What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-08-09 · 421 added, 297 removed, 157 unchanged (82% of the section changed)

1 unchanged sentence

GXO Logistics, Inc.

Condensed Combined Balance Sheets

June 30, December 31,

Condensed Consolidated Statements of Operations

Three Months Ended September 30, Nine Months Ended September 30,

(In millions, except per share data) 2021 2020 2021 2020

Revenue $ 1,974 $ 1,584 $ 5,678 $ 4,429

Direct operating expense 1,651 1,297 4,725 3,685

Sales, general and administrative expense 171 157 519 467

Depreciation and amortization expense 85 83 259 246

Transaction-related costs (credits) 29 ( 2 ) 82 40

Restructuring costs 2 — 5 25

Operating income (loss) 36 49 88 ( 34 )

Other income ( 11 ) — ( 11 ) ( 2 )

Interest expense 5 6 16 18

Income (loss) before income taxes 42 43 83 ( 50 )

Income tax expense (benefit) ( 31 ) 20 ( 21 ) 2

Net income (loss) 73 23 104 ( 52 )

Net income attributable to noncontrolling interests ( 1 ) ( 5 ) ( 7 ) ( 7 )

Net income (loss) attributable to GXO $ 72 $ 18 $ 97 $ ( 59 )

Earnings per share data

Basic earnings (loss) per share $ 0.63 $ 0.16 $ 0.84 $ ( 0.51 )

Diluted earnings (loss) per share $ 0.62 $ 0.16 $ 0.84 $ ( 0.51 )

Common shares outstanding

Number of Basic shares outstanding 115 115 115 115

Number of Diluted shares outstanding 116 115 116 115

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

Net income (loss) $ 73 $ 23 $ 104 $ ( 52 )

Other comprehensive income (loss), net of tax

Foreign currency translation gain (loss), net of tax effect of $( 4 ), $( 1 ), $( 2 ) and $( 4 )

$ ( 12 ) $ 93 $ ( 30 ) $ 45

Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $ — , $ — , $( 1 ) and $ —

Other comprehensive income (loss) ( 12 ) 93 ( 31 ) 47

Comprehensive income (loss) $ 61 $ 116 $ 73 $ ( 5 )

Comprehensive income attributable to noncontrolling interest 1 9 7 9

Comprehensive income (loss) attributable to GXO $ 60 $ 107 $ 66 $ ( 14 )

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Condensed Consolidated Balance Sheets

September 30, December 31,

(In millions, except per share amounts) 2021 2020

Current assets

15 unchanged sentences

Accrued expenses 1,008 784

Short-term borrowings and current finance lease liabilities 36 58

Short-term borrowings and obligations under finance leases 40 58

Short-term operating lease liabilities 432 332

2 unchanged sentences

Long-term liabilities

Long-term debt and finance lease liabilities 582 615

Long-term debt and obligations under finance leases 934 615

Deferred tax liability 56 54

3 unchanged sentences

Commitments and contingencies

Common Stock, $ 0.01 par value, 300 shares authorized;

115 shares issued and outstanding

Preferred Stock, $ 0.01 par value, 10 shares authorized;

— shares issued and outstanding

Additional paid-in capital 2,348 —

Retained earnings 70 —

XPO investment — 2,765

Accumulated other comprehensive income

Accumulated other comprehensive income (loss) ( 123 ) 58

Total equity before noncontrolling interests

1 unchanged sentence

Total liabilities and equity $ 7,133 $ 6,548

See accompanying notes to condensed combined financial statements.

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Operations

Three Months Ended June 30, Six Months Ended June 30,

(In millions, except per share data) 2021 2020 2021 2020

$ 1,882 $ 1,405 $ 3,704 $ 2,845

Direct operating expense 1,554 1,185 3,074 2,388

Sales, general and administrative expense 177 168 348 310

Depreciation and amortization expense 95 87 174 163

Transaction and integration costs 35 25 53 42

Restructuring costs (credit) ( 1 ) 25 3 25

Operating income (loss) 22 ( 85 ) 52 ( 83 )

Other (income) expense 1 ( 1 ) — ( 2 )

Interest expense 6 5 11 12

Income (loss) before income taxes

15 ( 89 ) 41 ( 93 )

Income tax provision (benefit) 1 ( 24 ) 10 ( 18 )

Net income (loss)

14 ( 65 ) 31 ( 75 )

Net income attributable to noncontrolling interests ( 3 ) — ( 6 ) ( 2 )

Net income (loss) attributable to GXO

$ 11 $ ( 65 ) $ 25 $ ( 77 )

Earnings per share data

Basic and Diluted earnings (loss) per share $ 0.10 $ ( 0.57 ) $ 0.22 $ ( 0.67 )

Common shares outstanding

Number of Basic and Diluted shares outstanding 115 115 115 115

See accompanying notes to condensed combined financial statements.

Condensed Consolidated Statements of Changes in Equity

Common Stock Additional Paid-In Capital Retained Earnings XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

(Shares in thousands, dollars in millions) Shares Amount

Balance as of June 30, 2021 — $ — $ — $ — $ 2,835 $ 39 $ 2,874 $ 40 $ 2,914

Net income — — — 70 2 — 72 1 73

Other comprehensive income — — — — — ( 12 ) ( 12 ) — ( 12 )

Share-based compensation — — 4 — — — 4 — 4

Exercise and vesting of stock compensation awards 10 — — — — — — — —

Net transfers to XPO, including separation adjustments — — — — ( 492 ) ( 150 ) ( 642 ) — ( 642 )

Issuance of common stock and reclassification of XPO investment 114,626 1 2,344 — ( 2,345 ) — — — —

Balance as of September 30, 2021 114,636 $ 1 $ 2,348 $ 70 $ — $ ( 123 ) $ 2,296 $ 41 $ 2,337

Common Stock Additional Paid-In Capital Retained Earnings XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

(Shares in thousands, dollars in millions) Shares Amount

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

Net income — — — 70 27 — 97 7 104

Other comprehensive income — — — — — ( 31 ) ( 31 ) — ( 31 )

Share-based compensation — — 4 — — — 4 — 4

Exercise and vesting of stock compensation awards 10 — — — — — — — —

Purchase of noncontrolling interest — — — — — — — ( 128 ) ( 128 )

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

Issuance of common stock and reclassification of XPO investment 114,626 1 2,344 — ( 2,345 ) — — — —

Other — — — — — — — ( 3 ) ( 3 )

Balance as of September 30, 2021 114,636 $ 1 $ 2,348 $ 70 $ — $ ( 123 ) $ 2,296 $ 41 $ 2,337

GXO Logistics, Inc.

Condensed Combined Statements of Comprehensive Income (Loss)

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2021 2020 2021 2020

Net income (loss)

$ 14 $ ( 65 ) $ 31 $ ( 75 )

Other comprehensive income (loss), net of tax

Foreign currency translation gain (loss), net of tax effect of $( 1 ), $( 1 ), $ 2 and $( 3 )

$ 19 $ 31 $ ( 26 ) $ ( 48 )

Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $ — , $ — , $( 1 ) and $ —

Other comprehensive income (loss) 19 33 ( 27 ) ( 46 )

Comprehensive income (loss)

$ 33 $ ( 32 ) $ 4 $ ( 121 )

Comprehensive income (loss) attributable to noncontrolling interests ( 1 ) 2 ( 2 ) —

Comprehensive income (loss) attributable to GXO

$ 34 $ ( 34 ) $ 6 $ ( 121 )

See accompanying notes to condensed combined financial statements.

Condensed Consolidated Statements of Changes in Equity

Common Stock Additional Paid-In Capital Retained Earnings XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

(Shares in thousands, dollars in millions) Shares Amount

Balance as of June 30, 2020 — $ — $ — $ — $ 2,621 $ ( 110 ) $ 2,511 $ 130 $ 2,641

Net income — — — — 18 — 18 5 23

Other comprehensive income — — — — — 89 89 4 93

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

Net transfers from XPO — — — — 88 — 88 — 88

Balance as of September 30, 2020 — $ — $ — $ — $ 2,726 $ ( 21 ) $ 2,705 $ 119 $ 2,824

Common Stock Additional Paid-In Capital Retained Earnings XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

(Shares in thousands, dollars in millions) Shares Amount

Balance as of December 31, 2019 — $ — $ — $ — $ 2,633 $ ( 66 ) $ 2,567 $ 130 $ 2,697

Net (loss) income — — — — ( 59 ) — ( 59 ) 7 ( 52 )

Other comprehensive income — — — — — 45 45 2 47

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

Net transfers from XPO — — — — 153 — 153 — 153

Balance as of September 30, 2020 — $ — $ — $ — $ 2,726 $ ( 21 ) $ 2,705 $ 119 $ 2,824

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Cash Flow

Six Months Ended June 30,

Condensed Consolidated Statements of Cash Flow

Nine Months Ended September 30,

(In millions) 2021 2020

4 unchanged sentences

Depreciation, amortization and net lease activity 259 246

Stock compensation expense 22 21

Deferred tax (benefit) expense

Other ( 11 ) 5

Changes in assets and liabilities

11 unchanged sentences

Financing activities

Proceeds from issuance of debt 794 —

Net proceeds (repayments) related to trade securitization program ( 21 ) 17

1 unchanged sentence

Purchase of noncontrolling interests ( 128 ) ( 21 )

Net transfers from XPO 116 44

Net transfers from (to) XPO ( 774 ) 112

Net cash provided by (used in) financing activities

6 unchanged sentences

Leased assets obtained in exchange of new finance lease liabilities, including $ 23 related to an acquisition in 2021

Non-cash settlement of related party debt pursuant to the Separation 437 —

Cash paid for interest 20 24

Cash paid for income taxes 38 18

See accompanying notes to condensed combined financial statements.

GXO Logistics, Inc.

Condensed Combined Statements of Changes in Equity

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

Balance as of March 31, 2021 $ 2,903 $ 16 $ 2,919 $ 124 $ 3,043

Net income 11 — 11 3 14

Other comprehensive income (loss) — 23 23 ( 4 ) 19

Purchase of noncontrolling interest — — — ( 128 ) ( 128 )

Net transfers from (to) XPO ( 79 ) — ( 79 ) 40 ( 39 )

Other — — — 5 5

Balance as of June 30, 2021 $ 2,835 $ 39 $ 2,874 $ 40 $ 2,914

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

Balance as of December 31, 2020 $ 2,765 $ 58 $ 2,823 $ 125 $ 2,948

Net income 25 — 25 6 31

Other comprehensive loss — ( 19 ) ( 19 ) ( 8 ) ( 27 )

Purchase of noncontrolling interest — — — ( 128 ) ( 128 )

Net transfers from XPO 45 — 45 40 85

Other — — — 5 5

Balance as of June 30, 2021 $ 2,835 $ 39 $ 2,874 $ 40 $ 2,914

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

Balance as of March 31, 2020 $ 2,688 $ ( 141 ) $ 2,547 $ 128 $ 2,675

Net loss ( 65 ) — ( 65 ) — ( 65 )

Other comprehensive income — 31 31 2 33

Net transfers to XPO ( 2 ) — ( 2 ) — ( 2 )

Balance as of June 30, 2020 $ 2,621 $ ( 110 ) $ 2,511 $ 130 $ 2,641

(In millions) XPO Investment Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interests Non-controlling Interests Total Equity

Balance as of December 31, 2019 $ 2,633 $ ( 66 ) $ 2,567 $ 130 $ 2,697

Net income (loss) ( 77 ) — ( 77 ) 2 ( 75 )

Other comprehensive loss — ( 44 ) ( 44 ) ( 2 ) ( 46 )

Net transfers from XPO 65 — 65 — 65

Balance as of June 30, 2020 $ 2,621 $ ( 110 ) $ 2,511 $ 130 $ 2,641

See accompanying notes to condensed combined financial statements.

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Notes to Condensed Combined Financial Statements

Notes to Condensed Consolidated Financial Statements

GXO Logistics, Inc.

(“GXO”, the “Company” or “we”) is the largest pure-play contract logistics provider in the world and a foremost innovator in the logistics industry in North America and Europe.

We provide high-value-add warehousing and distribution, order fulfillment and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions.

In addition, we are a major provider of reverse logistics, which is also called returns management.

We serve a broad range of customers in the e-commerce and retail, food and beverage, consumer packaged goods, aerospace, consumer technology, manufacturing and other industries.

We present our operations in the Condensed Combined Financial Statements as one reportable segment.

(“GXO,” the “Company” or “we”) is the largest pure-play contract logistics provider in the world and a foremost innovator in the logistics industry.

We provide high-value-add warehousing and distribution, order fulfillment and other supply chain services differentiated by our industry-leading ability to deliver technology-enabled, customized solutions.

In addition, we are a major provider of reverse logistics, or returns management.

We serve a broad range of ecommerce and retail customers across a range of industries, such as, consumer technology and manufacturing, food and beverage, consumer packaged goods and aerospace.

We present our operations in the condensed consolidated financial statements as one reportable segment.

On August 2, 2021, XPO Logistics, Inc.

(together with its subsidiaries, “XPO”) completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S.

federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution.

(“XPO”) completed the previously announced spin-off of GXO (the “Separation”) in a transaction intended to be tax-free for U.S.

federal income tax purposes, which was accomplished by the distribution of 100 percent of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on the record date.

GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of the common stock commenced on the New York Stock Exchange (the “NYSE”) under the ticker symbol “GXO.”

The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”).

See Note 10—Subsequent Events for additional details.

GXO is now a standalone publicly traded company.

On August 2, 2021, regular-way trading of GXO’s common stock commenced on the New York Stock Exchange (“NYSE”) under the ticker symbol “GXO.”

The Separation was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Transition Services Agreement (“TSA”), a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”) and an Intellectual Property License Agreement (“IPLA”).

See Note 3—The Separation for additional details of the agreements executed in connection with the Separation.

Basis of Presentation

The Condensed Combined Financial Statements of GXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO.

These financial statements reflect the combined historical results of operations, financial position and cash flows of GXO in accordance with U.S.

generally accepted accounting principles (“GAAP”).

Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO.

The combined financial statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company.

All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the combined financial statements, as they are to be considered effectively settled upon effectiveness of the spin-off.

The Condensed Combined Financial Statements are presented as if the GXO businesses had been combined for all periods presented.

The assets and liabilities in the Condensed Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the spin-off all of the assets and liabilities presented are wholly owned by XPO and are being transferred to GXO at a carry-over basis.

The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable to GXO, and the Condensed Combined Statements of Operations include allocations of XPO costs and expenses, as described below.

XPO’s corporate function (“Corporate”) incurs 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.

For purposes of the Condensed Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations, including GXO.

The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for

transaction and integration costs, as well as restructuring costs and other adjustments, or headcount.

The majority of these allocated costs are recorded in Sales, general and administrative expense (“SG&A”) and Depreciation and amortization expense in the Condensed Combined Statements of Operations.

We believe the assumptions regarding allocations of XPO corporate expenses are reasonable.

Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.

XPO investment represents XPO’s historical investment in GXO and includes the net effects of transactions with and allocations from XPO as well as GXO’s accumulated earnings.

Certain transactions between GXO and XPO, including XPO’s non-GXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded.

The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment.

The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of GXO and general financing activities.

Principles of Combination

The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of GXO.

Significant intercompany balances and transactions among the operations of the GXO legal entities have been eliminated in the Condensed Combined Financial Statements.

All significant related party transactions between GXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment.

The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Significant Accounting Policies

Trade Receivables Securitization and Factoring Programs

We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements.

We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Combined Statements of Cash Flows.

We also sell certain European trade accounts receivable under a securitization program described below.

We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.

XPO Logistics Europe SAS (“XPO Logistics Europe”), one of our wholly-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and has been presented within these combined financial statements based on our control of the entity’s activities.

We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred.

For these transfers, the receivables are removed from our Combined Balance Sheets at the date of transfer.

In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables.

The fair value of any servicing assets and liabilities is immaterial.

In addition to selling trade receivables which originate with GXO, the special purpose entity also purchases trade receivables from XPO and sells assets to the Purchasers.

The trade receivables which have been purchased from XPO have been reflected within Other current assets in the Condensed Combined Balance Sheets, and the related cash flows have been reflected within Purchase and sale of affiliate trade receivables, net, within investing activities

in the Condensed Combined Statements of Cash Flows.

See Note 6—Debt for additional information related to our receivables securitization secured borrowing program and these borrowings.

Information related to the trade receivables sold was as follows:

Three Months Ended June 30, Six Months Ended June 30,

(In millions) 2021 2020 2021 2020

Securitization programs

Receivables sold in period $ 474 $ 317 $ 902 $ 636

Cash consideration 474 317 902 636

Factoring programs

Receivables sold in period 100 176 200 422

Cash consideration 100 176 200 421

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The levels of inputs used to measure fair value are:

• Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs are observable in active markets;

• Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

We base our fair value estimates on market assumptions and available information.

The carrying values of cash and cash equivalents, accounts receivable, financial assets purchased from XPO, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of June 30, 2021 and December 31, 2020 due to their short-term nature and/or being receivable or payable on demand.

The Level 1 cash equivalents include money market funds valued using quoted prices in active markets.

The fair value of cash equivalents approximates its carrying value and amounted to $ 49 million and $ 54 million as of June 30, 2021 and December 31, 2020, respectively.

The cash equivalents are classified as Level 1 within the fair value hierarchy.

We determine if an arrangement is a lease at inception.

For leases with terms greater than 12 months, we recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term.

For most of our leases, the implicit rate cannot be readily determined and, as a result, we use the incremental borrowing rates of XPO at commencement date to determine the present value of future lease payments.

We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options.

We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability.

We account for lease and non-lease components within a contract as a single lease component for our real estate leases.

Lease expense for our operating leases is recognized on a straight-line basis over the lease term, with the exception of variable lease costs, which is expensed as incurred.

For the three and six months ended June 30, 2021, operating

lease cost was $ 201 million and $ 403 million, respectively.

For the three and six months ended June 30, 2020, operating lease cost was $ 154 million and $ 311 million, respectively.

For finance leases, amortization of the right-of-use asset is recognized in Depreciation and amortization expense on a straight-line basis over the lease term, and interest expense is accreted on the lease liability using the effective interest method.

Prior to the Separation on August 2, 2021, our historical financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO.

On August 2, 2021, the Company became a standalone publicly traded company, and its financial statements are now presented on a consolidated basis.

The unaudited financial statements for all periods presented, including the historical results of the Company prior to August 2, 2021, are now referred to as “Condensed Consolidated Financial Statements,” and have been prepared pursuant to the rules and regulations for reporting on Form 10-Q.

Accordingly, certain information and disclosures required by U.S.

generally accepted accounting principles (“GAAP”) for complete consolidated financial statements are not included herein.

Prior to the Separation on August 2, 2021, all the assets and liabilities were reflected on a historical cost basis, as immediately prior to the Separation all of the assets and liabilities presented were wholly owned by XPO and were generally transferred to the Company at a carry-over basis.

Prior to the Separation on August 2, 2021 the Condensed Consolidated Statements 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 operations, including GXO.

The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount.

The majority of these allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Transaction-related costs and Depreciation and amortization expense in the Condensed Consolidated Statements of Operations.

All charges and allocations for facilities, functions and services performed by XPO organizations have been deemed settled in cash by GXO to XPO in the period in which the cost was recorded on the Condensed Consolidated Statements of Operations.

For periods ended on or prior to August 2, 2021, we were a member of the XPO consolidated group and our U.S.

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

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

Our foreign income tax returns are filed on a separate company basis.

For periods ended prior to the Separation, our current and deferred income taxes have been computed and presented herein under the “separate return method” as if GXO were a separate tax paying entity.

Use of Estimates

We prepared estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions, particularly in light of the outbreak of a strain of coronavirus, COVID-19.

The results of operations of any interim period are not necessarily indicative of the results of operations for the full year.

In the Company’s opinion, all adjustments necessary for a fair statement of these interim statements have been included and are of a normal and recurring nature.

These interim statements should be read in conjunction with the audited financial statements and notes thereto included in GXO’s Registration Statement on Form 10.

Adoption of New Accounting Standards

In December 2019, the Financial Accounting Standard Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.” This guidance is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740.

The ASU also clarifies and amends existing guidance to enhance consistency and comparability among reporting entities.

We adopted this standard on January 1, 2021 on a prospective basis.

The adoption did not have a material effect on our Condensed Combined Financial Statements.

The adoption did not have a material effect on our condensed consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

3 unchanged sentences

The amendments are elective and are effective upon issuance through December 31, 2022.

We are currently evaluating the impact of the new guidance.

We intend to apply this guidance when modifications of contracts that include LIBOR occur, which is not expected to have a material impact on our consolidated financial statements.

The Separation

The Separation and Distribution Agreement contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of GXO and XPO as part of the Separation, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of GXO’s business with GXO and financial responsibility for the obligations and liabilities of XPO’s remaining business with XPO, (iii) the allocation among GXO and XPO of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the Separation, and (iv) procedures governing the resolution of disputes, controversies or claims that may arise between GXO and XPO related to the Separation or distribution.

Under the TSA, (i) XPO will provide GXO and certain of its affiliates, on an interim, transitional basis, various services and (ii) GXO will provide XPO and certain of its affiliates, on an interim, transitional basis, various services.

The services to be provided include, treasury administration, employee benefits administration, information technology services, regulatory services, general administrative services and other support services.

The services generally commenced on the date of the Separation and will terminate no later than twelve months following the distribution date.

XPO and GXO entered into a TMA that governs the parties’ respective rights, responsibilities and obligations with respect to tax matters;

including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters.

GXO is generally responsible for federal, state and foreign income taxes (i) imposed on a separate return basis on GXO or any of its subsidiaries or (ii) imposed on a consolidated or combined return basis with respect to audit or other adjustments attributable to GXO or any of its subsidiaries, in each case, with respect to taxable periods, or portions thereof, that ended on or prior to the Separation.

The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the Separation transactions to qualify for tax-free treatment based on the reasons for such failure.

The TMA also imposes restrictions on GXO during the two-year period following the Separation that are intended to prevent the Separation and certain related transactions from failing to qualify as transactions that are generally tax-free.

The EMA allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the Separation.

The IPLA provides the parties with reciprocal, non-exclusive licenses under certain intellectual property rights transferred to GXO and certain intellectual property rights retained by XPO to provide the parties freedom to operate their respective businesses.

In connection with the Separation, GXO became the plan sponsor for the United Kingdom (“the U.K.”) defined benefit pension plan and these condensed consolidated financial statements reflect the periodic benefit costs and funded status of such plan.

GXO recognized a net asset of £ 26 million ($ 36 million), reflecting the plan assets and projected benefit obligation.

The Company uses December 31 as the year-end measurement date for this plan.

See Note 10—Pension for further detail.

In connection with the Separation, all related party debt with our North American and European subsidiaries GXO was settled and are no longer reflected on the Condensed Consolidated Balance Sheet.

In June 2021, we entered into a five-year , unsecured, multi-currency revolving credit facility (the “Revolving Credit Facility”).

Initially, 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.

In July 2021, 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”, and together with the 2026 Notes, the “Notes”).The net proceeds from the sale of the Notes were used to fund a cash payment to XPO of $ 794 million in connection with the Separation.

See Note 8—Debt and Financing Arrangements for further detail.

In July 2021, in connection with the Separation, XPO’s existing trade receivable securitization program was amended;

the previous € 400 million program is now comprised of two separate € 200 million programs, one of which remains with GXO and expires in July 2024.

See Note 8—Debt and Financing Arrangements for details.

In August 2021, we amended certain legal entity structures and transferred assets pursuant to a legal entity restructuring plan.

In connection with the restructuring, we intend to enter into certain agreements to license the right to use trademarks, trade names and other intellectual property related to the GXO brand to our non-U.S.

During the third quarter of 2021, the Company recorded a positive income tax adjustment of $ 42 million along with a corresponding increase to its net deferred tax assets.

This one-time adjustment results from 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.

Also in connection with legal entity restructuring, we expect a one-time cash tax payment of approximately $ 20 million payable in the fourth quarter.

European Acquisition

In January 2021, we acquired the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom, which generated annual revenues of approximately £ 450 million ($ 585 million) in 2020.

In January 2021, we acquired the majority of Kuehne + Nagel’s contract logistics operations in the U.K., which generated annual revenues of approximately £ 450 million ($ 585 million) in 2020.

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

We have recorded preliminary estimates for the fair value of acquired assets and liabilities assumed, including approximately $ 300 million of operating lease assets and operating lease liabilities.

Pro forma results of operations for this acquisition have not been presented as it is not material to the condensed combined results of operations.

XPO Logistics Europe Purchase

Our historical results reflect a noncontrolling interest in XPO Logistics Europe, a business we acquired majority ownership of in 2015.

In the second quarter of 2021, we completed the buy-out and squeeze-out for the remaining 3 % of XPO Logistics Europe that we did not already own at a cost of € 108 million ($ 128 million) and transferred € 34 million ($ 40 million) to XPO.

Following the buy-out and squeeze-out, we own all of the outstanding shares of XPO Logistics Europe.

We have recorded preliminary estimates for the fair value of assets and liabilities assumed, including

approximately $ 300 million of operating lease assets and operating lease liabilities.

Pro forma results of operations for this acquisition have not been presented as it is not material to the condensed consolidated results of operations.

GXO Logistics Europe Purchase

Our historical results reflect a noncontrolling interest in GXO Logistics Europe SAS, previously XPO Logistics Europe SAS (“XPO Logistics Europe”).

We acquired majority ownership of GXO Logistics Europe in 2015.

In the third quarter of 2020, we purchased shareholders’ noncontrolling interests in GXO Logistics Europe for € 17 million ($ 21 million).

The portion of the purchased noncontrolling interest that is not attributable to GXO has been recorded as a transfer to the XPO investment account.

In the second quarter of 2021, we completed the purchase of the remaining 3 % of XPO Logistics Europe that we did not already own at a cost of € 108 million ($ 128 million) and transferred € 34 million ($ 40 million) to XPO.

Following this transaction, we own all of the outstanding shares of GXO Logistics Europe.

Revenue Recognition

We generate revenue by providing contract logistics services for our 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 several years.

The vast majority of our contracts with customers include one performance obligation.

We generally recognize revenue over time as we perform the services in the contract because of the continuous transfer of control over the services we perform for our customer.

Disaggregation of Revenues

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Our revenue disaggregated by geographical area, based on sales office location, was as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

United States $ 551 $ 509 $ 1,135 $ 1,045

United Kingdom $ 680 $ 402 $ 1,847 $ 1,069

United States 599 551 1,734 1,596

France 181 174 551 466

Europe (excluding France and United Kingdom) 482 383 947 769

Netherlands 159 131 464 357

Spain 117 108 358 304

Other 238 218 724 637

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Our revenue disaggregated by industry sector was as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

E-commerce, omnichannel and consumer technology $ 947 $ 696 $ 1,814 $ 1,379

Ecommerce, omnichannel and consumer technology $ 979 $ 800 $ 2,827 $ 2,179

Food and beverage 290 213 795 616

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Contract Assets and Liabilities

Contract assets include costs we have incurred and capitalized in conjunction with customer contracts, which are primarily amortized to Direct operating expense on our Condensed Combined Statements of Operations over the contract term.

As of June 30, 2021 and December 31, 2020, the Company had contract assets of $ 140 million and $ 66 million, respectively, recorded within Other long-term assets on our Condensed Combined Balance Sheets.

Contract assets as of June 30, 2021 primarily increased due to capital investments associated with new contracts.

Contract assets include costs we have incurred and capitalized in conjunction with customer contracts, which are primarily amortized to Direct operating expense on our Condensed Consolidated Statements of Operations over the contract term.

As of September 30, 2021 and December 31, 2020, the Company had contract assets of $ 145 million and $ 66 million, respectively, recorded primarily within Other long-term assets on our Condensed Consolidated Balance Sheets.

Contract assets primarily increased due to new contracts during the nine months ended September 30, 2021.

Contract liabilities include advance payments and billings in excess of revenue recognized.

The activity for our contract liabilities, which are recorded within Other current liabilities and Other long-term liabilities on our Condensed Combined Balance Sheets, was as follows:

The activity for our contract liabilities, which is recorded within Other current liabilities and Other long-term liabilities on our Condensed Consolidated Balance Sheets, was as follows:

(In millions)

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Foreign exchange and other ( 6 )

Balance as of June 30, 2021

Balance as of September 30, 2021

(1) Includes $ 82 million related to the Kuehne + Nagel acquisition.

See Note 4—Acquisitions for further detail.

Remaining Performance Obligations

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As permitted in determining the remaining performance obligation, we omit obligations that have original expected durations of one year or less or contain variable consideration.

On June 30, 2021, the fixed consideration component of our remaining performance obligation was approximately $ 2.1 billion, and we expect to recognize approximately 66 % of that amount over the next three years and the remainder thereafter.

On September 30, 2021, the fixed consideration component of our remaining performance obligations was approximately $ 2.1 billion, and we expect to recognize approximately 67 % of that amount over the next three years and the remainder thereafter.

We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.

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Foreign exchange and other ( 10 )

Balance as of June 30, 2021

Balance as of September 30, 2021

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

We expect the remaining restructuring liability at June 30, 2021, which primarily relates to severance, to be substantially paid within twelve months.

We expect the remaining restructuring liability at September 30, 2021, which primarily relates to severance, to be substantially paid within the next twelve months.

We determine if an arrangement is a lease at inception.

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

We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options.

We exclude variable lease payments (such as payments based on an index) from our initial measurement of the lease liability.

We account for lease and non-lease components within a contract as a single lease component for our real estate leases.

Supplemental balance sheet information related to leases was as follows:

(In millions) September 30, 2021 December 31, 2020

Operating leases:

Operating lease assets (1)

$ 1,790 $ 1,434

Short-term operating lease liabilities $ 432 $ 332

Operating lease liabilities 1,382 1,099

Total operating lease liabilities (2)

$ 1,814 $ 1,431

Finance leases:

Property and equipment, gross $ 234 $ 199

Accumulated depreciation ( 71 ) ( 49 )

Property and equipment, net (3)

Short-term borrowings and current maturities of long-term debt $ 34 $ 31

Long-term debt 140 127

Total finance lease liabilities (3)

(1) Includes $ 267 million related to the Kuehne + Nagel acquisition in 2021.

See Note 4—Acquisitions for further detail.

(2) Includes $ 257 million related to the Kuehne + Nagel acquisition in 2021.

See Note 4—Acquisitions for further detail.

(3) Includes $ 20 million related to the Kuehne + Nagel acquisition in 2021.

See Note 4—Acquisitions for further detail.

The components of our lease expense were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

Operating lease cost $ 161 $ 137 $ 490 $ 392

Short-term lease cost 20 13 57 38

Variable lease cost 18 17 55 48

Total operating lease cost $ 199 $ 167 $ 602 $ 478

Finance lease cost:

Amortization of leased assets $ 8 $ 10 $ 25 $ 18

Interest on lease liabilities 2 1 4 3

Total finance lease cost $ 10 $ 11 $ 29 $ 21

Total lease cost $ 209 $ 178 $ 631 $ 499

Debt and Financing Arrangements

The following table summarizes the carrying value of our debt:

(In millions) June 30, 2021 December 31, 2020

Borrowings related to trade securitization program $ — $ 26

(In millions) September 30, 2021 December 31, 2020

1.65 % Unsecured notes due 2026 (1)

2.65 % Unsecured notes due 2031 (2)

Finance leases and other 177 161

Borrowings related to trade securitization program 5 26

Related-party debt — 486

Total debt 974 673

Short-term borrowings and current finance lease liabilities 36 58

Long-term debt $ 582 $ 615

The fair value of our debt and classification in the fair value hierarchy was as follows:

(In millions) Fair Value Level 1 Level 2 Level 3

June 30, 2021

$ 618 $ 2 $ 179 $ 437

December 31, 2020

673 2 185 486

We valued Level 1 debt using quoted prices in active markets.

We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics.

We valued Level 3 debt using non-observable inputs.

Borrowings related to Securitization

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables.

These borrowings are owed to the program’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement.

The securitization program contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

For additional information on the securitization program, see Note 2—Basis of Presentation.

Short-term borrowings and obligations under finance leases 40 58

Total long-term debt $ 934 $ 615

(1) The carrying value of the 1.65 % Notes due 2026 is presented net of unamortized debt issuance cost and discount of $ 3.6 million as of September 30, 2021.

(2) The carrying value of the 2.65 % Notes due 2031 is presented net of unamortized debt issuance cost and discount of $ 3.9 million as of September 30, 2021.

Unsecured Notes

In July 2021, the Company completed an offering of $ 800 million aggregate principal amount of notes, consisting of the 2026 Notes and the 2031 Notes.

The 2026 Notes bear interest at a rate of 1.65 % per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2026.

The 2031 Notes bear interest at a rate of 2.65 % per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2031.

In the third quarter, we recognized $ 8 million of debt discounts and issuance costs that were recorded as a direct reduction to the related debt instrument and will be amortized to interest expense over the life of the Notes.

At September 30, 2021, the Company was in compliance with the covenants of the indenture governing the Notes.

Related-Party Debt

Loan Agreement with North American Subsidiary

In 2015, XPO entered into a loan agreement with a North American subsidiary of GXO, under which XPO granted the subsidiary an unsecured loan bearing interest at a rate of 5.625 % with a principal amount not exceeding $ 391 million and maturing in June 2024.

As of June 30, 2021 and December 31, 2020, the Company had an outstanding loan payable to XPO of $ 162 million and $ 186 million, respectively.

As of June 30, 2021, the notes were guaranteed by an XPO affiliate.

Loan Agreements with European Subsidiaries

Additionally, XPO entered into several loan agreements with European subsidiaries of GXO, under which XPO granted the subsidiaries unsecured loans with principal amounts of:

• € 20 million (approximately $ 23 million as of June 30, 2021) entered into in 2013, bearing interest at a variable rate of twelve-month Euribor plus 1 % and maturing in October 2026;

• £ 82 million (approximately $ 113 million as of June 30, 2021) entered into in 2016, bearing interest at a variable rate of twelve-month LIBOR plus 1 % and maturing in October 2026.

The outstanding amounts related to these loans payable to XPO was $ 136 million and $ 135 million as of June 30, 2021 and December 31, 2020, respectively.

Additionally, in 2015, XPO entered into a loan agreement under which it granted XPO Logistics Europe a loan in the amount of € 335 million, bearing interest at a fixed rate of 5.625 % and maturing in June 2024.

The loan payable was $ 139 million and $ 165 million at June 30, 2021 and December 31, 2020, respectively.

In July 2021, we settled our related-party debt obligations with XPO.

In connection with the Separation, all related-party debt between the North American and European subsidiaries of GXO and XPO was settled and is no longer reflected on the Condensed Consolidated Balance Sheet.

As of December 31, 2020, the Company had outstanding loan payables to XPO of $ 486 million.

Revolving Credit Facility

In June 2021, in preparation for the spin-off, we entered into a five-year , unsecured, multi-currency revolving credit facility (the “Revolving Credit Facility”).

In June 2021, we entered into a five-year Revolving Credit Facility.

Initially, 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.

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(i) with respect to borrowings in dollars, at GXO’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 GXO’s credit ratings.

The availability of the Revolving Credit Facility was subject to the spin-off occurring.

The availability of the Revolving Credit Facility was subject to the Separation occurring.

The covenants in the Revolving Credit Facility, which are customary for financings of this type, limit our ability to incur indebtedness and grant liens, among other restrictions.

In addition, the Revolving Credit Facility requires us to maintain a consolidated leverage ratio below a specified maximum.

There was no amount outstanding under the Revolving Credit Facility as of June 30, 2021.

There were no amounts outstanding under the Revolving Credit Facility as of September 30, 2021.

Trade Receivables Securitization and Factoring Programs

We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements.

We also sell certain European trade accounts receivable under a securitization program that contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio.

We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

The trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables.

We use trade receivables securitization and factoring programs to help manage our cash flows.

Under the securitization program, one of our wholly owned subsidiaries, GXO Logistics Europe, participates in a trade receivables securitization program co-arranged by two European banks (the “Purchasers”).

Under the program, a wholly-owned bankruptcy-remote special purpose entity of GXO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of GXO Logistics Europe to unaffiliated entities managed by the Purchasers.

The special purpose entity is a variable interest entity and has been presented within these condensed consolidated financial statements based on our control of the entity’s activities.

In July 2021, in connection with the Separation, XPO’s existing trade receivable securitization program was amended;

the previous € 400 million ($ 460 million) program is now comprised of two separate € 200 million ($ 230 million) programs, one of which remains with GXO and expires July 2024.

As of July 2021, GXO’s special purpose entity no longer purchases trade receivables from XPO.

As of December 31, 2020, current assets include trade receivables purchased from XPO in connection with our trade receivables securitization program of $ 105 million.

The trade receivables that had been purchased from XPO prior to the Separation have been reflected within Other current assets in the Condensed Consolidated Balance Sheets.

For these transfers, the receivables are removed from our Condensed Consolidated Balance Sheets at the date of transfer.

In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables.

The fair value of any servicing assets and liabilities is immaterial.

Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables which are included in short-term debt on our Condensed Consolidated Balance Sheets until they are repaid in the following month’s settlement.

Information related to the trade receivables sold was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

Securitization programs

Receivables sold in period $ 418 $ 395 $ 1,320 $ 1,031

Cash consideration 418 395 1,320 1,031

Factoring programs

Receivables sold in period 132 96 331 518

Cash consideration 132 96 331 517

Fair Value Measurements and Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The levels of inputs used to measure fair value are:

• Level 1—Quoted prices for identical instruments in active markets;

• Level 2—Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations in which all significant inputs are observable in active markets;

• Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

Assets and liabilities

We base our fair value estimates on market assumptions and available information.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of September 30, 2021 and December 31, 2020 due to their short-term nature and/or being receivable or payable on demand.

The fair value of debt as of September 30, 2021 and December 31, 2020 was as follows:

September 30, 2021 December 31, 2020

(In millions) Fair Value Carrying Value Fair Value Carrying Value

1.65 % Unsecured notes due 2026 (1)

$ 397 $ 396 $ — $ —

2.65 % Unsecured notes due 2031 (1)

Related-party debt (2)

(1) The fair value was estimated using market pricing for identical liabilities that are observable for substantially the full term of the liability and would be considered Level 2 in the fair value hierarchy.

(2) The fair value of the related-party debt is classified as a Level 3 within the fair value hierarchy.

All related party loans were settled in connection with the Separation.

Financial Instruments

Prior to the Separation, XPO managed our exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies.

In connection with the Separation, XPO novated certain cross-currency swaps and options to GXO.

As a result, GXO recorded $ 28 million, net of tax, in accumulated other comprehensive loss.

Following the Separation, we directly manage our exposure to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies.

We use derivative instruments to manage the volatility related to these exposures.

The objective of these derivative instruments is to reduce fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates and interest rates.

These financial instruments are not used for trading or other speculative purposes.

GXO does not expect to incur any losses as a result of counterparty default.

The company presents the fair value of its derivative assets and liabilities on a gross basis.

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

September 30, 2021

(In millions) Notional Amount Balance Sheet Caption Fair Value

Derivatives designated as hedges

Cross-currency swap agreements $ 328 Other current liabilities $ 9

Cross-currency swap agreements 165 Other long-term liabilities 7

Derivatives not designated as hedges

Foreign currency option contracts $ 106 Other current assets $ 2

The derivatives are classified as Level 2 within the fair value hierarchy.

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

There were no derivative instruments on the Company’s Condensed Consolidated Financial Statements as of December 31, 2020.

The effect of derivative instruments designated as hedges on our Condensed Consolidated Statements of Operations was as follows:

Three Months Ended September 30, 2021

(In millions) Gain (loss) on Derivatives Recognized in OCI Gain (loss) Reclassified from AOCI into Net Income (Loss) Gain (loss) Recognized in Net Income (Loss) on Derivatives

Derivatives designated as net investment hedges

Cross-currency swap agreements (1)

Total $ 11 $ 1 $ 1

(1) Includes gains and losses for transactions occurring after the Separation.

Nine Months Ended September 30, 2021

(In millions) Gain (loss) on Derivatives Recognized in OCI Gain (loss) Reclassified from AOCI into Net Income (Loss) Gain (loss) Recognized in Net Income (Loss) on Derivatives

Derivatives designated as net investment hedges

Cross-currency swap agreements (1)

Total $ 11 $ 1 $ 1

(1) Includes gains and losses for transactions occurring after the Separation.

The pre-tax gain (loss) recognized in earnings for foreign currency option and forward contracts not designated as hedging instruments was a gain of $ 1 million for the three and nine months ended September 30, 2021, respectively.

These amounts are recorded in Other income on our Condensed Consolidated Statements of Operations.

Cross-Currency Swap Agreements

We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate USD-denominated debt, including the associated interest payments, to fixed-rate, Euro-denominated debt.

The risk management objective of these transactions is to

manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.

During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on Euro fixed interest rates.

At maturity, we will repay the original principal amount in EUR and receive the principal amount in USD.

These agreements expire at various dates through 2026.

We designated these cross-currency swaps as qualifying hedging instruments and account for them as net investment hedges.

We apply the critical terms match method of assessing the effectiveness of our net investment hedging relationships.

Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in Accumulated other comprehensive income (“AOCI”).

The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner.

For net investment hedges that were de-designated prior to their maturity, the amounts in AOCI will remain in AOCI until the subsidiary is sold or substantially liquidated.

Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Operating activities on our Condensed Consolidated Statements of Cash Flows.

Foreign Currency Options

We use foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the Euro or the British pound sterling as their functional currency.

The foreign currency option contracts were not designated as qualifying hedging instruments as of September 30, 2021.

The contracts are used to manage our exposure to foreign currency exchange rate fluctuations and are not speculative.

The contracts generally expire in 12 months or less.

Gains or losses on the contracts are recorded in Other income on our Condensed Consolidated Statements of Operations.

Cash flows related to the foreign currency contracts are included in Investing activities on our Condensed Consolidated Statements of Cash Flows, consistent with the nature and purpose for which these derivatives were acquired .

Prior to the Separation, GXO participated in XPO’s defined pension plan for eligible employees in the U.K., which did not allow for new plan participants or additional benefit accruals.

The defined benefit pension plan was historically measured based on the present value of projected future benefit payments for all participants for services rendered to date.

The projected benefit obligation is a measure of benefits attributed to service to date, assuming that the plan continues in effect and that estimated future events (including turnover and mortality) occur.

The funded status of the defined benefit pension plans was calculated as the difference between the projected benefit obligation and the fair value of plan assets.

In connection with the Separation, GXO became the plan sponsor for the defined benefit pension plan and these condensed consolidated financial statements reflect the periodic benefit costs and funded status of the plan.

In connection with the Separation, GXO recognized a net asset of £ 26 million ($ 36 million), reflecting the plan assets and projected benefit obligation and accumulated other comprehensive loss of £ 60 million ($ 82 million).

This was comprised of £ 1.0 billion ($ 1.4 billion) of plan assets and £ 1.0 billion ($ 1.4 billion) of projected obligations associated with the plan.

The majority of the plan assets transferred to GXO are 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 net periodic benefit cost is recorded within Other income on the Condensed Consolidated Statement of Operations and consisted of £ 7 million ($ 10 million) for the three and nine months ended September 30, 2021.

Contributions to the pension plan are not expected to be material in the fourth quarter of 2021.

Earnings per Share

On August 2, 2021, the date of the spin-off, 114,626,250 shares of the common stock of GXO were distributed to XPO shareholders of record as of the record date.

This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the spin-off.

For the three and six months ended June 30, 2021 and 2020, these shares are treated as issued and outstanding for purposes of calculating historical earnings per share.

For periods prior to the spin-off, it is assumed that there are no dilutive equity instruments as there were no equity awards of GXO outstanding prior to the spin-off.

Commitments and Contingencies

We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our 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.

We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We review and adjust 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, we assess 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, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose 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 our assessment, together with legal counsel, regarding the ultimate outcome of the matter.

We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable.

We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our 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 our financial condition, results of operations or cash flows.

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

XPO carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations.

In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.

Effective August 2, 2021, GXO carries insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a logistics company.

See Note 10—Subsequent Events for additional details.

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 related to XPO common shares.

Upon 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 shareholders of record as of the record date.

This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation.

For periods 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.

For periods subsequent to the Separation, diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are 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.

Stock options and restricted stock units of 1.2 million were excluded from the calculation of diluted EPS for the three and nine months ended September 30, 2021 because their inclusion would have been anti-dilutive.

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

Three Months Ended September 30, Nine Months Ended September 30,

(In millions, except per share data) 2021 2020 2021 2020

Net income (loss) attributable to common shares $ 72 $ 18 $ 97 $ ( 59 )

Basic weighted-average common shares 115 115 115 115

Diluted effect of stock-based awards and warrants 1 — 1 —

Diluted weighted-average common shares 116 115 116 115

Basic earnings (loss) per share $ 0.63 $ 0.16 $ 0.84 $ ( 0.51 )

Diluted earnings (loss) per share $ 0.62 $ 0.16 $ 0.84 $ ( 0.51 )

Related Party

Transactions between the Company and XPO, and other non-GXO subsidiaries of XPO, are deemed related-party transactions.

Related-party transactions are comprised of the following:

(i) those that have been effectively settled or are expected to be settled for cash, and (ii) those which have historically not been settled and which have been or are expected to be forgiven by either party.

For those that have been or are expected to be cash settled, we have recorded related-party receivables (assets) or payables (liabilities) in the Condensed Combined Balance Sheets as of June 30, 2021 and December 31, 2020.

For those that have been or are expected to be forgiven, the amounts have been recorded as an adjustment of XPO Investment in the Condensed Combined Balance Sheets as of June 30, 2021 and December 31, 2020.

Prior to the Separation, the Company did not operate as a standalone business and the consolidated financial statements were derived from the consolidated financial statements and accounting records of XPO.

Transactions between the Company and XPO, and other non-GXO subsidiaries of XPO, that occurred prior to the Separation have been classified as related-party transactions.

Transactions that originated with XPO prior to the Separation were cash settled or forgiven as of August 2, 2021.

For amounts that were forgiven, the amounts have been recorded as an adjustment to XPO Investment.

Allocation of General Corporate Expenses

The Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company.

In addition, for purposes of preparing these Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to

See Note 2—Basis of Presentation for a discussion of the methodology used to allocate such costs for purposes of preparing these combined financial statements.

Costs of $ 88 million and $ 157 million for the three and six months ended June 30, 2021, respectively, and costs of $ 67 million and $ 126 million for the three and six months ended June 30, 2020, respectively, have been reflected in SG&A in our Condensed Combined Statements of Operations for our allocated share of XPO’s corporate overhead.

The Condensed Consolidated Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that were charged directly to the Company prior to the Separation.

In addition, for purposes of preparing these condensed consolidated financial statements, a portion of XPO’s total corporate expenses was allocated to the Company.

See Note 2—Basis of Presentation for a discussion of the methodology used to allocate such costs for purposes of preparing these condensed consolidated financial statements.

Costs of $ 28 million and $ 185 million for the three and nine months ended September 30, 2021, respectively, and costs of $ 47 million and $ 173 million for the three and nine months ended September 30, 2020, respectively, have been reflected in SG&A, Transaction-related costs and Depreciation and amortization in our Condensed Consolidated Statements of Operations for our allocated share of XPO’s corporate overhead.

These amounts may not reflect the costs GXO would have incurred had the Company been a standalone entity during the periods presented.

Transactions with XPO and its non-GXO Subsidiaries

Revenue and costs generated from related parties for each of the three and six months ended June 30 were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Revenue and costs generated from related parties for the three and nine months ended September 30, 2021 and September 30, 2020 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In millions) 2021 2020 2021 2020

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Costs 16 31 80 84

Current assets include trade receivables purchased from XPO in connection with our trade receivables securitization program of $ 93 million and $ 105 million as of June 30, 2021 and December 31, 2020, respectively.

These receivables were originated by XPO and are classified as financial assets within other current assets on the Condensed Combined Balance Sheets.

Balances with XPO and its non-GXO Subsidiaries

Assets and liabilities on the Condensed Combined Balance Sheets include the following related-party amounts that are expected to be cash settled as of June 30, 2021 and December 31, 2020:

(In millions) June 30, 2021 December 31, 2020

In connection with the Separation, GXO related-party amounts on our Condensed Consolidated Balance Sheets were cash settled or forgiven as of August 2, 2021.

Assets and liabilities on the Condensed Consolidated Balance Sheets included the following related-party amounts as of December 31, 2020:

(In millions) December 31, 2020

Amounts due from XPO and its affiliates

14 unchanged sentences

(7) Represents loans due to XPO.

See Note 6—Debt for further information.

Subsequent Events

Notes offering

In preparation for the spin-off, in July 2021, we settled our related party debt obligations with XPO, and we completed an offering of $ 800 million aggregate principal amount of notes, consisting of $ 400 million of notes due 2026 (the “2026 Notes”) and $ 400 million of notes due 2031 (the “2031 Notes”, and together with the 2026 Notes, the “Notes”).

The 2026 Notes bear interest at a rate of 1.65 % per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and mature on July 15, 2026.

The 2031 Notes bear interest at a rate of 2.65 % per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and mature on July 15, 2031.

The net proceeds from the sale of the Notes were used to fund a cash payment to XPO, to provide working capital and/or to pay fees, costs and expenses incurred in connection with the spin-off and related transactions.

Securitization amendment

In July 2021, we amended our existing trade receivables securitization program.

The existing € 400 million program is now comprised of two separate € 200 million programs, one of which will continue to be available to us and one of which will be part of XPO following the spin-off.

The new program expires in 2024.

UK pension transfer

In July 2021, responsibility for the assets and liabilities for the United Kingdom defined benefit pension plan was transferred from XPO to GXO.

The plan will continue as a frozen plan that does not allow for new plan participants or additional benefit accruals.

We provide the Trustees of the UK Defined Benefit pension plan a limited guarantee that expires no later than 2038.

Changes to legal entity structure and tax matters

In July and August 2021, we amended certain legal entity structures and transferred assets pursuant to a legal entity restructuring.

As a result of these changes, we anticipate incurring one-time cash payments and non-cash tax benefits in the second half of 2021.

Distribution from XPO

On August 2, 2021, XPO completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S.

XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on the record date.

GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of GXO’s common stock commenced on the NYSE under the ticker symbol “GXO.”

The Separation and Distribution Agreement contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of GXO and XPO as part of the spin-off, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of GXO business with GXO and financial responsibility for the obligations and liabilities of XPO’s remaining business with XPO, (iii) the allocation among GXO and XPO of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the spin-off, and (iv) procedures governing the resolution of disputes, controversies or claims that may arise between GXO and XPO related to the separation or distribution.

The services to be provided will include, among others, treasury administration, employee benefits administration, information technology services, regulatory services, general administrative services and other support services.

The services generally commenced on the date of the spin-off and will terminate no later than twelve months following the distribution date.

The TMA governs XPO’s and GXO’s rights, responsibilities and obligations with respect to tax matters;

including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax, contests and other tax matters.

GXO is generally responsible for federal, state and foreign income taxes (i) imposed

on a separate return basis on GXO or any of its subsidiaries or (ii) imposed on a consolidated or combined return basis with respect to audit or other adjustments attributable to GXO or any of its subsidiaries, in each case, with respect to taxable periods, or portions thereof, that ended on or prior to the spin-off.

The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the spin-off transactions to qualify for tax-free treatment based on the reasons for such failure.

The TMA also imposes restrictions on GXO during the two-year period following the spin-off that are intended to prevent the spin-off and certain related transactions from failing to qualify as transactions that are generally tax-free.

The EMA allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the spin-off.

The IPLA will provide the parties with reciprocal, non-exclusive licenses under certain intellectual property rights transferred to GXO and certain intellectual property rights retained by XPO in order to provide the parties freedom to operate their respective businesses.

See Note 8—Debt and Financing Arrangements for further information.

Commitments and Contingencies

We are involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of our business.

We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated.

We review and adjust accruals for loss contingencies quarterly and as additional information becomes available.

The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter.

We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable.

We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows.

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

We carry liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations.

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

What changed 10-Q

Item 1. Financial Statements