GXO Logistics Inc

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 (the “SEC”). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. 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 interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. 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 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, 2023. Certain amounts reported for prior periods have been reclassified to conform to the current period’s presentation.

The Company presents its operations asone reportable segment.

Accounting Pronouncements Issued But Not Yet Adopted

In March 2024, the SEC adopted final rules designed to enhance public company disclosures related to the risks and impacts of climate-related matters. The new rules include disclosures relating to climate-related risks and risk management, as well as the board and management’s governance of such risks. In addition, the rules include requirements to disclose the financial effects of severe weather events and other natural conditions in the audited financial statements. Larger registrants will also be required to disclose information about greenhouse gas emissions, which will be subject to a phased-in assurance requirement. The disclosures are required for annual periods ending December 31, 2025. In April 2024, the SEC issued an order staying the implementation of the new climate-related disclosure rules pending completion of judicial review of consolidated changes to the rules by the Court of Appeals for the Eighth Circuit. The Company continues to monitor developments and evaluate the potential impact of these rules on its Consolidated Financial Statements.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which provides for expanded disclosures primarily related to income taxes paid and the rate reconciliation. The amendments are effective for annual periods beginning after December 15, 2024 and early adoption is permitted. The guidance can be applied prospectively or retrospectively. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires disclosure of incremental segment information on an annual and interim basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

2. Revenue Recognition

Revenue disaggregated by geographical area was as follows:

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

Contract Assets and Liabilities

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

Revenue recognized included the following:

Remaining Performance Obligations

The remaining performance obligations relate to firm customer contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, the Company omits obligations that have original expected durations of one year or less or contain variable consideration.

As of March 31, 2024, the fixed consideration component of the Company’s remaining performance obligation was approximately $3.7 billion, and the Company expects to recognize approximately 75% 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. Leases

The Company has operating 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 were recorded in the Condensed Consolidated Balance Sheets related to leases:

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

(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:

4. Acquisitions

Wincanton Acquisition

On February 29, 2024, the Company and the board of directors of Wincanton plc, a logistics company based in Chippenham, United Kingdom (“Wincanton”), reached an agreement on the terms of a cash offer by the Company for the acquisition of the entire issued ordinary share capital of Wincanton (the “Wincanton Acquisition”). Wincanton is a British logistics provider specializing in both warehousing and transportation solutions. Wincanton services industries in grocery, retail and manufacturing, consumer goods, ecommerce, healthcare, defense, industrial, and energy. Under the terms of the agreement, Wincanton shareholders will be entitled to receive 605 pence ($7.64 as of March 31, 2024) in cash for each Wincanton share held.

In connection with the Wincanton Acquisition, (i) the Company entered into a bridge term loan credit agreement, (ii) the Company entered into athree-year term loan credit agreement (“Three-Year Term Loan due 2027”), and (iii) in April 2024, the Company issued $1.1 billion aggregate principal amount of its senior notes (the “Unsecured Notes”). For additional information regarding the financing agreements entered in connection with the Wincanton Acquisition, see Note 5. Debt and Financing Arrangements and Note 13. Subsequent Events.

During March 2024, the Company purchased approximately 2.0 million Wincanton shares for approximately £12 million ($15 million).

PFSweb 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 (the “PFS Acquisition”). The Company acquired the shares of PFS at a price per share of $7.50 in cash, totaling approximately $149 million, net of cash acquired. PFS is a global provider of omnichannel commerce solutions, including a broad range of technology, infrastructure and professional services, in the United States, Canada and Europe. PFS’s service offerings include order fulfillment, fulfillment-as-a-service, order management and customer care.

The Company recorded the preliminary fair value of assets acquired and liabilities assumed on the date of acquisition, including intangible assets comprising customer relationships, trademarks, trade names and developed technology of $55 million with a weighted-average amortization period of 13 years. Goodwill acquired in connection with the acquisition was $82 million, recorded in the Americas and Asia-Pacific reporting unit, and was attributed to anticipated synergies. The Company does not expect the goodwill recognized in connection with the PFS Acquisition to be deductible for income tax purposes. The Company expects to finalize the purchase price allocation within the measurement period, which will not exceed one year from the acquisition date.

5. Debt and Financing Arrangements

The following table summarizes the carrying value of the Company’s debt:

(1) Interest rate as of March 31, 2024.

(2) Net of unamortized debt issuance costs of $2 million as of March 31, 2024 and December 31, 2023.

(3) Net of unamortized debt issuance costs of $3 million as of March 31, 2024 and December 31, 2023.

(4) Net of unamortized debt issuance costs of $1 million as of March 31, 2024 and December 31, 2023.

Bridge Term Loan

On February 29, 2024, the Company entered into a bridge term loan credit agreement that provided a £763 million ($963 million as of March 31, 2024) unsecured term loan facility (the “Bridge Term Loan”) to fund the Wincanton Acquisition. The Bridge Term Loan matures 364 days after an advance. Loans under the Bridge Term Loan bear interest at the daily simple Sterling Overnight Index Average Rate (“SONIA”) plus an applicable margin calculated based on the Company’s credit ratings. No amounts were outstanding under the Bridge Term Loan as of March 31, 2024.

Concurrently with the closing of the Three-Year Term Loan due 2027, the Company reduced the commitments under the Bridge Term Loan by the aggregate amount of commitments under the Three-Year Term Loan due 2027. Concurrently with the closing of the Unsecured Notes, the Company terminated the remaining commitments under the Bridge Term Loan.

Three-Year Term Loan due 2027

On March 29, 2024, the Company entered into a term loan credit agreement with the lenders and other parties from time to time party thereto and Bank of America N.A., as administrative agent. The Three-Year Term Loan due 2027 provided for athree-year multicurrency £250 million ($316 million as March 31, 2024) unsecured term facility, that may be borrowed by the Company to fund the Wincanton Acquisition.

Loans under the Three-Year Term Loan due 2027 will bear interest at a fluctuating rate per annum equal to, (a) with respect to borrowings in U.S. Dollars, at the Company’s option, the alternate base rate or term Secured Overnight Financing Rate (“SOFR”) and (b) with respect to borrowings in Pounds Sterling, daily simple SONIA, in each case, plus an applicable margin calculated based on the Company’s credit ratings. No amounts were outstanding under the Three-Year Term Loan due 2027 as of March 31, 2024.

Concurrently with the closing of the Unsecured Notes, the Company terminated the commitments under the Three-Year Term Loan due 2027. For additional information regarding subsequent financing agreements entered in connection with the Wincanton Acquisition, see Note 13. Subsequent Events.

Revolving Credit Agreement

On March 29, 2024, the Company terminated its previous revolving credit agreement expiring in 2026 and entered into a new revolving credit agreement with Bank of America N.A., as administrative agent and an issuing lender (the “Revolving Credit Agreement”). The Revolving Credit Agreement is afive-year unsecured, multicurrency revolving facility expiring in 2029. The aggregate commitment of all lenders under the Revolving Credit Agreement will be equal to $800 million, of which $100 million is available for the issuance of letters of credit.

Loans under the Revolving Credit Agreement will bear interest at a fluctuating rate per annum equal to (a) with respect to borrowings in U.S. Dollars, at the Company’s option the alternate base rate or term SOFR, (b) with respect to borrowings in Canadian Dollars, term Canadian Overnight Repo Rate Average (“CORRA”), (c) with respect to borrowings in Pounds Sterling, daily simple SONIA and (d) with respect to borrowings in Euros, Euro Interbank Offered Rate (“EURIBOR”), in each case, plus an applicable margin calculated based on the Company’s credit ratings. No amounts were outstanding under the new or previous revolving credit agreements as of March 31, 2024 or December 31, 2023.

Factoring Programs

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

Information related to the trade receivables sold was as follows:

Covenants and Compliance

The covenants for the Company’s debt securities, 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 March 31, 2024, the Company complied with the covenants contained in its debt and financing arrangements.

6. Fair Value Measurements and Financial Instruments

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

•Level 1—Quoted prices for identical instruments in active markets;

•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and

•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.

Assets and Liabilities

The Company bases its fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 2024, and December 31, 2023, due to their short-term nature.

Debt

The fair value of debt was as follows:

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 notional amount and fair value of derivative instruments were as follows:

(1) In January 2024, the Company entered into an interest rate swap schedule to mature in 2025, with a notional amount of $125 million.

As of March 31, 2024 and December 31, 2023, 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.

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

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

Derivatives Not Designated as 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:

7. Earnings per Share

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

(1) For the three months ended March 31, 2024, weighted average shares for basic earnings per share is used for calculating diluted earnings per share because there was a net loss for the period and, as such, all dilutive potential common shares are anti-dilutive and are therefore excluded from the calculation.

8. Stockholders’ Equity

The following tables summarize the changes in AOCIL by component:

9. Employee Benefit Plans

Defined Benefit Plans

The Company 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:

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

Other than the U.K Retirement Plan, the Company deems other retirement plans to be immaterial to its Consolidated Financial Statements and are excluded from this disclosure.

Defined Contribution Plans

The Company has defined contribution retirement plans for its U.S. employees and employees of certain foreign subsidiaries. The Company’s contributions were $17 million for each of the three months ended March 31, 2024 and 2023. Defined contribution costs were primarily recorded in Direct operating expense in the Condensed Consolidated Statements of Operations.

10. Restructuring Costs and Other

Restructuring costs primarily related to severance, including projects to optimize the Company’s finance, human resources and information technology functions, and closing certain corporate and administrative offices, which were not associated with customer attrition.

The following table summarizes changes in the restructuring liability, which is included in other current liabilities in the Condensed Consolidated Balance Sheets:

The restructuring liability as of March 31, 2024 is expected to be substantially paid within the next 12 months.

11. Income Taxes

Income taxes for the three months ended March 31, 2024 was a $10 million tax benefit compared with a $3 million tax expense for the same period in 2023. The Company’s effective tax rate for the three months ended March 31, 2024 was a benefit on pre-tax loss of 21.1%, compared to an expense on pre-tax income of 11.0% for the same period in 2023. In 2023, the effective tax rate was reduced by discrete tax benefits from the release of valuation allowances.

The Organization for Economic Co-operation and Development (“OECD”) issued administrative guidance for the Pillar Two Global Anti-Base Erosion rules (“Pillar Two”), which imposes a 15% global minimum tax on multinational companies. Many Pillar Two rules are effective for fiscal years beginning on January 1, 2024, with other aspects to be effective from 2025. The Company does not expect the Pillar Two rules to materially impact its tax liability in 2024.

12. Commitments and Contingencies

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

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 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.

During the first quarter of 2024, a trial was held in the United States District Court for the Western District of Missouri in connection with a dispute between the Company and one of its customers related to the start-up of the customer’s warehouse that occurred in 2018 (Lindt et al v. GXO Warehouse Company, Inc., docket no. 4:22-cv-00384-BP). In March 2024, the jury returned verdicts in favor of the customer. The Company recognized a $63 million expense in the three months ended March 31, 2024 for the jury verdicts, potential post-trial awards of interest, associated legal fees, costs and other related expenses. The Company believes that this case was incorrectly decided and intends to pursue post-verdict remedies as necessary, including an appeal, and will pursue reimbursement under its existing insurance policies.

13. Subsequent Events

Wincanton Acquisition

On April 10, 2024, the Wincanton shareholders approved the Wincanton Acquisition and on April 29, 2024, the Company completed the Wincanton Acquisition for total consideration of approximately £762 million ($953 million), including shares purchased prior to the acquisition. The Competition and Markets Authority (the “CMA”) in the U.K. is currently reviewing the Wincanton Acquisition. The Company estimates that the CMA’s review of the acquisition will be completed during the second half of 2024.

Debt and Financing Transactions

On April 25, 2024, the Company entered into an underwriting agreement to issue and sell $1.1 billion of Unsecured Notes, consisting of $600 million in aggregate principal amount of its 6.25% senior notes due 2029 (the “2029 Notes”) and $500 million in aggregate principal amount of its 6.50% senior notes due 2034 (the “2034 Notes”) in a registered public offering to fund the Wincanton Acquisition. The closing of the sale of the Unsecured Notes occurred on May 6, 2024.

The 2029 Notes bear interest at a rate of 6.25% per annum payable semiannually on May 6 and November 6 of each year, beginning on November 6, 2024, and maturing on May 6, 2029. The 2034 Notes bear interest at a rate of 6.50% per annum payable semiannually on May 6 and November 6 of each year, beginning on November 6, 2024, and maturing on May 6, 2034.

Concurrently with the closing of the Unsecured Notes, the Company terminated the commitments under the Bridge Term Loan and the commitments under the Three-Year Term Loan due 2027.

Also, on May 6, 2024, the Company repaid $100 million of the Five-Year Term Loan due 2027 from proceeds received from the Unsecured Notes.

Financial Instruments

In April 2024, the Company amended four cross-currency swaps with an aggregate notional value of $315 million that will mature in 2027 and 2028, and entered into three cross-currency swaps with an aggregate notional value of $300 million that will mature in 2029.