged sentences

The derivatives are valued using inputs other than quoted prices such as foreign exchange rates and yield curves.

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

The effect of hedges on AOCIL and in the Consolidated Statements of Operations was as follows:

Year Ended December 31, 2023 Year Ended December 31, 2022

(In millions) Amount of Gain Recognized in Other Comprehensive Income on Derivatives Gain Reclassified from AOCI into Net Income (1)

Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)

Amount of Loss Recognized in Other Comprehensive Income on Derivatives Gain Reclassified from AOCI into Net Income (1)

Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)

(In millions) Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives Gain (Loss) Reclassified from AOCIL into Net Income (1)

Gain (Loss) Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)

Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivatives Gain (Loss) Reclassified from AOCIL into Net Income (1)

Gain (Loss) Recognized in Net Income on Derivatives (Excluded from effectiveness testing) (1)

Derivatives designated as net investment hedges

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(In millions) 2023 2022

Realized gain $ 29 $ 1

Realized gain (loss)

$ ( 13 ) $ 29

Unrealized gain (loss) 4 ( 11 )

Total gain recognized in net income $ 18 $ 2

Foreign currency gain (loss) $ ( 9 ) $ 18

Accrued Expenses

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(In millions) 2023 2022

Facility and transportation charges $ 360 $ 387

Salaries and wages $ 362 $ 350

Facility and transportation charges 346 360

Value-added tax and other taxes 136 135

1 unchanged sentence

Total accrued expenses $ 966 $ 995

Earnings per Share

Prior to the Separation, GXO employees participated in XPO’s equity incentive plan, pursuant to which they were granted restricted stock units, performance-based restricted stock units and non-qualified or incentive stock options.

All awards granted under these plans were related to XPO common shares.

In connection with the Separation, outstanding awards held by GXO employees were converted in accordance with the EMA.

Depending on whether the awards held on the Separation date were in an unvested or vested status, GXO employees either received converted awards solely in GXO based shares (unvested status) or a combination of GXO and XPO shares (vested status).

The conversion methodology used was calculated in accordance with the EMA and with the purpose of maintaining the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value immediately prior to the Separation.

On August 2, 2021, the date of the Separation, 114,626,250 shares of common stock of GXO were distributed to XPO stockholders of record as of the record date.

This share amount is utilized for the calculation of basic and

diluted earnings per share for all years presented prior to the Separation.

For years prior to the Separation, it is assumed that there are no dilutive equity instruments as there were no equity awards of GXO outstanding prior to the Separation.

Diluted earnings per share was computed by giving effect to all potentially dilutive stock awards that were outstanding.

The computation of diluted earnings per share excludes the effect of the potential exercise of stock-based awards when the effect of the potential exercise would be anti-dilutive.

The computations of basic and diluted earnings (loss) per share were as follows:

Year Ended December 31,

(Dollars in millions, shares in thousands, except per share amounts)

2022 2021 2020

Net income (loss) attributable to common shares $ 197 $ 153 $ ( 31 )

Basic weighted-average common shares 117,050 114,632 114,626

Diluted effect of stock-based awards 566 965 —

Diluted weighted-average common shares 117,616 115,597 114,626

Basic earnings (loss) per share $ 1.68 $ 1.33 $ ( 0.27 )

Diluted earnings (loss) per share $ 1.67 $ 1.32 $ ( 0.27 )

Antidilutive shares excluded from diluted weighted-average common shares

Stockholders’ Equity

The following table summarizes the changes in AOCI by component:

The following table summarizes the changes in AOCIL by component:

Foreign Currency Adjustment

(In millions) Foreign

Adjustments Cash

Adjustments Net Investment Hedges Cash

Hedges Defined

attributable to

noncontrolling

interest AOCI

As of December 31, 2020 $ 61 $ — $ — $ ( 1 ) $ ( 2 ) $ 58

$ 61 $ — $ ( 1 ) $ ( 2 ) $ 58

Foreign currency translation loss ( 47 ) — — 1 ( 46 )

Unrealized gain on defined benefit plans, net of tax — — 7 — 7

Amounts reclassified from AOCI to net income 1 — — — 1

Other comprehensive income (loss) before reclassifications ( 59 ) 19 — 9 1 ( 30 )

Amounts reclassified to net income — ( 3 ) — — — ( 3 )

Tax amounts — ( 3 ) — ( 2 ) — ( 5 )

Other comprehensive income (loss), net of tax ( 59 ) 13 — 7 1 ( 38 )

1 unchanged sentence

As of December 31, 2021 $ ( 38 ) $ ( 15 ) $ — $ ( 76 ) $ ( 1 ) $ ( 130 )

$ ( 53 ) $ — $ ( 76 ) $ ( 1 ) $ ( 130 )

Foreign currency translation loss ( 120 ) — — 1 ( 119 )

Unrealized gain on hedges, net of tax 29 7 — — 36

Unrealized loss on defined benefit plans, net of tax — — ( 36 ) — ( 36 )

Amounts reclassified from AOCI to net income ( 7 ) — — — ( 7 )

Other comprehensive income (loss) before reclassifications ( 119 ) 36 9 ( 49 ) 1 ( 122 )

Amounts reclassified to net income — ( 7 ) — — — ( 7 )

Tax amounts ( 1 ) ( 7 ) ( 2 ) 13 — 3

Other comprehensive income (loss), net of tax ( 120 ) 22 7 ( 36 ) 1 ( 126 )

1 unchanged sentence

As of December 31, 2022 $ ( 156 ) $ 7 $ 7 $ ( 112 ) $ — $ ( 254 )

$ ( 149 ) $ 7 $ ( 112 ) $ — $ ( 254 )

Other comprehensive income (loss) before reclassifications 72 ( 66 ) ( 3 ) ( 3 ) ( 1 ) ( 1 )

Amounts reclassified to net income — ( 3 ) — 2 — ( 1 )

Tax amounts 1 15 1 — — 17

Other comprehensive income (loss), net of tax 73 ( 54 ) ( 2 ) ( 1 ) ( 1 ) 15

As of December 31, 2023 $ ( 83 ) $ ( 47 ) $ 5 $ ( 113 ) $ ( 1 ) $ ( 239 )

Stock-Based Compensation

All awards granted under these plans related to XPO common shares.

In connection with the Separation, and in accordance with the Employee Matters Agreement (“EMA”), the Company’s employees with outstanding former XPO stock-based awards received replacement stock-based awards under the Plan at Separation.

The value of the replaced stock-based awards was designed to preserve the aggregate intrinsic value of the award immediately after the Separation when compared to the aggregate intrinsic value of the award immediately prior to the Separation.

In 2021, the Company established the 2021 Omnibus Incentive Plan (the “2021 Incentive Plan”).

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Under the 2021 Incentive Plan, directors, officers and employees may be granted various types of stock-based compensation awards.

These awards include stock options, restricted stock, RSUs, performance-based units and cash incentive awards (collectively, “Awards”).

As of December 31, 2022, 8.2 million shares of common stock were available for the grant of Awards under the 2021 Incentive Plan.

Prior to the Separation, the stock-based compensation expense recorded by the Company included the expense associated with the employees historically attributable to the Company’s operations, as well as the expense associated with the allocation of equity-based compensation expense for corporate employees.

The amounts presented are not necessarily indicative of future awards and do not necessarily reflect the costs that the Company would have incurred as an independent company for the periods presented.

These awards include stock options, restricted stock awards, RSUs, PSUs and cash incentive awards.

As of December 31, 2023, 7.5 million shares of common stock were available for the grant under the 2021 Incentive Plan.

Before the Separation, the stock-based compensation expense recorded by the Company included the expense associated with the employees historically attributable to the Company’s operations, as well as the expense associated with the allocation of equity-based compensation expense for corporate employees.

The amounts do not necessarily reflect the costs that the Company would have incurred as an independent company in 2021.

The following table summarizes stock-based compensation expense recorded in Selling, general and administrative expense in the Consolidated Statements of Income:

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(In millions) 2023 2022 2021

Restricted stock and restricted stock units $ 21 $ 20 $ 23

Performance-based restricted stock units 7 5 2

Restricted stock units $ 22 $ 21 $ 20

Performance-based units 8 7 5

Stock options 5 5 3

2 unchanged sentences

Stock Options

The Company’s stock options vest over five years after the grant date, and have a 10-year contractual term with an exercise price equal to the stock price on the grant date.

For awards issued prior to the Separation, the exercise price was converted in accordance with the EMA.

The Black-Scholes option-pricing model was used to estimate the fair value of the share-based awards granted in 2021.

The Company’s stock options vest over five years after the grant date and have a ten-year contractual term with an exercise price equal to the stock price on the grant date.

The Black-Scholes option-pricing model was used to estimate the fair value of these awards.

The Black-Scholes option-pricing model incorporates various subjective assumptions, including expected terms and expected volatility.

Assumptions used in the Black-Scholes option-pricing model for the estimated fair value were as follows:

Assumptions used in the Black-Scholes option-pricing model for the estimated fair value of options granted in 2021 were as follows:

weighted-average risk-free rate of interest of 1.2 %, expected volatility of 30 %, weighted-average expected award life of 7 years and weighted-average fair value of $ 22.66 .

No options were granted, exercised or forfeited during the year ended December 31, 2022.

Stock option awards as of December 31, 2022 and 2021, are presented in the following table:

A summary of stock option award activity for the year ended December 31, 2023, is presented in the following table:

Stock Options

Number of Stock Options

(in thousands) Weighted-Average

Exercise Price

(per share) Weighted-Average

Remaining Term (years)

(In thousands, except per share) Number of Stock Options Weighted-Average

Exercise Price Weighted-Average

Remaining Term

Outstanding as of December 31, 2022

1,170 $ 64.72 8 years

Forfeited ( 99 ) 64.91

Outstanding as of December 31, 2023

1,071 $ 64.71 7 years

Options exercisable as of December 31, 2022

Exercisable as of December 31, 2023

272 $ 63.79 7 years

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As of December 31, 2023, unrecognized compensation cost related to options of $ 12 million is anticipated to be recognized over a weighted-average period of approximately 2 years.

Restricted Stock Units and Performance-Based Restricted Stock Units

The Company grants RSUs and PRSUs to its key employees, officers and directors with various vesting requirements.

The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards.

RSUs generally vest based on the passage of time (service conditions), typically four years , and PRSUs generally vest based on achieving certain predefined performance objectives.

For PRSUs the number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award.

In 2022, the Company granted PRSUs subject to market-based vesting conditions.

The Company determines the fair value of PRSUs subject to market-based vesting conditions using a Monte Carlo simulation lattice model that incorporates the probability of the performance conditions being met as of the grant date.

Assumptions used in the Monte Carlo simulation lattice model for the estimated fair value were as follows:

weighted-average risk free rate of interest of 2.5 % and expected volatility of the Company’s stock of 37 %.

A summary of RSU and PRSU award activity for the year ended December 31, 2022 is presented in the following table:

Restricted Stock Units and Performance-Based Units

The Company grants RSUs and PSUs to its key employees, officers and directors with various vesting requirements.

The holders of the RSUs and PSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards.

RSUs generally vest over the service period, typically four years , and PSUs generally vest based on achieving certain predefined performance objectives along with service conditions.

For PSUs the number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award.

The Company granted a portion of PSUs subject to market-based vesting conditions.

The Company determines the fair value of PSUs subject to market-based vesting conditions using a Monte Carlo simulation model that incorporates the probability of the performance conditions being met as of the grant date.

Assumptions used in the Monte Carlo simulation model for the estimated fair value were as follows:

Year Ended December 31,

2023 2022 2021 (1)

Weighted-average risk-free interest rate 4.7 % 2.5 % — %

Expected volatility 32 % 37 % — %

(1) There were no PSUs issued by the Company in 2021.

A summary of RSU and PSU award activity for the year ended December 31, 2023, is presented in the following table:

(In thousands, except per share) Number of

1 unchanged sentence

Grant Date Fair

Value Number of PRSUs Weighted-Average

Value Number of PSUs Weighted-Average

Grant Date Fair

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1,337 $ 51.31 295 $ 67.46

(1) The number of RSUs and PRSUs vested includes common stock shares that the Company withheld on behalf of its employees to satisfy the minimum tax withholding.

(1) The number of RSUs and PSUs vested includes common stock shares that the Company withheld on behalf of its employees to satisfy the minimum tax withholding.

The total fair value of RSUs that vested during 2023 and 2022 was $ 22 million and $ 30 million, respectively.

The total fair value of PRSUs that vested during 2022 was $ 5 million and was immaterial for 2021.

As of December 31, 2022, unrecognized compensation cost related to RSUs and PRSUs of $ 58 million is anticipated to be recognized over a weighted-average period of approximately 3 years.

The total fair value of PSUs that vested during 2023 and 2022 was $ 7 million and $ 5 million, respectively.

As of December 31, 2023, unrecognized compensation cost related to RSUs and PSUs of $ 60 million is anticipated to be recognized over a weighted-average period of approximately 3 years.

Employee Benefit Plans

Defined Benefit Plan

Prior to the Separation, certain eligible employees of XPO participated in XPO’s U.K.

Retirement Plan which did not allow for new participants or additional benefit accruals.

In connection with the Separation, the Company became the plan sponsor for the U.K.

Pension Plans

Certain eligible employees of the Company participated in various retirement plans in Europe.

In connection with the Separation, the Company also became the sponsor of a retirement plan in the U.K.

Retirement Plan”).

The majority of the plan assets transferred to the Company were fixed income securities including government bonds and debt instruments which are primarily classified as Level 2 in the fair value hierarchy.

There are no unfunded commitments or redemption restrictions related to these investments.

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

The Company determines the net periodic benefit costs using assumptions regarding the projected benefit obligation and the fair value of the plan assets as of the beginning of the year.

Net periodic benefit cost is recorded within Other income, net in the Consolidated Statement of Operations.

The Company calculates the funded status of the defined benefit pension plan as the difference between the projected benefit obligation and the fair value of the plan assets.

Funded Status of Defined Benefit Plan

The change in the projected benefit obligation of the plan was as follows:

Retirement Plan did not allow for new participants or additional benefit accruals.

Other than the U.K.

Retirement Plan, the Company deems other retirement plans to be immaterial to its Consolidated Financial Statements and are excluded from the disclosure below.

Retirement Plan

A reconciliation of the projected benefit obligation, fair value of the plan and the funded status, the amount recognized in financial statements, the assumptions used, the plan assets and funding requirements are shown below.

The change in the projected benefit obligation was as follows:

(In millions) 2023 2022

Projected benefit obligation at beginning of year $ 788 $ 1,400

Liabilities assumed from XPO — 1,408

Interest cost 40 21

Actuarial (gain) loss (1)

Foreign currency exchange rate changes ( 139 ) ( 31 )

Benefits paid ( 48 ) ( 52 )

Foreign currency exchange rate changes 41 ( 139 )

Projected benefit obligation at end of year

$ 788 $ 1,400

Actuarial gains were primarily a result of an increase in the discount rate.

The change in the fair value of the plan assets was as follows:

(1) Actuarial gains or losses are due to changes in the discount and mortality rates.

The change in the fair value of the plan assets and funded status was as follows:

(In millions) 2023 2022

Fair value of plan assets at beginning of year $ 826 $ 1,460

Assets transferred from XPO — 1,444

Actual return on plan assets 60 ( 438 )

Foreign currency exchange rate changes ( 145 ) ( 32 )

Contributions by the employer 1 —

Employer contributions 1 1

Benefits paid ( 48 ) ( 52 )

Foreign currency exchange rate changes 44 ( 145 )

Fair value of plan assets at end of year $ 883 $ 826

1 unchanged sentence

(1) Funded status is recorded within Other long-term assets.

The amounts included in AOCI that have not yet been recognized in net periodic benefit were as follows:

The amounts included in AOCIL that have not yet been recognized in net periodic benefit were as follows:

(In millions) 2023 2022

Actuarial loss $ ( 151 ) $ ( 113 )

Net actuarial loss $ ( 156 ) $ ( 151 )

Prior-service credit 14 14

Net amount recognized in AOCI $ ( 137 ) $ ( 97 )

(1) In connection with the Separation, $ 103 million of accumulated other comprehensive loss was transferred from XPO.

Net loss recognized in AOCIL $ ( 142 ) $ ( 137 )

The components of net benefit cost recognized were as follows:

4 unchanged sentences

Expected return on plan assets for the period

Net benefit cost recognized (1)

(1) Net benefit cost is recorded within Other income, net.

Amortization of prior-service credit

Amortization of net loss

Net benefit credit recognized (1)

(1) Net benefit credit is recorded within Other income, net.

The amount recognized in other comprehensive income was as follows:

1 unchanged sentence

(In millions) 2023 2022

Actuarial gain (loss) $ ( 51 ) $ 6

Other comprehensive income $ ( 51 ) $ 6

Net gain (loss) $ 1 $ ( 51 )

Amortization prior-service credit and net loss 2 —

Other comprehensive income (loss) $ 3 $ ( 51 )

The weighted-average assumptions used to determine the projected benefit obligation and the net periodic costs were as follows:

12 unchanged sentences

The Company’s U.K.

Retirement Plan’s assets are separated from its assets and invested by a trustee, which include representatives of the Company, to meet the U.K.

Retirement Plan’s assets are invested by a trustee, which include representatives of the Company, to meet the U.K.

Retirement Plan’s projected future pension liabilities.

The trustee’s investment objectives are to meet the performance target set in the deficit recovery plan of the U.K.

Retirement Plan in a risk-controlled framework.

During 2023, the Company changed the plan’s investment manager and appointed a fiduciary manager.

The day-to-day management of the assets of the U.K.

Retirement Plan has been delegated by the plan trustee to a fiduciary manager who decides the composition of the asset portfolio in line with the objectives of the plan’s trustee.

The trustee’s investment objectives are to meet the performance target set by the trustee in a risk-controlled framework.

The target strategic asset allocation for the U.K.

Retirement Plan consists of approximately 40 % matching assets (U.K.

gilts and cash) and approximately 60 % growth and income assets (consisting of a range of pooled funds investing in structured equities, investment-grade and high-yield bonds

and asset-backed securities).

The target asset allocations of the U.K.

Retirement Plan include acceptable ranges for each asset class.

Retirement Plan consists of approximately 65 % liability-driven investments, intended to minimize market and interest rate risks, and approximately 35 % growth and income assets.

The actual asset allocations of the U.K.

Retirement Plan are in line with the target asset allocations.

Collateral assets consist of U.K.

fixed-interest gilts, index-linked gilts and cash, which are used to back derivative positions that hedge the sensitivity of the liabilities to changes in interest rates and inflation.

Retirement Plan Actuary’s Long Term funding basis, approximately 80 % of the liability interest rate sensitivity and 80 % of the liability inflation sensitivity were hedged as of December 31, 2022.

The fair values of investments held in the pension plans by major asset category were as follows:

1 unchanged sentence

Cash and cash equivalents Level 1 $ 11 $ 59

Government Securities Level 2 409 904

Corporate Bonds Level 2 163 269

Fixed income securities Level 1 21 —

Money Market Level 2 18 —

Equities Level 2 134 —

Fixed income securities Level 2 890 572

Derivatives Level 2 — ( 137 )

Level 2 ( 266 ) —

Total assets in fair value hierarchy $ 808 $ 494

Private Markets (2)

Commingled funds (2)

Derivatives (1)

Investments, at fair value $ 883 $ 826

(1) Investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.

(1) Represents repurchase agreements in the UK.

Represent the plans’ short-term borrowing to hedge against interest rate and inflation risks.

The plans have an obligation to return the cash after the term of the agreements.

Due to the short-term nature of the agreements, the outstanding balance of the obligation approximates fair value.

(2) Investments that are measured using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy.

The amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented for the total defined benefit pension plan assets.

The expected benefit payments for the defined benefit pension plan are summarized below.

2 unchanged sentences

(In millions) 2024 2025 2026 2027 2028 2029-2034

Expected payment $ 49 $ 48 $ 52 $ 49 $ 55 $ 273

Expected payments $ 49 $ 49 $ 53 $ 55 $ 55 $ 279

The Company’s funding practice is to evaluate the tax and cash position, and the funded status of the plan, in determining the planned contributions.

The Company estimates that it will contribute approximately $ 1 million to the U.K.

Retirement Plan in 2023 but this could change based on variations in interest rates, asset returns and other factors.

Retirement Plan in 2024.

Defined Contribution Plans

The Company sponsors a defined contribution plan that is available to employees whose primary place of employment is in the U.S.

The Company matches up to 4 % of employees’ pre-tax contributions, after completing one year of service.

The Company’s costs for the defined contribution plan were $ 17 million, $ 16 million and $ 14 million for the years ended December 31, 2022, 2021 and 2020, respectively, and were primarily included in Direct operating expenses.

The Company also has various defined contribution plans for its international employees.

The Company’s contributions to these benefit plans were $ 37 million, $ 29 million and $ 15 million for the years ended December 31, 2022, 2021 and 2020, respectively, and were primarily included in Direct operating expenses.

The Company has defined contribution retirement plans for its U.S.

employees and employees of certain foreign subsidiaries.

The Company’s contributions for the years ended December 31, 2023, 2022 and 2021, were $ 66 million, $ 54 million and $ 45 million, respectively.

Defined contribution costs were primarily recorded in Direct operating expense in the Consolidated Statements of Operations.

Restructuring Charges 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, including impairment of operating lease assets, and are intended to improve efficiency and profitability.

The restructuring liability rollforward, which is included in Other current liabilities in the Consolidated Balance Sheets was as follows:

(In millions)

Balance as of December 31, 2020

Charges incurred (1)

Payments ( 14 )

Foreign exchange and other ( 7 )

Restructuring costs and other primarily related to severance, including projects to optimize the Company’s finance, human resources and information technology functions, and closing certain corporate and administrative offices, which were not associated with customer attrition.

For the year ended December 31, 2023, Restructuring costs and other totaled $ 32 million, including $ 21 million

related to severance and $ 11 million primarily related to closing certain corporate and administrative offices.

The following table summarizes changes in the restructuring liability, which is included within Other current liabilities in the Consolidated Balance Sheets.

(In millions) Severance Other Total

Balance as of December 31, 2022 $ 13 $ — $ 13

1 unchanged sentence

Payments ( 27 ) — ( 27 )

Non-cash reductions — ( 11 ) ( 11 )

Balance as of December 31, 2023

(1) Charges incurred are net of adjustments to previously recognized liabilities.

The remaining restructuring liability at December 31, 2022 primarily relates to severance payments and is expected to be substantially paid within 12 months.

In 2022, the Company deconsolidated a 50 % owned joint venture.

The deconsolidation resulted in an $ 8 million charge recorded in the first quarter of 2022.

For the periods ended before the Separation, the Company was a member of the XPO consolidated group, and its U.S.

The remaining severance liability at December 31, 2023, is expected to be substantially paid within 12 months.

For the periods ended before the Separation, the Company was a member of XPO, and its U.S.

taxable income was included in XPO’s consolidated U.S.

federal income tax return as well as in the tax returns filed by XPO with certain state and local taxing jurisdictions.

For the periods ended after the Separation, the Company has filed and will file a consolidated U.S.

federal income tax return as well as certain state and local taxing jurisdictions tax returns.

For the periods ended after the Separation, the Company has filed a consolidated U.S.

federal income tax return as well as state and local income tax returns.

5 unchanged sentences

Foreign 169 159 178

Income (loss) before income taxes $ 264 $ 153 $ ( 6 )

The components of income tax expense (benefit) for 2022, 2021 and 2020 are presented in the following table:

Income before income taxes $ 266 $ 264 $ 153

The components of income tax expense (benefit) are presented in the following table:

Year Ended December 31,

13 unchanged sentences

A reconciliation of the expected U.S.

federal income tax expense (benefit), calculated by applying the federal statutory rate to the Company’s actual income tax expense (benefit) for 2022, 2021 and 2020 is presented in the following table:

federal income tax expense (benefit), calculated by applying the federal statutory rate to the Company’s actual income tax expense (benefit) is presented in the following table:

Year Ended December 31,

8 unchanged sentences

Valuation allowances ( 4 ) ( 3 ) 1

Changes in prior period unrecognized tax benefits, including interest — — 1

Stock-based compensation 1 ( 1 ) 1

Intangible assets (2)

( 17 ) — ( 42 )

Transaction costs — 5 —

3 unchanged sentences

net of foreign taxes and permanent items related to foreign operations.

(2) The Company recorded a positive one-time adjustment as a result of agreements by GXO’s non-U.S.

affiliates to license the rights to use trademarks, trade names and other intellectual property related to the GXO brand.

(2) In 2023 and 2021, the Company recorded an income tax benefit related to the rights to use trade names, trademarks and other intellectual property.

Components of the Net Deferred Tax Asset or Liability

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are presented in the following table:

Year Ended December 31,

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are presented in the following table:

(In millions) 2023 2022

18 unchanged sentences

Investments in Foreign Subsidiaries

As of December 31, 2022, the Company maintained a partial assertion for all post 2017 undistributed historical earnings and record a deferred tax liability for historical earnings that are not considered to be permanently reinvested.

The Company asserts indefinite reversal exception for not recording deferred taxes resulting from the Clipper Acquisition.

As of December 31, 2023, the Company maintained a partial indefinite reinvestment assertion on its post- 2017 undistributed foreign earnings

Operating Loss and Tax Credit Carryforwards

16 unchanged sentences

The balances and activity related to the Company’s valuation allowances were as follows:

(In millions) Beginning Balance Additions Reductions (1)

Ending Balance

(In millions) Beginning Balance Additions Reductions Ending Balance

$ 44 16 ( 10 ) $ 50

1 unchanged sentence

$ 73 1 ( 29 ) $ 45

(1) In 2021, due to the Separation, $ 29 million decrease in valuation allowances was recorded as the corresponding tax attributes reported by the Company on a combined basis were not transferred to the Company.

(1) In 2023, due to the PFS Acquisition, the Company acquired $ 8 million of valuation allowances.

(2) In 2021, due to the Separation, the Company released $ 29 million of valuation allowances as the corresponding tax attributes reported by the Company on a combined basis were not transferred to the Company.

Unrecognized Tax Benefits

6 unchanged sentences

— ( 1 ) ( 1 )

Ending balance

Interest and penalties

Gross unrecognized tax benefits

2 unchanged sentences

The Company is subject to taxation in the U.S.

and various states and in foreign jurisdictions.

As of December 31, 2022, the Company is not under examination by the IRS or U.S.

state and local taxing authorities.

Various non-U.S.

tax returns for years after 2009 are open under relevant statutes of limitations and are subject to audit.

and foreign jurisdictions.

As of December 31, 2023, the Company is under examination for its income tax filings in the states of North Carolina and Wisconsin.

Various foreign tax returns for years after 2009 are open under relevant statutes of limitations and are subject to audit.

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.

The Company is involved, and will continue to be involved, in numerous legal proceedings arising from 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.

1 unchanged sentence

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 a loss is not both probable and reasonably estimable, or if an exposure to a 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 believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable.

Management 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 financial condition, results of operations or cash flows.

Legal costs incurred related to these matters are expensed as incurred.

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 related to these matters are expensed as they are 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.

2 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-K

Item 8. Financial Statements and Supplementary Data