What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-02 · 127 added, 170 removed, 47 unchanged (86% of the section changed)

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All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements.

In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “target” or the negative of these terms or other comparable terms.

In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms.

However, the absence of these words does not mean that the statements are not forward-looking.

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Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”).

All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the audited Combined Financial Statements and corresponding notes included in the Form 10 declared effective on July 21, 2021 (the “Form 10”).

All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 17, 2022 (the “2021 Form 10-K”).

Business Overview

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, ecommerce, reverse logistics, and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions at scale.

Our revenue is diversified across numerous verticals and customers, including many multinational corporations.

Our customers rely on us to move their goods with high efficiency through their supply chains — from the moment inbound goods arrive at our logistics sites, through fulfillment and distribution and, in an increasing number of cases, the management of returned products.

Our customer base includes many blue-chip leaders in sectors that demonstrate high growth or durable demand over time, with significant growth potential through customer outsourcing of logistics services.

We strive to provide all of our customers with consistently high levels of service and cutting-edge automation driven by our proprietary technology.

GXO Logistics, Inc., together with its subsidiaries (“GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in an industry propelled by strong secular tailwinds.

Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics services.

We strive to provide all of our customers with consistently high levels of service and cutting-edge automation managed by our proprietary technology.

We also collaborate with our largest customers on planning and forecasting and provide assistance with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as sustainability metrics.

Our multidisciplinary, consultative approach has fostered many long-term, expanding relationships with key customers.

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

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

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

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

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

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

Our business model is historically asset-light and resilient in down cycles, with high returns, strong free cash flow and visibility into revenue and earnings.

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

Our business model is asset-light and historically resilient in cycles, with high returns, strong free cash flow and visibility into revenue and earnings.

The vast majority of our contracts with customers are multi-year agreements, and our facility lease arrangements generally align with contract length.

Most of our customer contracts contain both fixed and variable components.

The fixed component is typically designed to cover facility, technology and equipment costs, and may cover management costs, while the variable component is based on actual volumes and associated labor costs.

The fixed component is typically designed to cover facility, technology and equipment costs and may cover management costs, while the variable component is determined based on expected volumes and associated labor costs.

The Separation

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.

Impacts of COVID-19

As a global provider of supply chain solutions, our business can be impacted to varying degrees by factors beyond our control.

The rapid escalation of COVID-19 into a pandemic in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry.

Our operating results and cash flows fluctuated as a result of changes due to the COVID-19 pandemic and the seasonality of our business during the three and nine months ended September 30, 2020, and to a lesser extent for the three and nine months ended September 30, 2021, as discussed below.

Future operating results and cash flows may fluctuate due to these and other factors beyond our control, which may include the cost and availability of labor, the timely procurement of equipment, the impact of product component shortages for our customers, foreign exchange rate fluctuations, changes in government regulations, and economic changes in our operating regions.

While we generally are able to pass cost increases through to our customers, inflation may affect our operating results and cash flows.

The timing of these pass-through costs can vary and lag.

The totality of the actions we have taken, and continue to take, during the pandemic combined with the variable components of our cost structure, have mitigated the impact on our profitability relative to the impact on our revenue and volumes while our strong liquidity and disciplined capital management enable us to continue to invest in key growth initiatives.

However, due to the evolving nature of the COVID-19 pandemic and the efficacy and distribution of the vaccines, the extent of the impact of the pandemic on our industry and our business in particular remain difficult to predict.

Furthermore, the extent and pace of a recovery remain uncertain and may differ significantly among the countries in which we operate.

Our results of operations may continue to be impacted by the pandemic throughout 2021 and 2022.

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.

GXO has a single reportable segment.

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 has a single reportable segment.

Clipper Acquisition

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

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

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

Results of Operations

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

(In millions) 2021 2020 2021 2020

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

Three Months Ended March 31,

(In millions) 2022 2021 $ Change % Change

Revenue $ 2,083 $ 1,822 $ 261 14 %

Direct operating expense 1,748 1,520 228 15 %

Sales, general and administrative expense 171 157 519 467

Selling, general and administrative expense 190 171 19 11 %

Depreciation and amortization expense 76 79 (3) (4) %

Transaction and integration costs 19 18 1 6 %

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)

Revenue for the three months ended September 30, 2021 increased 24.6% to $2.0 billion, compared with $1.6 billion for the same period in 2020.

Revenue for the nine months ended September 30, 2021 increased 28.2% to $5.7 billion, compared with $4.4 billion for the same period in 2020.

For the three and nine months ended September 30, 2021, the increase in revenue compared to the same prior-year periods primarily reflects the reduced impact of COVID-19 in 2021.

For the three and nine months ended September 30, 2021, our European operations reported growth of 34.1% and 40.2%, respectively, and our North American operations reported growth of 8.5% and 9.0%, respectively.

Also impacting our revenue was the Kuehne + Nagel business we acquired in January 2021, which contributed approximately 16.3 and 15.8 percentage points, respectively, to revenue growth in our European operations and 10.3 and 9.7 percentage points, respectively, to our total revenue growth for the three and nine months ended September 30, 2021 compared to the same prior-year periods.

Foreign currency movement increased revenue by approximately 2.2 and 5.1 percentage points for the three and nine months ended September 30, 2021, respectively.

Direct operating expenses are comprised of both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses.

Direct operating expense for the three months ended September 30, 2021 was $1.7 billion, or 83.6% of revenue, compared with $1.3 billion, or 81.8% of revenue, for the same period in 2020.

For the three months ended September 30, 2021, direct operating expenses increased by approximately 1.8% due to higher personnel and temporary labor expense.

Direct operating expense for the nine months ended September 30, 2021 was $4.7 billion, or 83.2% of revenue, compared with $3.7 billion, or 83.2% of revenue.

For the nine months ended September 30, 2021, direct operating expense as a percentage of revenue remained flat with the prior year period.

SG&A, including the allocated costs of XPO, primarily consists of salary and benefit costs for executive and certain administration functions, professional fees, facility costs other than those related to our logistics facilities, bad debt expense and legal costs.

SG&A for the three months ended September 30, 2021 was $171 million, or 8.7% of revenue, compared with $157 million, or 9.9% of revenue, for the same period in 2020.

SG&A for the nine months ended September 30, 2021 was $519 million, or 9.1% of revenue, compared with $467 million, or 10.5% of revenue, for the same prior-year period.

For the three and nine months ended September 30, 2021, SG&A as a percentage of revenue benefited from the significant year-over-year increase in revenue as well as lower allocated costs from XPO.

Depreciation and amortization expense for the three months ended September 30, 2021 was $85 million, compared with $83 million for the same prior-year period.

Depreciation and amortization expense for the nine months ended September 30, 2021 was $259 million, compared with $246 million for the same prior-year period.

The increase was primarily due to the impact of prior capital investments associated with new contract startups.

Depreciation and amortization expense included allocated corporate charges of $1 million and $7 million for the three months ended September 30, 2021 and 2020 and $15 million and $21 million for the nine months ended September 30, 2021 and 2020, respectively.

Depreciation and amortization expense included amortization of acquisition-related intangible assets of $16 million and $15 million for the three months ended September 30, 2021 and 2020, respectively, and $44 million and $43 million for the nine months ended September 30, 2021 and 2020, respectively.

Transaction and integration costs for the three and nine months ended September 30, 2021 was $29 million and $82 million, respectively, are primarily related to costs related to the Separation.

For the three and nine months ended September 30, 2020, transaction and integration costs are primarily related to costs allocated by XPO related to XPO’s exploration of strategic alternatives in 2020.

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

For the three and nine months ended September 30, 2021, we recorded restructuring charges of $2 million and $5 million, respectively, primarily related to severance costs.

For the three and nine months ended September 30, 2020, we recorded restructuring charges of $5 million and $25 million, respectively, primarily related to severance costs.

Restructuring charges for the three and nine months ended September 30, 2021 included an adjustment to a previously recognized liability.

For further information on our restructuring actions, see Note 6—Restructuring Charges.

Other income primarily includes pension income.

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

defined benefit pension plan.

See Note 10—Pension for further information.

We recorded income of $11 million for the three and nine months ended September 30, 2021.

Other income was immaterial for the three months ended September 30, 2020 and was $2 million for the nine months ended September 30, 2020.

Interest expense primarily relates to the Notes issued during the third quarter of 2021 and our related-party debt obligations with XPO prior to the Separation.

Interest expense for the three months ended September 30, 2021 was $5 million compared with $6 million for the same period in 2020.

Interest expense for the nine months ended September 30, 2021 was $16 million compared with $18 million for the same period in 2020.

Our effective tax rate for the three months ended September 30, 2021 and 2020 was (72.5)% and 49.0%, respectively, and (24.8)% and (5.0)% for the nine months ended September 30, 2021 and 2020, respectively.

The effective tax rates for the third quarter of 2021 and 2020 were determined using an estimate of our annual effective tax rate, adjusted for discrete items that occurred within the periods presented.

The changes in the effective tax rates for the three months ended September 30, 2021 compared with the same periods in 2020 were driven by a decrease in pre-tax losses in certain jurisdictions for which no benefit can be recognized and a discrete tax benefit of $42 million from the initial recognition of a deferred tax asset in connection with the Separation.

Restructuring costs and other 13 4 9 n/m

Operating income 37 30 7 23 %

Other income, net 16 1 15 n/m

Interest expense, net (4) (5) 1 (20) %

Income before income taxes 49 26 23 88 %

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

Net income $ 38 $ 17 $ 21 124 %

n/m - not meaningful

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

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

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

Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs and facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Income before income taxes for the three months ended March 31, 2022, increased by $23 million to $49 million compared with $26 million for the same period in 2021.

The increase was primarily due to higher revenue and increased other income as a result of pension income and foreign currency options, partially offset by the deconsolidation of a joint venture.

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

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

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

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

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

Liquidity and Capital Resources

Prior to the Separation on August 2, 2021, the Company participated in XPO’s centralized treasury model, which included its cash pooling and other intercompany financing arrangements.

We have historically generated, and expect to continue to generate, positive cash flow from operations.

Our ability to fund our operations and anticipated capital needs is reliant upon the generation of cash from operations, supplemented as necessary by periodic utilization of our revolving credit facility.

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

Revolving Credit Facility

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

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

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

Term Loan Credit Agreement

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

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

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

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

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

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

Bridge Term Loan Credit Agreement

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

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

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

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

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

Unsecured Notes

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 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.

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

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, 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”).

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.

Revolving Credit Facility

In 2021, we 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

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

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

In the first quarter of 2022, we terminated our securitization program.We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Consolidated Statements of Cash Flows.

We use the sale of certain receivables to help manage our working capital.

Information related to the trade receivables sold was as follows:

Three Months Ended 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, we were in compliance with the covenants contained in our debt and financing arrangements.

Financial Condition

The following table summarizes our asset and liability balances as of September 30, 2021 and December 31, 2020:

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

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

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

Total current assets $ 2,030 $ 2,099 (69) (3) %

2 unchanged sentences

Total long-term liabilities 2,629 2,552 77 3 %

The increase in our assets and liabilities from December 31, 2020 to September 30, 2021 primarily reflects the impact of the Kuehne + Nagel business acquired in January 2021.

Total long-term assets also reflects an increase in start-up costs and operating lease assets associated with our new contracts.

Total long-term liabilities also reflects the settlement of related-party notes and issuance of the Notes during the third quarter.

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

Cash Flow Activity

Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, are summarized as follows:

Nine Months Ended September 30,

(In millions) 2021 2020

Three Months Ended March 31,

(In millions) 2022 2021 $ Change

Net cash provided by operating activities $ 46 $ 47 $ (1) (2) %

1 unchanged sentence

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

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

Net increase (decrease) in cash, cash equivalents and restricted cash $ (53) $ 209

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

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

Operating Activities

Cash flows from operating activities for the nine months ended September 30, 2021 decreased by $94 million compared with 2020.

This reflects the impact of increased use of cash for working capital in 2021, partially offset by higher net income.

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

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

Investing Activities

Investing activities used $140 million of cash for the nine months ended September 30, 2021, compared with $163 million used for the same period of 2020.

During the nine months ended September 30, 2021, we used $180 million of cash to purchase property and equipment;

and received $8 million of cash from sales of property and equipment.

During the nine months ended September 30, 2020, we used $159 million of cash to purchase property and equipment;

used $15 million, net, in connection with the purchase and sale of affiliate trade receivables and received $11 million of cash from sales of property and equipment.

We anticipate net capital expenditures to be between $225 million and $250 million in 2021, funded by cash on hand and available liquidity.

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

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

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

Financing Activities

Financing activities used $165 million of cash for the nine months ended September 30, 2021.

The primary uses of cash from financing activities for the nine months ended September 30, 2021 were to purchase the remaining noncontrolling interest in GXO Logistics Europe that we did not own for $128 million, $64 million used to repay debt and finance leases, $21 million to repay borrowings related to our securitization program and $774 million of

net transfers to XPO in connection with the Separation.

The primary source of cash from financing activities for the nine months ended September 30, 2021 was the issuance of long-term debt of $794 million.

Financing activities generated $28 million of cash for the nine months ended September 30, 2020.

The primary sources of cash from financing activities in the nine months ended September 30, 2020 were $112 million of net transfers from XPO and $17 million from net borrowings related to our securitization program.

The primary uses of cash from financing activities in the nine months ended September 30, 2020 were $85 million used to repay debt and finance leases and $21 million to purchase a noncontrolling interest in GXO Logistics Europe.

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

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

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

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

As of September 30, 2021, the Company’s future contractual obligations have not materially changed as compared with December 31, 2020, except for the aggregate principal amount of indebtedness associated with the Notes of $800 million and associated interest payments of $17 million per year.

See Note 8—Debt and Financing Arrangements for additional details.

Critical Accounting Policies

Our significant accounting policies, which include management’s best estimates and judgments, are included in Note 2—Basis of Presentation to the combined financial statements for the year ended December 31, 2020 included in the Form 10.

See Note 2—Basis of Presentation for information on the adoption of new accounting standards during 2021.

A discussion of accounting estimates, considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates, are disclosed in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10.

There have been no significant changes in the Company’s critical accounting estimates since December 31, 2020.

Recently Adopted Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted

Information related to new accounting standards is included in Note 2—Basis of Presentation to the Condensed Consolidated Financial Statements.

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

Critical Accounting Policies and Estimates

Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, and that are hereby incorporated by reference.

Accounting Pronouncements

Information related to new accounting standards is included in Note 1—Basis of Presentation and Significant Accounting Policies to the condensed consolidated financial statements.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis