What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-02 · 294 added, 438 removed, 140 unchanged (84% of the section changed)

2 unchanged sentences

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

Three Months Ended March 31,

(Dollars in millions, shares in thousands, except per share amounts) 2022 2021

Revenue $ 2,083 $ 1,822

Direct operating expense 1,748 1,520

Sales, general and administrative expense 171 157 519 467

Selling, general and administrative expense 190 171

Depreciation and amortization expense 76 79

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 )

Transaction and integration costs 19 18

Restructuring costs and other 13 4

Operating income 37 30

Other income, net 16 1

Interest expense, net ( 4 ) ( 5 )

Income before income taxes 49 26

Income tax expense ( 11 ) ( 9 )

Net income 38 17

Net income attributable to noncontrolling interests ( 1 ) ( 3 )

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

Net income attributable to GXO $ 37 $ 14

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

Basic earnings per share $ 0.32 $ 0.12

Diluted earnings per share $ 0.32 $ 0.12

Weighted-average common shares outstanding

Basic weighted-average common shares outstanding 114,731 114,626

Diluted weighted-average common shares outstanding 115,569 114,626

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Comprehensive Income (Loss)

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

Three Months Ended March 31,

(In millions) 2022 2021

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 )

Net income $ 38 $ 17

Other comprehensive loss, net of tax

Foreign currency translation loss, net of tax benefit of $ — and $ 3 , respectively

( 45 ) ( 45 )

Unrealized gain (loss) on 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 )

Unrealized gain (loss) on hedging instruments, net of tax expense of $ — and $( 1 ), respectively

Other comprehensive loss ( 45 ) ( 46 )

Comprehensive loss ( 7 ) ( 29 )

Comprehensive income attributable to noncontrolling interest — ( 1 )

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

Comprehensive loss attributable to GXO $ ( 7 ) $ ( 28 )

See accompanying notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Balance Sheets

September 30, December 31,

(In millions, except per share amounts) 2021 2020

March 31, December 31,

(Dollars in millions, shares in thousands, except per share amounts) 2022 2021

Current assets

7 unchanged sentences

Goodwill 1,986 2,017

Identifiable intangible assets, net of $ 408 and $ 373 in accumulated amortization, respectively

Intangible assets, net of $ 414 and $ 407 in accumulated amortization, respectively

Other long-term assets 267 263

6 unchanged sentences

Short-term borrowings and obligations under finance leases 32 34

Short-term operating lease liabilities 432 332

Current operating lease liabilities 455 453

Other current liabilities 146 220

2 unchanged sentences

Long-term debt and obligations under finance leases 907 927

Deferred tax liability 56 54

Long-term operating lease liabilities 1,388 1,391

1 unchanged sentence

Total long-term liabilities

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

Commitments and contingencies (Note 11)

Stockholders’ Equity

Common Stock, $ 0.01 par value per share, 300,000 shares authorized, 114,840 and 114,659 shares issued and outstanding, as of March 31, 2022 and December 31, 2021, respectively

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

Additional paid-in capital 2,349 2,354

Retained earnings 163 126

XPO investment — 2,765

Accumulated other comprehensive income (loss) ( 123 ) 58

Total equity before noncontrolling interests

Accumulated other comprehensive loss ( 172 ) ( 130 )

Total stockholders’ equity before noncontrolling interests

Noncontrolling interests 34 39

2 unchanged sentences

GXO Logistics, Inc.

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 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 Consolidated Statements of Cash Flow

Nine Months Ended September 30,

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

(In millions) 2022 2021

Operating activities

Net income (loss)

$ 104 $ ( 52 )

Adjustments to reconcile net income (loss) to net cash from operating activities

Depreciation, amortization and net lease activity 259 246

Stock compensation expense 22 21

Deferred tax (benefit) expense

Cash flows from operating activities:

Net income $ 38 $ 17

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

Depreciation and amortization expense 76 79

Stock-based compensation expense 6 5

Deferred tax benefit

Other 4 ( 7 )

Changes in assets and liabilities

Changes in operating assets and liabilities

Accounts receivable ( 33 ) 3

3 unchanged sentences

Net cash provided by operating activities

Investing activities

Payment for purchases of property and equipment ( 180 ) ( 159 )

Cash flows from investing activities:

Capital expenditures ( 65 ) ( 67 )

Proceeds from sales of property and equipment 3 —

Purchase and sale of affiliate trade receivables, net — 20

Acquisition of businesses, net of cash acquired — 9

Net cash used in investing activities

( 44 ) ( 38 )

Financing activities

Proceeds from issuance of debt 794 —

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

Cash flows from financing activities

Repayment of debt related to securitization transactions and other — ( 25 )

Repayment of debt and finance leases ( 9 ) ( 26 )

Purchase of noncontrolling interests ( 128 ) ( 21 )

Net transfers from (to) XPO ( 774 ) 112

Net transfers from XPO Logistics, Inc.

Other ( 9 ) ( 7 )

Net cash provided by (used in) financing activities

Effect of exchange rates on cash, cash equivalents and restricted cash 1 ( 1 )

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

Cash, cash equivalents, and restricted cash, beginning of period

Cash, cash equivalents, and restricted cash, end of period

Supplemental disclosure of cash flow information:

Leased assets obtained in exchange for new operating lease liabilities, including $ 281 related to an acquisition in 2021

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

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

Net increase (decrease) in cash and cash equivalents ( 21 ) 86

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

See accompanying notes to condensed consolidated financial statements.

GXO Logistics, Inc.

Notes to Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Changes in Equity

Common Stock XPO Logistics, Inc.

Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity

(Shares in thousands, dollars in millions) Shares Amount

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

Net income — — — — 37 — 37 1 38

Other comprehensive loss — — — — — ( 44 ) ( 44 ) ( 1 ) ( 45 )

Stock-based compensation — — — 6 — — 6 — 6

Vesting of stock compensation awards 181 — — — — — — — —

Tax withholding on vesting of stock compensation awards — — — ( 11 ) — — ( 11 ) — ( 11 )

Deconsolidation of variable interest entity — — — — — 2 2 ( 5 ) ( 3 )

Balance as of March 31, 2022 114,840 $ 1 $ — $ 2,349 $ 163 $ ( 172 ) $ 2,341 $ 34 $ 2,375

(Shares in thousands, dollars in millions) Common Stock XPO Logistics, Inc.

Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Equity Before Noncontrolling Interests Noncontrolling Interests Total Equity

Shares Amount

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

Net income — — 14 — — — 14 3 17

Other comprehensive loss — — — — — ( 42 ) ( 42 ) ( 4 ) ( 46 )

Net transfers from XPO Logistics, Inc.

— — 124 — — — 124 — 124

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

See accompanying notes to condensed consolidated financial statements.

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.

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.

(“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.

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.

Notes to Condensed Consolidated Financial Statements

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

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 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 consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

The accompanying unaudited condensed consolidated financial statements of the Company (“GXO” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”).

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the 2021 Form 10-K.

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

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

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

(“XPO”) (the “Separation”).

Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO.

On August 2, 2021, the Company became a standalone publicly-traded company, and its financial statements post-Separation are prepared on a consolidated basis.

The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have been prepared under GAAP.

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

In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carry-over basis.

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications.

An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO.

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

The majority of these allocated costs are recorded within Selling, general and administrative expense;

Depreciation and amortization expense;

and Transaction and integration costs in the Consolidated Statements of Operations.

The Company’s consolidated financial statements include the accounts of GXO Logistics, Inc.

and its majority-owned subsidiaries and variable interest entities where the Company is the primary beneficiary.

The Company has eliminated intercompany accounts and transactions.

The Company presents its operations as one reportable segment.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2021-08, “Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with

Customers.” The ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.

On January 1, 2022, the Company adopted the guidance.

The adoption of this new standard did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

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

2 unchanged sentences

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

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 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 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.

The Company intends to apply this guidance when modifications of contracts that include LIBOR occur, which is not expected to have a material impact on the Company’s condensed consolidated financial statements.

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

We disaggregate our revenue by geographic area.

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

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

Revenue disaggregated by geographical area was as follows:

Three Months Ended March 31,

(In millions) 2022 2021

5 unchanged sentences

Other 232 239

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

Our revenue can also be disaggregated by various verticals, reflecting our customers’ principal industry sector.

Our revenue disaggregated by industry sector was as follows:

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

Total $ 2,083 $ 1,822

The Company’s revenue can also be disaggregated by various verticals, reflecting the customers’ principal industry sector.

Revenue disaggregated by industry sector was as follows:

Three Months Ended March 31,

(In millions) 2022 2021

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

E-commerce, omnichannel retail and consumer technology $ 1,130 $ 951

Food and beverage 338 299

Industrial and manufacturing 263 248

Consumer packaged goods 213 186

Other 139 138

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

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

Total $ 2,083 $ 1,822

Contract Balances

(In millions) March 31, 2022 December 31, 2021

Contract assets (1)

Contract liabilities (2)

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

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

Revenue included the following:

Three Months Ended March 31,

(In millions) 2022 2021

Balance as of December 31, 2020

Revenue recognized ( 90 )

Unearned revenue (1)

Foreign exchange and other ( 6 )

Balance as of September 30, 2021

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

See Note 4—Acquisitions for further detail.

Amounts included in the beginning of year contract liability balance $ 63 $ 60

Remaining Performance Obligations

Remaining performance obligations relate to firm customer contracts for which services have not been performed and future revenue recognition is expected.

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 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.

Restructuring Charges

We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure.

These actions generally include severance and facility-related costs, including impairment of operating lease assets, and are intended to improve our efficiency and profitability.

Our restructuring-related activity was as follows:

As of March 31, 2022, the fixed consideration component of the Company’s remaining performance obligation was approximately $ 2.6 billion, and the Company expects to recognize approximately 69 % of that amount over the next three years and the remainder thereafter.

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

Clipper Acquisition

On February 28, 2022, the Company and the board of directors of Clipper Logistics plc, a retail logistics company based in Leeds, England (“Clipper”), reached an agreement on the terms of a cash and share offer by the Company for the acquisition of the entire issued ordinary share capital of Clipper for approximately £ 1.0 billion (approximately $ 1.3 billion) (the “Clipper Acquisition”).

Under the terms of the agreement, Clipper shareholders will be entitled to receive 690 pence (approximately $ 9.06 as of March 31, 2022) in cash and 0.0359 of a share of GXO common stock per share.

In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement, (ii) the Company entered into a Bridge Term Loan Credit Agreement and (iii) the Company entered into a Term Loan Credit Agreement.

For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6.

Debt and Financing Arrangements.

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

Kuehne + Nagel Acquisition

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

Kuehne + Nagel’s operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management.

The Company recorded assets and liabilities at fair value.

Operating and finance lease assets and liabilities, goodwill, and intangible assets acquired were $ 300 million, $ 16 million and $ 26 million, respectively.

Restructuring and Other

Restructuring

The Company engages in restructuring actions as part of its ongoing efforts to best use its resources and infrastructure.

These actions generally include severance and facility-related costs and are intended to improve efficiency and profitability.

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

(In millions)

2 unchanged sentences

Payments ( 4 )

Foreign exchange and other ( 10 )

Balance as of September 30, 2021

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

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 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 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

Balance as of March 31, 2022

The remaining restructuring liability at March 31, 2022, primarily relates to severance payments and is expected to be substantially paid within the next twelve months.

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

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

The Company has operating leases primarily for real estate, warehouse equipment, trucks, trailers, containers and material handling equipment.

In addition, the Company has finance leases for equipment.

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

(In millions) March 31, 2022 December 31, 2021

Operating leases:

Operating lease assets $ 1,771 $ 1,772

$ 1,790 $ 1,434

Short-term operating lease liabilities $ 432 $ 332

Operating lease liabilities 1,382 1,099

Current operating lease liabilities $ 455 $ 453

Long-term operating lease liabilities 1,388 1,391

Total operating lease liabilities $ 1,843 $ 1,844

$ 1,814 $ 1,431

Finance leases:

Property and equipment, gross $ 234 $ 199

Accumulated depreciation ( 71 ) ( 49 )

Property and equipment, net $ 136 $ 155

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

Long-term debt 140 127

Short-term borrowings and obligations under finance leases $ 32 $ 34

Long-term debt and obligations under finance leases 114 133

Total finance lease liabilities $ 146 $ 167

(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,

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

Three Months Ended March 31,

(In millions) 2022 2021

Operating leases:

Operating lease cost $ 169 $ 164

2 unchanged sentences

Total operating lease cost $ 211 $ 202

Finance lease cost:

Finance leases:

Amortization of leased assets $ 7 $ 4

Interest on lease liabilities 2 1 4 3

Interest expense on lease liabilities 1 1

Total finance lease cost $ 8 $ 5

Total lease cost $ 209 $ 178 $ 631 $ 499

Total operating and finance lease cost $ 219 $ 207

Supplemental cash flow information was as follows:

Three Months Ended March 31,

(In millions) 2022 2021

Leased assets obtained in exchange for new operating lease liabilities $ 154 $ 412

Leased assets obtained in exchange for new finance lease liabilities 1 30

Debt and Financing Arrangements

The following table summarizes the carrying value of our debt:

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

The following table summarizes the carrying value of debt:

(In millions) March 31, 2022 December 31, 2021

1.65 % Unsecured notes due 2026 (1)

1 unchanged sentence

Finance leases and other 146 168

Borrowings related to trade securitization program 5 26

Related-party debt — 486

Total debt 974 673

Total debt and obligations under finance leases 939 961

Short-term borrowings and obligations under finance leases 32 34

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

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.

Total long-term debt and obligations under finance leases $ 907 $ 927

(1) The carrying value of the 1.65 % Unsecured Notes due 2026 is presented net of unamortized debt issuance cost and discount of $ 3 million and $ 3 million as of March 31, 2022, and December 31, 2021, respectively.

(2) The carrying value of the 2.65 % Unsecured Notes due 2031 is presented net of unamortized debt issuance cost and discount of $ 4 million and $ 4 million as of March 31, 2022, and December 31, 2021, respectively.

Term Loan Credit Agreement

On March 22, 2022, the Company entered into a Term Loan Credit Agreement that provides a £ 375 million ($ 493 million as of March 31, 2022) unsecured term loan facility, which will partially fund the Clipper Acquisition.

The Term Loan Credit Agreement consists of two delayed draw term loans of £ 187.5 million ($ 246 million as of March 31, 2022).

The loans may be borrowed in multiple draws beginning on the acquisition date.

The loans mature on the second and third anniversary following the funding date, respectively.

Loans under the Term Loan Credit Agreement bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S.

dollars, at our option, the alternate base rate or the adjusted secured overnight financing rate and (b) with respect to borrowings in British Pounds Sterling, the daily simple Sterling Overnight Interbank Average rate (“SONIA”), in each case, plus an applicable margin based on the Company’s credit ratings.

The Term Loan Credit Agreement contains representations and warranties, affirmative and negative covenants and events of default customary for unsecured financings of this type, including negative covenants that, among other things, limit the ability of the Company and its subsidiaries to incur liens, limit the ability of the Company to make certain fundamental changes and limit the ability of certain of its subsidiaries to incur indebtedness, in each case subject to a number of important exceptions and qualifications.

In addition, the Term Loan Credit Agreement requires the Company, beginning with the last day of the first full fiscal quarter following the initial funding of loans under the Term Loan Credit Agreement, to maintain a consolidated leverage ratio less than or equal to a specified maximum consolidated leverage ratio.

Bridge Term Loan Credit Agreement

On February 28, 2022, the Company entered into a Bridge Term Loan Credit Agreement that provided a £ 745 million ($ 979 million as of March 31, 2022) unsecured term loan facility for the Clipper Acquisition.

The Bridge Term Loan Credit Agreement matures 364 days after an advance.

Loans under the Bridge Term Loan Credit Agreement bear interest at the daily simple SONIA rate plus an applicable margin calculated based on the Company’s credit ratings.

Interest will be paid in arrears, initially on the three-month anniversary of the acquisition closing date and thereafter on the date that is three months following the previous payment date.

Concurrently with the effectiveness of the Term Loan Credit Agreement, the Company reduced commitments under the Bridge Term Loan Credit Agreement by the aggregate amount of commitments under the Term Loan Credit Agreement.

Revolving Credit Facility

In 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.

Loans under the Revolving Credit Facility will bear interest at a fluctuating rate equal to:

(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 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 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.

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 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.

In 2021, the Company entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”).

The Revolving Credit Facility provides commitments of up to $ 800 million, of which $ 60 million is available for the issuance of letters of credit.

No amounts were outstanding under the Revolving Credit Facility as of March 31, 2022.

Sales of Certain Receivables

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

The Company also sold certain European trade accounts receivable under a securitization program.

In the first quarter of 2022, the Company terminated its securitization program.

The Company accounts for these transactions as sales of receivables and presents cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows.

The Company uses the sale of certain receivables to help manage its working capital.

Information related to the trade receivables sold was as follows:

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

Three Months Ended March 31,

(In millions) 2022 2021

Securitization programs

Factoring agreements

Receivables sold in period $ 229 $ 100

Cash consideration 228 100

Factoring programs

Securitization program

Receivables sold in period $ — $ 428

Cash consideration — 428

Covenants and Compliance

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

Fair Value Measurements and Financial Instruments

7 unchanged sentences

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

The Company bases its fair value estimates on market assumptions and available information.

The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2022 and December 31, 2021, due to their short-term nature.

The fair value of debt was as follows:

March 31, 2022 December 31, 2021

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

1.65 % Unsecured notes due 2026

1 unchanged sentence

2.65 % Unsecured notes due 2031

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.

2 351 396 394 396

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.

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

The Company uses derivative instruments to manage the volatility related to these exposures.

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

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

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

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

The fair value of the Company’s derivative instruments and the related notional amounts were as follows:

March 31, 2022

(In millions) Notional Amount Balance Sheet Caption Fair Value

Derivatives designated as hedges

Cross-currency swap agreements (1)

$ 487 Other long-term liabilities $ 13

Derivatives not designated as hedges

Foreign currency option contracts $ 315 Other current assets $ 16

(1) In the first quarter of 2022, the Company extended certain cross-currency swap agreements scheduled to mature in 2022.

The new maturity of these cross-currency swap agreements is 2027.

December 31, 2021

(In millions) Notional Amount Balance Sheet Caption Fair Value

Derivatives designated as hedges

Cross-currency swap agreements $ 328 Other current liabilities $ 4

2 unchanged sentences

Foreign currency option contracts $ 368 Other current assets $ 11

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

Foreign currency option contracts 37 Other long-term assets 1

As of March 31, 2022 and December 31, 2021, the derivatives are classified as Level 2 within the fair value hierarchy.

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

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

The effect of net investment hedges on Accumulated Other Comprehensive Income (“AOCI”) and the Condensed Consolidated Statements of Operations was as follows:

Three Months Ended March 31, 2022

(In millions) Gain or (Loss) Recognized in Other Comprehensive Income Gain or (Loss) Reclassified from AOCI into Net Income (1)

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

Derivatives designated as hedges

Cross-currency swap agreements $ 3 $ — $ 2

Total $ 3 $ — $ 2

(1) 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.

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

The gain recognized in earnings for foreign currency option contracts not designated as hedging instruments was $ 8 million for the three months ended March 31, 2022, of which $ 6 million was unrealized.

These amounts are recorded in Other income, net in the Condensed Consolidated Statements of Operations.

There were no derivative instruments in the condensed consolidated financial statements as of March 31, 2021.

Employee Benefit Plans

Defined Benefit Plans

In July 2021, the Company became the plan sponsor for a retirement plan in the U.K.

Retirement Plan”).

Components of the net periodic benefit cost under the U.K.

Retirement Plan were as follows:

Three Months Ended March 31,

(In millions) 2022 2021

Interest cost $ ( 6 ) $ —

Expected return on plan assets 15 —

Net periodic benefit income (1)

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

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

Defined Contribution Plans

The Company’s costs for defined contribution plans were $ 4 million for the three months ended March 31, 2022 and 2021, and were primarily included within Direct operating expenses in the Condensed Consolidated Statements of Operations.

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 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 )

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

Three Months Ended March 31,

(Dollars in millions, shares in thousands, except per share data) 2022 2021

Net income attributable to common shares $ 37 $ 14

Basic weighted-average common shares (1)

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

114,731 114,626

Diluted effect of stock-based awards 838 —

Diluted weighted-average common shares (1)

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

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 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 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

Revenue $ 1 $ 2 $ 8 $ 8

Costs 16 31 80 84

Balances with XPO and its non-GXO Subsidiaries

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

Trade receivables (1)

Other current assets (2)

Other long-term assets (3)

Amounts due to XPO and its affiliates

Trade payables (4)

Other current liabilities (5)

Accrued expenses (6)

Loans payable (7)

(1) Primarily represents trade receivables generated from revenue with XPO.

(2) Primarily relates to interest receivable from loans receivable from XPO.

(3) Represents loans receivable from XPO.

(4) Represents trade payables due to XPO.

(5) Primarily relates to facility expense and taxes payable due to XPO.

(6) Represents accrued interest on loans due to XPO.

(7) Represents loans due to XPO.

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

115,569 114,626

Basic earnings per share $ 0.32 $ 0.12

Diluted earnings per share $ 0.32 $ 0.12

(1) On August 2, 2021, 114,626,250 shares of common stock of the Company were distributed and began regular-way trading.

This share amount is utilized for the calculation of basic and diluted earnings per share for the three months ended March 31, 2021.

For the three months ended March 31, 2022, approximately 1.4 million shares are excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive.

Stockholders’ Equity

The following table summarizes the changes in AOCI by component:

(In millions) Foreign Currency Translation Adjustments Defined Benefit Plan Less:

AOCI attributable to noncontrolling interest AOCI attributable to GXO

As of December 31, 2021 $ ( 53 ) $ ( 76 ) $ ( 1 ) $ ( 130 )

Unrealized gain (loss), net of tax ( 43 ) — 1 ( 42 )

Amounts reclassified from AOCI to net income ( 2 ) — — ( 2 )

Other comprehensive income (loss), net of tax ( 45 ) — 1 ( 44 )

Deconsolidation of variable interest entity 4 — ( 2 ) 2

As of March 31, 2022 $ ( 94 ) $ ( 76 ) $ ( 2 ) $ ( 172 )

(In millions) Foreign Currency Translation Adjustments Defined Benefit Plan Less:

AOCI attributable to noncontrolling interest AOCI attributable to GXO

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

Unrealized gain (loss), net of tax ( 46 ) — 4 ( 42 )

Amounts reclassified from AOCI to net income — — — —

Other comprehensive income (loss), net of tax ( 46 ) — 4 ( 42 )

As of March 31, 2021 $ 15 $ ( 1 ) $ 2 $ 16

Commitments and Contingencies

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

The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business.

These proceedings may include personal injury claims arising from the transportation and handling of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.

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.

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

The Company reviews and adjusts accruals for loss contingencies quarterly and as additional information becomes available.

If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred.

If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or discloses that such an estimate cannot be made.

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

Management of the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable.

Management of the Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its results of operations, financial condition or cash flows.

However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

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

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.

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.

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

In the event the Company is required to satisfy

a legal claim outside the scope of the coverage provided by insurance, its financial condition, results of operations or cash flows could be negatively impacted.

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