GXO Logistics, Inc. 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from, among other things, changes in interest rates and foreign exchange rates. To reduce our exposure to market risk associated with interest rates and foreign currency exchange rates risks, we enter into various derivative instruments. Interest Rate Risk As of September 30, 2024, our long-term debt portfolio, excluding finance leases and other debt, consisted of $1.9 billion fixed-rate notes and $585 million variable-rate term loans based on the Secured Overnight Financing Rate (“SOFR”). For our variable-rate debt, we entered into interest rate swap agreements to convert $250 million of variable-rate U.S. dollar (“USD”) denominated debt into USD-denominated fixed-rate debt. Additionally, we entered into cross-currency swap agreements to convert $250 million of variable-rate debt from SOFR to the Euro Interbank Offered Rate (“Euribor”). As of September 30, 2024, a hypothetical 1% increase in SOFR and Euribor would have increased our interest expense by approximately $3 million. Foreign Currency Exchange Rate Risk A significant proportion of our net assets and income are in non-USD currencies, primarily the British pound sterling (“GBP”) and the Euro (“EUR”). We are exposed to currency risk from potential changes in functional currency values of our foreign currency-denominated assets, liabilities and cash flows. Consequently, the depreciation of the EUR or the GBP relative to the USD could adversely impact our financial results. We entered into cross-currency swap and forward agreements to manage our foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated debt, including the interest payments, to fixed-rate EUR-denominated debt and a portion of the floating-rate USD-denominated loans, including the interest payments, to floating-rate EUR-denominated debt. We use foreign currency options and forward contracts to mitigate the risk of a reduction in the value of earnings from our operations that use the EUR or GBP as their functional currency. As of September 30, 2024, a uniform 10% strengthening in the value of the USD relative to the EUR would have decreased our net assets by approximately $121 million, net of hedging. As of September 30, 2024, a uniform 10% strengthening in the value of the USD relative to the GBP would have decreased our net assets by approximately $81 million, net of hedging. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with the history of foreign currency markets. See Note 7. “Fair Value Measurements and Financial Instruments” to the Condensed Consolidated Financial Statements for additional information. 31