UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 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 September 30, ~~2022~~2023


☐			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 Logistics, Inc.

(Exact name of registrant as specified in its charter)


Delaware						86-2098312
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
Two American Lane
Greenwich, Connecticut						06831
(Address of principal executive offices)						(Zip Code)

(203) 489-1287

(Registrant’s telephone number, including area ~~code)~~code

~~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 class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

GXO

New 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 Exchange Act). Yes ☐ No ☒

As of November ~~7, 2022,~~6, 2023, there were ~~118,638,739~~118,954,910 shares of the registrant’s common stock, par value $0.01 per share, outstanding.


GXO Logistics, Inc.
Form 10-Q
For the Quarterly Period Ended September 30, ~~2022~~2023
Table of Contents
						Page
Part I—Financial Information
Item 1. Financial Statements (Unaudited)						2
Condensed Consolidated Statements of Operations						2
Condensed Consolidated Statements of Comprehensive Income						3
Condensed Consolidated Balance Sheets						4
Condensed Consolidated Statements of Cash Flows						5
Condensed Consolidated Statements of Changes in Equity						6
Notes to Condensed Consolidated Financial Statements						8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations						2220
Item 3. Quantitative and Qualitative Disclosures About Market Risk						3028
Item 4. Controls and Procedures						3028
Part II—Other Information
Item 1. Legal Proceedings						3229
Item 1A. Risk Factors						3229
Item ~~2. Unregistered Sales of Equity Securities and~~ ~~Use of Proceeds~~5. Other Information						3229
Item 6. Exhibits						3330
Signatures						3431

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GXO Logistics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in millions, shares in thousands, except per share amounts)	(Dollars in millions, shares in thousands, except per share amounts)	2022		2021		2022		2021		(Dollars in millions, shares in thousands, except per share amounts)	2023		2022		2023		2022
Revenue	Revenue	$	2,287	$	1,974	$	6,526	$	5,678	Revenue	$	2,471	$	2,287	$	7,188	$	6,526
Direct operating expense	Direct operating expense	1,885		1,651		5,408		4,725		Direct operating expense	2,012		1,885		5,875		5,408
Selling, general and administrative expense	Selling, general and administrative expense	227		171		637		519		Selling, general and administrative expense	258		227		761		637
Depreciation and amortization expense	Depreciation and amortization expense	89		85		242		259		Depreciation and amortization expense	101		89		268		242
Transaction and integration costs	Transaction and integration costs	14		29		57		82		Transaction and integration costs	3		14		22		57
Restructuring costs and other	Restructuring costs and other	—		2		14		5		Restructuring costs and other	7		—		31		14
Operating income	Operating income	72		36		168		88		Operating income	90		72		231		168
Other income, net	Other income, net	17		11		56		11		Other income, net	7		17		8		56
Interest expense, net	Interest expense, net	(6)		(5)		(19)		(16)		Interest expense, net	(14)		(6)		(41)		(19)
Income before income taxes	Income before income taxes	83		42		205		83		Income before income taxes	83		83		198		205
Income tax (expense) benefit		(19)		31		(51)		21
Income tax expense										Income tax expense	(15)		(19)		(38)		(51)
Net income	Net income	64		73		154		104		Net income	68		64		160		154
Net income attributable to noncontrolling interest		(1)		(1)		(3)		(7)
Net income attributable to noncontrolling interests										Net income attributable to noncontrolling interests	(2)		(1)		(4)		(3)
Net income attributable to GXO	Net income attributable to GXO	$	63	$	72	$	151	$	97	Net income attributable to GXO	$	66	$	63	$	156	$	151

Earnings per share data
Earnings per share										Earnings per share
Basic	Basic	$	0.53	$	0.63	$	1.30	$	0.84	Basic	$	0.55	$	0.53	$	1.31	$	1.30
Diluted	Diluted	$	0.53	$	0.62	$	1.29	$	0.84	Diluted	$	0.55	$	0.53	$	1.31	$	1.29

Weighted-average common shares outstanding	Weighted-average common shares outstanding									Weighted-average common shares outstanding
Basic	Basic	118,621		114,629		116,508		114,627		Basic	118,941		118,621		118,883		116,508
Diluted	Diluted	119,065		115,529		117,107		115,527		Diluted	119,645		119,065		119,430		117,107

See accompanying ~~notes~~Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022		2023		2022
Net income	Net income	$	64	$	73	$	154	$	104	Net income	$	68	$	64	$	160	$	154
Other comprehensive loss, net of tax
Foreign currency translation loss, net of tax (expense) benefit of $(22), $(4), $(32) and $(2), respectively		$	(43)	$	(12)	$	(163)	$	(30)
Unrealized gain (loss) on cash flow hedges, net of tax (expense) benefit of $(2), $—, $(2) and $(1), respectively		9		—		9		(1)

Other comprehensive income (loss), net of tax										Other comprehensive income (loss), net of tax
Foreign currency translation loss, net of tax expense of $(9), $(22), $0 and $(32)										Foreign currency translation loss, net of tax expense of $(9), $(22), $0 and $(32)	(69)		(43)		(39)		(163)
Net unrealized gain on cash flow hedges, net of tax expense of $(1), $(2), $(1) and $(2)										Net unrealized gain on cash flow hedges, net of tax expense of $(1), $(2), $(1) and $(2)	—		9		1		9
Defined benefit plans, amortization of net loss, net of tax of $0, $0, $0 and $0										Defined benefit plans, amortization of net loss, net of tax of $0, $0, $0 and $0	1		—		2		—
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	$	(34)	$	(12)	$	(154)	$	(31)	Other comprehensive loss, net of tax	(68)		(34)		(36)		(154)
Comprehensive income	Comprehensive income	$	30	$	61	$	—	$	73	Comprehensive income	—		30		124		—
Less: Comprehensive income (loss) attributable to noncontrolling interest	Less: Comprehensive income (loss) attributable to noncontrolling interest	(1)		1		(1)		7		Less: Comprehensive income (loss) attributable to noncontrolling interest	—		(1)		3		(1)
Comprehensive income attributable to GXO	Comprehensive income attributable to GXO	$	31	$	60	$	1	$	66	Comprehensive income attributable to GXO	$	—	$	31	$	121	$	1

See accompanying ~~notes~~Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)


							September 30,		December 31,
(Dollars in millions, shares in thousands, except per share amounts)	(Dollars in millions, shares in thousands, except per share amounts)	September 30, 2022		December 31, 2021		(Dollars in millions, shares in thousands, except per share amounts)	2023		2022
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	434	$	333	Cash and cash equivalents	$	473	$	495
Accounts receivable, net of allowances of $9 and $13, respectively		1,507		1,507
Accounts receivable, net of allowance of $18 and $12						Accounts receivable, net of allowance of $18 and $12	1,661		1,647
Other current assets	Other current assets	301		259		Other current assets	332		286
Total current assets	Total current assets	2,242		2,099		Total current assets	2,466		2,428
Long-term assets	Long-term assets					Long-term assets
Property and equipment, net of $1,196 and $1,128 in accumulated depreciation, respectively		914		863
Property and equipment, net of accumulated depreciation of $1,463 and $1,297						Property and equipment, net of accumulated depreciation of $1,463 and $1,297	923		960
Operating lease assets	Operating lease assets	2,058		1,772		Operating lease assets	2,133		2,227
Goodwill	Goodwill	2,603		2,017		Goodwill	2,734		2,728
Intangible assets, net of $418 and $407 in accumulated amortization, respectively		576		257
Intangible assets, net of accumulated amortization of $507 and $456						Intangible assets, net of accumulated amortization of $507 and $456	507		570
Other long-term assets	Other long-term assets	413		263		Other long-term assets	328		306
Total long-term assets	Total long-term assets	6,564		5,172		Total long-term assets	6,625		6,791
Total assets	Total assets	$	8,806	$	7,271	Total assets	$	9,091	$	9,219
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	568	$	624	Accounts payable	$	597	$	717
Accrued expenses	Accrued expenses	952		998		Accrued expenses	975		995
Short-term borrowings and obligations under finance leases		94		34
Current debt						Current debt	26		67
Current operating lease liabilities	Current operating lease liabilities	499		453		Current operating lease liabilities	561		560
Other current liabilities	Other current liabilities	162		220		Other current liabilities	275		193
Total current liabilities	Total current liabilities	2,275		2,329		Total current liabilities	2,434		2,532
Long-term liabilities	Long-term liabilities					Long-term liabilities
Long-term debt and obligations under finance leases		1,789		927
Long-term debt						Long-term debt	1,621		1,739
Long-term operating lease liabilities	Long-term operating lease liabilities	1,699		1,391		Long-term operating lease liabilities	1,800		1,853
Other long-term liabilities	Other long-term liabilities	444		234		Other long-term liabilities	419		417
Total long-term liabilities	Total long-term liabilities	3,932		2,552		Total long-term liabilities	3,840		4,009
Commitments and contingencies (Note 12)	Commitments and contingencies (Note 12)					Commitments and contingencies (Note 12)
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,629 and 114,659 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		1		1
Preferred Stock, $0.01 par value per share; 10,000 shares authorized, 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		—		—
Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,951 and 118,728 issued and outstanding						Common Stock, $0.01 par value per share; 300,000 shares authorized, 118,951 and 118,728 issued and outstanding	1		1
Preferred Stock, $0.01 par value per share; 10,000 shares authorized, none issued and outstanding						Preferred Stock, $0.01 par value per share; 10,000 shares authorized, none issued and outstanding	—		—
Additional paid-in capital	Additional paid-in capital	2,569		2,354		Additional paid-in capital	2,593		2,575
Retained earnings	Retained earnings	277		126		Retained earnings	479		323
Accumulated other comprehensive loss		(278)		(130)
Total stockholders’ equity before noncontrolling interest		2,569		2,351
Noncontrolling interest		30		39
Accumulated Other Comprehensive Income (Loss) (“AOCIL”)						Accumulated Other Comprehensive Income (Loss) (“AOCIL”)	(289)		(254)
Total stockholders’ equity before noncontrolling interests						Total stockholders’ equity before noncontrolling interests	2,784		2,645
Noncontrolling interests						Noncontrolling interests	33		33
Total equity	Total equity	2,599		2,390		Total equity	2,817		2,678
Total liabilities and equity	Total liabilities and equity	$	8,806	$	7,271	Total liabilities and equity	$	9,091	$	9,219

See accompanying ~~notes~~Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		(In millions)	2023		2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	154	$	104	Net income	$	160	$	154
Adjustments to reconcile net income to net cash provided by operating activities	Adjustments to reconcile net income to net cash provided by operating activities					Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization expense	Depreciation and amortization expense	242		259		Depreciation and amortization expense	268		242
Stock-based compensation expense	Stock-based compensation expense	24		22		Stock-based compensation expense	25		24
Deferred tax benefit		—		(47)
Deferred tax expense (benefit)						Deferred tax expense (benefit)	(29)		—
Other	Other	(4)		(11)		Other	16		(4)
Changes in operating assets and liabilities	Changes in operating assets and liabilities					Changes in operating assets and liabilities
Accounts receivable	Accounts receivable	(22)		(118)		Accounts receivable	(23)		(22)
Other assets	Other assets	(28)		(129)		Other assets	(39)		(28)
Accounts payable	Accounts payable	(68)		(8)		Accounts payable	(69)		(68)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	18		179		Accrued expenses and other liabilities	34		18
Net cash provided by operating activities	Net cash provided by operating activities	316		251		Net cash provided by operating activities	343		316
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(239)		(180)		Capital expenditures	(205)		(239)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	22		8		Proceeds from sales of property and equipment	13		22
Acquisition of businesses, net of cash acquired	Acquisition of businesses, net of cash acquired	(874)		34		Acquisition of businesses, net of cash acquired	—		(874)
Proceeds from cross-currency swap agreements		26		—
Net proceeds from cross-currency swap agreements						Net proceeds from cross-currency swap agreements	—		26
Other	Other	9		(2)		Other	—		9
Net cash used in investing activities	Net cash used in investing activities	(1,056)		(140)		Net cash used in investing activities	(192)		(1,056)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of debt, net	Proceeds from issuance of debt, net	898		794		Proceeds from issuance of debt, net	—		898
Repayment of debt related to securitization transactions and other		—		(21)
Repayment of debt and finance leases		(23)		(64)
Purchase of noncontrolling interest		—		(128)
Net transfers to XPO Logistics, Inc.		—		(774)
Taxes paid related to net share settlement of equity awards		(12)		—
Other		—		28
Repayments of debt, net						Repayments of debt, net	(139)		—
Repayments of finance lease obligations						Repayments of finance lease obligations	(24)		(23)
Taxes paid related to stock-based compensation awards						Taxes paid related to stock-based compensation awards	(7)		(12)

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	863		(165)		Net cash provided by (used in) financing activities	(170)		863
Effect of exchange rates on cash and cash equivalents		(22)		1
Net increase (decrease) in cash and cash equivalents		101		(53)
Cash and cash equivalents, beginning of period		333		328
Cash and cash equivalents, end of period		$	434	$	275
Effect of exchange rates on cash, restricted cash and cash equivalents						Effect of exchange rates on cash, restricted cash and cash equivalents	(2)		(22)
Net (decrease) increase in cash, restricted cash and cash equivalents						Net (decrease) increase in cash, restricted cash and cash equivalents	(21)		101
Cash, restricted cash and cash equivalents, beginning of period						Cash, restricted cash and cash equivalents, beginning of period	495		333
Cash, restricted cash and cash equivalents, end of period						Cash, restricted cash and cash equivalents, end of period	$	474	$	434

Supplemental disclosure of non-cash investing and financing activities:
Cash and cash equivalents						Cash and cash equivalents	$	473	$	434
Restricted Cash (included in Other long-term assets)						Restricted Cash (included in Other long-term assets)	1		—
Total cash, restricted cash and cash equivalents						Total cash, restricted cash and cash equivalents	$	474	$	434

Non-cash investing activities:						Non-cash investing activities:
Common stock issued for acquisition	Common stock issued for acquisition	$	203	$	—	Common stock issued for acquisition	$	—	$	203

See accompanying ~~notes~~Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		AOCIL		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of June 30, 2023	118,932	$	1	$	2,587	$	413	$	(223)	$	2,778	$	33	$	2,811
Net income	—	—		—		66		—		66		2		68
Other comprehensive loss	—	—		—		—		(66)		(66)		(2)		(68)
Stock-based compensation	—	—		7		—		—		7		—		7
Vesting of stock-based compensation awards	30	—		—		—		—		—		—		—
Tax withholding on vesting of stock-based compensation awards	(11)	—		(1)		—		—		(1)		—		(1)
Balance as of September 30, 2023	118,951	$	1	$	2,593	$	479	$	(289)	$	2,784	$	33	$	2,817

Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Equity Before Noncontrolling Interest Noncontrolling Interest Total Equity
(Shares in thousands, dollars in millions) Shares Amount
Balance as of December 31, 2021 114,659 $ 1 $ — $ 2,354 $ 126 $ (130) $ 2,351 $ 39 $ 2,390
Net income — — — — 151 — 151 3 154
Other comprehensive loss — — — — — (150) (150) (4) (154)
Stock-based compensation — — — 24 — — 24 — 24
Vesting of stock compensation awards 221 — — — — — — — —
Tax withholding on vesting of stock compensation awards — — — (12) — — (12) — (12)
Common stock issued for acquisition 3,749 — — 203 — — 203 — 203
Deconsolidation of variable interest entity — — — — — 2 2 (5) (3)
Dividends — — — — — — — (3) (3)
Balance as of September 30, 2022 118,629 $ 1 $ — $ 2,569 $ 277 $ (278) $ 2,569 $ 30 $ 2,599


(Shares in thousands, dollars in millions)	Common Stock			Additional Paid-In Capital		Retained Earnings		AOCIL		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
	Shares	Amount
Balance as of December 31, 2022	118,728	$	1	$	2,575	$	323	$	(254)	$	2,645	$	33	$	2,678
Net income	—	—		—		156		—		156		4		160
Other comprehensive loss	—	—		—		—		(35)		(35)		(1)		(36)
Stock-based compensation	—	—		25		—		—		25		—		25
Vesting of stock-based compensation awards	366	—		—		—		—		—		—		—
Tax withholding on vesting of stock-based compensation awards	(143)	—		(7)		—		—		(7)		—		(7)
Dividends	—	—		—		—		—		—		(3)		(3)
Balance as of September 30, 2023	118,951	$	1	$	2,593	$	479	$	(289)	$	2,784	$	33	$	2,817

See accompanying Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Condensed Consolidated Statements of Changes in Equity

(Unaudited)

Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interest Noncontrolling Interest Total Equity
(Shares in thousands, dollars in millions) Shares Amount
Balance as of June 30, 2021 — $ — $ 2,835 $ — $ — $ 39 $ 2,874 $ 40 $ 2,914
Net income — — 2 — 70 — 72 1 73
Other comprehensive loss — — — — — (12) (12) — (12)
Stock-based compensation — — — 4 — — 4 — 4
Vesting of stock compensation awards 10 — — — — — — — —
Net transfers (to) from XPO, including separation adjustments — — (492) — — (150) (642) — (642)
Issuance of common stock and reclassification of XPO investment 114,626 1 (2,345) 2,344 — — — — —
Balance as of September 30, 2021 114,636 $ 1 $ — $ 2,348 $ 70 $ (123) $ 2,296 $ 41 $ 2,337


	Common Stock			Additional Paid-In Capital		Retained Earnings		AOCIL		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of June 30, 2022	118,610	$	1	$	2,561	$	214	$	(246)	$	2,530	$	31	$	2,561
Net income	—	—		—		63		—		63		1		64
Other comprehensive loss	—	—		—		—		(32)		(32)		(2)		(34)
Stock-based compensation	—	—		8		—		—		8		—		8
Vesting of stock compensation awards	33	—		—		—		—		—		—		—
Tax withholding on vesting of stock compensation awards	(14)	—		—		—		—		—		—		—
Balance as of September 30, 2022	118,629	$	1	$	2,569	$	277	$	(278)	$	2,569	$	30	$	2,599

(Shares in thousands, dollars in millions) Common Stock XPO Logistics, Inc. Investment Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Equity Before Noncontrolling Interest Noncontrolling Interest Total Equity
Shares Amount
Balance as of December 31, 2020 — $ — $ 2,765 $ — $ — $ 58 $ 2,823 $ 125 $ 2,948
Net income — — 27 — 70 — 97 7 104
Other comprehensive loss — — — — — (31) (31) — (31)
Stock-based compensation — — — 4 — — 4 — 4
Vesting of stock compensation awards 10 — — — — — — — —
Purchase of noncontrolling interest — — — — — — — (128) (128)
Net transfers (to) from XPO, including separation adjustments — — (447) — — (150) (597) 40 (557)
Issuance of common stock and reclassification of XPO investment 114,626 1 (2,345) 2,344 — — — — —
Other — — — — — — — (3) (3)
Balance as of September 30, 2021 114,636 $ 1 $ — $ 2,348 $ 70 $ (123) $ 2,296 $ 41 $ 2,337


	Common Stock			Additional Paid-In Capital		Retained Earnings		AOCIL		Equity Before Noncontrolling Interests		Noncontrolling Interests		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of December 31, 2021	114,659	$	1	$	2,354	$	126	$	(130)	$	2,351	$	39	$	2,390
Net income	—	—		—		151		—		151		3		154
Other comprehensive loss	—	—		—		—		(150)		(150)		(4)		(154)
Stock-based compensation	—	—		24		—		—		24		—		24
Vesting of stock compensation awards	374	—		—		—		—		—		—		—
Tax withholding on vesting of stock compensation awards	(153)	—		(12)		—		—		(12)		—		(12)
Common stock issued for acquisition	3,749	—		203		—		—		203		—		203
Deconsolidation of variable interest entity	—	—		—		—		2		2		(5)		(3)
Dividends	—	—		—		—		—		—		(3)		(3)
Balance as of September 30, 2022	118,629	$	1	$	2,569	$	277	$	(278)	$	2,569	$	30	$	2,599

See accompanying ~~notes~~Notes to Condensed Consolidated Financial Statements.

GXO Logistics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of GXO Logistics, Inc. (“GXO” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the rules of the U.S. Securities and Exchange Commission ~~(“SEC”~~(the “SEC”). Accordingly, they do not include all of the information and ~~footnotes~~notes 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 fair presentation have been included.

Operating results for the ~~three and nine months ended September 30, 2022,~~interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~

On August 2, 2021, the Company completed the separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO. On August 2, 2021, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “Condensed Consolidated Financial Statements” and have been prepared under GAAP.

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

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO. The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which include adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The majority of these allocated costs is recorded within Selling, general and administrative expense; Depreciation and amortization expense; and Transaction and integration costs in the Condensed Consolidated Statements of Operations.

2023. The Company’s Condensed Consolidated Financial Statements include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.

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, 2022 (the “2022 Form 10-K”). Certain amounts reported for prior periods have been reclassified to conform to the current period’s presentation.

The Company presents its operations as one reportable segment.

Recently Adopted Accounting Pronouncements

In ~~October 2021,~~2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” The ASU clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. On January 1, 2022, the Company adopted the guidance. The adoption of this new standard did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

~~Accounting Pronouncements Not Yet Adopted~~

~~In March 2020, the FASB issued ASU~~ 2020-04, “Reference ~~rate reform~~Rate Reform (Topic 848): Facilitation of the ~~effects~~Effects of ~~reference rate reform~~Reference Rate Reform on ~~financial reporting.~~Financial Reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate ~~reform.~~reform if certain criteria are met. The ~~amendments apply~~ASU applies 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~~In 2021, the FASB expanded the scope of the guidance to include derivatives. On March 9, 2023, the Company entered into Amendment No. 1 to its revolving credit facility replacing LIBOR-based benchmark rates with SOFR-based benchmark rates and ~~are effective upon issuance through December 31, 2022.~~other conforming changes (the “Revolving Credit Facility”). The Company ~~intends~~has transitioned its existing contracts to ~~apply this guidance when modifications of contracts that include LIBOR occur, which is~~a replacement index. ASU 2020-04 and its amendments did not ~~expected to~~ have a material impact on the Company’s Condensed Consolidated Financial Statements.

2. Revenue Recognition

Revenue disaggregated by geographical area was as follows:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022		2023		2022
United Kingdom	United Kingdom	$	890	$	680	$	2,371	$	1,847	United Kingdom	$	958	$	890	$	2,695	$	2,371
United States	United States	709		599		2,075		1,734		United States	711		709		2,117		2,075
France	France	171		181		530		551		France	207		171		626		530
Netherlands	Netherlands	175		159		508		464		Netherlands	216		175		610		508
Spain	Spain	117		117		360		358		Spain	133		117		396		360
Italy										Italy	97		81		279		243
Other	Other	225		238		682		724		Other	149		144		465		439
Total	Total	$	2,287	$	1,974	$	6,526	$	5,678	Total	$	2,471	$	2,287	$	7,188	$	6,526

The Company’s revenue can also be disaggregated by ~~various verticals, reflecting our customers’ principal~~the customer’s primary industry. Revenue disaggregated by ~~industries~~industry was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Omnichannel retail	$	1,051	$	919	$	3,041	$	2,618
Technology and consumer electronics	360		338		1,081		963
Food and beverage	362		335		1,004		1,009
Industrial and manufacturing	263		275		803		807
Consumer packaged goods	231		227		689		663
Other	204		193		570		466
Total	$	2,471	$	2,287	$	7,188	$	6,526

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2022 2021 2022 2021
Omnichannel retail $ 919 $ 769 $ 2,618 $ 2,240
Food and beverage 335 361 1,009 972
Technology and consumer electronics 338 270 963 749
Industrial and manufacturing 275 244 807 743
Consumer packaged goods 227 202 663 572
Other 193 128 466 402
Total $ 2,287 $ 1,974 $ 6,526 $ 5,678
Contract Assets and Liabilities

Contract assets consist of two components, customer acquisition costs and costs to fulfill a contract. Contract assets are amortized to Direct operating expense in the Condensed Consolidated Statements of Operations over the contract term. Contract liabilities represent the Company’s obligation to transfer services to a customer for which the Company has received consideration or the amount is due from the customer.

~~Contract Balances~~The contract asset and contract liability balances from contracts with customers were as follows:

(In millions) September 30, 2022 December 31, 2021
Contract assets(1)
$ 177 $ 147
Contract liabilities(2)
273 220

~~(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.~~


	September 30,		December 31,
(In millions)	2023		2022
Contract assets included in:
Other current assets	$	13	$	25
Other long-term assets	161		165
Total contract assets	$	174	$	190
Contract liabilities included in:
Other current liabilities	$	183	$	154
Other long-term liabilities	114		134
Total contract liabilities	$	297	$	288

Revenue ~~recognized~~ included the following:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022		2023		2022
Amounts included in the beginning of year contract liability balance		$	12	$	3	$	83	$	68
Amounts included in the beginning-of-year contract liability balance										Amounts included in the beginning-of-year contract liability balance	$	11	$	12	$	109	$	83

Remaining Performance Obligations

As of September 30, ~~2022,~~2023, the fixed consideration component of the Company’s remaining performance ~~obligations~~obligation was approximately ~~$3.0~~$3.4 billion, and the Company expects to recognize approximately ~~75%~~72% of that amount over the next three years and the remainder thereafter. The Company estimates remaining performance obligations at a point in time, and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.

~~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 Clipper Acquisition was subject to review by the Competition and Markets Authority in the United Kingdom (the “CMA”). On October 4, 2022, the CMA approved the Clipper Acquisition.

The Company incurred acquisition and integration costs related to the Clipper Acquisition of $7 million and $41 million for the three and nine months ended September 30, 2022, respectively. These costs 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 Delayed Draw Term Loan; (iii) the Company entered into a Five-Year Term Loan; and (iv) the Company terminated its Bridge Term Loan. For additional information regarding the financing agreements entered into in connection with the Clipper Acquisition, see Note 7. Debt and Financing Arrangements.

The Company included Clipper’s results of operations from the date of acquisition. For the three and nine months ended September 30, 2022, the Company recorded $239 million and $319 million of revenue, respectively, and $— million and $1 million of income before income taxes, respectively.

The Company accounted for the Clipper 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.

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


~~(In millions)~~
~~ASSETS~~
~~Current assets~~
~~Cash and cash equivalents~~	$	26
~~Accounts receivable~~	~~146~~
~~Other current assets~~	63
~~Total current assets~~	~~235~~
~~Long-term assets~~
~~Property and equipment~~	83
~~Operating lease assets~~	~~214~~
~~Intangible assets(1)~~	~~392~~
~~Other long-term assets~~	20
~~Total long-term assets~~	~~709~~
~~Total assets~~	$	~~944~~
~~LIABILITIES~~
~~Current liabilities~~
~~Accounts payable~~	$	87
~~Accrued expenses~~	~~104~~
~~Short-term borrowings and obligations under finance leases~~	54
~~Current operating lease liabilities~~	37
~~Other current liabilities~~	45
~~Total current liabilities~~	~~327~~
~~Long-term liabilities~~
~~Long-term debt and obligations under finance leases~~	10
~~Long-term operating lease liabilities~~	~~170~~
~~Other long-term liabilities~~	~~118~~
~~Total long-term liabilities~~	~~298~~
~~Total liabilities~~	$	~~625~~
~~Net assets purchased~~	$	~~319~~
~~Cash paid~~	$	~~900~~
~~Common stock issued(2)~~	~~203~~
~~Purchase price paid~~	$	~~1,103~~
~~Goodwill recorded(3)~~	$	~~784~~

~~(1) The Company acquired $392 million of intangible assets comprised of customer relationships and trade names, with weighted-average useful lives of 15 years.~~

~~(2) Represents the fair value of the Company’s common stock on the acquisition date.~~

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 the 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.

The following unaudited pro forma information presents the Company’s results of operations as if the Clipper Acquisition 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 expenses 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 if the acquisition had been completed as of January 1, 2021.

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2022 2021 2022 2021
Revenue $ 2,287 $ 2,253 $ 6,982 $ 6,489
Income before income taxes 83 42 236 80

~~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 and Other~~

~~Restructuring~~

The Company engages in restructuring actions as part of its ongoing efforts to best use its resources and infrastructure. These actions generally include severance and facility-related costs and are intended to improve efficiency and profitability.

~~The restructuring liability rollforward was as follows:~~


~~(In millions)~~
~~Balance as of December 31, 2021~~	$	3
~~Charges incurred~~	6
~~Payments~~	~~(7)~~

~~Balance as of September 30, 2022~~	$	2

~~The remaining restructuring liability at September 30, 2022 was primarily related 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.~~

5.3. Leases

The Company has operating ~~and finance~~ leases for real estate, warehouse equipment, trucks, trailers, containers and material handling equipment. In addition, the Company has finance leases for warehouse equipment.

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


							September 30,		December 31,
(In millions)	(In millions)	September 30, 2022		December 31, 2021		(In millions)	2023		2022
Operating leases:	Operating leases:					Operating leases:
Operating lease assets	Operating lease assets	$	2,058	$	1,772	Operating lease assets	$	2,133	$	2,227

Current operating lease liabilities	Current operating lease liabilities	$	499	$	453	Current operating lease liabilities	$	561	$	560
Long-term operating lease liabilities	Long-term operating lease liabilities	1,699		1,391		Long-term operating lease liabilities	1,800		1,853
Total operating lease liabilities	Total operating lease liabilities	$	2,198	$	1,844	Total operating lease liabilities	$	2,361	$	2,413

Finance leases:	Finance leases:					Finance leases:
Property and equipment, net	Property and equipment, net	$	123	$	155	Property and equipment, net	$	111	$	123

Short-term obligations under finance leases		$	35	$	34
Long-term obligations under finance leases		98		133
Current debt						Current debt	$	26	$	35
Long-term debt						Long-term debt	91		97
Total finance lease liabilities	Total finance lease liabilities	$	133	$	167	Total finance lease liabilities	$	117	$	132

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


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Operating leases:
Operating lease cost	$	163	$	187	$	561	$	527
Short-term lease cost	78		24		170		69
Variable lease cost	36		31		93		73
Total operating lease cost (1)	$	277	$	242	$	824	$	669
Finance leases:
Amortization of leases	$	10	$	5	$	23	$	23
Interest expense on lease liabilities	1		1		3		4
Total finance lease cost	$	11	$	6	$	26	$	27
Total operating and finance lease cost	$	288	$	248	$	850	$	696

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2022 2021 2022 2021
Operating leases:
Operating lease cost $ 187 $ 161 $ 527 $ 490
Short-term lease cost 24 20 69 57
Variable lease cost 31 18 73 55
Total operating lease cost $ 242 $ 199 $ 669 $ 602
Finance leases:
Amortization of leased assets $ 5 $ 8 $ 23 $ 25
Interest expense on lease liabilities 1 2 4 4
Total finance lease cost $ 6 $ 10 $ 27 $ 29
Total operating and finance lease cost $ 248 $ 209 $ 696 $ 631
(1) Operating lease cost is primarily included in Direct operating expense in the Condensed Consolidated Statements of Operations.

Supplemental cash flow information was as follows:

Nine Months Ended September 30,
(In millions) 2022 2021
Leased assets obtained in exchange for new operating lease liabilities, including $207 and $281 from an acquisition in 2022 and 2021, respectively $ 911 $ 792
Leased assets obtained in exchange for new finance lease liabilities, including $16 and $23 from an acquisition in 2022 and 2021, respectively 18 39


	Nine Months Ended September 30,
(In millions)	2023		2022
Leased assets obtained in exchange for new operating lease liabilities, including $207 from an acquisition in 2022	$	389	$	911
Leased assets obtained in exchange for new finance lease liabilities, including $16 from an acquisition in 2022	8		18

1311

~~6. Goodwill~~

~~The following table presents the changes in goodwill for the period:~~


~~(In millions)~~
~~Balance as of December 31, 2021~~	$	~~2,017~~
~~Acquisition(1)~~	~~784~~
~~Foreign exchange translation~~	~~(198)~~
~~Balance as of September 30, 2022~~	$	~~2,603~~

~~(1)Any change in the goodwill amounts resulting from foreign currency translations are presented as “Foreign exchange translation.”~~

7.4. Debt and Financing Arrangements

The following table summarizes the carrying value of ~~our~~ debt:

(In millions)
Rate(1)
September 30, 2022 December 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 2024 4.76% 165 —
Three-Year Term Loan due 2025(4)
4.76% 234 —
Five-Year Term Loan due 2027(4)
4.89% 499 —
Finance leases and other Various 192 168
Total debt and obligations under finance leases $ 1,883 $ 961
Less: Short-term borrowings and obligations under finance leases 94 34
Total long-term debt and obligations under finance leases $ 1,789 $ 927


			September 30,		December 31,
(In millions)	Rate (1)		2023		2022
1.65% Unsecured notes due 2026 (2)	1.65	%	$	398	$	397
2.65% Unsecured notes due 2031 (3)	2.65	%	397		397
Two-Year Term Loan due 2024 (4)	—	%	—		115
Three-Year Term Loan due 2025 (5)	6.54	%	235		234
Five-Year Term Loan due 2027 (6)	6.67	%	499		499
Finance leases and other	Various		118		164
Total debt			1,647		1,806
Less: Current debt			26		67
Total Long-term debt			$	1,621	$	1,739

(1) Interest rate as of September 30, ~~2022.~~2023.

(2) Net of unamortized debt issuance costs ~~and discount~~ of $3$2 million as of September 30, ~~2022~~2023, and $3 million as of December 31, ~~2021.~~2022.

(3) Net of unamortized debt issuance costs ~~and discount~~ of $4$3 million as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

(4) Repaid in the second quarter of 2023.

(5) Net of unamortized debt issuance costs of $1 million as of December 31, 2022.

(6) Net of unamortized debt issuance costs of $1 million as of September 30, 2023 and December 31, 2022.

~~Five-Year Term Loan~~

On May 25, 2022, the Company entered into a five-year unsecured Term Loan (the “Five-Year Term Loan”) that provided a $500 million unsecured term loan facility to fund the Clipper Acquisition. On May 26, 2022, the Company borrowed $500 million that will mature on May 26, 2027. The loan bears interest at a fluctuating 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 unsecured term loan facility to fund the Clipper Acquisition. The loan was available to the Company in U.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”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan”) 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 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.

~~Revolving Credit Facility~~

In 2021, the Company entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”). The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit. No amounts were outstanding under the Revolving Credit Facility as of September 30, 2022 or December 31, 2021.

~~Sales of Certain Receivables~~Factoring Programs

The Company sells certain of its trade ~~accounts~~ receivables on a non-recourse basis to third-party financial institutions under various factoring agreements. ~~The Company also sold certain European trade accounts 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 the Condensed Consolidated Statements of Cash Flows. ~~The Company uses the sale of certain receivables to help manage its working capital.~~

Information related to the trade receivables sold was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2023		2022		2023		2022
Receivables sold in period	$	288	$	259	$	820	$	716
Cash consideration	286		258		815		714
Net cash provided by operating cash flows (1)	27		18		27		16

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2022 2021 2022 2021
Factoring agreements
Receivables sold in period $ 259 $ 132 $ 716 $ 331
Cash consideration 258 132 714 331
Securitization program
Receivables sold in period $ — $ 418 $ — $ 1,320
Cash consideration — 418 — 1,320
(1) The nine months ended September 30, 2022, includes $134 million of cash provided by factoring program, reduced by $118 million of cash used in the securitization program that was terminated in the first quarter of 2022.

Covenants and Compliance

The covenants in the ~~Revolving Credit Facility, the Five-Year Term Loan~~unsecured notes, term loans and ~~the Delayed Draw Term Loan,~~revolving credit facilities, which are customary for financings of this type, limit the Company’s ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require the Company to maintain a consolidated leverage ratio below a specified maximum.

As of September 30, ~~2022,~~2023, the Company was in compliance with the covenants contained in its debt and financing arrangements.

5. 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~~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 September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, due to their short-term nature.

Debt

The fair value of debt was as follows:


			September 30, 2022				December 31, 2021						September 30, 2023				December 31, 2022
(In millions)	(In millions)	Level	Fair Value		Carrying Value		Fair Value		Carrying Value		(In millions)	Level	Fair Value		Carrying Value		Fair Value		Carrying Value
1.65% Unsecured notes due 2026	1.65% Unsecured notes due 2026	2	$	329	$	397	$	391	$	397	1.65% Unsecured notes due 2026	2	$	353	$	398	$	342	$	397
2.65% Unsecured notes due 2031	2.65% Unsecured notes due 2031	2	284		396		394		396		2.65% Unsecured notes due 2031	2	303		397		294		397
Two-Year Term Loan due 2024	Two-Year Term Loan due 2024	2	165		165		—		—		Two-Year Term Loan due 2024	2	—		—		115		115
Three-Year Term Loan due 2025	Three-Year Term Loan due 2025	2	235		234		—		—		Three-Year Term Loan due 2025	2	233		235		234		234
Five-Year Term Loan due 2027	Five-Year Term Loan due 2027	2	500		499		—		—		Five-Year Term Loan due 2027	2	495		499		499		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 and $165 million were amended during the second and third quarters of 2022, respectively. In connection with the extensions and amendments, the Company received cash of $16 million and $28 million representing the fair value of the ~~swap plus interest accrued through~~Company’s derivative instruments and the ~~date of termination for~~related notional amounts was as follows:


	September 30, 2023
(In millions)	Notional		Derivative Assets (1)		Derivative Liabilities (2)
Designated as hedges:
Cross-currency swap agreements	$	1,337	$	26	$	14
Interest rate swaps (3)	250		9		—
Not designated as hedges:
Foreign currency option contracts	$	424	$	16	$	—
Foreign currency forward contracts	58		—		—

(1) Derivative assets are included in Other current assets and Other long-term assets in the ~~three~~Condensed Consolidated Balance Sheets.

(2) Derivative liabilities are included in Other current liabilities and ~~nine months ended September 30, 2022, respectively.~~Other long-term liabilities in the Condensed Consolidated Balance Sheets.

(3) In ~~November 2022,~~June 2023, the Company amended ~~certain fixed-to-fixed cross-currency~~one interest rate swap, ~~agreements~~with a notional amount of $125 million, scheduled to mature in 2027 to ~~2026, with an~~2024.

1613

~~aggregate notional amount of $322 million, the amendments were not material to~~


	December 31, 2022
(In millions)	Notional		Derivative Assets (1)		Derivative Liabilities (2)
Designated as hedges:
Cross-currency swap agreements	$	1,337	$	22	$	13
Interest rate swaps	250		9		—
Not designated as hedges:
Foreign currency option contracts	$	354	$	—	$	5
Foreign currency forward contracts	3		—		—

(1) Derivative assets are included in Other current assets and Other long-term assets in the Condensed Consolidated ~~Financial Statements.~~Balance Sheets.

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

~~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 Accumulated Other Comprehensive Income (“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.

~~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 values of derivative instruments and the related notional amounts were as follows:~~

September 30, 2022 December 31, 2021
(In millions) Notional Amount Fair Value Notional Amount Fair Value Balance Sheet Caption
Derivatives designated as hedges
Assets:
Cross-currency swap agreements $ 1,387 $ 103 $ — $ — Other long-term assets
Interest rate swaps 250 11 — — Other long-term assets
Liabilities:
Cross-currency swap agreements $ — $ — $ 328 $ 4 Other current liabilities
Cross-currency swap agreements — — 165 4 Other long-term liabilities
Derivatives not designated as hedges
Assets:
Foreign currency option contracts $ 105 $ 18 $ 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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.~~

~~Derivatives designated as hedges~~

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


		Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022							Three Months Ended September 30, 2023						Nine Months Ended September 30, 2023
(In millions)	(In millions)	Amount of Gain Recognized in Other Comprehensive Income on Derivatives		Gain Reclassified from AOCI into Net Income(1)		Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing)(1)		Amount of Gain Recognized in Other Comprehensive Income on Derivatives		Gain Reclassified from AOCI into Net Income(1)		Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing)(1)		(In millions)	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)		Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges
Derivatives designated as net investment hedges:														Derivatives designated as net investment hedges:
Cross-currency swap agreements	Cross-currency swap agreements	$	90	$	—	$	1	$	136	$	2	$	3	Cross-currency swap agreements	$	36	$	(3)	$	1	$	2	$	(3)	$	2
Derivatives designated as cash flow hedges
Derivatives designated as cash flow hedges:														Derivatives designated as cash flow hedges:
Interest rate swaps	Interest rate swaps	$	12	$	—	$	—	$	11	$	—	$	—	Interest rate swaps	$	1	$	—	$	—	$	2	$	—	$	—

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


		Three Months Ended September 30, 2021						Nine Months Ended September 30, 2021							Three Months Ended September 30, 2022						Nine Months Ended September 30, 2022
(In millions)	(In millions)	Amount of Gain Recognized in Other Comprehensive Income on Derivatives		Gain Reclassified from AOCI into Net Income(1)		Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing)(1)		Amount of Gain Recognized in Other Comprehensive Income on Derivatives		Gain Reclassified from AOCI into Net Income(1)		Gain Recognized in Net Income on Derivatives (Excluded from effectiveness testing)(1)		(In millions)	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)		Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative		Gain (Loss) Reclassified from AOCIL into Net Income (1)		Gain (Loss) Recognized in Net Income on Derivative (Excluded from effectiveness testing) (1)
Derivatives designated as net investment hedges
Derivatives designated as net investment hedges:														Derivatives designated as net investment hedges:
Cross-currency swap agreements	Cross-currency swap agreements	$	11	$	1	$	1	$	11	$	1	$	1	Cross-currency swap agreements	$	90	$	—	$	1	$	136	$	2	$	3
Derivatives designated as cash flow hedges:														Derivatives designated as cash flow hedges:
Interest rate swaps														Interest rate swaps	$	12	$	—	$	—	$	11	$	—	$	—

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

Derivatives ~~not designated~~Not Designated as ~~hedges~~Hedges

Gains and losses recognized in Other income, net in the Condensed Consolidated Statements of Operations for foreign currency options and forward contracts were as follows:


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

(In millions)	2023		2022		2023		2022
Realized foreign currency contracts gain (loss)	$	(3)	$	10	$	(9)	$	19
Unrealized foreign currency contracts gain (loss)	8		(1)		12		14
Total foreign currency gain recognized in net income	$	5	$	9	$	3	$	33

Three Months Ended Nine Months Ended
September 30, September 30,
(In millions) 2022 2021 2022 2021
Realized gain $ 10 $ — $ 19 $ —
Unrealized gain (loss) (1) 1 14 1
Total gain recognized in net income $ 9 $ 1 $ 33 $ 1

6. Stockholders’ Equity

The following tables summarize the changes in AOCIL by component:


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCIL attributable to noncontrolling interest		AOCIL attributable to GXO
As of June 30, 2023	$	(119)	$	8	$	(111)	$	(1)	$	(223)
Foreign currency translation loss	(98)		—		—		2		(96)
Unrealized gain on hedges, net of tax	27		—		—		—		27
Amounts reclassified from AOCIL to net income	2		—		1		—		3
Other comprehensive income (loss), net of tax	(69)		—		1		2		(66)
As of September 30, 2023	$	(188)	$	8	$	(110)	$	1	$	(289)


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCIL attributable to noncontrolling interest		AOCIL attributable to GXO
As of December 31, 2022	$	(149)	$	7	$	(112)	$	—	$	(254)
Foreign currency translation loss	(41)		—		—		1		(40)
Unrealized gain on hedges, net of tax	1		1		—		—		2
Amounts reclassified from AOCIL to net income	1		—		2		—		3
Other comprehensive income (loss), net of tax	(39)		1		2		1		(35)

As of September 30, 2023	$	(188)	$	8	$	(110)	$	1	$	(289)


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCIL attributable to noncontrolling interest		AOCIL attributable to GXO
As of June 30, 2022	$	(169)	$	—	$	(76)	$	(1)	$	(246)
Foreign currency translation loss	(111)		—		—		2		(109)
Unrealized gain on hedges, net of tax	69		9		—		—		78
Amounts reclassified from AOCIL to net income	(1)		—		—		—		(1)
Other comprehensive income (loss), net of tax	(43)		9		—		2		(32)
As of September 30, 2022	$	(212)	$	9	$	(76)	$	1	$	(278)

1815


(In millions)	Foreign Currency Translation Adjustments		Cash Flow Hedges		Defined Benefit Plan		Less: AOCIL attributable to noncontrolling interest		AOCIL attributable to GXO
As of December 31, 2021	$	(53)	$	—	$	(76)	$	(1)	$	(130)
Foreign currency translation loss	(260)		—		—		4		(256)
Unrealized gain on hedges, net of tax	102		9		—		—		111
Amounts reclassified from AOCIL to net income	(5)		—		—		—		(5)
Other comprehensive income (loss), net of tax	(163)		9		—		4		(150)
Deconsolidation of variable interest entity	4		—		—		(2)		2
As of September 30, 2022	$	(212)	$	9	$	(76)	$	1	$	(278)

7. Employee Benefit Plans

Defined Benefit Plans

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


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022		2023		2022
Interest cost	Interest cost	$	(5)	$	(5)	$	(16)	$	(5)	Interest cost	$	(11)	$	(5)	$	(30)	$	(16)
Expected return on plan assets	Expected return on plan assets	12		15		41		15		Expected return on plan assets	14		12		38		41
Net periodic benefit income(1)		$	7	$	10	$	25	$	10
Amortization of net loss										Amortization of net loss	(1)		—		(2)		—
Net periodic pension income (1)										Net periodic pension income (1)	$	2	$	7	$	6	$	25

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

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

Defined Contribution Plans

The ~~Company’s costs for qualified~~Company has defined contribution retirement plans ~~were $4 million~~ for ~~both~~its U.S. employees and employees of certain foreign subsidiaries. The Company’s contributions for the three months ended September 30, 2023 and 2022, ~~and 2021,~~were $15 million and $12 million, respectively, and for ~~both~~ the nine months ended September 30, 2023 and 2022 were $47 million and ~~2021.~~$40 million, respectively. Defined contribution costs were primarily recorded ~~within~~in Direct operating ~~expenses~~expense in the Condensed Consolidated Statements of Operations.

~~10. Earnings Per Share~~8. Restructuring Costs and Other

~~The computations of basic~~Restructuring costs and ~~diluted earnings per share were as follows:~~other are primarily related to severance, including projects to optimize finance, human resources and information technology functions, and are not associated with customer attrition.

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in millions, shares in thousands, except per share data) 2022
2021(1)
2022
2021(1)
Net income attributable to common shares $ 63 $ 72 $ 151 $ 97
Basic weighted-average common shares 118,621 114,629 116,508 114,627
Dilutive effect of stock-based awards 444 900 599 900
Diluted weighted-average common shares 119,065 115,529 117,107 115,527
Basic earnings per share $ 0.53 $ 0.63 $ 1.30 $ 0.84
Diluted earnings per share $ 0.53 $ 0.62 $ 1.29 $ 0.84
Antidilutive shares excluded from diluted weighted-average common shares 2,013 — 1,735 —

~~(1) On August 2, 2021, 114,626,250 shares~~For the three months ended September 30, 2023, Restructuring costs and other totaled $7 million including $6 million related to severance charges, primarily from the exit of ~~common stock of~~non-core businesses in Asia. For the ~~Company were distributed and began regular-way trading. This share amount is utilized for the calculation of basic and diluted earnings per share for three and~~ nine months ended September 30, ~~2021.~~2023, Restructuring costs and other totaled $31 million, including $24 million related to severance charges and $7 million related to non-cash impairment charges.

1916

~~11. Stockholders’ Equity~~The following is a roll forward of the restructuring liability, which is included in Other current liabilities in the Condensed Consolidated Balance Sheets:


(In millions)
Balance as of December 31, 2022	$	13
Charges incurred	24
Payments	(26)
Balance as of September 30, 2023	$	11

The remaining restructuring liability at September 30, 2023 primarily relates to severance payments and is expected to be substantially paid within the next 12 months.

9. Income Taxes

The effective tax rate was 17.9% for the three months ended September 30, 2023, compared with 22.5% for the same period in 2022. The effective tax rate was 19.1% for the nine months ended September 30, 2023, compared with 24.7% for the same period in 2022. The decrease in our effective tax rate for the three months was primarily driven by a tax benefit related to return-to-provision true-up adjustments. The decrease in our effective tax rate for the nine months was primarily driven by a tax benefit related to valuation allowance release.

As of September 30, 2023 and December 31, 2022, the Company had valuation allowances of $36 million and $44 million on its deferred income tax asset, respectively.

10. Goodwill

The following table ~~summarizes~~presents the changes in ~~AOCI by component:~~Goodwill for the nine months ended September 30, 2023:


(In millions)
Balance as of December 31, 2022	$	2,728
Acquisition (1)	44
Impact of foreign exchange translation (2)	(38)
Balance as of September 30, 2023	$	2,734

(1) Represents the finalization of the purchase price allocation for the Clipper acquisition. See Note 11 — Acquisition for additional information.

(2) Changes to goodwill amounts resulting from foreign currency translation after the acquisition date are presented as the impact of foreign exchange translation.

(In millions) Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
Balance as of June 30, 2022 $ (169) $ — $ (76) $ (1) $ (246)
Foreign currency translation loss (111) — — 2 (109)
Unrealized gain on hedges, net of tax 69 9 — — 78
Amounts reclassified from AOCI to net income (1) — — — (1)
Other comprehensive income (loss), net of tax (43) 9 — 2 (32)
Balance as of September 30, 2022 $ (212) $ 9 $ (76) $ 1 $ (278)
As of September 30, 2023, and December 31, 2022, there were no accumulated goodwill impairment losses.

(In millions) Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
Balance as of December 31, 2021 $ (53) $ — $ (76) $ (1) $ (130)
Foreign currency translation loss (260) — — 4 (256)
Unrealized gain on hedges, net of tax 102 9 — — 111
Amounts reclassified from AOCI to net income (5) — — — (5)
Other comprehensive income (loss), net of tax (163) 9 — 4 (150)
Deconsolidation of variable interest entity 4 — — (2) 2
Balance as of September 30, 2022 $ (212) $ 9 $ (76) $ 1 $ (278)

11. Acquisition

(In millions) Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
Balance as of June 30, 2021 $ 42 $ (1) $ (1) $ (1) $ 39
Unrealized loss, net of tax (10) — — — (10)
Amounts reclassified from AOCI to net income (2) — — — (2)
Other comprehensive loss, net of tax (12) — — — (12)
Transfers to XPO, net of tax (68) — (82) $ — $ (150)
Balance as of September 30, 2021 $ (38) $ (1) $ (83) $ (1) $ (123)
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 $1,106 million, consisting of $902 million in cash and the issuance of 3,757,657 shares of GXO common stock with a value of $204 million.

(In millions) Foreign Currency Translation Adjustments Cash Flow Hedges Defined Benefit Plan Less: AOCI attributable to noncontrolling interest AOCI attributable to GXO
Balance as of December 31, 2020 $ 61 $ — $ (1) $ (2) $ 58
Unrealized loss, net of tax (28) (1) — — (29)
Amounts reclassified from AOCI to net income (2) — — — (2)
Other comprehensive loss, net of tax (30) (1) — — (31)
Transfers to (from) XPO, net of tax (69) — (82) 1 $ (150)
Balance as of September 30, 2021 $ (38) $ (1) $ (83) $ (1) $ (123)
The Company accounted for the Clipper 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 value using valuation techniques including income, cost and market approaches.

2017

The following table summarizes the final fair values of identifiable assets acquired and liabilities assumed at the acquisition date:


(In millions)
ASSETS
Current assets
Cash and cash equivalents	$	26
Accounts receivable	143
Other current assets	67
Total current assets	236
Long-term assets
Property and equipment	80
Operating lease assets	219
Intangible assets (1)	392
Other long-term assets	29
Total long-term assets	720
Total assets	$	956
LIABILITIES
Current liabilities
Accounts payable	$	81
Accrued expenses	96
Current debt	55
Current operating lease liabilities	43
Other current liabilities	56
Total current liabilities	331
Long-term liabilities
Long-term debt	10
Long-term operating lease liabilities	176
Other long-term liabilities	173
Total long-term liabilities	359
Total liabilities	$	690
Net assets purchased	$	266
Cash paid	$	902
Common stock issued (2)	204
Purchase price paid	$	1,106
Goodwill recorded (3)	$	840

(1) The Company acquired $392 million of intangible assets, comprised of customer relationships and trade names, with weighted-average useful lives of 15 years.

(2) Represents the fair value of the Company’s common stock issued.

(3) 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 United Kingdom and Ireland reporting unit and was primarily attributed to anticipated synergies. The Company does not expect the goodwill recognized in connection with the Clipper Acquisition to be deductible for income tax purposes.

12. Commitments and Contingencies

The Company is involved, and will continue to be involved, in numerous legal proceedings arising out of the conduct of its business. These proceedings may include personal injury claims arising from the ~~handling~~transportation and ~~transportation~~handling of goods, contractual disputes and employment-related claims, including alleged violations of wage and hour laws.

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

contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to a loss exists in excess of the amount accrued, the Company assesses whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, the Company discloses the estimate of the possible loss or range of loss if it is material and an estimate can be made, or discloses that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on management’s assessment, together with legal counsel, regarding the ultimate outcome of the matter.

Management of the Company believes that it has adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. Management of the Company does not believe that the ultimate resolution of any matters to which the Company is presently a party will have a material adverse effect on its results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s financial condition, results of operations or cash flows. Legal costs ~~incurred~~ related to these matters are expensed as they are incurred.

The Company carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting its operations. In the event the Company is required to satisfy a legal claim outside the scope of the coverage provided by insurance, its financial condition, results of operations or cash flows could be negatively impacted.

13. Subsequent Events

Financial Instruments - Net Investment Hedges

In October 2023, the Company terminated a hedge with a notional amount of $115 million. Also, the Company amended a $235 million hedge to extend its maturity from 2024 to 2025. Additionally, the Company entered into various hedges for an aggregate notional amount of $313 million that will mature from 2025 to 2028.

Acquisition

On September 13, 2023, the Company entered into an Agreement and Plan of Merger to acquire PFSweb, Inc., a Delaware corporation headquartered in Irving, Texas (“PFS”), and on October 23, 2023, the Company completed its acquisition of PFS. PFS provides e-commerce order fulfillment services. The Company acquired the shares of PFSweb at a price per share of $7.50 in cash, totaling approximately $181 million.

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 “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,” “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 on Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, as filed with the SEC on February ~~17, 2022~~16, 2023 (the ~~“2021~~“2022 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

GXO Logistics, Inc., together with its subsidiaries, (“GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in ~~an industry propelled~~the industry. We provide our customers with high-value-add warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by ~~strong secular tailwinds.~~our ability to deliver technology-enabled, customized solutions at scale. 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,~~warehouses, through fulfillment and distribution and the management of returned products. Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics and warehousing services.

We strive to provide all customers with consistent quality service and cutting-edge automation. We also collaborate with our largest customers on planning and forecasting and assist with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as environmental, social and governance. Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.

The most dramatic growth in secular demand in recent years has been in e-commerce and related sectors, including omnichannel retail and other direct-to-consumer channels. We expect to attract new customers and expand the services we provide to existing customers through new projects, thus earning more of their external and internal logistics spending. We use technology to manage advanced automation, labor productivity, sustainability, safety and the complex flow of goods within sophisticated warehouse 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,~~long-term in nature, and our ~~facility~~warehouse lease arrangements generally align with contract length. The Company has both fixed-price contracts (closed book or hybrid contracts) and cost-plus contracts (open book contracts). Most of our customer contracts contain both fixed and variable components. The fixed component is typically designed to cover ~~facility,~~warehouse, technology and equipment ~~costs and may cover management~~ costs, while the variable component is determined based on expected volumes and associated labor costs.

~~We use technology~~ Under fixed-price contracts, the Company agrees to ~~manage advanced automation, labor productivity, safety and~~perform 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 extendingspecified work for ~~years and expanding in scope.~~

~~The Separation~~

~~On August 2, 2021, we completed~~a pre-determined price. To the ~~separation from XPO Logistics, Inc. (“XPO”) (the “Separation”). Prior to the Separation,~~extent the Company’s ~~financial statements were prepared on a standalone combined basis and were derived~~actual costs vary from the ~~consolidated financial statements and accounting records of XPO. On August 2, 2021,~~estimates upon which the price was negotiated, the Company ~~became~~will generate more or less profit. Cost-plus contracts provide for the payment of allowable costs incurred during the performance of the contract plus a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “Condensed Consolidated Financial Statements” and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

The Company’s Condensed Consolidated Financial Statements include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary. The Company has eliminated intercompany accounts and transactions.

~~We have a single reportable segment.~~

~~Clipper Acquisition~~specified margin.

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~~Due to the ~~issuance of 3,749,266 shares of GXO common stock having a value of $203 million. The~~ Clipper Acquisition, ~~was subject to review by the Competition~~comparisons in our results of operations between 2023 and ~~Markets Authority in the United Kingdom (the “CMA”). On October 4,~~ 2022 ~~the CMA approved the Clipper Acquisition.~~are less meaningful.

Results of Operations

Three Months Ended September 30,
(In millions) 2022 2021 $ Change % Change
Revenue $ 2,287 $ 1,974 $ 313 16 %
Direct operating expense 1,885 1,651 234 14 %
Selling, general and administrative expense 227 171 56 33 %
Depreciation and amortization expense 89 85 4 5 %
Transaction and integration costs 14 29 (15) (52) %
Restructuring costs and other — 2 (2) (100) %
Operating income 72 36 36 100 %
Other income, net 17 11 6 55 %
Interest expense, net (6) (5) (1) 20 %
Income before income taxes 83 42 41 98 %
Income tax (expense) benefit (19) 31 (50) n/m
Net income $ 64 $ 73 $ (9) (12) %

~~n/m - not meaningful~~

Three Months Ended September 30, ~~2022 compared~~2023 Compared with the Three Months Ended September 30, ~~2021~~2022


	Three Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Revenue	$	2,471	$	2,287	$	184	8	%
Direct operating expense	2,012		1,885		127		7	%
Selling, general and administrative expense	258		227		31		14	%
Depreciation and amortization expense	101		89		12		13	%
Transaction and integration costs	3		14		(11)		(79)	%
Restructuring costs and other	7		—		7		n/m
Operating income	90		72		18		25	%
Other income, net	7		17		(10)		(59)	%
Interest expense, net	(14)		(6)		(8)		n/m
Income before income taxes	83		83		—		—	%
Income tax expense	(15)		(19)		4		(21)	%
Net income	$	68	$	64	$	4	6	%

n/m - not meaningful

Revenue for the three months ended September 30, ~~2022~~2023, increased by ~~16%~~8%, or ~~$313~~$184 million, to ~~$2.3~~$2.5 billion compared with ~~$2.0~~$2.3 billion for the same period in ~~2021. Our North America, Asia~~2022. The increase in 2023 compared to the prior period primarily reflects growth in our Continental Europe and ~~Pacific operations~~United Kingdom and ~~European operations reported growth of 18% and 15%, respectively. The Clipper Acquisition contributed 16% to our European revenue and 10% to total revenue.~~Ireland operations. Foreign currency ~~movements decreased~~movement increased revenue by ~~approximately 11%~~$126 million for the three months ended September 30, ~~2022.~~2023 compared with the prior period.

Direct operating ~~expenses comprise~~expense is comprised of both fixed and variable expenses and consist of operating costs related to our ~~logistics facilities,~~warehouses, including personnel costs, ~~and facility and equipment~~rent expenses, ~~such as rent, utilities,~~utility costs, equipment maintenance and repair costs, transportation costs, costs of materials and supplies and information technology expenses. Direct operating expense for the three months ended September 30, ~~2022 was~~2023, increased by 7%, or $127 million, to $2.0 billion compared with $1.9 billion ~~or 82% of revenue, compared with $1.7 billion, or 84% of revenue,~~ for the same period in ~~2021. For the three months ended September 30, 2022, direct~~2022. Direct operating ~~expenses~~expense increased primarily ~~increased~~ due to higher personnel and temporary labor ~~costs of $131 million,~~expenses and higher facilities and ~~transportation costs~~equipment expense. As a percentage of ~~$76 million and higher costs of materials and supplies of $16 million, these increases are mainly driven by~~revenue, direct operating expense for the ~~Clipper Acquisition.~~three months ended September 30, 2023, was 81.4% compared with 82.4% for the same period in 2022.

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 September 30, ~~2022~~ 2023,

increased by ~~$56~~14%, or $31 million, to ~~$227~~$258 million compared with ~~$171~~$227 million for the same period in ~~2021.~~2022. SG&A ~~for the three months ended September 30, 2022~~ increased ~~compared with the same prior year period~~ due to higher personnel costs, primarily for certain administrative functions, and ~~the Clipper Acquisition.~~higher bad debt expense.

Depreciation and amortization expense for the three months ended September 30, ~~2022 was $89~~2023 increased by $12 million to $101 million compared with ~~$85~~$89 million for the same period in ~~2021. Depreciation and amortization~~2022. Amortization expense ~~included amortization of intangible assets of $21~~was $18 million and ~~$16~~$21 million for the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The increase ~~was primarily due to higher~~in depreciation and amortization ~~from~~expense was primarily related to increased depreciation expense due to the ~~Clipper Acquisition, partially offset by lower depreciation as a result~~impact of ~~contract modifications in the~~ prior ~~year.~~capital investments associated with new contracts.

Transaction and integration costs for the three months ended September 30, 2023 were $3 million and primarily related to the acquisition of PFSweb, Inc. Transaction and integration costs for the three months ended September 30, 2022 were $14 million and primarily related to the Clipper ~~Acquisition~~Acquisition.

Restructuring costs and ~~rebranding as a result of the Separation. Transaction and integration costs for the three months ended September 30, 2021 were $29 million,~~other are primarily related to ~~the Separation.~~

severance, including projects to optimize finance, human resources and information technology functions, and are not associated with customer attrition. Restructuring costs and other for the three months ended September 30, ~~2022~~2023 was $7 million and ~~2021 was not material.~~

24primarily related to the exit of non-core businesses in Asia.

Other income, net ~~consists primarily of foreign exchange gains and losses, including~~decreased due to foreign currency ~~contracts,~~movements and lower pension income. Other income, net ~~for the three months ended September 30, 2022~~ was $17 million compared with $11 million for the same period in 2021. For the three months ended September 30, 2022, the gain on foreign currency contracts was $9 million and pension income was $7 million. For the three months ended September 30, 2021, pension income was $10 million.as follows:


	Three Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Net periodic pension income	$	2	$	7	$	(5)	(71)	%
Foreign currency:
Realized foreign currency contracts gain (loss)	(3)		10		(13)		n/m
Unrealized foreign currency contracts gain (loss)	8		(1)		9		n/m
Foreign currency remeasurement gain	—		1		(1)		(100)	%
Total foreign currency gain	5		10		(5)		(50)	%

Other income, net	$	7	$	17	$	(10)	(59)	%

n/m - not meaningful

Interest expense, net ~~for the three months ended September 30, 2022 was $6 million~~increased primarily due to higher variable interest rates on our debt compared with ~~$5 million for~~ the ~~same period in 2021. For the three months ended September 30, 2022, interest~~prior period. Interest expense, primarily related to outstanding debt and capital lease obligations, partially offset by interest income on the cross-currency swap agreements. For the three months ended September 30, 2021, interest expense primarily related to debt issued in connection with the Separation, and related-party debt with XPO before the Separation, partially offset by interest income on the cross-currency swap agreements.net was as follows:


	Three Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Debt and capital leases	$	25	$	16	$	9	56	%
Cross-currency swaps	(9)		(9)		—		—	%
Interest income	(2)		(1)		(1)		100	%
Interest expense, net	$	14	$	6	$	8	n/m

n/m - not meaningful

Income before income taxes for both the three months ended September 30, 2023 and 2022 ~~increased by $41 million, to~~was $83 million, compared with $42 million for the same period in 2021. The increase was primarily due to growth in our business, lower transaction and integration costs, and other income from a pension plan and foreign currency contracts.million.

Income tax expense for the three months ended September 30, ~~2022~~2023 was ~~$19~~$15 million ~~expense~~ compared with ~~$31~~$19 million ~~benefit~~ for the same period in ~~2021.~~2022. Our effective tax rate was ~~22.5%~~17.9% for the three months ended September 30, ~~2022~~2023, compared with ~~(72.5)%~~22.5% for the same period in ~~2021.~~2022. The change in our effective tax rate was primarily driven by a ~~discrete~~ tax benefit ~~from the initial recognition of a deferred tax asset in connection with the Separation.~~related to return-to-provision true-up adjustments.

Nine Months Ended September 30,
(In millions) 2022 2021 $ Change % Change
Revenue $ 6,526 $ 5,678 $ 848 15 %
Direct operating expense 5,408 4,725 683 14 %
Selling, general and administrative expense 637 519 118 23 %
Depreciation and amortization expense 242 259 (17) (7) %
Transaction and integration costs 57 82 (25) (30) %
Restructuring costs and other 14 5 9 n/m
Operating income 168 88 80 91 %
Other income, net 56 11 45 n/m
Interest expense, net (19) (16) (3) 19 %
Income before income taxes 205 83 122 n/m
Income tax (expense) benefit (51) 21 (72) n/m
Net income $ 154 $ 104 $ 50 48 %

~~n/m - not meaningful~~

Nine Months Ended September 30, ~~2022 compared~~2023 Compared with the Nine Months Ended September 30, ~~2021~~2022


	Nine months ended September 30,
(In millions)	2023		2022		$ Change		% Change
Revenue	$	7,188	$	6,526	$	662	10	%
Direct operating expense	5,875		5,408		467		9	%
Selling, general and administrative expense	761		637		124		19	%
Depreciation and amortization expense	268		242		26		11	%
Transaction and integration costs	22		57		(35)		(61)	%
Restructuring costs and other	31		14		17		n/m
Operating income	231		168		63		38	%
Other income, net	8		56		(48)		(86)	%
Interest expense, net	(41)		(19)		(22)		n/m
Income before income taxes	198		205		(7)		(3)	%
Income tax expense	(38)		(51)		13		(25)	%
Net income	$	160	$	154	$	6	4	%

n/m - not meaningful

Revenue for the nine months ended September 30, ~~2022~~2023 increased by ~~15%~~10%, or ~~$848~~$662 million, to ~~$6.5~~$7.2 billion compared with ~~$5.7~~$6.5 billion for the same period in ~~2021. For~~2022. The increase primarily reflects an increase of $378 million from the ~~nine months ended September 30, 2022, our North America, Asia and Pacific operations and European operations reported growth of 18% and 13%, respectively. The~~ Clipper Acquisition ~~contributed 7% to European revenue~~for the periods that were not comparable and ~~5% to total revenue.~~growth in our Continental Europe operations. Foreign currency ~~movements decreased~~movement increased revenue by ~~approximately 8%~~$43 million for the nine months ended September 30, ~~2022.~~2023 compared with the prior period.

Direct operating ~~expenses comprise~~expense is comprised of both fixed and variable expenses and consist of operating costs related to our ~~logistics facilities,~~warehouses, including personnel costs, ~~and facility and equipment~~rent expenses, ~~such as rent, utilities,~~utility costs, equipment maintenance and repair costs, transportation costs, costs of materials and supplies and information technology expenses. Direct operating expense for the nine months ended September 30, ~~2022 was~~2023 increased by 9%, or $467 million, to $5.9 billion compared with $5.4 billion ~~or 83% of revenue, compared with $4.7 billion, or 83% of revenue~~ for the same period in ~~2021. For~~2022. Direct operating expense increased primarily due to the Clipper Acquisition, as well as higher personnel and temporary labor expenses and higher facilities and equipment expense. As a percentage of revenue, direct operating expense for the nine months ended September 30, ~~2022, direct operating expenses primarily increased due to higher personnel and temporary labor~~

~~expenses of $457 million, higher facilities and transportation costs of $171 million, and higher costs of materials and supplies of $43 million.~~2023, was 81.7% compared with 82.9% for the same period in 2022.

Selling, general and administrative expense (“SG&A&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs. SG&A for the nine months ended September 30, ~~2022~~2023, increased by ~~$118~~19%, or $124 million, to ~~$637~~$761 million compared with ~~$519~~$637 million for the same period in ~~2021.~~2022. SG&A ~~for~~increased primarily due to the ~~nine months increased compared with the same prior year period due to~~Clipper Acquisition and higher personnel costs, primarily for certain administrative ~~functions.~~functions, and higher bad debt expense.

Depreciation and amortization expense for the nine months ended September 30, ~~2022 was $242~~2023 increased by $26 million to $268 million compared with ~~$259~~$242 million for the same period in ~~2021. Depreciation and amortization~~2022. Amortization expense ~~included amortization of intangible assets of $48~~was $54 million and ~~$44~~$48 million for the nine months ended September 30, 2023 and 2022, ~~and 2021,~~ respectively. The decrease was primarily a result of $15 million allocated corporate charges from XPO before the Separation in the prior year and lower depreciation as a result of contract modifications in the prior year, partially offset by higher depreciationDepreciation and amortization ~~from~~expense increased primarily due to the Clipper Acquisition.

Transaction and integration costs for the nine months ended September 30, ~~2022~~2023 were $22 million compared with $57 million ~~primarily related to~~for the ~~Clipper Acquisition and rebranding as a result of the Separation.~~same period in 2022. Transaction and integration costs for the nine months ended September 30, ~~2021 were $82 million,~~2023 and 2022, primarily related to the ~~Separation.~~Clipper Acquisition.

Restructuring costs and other are primarily related to severance, including projects to optimize finance, human resources and information technology functions, and are not associated with customer attrition. Restructuring costs and other for the nine months ended September 30, ~~2022 were $14 million.~~2023 was $31 million and included severance charges of

$24 million and impairment charges of $7 million due to closing certain corporate and administrative offices and the exit of non-core businesses in Asia. For the nine months ended September 30, 2022, ~~restructuring~~Restructuring costs and other was $14 million and included severance charges of $6 million and $8 million related to the deconsolidation of a joint ~~venture and $6 million related to severance costs. Restructuring costs and other for the nine months ended September 30, 2021 were $5 million and related to severance costs.~~venture.

Other income, net ~~consists primarily of foreign exchange gains and losses, including~~decreased due to foreign currency ~~contracts,~~movements and lower pension income. Other income, net ~~for the nine months ended September 30, 2022~~ was $56 million compared with $11 million for the same period in 2021. For the nine months ended September 30, 2022, the gain on foreign currency contracts was $33 million and pension income was $25 million. For the nine months ended September 30, 2021, pension income was $10 million.as follows:


	Nine Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Net periodic pension income	$	6	$	25	$	(19)	(76)	%
Foreign currency:
Realized foreign currency contracts gain (loss)	(9)		19		(28)		n/m
Unrealized foreign currency contracts gain	12		14		(2)		(14)	%
Foreign currency remeasurement loss	(1)		(2)		1		(50)	%
Total foreign currency gain	2		31		(29)		(94)	%

Other income, net	$	8	$	56	$	(48)	(86)	%

n/m - not meaningful

Interest expense, net increased primarily due to debt incurred for the ~~nine months ended September 30, 2022 was $19 million~~Clipper Acquisition and higher variable interest rates on our debt compared with ~~$16 million for~~ the ~~same~~prior period, ~~in 2021. For the nine months ended September 30, 2022, interest expense primarily related to outstanding debt and capital lease obligations,~~ partially offset by ~~interest income~~higher gains on cross-currency swaps in the ~~cross-currency swap agreements. For the nine months ended September 30, 2021, interest~~current period. Interest expense, primarily related to debt issued in connection with the Separation, related-party debt with XPO before the Separation, and capital lease obligations, partially offset by interest income on the cross-currency swap agreements.net was as follows:


	Nine Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Debt and capital leases	$	72	$	37	$	35	95	%
Cross-currency swaps	(25)		(16)		(9)		56	%
Interest income	(6)		(2)		(4)		n/m
Interest expense, net	$	41	$	19	$	22	n/m

n/m - not meaningful

Income before income taxes for the nine months ended September 30, ~~2022 increased by $122 million,~~2023, decreased to ~~$205~~$198 million compared with ~~$83~~$205 million for the same period in ~~2021.~~2022. The ~~increase~~decrease was ~~primarily~~ due to ~~growth in our business,~~ lower ~~transaction~~Other income, net and ~~integration costs, and other income from a pension plan and foreign currency contracts,~~higher interest expense, partially offset by ~~restructuring costs due to the deconsolidation of a joint venture.~~higher operating income.

Income tax expense for the nine months ended September 30, ~~2022~~2023 was ~~$51~~$38 million ~~expense~~ compared with ~~$21~~$51 million ~~benefit~~ for the same period in ~~2021.~~2022. Our effective tax rate was ~~24.7%~~19.1% for the nine months ended September 30, ~~2022~~2023, compared with ~~(24.8)%~~24.7% for the same period in ~~2021.~~2022. The change in our effective tax rate was primarily driven by a ~~discrete~~ tax benefit ~~from the initial recognition of~~related to a ~~deferred tax asset in connection with the Separation and non-deductible transaction cost, offset by deferred true-ups in 2022.~~

valuation allowance release.

2624

Liquidity and Capital Resources

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

As of September 30, 2023, we held cash and cash equivalents of $473 million and we had $799 million of borrowing capacity available, net of letters of credit under our Revolving Credit Facility.

We continually evaluate our liquidity requirements and capital structure in ~~light~~consideration 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.

~~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”) 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 unsecured term loan facility to fund the Clipper Acquisition. The loan was 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”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan”) 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 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.

~~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 September 30, 2022.

~~Sales of Certain Receivables~~Factoring Programs

We sell certain of our trade ~~accounts~~ receivables 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 Condensed Consolidated Statements of Cash Flows. ~~We use the sale of certain receivables to help manage our working capital.~~

Information related to the trade receivables sold was as follows:


		Three Months Ended				Nine Months Ended
		September 30,				September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	(In millions)	2022		2021		2022		2021		(In millions)	2023		2022		2023		2022
Factoring agreements
Receivables sold in period	Receivables sold in period	$	259	$	132	$	716	$	331	Receivables sold in period	$	288	$	259	$	820	$	716
Cash consideration	Cash consideration	258		132		714		331		Cash consideration	286		258		815		714
Securitization program
Receivables sold in period		$	—	$	418	$	—	$	1,320
Cash consideration		—		418		—		1,320
Net cash provided by operating cash flows (1)										Net cash provided by operating cash flows (1)	27		18		27		16

(1) The nine months ended September 30, 2022, includes $134 million of cash provided by factoring program, reduced by $118 million of cash used in the securitization program that was terminated in the first quarter of 2022.

Covenants and Compliance

The covenants in the unsecured notes, term loans and revolving credit facilities, which are customary for financings of this type, limit our ability to incur indebtedness and grant liens, among other restrictions. In addition, the facilities require us to maintain a consolidated leverage ratio below a specified maximum.

As of September 30, ~~2022,~~2023, we were in compliance with the covenants contained in our debt and financing arrangements.

Financial Condition

The following table summarizes our asset and liability ~~balances as of September 30, 2022 and December 31, 2021:~~balances:

(In millions) September 30, 2022 December 31, 2021 $ Change % Change
Total current assets $ 2,242 $ 2,099 $ 143 7 %
Total long-term assets 6,564 5,172 1,392 27 %
Total current liabilities 2,275 2,329 (54) (2) %
Total long-term liabilities 3,932 2,552 1,380 54 %


(In millions)	September 30, 2023		December 31, 2022		$ Change		% Change
Current assets	$	2,466	$	2,428	$	38	2	%
Long-term assets	6,625		6,791		(166)		(2)	%
Total Assets	$	9,091	$	9,219	$	(128)	(1)	%
Current liabilities	$	2,434	$	2,532	$	(98)	(4)	%
Long-term liabilities	3,840		4,009		(169)		(4)	%
Total Liabilities	$	6,274	$	6,541	$	(267)	(4)	%

The ~~increase~~decrease in ~~our~~total assets from December 31, 2022 to September 30, 2023 reflects a decrease in long-term assets primarily due to depreciation and amortization of property and equipment, operating leases and intangible assets.

The decrease in total liabilities from December 31, ~~2021~~2022 to September 30, ~~2022~~2023 primarily reflects the ~~assets acquired~~decrease in accounts payable due to the timing of payments and ~~liabilities assumed, as well as various debt instruments entered into in connection with~~ the ~~Clipper Acquisition.~~early repayment of our $115 million two-year term loan.

Cash Flow Activity

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

Nine Months Ended September 30,
(In millions) 2022 2021 $ Change % Change
Net cash provided by operating activities $ 316 $ 251 $ 65 26 %
Net cash used in investing activities (1,056) (140) (916) n/m
Net cash provided by (used in) financing activities 863 (165) 1,028 n/m
Effect of exchange rates on cash and cash equivalents (22) 1 (23) n/m
Net increase (decrease) in cash and cash equivalents $ 101 $ (53) $ 154 n/m

~~n/m - not meaningful~~


	Nine Months Ended September 30,
(In millions)	2023		2022		$ Change		% Change
Net cash provided by operating activities	$	343	$	316	$	27	9	%
Net cash used in investing activities	(192)		(1,056)		864		(82)	%
Net cash provided by (used in) financing activities	(170)		863		(1,033)		n/m
Effect of exchange rates on cash, restricted cash and cash equivalents	(2)		(22)		20		(91)	%
Net (decrease) increase in cash, restricted cash and cash equivalents	$	(21)	$	101	$	(122)	(121)	%

Operating Activities

Cash flows ~~from~~provided by operating activities for the nine months ended September 30, ~~2022~~2023 increased by ~~$65~~$27 million compared with the same period in ~~2021. The increase was~~2022 due to ~~$50 million higher~~increase in cash generated from net income ~~in 2022 and $39 million~~adjusted for non-cash ~~adjustments driven by a deferred tax benefit in 2021, partially offset by a $24 million decrease in working capital.~~charges.

Investing Activities

Investing activities used ~~$1,056~~$192 million of cash for the nine months ended September 30, ~~2022,~~2023, compared with ~~$140 million~~$1.1 billion used for the same period of ~~2021.~~2022. During the nine months ended September 30, 2023, we used $205 million of cash to purchase property and equipment and received $13 million of cash from sales of property and equipment. During the nine months ended September 30, 2022, we used $874 million, net of cash received, to fund the Clipper Acquisition, used $239 million of cash to purchase property and equipment, received $26 million in proceeds from ~~the settlement of~~ cross-currency swap agreements, excluding accrued interest, and received $22 million ~~from sales~~ of ~~property and equipment. During the nine months ended September 30, 2021, we used $180 million to purchase property and equipment, received $34 million net~~ cash ~~from the Kuehne + Nagel acquisition, and received $8 million~~ from sales of property and equipment.

Financing Activities

Financing activities used $170 million of cash for the nine months ended September 30, 2023, including $139 million used to repay debt, $24 million to repay finance lease obligations and $7 million in payments for employee taxes on stock-based compensation awards. Financing activities generated $863 million of cash for the nine months ended September 30, 2022, ~~compared with $165 million used for the same period of 2021. The primary sources of cash from financing activities in the nine months ended September 30, 2022, were~~including $898 million in proceeds from long-term debt, ~~net,~~ partially offset by $23 million ~~repayment of debt and~~to repay finance ~~leases~~lease obligations and $12 million in payments for employee taxes on ~~net settlement of equity~~stock-based compensation awards. The primary uses of cash from financing activities in the nine months ended September 30, 2021, were $774 million of net transfers to XPO, $128 million in the purchase of noncontrolling interest, $64 million in repayments of debt and finance leases, and $21 million in repayment of debt related to a trade securitization program, partially offset by $794 million in proceeds from long-term debt.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet ~~financing~~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

~~The~~As of September 30, 2023, the Company’s contractual ~~cash requirements have~~obligations had not materially changed ~~materially since the 2021 Form 10-K, except for the new term loan credit agreements described above.~~compared with December 31, 2022.

Critical Accounting Policies and Estimates

Preparation of our Condensed Consolidated Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities. There have been no material changes to the critical accounting policies and estimates as previously disclosed in “Critical Accounting Policies” in Part II, Item 87 of our ~~Annual Report on~~ Form 10-K for the year ended December 31, ~~2021, and that are hereby incorporated by reference.~~2022.

Accounting Pronouncements

Information related to new accounting standards is included in Note 1—1 — Basis of Presentation and Significant Accounting Policies ~~to the Condensed Consolidated Financial Statements.~~in Part I, Item 1 of this Quarterly Report on Form 10-Q.

2927

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~~that may impact our Condensed Consolidated Financial Statements due primarily to ~~changes~~variable rate long-term debt obligations and fluctuations in certain foreign currencies. To reduce our exposure to market risk associated with interest ~~rates~~ and foreign currency exchange ~~rates.~~

~~Interest Rate Risk~~

Our long-term debt portfolio, excluding finance leases and other debt, consists of $800 million fixed-rate and $900 million variable-rate loans, complemented by a variable-rate revolving credit facility. We use cross-currency swap agreementsrate risks, we enter into various derivative instruments. There have been no material changes to ~~convert $650 million of variable-rate debt from Secured Overnight Financing Rate (“SOFR”)~~our exposure to Euro Interbank Offered Rate (“Euribor”). We also entered into interest rate swap agreements to convert $250 million of variable-rate U.S. dollar (“USD”)-denominated debt into USD-denominated fixed-rate debt. As ofmarket risk for the nine months ended September 30, ~~2022, a hypothetical 1% increase~~2023, from those previously disclosed in ~~Euribor would have increased our interest expense by approximately $6 million. For our fixed-rate notes, a 1% increase or decrease~~“Quantitative and Qualitative Disclosures About Market Risk” contained in ~~interest rates would have decreased or increased the fair value~~Part II, Item 7A of our ~~notes by approximately 4%.~~

~~Foreign Currency Exchange Risk~~

~~A significant proportion of our net assets and income are in non-USD currencies, primarily~~Form 10-K for the Euro (“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 debt, including the interest payments, to fixed-rate EUR-denominated debt and a portion of the floating-rate USD-denominated loans, including the interest payments, to floating-rate EUR-denominated debt. We use foreign currency 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 September 30, 2022, a uniform 10% strengthening in the value of the USD relative to the EUR would have increased our net assets by approximately $20 million. As of September 30, 2022, a uniform 10% strengthening in the value of the USD relative to the GBP would have decreased our net assets by approximately $30 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.year ended December 31, 2022.

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 defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of September 30, ~~2022.~~2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of September 30, 2023 were effective as of ~~September 30, 2022,~~such time 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 and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

~~There were no~~Other than the design and implementation of internal controls related to the acquisition of Clipper Logistics plc, there have not been any changes in our internal control over financial reporting ~~as defined in Rules 13a-15(f) and 15d-15(f) of~~during the ~~Exchange Act, during our most recently completed fiscal~~ quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3128

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note ~~12—~~12 — Commitments and Contingencies ~~to the Condensed Consolidated Financial Statements included~~ in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of our legal proceedings.

ITEM 1A. RISK FACTORS

There ~~have been~~are no material changes to the risk factors as previously disclosed ~~under~~in “Risk Factors” contained in ~~the 2021~~Part I, Item 1A of our Form 10-K ~~except as disclosed under Part II, Item 1A. Risk Factors of our Quarterly Reports on Form 10-Q~~ for the ~~quarter~~year ended ~~March~~December 31, ~~2022 and June 30,~~ 2022.

ITEM ~~2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~5. OTHER INFORMATION

Compensatory Arrangements of the Former Chief Human Resources Officer

As previously disclosed, Maryclaire Hammond ceased service as the Chief Human Resources Officer of the Company on November 3, 2023, and will separate from employment with the Company on December 31, 2023. In exchange for certain separation benefits, on November 7, 2023 Ms. Hammond entered into a settlement agreement with GXO Logistics UK Limited releasing legal claims and reaffirming her obligations under her Service Agreement with GXO Logistics UK Limited, dated May 14, 2021. Pursuant to the ~~terms~~settlement agreement, Ms. Hammond will receive (1) 12 months of pay in lieu of notice, consisting of base salary, employer pension contributions and car allowance, as well as 12 months of continued health benefits, (2) an annual incentive bonus for 2023, calculated at the ~~Clipper Acquisition, 840 shares~~higher of ~~GXO common stock were issued during the quarter ended September 30, 2022~~actual performance or target, and an ex gratia payment equal to £278,175, payable in April 2025, (3) vesting of a portion of her unvested equity compensation awards, and (4) certain ancillary benefits, including reimbursement of legal fees in connection with the ~~exercise of options under~~settlement agreement, outplacement services for up to 12 months, and global tax support for a ~~Court-sanctioned scheme of arrangement. These shares were issued~~transition period. This description is qualified in ~~reliance on~~its entirety by reference to the ~~exemption from registration provided by Section 3(a)(10)~~full text of the ~~Securities Act,~~settlement agreement, which ~~exempts from the registration requirements under the Securities Act any securities that are issued in exchange for one or more bona fide outstanding securities where the terms~~is filed as Exhibit 10.1 hereto and ~~conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it~~ is ~~proposed to issue securities in such exchange shall have the right to appear,~~incorporated herein by ~~any court or other governmental authority expressly authorized by law to grant such approval.~~reference.

3229

ITEM 6. EXHIBITS


Exhibit Number						Description
10.1						Settlement Agreement, dated as of November 7, 2023, by and between GXO Logistics UK Limited and Maryclaire Hammond.
31.1*						Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, ~~2022.~~2023.

31.2*						Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, ~~2022.~~2023.

32.1**						Certification of the Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, ~~2022.~~2023.

32.2**						Certification of the Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, ~~2022.~~2023.

101.INS*						Inline XBRL Instance Document.

101.SCH*						Inline XBRL Taxonomy Extension Schema.

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase.

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase.

101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase.

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase.

104*						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

*						Filed herewith.

**						Furnished herewith.

3330

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.

Date: November ~~9, 2022~~8, 2023	By:	/s/ Malcolm Wilson
		Malcolm Wilson
		(Chief Executive Officer)
		(Principal Executive Officer)

Date: November ~~9, 2022~~8, 2023	By:	/s/ Baris Oran
		Baris Oran
		(Chief Financial Officer)
		(Principal Financial Officer)

3431


	Common Stock			XPO Logistics, Inc. Investment		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Equity Before Noncontrolling Interest		Noncontrolling Interest		Total Equity
(Shares in thousands, dollars in millions)	Shares	Amount
Balance as of June 30, 2022	118,610	$	1	$	—	$	2,561	$	214	$	(246)	$	2,530	$	31	$	2,561
Net income	—	—		—		—		63		—		63		1		64
Other comprehensive loss	—	—		—		—		—		(32)		(32)		(2)		(34)
Stock-based compensation	—	—		—		8		—		—		8		—		8
Vesting of stock compensation awards	19	—		—		—		—		—		—		—		—




Balance as of September 30, 2022	118,629	$	1	$	—	$	2,569	$	277	$	(278)	$	2,569	$	30	$	2,599


(In millions)	Rate(1)	September 30, 2022		December 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 2024	4.76%	165		—
Three-Year Term Loan due 2025(4)	4.76%	234		—
Five-Year Term Loan due 2027(4)	4.89%	499		—
Finance leases and other	Various	192		168
Total debt and obligations under finance leases		$	1,883	$	961
Less: Short-term borrowings and obligations under finance leases		94		34
Total long-term debt and obligations under finance leases		$	1,789	$	927