UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FormFORM 10-Q

(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-40470

gxo-20210630_g1.jpggxo-20220630_g1.jpg
GXO Logistics, Inc.
(Exact name of registrant as specified in its charter)

Delaware86-2098312
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Two American Lane
Greenwich, Connecticut06831
(Address of principal executive offices)(Zip Code)
(203) 489-1287
(Registrant’s telephone number, including area codecode)


N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareGXONew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☐☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of August 5, 2021,1, 2022, there were 114,626,250118,615,116 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


GXO Logistics, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended June 30, 2021
Table of Contents
GXO Logistics, Inc.
Form 10-Q
For the Quarterly Period Ended June 30, 2022
Table of Contents
Page
Item 1. Financial InformationStatements (Unaudited)
2
Condensed Combined Balance SheetsConsolidated Statements of Operations
2
Condensed Combined StatementConsolidated Statements of OperationsComprehensive Income (Loss)
3
Condensed Combined Statements of Comprehensive Income (Loss)Consolidated Balance Sheets
4
Condensed CombinedConsolidated Statements of Cash FlowFlows
5
Condensed CombinedConsolidated Statements of Changes in Equity
6
Notes to Condensed CombinedConsolidated Financial Statements
78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
1821
Item 3. Quantitative and Qualitative DisclosuresDisclosures About Market Risk
2629
Item 4. Controls and Procedures
2629
Item 1. Legal Proceedings
2831
Item 1A. Risk Factors
2831
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
28
Item 3. Defaults Upon Senior Securities
28
Item 4. Mine Safety Disclosures
28
Item 5. Other Information
28
Item 6. Exhibits
2932
3233
1


PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GXO Logistics, Inc.
Condensed Combined Balance SheetsConsolidated Statements of Operations
(Unaudited)
(Unaudited)
June 30,December 31,
(In millions)20212020
ASSETS
Current assets
Cash and cash equivalents$326 $328 
Accounts receivable, net of allowances of $13 and $18, respectively1,297 1,224 
Other current assets340 284 
Total current assets1,963 1,836 
Long-term assets
Property and equipment, net of $1,048 and $922 in accumulated depreciation, respectively838 770 
Operating lease assets1,744 1,434 
Goodwill2,058 2,063 
Identifiable intangible assets, net of $398 and $373 in accumulated amortization, respectively295 299 
Other long-term assets170 146 
Total long-term assets5,105 4,712 
Total assets$7,068 $6,548 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$458 $415 
Accrued expenses973 784 
Short-term borrowings and current finance lease liabilities36 58 
Short-term operating lease liabilities414 332 
Other current liabilities128 149 
Total current liabilities
2,009 1,738 
Long-term liabilities
Long-term debt and finance lease liabilities582 615 
Deferred tax liability63 54 
Long-term operating lease liabilities1,340 1,099 
Other long-term liabilities160 94 
Total long-term liabilities
2,145 1,862 
Commitments and contingencies00
Equity
XPO investment2,835 2,765 
Accumulated other comprehensive income39 58 
Total equity before noncontrolling interests
2,874 2,823 
Noncontrolling interests40 125 
Total equity
2,914 2,948 
Total liabilities and equity$7,068 $6,548 
Three Months EndedSix Months Ended
June 30,June 30,
(Dollars in millions, shares in thousands, except per share amounts)2022202120222021
Revenue$2,156 $1,882 $4,239 $3,704 
Direct operating expense1,775 1,554 3,523 3,074 
Selling, general and administrative expense220 177 410 348 
Depreciation and amortization expense77 95 153 174 
Transaction and integration costs24 35 43 53 
Restructuring costs (credits) and other1 (1)14 3 
Operating income59 22 96 52 
Other income (expense), net23 (1)39 — 
Interest expense, net(9)(6)(13)(11)
Income before income taxes73 15 122 41 
Income tax expense(21)(1)(32)(10)
Net income52 14 90 31 
Less: Net income attributable to noncontrolling interests(1)(3)(2)(6)
Net income attributable to GXO$51 $11 $88 $25 
Earnings per share data
Basic earnings per share$0.44 $0.10 $0.76 $0.22 
Diluted earnings per share$0.44 $0.10 $0.76 $0.22 
Weighted-average common shares outstanding
Basic weighted-average common shares outstanding116,131 114,626 115,435 114,626 
Diluted weighted-average common shares outstanding116,646 114,626 116,111 114,626 

See accompanying notes to condensed combinedconsolidated financial statements.
2


GXO Logistics, Inc.
Condensed CombinedConsolidated Statements of OperationsComprehensive Income (Loss)
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions, except per share data)2021202020212020
Revenue
$1,882 $1,405 $3,704 $2,845 
Direct operating expense1,554 1,185 3,074 2,388 
Sales, general and administrative expense177 168 348 310 
Depreciation and amortization expense95 87 174 163 
Transaction and integration costs35 25 53 42 
Restructuring costs (credit)(1)25 3 25 
Operating income (loss)22 (85)52 (83)
Other (income) expense1 (1)0 (2)
Interest expense6 5 11 12 
Income (loss) before income taxes
15 (89)41 (93)
Income tax provision (benefit)1 (24)10 (18)
Net income (loss)
14 (65)31 (75)
Net income attributable to noncontrolling interests(3)0 (6)(2)
Net income (loss) attributable to GXO
$11 $(65)$25 $(77)
Earnings per share data
Basic and Diluted earnings (loss) per share$0.10 $(0.57)$0.22 $(0.67)
Common shares outstanding
Number of Basic and Diluted shares outstanding115 115 115 115 


Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Net income$52 $14 $90 $31 
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax (expense) benefit of $(10), $(1), $(10), and $2, respectively(75)19 (120)(26)
Unrealized gain (loss) on hedging instruments, net of tax (expense) benefit of $—, $—, $—, and $(1), respectively— — — (1)
Comprehensive income (loss)$(23)$33 (30)4 
Less: Comprehensive income (loss) attributable to noncontrolling interest— (1)— (2)
Comprehensive income (loss) attributable to GXO$(23)$34 $(30)$6 

See accompanying notes to condensed combinedconsolidated financial statements.
3


GXO Logistics, Inc.
Condensed Combined Statements of Comprehensive Income (Loss)Consolidated Balance Sheets
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2021202020212020
Net income (loss)
$14 $(65)$31 $(75)
Other comprehensive income (loss), net of tax
Foreign currency translation gain (loss), net of tax effect of $(1), $(1), $2 and $(3)$19 $31 $(26)$(48)
Unrealized gain (loss) on financial assets/liabilities designated as hedging instruments, net of tax effect of $0, $0, $(1) and $00 2 (1)2 
Other comprehensive income (loss)19 33 (27)(46)
Comprehensive income (loss)
$33 $(32)$4 $(121)
Less: Comprehensive income (loss) attributable to noncontrolling interests(1)2 (2)0 
Comprehensive income (loss) attributable to GXO
$34 $(34)$6 $(121)

(Dollars in millions, shares in thousands, except per share amounts)June 30, 2022December 31, 2021
ASSETS
Current assets
Cash and cash equivalents$384 $333 
Accounts receivable, net of allowances of $13 and $13, respectively1,560 1,507 
Other current assets312 259 
Total current assets2,256 2,099 
Long-term assets
Property and equipment, net of $1,172 and $1,128 in accumulated depreciation, respectively905 863 
Operating lease assets1,900 1,772 
Goodwill2,769 2,017 
Intangible assets, net of $413 and $407 in accumulated amortization, respectively557 257 
Other long-term assets319 263 
Total long-term assets6,450 5,172 
Total assets$8,706 $7,271 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$592 $624 
Accrued expenses1,012 998 
Short-term borrowings and obligations under finance leases84 34 
Current operating lease liabilities490 453 
Other current liabilities186 220 
Total current liabilities
2,364 2,329 
Long-term liabilities
Long-term debt and obligations under finance leases1,801 927 
Long-term operating lease liabilities1,570 1,391 
Other long-term liabilities410 234 
Total long-term liabilities
3,781 2,552 
Commitments and contingencies (Note 11)00
Stockholders’ Equity
Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,610 and 114,659 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively1 1 
Preferred Stock, $0.01 par value per share; 10,000 shares authorized, 0 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively— — 
Additional paid-in capital2,561 2,354 
Retained earnings214 126 
Accumulated other comprehensive loss(246)(130)
Total stockholders’ equity before noncontrolling interests2,530 2,351 
Noncontrolling interests31 39 
Total equity
2,561 2,390 
Total liabilities and equity$8,706 $7,271 

See accompanying notes to condensed combinedconsolidated financial statements.
4


GXO Logistics, Inc.
Condensed CombinedConsolidated Statements of Cash FlowFlows
(Unaudited)
Six Months Ended June 30,
(In millions)20212020
Operating activities
Net income (loss)
$31 $(75)
Adjustments to reconcile net income (loss) to net cash from operating activities
Depreciation, amortization and net lease activity174 163 
Other10 26 
Changes in assets and liabilities
Accounts receivable(9)74 
Other assets(73)(26)
Accounts payable(40)(92)
Accrued expenses and other liabilities53 121 
Net cash provided by operating activities
146 191 
Investing activities
Payment for purchases of property and equipment(119)(102)
Proceeds from sales of property and equipment2 6 
Purchase and sale of affiliate trade receivables, net12 2 
Other34 0 
Net cash used in investing activities
(71)(94)
Financing activities
Net proceeds (repayments) related to trade securitization program(25)45 
Repayment of debt and finance leases(56)(71)
Purchase of noncontrolling interests(128)0 
Net transfers from XPO116 44 
Other15 16 
Net cash provided by (used in) financing activities
(78)34 
Effect of exchange rates on cash, cash equivalents and restricted cash1 (10)
Net increase (decrease) in cash, cash equivalents and restricted cash
(2)121 
Cash, cash equivalents, and restricted cash, beginning of period
328 200 
Cash, cash equivalents, and restricted cash, end of period
$326 $321 
Supplemental disclosure of cash flow information:
Leased assets obtained in exchange for new operating lease liabilities, including $281 related to an acquisition in 2021$576 $243 
Leased assets obtained in exchange of new finance lease liabilities, including $23 related to an acquisition in 202133 54 
Cash paid for interest10 12 
Cash paid for income taxes22 1 

Six Months Ended June 30,
(In millions)20222021
Cash flows from operating activities:
Net income$90 $31 
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization expense153 174 
Stock-based compensation expense16 13 
Deferred tax benefit3 3 
Other1 (6)
Changes in operating assets and liabilities
Accounts receivable(20)(9)
Other assets(30)(73)
Accounts payable(56)(40)
Accrued expenses and other liabilities43 53 
Net cash provided by operating activities
200 146 
Cash flows from investing activities:
Capital expenditures(154)(119)
Proceeds from sales of property and equipment6 2 
Purchase and sale of affiliate trade receivables, net— 12 
Acquisition of businesses, net of cash acquired(874)34 
Other19 — 
Net cash used in investing activities
(1,003)(71)
Cash flows from financing activities
Proceeds from issuance of debt, net898 — 
Repayment of debt related to securitization transactions and other— (25)
Repayment of debt and finance leases(15)(56)
Purchase of noncontrolling interests— (128)
Net transfers from XPO Logistics, Inc.— 116 
Taxes paid related to net share settlement of equity awards(12)— 
Other(2)15 
Net cash provided by (used in) financing activities
869 (78)
Effect of exchange rates on cash and cash equivalents(15)1 
Net increase (decrease) in cash and cash equivalents51 (2)
Cash and cash equivalents, beginning of period
333 328 
Cash and cash equivalents, end of period
$384 $326 
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued for acquisition$203 $— 

See accompanying notes to condensed combinedconsolidated financial statements.
5


GXO Logistics, Inc.
Condensed CombinedConsolidated Statements of Changes in Equity
(Unaudited)
(In millions)XPO InvestmentAccumulated Other Comprehensive Income (Loss)Equity Before Noncontrolling InterestsNon-controlling InterestsTotal Equity
Balance as of March 31, 2021$2,903 $16 $2,919 $124 $3,043 
Net income11 — 11 3 14 
Other comprehensive income (loss)— 23 23 (4)19 
Purchase of noncontrolling interest— — — (128)(128)
Net transfers from (to) XPO(79)— (79)40 (39)
Other— — — 5 5 
Balance as of June 30, 2021$2,835 $39 $2,874 $40 $2,914 

(In millions)XPO InvestmentAccumulated Other Comprehensive Income (Loss)Equity Before Noncontrolling InterestsNon-controlling InterestsTotal Equity
Balance as of December 31, 2020$2,765 $58 $2,823 $125 $2,948 
Net income25 — 25 6 31 
Other comprehensive loss— (19)(19)(8)(27)
Purchase of noncontrolling interest— — — (128)(128)
Net transfers from XPO45 — 45 40 85 
Other— — — 5 5 
Balance as of June 30, 2021$2,835 $39 $2,874 $40 $2,914 

(In millions)XPO InvestmentAccumulated Other Comprehensive Income (Loss)Equity Before Noncontrolling InterestsNon-controlling InterestsTotal Equity
Balance as of March 31, 2020$2,688 $(141)$2,547 $128 $2,675 
Net loss(65)— (65)— (65)
Other comprehensive income— 31 31 2 33 
Net transfers to XPO(2)— (2)— (2)
Balance as of June 30, 2020$2,621 $(110)$2,511 $130 $2,641 
Common StockXPO Logistics, Inc. InvestmentAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossEquity Before Noncontrolling InterestsNoncontrolling InterestsTotal Equity
(Shares in thousands, dollars in millions)SharesAmount
Balance as of March 31, 2022114,840 $1 $— $2,349 $163 $(172)$2,341 $34 $2,375 
Net income— — — — 51 — 51 1 52 
Other comprehensive (loss)— — — — — (74)(74)(1)(75)
Stock-based compensation— — — 10 — — 10 — 10 
Vesting of stock compensation awards21 — — — — — — — — 
Tax withholding on vesting of stock compensation awards— — — (1)— — (1)— (1)
Common stock issued for acquisition3,749 — — 203 — — 203 — 203 
Dividends— — — — — — — (3)(3)
Balance as of June 30, 2022118,610 $1 $— $2,561 $214 $(246)$2,530 $31 $2,561 
(In millions)XPO InvestmentAccumulated Other Comprehensive Income (Loss)Equity Before Noncontrolling InterestsNon-controlling InterestsTotal Equity
Balance as of December 31, 2019$2,633 $(66)$2,567 $130 $2,697 
Net income (loss)(77)— (77)2 (75)
Other comprehensive loss— (44)(44)(2)(46)
Net transfers from XPO65 — 65 — 65 
Balance as of June 30, 2020$2,621 $(110)$2,511 $130 $2,641 

Common StockXPO Logistics, Inc. InvestmentAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive LossEquity Before Noncontrolling InterestsNoncontrolling InterestsTotal Equity
(Shares in thousands, dollars in millions)SharesAmount
Balance as of December 31, 2021114,659 $1 $— $2,354 $126 $(130)$2,351 $39 $2,390 
Net income— — — — 88 — 88 2 90 
Other comprehensive (loss)— — — — — (118)(118)(2)(120)
Stock-based compensation— — — 16 — — 16 — 16 
Vesting of stock compensation awards202 — — — — — — — — 
Tax withholding on vesting of stock compensation awards— — — (12)— — (12)— (12)
Common stock issued for acquisition3,749 — — 203 — — 203 — 203 
Deconsolidation of variable interest entity— — — — — 2 2 (5)(3)
Dividends— — — — — — — (3)(3)
Balance as of June 30, 2022118,610 $1 $— $2,561 $214 $(246)$2,530 $31 $2,561 

6


GXO Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)


Common StockXPO Logistics, Inc. InvestmentAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeEquity Before Noncontrolling InterestsNoncontrolling InterestsTotal Equity
(Shares in thousands, dollars in millions)SharesAmount
Balance as of March 31, 2021— $— $2,903 $— $— $16 $2,919 $124 $3,043 
Net income— — 11 — — — 11 3 14 
Other comprehensive income (loss)— — — — — 23 23 (4)19 
Purchase of noncontrolling interest— — — — — — — (128)(128)
Net transfers from (to) XPO Logistics, Inc.— — (79)— — — (79)40 (39)
Other— — — — — — — 5 5 
Balance as of June 30, 2021— $— $2,835 $— $— $39 $2,874 $40 $2,914 

(Shares in thousands, dollars in millions)Common StockXPO Logistics, Inc. InvestmentAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive IncomeEquity Before Noncontrolling InterestsNoncontrolling InterestsTotal Equity
SharesAmount
Balance as of December 31, 2020— $— $2,765 $— $— $58 $2,823 $125 $2,948 
Net income— — 25 — — — 25 6 31 
Other comprehensive loss— — — — — (19)(19)(8)(27)
Purchase of noncontrolling interests— — — — — — — (128)(128)
Net transfers from XPO Logistics, Inc.— — 45 — — — 45 40 85 
Other— — — — — — 5 5 
Balance as of June 30, 2021— $— $2,835 $— $— $39 $2,874 $40 $2,914 

See accompanying notes to condensed combinedconsolidated financial statements.
67


GXO Logistics, Inc.
Notes to Condensed CombinedConsolidated Financial Statements
(Unaudited)

1. OrganizationBasis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of GXO Logistics, Inc. (“GXO”, or the “Company” or “we”) is the largest pure-play contract logistics providerhave been prepared in accordance with generally accepted accounting principles in the worldUnited 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. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a foremost innovator infair presentation have been included. Operating results for the logistics industry in North Americathree and Europe. We provide high-value-add warehousing and distribution, order fulfillment and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions. In addition, wesix months ended June 30, 2022, are a major providernot necessarily indicative of reverse logistics, which is also called returns management. We serve a broad range of customers in the e-commerce and retail, food and beverage, consumer packaged goods, aerospace, consumer technology, manufacturing and other industries. We present our operations inresults that may be expected for the Condensed Combined Financial Statements as 1 reportable segment.year ending December 31, 2022.

On August 2, 2021, the Company completed the separation from XPO Logistics, Inc. (together with its subsidiaries, “XPO”(“XPO”) completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution. XPO stockholders received 1 share of GXO common stock for every share of XPO common stock held at the close of business on the record date. GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of the common stock commenced on the New York Stock Exchange (the “NYSE”“Separation”) under the ticker symbol “GXO.”
The spin-off was completed pursuant. Prior to the Separation, and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”). See Note 10—Subsequent Events for additional details.
2. Basis of Presentation
The Condensed Combined Financial Statements of GXOthe Company’s financial statements were prepared on a standalone combined basis and have beenwere derived from the consolidated financial statements and accounting records of XPO. TheseOn August 2, 2021, the Company became a standalone publicly-traded company, and its financial statements reflect thepost-Separation are prepared on a consolidated basis. The combined historical results of operations, financial position and cash flows of GXO in accordance with U.S. generally accepted accounting principles (“GAAP”).
Historically, separateconsolidated financial statements for all periods presented prior to the Separation are now also referred to as “condensed consolidated financial statements” and have not been prepared forunder GAAP.

Prior to the Company and it has not operated as a standalone business separate from XPO. The combined financial statements include certainSeparation, the Company’s historical assets and liabilities that have historically been heldpresented were wholly owned by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the combined financial statements, as they are to be considered effectively settled upon effectiveness of the spin-off. The Condensed Combined Financial Statements are presented as if the GXO businesses had been combined for all periods presented. The assets and liabilities in the Condensed Combined Financial Statements have beenwere reflected on a historical cost basis, as immediately prior tobasis. In connection with the spin-off all ofSeparation, the Company’s assets and liabilities presented are wholly owned by XPO and are beingwere transferred to GXO atthe Company on a carry-overcarryover basis.
The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable
Prior to GXO, and the Condensed Combined StatementsSeparation, the historical results of Operations includeoperations included allocations of XPO costs and expenses, as described below.
including XPO’s corporate function, (“Corporate”) incurswhich 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. For purposes of the Condensed Combined Statements of Operations, anAn 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 been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which includesinclude adjustments for
7


transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs areis recorded in Sales,within Selling, general and administrative expense (“SG&A”) andexpense; Depreciation and amortization expenseexpense; and Transaction and integration costs in the Condensed CombinedConsolidated Statements of Operations. We believe

The Company’s consolidated financial statements include the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
XPO investment represents XPO’s historical investment in GXO and includes the net effects of transactions with and allocations from XPO as well as GXO’s accumulated earnings. Certain transactions between GXO and XPO, including XPO’s non-GXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalfaccounts of GXO and general financing activities.its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.
Principles of Combination
The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of GXO. Significant intercompany balances and transactions among theCompany presents its operations of the GXO legal entities have been eliminated in the Condensed Combined Financial Statements. All significant related party transactions between GXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment. The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.1 reportable segment.
Significant Accounting Policies
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Combined Statements of Cash Flows. We also sell certain European trade accounts receivable under a securitization program described below. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.
XPO Logistics Europe SAS (“XPO Logistics Europe”), one of our wholly-owned subsidiaries, participates in a trade receivables securitization program co-arranged by 3 European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and has been presented within these combined financial statements based on our control of the entity’s activities.
We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Combined Balance Sheets at the date of transfer. In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial.
In addition to selling trade receivables which originate with GXO, the special purpose entity also purchases trade receivables from XPO and sells assets to the Purchasers. The trade receivables which have been purchased from XPO have been reflected within Other current assets in the Condensed Combined Balance Sheets, and the related cash flows have been reflected within Purchase and sale of affiliate trade receivables, net, within investing activities
8


in the Condensed Combined Statements of Cash Flows. See Note 6—Debt for additional information related to our receivables securitization secured borrowing program and these borrowings.
Information related to the trade receivables sold was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2021202020212020
Securitization programs
Receivables sold in period$474 $317 $902 $636 
Cash consideration474 317 902 636 
Factoring programs
Receivables sold in period100 176 200 422 
Cash consideration100 176 200 421 
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, financial assets purchased from XPO, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of June 30, 2021 and December 31, 2020 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents include money market funds valued using quoted prices in active markets.
The fair value of cash equivalents approximates its carrying value and amounted to $49 million and $54 million as of June 30, 2021 and December 31, 2020, respectively. The cash equivalents are classified as Level 1 within the fair value hierarchy.
Leases
We determine if an arrangement is a lease at inception. For leases with terms greater than 12 months, we recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. For most of our leases, the implicit rate cannot be readily determined and, as a result, we use the incremental borrowing rates of XPO at commencement date to determine the present value of future lease payments.
We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options. We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability. We account for lease and non-lease components within a contract as a single lease component for our real estate leases.
Lease expense for our operating leases is recognized on a straight-line basis over the lease term, with the exception of variable lease costs, which is expensed as incurred. For the three and six months ended June 30, 2021, operating
9Recently Adopted Accounting Pronouncements


lease cost was $201 million and $403 million, respectively. For the three and six months ended June 30, 2020, operating lease cost was $154 million and $311 million, respectively.
For finance leases, amortization of the right-of-use asset is recognized in Depreciation and amortization expense on a straight-line basis over the lease term, and interest expense is accreted on the lease liability using the effective interest method.
Adoption of New Accounting Standards
In December 2019,October 2021, the Financial Accounting StandardStandards Board (“FASB”) issued ASU 2019-12, “Income TaxesNo. 2021-08, “Business Combinations (Topic 740)805): Simplifying the Accounting for Income Taxes.Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principlesclarifies 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 740. The ASU also clarifies and amends existing guidance to enhance consistency and comparability among reporting entities. We adopted this standard on606, Revenue from Contracts with Customers. On January 1, 2021 on a prospective basis.2022, the Company adopted the guidance. The adoption of this new standard did not have a material effectimpact on our Condensed Combined Financial Statements.the Company’s condensed consolidated financial statements.

Accounting Pronouncements Issued but Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848): Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impactThe Company intends to apply this guidance when modifications of the new guidance.
3. Acquisitions
European Acquisition
In January 2021, we acquired the majority of Kuehne + Nagel’s contract logistics operations in the United Kingdom,contracts that include LIBOR occur, which generated annual revenues of approximately £450 million ($585 million) in 2020. The operations provide a range of logistics services, including inbound and outbound distribution, reverse logistics management and inventory management. We have recorded preliminary estimates for the fair value of acquired assets and liabilities assumed, including approximately $300 million of operating lease assets and operating lease liabilities. Pro forma results of operations for this acquisition have not been presented as it is not expected to have a material toimpact on the condensed combined results of operations.
XPO Logistics Europe Purchase
Our historical results reflect a noncontrolling interest in XPO Logistics Europe, a business we acquired majority ownership of in 2015. In the second quarter of 2021, we completed the buy-out and squeeze-out for the remaining 3% of XPO Logistics Europe that we did not already own at a cost of €108 million ($128 million) and transferred €34 million ($40 million) to XPO. Following the buy-out and squeeze-out, we own all of the outstanding shares of XPO Logistics Europe.
10Company’s consolidated financial statements.

2. Revenue Recognition

4. Revenue Recognition
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 June 30,Six Months Ended June 30,
(In millions)2021202020212020
Revenue
United States$551 $509 $1,135 $1,045 
United Kingdom615 338 1,167 667 
France190 142 370 292 
Europe (excluding France and United Kingdom)482 383 947 769 
Other44 33 85 72 
Total
$1,882 $1,405 $3,704 $2,845 

Our
Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
United Kingdom$777 $615 $1,481 $1,167 
United States685 551 1,366 1,135 
France183 190 359 370 
Netherlands163 157 333 305 
Spain123 122 243 241 
Other225 247 457 486 
Total$2,156 $1,882 $4,239 $3,704 

The Company’s revenue can also be disaggregated by various verticals, reflecting ourthe customers’ principal industry sector. Our revenueRevenue disaggregated by industry sector was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2021202020212020
Revenue
E-commerce, omnichannel and consumer technology$947 $696 $1,814 $1,379 
Food and beverage252 194 574 403 
Consumer packaged goods224 161 451 340 
Other459 354 865 723 
Total
$1,882 $1,405 $3,704 $2,845 

Contract Assets and Liabilities
Contract assets include costs we have incurred and capitalized in conjunction with customer contracts, which are primarily amortized to Direct operating expense on our Condensed Combined Statements of Operations over the contract term. As of June 30, 2021 and December 31, 2020, the Company had contract assets of $140 million and $66 million, respectively, recorded within Other long-term assets on our Condensed Combined Balance Sheets. Contract assets as of June 30, 2021 primarily increased due to capital investments associated with new contracts.
Contract liabilities include advance payments and billings in excess of revenue recognized. The activity for our contract liabilities, which are recorded within Other current liabilities and Other long-term liabilities on our Condensed Combined Balance Sheets, was as follows:
(In millions)
Balance as of December 31, 2020$97 
Revenue recognized(76)
Unearned revenue (1)
131 
Foreign exchange and other(3)
Balance as of June 30, 2021$149 
Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
E-commerce, omnichannel retail and consumer technology$1,194 $999 $2,324 $1,950 
Food and beverage336 312 674 611 
Industrial and manufacturing269 251 532 499 
Consumer packaged goods223 184 436 370 
Other134 136 273 274 
Total$2,156 $1,882 $4,239 $3,704 
(1)Includes $82 million related to the Kuehne + Nagel acquisition.
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Contract Balances

(In millions)June 30, 2022December 31, 2021
Contract assets(1)
$174 $147 
Contract liabilities(2)
284 220 
(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 recognized included the following:

Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Amounts included in the beginning of year contract liability balance$8 $5 $71 $65 

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 June 30, 2021,2022, the fixed consideration component of ourthe Company’s remaining performance obligation was approximately $2.1$2.6 billion, and we expectthe Company expects to recognize approximately 66%71% of that amount over the next three years and the remainder thereafter. We estimateThe 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.

5.
3. Acquisitions

Clipper Acquisition

On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). The Company acquired Clipper for $1,103 million, consisting of $900 million in cash and the issuance of 3,749,266 shares of GXO common stock having a value of $203 million. The Competition and Markets Authority (the “CMA”) in the U.K. is currently reviewing the Clipper Acquisition. The Company estimates that the CMA’s review of the acquisition will be completed during the second half of 2022.

The Company incurred transaction and financing costs related to the Clipper Acquisition of $20 million and $34 million for the three and six months ended June 30, 2022, respectively, which are included in Transaction and integration costs in the Condensed Consolidated Statements of Operations.

In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement; (ii) the Company entered into a Term Loan; (iii) the Company entered into a Five-Year Term Loan; and (iv) the Company terminated its Bridge Term Loan agreement. For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6—Debt and Financing Arrangements.

Clipper’s results of operations are included in our consolidated financial statements from the date of acquisition. The Company recorded $80 million and $1 million of revenue and income before income taxes for both the three and six months ended June 30, 2022, respectively.

The Company accounted for the acquisition as a business combination using the acquisition method of accounting. The fair value of assets acquired and liabilities assumed was based on management’s estimate of the fair values of the assets acquired and liabilities assumed using valuation techniques including income, cost and market approaches.
10


The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the acquisition date:

(In millions)
ASSETS
Current assets
Cash and cash equivalents$26 
Accounts receivable146 
Other current assets63 
Total current assets235 
Long-term assets
Property and equipment83 
Operating lease assets235 
Intangible assets340 
Other long-term assets25 
Total long-term assets683 
Total assets$918 
LIABILITIES
Current liabilities
Accounts payable$87 
Accrued expenses104 
Short-term borrowings and obligations under finance leases54 
Current operating lease liabilities37 
Other current liabilities45 
Total current liabilities
327 
Long-term liabilities
Long-term debt and obligations under finance leases10 
Long-term operating lease liabilities221 
Other long-term liabilities105 
Total long-term liabilities
336 
Total liabilities$663 
Net assets purchased$255 
Cash paid$900 
Common stock issued(1)
203 
Purchase price paid$1,103 
Goodwill recorded(2)
$848 
(1) Represents the fair value of the Company’s common stock on the acquisition date.
(2) Goodwill represents the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed at the acquisition date. Goodwill acquired was recorded in the European reporting unit and was primarily attributed to anticipated synergies.

The fair values of the assets acquired and liabilities assumed are considered preliminary and subject to adjustment as additional information is obtained and reviewed. The final allocation of the purchase price may differ from the preliminary allocation based on completion of the valuation. The Company expects to finalize purchase price allocation within the measurement period, which will not exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to lease assets and liabilities, intangible assets and goodwill.
11


The following unaudited pro forma information presents the Company’s results of operations as if the acquisition of Clipper occurred on January 1, 2021. The pro forma results reflect the impact of incremental interest expense, net of hedging instruments, to finance the acquisition and amortization expense on acquired intangible assets. Adjustments have also been made to remove transaction related costs. The unaudited pro forma information is not necessarily indicative of what the results of operations of the combined company would have been had the acquisition been completed as of January 1, 2021.

Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Revenue$2,334 $2,146 $4,695 $4,236 
Income before income taxes91 15 154 40 

Kuehne + Nagel Acquisition

In January 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 approximately $300 million, $16 million and $26 million, respectively.

4. Restructuring Chargesand Other
We engage
Restructuring

The Company engages in restructuring actions as part of ourits ongoing efforts to best use ourits 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
The following is a rollforward of the restructuring related activity was as follows:liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:

(In millions)
Balance as of December 31, 20202021$203 
Charges incurred(1)
36 
Payments(9)(6)
Foreign exchange and other(8)
Balance as of June 30, 20212022$63 
(1)Charges incurred are net of adjustments to previously recognized liabilities.
We expect theThe remaining restructuring liability at June 30, 2021, which2022 is primarily relatesrelated to severance payments and is expected to be substantially paid within the next twelve months.

Other

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.

12


5. Leases

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

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

(In millions)June 30, 2022December 31, 2021
Operating leases:
Operating lease assets$1,900 $1,772 
Current operating lease liabilities$490 $453 
Long-term operating lease liabilities1,570 1,391 
Total operating lease liabilities$2,060 $1,844 
Finance leases:
Property and equipment, net$145 $155 
Short-term borrowings and obligations under finance leases$37 $34 
Long-term debt and obligations under finance leases110 133 
Total finance lease liabilities$147 $167 

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

Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Operating leases:
Operating lease cost$171 $165 $340 $329 
Short-term lease cost23 18 45 37 
Variable lease cost22 18 42 37 
Total operating lease cost$216 $201 $427 $403 
Finance leases:
Amortization of leased assets$11 $13 $18 $17 
Interest expense on lease liabilities2 1 3 2 
Total finance lease cost$13 $14 $21 $19 
Total operating and finance lease cost$229 $215 $448 $422 

Supplemental cash flow information was as follows:

Six Months Ended June 30,
(In millions)20222021
Leased assets obtained in exchange for new operating lease liabilities, including $249 and $281 from an acquisition in 2022 and 2021, respectively$559 $576 
Leased assets obtained in exchange for new finance lease liabilities, including $14 and $23 from an acquisition in 2022 and 2021, respectively16 33 

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6. Debt and Financing Arrangements

The following table summarizes the carrying value of our debt:
(In millions)June 30, 2021December 31, 2020
Borrowings related to trade securitization program$0 $26 
Finance leases and other181 161 
Related-party debt437 486 
Total debt618 673 
Short-term borrowings and current finance lease liabilities36 58 
Long-term debt$582 $615 
The fair value of our debt and classification in the fair value hierarchy was as follows:
(In millions)Fair ValueLevel 1Level 2Level 3
June 30, 2021$618 $2 $179 $437 
December 31, 2020673 2 185 486 
We valued Level 1 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics. We valued Level 3 debt using non-observable inputs.
12


(In millions)
Rate(1)
June 30, 2022December 31, 2021
1.65% Unsecured notes due 2026(2)
1.65%$397 $397 
2.65% Unsecured notes due 2031(3)
2.65%396 396 
Two-Year Term Loan due 20242.58%165 — 
Three-Year Term Loan due 2025(4)
2.58%234 — 
Five-Year Term Loan due 2027(4)
2.71%499 — 
Finance leases and otherVarious194 168 
Total debt and obligations under finance leases$1,885 $961 
Less: Short-term borrowings and obligations under finance leases84 34 
Total long-term debt and obligations under finance leases$1,801 $927 
Borrowings related to Securitization
Our trade receivables securitization program permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables. These borrowings are owed to the program’s Purchasers and are included in short-term debt until they are repaid in the following month’s settlement. The securitization program contains financial covenants customary for this type of arrangement, including maintaining a defined average days sales outstanding ratio. For additional information on the securitization program, see Note 2—Basis of Presentation.
Related-Party Debt
Loan Agreement with North American Subsidiary
In 2015, XPO entered into a loan agreement with a North American subsidiary of GXO, under which XPO granted the subsidiary an unsecured loan bearing interest at a(1) Interest rate of 5.625% with a principal amount not exceeding $391 million and maturing in June 2024. Asas of June 30, 20212022.
(2) Net of unamortized debt issuance costs and December 31, 2020, the Company had an outstanding loan payable to XPOdiscount of $162 million and $186 million, respectively. As of June 30, 2021, the notes were guaranteed by an XPO affiliate.
Loan Agreements with European Subsidiaries
Additionally, XPO entered into several loan agreements with European subsidiaries of GXO, under which XPO granted the subsidiaries unsecured loans with principal amounts of:
•€20 million (approximately $23$3 million as of June 30, 2021) entered into in 2013, bearing interest at a variable rate2022 and December 31, 2021.
(3) Net of twelve-month Euribor plus 1%unamortized debt issuance costs and maturing in October 2026; and
•£82 million (approximately $113discount of $4 million as of June 30, 2021) entered into in 2016, bearing interest at a variable rate2022 and December 31, 2021.
(4) Net of twelve-month LIBOR plus 1% and maturing in October 2026.
The outstanding amounts related to these loans payable to XPO was $136 million and $135unamortized debt issuance costs of $1 million as of June 30, 2021 and December 31, 2020, respectively.2022.
Additionally, in 2015, XPO
Five-Year Term Loan

On May 25, 2022, the Company entered into a five-year unsecured Term Loan (the “Five-Year Term Loan due 2027”) that provided a $500 million unsecured term loan agreement under which it granted XPO Logistics Europe afacility to fund the Clipper Acquisition. On May 26, 2022, the Company borrowed $500 million that will mature on May 26, 2027. The loan in the amount of €335 million, bearingbears interest at a fixedfluctuating rate per annum equal to, at the Company’s option, the alternate base rate or the adjusted Secured Overnight Financing Rate (SOFR), plus an applicable margin based on the Company’s credit ratings.

Delayed Draw Term Loan

On March 22, 2022, the Company entered into an unsecured delayed draw Term Loan (the “Delayed Draw Term Loan”) that provided a £375 million ($457 million as of 5.625% and maturingJune 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The loans were available to the Company in June 2024. The loan payable was $139 million andU.S. dollars or British pounds sterling. On May 26, 2022, the Company borrowed, in U.S. dollars, a $165 million 2-year term loan tranche (the “Two-Year Term Loan due 2024”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan due 2025”) that will mature on May 26, 2024 and May 26, 2025, respectively. Loans bear interest at a fluctuating rate per annum equal to, at the Company’s option, the alternate base rate or the adjusted SOFR, plus an applicable margin based on the Company’s credit ratings.

Bridge Term Loan

On February 28, 2022, the Company entered into an unsecured Bridge Term Loan (the “Bridge Term Loan”) that provided a £745 million ($907 million as of June 30, 20212022) unsecured term loan facility to fund the Clipper Acquisition. The commitments under the Bridge Term Loan were terminated with the effectiveness of the Five-Year Term Loan and December 31, 2020, respectively.the Delayed Draw Term Loan. NaN amounts were drawn under the Bridge Term Loan credit agreement.
In July 2021, we settled our related-party debt obligations with XPO.
Revolving Credit Facility

In June 2021, in preparation for the spin-off, weCompany entered into a five-year unsecured multi-currency revolving credit facilityRevolving Credit Facility (the “Revolving Credit Facility”). Initially, theThe Revolving Credit Facility provides commitments of up to $800 million, of which $60 million will beis available for the issuance of letters of credit. LoansNo amounts were outstanding under the Revolving Credit Facility will bear interest atas of June 30, 2022.

14


Sales of Certain Receivables

The Company sells certain of its trade accounts receivables on a fluctuating rate equal to: (i) with respectnon-recourse basis to borrowingsthird-party financial institutions under various factoring agreements. The Company also sold certain European trade accounts receivables 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 dollars, at GXO’s option, the alternate base rate orCondensed Consolidated Statements of Cash Flows. The Company uses the reserve-adjusted LIBOR, (ii) with respectsale of certain receivables 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 subjecthelp manage its working capital.

Information related to the spin-off occurring.trade receivables sold was as follows:

Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Factoring agreements
Receivables sold in period$228 $100 $457 $200 
Cash consideration228 100 456 200 
Securitization program
Receivables sold in period$— $474 $— $902 
Cash consideration— 474 — 902 

Covenants and Compliance

The covenants in the Revolving Credit Facility, the Five-Year Term Loan and the Delayed Draw Term Loan, which are customary for financings of this type, limit ourthe Company’s ability to incur indebtedness and grant liens, among other restrictions. In addition, the Revolving Credit Facility requires usfacilities require the Company to maintain a consolidated leverage ratio below a specified maximum.
There
As of June 30, 2022, the Company was no amount outstanding underin compliance with the Revolving Credit Facilitycovenants contained in its debt and financing arrangements.

7. Fair Value Measurements and Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:

•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

Assets and liabilities

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 June 30, 2022 and December 31, 2021, due to their short-term nature.

15


Debt

The fair value of debt was as follows:

June 30, 2022December 31, 2021
(In millions)LevelFair ValueCarrying ValueFair ValueCarrying Value
1.65% Unsecured notes due 20262$346 $397 $391 $397 
2.65% Unsecured notes due 20312312 396 394 396 
Two-Year Term Loan due 20242165 165 — — 
Three-Year Term Loan due 20252235 234 — — 
Five-Year Term Loan due 20272500 499 — — 

Financial Instruments

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 and interest rates. These financial instruments are not used for trading or other speculative purposes. The Company does not expect to incur any losses as a result of counterparty default.

Net Investment Hedges

The Company uses fixed-to-fixed or variable-to-variable cross-currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S. dollar and the associated foreign currencies. The Company designated these cross-currency swap agreements as qualifying hedging instruments and accounts for them as net investment hedges.

In the first quarter of 2022, the Company extended certain fixed-to-fixed cross-currency swap agreements scheduled to mature between 2022 to 2027, with an aggregate notional amount of $322 million. In the second quarter of 2022, the Company extended a fixed-to-fixed cross-currency swap agreement scheduled to mature in 2026 to 2027, with an aggregate notional amount of $165 million. Additionally, in the second quarter of 2022, the Company entered into multiple cross-currency swap agreements with maturity dates ranging from 2023 to 2027, with an aggregate notional amount of $900 million, of which $250 million was amended during the quarter. In connection with the extensions and amendments, the Company received cash of $2 million and $12 million representing the fair value of the swap and interest accrued through the date of termination for the three and the six months ended June 30, 2022, respectively.

Interest Rate Swap Agreements

The Company uses interest rate swap agreements to hedge the variability of cash flows resulting from floating interest rate borrowings. The Company designated these interest rate swap agreements as qualifying hedging instruments and accounts for them as cash flow hedges. When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of AOCI and are reclassified into Interest expense, net over the life of the underlying debt, as interest on the Company’s floating rate debt is accrued.

In the second quarter of 2022, the Company entered into multiple interest rate swap agreements with an aggregate notional amount of $250 million.

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Foreign Currency Exchange Rate Risk

The Company is exposed to certain risks relating to its ongoing business operations including foreign currency exchange rate risk. The Company uses foreign currency option contracts to mitigate the risk of a reduction in the value of earnings from its operations that use the Euro or British pound sterling as their functional currency. Additionally, the Company uses foreign currency forward contracts to mitigate exposure from variability of cash flows related to the forecasted interest and principal payments on intercompany loans. The foreign currency forward contracts generally expire within 12 months. While these derivatives are hedging the fluctuations in foreign currencies, they do not meet the requirements to be accounted for as hedging instruments.

Derivatives

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

June 30, 2022December 31, 2021
(In millions)Notional AmountFair ValueNotional AmountFair ValueBalance Sheet Caption
Derivatives designated as hedges
Assets:
Cross-currency swap agreements$1,387 $28 $— $— Other long-term assets
Liabilities:
Cross-currency swap agreements$— $— $328 $4 Other current liabilities
Cross-currency swap agreements— — 165 4 Other long-term liabilities
Interest rate swaps250 1 — — Other long-term liabilities
Derivatives not designated as hedges
Assets:
Foreign currency option contracts$215 $23 $368 $11 Other current assets
Foreign currency option contracts— — 37 1 Other long-term assets
Liabilities:
Foreign currency forward contracts$15 $— $— $— Other current liabilities

As of June 30, 2022, and December 31, 2021, the derivatives were 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.

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Derivatives designated as hedges

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

Three Months Ended June 30, 2022Six Months Ended June 30, 2022
(In millions)Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative
Gain or (Loss) Reclassified from AOCI into Net Income(1)
Gain or (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing)(1)
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative
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 net investment hedges
Cross-currency swap agreements$43 $2 $— $46 $2 $2 
Derivatives designated as cash flow hedges
Interest rate swaps$(1)$— $— $(1)$— $— 
(1) Amounts reclassified to net income are reported within Interest expense, net in the Condensed Consolidated Statements of Operations.

There were no derivative instruments recorded in the consolidated financial statements on or before June 30, 2021.

Derivatives not designated as hedges

The gains recognized in earnings for foreign currency option and forward contracts were $16 million and $24 million, of which $9 million and $15 million were unrealized, for the three and six months ended June 30, 2022, respectively. These amounts are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

8. Employee Benefit Plans

Defined Benefit Plans

In July 2021, the Company became the plan sponsor for a retirement plan in the U.K. (the “U.K. Retirement Plan”). Components of the net periodic benefit cost under the U.K. Retirement Plan were as follows:

Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Interest cost$(5)$— $(11)$— 
Expected return on plan assets14 — 29 — 
Net periodic benefit income (1)
$9 $— $18 $— 
(1) Net periodic benefit income is recorded within Other income (expense), net in the Condensed Consolidated Statements of Operations.

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

Defined Contribution Plans

The Company’s costs for qualified defined contribution plans was $4 million for the three months ended June 30, 2022 and 2021, and $8 million for the six months ended June 30, 2022 and 2021. Defined contribution costs were primarily recorded within Direct operating expenses in the Condensed Consolidated Statements of Operations.

13
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7.9. Earnings per Share

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

Three Months EndedSix Months Ended
June 30,June 30,
(Dollars in millions, shares in thousands, except per share data)2022
2021(1)
2022
2021(1)
Net income attributable to common shares$51 $11 $88 $25 
Basic weighted-average common shares116,131 114,626 115,435 114,626 
Dilutive effect of stock-based awards515 — 676 — 
Diluted weighted-average common shares116,646 114,626 116,111 114,626 
Basic earnings per share$0.44 $0.10 $0.76 $0.22 
Diluted earnings per share$0.44 $0.10 $0.76 $0.22 
(1) On August 2, 2021, the date of the spin-off, 114,626,250 shares of the common stock of GXOthe Company were distributed to XPO shareholders of record as of the record date.and began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the spin-off. For the three and six months ended June 30, 20212021.

For the three and 2020, thesethe six months ended June 30, 2022, approximately 1.8 million and 1.6 million shares, are treated as issued and outstanding for purposesrespectively, were excluded from the calculation of calculating historicaldiluted earnings per share. For periods prior to the spin-off, it is assumed that there are no dilutive equity instruments as there were no equity awards of GXO outstanding prior to the spin-off.share because their inclusion would have been anti-dilutive.

8.10. Stockholders’ Equity

The following table summarizes the changes in AOCI by component:

(In millions)Foreign Currency Translation AdjustmentsDerivative HedgesDefined Benefit PlanLess: AOCI attributable to noncontrolling interestAOCI attributable to GXO
As of March 31, 2022$(94)$— $(76)$(2)$(172)
Unrealized gain (loss), net of tax(73)— — 1 (72)
Amounts reclassified from AOCI to net income(2)— — — (2)
Other comprehensive income (loss), net of tax(75)— — 1 (74)
As of June 30, 2022$(169)$— $(76)$(1)$(246)

(In millions)Foreign Currency Translation AdjustmentsDerivative HedgesDefined Benefit PlanLess: AOCI attributable to noncontrolling interestAOCI attributable to GXO
As of December 31, 2021$(53)$— $(76)$(1)$(130)
Unrealized gain (loss), net of tax(116)— — 2 (114)
Amounts reclassified from AOCI to net income(4)— — — (4)
Other comprehensive income (loss), net of tax(120)— — 2 (118)
Deconsolidation of variable interest entity4 — — (2)2 
As of June 30, 2022$(169)$— $(76)$(1)$(246)

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(In millions)Foreign Currency Translation AdjustmentsDerivative HedgesDefined Benefit PlanLess: AOCI attributable to noncontrolling interestAOCI attributable to GXO
As of March 31, 2021$16 $(1)$(1)$2 $16 
Unrealized gain (loss), net of tax26 — — (3)23 
Amounts reclassified from AOCI to net income— — — — — 
Other comprehensive income (loss), net of tax26 — — (3)23 
As of June 30, 2021$42 $(1)$(1)$(1)$39 

(In millions)Foreign Currency Translation AdjustmentsDerivative HedgesDefined Benefit PlanLess: AOCI attributable to noncontrolling interestAOCI attributable to GXO
As of December 31, 2020$61 $— $(1)$(2)$58 
Unrealized gain (loss), net of tax(19)(1)— 1 (19)
Amounts reclassified from AOCI to net income— — — — — 
Other comprehensive income (loss), net of tax(19)(1)— 1 (19)
As of June 30, 2021$42 $(1)$(1)$(1)$39 

11. Commitments and Contingencies
We are
The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of ourits business. These proceedings may include personal injury claims arising from the transportationhandling and handlingtransportation of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.
We establish
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. We reviewThe Company reviews and adjustadjusts 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 assessthe 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, we disclosethe Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclosediscloses 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 ourmanagement’s assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe
Management of the Company believes that we haveit has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We doManagement of the Company does not believe that the ultimate resolution of any matters to which we arethe Company is presently a party will have a material adverse effect on ourits 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 ourthe Company’s financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
XPO
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 ourits operations. In the event we arethe Company is required to satisfy a legal claim outside the scope of the coverage provided by insurance, ourits financial condition, results of operations or cash flows could be negatively impacted. Effective August 2, 2021, GXO carries insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a logistics company. See Note 10—Subsequent Events for additional details.
9. Related Party
Transactions between the Company and XPO, and other non-GXO subsidiaries of XPO, are deemed related-party transactions. Related-party transactions are comprised of the following: (i) those that have been effectively settled or are expected to be settled for cash, and (ii) those which have historically not been settled and which have been or are expected to be forgiven by either party. For those that have been or are expected to be cash settled, we have recorded related-party receivables (assets) or payables (liabilities) in the Condensed Combined Balance Sheets as of June 30, 2021 and December 31, 2020. For those that have been or are expected to be forgiven, the amounts have been recorded as an adjustment of XPO Investment in the Condensed Combined Balance Sheets as of June 30, 2021 and December 31, 2020.
Allocation of General Corporate Expenses
The Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company. In addition, for purposes of preparing these Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to
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the Company. See Note 2—Basis of Presentation for a discussion of the methodology used to allocate such costs for purposes of preparing these combined financial statements.
Costs of $88 million and $157 million for the three and six months ended June 30, 2021, respectively, and costs of $67 million and $126 million for the three and six months ended June 30, 2020, respectively, have been reflected in SG&A in our Condensed Combined Statements of Operations for our allocated share of XPO’s corporate overhead. These amounts may not reflect the costs GXO would have incurred had the Company been a standalone entity during the periods presented.
Transactions with XPO and its non-GXO Subsidiaries
Revenue and costs generated from related parties for each of the three and six months ended June 30 were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2021202020212020
Revenue$3 $3 $7 $7 
Costs32 25 64 53 
Current assets include trade receivables purchased from XPO in connection with our trade receivables securitization program of $93 million and $105 million as of June 30, 2021 and December 31, 2020, respectively. These receivables were originated by XPO and are classified as financial assets within other current assets on the Condensed Combined Balance Sheets.
Balances with XPO and its non-GXO Subsidiaries
Assets and liabilities on the Condensed Combined Balance Sheets include the following related-party amounts that are expected to be cash settled as of June 30, 2021 and December 31, 2020:
(In millions)June 30, 2021December 31, 2020
Amounts due from XPO and its affiliates
Trade receivables(1)
$19 $9 
Other current assets(2)
2 2 
Other long-term assets(3)
14 53 
Amounts due to XPO and its affiliates
Trade payables(4)
36 20 
Other current liabilities(5)
4 11 
Accrued expenses(6)
2 2 
Loans payable(7)
437 486 
(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 6—Debt for further information.

10. Subsequent Events
Notes offering
In preparation for the spin-off, in July 2021, we settled our related party debt obligations with XPO, and we completed an offering of $800 million aggregate principal amount of notes, consisting of $400 million of notes due 2026 (the “2026 Notes”) and $400 million of notes due 2031 (the “2031 Notes”, and together with the 2026 Notes, the “Notes”).
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The 2026 Notes bear interest at a rate of 1.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and mature on July 15, 2026. The 2031 Notes bear interest at a rate of 2.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and mature on July 15, 2031.
The net proceeds from the sale of the Notes were used to fund a cash payment to XPO, to provide working capital and/or to pay fees, costs and expenses incurred in connection with the spin-off and related transactions.
Securitization amendment
In July 2021, we amended our existing trade receivables securitization program. The existing €400 million program is now comprised of two separate €200 million programs, one of which will continue to be available to us and one of which will be part of XPO following the spin-off. The new program expires in 2024.
UK pension transfer
In July 2021, responsibility for the assets and liabilities for the United Kingdom defined benefit pension plan was transferred from XPO to GXO. The plan will continue as a frozen plan that does not allow for new plan participants or additional benefit accruals. We provide the Trustees of the UK Defined Benefit pension plan a limited guarantee that expires no later than 2038.
Changes to legal entity structure and tax matters
In July and August 2021, we amended certain legal entity structures and transferred assets pursuant to a legal entity restructuring. As a result of these changes, we anticipate incurring one-time cash payments and non-cash tax benefits in the second half of 2021.
Distribution from XPO
On August 2, 2021, XPO completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution. XPO stockholders received 1 share of GXO common stock for every share of XPO common stock held at the close of business on the record date. GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of GXO’s common stock commenced on the NYSE under the ticker symbol “GXO.”
The spin-off was completed pursuant to the Separation and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a TSA, a TMA, an EMA and IPLA.
The Separation and Distribution Agreement contains provisions that, among other things, relate to (i) assets, liabilities and contracts to be transferred, assumed and assigned to each of GXO and XPO as part of the spin-off, (ii) cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of GXO business with GXO and financial responsibility for the obligations and liabilities of XPO’s remaining business with XPO, (iii) the allocation among GXO and XPO of rights and obligations under existing insurance policies with respect to occurrences prior to completion of the spin-off, and (iv) procedures governing the resolution of disputes, controversies or claims that may arise between GXO and XPO related to the separation or distribution.
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 will include, among others, treasury administration, employee benefits administration, information technology services, regulatory services, general administrative services and other support services. The services generally commenced on the date of the spin-off and will terminate no later than twelve months following the distribution date.
The TMA governs XPO’s and GXO’s rights, responsibilities and obligations with respect to tax matters; including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax, contests and other tax matters. GXO is generally responsible for federal, state and foreign income taxes (i) imposed
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on a separate return basis on GXO or any of its subsidiaries or (ii) imposed on a consolidated or combined return basis with respect to audit or other adjustments attributable to GXO or any of its subsidiaries, in each case, with respect to taxable periods, or portions thereof, that ended on or prior to the spin-off. The TMA provides special rules that allocate responsibility for tax liabilities arising from a failure of the spin-off transactions to qualify for tax-free treatment based on the reasons for such failure. The TMA also imposes restrictions on GXO during the two-year period following the spin-off that are intended to prevent the spin-off and certain related transactions from failing to qualify as transactions that are generally tax-free.
The EMA allocates assets, liabilities and responsibilities relating to employee compensation and benefit plans and programs and other related matters in connection with the spin-off.
The IPLA will provide the parties with reciprocal, non-exclusive licenses under certain intellectual property rights transferred to GXO and certain intellectual property rights retained by XPO in order to provide the parties freedom to operate their respective businesses.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended the(the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “target”“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. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. 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. You should read the

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 Statementsconsolidated financial statements and corresponding notes thereto included in the Company’s Annual Report on Form 10 declared effective10-K for the fiscal year ended December 31, 2021, as filed with the SEC on July 21, 2021February 17, 2022 (the “Form 10”“2021 Form 10-K”). This MD&A contains forward-looking statements. The matters discussed, and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements.this Form 10-Q.

Business Overview

GXO Logistics, Inc., together with its subsidiaries (“GXO”,GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in the logisticsan industry in North America and Europe. We provide high-value-add warehousing and distribution, order fulfillment, e-commerce and reverse logistics, and other supply chain services differentiatedpropelled by our ability to deliver technology-enabled, customized solutions at scale. Our revenue is diversified across numerous verticals and customers, including many multinational corporations.
strong secular tailwinds. 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 a growing number of cases, the management of returned products. Our customer base includes many blue-chip leaders in attractive sectors that demonstrate high growth and/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 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 led to many of our key customer relationships extending for years and growing in scope.
The most dramatic growth in secular demand in recent years has been in e-commerce 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
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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 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 determined based on actualexpected volumes and associated labor costs.

We use technology to manage advanced automation, labor productivity, safety and the complex flow of goods within sophisticated logistics environments. 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 led to many of our key customer relationships extending for years and expanding in scope.
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The Spin-OffSeparation

On August 2, 2021, we completed the separation from XPO Logistics, Inc. (together with its subsidiaries, “XPO”(“XPO”) completed the previously announced spin-off of GXO in a transaction intended to be tax free for U.S. federal income tax purposes, which was accomplished by the distribution of 100% of the outstanding common stock of GXO to XPO stockholders as of the close of business on July 23, 2021, the record date for the distribution. XPO stockholders received one share of GXO common stock for every share of XPO common stock held at the close of business on the record date. GXO is now a standalone publicly traded company, and, on August 2, 2021, regular-way trading of the common stock commenced on the New York Stock Exchange (the “NYSE”“Separation”) under the ticker symbol “GXO.”
The spin-off was completed pursuant. Prior to the Separation, and Distribution Agreement and various other agreements that govern aspects of our relationship with XPO, including, but not limited to a Tax Matters Agreement (“TMA”), an Employee Matters Agreement (“EMA”), a Transition Services Agreement (“TSA”) and an Intellectual Property License Agreement (“IPLA”). See Note 10—Subsequent Events for additional details.
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.
We believe the COVID-19 pandemic and associated impacts on economic activity had adverse effects on our results of operations andCompany’s financial condition as of and for the three and six months ended June 30, 2020, and to a lesser extent for the three and six months ended June 30, 2021, as discussed below.
Due to the evolving nature of the COVID-19 pandemic, it remains difficult to predict the extent of the impact on our industry and our business in particular. Furthermore, the extent and pace of a recovery remains 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.
We have incurred net incremental and direct costs related to COVID-19 to ensure that we meet the needs of our customers and employees; these include costs for personal protective equipment, site cleanings and enhanced employee benefits. The majority of our cost base is variable, and while we expect to continue to incur additional costs related to the pandemic, we also have the ability to continue to adjust our expenses to address significant changes in demand for our services, if necessary, as we did in 2020. These actions include reduced use of contractors, reduced employee hours, furloughs, layoffs and required use of paid time off, consistent with applicable regulations.
The totality of the actions we have taken during the pandemic, and continue to take, 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.
Basis of Presentation
The Condensed Combined Financial Statements of the Companystatements were prepared on a standalone combined basis and have beenwere derived from the consolidated financial statements and accounting records of XPO. Historically, separateOn August 2, 2021, the Company became a standalone publicly-traded company, and its financial
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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 not been prepared for the Company, and it has not operated as a standalone business separate from XPO. The combined financial statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. Significant intercompany balances and transactions between the operations of the GXO legal entities have been eliminated in the accompanying combined financial statements. All significant related party transactions between GXO and XPO have been included in these combined financial statements as components of XPO investment. We prepare our combined financial statements in accordance with generally accepted accounting principles generally accepted in the United States of America which requires us(“GAAP”).

Prior to make estimates and assumptions that impact the amounts reported and disclosed in our combined financial statements andSeparation, the accompanying notes. We prepared these 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 Combined Balance Sheets include certainCompany’s historical assets and liabilities directly attributablepresented 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 GXO, and the Combined StatementsCompany on a carryover basis.

Prior to the Separation, the historical results of Operations includeoperations included allocations of XPO costs and expenses, as described below.
including XPO’s corporate function, (“Corporate”) incurswhich 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. For purposes of the Condensed Combined Statements of Operations, anAn 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 been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which includesinclude adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs areis recorded in Sales,within Selling, general and administrative expense (“SG&A”) andexpense; Depreciation and amortization expenseexpense; and Transaction and integration costs in the Condensed CombinedConsolidated Statements of Operations. We believe

The Company’s consolidated financial statements include the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
XPO investment represents XPO’s historical investment in GXO and includes the net effects of transactions with and allocations from XPO as well as GXO’s accumulated earnings. Certain transactions between GXO and XPO, including XPO’s non-GXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalfaccounts of GXO and general financing activities.its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.
GXO has
We have a single reportable segment.

Clipper Acquisition

On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”). The Company acquired Clipper for $1,103 million, consisting of $900 million in cash and the issuance of 3,749,266 shares of GXO common stock having a value of $203 million. The Competition and Markets Authority (the “CMA”) in the U.K. is currently reviewing the Clipper Acquisition. The Company estimates that the CMA’s review of the acquisition will be completed during the second half of 2022.

In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement; (ii) the Company entered into a Term Loan; (iii) the Company entered into a Five-Year Term Loan; and (iv) the Company terminated its Bridge Term Loan agreement. For additional information regarding the financing agreements entered in connection with the Clipper Acquisition, see Note 6—Debt and Financing Arrangements.

The results of operations of Clipper are included in our consolidated financial statements from the date of acquisition. The Company recorded $80 million and $1 million of revenue and income before income taxes for both the three and six months ended June 30, 2022, respectively.
20
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Results of Operations
Three Months Ended
June 30,		Percent of RevenueSix Months Ended
June 30,		Percent of Revenue
(In millions)20212020202120202021202020212020
Revenue
$1,882 $1,405 100.0 %100.0 %$3,704 $2,845 100.0 %100.0 %
Direct operating expense1,554 1,185 82.6 %84.2 %3,074 2,388 83.0 %83.9 %
Sales, general and administrative expense177 168 9.4 %12.0 %348 310 9.4 %10.9 %
Depreciation and amortization expense95 87 5.0 %6.2 %174 163 4.7 %5.7 %
Transaction and integration costs35 25 1.9 %1.8 %53 42 1.4 %1.5 %
Restructuring costs(1)25 (0.1)%1.8 %3 25 0.1 %0.9 %
Operating income (loss)22 (85)1.2 %(6.0)%52 (83)1.4 %(2.9)%
Other (income) expense1 (1)0.1 %(0.1)%— (2)— %(0.1)%
Interest expense6 5 0.3 %0.4 %11 12 0.3 %0.4 %
Income (loss) before income taxes
15 (89)0.8 %(6.3)%41 (93)1.1 %(3.3)%
Income tax provision (benefit)1 (24)0.1 %(1.7)%10 (18)0.3 %(0.6)%
Net income (loss)
$14 $(65)0.7 %(4.6)%$31 $(75)0.8 %(2.6)%

Three Months Ended June 30,
(In millions)20222021$ Change% Change
Revenue$2,156 $1,882 $274 15 %
Direct operating expense1,775 1,554 221 14 %
Selling, general and administrative expense220 177 43 24 %
Depreciation and amortization expense77 95 (18)(19)%
Transaction and integration costs24 35 (11)(31)%
Restructuring costs (credits) and other1 (1)2 n/m
Operating income59 22 37 n/m
Other income (expense), net23 (1)24 n/m
Interest expense, net(9)(6)(3)50 %
Income before income taxes73 15 58 n/m
Income tax expense(21)(1)(20)n/m
Net income$52 $14 $38 n/m
n/m - not meaningful

Three and Six Months Ended June 30, 2021 Compared2022 compared with the Three and Six Months Ended June 30, 20202021

Revenue for the second quarter of 2021 increased 34.0% to $1.9 billion, compared with $1.4 billion for the same quarter in 2020. Revenue for the sixthree months ended June 30, 20212022, increased 30.2%by 15%, or $274 million, to $3.7$2.2 billion, compared with $2.8$1.9 billion for the same period in 2020.2021. For the three and six months ended June 30, 2021, the increase in revenue compared to the same prior-year periods primarily reflects the reduced impact2022, our North America, Asia and Pacific operations reported growth of COVID-19 in 2021. For the three22%, and six months ended June 30, 2021, our European operations reported growth of 49.1% and 43.8%, respectively, and our North American operations reported growth of 9.8% and 9.2%, respectively. Also impacting our revenue was the Kuehne + Nagel business we acquired in January 2021, which11%. The Clipper Acquisition contributed approximately 17.5 and 15.5 percentage points, respectively,6% to revenue growth in our European operations and 10.7 and 9.4 percentage points, respectively,4% to our total revenue growth for the three and six months ended June 30, 2021 compared to the same prior-year periods.2022. Foreign currency movement increasedmovements decreased revenue by approximately 7.6 and 6.6 percentage points9% for the three and six months ended June 30, 2021, respectively.2022.

Direct operating expenses are comprised ofcomprise 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 second quarter of 2021three months ended June 30, 2022 was $1.6$1.8 billion, or 82.6%82% of revenue, compared with $1.2$1.6 billion, or 84.2%83% of revenue, for the same quarterperiod in 2021. For the three months ended June 30, 2022, direct operating expenses increased by $147 million due to higher personnel and temporary labor expenses, as well as higher third-party facilities and transportation costs of 2020.$33 million.

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the three months ended June 30, 2022, increased by $43 million, to $220 million, compared with $177 million for the same period in 2021. SG&A for the three months ended June 30, 2022 increased compared with the same prior year period due to higher personnel costs, primarily for certain administrative functions, reflecting the growth in our business.

Depreciation and amortization expense for the three months ended June 30, 2022, was $77 million, compared with $95 million for the same period in 2021. The decrease was primarily due to allocated corporate charges from XPO before the Separation of $9 million and the impact of foreign currency movements. Depreciation and amortization expense included amortization of intangible assets of $13 million and $14 million for the three months ended June 30, 2022 and 2021, respectively.

Transaction and integration costs for the three months ended June 30, 2022 were $24 million and primarily related to the Clipper Acquisition. Transaction and integration costs for the three months ended June 30, 2021 were $35 million and primarily related to the Separation.

Restructuring costs (credits) and other for the three months ended June 30, 2022 and 2021 was not material.
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Other income for the three months ended June 30, 2022 was $23 million. For the three months ended June 30, 2022, pension income was $9 million and the gain on foreign currency contracts was $16 million. Other expense for the three months ended June 30, 2021 was not material.

Interest expense, net for the three months ended June 30, 2022 was $9 million compared with $6 million for the same period in 2021. For the three months ended June 30, 2022, interest expense primarily related to debt issued in the second half of 2021, debt issued in 2022, and capital lease obligations, partially offset by interest income on the cross-currency swap agreements. For the three months ended June 30, 2021, interest expense primarily related to related-party debt obligations with XPO before the Separation and capital lease obligations.

Income before income taxes for the three months ended June 30, 2022 increased by $58 million, to $73 million, compared with $15 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 contracts.

Income tax expense for the three months ended June 30, 2022 was $21 million compared with $1 million for the same period in 2021. Our effective tax rate was 29.4% for the three months ended June 30, 2022 compared with 10.2% for the same period in 2021. The change in our effective tax rate was primarily driven by an increase in pre-tax losses in certain jurisdictions for which no benefit was recognized, non-deductible transaction cost, offset by deferred true-ups.

Six Months Ended June 30,
(In millions)20222021$ Change% Change
Revenue$4,239 $3,704 $535 14 %
Direct operating expense3,523 3,074 449 15 %
Selling, general and administrative expense410 348 62 18 %
Depreciation and amortization expense153 174 (21)(12)%
Transaction and integration costs43 53 (10)(19)%
Restructuring costs and other14 3 11 n/m
Operating income96 52 44 85 %
Other income (expense), net39 — 39 n/m
Interest expense, net(13)(11)(2)18 %
Income before income taxes122 41 81 n/m
Income tax expense(32)(10)(22)n/m
Net income$90 $31 $59 n/m
n/m - not meaningful

Six Months Ended June 30, 2022 compared with the Six Months Ended June 30, 2021

Revenue for the six months ended June 30, 2022, increased by 14%, or $535 million, to $4.2 billion, compared with $3.7 billion for the same period in 2021. For the six months ended June 30, 2022, our North America, Asia and Pacific operations reported growth of 18%, and our European operations reported growth of 12%. The Clipper Acquisition contributed 3% to revenue in our European operations and 2% to total revenue for the six months ended June 30, 2022. Foreign currency movements decreased revenue by approximately 7% for the six months ended June 30, 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 six months ended June 30, 20212022, was $3.1$3.5 billion, or 83.0%83% of revenue, compared with $2.4$3.1 billion, or 83.9%83% of revenue for the same prior-year period.period in 2021. For the three and six months ended June 30, 2021, direct operating expenses decreased by approximately 1.6% and 0.9%, respectively, as a percentage of revenue, reflecting significant lower COVID-19 related costs.
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 was $177 million for the second quarter of 2021, or 9.4% of revenue, compared with $168 million, or 12.0% of revenue, for the same quarter in 2020. SG&A was $348 million for the six months ended June 30, 2021, or 9.4%2022, direct operating expenses increased by $327 million due to higher personnel and temporary labor expenses, as well as higher third-party facilities and transportation costs of revenue, compared with $310 million, or 10.9% of revenue, for the same prior year period. For the three and six months ended June 30, 2021, the decrease in SG&A as a percentage of revenue primarily reflects lower bad debt and overhead expenses.$67 million.

2124


DepreciationSG&A primarily consists of salary and amortization expensebenefits for executive and administrative functions, professional fees and legal costs. SG&A for the second quarter of 2021 was $95six months ended June 30, 2022, increased by $62 million, to $410 million, compared with $87$348 million for the same quarterperiod in 2020. 2021. SG&A for the six months increased compared with the same prior year period due to higher personnel costs, primarily for certain administrative functions, reflecting the growth in our business.

Depreciation and amortization expense for the six months ended June 30, 20212022 was $174$153 million, compared with $163$174 million for the same prior-year period.period in 2021. The increasedecrease was primarily due toa result of allocated corporate charges from XPO before the Separation of $14 million and the impact of prior capital investments associated with new contract startups. Depreciation and amortization expense included allocated corporate charges of $9 million and $7 million for the three months ended June 30, 2021 and 2020 and $14 million for both the six months ended June 30, 2021 and 2020.foreign currency movements. Depreciation and amortization expense included amortization of acquisition-related intangible assets of $14$27 million for the three months ended June 30, 2021 and 2020 and $28 million for the six months ended June 30, 2022 and 2021, and 2020.respectively.

Transaction and integration costs for the three and six months ended June 30, 2021 are2022 were $43 million and primarily related to costs related to the spin-off. For the three and six months ended June 30, 2020, transactionClipper Acquisition. Transaction and integration costs are primarily related to XPO’s previous exploration of strategic alternatives.
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. For the second quarter of 2021, we recorded a restructuring credit of $1 million and for the six months ended June 30, 2021 recorded $3were $53 million of restructuring charges,and primarily related to severance costs. the Separation.

Restructuring charges for the threecosts and six months ended June 30, 2021 included an adjustment to a previously recognized liability. For further information on our restructuring actions, see Note 5—Restructuring Charges.
Other (income) expense primarily includes pension income and expense. We recorded expense of $1 million for the second quarter of 2021 and Other (income) expense was immaterialother for the six months ended June 30, 2021.2022, were $14 million. For the three and six months ended June 30, 2020, we recorded income2022, restructuring costs and other included $6 million related to severance costs and $8 million related to the deconsolidation of $1a joint venture. Restructuring costs and other for the six months ended June 30, 2021 were $3 million and $2 million, respectively.primarily related to severance costs.
Interest expense relates to our related-party debt obligations with XPO. Interest expense
Other income for the second quarter of 2021six months ended June 30, 2022 was $6$39 million. For the six months ended June 30, 2022, pension income was $18 million compared with $5 million forand the same quarter in 2020. Interest expensegain on foreign currency contracts was $24 million. Other income for the six months ended June 30, 2021 was $11 million compared with $12 million for the same period in 2020.not material.
Our effective income tax rate was 10.2% and 27.2% in the second quarter of 2021 and 2020, respectively, and 24.9% and 20.1%
Interest expense, net for the six months ended June 30, 2022 was $13 million compared with $11 million for the same period in 2021. For the six months ended June 30, 2022, interest expense primarily related to debt issued in the second half of 2021, debt issued in 2022, and 2020, respectively.capital lease obligations, partially offset by interest income on the cross-currency swap agreements. For the six months ended June 30, 2021, interest expense primarily related to related-party debt obligations with XPO before the Separation and capital lease obligations.

Income before income taxes for the six months ended June 30, 2022 increased by $81 million, to $122 million, compared with $41 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 contracts, partially offset by the deconsolidation of a joint venture.

Income tax expense for the six months ended June 30, 2022, was $32 million compared with $10 million for the same period in 2021. Our effective tax ratesrate was 26.4% for the second quarter of 2021 and 2020 were based on forecasted full-year effective tax rates, adjustedsix months ended June 30, 2022 compared with 24.9% for discrete items that occurred within the periods presented.same period in 2021. The change in our effective tax rate for the second quarter of 2021 compared to the same quarter in 2020 was primarily driven by higher pre-tax book income which diluted the impact$5 million non-deductible transaction cost, offset by $4 million of contribution- and margin-based taxes. The effective tax rate for the six months ended June 30, 2021, was higher due to a reduction in pre-tax losses in certain jurisdictions for which no benefit can be recognized.deferred true-ups.

Liquidity and Capital Resources
Historically,
Our ability to fund our principal existing sourcesoperations and anticipated capital needs is reliant upon the generation of cash are cash generated from operations, and funding from XPO.
Treasury activities at XPO are generally centralized, while certain balances are managed locally, exceptsupplemented as noted below. To the extentnecessary by periodic utilization of our revolving credit facility. Our principal uses of cash and cash equivalents are legally owned by GXO, they are reflected in the combined financial statements.
Our European subsidiaries use a centralized notional pooling approachfuture will be to fund our operations, working capital needs, capital expenditures, repayment of borrowings and strategic business development transactions. The timing and magnitude of our start-ups can vary and may positively or negatively impact our cash management and the financing of their operations. To the extent additional financing is required, XPO, including its affiliates, funds the European subsidiaries’ operating and investing activities. This arrangement is not reflective of the manner in which the Company would have financed its operations had it been a standalone business separate from XPO during the periods presented. All cash management accounts and transactions are reflected in the Combined Balance Sheets as cash and cash equivalents and in the Combined Statements of Cash Flows as operating activities. For our European subsidiaries, none of the cash and cash equivalents or debt at the corporate level has been assigned to the Company in the Combined Financial Statements. Under the notional pooling arrangements, since there is no immediate contractual obligation for us to cover any negative cash positions of these pooling arrangements related to other members, including other XPO affiliates, no obligation or guarantee to cover any such negative cash positions has been included in the Combined Balance Sheets.
22flows.


We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.
Trade
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Debt and Financing Arrangements

Five-Year Term Loan

On May 25, 2022, we entered into a five-year unsecured Term Loan (the “Five-Year Term Loan due 2027”) that provided a $500 million unsecured term loan facility to fund the Clipper Acquisition. On May 26, 2022, we borrowed $500 million that will mature on May 26, 2027. The loan bears interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted Secured Overnight Financing Rate (SOFR), plus an applicable margin based on the Company’s credit ratings.

Delayed Draw Term Loan

On March 22, 2022, we entered into an unsecured delayed draw Term Loan (the “Delayed Draw Term Loan”) that provided a £375 million ($457 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The loans were available to us in U.S. dollars or British pounds sterling. On May 26, 2022, we borrowed in U.S. dollars a $165 million 2-year term loan tranche (the “Two-Year Term Loan due 2024”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan due 2025”) that will mature on May 26, 2024, and May 26, 2025, respectively. Loans bear interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted SOFR, plus an applicable margin based on the Company’s credit ratings.

Bridge Term Loan

On February 28, 2022, we entered into an unsecured Bridge Term Loan (the “Bridge Term Loan”) that provided a £745 million ($907 million as of June 30, 2022) unsecured term loan facility to fund the Clipper Acquisition. The commitments under the Bridge Term Loan were terminated with the effectiveness of the Five-Year Term Loan and the Delayed Draw Term Loan. No amounts were drawn under the Bridge Term Loan credit agreement.

Unsecured Notes

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 June 30, 2022.

Sales of Certain Receivables Securitization and Factoring Programs

We sell certain of our trade accounts receivablereceivables on a non-recourse basis to third-party financial institutions under various factoring agreements. We also sold certain European trade accounts receivables 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 CombinedCondensed Consolidated Statements of Cash Flows. We also selluse the sale of certain European trade accounts receivable under a securitization program described below. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.working capital.
XPO Logistics Europe SAS (“XPO Logistics Europe”), one of our wholly-owned subsidiaries, participates in a trade receivables securitization program co-arranged by three European banks (the “Purchasers”). Under the program, a wholly-owned bankruptcy-remote special purpose entity of XPO Logistics Europe sells trade receivables that originate with wholly-owned subsidiaries of XPO Logistics Europe to unaffiliated entities managed by the Purchasers. The special purpose entity is a variable interest entity and has been presented within these combined financial statements based on our control of the entity’s activities.
We account for transfers under our securitization and factoring arrangements as sales because we sell full title and ownership in the underlying receivables and control of the receivables is considered transferred. For these transfers, the receivables are removed from our Combined Balance Sheets at the date of transfer. In the securitization and factoring arrangements, our continuing involvement is limited to servicing the receivables. The fair value of any servicing assets and liabilities is immaterial. Our current trade receivables securitization program also permits us to borrow, on an unsecured basis, cash collected in a servicing capacity on previously sold receivables, which we report within short-term debt on our Combined Balance Sheets. In addition to selling trade receivables which originate with GXO, the special purpose entity also purchases trade receivables from XPO and sells assets to the Purchasers. The trade receivables which have been purchased from XPO have been reflected within Other current assets in the Combined Balance Sheets, and the related cash flows have been reflected within Purchase and sale of affiliate trade receivables, net, within investing activities in the Combined Statements of Cash Flows. See Note 2—Basis of Presentation for additional information related to our receivables securitization secured borrowing program and these borrowings.
The maximum amount of net cash proceeds available at any one time under the current program, inclusive of any unsecured borrowings, is €400 million (approximately $474 million as of June 30, 2021). As of June 30, 2021, €59 million (approximately $70 million) was available under the program, subject to having sufficient receivables available to sell to the Purchasers.
In July 2021, we amended our existing trade receivables securitization program. The existing €400 million program is now comprised of two separate €200 million programs, one of which will continue to be available to us and one of which will be available only to XPO following the spin-off. The new program expires in 2024.
2326


Information related to the trade receivables sold was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2021202020212020
Securitization programs
Receivables sold in period$474 $317 $902 $636 
Cash consideration474 317 902 636 
Factoring programs
Receivables sold in period100 176 200 422 
Cash consideration100 176 200 421 

Revolving Credit Facility
Three Months EndedSix Months Ended
June 30,June 30,
(In millions)2022202120222021
Factoring agreements
Receivables sold in period$228 $100 $457 $200 
Cash consideration228 100 456 200 
Securitization program
Receivables sold in period$— $474 $— $902 
Cash consideration— 474 — 902 
In June 2021, in preparation for the spin-off, we entered into a five-year, unsecured, multi-currency revolving credit facility (the “Revolving Credit Facility”). 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
Covenants and (iii) with respect to borrowings in Euros, the reserve-adjusted Euro Interbank Offered Rate, in each case, plus an applicable margin calculated based on GXO’s credit ratings. The availability of the Revolving Credit Facility was subject to the spin-off occurring.Compliance
The covenants in the Revolving Credit Facility, which are customary for financings of this type, limit our ability to incur indebtedness and grant liens, among other restrictions. In addition, the Revolving Credit Facility requires us to maintain a consolidated leverage ratio below a specified maximum.
There was no amount outstanding under the Revolving Credit Facility asAs of June 30, 2021.2022, 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 June 30, 20212022 and December 31, 2020:2021:
June 30,December 31,
(In millions)20212020
Total current assets$1,963 $1,836 
Total long-term assets5,105 4,712 
Total current liabilities2,009 1,738 
Total long-term liabilities2,145 1,862 

(In millions)June 30, 2022December 31, 2021$ Change% Change
Total current assets$2,256 $2,099 $157 7 %
Total long-term assets6,450 5,172 1,278 25 %
Total current liabilities2,364 2,329 35 2 %
Total long-term liabilities3,781 2,552 1,229 48 %

The increase in our assets and liabilities from December 31, 20202021 to June 30, 20212022 primarily reflects the impact ofassets acquired and liabilities assumed, as well as various debt instruments entered into in connection with the Kuehne + Nagel business acquired in January 2021.
24Clipper Acquisition.


Cash Flow Activity

Our cash flows from operating, investing and financing activities, as reflected on our Condensed CombinedConsolidated Statements of Cash Flows, are summarized as follows:
Six Months Ended June 30,
(In millions)20212020
Net cash provided by operating activities$146 $191 
Net cash used in investing activities(71)(94)
Net cash provided by (used in) financing activities(78)34 
Effect of exchange rates on cash, cash equivalents and restricted cash1 (10)
Net increase (decrease) in cash, cash equivalents and restricted cash$(2)$121 

During the six months ended June 30, 2021, we: (i) generated cash from operating activities of $146 million and (ii) received net transfers from XPO of $116 million. We used cash during this period primarily to: (i) purchase the remaining non-controlling interest in XPO Logistics Europe that we did
Six Months Ended June 30,
(In millions)20222021$ Change% Change
Net cash provided by operating activities$200 $146 $54 37 %
Net cash used in investing activities(1,003)(71)(932)n/m
Net cash provided by (used in) financing activities869 (78)947 n/m
Effect of exchange rates on cash and cash equivalents(15)1 (16)n/m
Net increase (decrease) in cash and cash equivalents$51 $(2)$53 n/m
n/m - not own for $128 million; (ii) purchase property and equipment of $119 million and (iii) make payments on debt and finance leases of $56 million.meaningful
During the six months ended June 30, 2020, we: (i) generated cash from operating activities of $191 million; (ii) received net transfers from XPO of $44 million; and (iii) received net proceeds related to secured borrowing activity of $45 million. We used cash during this period primarily to: (i) purchase property and equipment of $102 million; and (ii) make payments on debt and finance leases of $71 million.
Operating Activities

Cash flows from operating activities for the six months ended June 30, 2021 decreased2022 increased by $45$54 million compared with 2020.the same period in 2021. The decrease reflects the impact of increased use of cash for working capitalincrease was primarily due to a $59 million increase in 2021,net income, partially offset by higher net income.an $11 million decrease in non-cash items.

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Investing Activities

Investing activities used $71$1,003 million of cash for the six months ended June 30, 2021,2022, compared with $94$71 million used for the same period of 2020.2021. During the six months ended June 30, 2022, we used $874 million, net of cash received, to fund the Clipper Acquisition, used $154 million to purchase property and equipment, received $10 million in proceeds from cross-currency swap agreements, excluding accrued interest, and received $6 million from sales of property and equipment. During the six months ended June 30, 2021, we used $119 million of cash to purchase property and equipment, andreceived $34 million net cash from the Kuehne + Nagel acquisition, received $12 million net, in connection with the purchase and sale of affiliate trade receivables. During the same period in 2020, we used $102receivables, and received $2 million of cash to purchase property and equipment; received $6 million of cash from sales of property and equipment and received $2 million, net, in connection with the purchase and sale of affiliate trade receivables.equipment.

Financing Activities

Financing activities used $78generated $869 million of cash for the six months ended June 30, 2021 and generated $342022, compared with $78 million of cashused for the same period in 2020.of 2021. The primary uses of cash from financing activities for the six months ended June 30, 2021 were to purchase the remaining non-controlling interest in XPO Logistics Europe that we did not own for $128 million, $56 million used to repay debt and finance leases and $25 million from net borrowings related to our securitization program. The primary source of cash from financing activities for the six months ended June 30, 2021 was $116 million of net transfers from XPO. By comparison, the primary sources of cash from financing activities in the six months ended June 30, 20202022, were $45$898 million in proceeds from long-term debt, partially offset by $15 million repayment of debt and finance leases and $12 million in payments for employee taxes on net proceeds related to secured borrowing activity and $44 millionsettlement of net transfers from XPO.equity awards. The primary uses of cash from financing activities in the six months ended June 30, 20202021, were $71$128 million used to repayin the purchase of a noncontrolling interest, $56 million in repayments of debt and finance leases.leases, and $25 million in repayment of debt related to a trade securitization program, partially offset by $116 million of net transfers from XPO.

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, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations
As of June 30, 2021, the
The Company’s future contractual obligationscash requirements have not changed materially changed as compared with December 31, 2020,since the 2021 Form 10-K, except for the principal amount of indebtedness incurred in connection with the spin-off of $800 million and associated interest payments of $17 million per year. See Note 10—Subsequent Events for
25new term loan credit agreements described above.


additional details. We anticipate net capital expenditures to be between $225 million and $275 million in 2021, funded by cash on hand and available liquidity.
Critical Accounting Policies and Estimates
Our significant
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 which include management’s bestand estimates and judgments, are includedas previously disclosed in Note 2 to the combined financial statementsPart II, Item 8 of our Annual Report on Form 10-K 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,2021, and that 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.hereby incorporated by reference.
Recently Adopted
Accounting Pronouncements and Accounting Pronouncements Not Yet Adopted

Information related to new accounting standards is included in Note 2—1—Basis of Presentation and Significant Accounting Policies to the Condensed Combined Financial Statements.condensed consolidated financial statements.

28


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk disclosures involve forward-looking statements. Actual results could differ materially from those projected in such forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates.

Interest Rate Risk

Our long-term debt portfolio, primarilyexcluding finance leases and other debt, consists of fixed-rate instruments$800 million fixed rate and $900 million variable rate loans, complemented by a variable-rate revolving credit facility that can be drawn onfacility. In the second quarter of 2022, we entered into multiple swap agreements to convert $650 million of variable rate debt from timeSOFR-indexed to time. For any variable-rate debt, interest rate changesEURIBOR-indexed. A hypothetical 1% increase in the underlying index rates will impact future interest expense. Currently we do not hold any derivative contracts that hedgeEURIBOR would, among other things, increase our interest expense by approximately $6.5 million. We also entered into multiple swap agreements to convert $250 million of variable rate risk, however we may consider enteringUSD-denominated debt into such contractsUSD-denominated fixed rate debt. For our fixed rate notes, a 1% increase or decrease in interest rates would decrease or increase the future.fair value of our notes by approximately 4.5%.

Foreign Currency Exchange Risk

A significant proportion of our net assets and income are in non-U.S. dollar (“USD”) currencies, primarily the euroEuro (“EUR”) and British pound sterling (“GBP”). We are exposed to currency risk from potential changes in functional currency values of our foreign currency denominated assets, liabilities and cash flows. Consequently, a depreciation of the EUR or the GBP relative to the USD could have an adverse impact on our financial results.

We entered into cross-currency swap agreements to manage our foreign currency exchange risk by effectively converting a portion of the fixed-rate USD-denominated notes,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 plan to use foreign currency option 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 June 30, 2022, a uniform 10% strengthening in the value of the USD relative to the EUR would have resulted in an increase in net assets of approximately $57 million. As of June 30, 2022, a uniform 10% strengthening in the value of the USD relative to the GBP would have resulted in a decrease in net assets of approximately $48 million. These theoretical calculations assume that an instantaneous, parallel shift in exchange rates occurs, which is not consistent with the history of foreign currency markets. Fluctuations in exchange rates also affect the volume of sales or the foreign currency sales price as competitors’ services become more or less attractive. The sensitivity analysis of the impact of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of June 30, 2021.2022. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2021 were effective as of such time2022, such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries;subsidiaries and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

26
29


Changes in Internal Control over Financial Reporting

There have not been anywere no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during theour most recently completed fiscal quarter ended June 30, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

27
30


PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 8—11—Commitments and Contingencies to the Condensed Combined Financial Statementscondensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of our legal proceedings.

ITEM 1A. RISK FACTORS

There arehave been no material changes to the risk factors previously disclosed under “Risk Factors” in the 2021 Form 10,10-K and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, except as set forth below.

Risks Related to notethe Acquisition of Clipper Logistics plc.

On February 28, 2022, the Company and the board of directors of Clipper Logistics plc (“Clipper”) reached an agreement on the terms and conditions of a recommended cash and share offer to be made by GXO for the entire issued and to be issued share capital of Clipper. It was intended that the spin-off wasacquisition of Clipper would be effected by means of a Court-sanctioned scheme of arrangement (the “Scheme”). On May 24, 2022, the Company announced that the Scheme had become effective and the acquisition of Clipper had been completed following the sanction of the Scheme by the High Court of Justice in England and Wales on May 20, 2022. The acquisition of Clipper remains subject to the receipt of regulatory approval from the Competition and Markets Authority in the United Kingdom. Regulatory approval for our acquisition of Clipper may not be completed on August 2, 2021.
the currently contemplated timeline or in the currently contemplated form, or at all, and the acquisition may not achieve the intended benefits.
I
TEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
None
2831


ITEM 6. EXHIBITS

Exhibit
Number		Description
2.1*
3.1*
3.2*
4.1
4.2
4.3
10.1***
10.2*
10.3*
10.4*
10.5*+ 
10.6+
10.7*+
10.8*+
10.9+
29


Exhibit
Number		Description
10.10+ 
10.11+
10.12 +
10.13+
10.13+
10.14+
10.15+
10.16
10.17+
10.18+
10.19+
10.20+
31.1 *31.1*
31.2 *31.2*
32.1**
30


Exhibit
Number		Description
32.2**
101.INS *101.INS*Inline XBRL Instance Document.
101.SCH *101.SCH*Inline XBRL Taxonomy Extension Schema.
101.CAL *101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase.
101.DEF *101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase.
101.LAB *101.LAB*Inline XBRL Taxonomy Extension Label Linkbase.
101.PRE *101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase.
104 *104*Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
*Filed herewith.
**Furnished herewith.
+***This exhibit is a management contractExhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company will furnish supplementally copies of omitted exhibits to the Securities and Exchange Commission or compensatory plan or arrangement.its staff upon its request.
3132


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GXO LOGISTICS, INC.Logistics, Inc.
Date: August 9, 20213, 2022By:/s/ Malcolm Wilson
Malcolm Wilson
(Chief Executive Officer)
Date: August 9, 20213, 2022By:/s/ Baris Oran
Baris Oran
(Chief Financial Officer)
3233