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 February 28, 2018November 30, 2020
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 1-15829
FEDEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 62-1721435 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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942 South Shady Grove Road, Memphis, Tennessee | 38120 |
(Address of principal executive offices) | (ZIP Code) |
(901) 818-7500
(Registrant’s telephone number, including area code)code: (901) 818-7500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.10 per share | FDX | New York Stock Exchange | ||
0.700% Notes due 2022 | FDX 22B | New York Stock Exchange | ||
1.000% Notes due 2023 | FDX 23A | New York Stock Exchange | ||
0.450% Notes due 2025 | FDX 25A | New York Stock Exchange | ||
1.625% Notes due 2027 | FDX 27 | New York Stock Exchange | ||
1.300% Notes due 2031 | FDX 31 | 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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post 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 ☐ |
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Stock |
| Outstanding Shares at |
Common Stock, par value $0.10 per share |
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INDEX
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PART I. FINANCIAL INFORMATION |
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ITEM 1. Financial Statements |
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Condensed Consolidated Balance Sheets |
| 3 |
| 5 | |
| 6 | |
| 7 | |
8 | ||
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ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition |
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk |
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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds |
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49 | ||
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Exhibit 101.1 Interactive Data Files Exhibit 104.1 Cover Page Interactive Data File |
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- 2 -
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
|
| February 28, 2018 (Unaudited) |
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| May 31, 2017 |
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| November 30, 2020 (Unaudited) |
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| May 31, 2020 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 2,789 |
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| $ | 3,969 |
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| $ | 8,339 |
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| $ | 4,881 |
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Receivables, less allowances of $373 and $252 |
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| 8,671 |
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| 7,599 |
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Spare parts, supplies and fuel, less allowances of $258 and $237 |
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| 523 |
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| 514 |
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Receivables, less allowances of $617 and $390 |
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| 11,417 |
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| 10,102 |
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Spare parts, supplies and fuel, less allowances of $341 and $335 |
|
| 587 |
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| 572 |
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Prepaid expenses and other |
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| 1,592 |
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| 546 |
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| 922 |
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| 828 |
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Total current assets |
|
| 13,575 |
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| 12,628 |
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| 21,265 |
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| 16,383 |
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PROPERTY AND EQUIPMENT, AT COST |
|
| 54,377 |
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| 50,626 |
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| 67,514 |
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| 65,024 |
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Less accumulated depreciation and amortization |
|
| 26,680 |
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| 24,645 |
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| 32,904 |
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| 31,416 |
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Net property and equipment |
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| 27,697 |
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| 25,981 |
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| 34,610 |
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| 33,608 |
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OTHER LONG-TERM ASSETS |
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Operating lease right-of-use assets, net |
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| 14,845 |
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| 13,917 |
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Goodwill |
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| 7,464 |
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| 7,154 |
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| 6,702 |
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| 6,372 |
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Other assets |
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| 3,115 |
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| 2,789 |
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|
| 3,734 |
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| 3,257 |
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Total other long-term assets |
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| 10,579 |
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| 9,943 |
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| 25,281 |
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| 23,546 |
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| $ | 51,851 |
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| $ | 48,552 |
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| $ | 81,156 |
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| $ | 73,537 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
|
| February 28, 2018 (Unaudited) |
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| May 31, 2017 |
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| November 30, 2020 (Unaudited) |
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| May 31, 2020 |
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LIABILITIES AND STOCKHOLDERS’ INVESTMENT |
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LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT |
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CURRENT LIABILITIES |
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Short-term borrowings |
| $ | 799 |
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| $ | — |
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Current portion of long-term debt |
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| 764 |
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| 22 |
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| $ | 97 |
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| $ | 51 |
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Accrued salaries and employee benefits |
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| 1,945 |
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| 1,914 |
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| 2,159 |
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| 1,569 |
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Accounts payable |
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| 3,102 |
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| 2,752 |
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| 3,733 |
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| 3,269 |
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Operating lease liabilities |
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| 2,123 |
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| 1,923 |
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Accrued expenses |
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| 2,893 |
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| 3,230 |
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| 4,003 |
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| 3,532 |
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Total current liabilities |
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| 9,503 |
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| 7,918 |
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| 12,115 |
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| 10,344 |
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LONG-TERM DEBT, LESS CURRENT PORTION |
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| 16,017 |
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| 14,909 |
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| 23,221 |
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| 21,952 |
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OTHER LONG-TERM LIABILITIES |
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Deferred income taxes |
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| 2,401 |
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| 2,485 |
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| 3,471 |
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| 3,162 |
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Pension, postretirement healthcare and other benefit obligations |
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| 2,181 |
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| 4,487 |
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| 5,088 |
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| 5,019 |
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Self-insurance accruals |
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| 1,715 |
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| 1,494 |
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| 2,250 |
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| 2,104 |
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Deferred lease obligations |
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| 532 |
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| 531 |
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Deferred gains, principally related to aircraft transactions |
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| 124 |
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| 137 |
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Operating lease liabilities |
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| 13,009 |
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| 12,195 |
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Other liabilities |
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| 484 |
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| 518 |
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| 963 |
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| 466 |
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Total other long-term liabilities |
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| 7,437 |
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| 9,652 |
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| 24,781 |
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| 22,946 |
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COMMITMENTS AND CONTINGENCIES |
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COMMON STOCKHOLDERS’ INVESTMENT |
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Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of February 28, 2018 and May 31, 2017 |
|
| 32 |
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| 32 |
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Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of November 30, 2020 and May 31, 2020 |
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| 32 |
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| 32 |
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Additional paid-in capital |
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| 3,085 |
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| 3,005 |
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| 3,400 |
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| 3,356 |
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Retained earnings |
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| 23,710 |
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| 20,833 |
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| 27,208 |
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| 25,216 |
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Accumulated other comprehensive loss |
|
| (357 | ) |
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| (415 | ) |
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| (898 | ) |
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| (1,147 | ) |
Treasury stock, at cost |
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| (7,576 | ) |
|
| (7,382 | ) |
|
| (8,703 | ) |
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| (9,162 | ) |
Total common stockholders’ investment |
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| 18,894 |
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| 16,073 |
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| 21,039 |
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| 18,295 |
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| $ | 51,851 |
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| $ | 48,552 |
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| $ | 81,156 |
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| $ | 73,537 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended November 30, |
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| Six Months Ended November 30, |
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| February 28, |
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| February 28, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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REVENUES |
| $ | 16,526 |
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| $ | 14,997 |
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| $ | 48,136 |
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| $ | 44,591 |
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REVENUE |
| $ | 20,563 |
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| $ | 17,324 |
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| $ | 39,884 |
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| $ | 34,372 |
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OPERATING EXPENSES: |
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Salaries and employee benefits |
|
| 5,981 |
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| 5,395 |
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| 17,241 |
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| 16,059 |
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| 7,443 |
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| 6,235 |
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| 14,295 |
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| 12,322 |
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Purchased transportation |
|
| 3,935 |
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| 3,498 |
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| 11,220 |
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| 10,169 |
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| 5,407 |
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| 4,328 |
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| 10,384 |
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| 8,356 |
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Rentals and landing fees |
|
| 873 |
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|
| 834 |
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|
| 2,526 |
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|
| 2,426 |
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|
| 1,006 |
|
|
| 924 |
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|
| 1,942 |
|
|
| 1,844 |
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Depreciation and amortization |
|
| 786 |
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|
| 762 |
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|
| 2,293 |
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|
| 2,241 |
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|
| 936 |
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|
| 901 |
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|
| 1,862 |
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|
| 1,780 |
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Fuel |
|
| 914 |
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|
| 735 |
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|
| 2,435 |
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|
| 2,043 |
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|
| 625 |
|
|
| 890 |
|
|
| 1,190 |
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|
| 1,760 |
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Maintenance and repairs |
|
| 628 |
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|
| 588 |
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|
| 1,968 |
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| 1,765 |
|
|
| 815 |
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|
| 774 |
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|
| 1,621 |
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| 1,542 |
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Asset impairment charges |
|
| — |
|
|
| 66 |
|
|
| — |
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|
| 66 |
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Other |
|
| 2,408 |
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|
| 2,160 |
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|
| 7,073 |
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|
| 6,432 |
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|
| 2,866 |
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|
| 2,652 |
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|
| 5,535 |
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|
| 5,171 |
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|
|
| 15,525 |
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|
| 13,972 |
|
|
| 44,756 |
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|
| 41,135 |
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| 19,098 |
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| 16,770 |
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| 36,829 |
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| 32,841 |
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OPERATING INCOME |
|
| 1,001 |
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|
| 1,025 |
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| 3,380 |
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| 3,456 |
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|
| 1,465 |
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|
| 554 |
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|
| 3,055 |
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|
| 1,531 |
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OTHER INCOME (EXPENSE): |
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OTHER (EXPENSE) INCOME: |
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Interest, net |
|
| (125 | ) |
|
| (122 | ) |
|
| (363 | ) |
|
| (354 | ) |
|
| (184 | ) |
|
| (151 | ) |
|
| (368 | ) |
|
| (288 | ) |
Other retirement plans income |
|
| 150 |
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|
| 168 |
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|
| 351 |
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|
| 336 |
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Other, net |
|
| (2 | ) |
|
| (4 | ) |
|
| (22 | ) |
|
| 17 |
|
|
| (25 | ) |
|
| 1 |
|
|
| (26 | ) |
|
| (11 | ) |
|
|
| (127 | ) |
|
| (126 | ) |
|
| (385 | ) |
|
| (337 | ) |
|
| (59 | ) |
|
| 18 |
|
|
| (43 | ) |
|
| 37 |
|
INCOME BEFORE INCOME TAXES |
|
| 874 |
|
|
| 899 |
|
|
| 2,995 |
|
|
| 3,119 |
|
|
| 1,406 |
|
|
| 572 |
|
|
| 3,012 |
|
|
| 1,568 |
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PROVISION FOR INCOME TAXES |
|
| (1,200 | ) |
|
| 337 |
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|
| (450 | ) |
|
| 1,142 |
|
|
| 180 |
|
|
| 12 |
|
|
| 541 |
|
|
| 263 |
|
NET INCOME |
| $ | 2,074 |
|
| $ | 562 |
|
| $ | 3,445 |
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| $ | 1,977 |
|
| $ | 1,226 |
|
| $ | 560 |
|
| $ | 2,471 |
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| $ | 1,305 |
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EARNINGS PER COMMON SHARE: |
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Basic |
| $ | 7.74 |
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| $ | 2.11 |
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| $ | 12.85 |
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| $ | 7.43 |
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| $ | 4.64 |
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| $ | 2.15 |
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| $ | 9.40 |
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| $ | 5.00 |
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Diluted |
| $ | 7.59 |
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| $ | 2.07 |
|
| $ | 12.63 |
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| $ | 7.31 |
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| $ | 4.55 |
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| $ | 2.13 |
|
| $ | 9.26 |
|
| $ | 4.97 |
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DIVIDENDS DECLARED PER COMMON SHARE |
| $ | 0.50 |
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| $ | 0.40 |
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| $ | 2.00 |
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| $ | 1.60 |
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| $ | 0.65 |
|
| $ | 0.65 |
|
| $ | 1.95 |
|
| $ | 1.95 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN MILLIONS)
|
| Three Months Ended |
|
| Nine Months Ended |
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| Three Months Ended |
|
| Six Months Ended |
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|
| February 28, |
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| February 28, |
|
| November 30, |
|
| November 30, |
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|
| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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| 2020 |
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| 2019 |
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| 2020 |
|
| 2019 |
| ||||||||
NET INCOME |
| $ | 2,074 |
|
| $ | 562 |
|
| $ | 3,445 |
|
| $ | 1,977 |
|
| $ | 1,226 |
|
| $ | 560 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
OTHER COMPREHENSIVE INCOME (LOSS): |
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Foreign currency translation adjustments, net of tax of $9, $3, $26, and $19 |
|
| 100 |
|
|
| 110 |
|
|
| 119 |
|
|
| (108 | ) | ||||||||||||||||
Amortization of prior service credit, net of tax of $7, $12, $29, and $34 |
|
| (23 | ) |
|
| (19 | ) |
|
| (61 | ) |
|
| (57 | ) | ||||||||||||||||
Foreign currency translation adjustments, net of tax expense of $6 and $4 in 2020 and $7 and $4 in 2019 |
|
| 124 |
|
|
| 72 |
|
|
| 253 |
|
|
| (11 | ) | ||||||||||||||||
Amortization of prior service credit, net of tax benefit of $0 and $1 in 2020 and $6 and $12 in 2019 |
|
| (2 | ) |
|
| (20 | ) |
|
| (4 | ) |
|
| (41 | ) | ||||||||||||||||
|
|
| 77 |
|
|
| 91 |
|
|
| 58 |
|
|
| (165 | ) |
|
| 122 |
|
|
| 52 |
|
|
| 249 |
|
|
| (52 | ) |
COMPREHENSIVE INCOME |
| $ | 2,151 |
|
| $ | 653 |
|
| $ | 3,503 |
|
| $ | 1,812 |
|
| $ | 1,348 |
|
| $ | 612 |
|
| $ | 2,720 |
|
| $ | 1,253 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
|
| Nine Months Ended |
| |||||||||||||
|
| February 28, |
|
| Six Months Ended November 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 3,445 |
|
| $ | 1,977 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 2,293 |
|
|
| 2,241 |
|
|
| 1,862 |
|
|
| 1,780 |
|
Asset impairment charges |
|
| — |
|
|
| 66 |
| ||||||||
Provision for uncollectible accounts |
|
| 177 |
|
|
| 115 |
|
|
| 291 |
|
|
| 208 |
|
Stock-based compensation |
|
| 135 |
|
|
| 123 |
|
|
| 121 |
|
|
| 104 |
|
Deferred income taxes and other noncash items |
|
| (914 | ) |
|
| 474 |
| ||||||||
Gain from sale of investment |
|
| — |
|
|
| (35 | ) | ||||||||
Retirement plan mark-to-market adjustment |
|
| 52 |
|
|
| — |
| ||||||||
Other noncash items and deferred income taxes |
|
| 1,482 |
|
|
| 1,164 |
| ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| (986 | ) |
|
| (340 | ) |
|
| (1,100 | ) |
|
| (684 | ) |
Other assets |
|
| (151 | ) |
|
| (235 | ) |
|
| (56 | ) |
|
| (162 | ) |
Accounts payable and other liabilities |
|
| (2,781 | ) |
|
| (1,642 | ) |
|
| 241 |
|
|
| (1,691 | ) |
Other, net |
|
| (56 | ) |
|
| (33 | ) |
|
| (134 | ) |
|
| (16 | ) |
Cash provided by operating activities |
|
| 1,162 |
|
|
| 2,645 |
|
|
| 5,230 |
|
|
| 2,074 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (3,994 | ) |
|
| (3,790 | ) |
|
| (2,826 | ) |
|
| (3,266 | ) |
Business acquisitions, net of cash acquired |
|
| (44 | ) |
|
| — |
| ||||||||
Proceeds from asset dispositions and other |
|
| 21 |
|
|
| 123 |
|
|
| 14 |
|
|
| 4 |
|
Cash used in investing activities |
|
| (4,017 | ) |
|
| (3,667 | ) |
|
| (2,812 | ) |
|
| (3,262 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 797 |
|
|
| — |
|
|
| — |
|
|
| 150 |
|
Principal payments on debt |
|
| (31 | ) |
|
| (49 | ) |
|
| (75 | ) |
|
| (1,021 | ) |
Proceeds from debt issuances |
|
| 1,481 |
|
|
| 1,190 |
|
|
| 970 |
|
|
| 2,093 |
|
Proceeds from stock issuances |
|
| 284 |
|
|
| 265 |
|
|
| 431 |
|
|
| 26 |
|
Dividends paid |
|
| (402 | ) |
|
| (319 | ) |
|
| (341 | ) |
|
| (339 | ) |
Purchase of treasury stock |
|
| (558 | ) |
|
| (358 | ) |
|
| — |
|
|
| (3 | ) |
Other, net |
|
| 6 |
|
|
| 2 |
|
|
| (12 | ) |
|
| (5 | ) |
Cash provided by financing activities |
|
| 1,577 |
|
|
| 731 |
|
|
| 973 |
|
|
| 901 |
|
Effect of exchange rate changes on cash |
|
| 98 |
|
|
| (70 | ) |
|
| 67 |
|
|
| (1 | ) |
Net decrease in cash and cash equivalents |
|
| (1,180 | ) |
|
| (361 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 3,458 |
|
|
| (288 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 3,969 |
|
|
| 3,534 |
|
|
| 4,881 |
|
|
| 2,319 |
|
Cash and cash equivalents at end of period |
| $ | 2,789 |
|
| $ | 3,173 |
|
| $ | 8,339 |
|
| $ | 2,031 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ INVESTMENT
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| November 30, |
|
| November 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
Ending Balance |
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| 3,375 |
|
|
| 3,257 |
|
|
| 3,356 |
|
|
| 3,231 |
|
Employee incentive plans and other |
|
| 25 |
|
|
| 30 |
|
|
| 44 |
|
|
| 56 |
|
Ending Balance |
|
| 3,400 |
|
|
| 3,287 |
|
|
| 3,400 |
|
|
| 3,287 |
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| 26,108 |
|
|
| 25,048 |
|
|
| 25,216 |
|
|
| 24,648 |
|
Net Income |
|
| 1,226 |
|
|
| 560 |
|
|
| 2,471 |
|
|
| 1,305 |
|
Cash dividends declared ($0.65, $0.65, $1.95 and $1.95 per share) |
|
| (172 | ) |
|
| (170 | ) |
|
| (513 | ) |
|
| (509 | ) |
Employee incentive plans and other |
|
| 46 |
|
|
| (7 | ) |
|
| 34 |
|
|
| (9 | ) |
Adoption of new accounting standards on June 1, 2019(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Ending Balance |
|
| 27,208 |
|
|
| 25,431 |
|
|
| 27,208 |
|
|
| 25,431 |
|
Accumulated Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| (1,020 | ) |
|
| (918 | ) |
|
| (1,147 | ) |
|
| (865 | ) |
Other comprehensive income, net of tax (expense)/benefit of ($6), ($1), ($3) and $8 |
|
| 122 |
|
|
| 52 |
|
|
| 249 |
|
|
| (52 | ) |
Reclassification to retained earnings due to the adoption of a new accounting standard on June 1, 2019(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
Ending Balance |
|
| (898 | ) |
|
| (866 | ) |
|
| (898 | ) |
|
| (866 | ) |
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| (9,033 | ) |
|
| (9,253 | ) |
|
| (9,162 | ) |
|
| (9,289 | ) |
Purchase of treasury stock (0.02 million shares) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
Employee incentive plans and other (2.4, 0.2, 3.4 and 0.5 million shares) |
|
| 330 |
|
|
| 28 |
|
|
| 459 |
|
|
| 67 |
|
Ending Balance |
|
| (8,703 | ) |
|
| (9,225 | ) |
|
| (8,703 | ) |
|
| (9,225 | ) |
Total Common Stockholders’ Investment Balance |
| $ | 21,039 |
|
| $ | 18,659 |
|
| $ | 21,039 |
|
| $ | 18,659 |
|
(1) | Relates to the adoption of Accounting Standards Update (“ASU”) 2016-02 and ASU 2018-02. |
(2) | Relates to the adoption of ASU 2018-02. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 8 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of FedEx Corporation (“FedEx”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 20172020 (“Annual Report”). Accordingly, significantSignificant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of February 28, 2018,November 30, 2020, and the results of our operations for the three- and nine-monthsix-month periods ended February 28, 2018November 30, 2020 and 2017, and2019, cash flows for the nine-monthsix-month periods ended February 28, 2018November 30, 2020 and 2017.2019, and changes in common stockholders’ investment for the three- and six-month periods ended November 30, 2020 and 2019. Operating results for the three- and nine-monthsix-month periods ended February 28, 2018November 30, 2020 are not necessarily indicative of the results that may be expected for the year ending May 31, 2018.2021.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 20182021 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.
REVENUE RECOGNITION.
BUSINESS ACQUISITION. On October 13, 2017, FedEx acquired Northwest Research, Inc.Contract Assets and Liabilities
Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., a leader in inventory researchpackages have been delivered). Contract assets are generally classified as current and management, for $50 million in cash from operations. The majoritythe full balance is converted each quarter based on the short-term nature of the purchase price was allocatedtransactions. Our contract liabilities consist of advance payments and billings in excess of revenue. The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions.
Gross contract assets related to propertyin-transit shipments totaled $701 million and equipment. $563 million at November 30, 2020 and May 31, 2020, respectively. Contract assets net of deferred unearned revenue were $499 million and $456 million at November 30, 2020 and May 31, 2020, respectively. Contract assets are included within current assets in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities related to advance payments from customers were $9 million and $10 million at November 30, 2020 and May 31, 2020, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets.
- 9 -
Disaggregation of Revenue
The financialfollowing table provides revenue by service type (in millions) for the periods ended November 30. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
REVENUE BY SERVICE TYPE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 2,012 |
|
| $ | 1,864 |
|
| $ | 3,873 |
|
| $ | 3,730 |
|
U.S. overnight envelope |
|
| 435 |
|
|
| 457 |
|
|
| 861 |
|
|
| 936 |
|
U.S. deferred |
|
| 1,204 |
|
|
| 980 |
|
|
| 2,300 |
|
|
| 1,936 |
|
Total U.S. domestic package revenue |
|
| 3,651 |
|
|
| 3,301 |
|
|
| 7,034 |
|
|
| 6,602 |
|
International priority |
|
| 2,510 |
|
|
| 1,817 |
|
|
| 4,827 |
|
|
| 3,634 |
|
International economy |
|
| 658 |
|
|
| 873 |
|
|
| 1,274 |
|
|
| 1,728 |
|
Total international export package revenue |
|
| 3,168 |
|
|
| 2,690 |
|
|
| 6,101 |
|
|
| 5,362 |
|
International domestic(1) |
|
| 1,206 |
|
|
| 1,165 |
|
|
| 2,294 |
|
|
| 2,241 |
|
Total package revenue |
|
| 8,025 |
|
|
| 7,156 |
|
|
| 15,429 |
|
|
| 14,205 |
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 799 |
|
|
| 698 |
|
|
| 1,632 |
|
|
| 1,393 |
|
International priority |
|
| 737 |
|
|
| 473 |
|
|
| 1,390 |
|
|
| 937 |
|
International economy |
|
| 408 |
|
|
| 541 |
|
|
| 779 |
|
|
| 1,057 |
|
International airfreight |
|
| 65 |
|
|
| 70 |
|
|
| 140 |
|
|
| 136 |
|
Total freight revenue |
|
| 2,009 |
|
|
| 1,782 |
|
|
| 3,941 |
|
|
| 3,523 |
|
Other(2) |
|
| 334 |
|
|
| 146 |
|
|
| 645 |
|
|
| 301 |
|
Total FedEx Express segment |
|
| 10,368 |
|
|
| 9,084 |
|
|
| 20,015 |
|
|
| 18,029 |
|
FedEx Ground segment |
|
| 7,344 |
|
|
| 5,315 |
|
|
| 14,384 |
|
|
| 10,494 |
|
FedEx Freight segment |
|
| 1,936 |
|
|
| 1,844 |
|
|
| 3,762 |
|
|
| 3,749 |
|
FedEx Services segment |
|
| 8 |
|
|
| 5 |
|
|
| 16 |
|
|
| 9 |
|
Other and eliminations(3) |
|
| 907 |
|
|
| 1,076 |
|
|
| 1,707 |
|
|
| 2,091 |
|
|
| $ | 20,563 |
|
| $ | 17,324 |
|
| $ | 39,884 |
|
| $ | 34,372 |
|
(1) | International domestic revenue relates to our international intra-country operations. |
(2) | Includes the operations of FedEx Custom Critical, Inc. (“FedEx Custom Critical”) and FedEx Cross Border Holdings, Inc. (“FedEx Cross Border”) for the periods ended November 30, 2020. Effective March 1, 2020 and June 1, 2020, respectively, the results of FedEx Custom Critical and FedEx Cross Border are included in the Federal Express Corporation (“FedEx Express”) segment prospectively. |
(3) | Includes the FedEx Logistics, Inc. (“FedEx Logistics”) and FedEx Office and Print Services, Inc. (“FedEx Office”) operating segments. |
IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets are less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.
During the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FedEx Express to align with the needs of the U.S. domestic network and modernize its aircraft fleet. As a consequence of this acquired business are includeddecision, noncash impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) were recorded in the FedEx Corporate Services, Inc. (“FedEx Services”)Express segment fromin the datesecond quarter of acquisition and were not material to our results of operations. Therefore, pro forma financial information has not been provided.2020.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FederalFedEx Express, Corporation (“FedEx Express”), who representare a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. ThisThe collective bargaining agreement is scheduled to become amendable in November 2021, after a six-year term. In addition to our2021. Other than the pilots at FedEx Express, FedEx Supply Chain Distribution System, Inc. (“FedEx Supply Chain”) has a small number of our employees who are members of unions,unions.
- 10 -
BUSINESS ACQUISITION. On December 2, 2020, we agreed to acquire ShopRunner, Inc. (“ShopRunner”), an e-commerce platform that directly connects brands and certain non-U.S. employeesmerchants with online shoppers. The cost of the acquisition will not be material and will be funded with cash from operations. This acquisition is expected to be completed in December 2020, subject to customary conditions, including regulatory approval. The financial results of ShopRunner will be included in “Corporate, other and eliminations” from the date of acquisition and are unionized.not expected to be material to our results of operations in 2021.
STOCK-BASED COMPENSATION. We have two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under our outstanding incentive stock plans and all financial disclosures about these programs are set forth in our Annual Report.
Our stock-based compensation expense was $32$46 million for the three-month period ended February 28, 2018November 30, 2020 and $135$121 million for the nine-monthsix-month period ended February 28, 2018.November 30, 2020. Our stock-based compensation expense was $31$37 million for the three-month period ended February 28, 2017November 30, 2019 and $123$104 million for the nine-monthsix-month period ended February 28, 2017.November 30, 2019. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.
DERIVATIVE FINANCIAL INSTRUMENTS. Our risk management strategy includes the select use of derivative instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. In accordance with our risk management policies, we do not hold or issue derivative instruments for trading or speculative purposes. All derivative instruments are recognized in the financial statements at fair value, regardless of the purpose or intent for holding them.
When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge, which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge or a net investment hedge.
If a derivative is designated as a cash flow hedge, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in other comprehensive income. For net investment hedges, the entire change in the fair value is recorded in other comprehensive income. Any portion of a change in the fair value of a derivative that is considered to be ineffective, along with the change in fair value of any derivatives not designated in a hedging relationship, is immediately recognized in the income statement. We do not have any derivatives designated as a cash flow hedge for any period presented. We have €640 million of debt designated as a net investment hedge to reduce the volatility of the U.S. dollar value of a portion of our net investment in a euro-denominated subsidiary. As of November 30, 2020, the hedge remains effective.
RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.
Recently Adopted Accounting Standards
In December 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance to registrants in accounting for income taxes under the Tax Cuts and Jobs Act (“TCJA”). See Note 5 for further discussion related to applying this guidance.
During the first quarter of 2018, we early adopted the Accounting Standards Update issued byJune 2016, the Financial Accounting Standards Board (“FASB”) related to Intra-Entity Transfers of Assets Other Than Inventory. This update requires companies to recognizeissued ASU 2016-13 that amends the income tax consequences of intra-entity transfers ofimpairment model for most financial assets and certain other than inventory when the transfer occurs, as opposed to when the assetsinstruments that are ultimately sold to an outside party. This new guidance had an immaterial impact on our accounting and financial reporting for the third quarter and nine months of 2018.
In January 2017, the FASB issued an Accounting Standards Update that simplifies the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. Under this new guidance, an entity should perform its annual or interim goodwill impairment test by comparing thenot measured at fair value through net income, including trade receivables, to utilize an expected loss methodology in place of a reporting unit with its carrying amount. An entity should recognize an
- 8 -
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, theincurred loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance will be applied prospectively and will bemethodology. We adopted this standard effective for us beginning June 1, 2020 (fiscal 2021). Early adoption is permitted2020. We updated our process for annual and interim goodwill impairment testing dates after January 1, 2017. We expectestimating the expected credit loss to early adoptinclude a review of forecast information that may impact expected collectability over the guidance during the fourth quarter of 2018.
In 2014, the FASB and International Accounting Standards Board issued a new accounting standard that will supersede virtually all existing revenue recognition guidance under generally accepted accounting principles in the United States. This standard will be effective for us beginning June 1, 2018 (fiscal 2019). The fundamental principleslifetime of the new guidance are that companies should recognize revenue inasset. See Note 2 for additional information. The adoption of this standard did not have a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The new guidance establishes a five-step approach for the recognition of revenue. We are finalizing the assessment of thematerial impact this new standard will have on our consolidated financial statements and related disclosures, including ongoing contract reviews, which will be completed bydisclosures.
In August 2018, the endFASB issued ASU 2018-15 that reduces the complexity of 2018.accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. We doadopted this standard effective June 1, 2020 and applied these changes prospectively. The adoption of this standard did not anticipate that the new guidance will have a material impact on our revenue recognition policies, practices or systems.consolidated financial statements and related disclosures.
In March 2017,December 2019, the FASB issued an Accounting Standards Update that changes how employers that sponsor defined benefit pension or other postretirement benefit plans presentASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the net periodic benefit costgeneral principles in the income statement. This newTopic 740 and also clarifies and amends existing guidance requires entities to report the service cost component in the same line item or items as other compensation costs.improve consistent application. We early adopted this standard effective June 1, 2020. The other componentsadoption of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. Thisthis standard will impact our operating income but willdid not have noa material impact on our net income or earnings per share. For example, adoption of this guidance would have reduced operating income by $143 million in the third quarter and $436 million in the nine months of 2018, and by $113 million in the third quarter and $337 million in the nine months of 2017, but would not have impacted our net income in these periods. This new guidance will be effective June 1, 2018 and will be applied retrospectively.
In 2016, the FASB issued a new lease accounting standard which requires lessees to put most leases on their balance sheets but recognize the expenses in their incomeconsolidated financial statements in a manner similar to current practice. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on our balance sheet in excess of $13 billion, with an immaterial impact on our income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on the company’s lease portfolio as of the adoption date. We are currently in the process of evaluating our existing lease portfolio, including accumulating all of the necessary information required to properly account for the leases under the new standard. Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. These changes will be effective June 1, 2019 (fiscal 2020).disclosures.
In February 2018, the FASB issued an Accounting Standards Update that will permit companies to reclassify the income tax effect of the TCJA on items within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings. These changes will be effective June 1, 2019 (fiscal 2020).- 11 -
TREASURY SHARES. In January 2016, our Board of Directors authorizedapproved a sharestock repurchase program of up to 25 million shares. We did 0t repurchase any shares of FedEx common stock during the first half of 2021. As of November 30, 2020, 5.1 million shares remained under the stock repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.
During 2020, we amended our amended and restated $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and our $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and together with the third quarter of 2018, we repurchased 1.2 millionFive-Year Credit Agreement, the “Credit Agreements”). The amendments to the Credit Agreements, among other things, temporarily restrict us from repurchasing any shares of FedExour common stock at an average price of $248.73 per sharebetween May 27, 2020 and May 31, 2021.
See Note 4 for a total of $288 million. Duringmore information on the nine months of 2018, we repurchased 2.4 million shares of FedEx common stock at an average price of $232.00 per share for a total of $558 million. As of February 28, 2018, 13.6 million shares remained underamendments to the current share repurchase authorization.Credit Agreements.
DIVIDENDS DECLARED PER COMMON SHARE. On February 16, 2018,November 20, 2020, our Board of Directors declared a quarterly dividend of $0.50$0.65 per share of common stock. The dividend will be paid on April 2, 2018December 28, 2020 to stockholders of record as of the close of business on March 12, 2018.December 14, 2020. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basisbasis. The amendments to the Credit Agreements discussed above under “Treasury Shares” temporarily restrict us from increasing the amount of our quarterly dividend payable per share of common stock from $0.65 per share between May 27, 2020 and May 31, 2021. There are no other material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances.
(2) Credit Losses
We are exposed to credit losses primarily through our trade receivables. We assess ability to pay for certain customers by conducting a credit review, which considers the customer’s established credit rating and our assessment of creditworthiness. We determine the allowance for credit losses on accounts receivable using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are determined using loss rates based on historical write-offs by geography and recent forecast information, including underlying economic expectations. We update our estimate of credit loss reserves quarterly, considering recent write-offs, collections information and underlying economic expectations.
Credit losses were $148 million for the three-month period ended November 30, 2020 and $291 million for the six-month period ended November 30, 2020. Credit losses were $102 million for the three-month period ended November 30, 2019 and $208 million for the six-month period ended November 30, 2019. Our allowance for credit losses was $296 million as of November 30, 2020 and $175 million at the end of each fiscal year.May 31, 2020.
- 9 -
(2) (3) Accumulated Other Comprehensive Income (Loss)
The following table provides changes in AOCI,accumulated other comprehensive income (“AOCI”), net of tax, reported in our unaudited condensed consolidated financial statements for the periods ended February 28November 30 (in millions; amounts in parentheses indicate debits to AOCI):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Foreign currency translation loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | (666 | ) |
| $ | (732 | ) |
| $ | (685 | ) |
| $ | (514 | ) |
| $ | (1,078 | ) |
| $ | (1,036 | ) |
| $ | (1,207 | ) |
| $ | (954 | ) |
Translation adjustments |
|
| 100 |
|
|
| 110 |
|
|
| 119 |
|
|
| (108 | ) |
|
| 124 |
|
|
| 72 |
|
|
| 253 |
|
|
| (11 | ) |
Reclassification to retained earnings due to the adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||
Balance at end of period |
|
| (566 | ) |
|
| (622 | ) |
|
| (566 | ) |
|
| (622 | ) |
|
| (954 | ) |
|
| (964 | ) |
|
| (954 | ) |
|
| (964 | ) |
Retirement plans adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 232 |
|
|
| 307 |
|
|
| 270 |
|
|
| 345 |
|
|
| 58 |
|
|
| 118 |
|
|
| 60 |
|
|
| 89 |
|
Reclassifications from AOCI |
|
| (23 | ) |
|
| (19 | ) |
|
| (61 | ) |
|
| (57 | ) |
|
| (2 | ) |
|
| (20 | ) |
|
| (4 | ) |
|
| (41 | ) |
Reclassification to retained earnings due to the adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
| ||||||||||||||||
Balance at end of period |
|
| 209 |
|
|
| 288 |
|
|
| 209 |
|
|
| 288 |
|
|
| 56 |
|
|
| 98 |
|
|
| 56 |
|
|
| 98 |
|
Accumulated other comprehensive (loss) at end of period |
| $ | (357 | ) |
| $ | (334 | ) |
| $ | (357 | ) |
| $ | (334 | ) |
| $ | (898 | ) |
| $ | (866 | ) |
| $ | (898 | ) |
| $ | (866 | ) |
- 12 -
The following table presents details of the reclassifications from AOCI for the periods ended February 28November 30 (in millions; amounts in parentheses indicate debits to earnings):
|
| Amount Reclassified from AOCI |
|
| Affected Line Item in the Income Statement |
| Amount Reclassified from AOCI |
|
| Affected Line Item in the Income Statement | ||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
|
| Three Months Ended |
|
| Six Months Ended |
|
|
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
|
| ||||||||
Amortization of retirement plans prior service credits, before tax |
| $ | 30 |
|
| $ | 31 |
|
| $ | 90 |
|
| $ | 91 |
|
| Salaries and employee benefits |
| $ | 2 |
|
| $ | 26 |
|
| $ | 5 |
|
| $ | 53 |
|
| Other retirement plans income |
Income tax benefit |
|
| (7 | ) |
|
| (12 | ) |
|
| (29 | ) |
|
| (34 | ) |
| Provision for income taxes |
|
| — |
|
|
| (6 | ) |
|
| (1 | ) |
|
| (12 | ) |
| Provision for income taxes |
AOCI reclassifications, net of tax |
| $ | 23 |
|
| $ | 19 |
|
| $ | 61 |
|
| $ | 57 |
|
| Net income |
| $ | 2 |
|
| $ | 20 |
|
| $ | 4 |
|
| $ | 41 |
|
| Net income |
(3) (4) Financing Arrangements
We have a shelf registration statement filed with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.stock and allows pass through trusts formed by FedEx Express to sell, in one or more future offerings, pass through certificates.
During the third quarter of 2018, weAugust 2020, FedEx Express issued $1.5 billion of senior unsecured debt under our current shelf registration statement, comprised of $500$970 million of 3.40% fixed-rate notesPass Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of 1.875% due in February 2028,2034 utilizing pass through trusts (the “Trusts”). The Certificates are secured by 19 Boeing aircraft with a net book value of $1.9 billion at November 30, 2020. The payment obligations of FedEx Express in respect of the Certificates are fully and $1unconditionally guaranteed by FedEx. FedEx Express is using the proceeds from the issuance for general corporate purposes.
Each Trust meets the definition of a variable interest entity, or VIE, as defined in the Consolidations topic of the Codification (ASC 810), and must be considered for consolidation in our financial statements. Our assessment of the Trusts considers both quantitative and qualitative factors, including the purpose for which the Trust was established and the nature of the risks related to the Trusts. Neither FedEx nor FedEx Express invests in or possesses a financial interest in the Trusts. Rather, FedEx Express has an obligation to make interest and principal payments, which are fully and unconditionally guaranteed by FedEx, and is not the primary beneficiary of the Trusts. Based on this analysis, we determined that we are not required to consolidate the Trusts.
We have a $2.0 billion of 4.05% fixed-rate notes due in February 2048. Interest on these notes is paid semi-annually. We used the net proceeds forFive-Year Credit Agreement and a voluntary incremental contribution in February 2018 to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”).
During the quarter, we amended our five-year revolving credit facility to increase the aggregate amount available under the facility from $1.75$1.5 billion to $2.0 billion.364-Day Credit Agreement. The facility, whichFive-Year Credit Agreement expires in November 2020March 2025 and includes a $500$250 million letter of credit sublimit, issublimit. The 364-Day Credit Agreement expires in March 2021. The Credit Agreements are available to finance our operations and other cash flow needs. The agreement containsCredit Agreements contain a financial covenant which requiresrequiring us to maintain a ratio of debt to consolidated earnings (excluding non-cash pensionnoncash retirement plans mark-to-market adjustments, noncash pension service costs and non-cashnoncash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.54.9 to 1.0, calculated as of the end of the applicable quarterNovember 30, 2020 on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was 2.22.6 to 1.0 at February 28, 2018.November 30, 2020. The Credit Agreements also contain the temporary covenants discussed in Note 1. We believe this covenant isthese covenants are the only significant restrictive covenantcovenants in our revolving credit agreement. Our revolving credit agreement containsthe Credit Agreements. The Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with thisthe financial covenant and all other covenants of our revolving credit agreementin the Credit Agreements and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants in the Credit Agreements, our access to financing could become limited.
DuringInformation regarding changes to the thirdratio of debt to adjusted EBITDA required to be maintained under the Credit Agreements through the fourth quarter of 2018, we issued2021 is provided in our Annual Report.
Outstanding commercial paper which provided us with additional short-term liquidity. The maximum outstanding during the quarter was $800 million. Our commercial paper program is backed by unused commitments under the revolving credit facility and borrowings under the program reducereduces the amount available to borrow under the credit facility.Credit Agreements. As of February 28, 2018, $800 million ofNovember 30, 2020, 0 commercial paper was outstanding and $54$0.3 million in letters of credit were outstanding, leaving $1.146$3.5 billion available under the revolving credit facilityCredit Agreements for future borrowings.
Long-term debt, including current maturities and exclusive of capitalfinance leases, had carrying values of $16.7$22.8 billion at February 28, 2018November 30, 2020 and $14.9$21.5 billion at May 31, 2017,2020, compared with estimated fair values of $17.0$27.2 billion at February 28, 2018November 30, 2020 and $15.5$22.8 billion at May 31, 2017.2020. The annualized
- 10 -
weighted-average interest rate on long-term debt was 3.6%3.5% at February 28, 2018.November 30, 2020. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.
(4) - 13 -
(5) Computation of Earnings Per Share
The calculation of basic and diluted earnings per common share for the periods ended February 28November 30 was as follows (in millions, except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocable to common shares(1) |
| $ | 2,071 |
|
| $ | 561 |
|
| $ | 3,441 |
|
| $ | 1,974 |
|
| $ | 1,224 |
|
| $ | 559 |
|
| $ | 2,466 |
|
| $ | 1,303 |
|
Weighted-average common shares |
|
| 268 |
|
|
| 266 |
|
|
| 268 |
|
|
| 266 |
|
|
| 264 |
|
|
| 261 |
|
|
| 263 |
|
|
| 261 |
|
Basic earnings per common share |
| $ | 7.74 |
|
| $ | 2.11 |
|
| $ | 12.85 |
|
| $ | 7.43 |
|
| $ | 4.64 |
|
| $ | 2.15 |
|
| $ | 9.40 |
|
| $ | 5.00 |
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocable to common shares(1) |
| $ | 2,071 |
|
| $ | 561 |
|
| $ | 3,441 |
|
| $ | 1,974 |
|
| $ | 1,224 |
|
| $ | 559 |
|
| $ | 2,466 |
|
| $ | 1,303 |
|
Weighted-average common shares |
|
| 268 |
|
|
| 266 |
|
|
| 268 |
|
|
| 266 |
|
|
| 264 |
|
|
| 261 |
|
|
| 263 |
|
|
| 261 |
|
Dilutive effect of share-based awards |
|
| 5 |
|
|
| 5 |
|
|
| 4 |
|
|
| 4 |
|
|
| 5 |
|
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
Weighted-average diluted shares |
|
| 273 |
|
|
| 271 |
|
|
| 272 |
|
|
| 270 |
|
|
| 269 |
|
|
| 262 |
|
|
| 266 |
|
|
| 262 |
|
Diluted earnings per common share |
| $ | 7.59 |
|
| $ | 2.07 |
|
| $ | 12.63 |
|
| $ | 7.31 |
|
| $ | 4.55 |
|
| $ | 2.13 |
|
| $ | 9.26 |
|
| $ | 4.97 |
|
Anti-dilutive options excluded from diluted earnings per common share |
|
| 1.9 |
|
|
| 4.0 |
|
|
| 2.6 |
|
|
| 4.7 |
|
|
| 1.3 |
|
|
| 11.2 |
|
|
| 5.1 |
|
|
| 11.0 |
|
(1) |
|
(6) Income Taxes
Our effective tax rate was 12.8% for the second quarter and 18.0% for the first half of 2021, compared to participating securities were immaterial2.1% for the second quarter and 16.8% for the first half of 2020. The 2021 tax rates include a benefit of $191 million from an increase in all periods presented.
- 11 -
On December 22, 2017,our 2020 tax loss that the United States government enacted comprehensive tax legislation throughCoronavirus Aid, Relief, and Economic Security Act will allow to be carried back to 2015, when the TCJA. The TCJA significantly changes the U.S. corporate income tax system including, among other things, lowering the statutory federal income tax rate was 35%. The increase in our estimated 2020 tax loss is attributable to our Application for Change in Accounting Method filed with the Internal Revenue Service (“IRS”) during the fourth quarter of 2020 discussed below and other accelerated deductions to be claimed on the 2020 tax return. The 2020 tax rates included a $133 million benefit from 35%a valuation allowance reduction which, when combined with substantially lower consolidated earnings, produced a significantly lower rate for the second quarter of 2020 compared to 21%, eliminating or reducingthe second quarter of 2021.
We filed an application with the IRS in 2020 requesting approval to change our accounting method for depreciation to allow retroactive application of tax regulations issued during 2020 on certain assets placed in service during 2018 and 2019. During the second quarter of 2021, the IRS issued guidance granting automatic approval to change the method of accounting for these assets resulting in an income tax deductions, and implementing a modified territorial tax system that includes a one-time transition tax on previously deferred foreign earnings. Due to our May 31 fiscal year end, the lower rate will be phased in, resulting in a U.S. statutory federal ratebenefit of 29.2% for 2018 and a 21% statutory federal rate for subsequent years.
In December 2017, the SEC staff issued SAB 118, which provides guidance on accounting$130 million for the tax effectssecond quarter.
During the second quarter of the TCJA. SAB 118 provides for a measurement period of up to one year from the enactment date for companies to complete the accounting2021, we filed suit in U.S. District Court for the initial incomeWestern District of Tennessee challenging the validity of a tax effects of the TCJA. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting is complete and provide a provisional estimate (where determinable) of the income tax effects of the TCJA where the accounting is incomplete. The provisional estimate is required to be updated throughout the measurement period.
As of February 28, 2018, we have not completed our initial accounting of the tax effects of the TCJA; however, where determinable, we have made an estimate of the effects on our existing deferred tax balances and the one-time transition tax. During the quarter, we recognized a provisional benefit of $1.15 billionregulation related to the remeasurement of our net U.S. deferred tax liability and a provisional benefit of $36 million from foreign tax credits exceeding the one-time transition tax on previously deferredunrepatriated foreign earnings.
In additionearnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the provisional amounts above, we recognizeddenial of foreign tax credits under the regulation. We have recorded a one-timecumulative benefit of $204$233 million from a $1.5 billion contributionthrough 2019 attributable to our U.S. Pension Plans in February 2018 and a benefit of $165 million related to a lower statutory income tax rate on fiscal 2018 year-to-date earnings.
The following table provides a reconciliation of the 2017 effective tax rates to the 2018 effective tax rates, including the impactinterpretation of the TCJA forand the periods ended February 28:Internal Revenue Code. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| 2018 |
|
| 2018 |
| ||
2017 Effective Tax Rate |
|
| 37.5 | % |
|
| 36.6 | % |
Remeasurement of net U.S. deferred tax liability |
|
| (131.5 | ) |
|
| (38.4 | ) |
Effect of February 2018 pension contribution (a) |
|
| (23.3 | ) |
|
| (6.8 | ) |
Lower statutory tax rate |
|
| (18.9 | ) |
|
| (5.5 | ) |
Transition tax |
|
| (4.1 | ) |
|
| (1.2 | ) |
Other (b) |
|
| 3.0 |
|
|
| 0.3 |
|
2018 Effective Tax Rate |
|
| (137.3 | )% |
|
| (15.0 | )% |
|
|
|
|
(6) - 14 -
(7) Retirement Plans
We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans and postretirement healthcare plans. Key terms of our retirement plans are provided in our Annual Report.
Our retirement plans costs for the periods ended February 28November 30 were as follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Defined benefit pension plans |
| $ | 39 |
|
| $ | 57 |
|
| $ | 113 |
|
| $ | 173 |
| ||||||||||||||||
Defined benefit pension plans, net |
| $ | 27 |
|
| $ | 37 |
|
| $ | 52 |
|
| $ | 74 |
| ||||||||||||||||
Defined contribution plans |
|
| 135 |
|
|
| 117 |
|
|
| 386 |
|
|
| 348 |
|
|
| 153 |
|
|
| 136 |
|
|
| 311 |
|
|
| 278 |
|
Postretirement healthcare plans |
|
| 19 |
|
|
| 19 |
|
|
| 56 |
|
|
| 57 |
|
|
| 20 |
|
|
| 21 |
|
|
| 41 |
|
|
| 43 |
|
Retirement plan mark-to-market (“MTM”) net loss |
|
| 52 |
|
|
| — |
|
|
| 52 |
|
|
| — |
| ||||||||||||||||
|
| $ | 193 |
|
| $ | 193 |
|
| $ | 555 |
|
| $ | 578 |
|
| $ | 252 |
|
| $ | 194 |
|
| $ | 456 |
|
| $ | 395 |
|
- 12 -
Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended February 28November 30 included the following components (in millions):
|
| Three Months Ended |
| |||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||
Service cost |
| $ | 169 |
|
| $ | 160 |
|
| $ | 23 |
|
| $ | 20 |
|
| $ | 9 |
|
| $ | 9 |
|
Interest cost |
|
| 279 |
|
|
| 282 |
|
|
| 12 |
|
|
| 11 |
|
|
| 10 |
|
|
| 10 |
|
Expected return on plan assets |
|
| (406 | ) |
|
| (375 | ) |
|
| (10 | ) |
|
| (9 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (29 | ) |
|
| (30 | ) |
|
| 1 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| $ | 13 |
|
| $ | 37 |
|
| $ | 26 |
|
| $ | 20 |
|
| $ | 19 |
|
| $ | 19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
| |||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| |||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||
Service cost |
| $ | 509 |
|
| $ | 479 |
|
| $ | 69 |
|
| $ | 61 |
|
| $ | 27 |
|
| $ | 27 |
|
Interest cost |
|
| 836 |
|
|
| 846 |
|
|
| 37 |
|
|
| 33 |
|
|
| 29 |
|
|
| 30 |
|
Expected return on plan assets |
|
| (1,218 | ) |
|
| (1,126 | ) |
|
| (32 | ) |
|
| (30 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (88 | ) |
|
| (89 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| $ | 39 |
|
| $ | 110 |
|
| $ | 74 |
|
| $ | 63 |
|
| $ | 56 |
|
| $ | 57 |
|
|
| Three Months Ended |
| |||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Service cost |
| $ | 212 |
|
| $ | 192 |
|
| $ | 26 |
|
| $ | 24 |
|
| $ | 11 |
|
| $ | 10 |
|
Other retirement plans (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
| 239 |
|
|
| 250 |
|
|
| 11 |
|
|
| 11 |
|
|
| 9 |
|
|
| 11 |
|
Expected return on plan assets |
|
| (446 | ) |
|
| (401 | ) |
|
| (13 | ) |
|
| (13 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (2 | ) |
|
| (25 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
MTM net loss |
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (209 | ) |
|
| (176 | ) |
|
| 50 |
|
|
| (3 | ) |
|
| 9 |
|
|
| 11 |
|
|
| $ | 3 |
|
| $ | 16 |
|
| $ | 76 |
|
| $ | 21 |
|
| $ | 20 |
|
| $ | 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| |||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Service cost |
| $ | 425 |
|
| $ | 384 |
|
| $ | 49 |
|
| $ | 48 |
|
| $ | 22 |
|
| $ | 21 |
|
Other retirement plans (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
| 479 |
|
|
| 500 |
|
|
| 21 |
|
|
| 22 |
|
|
| 19 |
|
|
| 22 |
|
Expected return on plan assets |
|
| (892 | ) |
|
| (801 | ) |
|
| (25 | ) |
|
| (26 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (4 | ) |
|
| (52 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
MTM net loss |
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (417 | ) |
|
| (353 | ) |
|
| 47 |
|
|
| (5 | ) |
|
| 19 |
|
|
| 22 |
|
|
| $ | 8 |
|
| $ | 31 |
|
| $ | 96 |
|
| $ | 43 |
|
| $ | 41 |
|
| $ | 43 |
|
Contributions toFor 2021, 0 pension contributions are required for our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans forPlans”) as they are fully funded under the nine-month periods ended February 28 were as follows (in millions):
|
| 2018 |
|
| 2017 |
| ||
Required |
| $ | 22 |
|
| $ | 444 |
|
Voluntary |
|
| 2,478 |
|
|
| 1,306 |
|
|
| $ | 2,500 |
|
| $ | 1,750 |
|
During the third quarter of 2018, weEmployee Retirement Income Security Act. We made voluntary contributions to our U.S. Pension Plans of $1.75 billion.$1.0 billion during the first half of 2020.
(7) We incurred a pre-tax, noncash MTM net loss of $52 million in the second quarter of 2021 related to amendments to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100 employees will be frozen effective December 31, 2020. Effective January 1, 2021, these employees will begin earning pension benefits under a separate, multi-employer pension plan. This $52 million net loss consists of a $106 million MTM loss due to a lower discount rate and a $54 million curtailment gain.
- 15 -
In 2020, we announced the closing of our U.S.-based defined benefit pension plans to new non-union employees hired on or after January 1, 2020. We will introduce an all-401(k)-plan retirement benefit structure for eligible employees with a higher company match of up to 8% across all U.S.-based operating companies in 2022. During calendar 2021, current eligible employees under the Portable Pension Account (“PPA”) pension formula will be given a one-time option to continue to be eligible for pension compensation credits under the existing PPA formula and remain in the existing 401(k) plan with its match of up to 3.5%, or to cease receiving compensation credits under the pension plan and move to the new 401(k) plan with the higher match of up to 8%. Changes to the new 401(k) plan structure become effective beginning January 1, 2022. While this new program will provide employees greater flexibility and reduce our long-term pension costs, it will not have a material impact on current or near-term financial results.
(8) Business Segment Information
We provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independentlycollaboratively and managed collaboratively,innovating digitally, under the respected FedEx brand. Our primary operating companies are FedEx Express, including TNT Express B.V. (“TNT Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Inc.Corporation (“FedEx Freight”), a leading U.S.North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, form the core ofInc. (“FedEx Services”), constitute our reportable segments.
Our reportable segments include the following businesses:
FedEx Express Segment | FedEx Express (express |
| |
| FedEx FedEx Cross Border (cross-border e-commerce technology and e-commerce transportation solutions) |
| |
FedEx Ground Segment | FedEx Ground (small-package ground delivery) |
| |
|
|
FedEx Freight Segment | FedEx Freight (LTL freight transportation) |
|
|
| |
FedEx Services Segment | FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services and back-office functions) |
|
|
- 13 -
As discussed inReferences to our Annual Report, in the first quarter of 2018, we began to report TNT Express as part oftransportation segments include, collectively, the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation.
Effective March 1, 2018, we realigned our specialty logistics and e-commerce solutions in a new organizational structure under FedEx Trade Networks, Inc. insegment, the FedEx ExpressGround segment and the FedEx Freight segment. The realignment allows us to improve our ability to deliver the capabilities of our specialty companies to customers. The new structure includes FedEx Custom Critical, FedEx Cross Border, FedEx Supply Chain, FedEx Trade Networks Transport & Brokerage and, effective June 1, 2018, a new company called FedEx Forward Depots. Prior period segment results will be recast to conform to current year presentation beginning in the fourth quarter of 2018.
FedEx Services Segment
The FedEx Services segment operates combined sales, marketing, administrative and information technologyinformation-technology functions thatin shared services operations for U.S. customers of our major business units and certain back-office support to our transportation businesses and allowoperating segments which allows us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis and reported by FedEx Express in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services for U.S. customers of our major business units and certain back-office support to our other companies; and FedEx Office and Print Services, Inc. (“FedEx Office”), which provides an array of document and business services and retail access to our customers for our package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses,operating segments, and we allocate all of the net operating costs of the FedEx Services segment (including the net operating results of FedEx Office) to reflect the full cost of operating our transportation businesses in the results of those segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office, which are an immaterial component of our allocations, are allocated to FedEx Express and FedEx Ground. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our transportationoperating segments.
Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenuesrevenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.
- 16 -
Corporate, Other and Eliminations
Corporate and Otherother includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the other business segments.
Also included in corporate and other is the FedEx Office operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage and global ocean and air freight forwarding.
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenuesrevenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenuesrevenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
Corporate and other includes corporate headquarters costs for executive officers and certain legal and financial functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the business segments.
- 14 -
The following table provides a reconciliation of reportable segment revenuesrevenue and operating income (loss) to our unaudited condensed consolidated financial statement totals for the periods ended February 28November 30 (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
FedEx Express segment |
| $ | 9,370 |
|
| $ | 8,569 |
|
| $ | 27,376 |
|
| $ | 25,671 |
|
| $ | 10,368 |
|
| $ | 9,084 |
|
| $ | 20,015 |
|
| $ | 18,029 |
|
FedEx Ground segment |
|
| 5,222 |
|
|
| 4,688 |
|
|
| 14,790 |
|
|
| 13,397 |
|
|
| 7,344 |
|
|
| 5,315 |
|
|
| 14,384 |
|
|
| 10,494 |
|
FedEx Freight segment |
|
| 1,694 |
|
|
| 1,492 |
|
|
| 5,208 |
|
|
| 4,747 |
|
|
| 1,936 |
|
|
| 1,844 |
|
|
| 3,762 |
|
|
| 3,749 |
|
FedEx Services segment |
|
| 397 |
|
|
| 389 |
|
|
| 1,213 |
|
|
| 1,198 |
|
|
| 8 |
|
|
| 5 |
|
|
| 16 |
|
|
| 9 |
|
Eliminations and other |
|
| (157 | ) |
|
| (141 | ) |
|
| (451 | ) |
|
| (422 | ) | ||||||||||||||||
Other and eliminations |
|
| 907 |
|
|
| 1,076 |
|
|
| 1,707 |
|
|
| 2,091 |
| ||||||||||||||||
|
| $ | 16,526 |
|
| $ | 14,997 |
|
| $ | 48,136 |
|
| $ | 44,591 |
|
| $ | 20,563 |
|
| $ | 17,324 |
|
| $ | 39,884 |
|
| $ | 34,372 |
|
Operating Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
FedEx Express segment |
| $ | 424 |
|
| $ | 557 |
|
| $ | 1,574 |
|
| $ | 1,873 |
|
| $ | 900 |
|
| $ | 236 |
|
| $ | 1,610 |
|
| $ | 521 |
|
FedEx Ground segment |
|
| 634 |
|
|
| 515 |
|
|
| 1,781 |
|
|
| 1,590 |
|
|
| 552 |
|
|
| 342 |
|
|
| 1,386 |
|
|
| 986 |
|
FedEx Freight segment |
|
| 55 |
|
|
| 41 |
|
|
| 349 |
|
|
| 264 |
|
|
| 252 |
|
|
| 141 |
|
|
| 526 |
|
|
| 335 |
|
Eliminations, corporate and other |
|
| (112 | ) |
|
| (88 | ) |
|
| (324 | ) |
|
| (271 | ) | ||||||||||||||||
Corporate, other and eliminations |
|
| (239 | ) |
|
| (165 | ) |
|
| (467 | ) |
|
| (311 | ) | ||||||||||||||||
|
| $ | 1,001 |
|
| $ | 1,025 |
|
| $ | 3,380 |
|
| $ | 3,456 |
|
| $ | 1,465 |
|
| $ | 554 |
|
| $ | 3,055 |
|
| $ | 1,531 |
|
(8) (9) Commitments
As of February 28, 2018,November 30, 2020, our purchase commitments under various contracts for the remainder of 20182021 and annually thereafter were as follows (in millions):
|
| Aircraft and Aircraft-Related |
|
| Other(1) |
|
| Total |
| |||
2018 (remainder) |
| $ | 516 |
|
| $ | 254 |
|
| $ | 770 |
|
2019 |
|
| 1,789 |
|
|
| 725 |
|
|
| 2,514 |
|
2020 |
|
| 1,931 |
|
|
| 621 |
|
|
| 2,552 |
|
2021 |
|
| 1,244 |
|
|
| 400 |
|
|
| 1,644 |
|
2022 |
|
| 1,364 |
|
|
| 251 |
|
|
| 1,615 |
|
Thereafter |
|
| 3,314 |
|
|
| 508 |
|
|
| 3,822 |
|
Total |
| $ | 10,158 |
|
| $ | 2,759 |
|
| $ | 12,917 |
|
|
| Aircraft and Related |
|
| Other(1) |
|
| Total |
| |||
2021 (remainder) |
| $ | 771 |
|
| $ | 550 |
|
| $ | 1,321 |
|
2022 |
|
| 2,203 |
|
|
| 678 |
|
|
| 2,881 |
|
2023 |
|
| 2,389 |
|
|
| 461 |
|
|
| 2,850 |
|
2024 |
|
| 1,000 |
|
|
| 302 |
|
|
| 1,302 |
|
2025 |
|
| 602 |
|
|
| 226 |
|
|
| 828 |
|
Thereafter |
|
| 2,679 |
|
|
| 397 |
|
|
| 3,076 |
|
Total |
| $ | 9,644 |
|
| $ | 2,614 |
|
| $ | 12,258 |
|
| (1) | Primarily equipment and advertising contracts. |
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of February 28, 2018,November 30, 2020, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and three6 Boeing 777 Freighter (“B777F”) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as amended. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.
- 17 -
During the first quarter of 2021, FedEx Express entered into an agreement to accelerate the deliveryexecuted a contract amendment rescheduling Boeing 767-300 Freighter (“B767F”) aircraft deliveries as follows: 2021 – 18 aircraft; 2022 – 11 aircraft; 2023 – 13 aircraft; and 2024 – 4 aircraft.
As of two B777F aircraft from 2021 toNovember 30, 2020, one B777F aircraft from 2021 to 2019, and one B777F aircraft from 2022 to 2020.
- 15 -
Wewe had $922$830 million in deposits and progress payments as of February 28, 2018 on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our accompanying unaudited condensed consolidated balance sheets. Aircraft and aircraft-relatedrelated contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of February 28, 2018November 30, 2020 with the year of expected delivery:
|
| Cessna SkyCourier 408 |
|
| ATR 72-600F |
|
| B767F |
|
| B777F |
|
| Total |
| |||||
2018 (remainder) |
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| 1 |
|
|
| 5 |
|
2019 |
|
| - |
|
|
| - |
|
|
| 15 |
|
|
| 3 |
|
|
| 18 |
|
2020 |
|
| - |
|
|
| - |
|
|
| 16 |
|
|
| 6 |
|
|
| 22 |
|
2021 |
|
| 12 |
|
|
| 5 |
|
|
| 10 |
|
|
| - |
|
|
| 27 |
|
2022 |
|
| 12 |
|
|
| 6 |
|
|
| 10 |
|
|
| 3 |
|
|
| 31 |
|
Thereafter |
|
| 26 |
|
|
| 19 |
|
|
| 6 |
|
|
| - |
|
|
| 51 |
|
Total |
|
| 50 |
|
|
| 30 |
|
|
| 61 |
|
|
| 13 |
|
|
| 154 |
|
|
| Cessna SkyCourier 408 |
|
| ATR 72-600F |
|
| B767F |
|
| B777F |
|
| Total |
| |||||
2021 (remainder) |
|
| — |
|
|
| 3 |
|
|
| 11 |
|
|
| — |
|
|
| 14 |
|
2022 |
|
| 9 |
|
|
| 8 |
|
|
| 11 |
|
|
| 5 |
|
|
| 33 |
|
2023 |
|
| 12 |
|
|
| 6 |
|
|
| 13 |
|
|
| 2 |
|
|
| 33 |
|
2024 |
|
| 12 |
|
|
| 6 |
|
|
| 4 |
|
|
| 4 |
|
|
| 26 |
|
2025 |
|
| 12 |
|
|
| 6 |
|
|
| — |
|
|
| 2 |
|
|
| 20 |
|
Thereafter |
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Total |
|
| 50 |
|
|
| 30 |
|
|
| 39 |
|
|
| 13 |
|
|
| 132 |
|
A summary of future minimum lease payments under noncancelable operating and finance leases with an initial or remaining term in excess of one year at February 28, 2018November 30, 2020 is as follows (in millions):
|
| Aircraft and Related Equipment |
|
| Facilities and Other |
|
| Total Operating Leases |
| |||
2018 (remainder) |
| $ | 47 |
|
| $ | 585 |
|
| $ | 632 |
|
2019 |
|
| 343 |
|
|
| 2,065 |
|
|
| 2,408 |
|
2020 |
|
| 261 |
|
|
| 1,854 |
|
|
| 2,115 |
|
2021 |
|
| 203 |
|
|
| 1,675 |
|
|
| 1,878 |
|
2022 |
|
| 185 |
|
|
| 1,510 |
|
|
| 1,695 |
|
Thereafter |
|
| 175 |
|
|
| 9,018 |
|
|
| 9,193 |
|
Total |
| $ | 1,214 |
|
| $ | 16,707 |
|
| $ | 17,921 |
|
|
| Aircraft and Related Equipment |
|
| Facilities and Other |
|
| Total Operating Leases |
|
| Finance Leases |
|
| Total Leases |
| |||||
2021 (remainder) |
| $ | 177 |
|
| $ | 1,111 |
|
| $ | 1,288 |
|
| $ | 17 |
|
| $ | 1,305 |
|
2022 |
|
| 234 |
|
|
| 2,275 |
|
|
| 2,509 |
|
|
| 60 |
|
|
| 2,569 |
|
2023 |
|
| 198 |
|
|
| 2,014 |
|
|
| 2,212 |
|
|
| 25 |
|
|
| 2,237 |
|
2024 |
|
| 102 |
|
|
| 1,758 |
|
|
| 1,860 |
|
|
| 24 |
|
|
| 1,884 |
|
2025 |
|
| 69 |
|
|
| 1,539 |
|
|
| 1,608 |
|
|
| 24 |
|
|
| 1,632 |
|
Thereafter |
|
| 245 |
|
|
| 7,785 |
|
|
| 8,030 |
|
|
| 707 |
|
|
| 8,737 |
|
Total lease payments |
|
| 1,025 |
|
|
| 16,482 |
|
|
| 17,507 |
|
|
| 857 |
|
|
| 18,364 |
|
Less imputed interest |
|
| (77 | ) |
|
| (2,298 | ) |
|
| (2,375 | ) |
|
| (377 | ) |
|
| (2,752 | ) |
Present value of lease liability |
| $ | 948 |
|
| $ | 14,184 |
|
| $ | 15,132 |
|
| $ | 480 |
|
| $ | 15,612 |
|
Future minimum lease payments under capital leases were immaterial at February 28, 2018. While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.
(9) ContingenciesAs of November 30, 2020, FedEx has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for build-to-suit facilities and have undiscounted future payments of approximately $1.6 billion, and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from 2021 to 2022.
(10) Contingencies
Service Provider Lawsuits and Administrative Proceedings.. FedEx Ground is involveddefending lawsuits in lawsuits and administrative proceedings claiming that owner-operators engaged under a contractor model no longer in use should have been treated as employees of FedEx Ground, rather than independent contractors. In addition, we are defending joint-employer cases wherewhich it is alleged that FedEx Ground should be treated as ana joint employer of the drivers employed by owner-operatorsservice providers engaged by FedEx Ground. These cases are in varying stages of litigation, and we are not currently able to estimate an amount or range of potential loss in all of these matters. However, we do not expect to incur, individually or in the aggregate, a material loss in these matters. Nevertheless, adverse determinations in these matters related to owner-operators engaged by FedEx Ground could, among other things, entitle certain owner-operators to the reimbursement of certain expenses, and theirservice providers’ drivers to certain wage payments from the benefit of wage-and-hour laws,service providers and FedEx Ground, and result in employment and withholding tax and benefit liability for FedEx Ground. We continue to believe that owner-operators engaged by FedEx Ground are properly classified as independent contractors and that FedEx Ground is not an employer or joint employer of the drivers employed byof these owner-operators.independent businesses.
Federal Securities Litigation. On June 26, 2019 and July 2, 2019, FedEx and certain present and former officers were named as defendants in two putative class action securities lawsuits filed in the U.S. District Court for the Southern District of New York. The complaints, which have been consolidated, allege violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder relating to alleged misstatements or omissions in FedEx’s public filings with the SEC and other public statements during the period from September 19, 2017 to December 18, 2018. We are not currently able to estimate the probability of loss or the amount or range of potential loss, if any, at this stage of the litigation.
- 18 -
City and State ofDerivative Lawsuit Related to New York Cigarette Suit.Litigation. On October 3, 2019, FedEx and certain present and former FedEx directors and officers were named as defendants in a stockholder derivative lawsuit filed in the Delaware Court of Chancery. The complaint alleges the defendants breached their fiduciary duties in connection with the activities alleged in lawsuits filed by the City of New York and the State of New York filed two related lawsuits against FedEx Ground in December 2013 and November 2014 arising fromand against FedEx Ground’sGround and FedEx Freight in July 2017. The underlying lawsuits related to the alleged shipmentsshipment of cigarettes to New York residents in contravention of several statutes, including the Racketeer Influenced and Corrupt Organizations Act (“RICO”) and New York’s Public Health Law, as well as common law nuisance claims. In April 2016,claims, and were dismissed by the two lawsuits were consolidated and will now proceed as one lawsuit.court in December 2018 following entry into a final settlement agreement for approximately $35 million. The first-filed lawsuit alleges thatsettlement did not include any admission of liability by FedEx Ground provided delivery services on behalf of four shippers, and the second-filed lawsuit alleges thator FedEx Ground provided delivery services on behalf of six additional shippers; none of these shippers continue to ship in our network. Following motions to dismiss filed in both lawsuits, some of the claims were dismissed entirely or limited.Freight. In the first-filed lawsuit, the New York Public Health Law and common law nuisance claims were dismissed and the plaintiffs voluntarily dismissed another claim. In the second-filed lawsuit, the common law nuisance claim was dismissed entirely and the New York Public Health Law claim has been limited to claims arising after September 27, 2013, when an amendment to that law provided enforcement authorityaddition to the City of New York and State of New York. Other claims, includingsettlement amount, we recognized approximately $10 million for certain attorney’s fees in connection with the RICO claims, remain in both
- 16 -
underlying lawsuits. The likelihoodWe are not currently able to estimate the probability of loss is reasonably possible, butor the amount or range of potential loss, if any, cannot be estimated at this stage of the litigation. We expect the amount of any loss to be immaterial.
On July 10, 2017, the City of New York and the State of New York filed a third lawsuit against FedEx Ground and included FedEx Freight as a co-defendant. This additional case identifies no shippers or shipments, but generally alleges violations of the same laws that are the subject of the other two lawsuits. The amount or range of loss, if any, cannot be estimated at this stage of the lawsuit.
Environmental Matters. SEC regulations require disclosure of certain environmental matters when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that management reasonably believes could exceed $100,000.
On September 9, 2016, FedEx Supply Chain received a written offer from several District Attorneys’ Offices in California to settle a civil action that the District Attorneys intend to file against FedEx Supply Chain for alleged violations of the state’s hazardous waste regulations. Specifically, the District Attorneys’ Offices allege FedEx Supply Chain unlawfully disposed of hazardous waste at one of its California facilities and caused the illegal transportation and disposal of hazardous waste from the retail stores of a FedEx Supply Chain customer at this same facility. The District Attorneys allege these violations began in 2006 and continued until the facility closed in the spring of 2015. In March 2018, we settled this matter for an immaterial amount, and the settlement agreement has been approved by the court. We have been reimbursed by the sellers of GENCO for the amount of the settlement.
Other Matters. During the third quarter of 2017, FedEx Trade Networks informed U.S. Customs and Border Protection (“CBP”) that in connection with certain customs entries it may have made improper claims for (i) reduced-duty treatment and (ii) duty-free treatment. In the fourth quarter of 2017 we established accruals totaling $39.3 million for the then-current estimated probable loss for these matters. In the first quarter of 2018, FedEx Trade Networks tendered payments to CBP in these matters totaling $46.5 million, and an additional expense of $7.2 million was recognized. CBP acknowledged receipt of the amounts tendered in these matters, and we are awaiting a response indicating whether these matters are fully resolved.
Matters. FedEx and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of business, including certain lawsuits containing various class-action allegations of wage-and-hour violations in which plaintiffs claim, among other things, that they were forced to work “off the clock,” were not paid overtime or were not provided work breaks or other benefits.benefits, as well as lawsuits containing allegations that FedEx and its subsidiaries are responsible for third-party losses related to vehicle accidents that could exceed our insurance coverage for such losses. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations or cash flows.
(10) Environmental Matters. SEC regulations require us to disclose certain information about proceedings arising under federal, state, or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to the SEC regulations, FedEx uses a threshold of $1million or more for purposes of determining whether disclosure of any such proceedings is required. Applying this threshold, there are no environmental matters required to be disclosed for this period.
(11) Supplemental Cash Flow Information
Cash paid for interest expense and income taxes for the nine-monthsix-month periods ended February 28November 30 was as follows (in millions):
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
| $ | 430 |
|
| $ | 400 |
|
| $ | 377 |
|
| $ | 279 |
|
Income taxes |
| $ | 707 |
|
| $ | 294 |
|
| $ | 526 |
|
| $ | 162 |
|
Income tax refunds received |
|
| (59 | ) |
|
| (16 | ) |
|
| (22 | ) |
|
| (23 | ) |
Cash tax payments, net |
| $ | 648 |
|
| $ | 278 |
|
| $ | 504 |
|
| $ | 139 |
|
- 17 -
(11) Condensed Consolidating Financial Statements
We are required to present condensed consolidating financial information in order for the subsidiary guarantors of our public debt to continue to be exempt from reporting under the Securities Exchange Act of 1934, as amended.
The guarantor subsidiaries, which are 100% owned by FedEx, guarantee $16.6 billion of our long-term debt. The guarantees are full and unconditional and joint and several. Our guarantor subsidiaries were not determined using geographic, service line or other similar criteria, and as a result, the “Guarantor Subsidiaries” and “Non-guarantor Subsidiaries” columns each include portions of our domestic and international operations. Accordingly, this basis of presentation is not intended to present our financial condition, results of operations or cash flows for any purpose other than to comply with the specific requirements for subsidiary guarantor reporting.
- 18 -
Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor subsidiaries are presented in the following tables (in millions):
CONDENSED CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
February 28, 2018
|
|
|
|
|
| Guarantor |
|
| Non-guarantor |
|
|
|
|
|
|
|
|
| ||
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 957 |
|
| $ | 375 |
|
| $ | 1,494 |
|
| $ | (37 | ) |
| $ | 2,789 |
|
Receivables, less allowances |
|
| 1 |
|
|
| 5,308 |
|
|
| 3,462 |
|
|
| (100 | ) |
|
| 8,671 |
|
Spare parts, supplies, fuel, prepaid expenses and other, less allowances |
|
| 920 |
|
|
| 928 |
|
|
| 267 |
|
|
| — |
|
|
| 2,115 |
|
Total current assets |
|
| 1,878 |
|
|
| 6,611 |
|
|
| 5,223 |
|
|
| (137 | ) |
|
| 13,575 |
|
PROPERTY AND EQUIPMENT, AT COST |
|
| 22 |
|
|
| 50,601 |
|
|
| 3,754 |
|
|
| — |
|
|
| 54,377 |
|
Less accumulated depreciation and amortization |
|
| 18 |
|
|
| 24,999 |
|
|
| 1,663 |
|
|
| — |
|
|
| 26,680 |
|
Net property and equipment |
|
| 4 |
|
|
| 25,602 |
|
|
| 2,091 |
|
|
| — |
|
|
| 27,697 |
|
INTERCOMPANY RECEIVABLE |
|
| 1,401 |
|
|
| 2,508 |
|
|
| 130 |
|
|
| (4,039 | ) |
|
| — |
|
GOODWILL |
|
| — |
|
|
| 1,571 |
|
|
| 5,893 |
|
|
| — |
|
|
| 7,464 |
|
INVESTMENT IN SUBSIDIARIES |
|
| 31,295 |
|
|
| 2,928 |
|
|
| — |
|
|
| (34,223 | ) |
|
| — |
|
OTHER ASSETS |
|
| 2,706 |
|
|
| 1,566 |
|
|
| 1,268 |
|
|
| (2,425 | ) |
|
| 3,115 |
|
|
| $ | 37,284 |
|
| $ | 40,786 |
|
| $ | 14,605 |
|
| $ | (40,824 | ) |
| $ | 51,851 |
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 799 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 799 |
|
Current portion of long-term debt |
|
| 750 |
|
|
| 6 |
|
|
| 8 |
|
|
| — |
|
|
| 764 |
|
Accrued salaries and employee benefits |
|
| 69 |
|
|
| 1,362 |
|
|
| 514 |
|
|
| — |
|
|
| 1,945 |
|
Accounts payable |
|
| 149 |
|
|
| 1,483 |
|
|
| 1,607 |
|
|
| (137 | ) |
|
| 3,102 |
|
Accrued expenses |
|
| 379 |
|
|
| 1,605 |
|
|
| 909 |
|
|
| — |
|
|
| 2,893 |
|
Total current liabilities |
|
| 2,146 |
|
|
| 4,456 |
|
|
| 3,038 |
|
|
| (137 | ) |
|
| 9,503 |
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 15,713 |
|
|
| 288 |
|
|
| 16 |
|
|
| — |
|
|
| 16,017 |
|
INTERCOMPANY PAYABLE |
|
| — |
|
|
| — |
|
|
| 4,039 |
|
|
| (4,039 | ) |
|
| — |
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| — |
|
|
| 4,285 |
|
|
| 541 |
|
|
| (2,425 | ) |
|
| 2,401 |
|
Other liabilities |
|
| 531 |
|
|
| 3,605 |
|
|
| 900 |
|
|
| — |
|
|
| 5,036 |
|
Total other long-term liabilities |
|
| 531 |
|
|
| 7,890 |
|
|
| 1,441 |
|
|
| (2,425 | ) |
|
| 7,437 |
|
STOCKHOLDERS’ INVESTMENT |
|
| 18,894 |
|
|
| 28,152 |
|
|
| 6,071 |
|
|
| (34,223 | ) |
|
| 18,894 |
|
|
| $ | 37,284 |
|
| $ | 40,786 |
|
| $ | 14,605 |
|
| $ | (40,824 | ) |
| $ | 51,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
CONDENSED CONSOLIDATING BALANCE SHEETSReport of Independent Registered Public Accounting Firm
May 31, 2017
|
|
|
|
|
| Guarantor |
|
| Non-guarantor |
|
|
|
|
|
|
|
|
| ||
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 1,884 |
|
| $ | 325 |
|
| $ | 1,807 |
|
| $ | (47 | ) |
| $ | 3,969 |
|
Receivables, less allowances |
|
| 3 |
|
|
| 4,729 |
|
|
| 2,928 |
|
|
| (61 | ) |
|
| 7,599 |
|
Spare parts, supplies, fuel, prepaid expenses and other, less allowances |
|
| 25 |
|
|
| 787 |
|
|
| 248 |
|
|
| — |
|
|
| 1,060 |
|
Total current assets |
|
| 1,912 |
|
|
| 5,841 |
|
|
| 4,983 |
|
|
| (108 | ) |
|
| 12,628 |
|
PROPERTY AND EQUIPMENT, AT COST |
|
| 22 |
|
|
| 47,201 |
|
|
| 3,403 |
|
|
| — |
|
|
| 50,626 |
|
Less accumulated depreciation and amortization |
|
| 18 |
|
|
| 23,211 |
|
|
| 1,416 |
|
|
| — |
|
|
| 24,645 |
|
Net property and equipment |
|
| 4 |
|
|
| 23,990 |
|
|
| 1,987 |
|
|
| — |
|
|
| 25,981 |
|
INTERCOMPANY RECEIVABLE |
|
| 1,521 |
|
|
| 2,607 |
|
|
| — |
|
|
| (4,128 | ) |
|
| — |
|
GOODWILL |
|
| — |
|
|
| 1,571 |
|
|
| 5,583 |
|
|
| — |
|
|
| 7,154 |
|
INVESTMENT IN SUBSIDIARIES |
|
| 27,712 |
|
|
| 2,636 |
|
|
| — |
|
|
| (30,348 | ) |
|
| — |
|
OTHER ASSETS |
|
| 3,494 |
|
|
| 1,271 |
|
|
| 1,249 |
|
|
| (3,225 | ) |
|
| 2,789 |
|
|
| $ | 34,643 |
|
| $ | 37,916 |
|
| $ | 13,802 |
|
| $ | (37,809 | ) |
| $ | 48,552 |
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | — |
|
| $ | 9 |
|
| $ | 13 |
|
| $ | — |
|
| $ | 22 |
|
Accrued salaries and employee benefits |
|
| 72 |
|
|
| 1,335 |
|
|
| 507 |
|
|
| — |
|
|
| 1,914 |
|
Accounts payable |
|
| 10 |
|
|
| 1,411 |
|
|
| 1,439 |
|
|
| (108 | ) |
|
| 2,752 |
|
Accrued expenses |
|
| 991 |
|
|
| 1,522 |
|
|
| 717 |
|
|
| — |
|
|
| 3,230 |
|
Total current liabilities |
|
| 1,073 |
|
|
| 4,277 |
|
|
| 2,676 |
|
|
| (108 | ) |
|
| 7,918 |
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 14,641 |
|
|
| 244 |
|
|
| 24 |
|
|
| — |
|
|
| 14,909 |
|
INTERCOMPANY PAYABLE |
|
| — |
|
|
| — |
|
|
| 4,128 |
|
|
| (4,128 | ) |
|
| — |
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| — |
|
|
| 5,472 |
|
|
| 238 |
|
|
| (3,225 | ) |
|
| 2,485 |
|
Other liabilities |
|
| 2,856 |
|
|
| 3,448 |
|
|
| 863 |
|
|
| — |
|
|
| 7,167 |
|
Total other long-term liabilities |
|
| 2,856 |
|
|
| 8,920 |
|
|
| 1,101 |
|
|
| (3,225 | ) |
|
| 9,652 |
|
STOCKHOLDERS’ INVESTMENT |
|
| 16,073 |
|
|
| 24,475 |
|
|
| 5,873 |
|
|
| (30,348 | ) |
|
| 16,073 |
|
|
| $ | 34,643 |
|
| $ | 37,916 |
|
| $ | 13,802 |
|
| $ | (37,809 | ) |
| $ | 48,552 |
|
- 20 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended February 28, 2018
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUES |
| $ | — |
|
| $ | 12,433 |
|
| $ | 4,229 |
|
| $ | (136 | ) |
| $ | 16,526 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 39 |
|
|
| 4,623 |
|
|
| 1,319 |
|
|
| — |
|
|
| 5,981 |
|
Purchased transportation |
|
| — |
|
|
| 2,459 |
|
|
| 1,560 |
|
|
| (84 | ) |
|
| 3,935 |
|
Rentals and landing fees |
|
| 2 |
|
|
| 684 |
|
|
| 189 |
|
|
| (2 | ) |
|
| 873 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 670 |
|
|
| 115 |
|
|
| — |
|
|
| 786 |
|
Fuel |
|
| — |
|
|
| 837 |
|
|
| 77 |
|
|
| — |
|
|
| 914 |
|
Maintenance and repairs |
|
| 1 |
|
|
| 543 |
|
|
| 84 |
|
|
| — |
|
|
| 628 |
|
Intercompany charges, net |
|
| (114 | ) |
|
| 185 |
|
|
| (71 | ) |
|
| — |
|
|
| — |
|
Other |
|
| 71 |
|
|
| 1,596 |
|
|
| 791 |
|
|
| (50 | ) |
|
| 2,408 |
|
|
|
| — |
|
|
| 11,597 |
|
|
| 4,064 |
|
|
| (136 | ) |
|
| 15,525 |
|
OPERATING INCOME |
|
| — |
|
|
| 836 |
|
|
| 165 |
|
|
| — |
|
|
| 1,001 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 2,074 |
|
|
| 2 |
|
|
| — |
|
|
| (2,076 | ) |
|
| — |
|
Interest, net |
|
| (137 | ) |
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| (125 | ) |
Intercompany charges, net |
|
| 140 |
|
|
| (78 | ) |
|
| (62 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (3 | ) |
|
| 104 |
|
|
| (103 | ) |
|
| — |
|
|
| (2 | ) |
INCOME BEFORE INCOME TAXES |
|
| 2,074 |
|
|
| 875 |
|
|
| 1 |
|
|
| (2,076 | ) |
|
| 874 |
|
Provision for income taxes |
|
| — |
|
|
| (1,197 | ) |
|
| (3 | ) |
|
| — |
|
|
| (1,200 | ) |
NET INCOME |
| $ | 2,074 |
|
| $ | 2,072 |
|
| $ | 4 |
|
| $ | (2,076 | ) |
| $ | 2,074 |
|
COMPREHENSIVE INCOME |
| $ | 2,051 |
|
| $ | 2,069 |
|
| $ | 107 |
|
| $ | (2,076 | ) |
| $ | 2,151 |
|
- 21 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended February 28, 2017
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUES |
| $ | — |
|
| $ | 11,275 |
|
| $ | 3,794 |
|
| $ | (72 | ) |
| $ | 14,997 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 29 |
|
|
| 4,210 |
|
|
| 1,156 |
|
|
| — |
|
|
| 5,395 |
|
Purchased transportation |
|
| — |
|
|
| 2,219 |
|
|
| 1,306 |
|
|
| (27 | ) |
|
| 3,498 |
|
Rentals and landing fees |
|
| 1 |
|
|
| 657 |
|
|
| 177 |
|
|
| (1 | ) |
|
| 834 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 649 |
|
|
| 112 |
|
|
| — |
|
|
| 762 |
|
Fuel |
|
| — |
|
|
| 657 |
|
|
| 78 |
|
|
| — |
|
|
| 735 |
|
Maintenance and repairs |
|
| 1 |
|
|
| 514 |
|
|
| 73 |
|
|
| — |
|
|
| 588 |
|
Intercompany charges, net |
|
| (87 | ) |
|
| (33 | ) |
|
| 120 |
|
|
| — |
|
|
| — |
|
Other |
|
| 55 |
|
|
| 1,428 |
|
|
| 721 |
|
|
| (44 | ) |
|
| 2,160 |
|
|
|
| — |
|
|
| 10,301 |
|
|
| 3,743 |
|
|
| (72 | ) |
|
| 13,972 |
|
OPERATING INCOME |
|
| — |
|
|
| 974 |
|
|
| 51 |
|
|
| — |
|
|
| 1,025 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 562 |
|
|
| (41 | ) |
|
| — |
|
|
| (521 | ) |
|
| — |
|
Interest, net |
|
| (129 | ) |
|
| 6 |
|
|
| 1 |
|
|
| — |
|
|
| (122 | ) |
Intercompany charges, net |
|
| 130 |
|
|
| (79 | ) |
|
| (51 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (1 | ) |
|
| (118 | ) |
|
| 115 |
|
|
| — |
|
|
| (4 | ) |
INCOME BEFORE INCOME TAXES |
|
| 562 |
|
|
| 742 |
|
|
| 116 |
|
|
| (521 | ) |
|
| 899 |
|
Provision for income taxes |
|
| — |
|
|
| 280 |
|
|
| 57 |
|
|
| — |
|
|
| 337 |
|
NET INCOME |
| $ | 562 |
|
| $ | 462 |
|
| $ | 59 |
|
| $ | (521 | ) |
| $ | 562 |
|
COMPREHENSIVE INCOME |
| $ | 543 |
|
| $ | 444 |
|
| $ | 187 |
|
| $ | (521 | ) |
| $ | 653 |
|
- 22 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended February 28, 2018
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUES |
| $ | — |
|
| $ | 36,044 |
|
| $ | 12,445 |
|
| $ | (353 | ) |
| $ | 48,136 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 112 |
|
|
| 13,289 |
|
|
| 3,840 |
|
|
| — |
|
|
| 17,241 |
|
Purchased transportation |
|
| — |
|
|
| 6,836 |
|
|
| 4,600 |
|
|
| (216 | ) |
|
| 11,220 |
|
Rentals and landing fees |
|
| 4 |
|
|
| 1,951 |
|
|
| 577 |
|
|
| (6 | ) |
|
| 2,526 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 1,958 |
|
|
| 334 |
|
|
| — |
|
|
| 2,293 |
|
Fuel |
|
| — |
|
|
| 2,220 |
|
|
| 215 |
|
|
| — |
|
|
| 2,435 |
|
Maintenance and repairs |
|
| 1 |
|
|
| 1,729 |
|
|
| 238 |
|
|
| — |
|
|
| 1,968 |
|
Intercompany charges, net |
|
| (325 | ) |
|
| 298 |
|
|
| 27 |
|
|
| — |
|
|
| — |
|
Other |
|
| 207 |
|
|
| 4,664 |
|
|
| 2,333 |
|
|
| (131 | ) |
|
| 7,073 |
|
|
|
| — |
|
|
| 32,945 |
|
|
| 12,164 |
|
|
| (353 | ) |
|
| 44,756 |
|
OPERATING INCOME |
|
| — |
|
|
| 3,099 |
|
|
| 281 |
|
|
| — |
|
|
| 3,380 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 3,445 |
|
|
| 39 |
|
|
| — |
|
|
| (3,484 | ) |
|
| — |
|
Interest, net |
|
| (396 | ) |
|
| 35 |
|
|
| (2 | ) |
|
| — |
|
|
| (363 | ) |
Intercompany charges, net |
|
| 403 |
|
|
| (220 | ) |
|
| (183 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (7 | ) |
|
| 88 |
|
|
| (103 | ) |
|
| — |
|
|
| (22 | ) |
INCOME BEFORE INCOME TAXES |
|
| 3,445 |
|
|
| 3,041 |
|
|
| (7 | ) |
|
| (3,484 | ) |
|
| 2,995 |
|
Provision for income taxes |
|
| — |
|
|
| (573 | ) |
|
| 123 |
|
|
| — |
|
|
| (450 | ) |
NET INCOME |
| $ | 3,445 |
|
| $ | 3,614 |
|
| $ | (130 | ) |
| $ | (3,484 | ) |
| $ | 3,445 |
|
COMPREHENSIVE INCOME |
| $ | 3,385 |
|
| $ | 3,605 |
|
| $ | (3 | ) |
| $ | (3,484 | ) |
| $ | 3,503 |
|
- 23 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended February 28, 2017
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUES |
| $ | — |
|
| $ | 33,175 |
|
| $ | 11,628 |
|
| $ | (212 | ) |
| $ | 44,591 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 94 |
|
|
| 12,477 |
|
|
| 3,488 |
|
|
| — |
|
|
| 16,059 |
|
Purchased transportation |
|
| — |
|
|
| 6,210 |
|
|
| 4,040 |
|
|
| (81 | ) |
|
| 10,169 |
|
Rentals and landing fees |
|
| 4 |
|
|
| 1,902 |
|
|
| 524 |
|
|
| (4 | ) |
|
| 2,426 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 1,894 |
|
|
| 346 |
|
|
| — |
|
|
| 2,241 |
|
Fuel |
|
| — |
|
|
| 1,819 |
|
|
| 224 |
|
|
| — |
|
|
| 2,043 |
|
Maintenance and repairs |
|
| 1 |
|
|
| 1,544 |
|
|
| 220 |
|
|
| — |
|
|
| 1,765 |
|
Intercompany charges, net |
|
| (266 | ) |
|
| 67 |
|
|
| 199 |
|
|
| — |
|
|
| — |
|
Other |
|
| 166 |
|
|
| 4,230 |
|
|
| 2,163 |
|
|
| (127 | ) |
|
| 6,432 |
|
|
|
| — |
|
|
| 30,143 |
|
|
| 11,204 |
|
|
| (212 | ) |
|
| 41,135 |
|
OPERATING INCOME |
|
| — |
|
|
| 3,032 |
|
|
| 424 |
|
|
| — |
|
|
| 3,456 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 1,977 |
|
|
| 69 |
|
|
| — |
|
|
| (2,046 | ) |
|
| — |
|
Interest, net |
|
| (374 | ) |
|
| 19 |
|
|
| 1 |
|
|
| — |
|
|
| (354 | ) |
Intercompany charges, net |
|
| 376 |
|
|
| (224 | ) |
|
| (152 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (2 | ) |
|
| (128 | ) |
|
| 147 |
|
|
| — |
|
|
| 17 |
|
INCOME BEFORE INCOME TAXES |
|
| 1,977 |
|
|
| 2,768 |
|
|
| 420 |
|
|
| (2,046 | ) |
|
| 3,119 |
|
Provision for income taxes |
|
| — |
|
|
| 951 |
|
|
| 191 |
|
|
| — |
|
|
| 1,142 |
|
NET INCOME |
| $ | 1,977 |
|
| $ | 1,817 |
|
| $ | 229 |
|
| $ | (2,046 | ) |
| $ | 1,977 |
|
COMPREHENSIVE INCOME |
| $ | 1,921 |
|
| $ | 1,781 |
|
| $ | 156 |
|
| $ | (2,046 | ) |
| $ | 1,812 |
|
- 24 -
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended February 28, 2018
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
| $ | (3,537 | ) |
| $ | 4,664 |
|
| $ | 25 |
|
| $ | 10 |
|
| $ | 1,162 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| (3,746 | ) |
|
| (248 | ) |
|
| — |
|
|
| (3,994 | ) |
Business acquisitions, net of cash acquired |
|
| — |
|
|
| (44 | ) |
|
| — |
|
|
| — |
|
|
| (44 | ) |
Proceeds from asset dispositions and other |
|
| (5 | ) |
|
| 23 |
|
|
| 3 |
|
|
| — |
|
|
| 21 |
|
CASH USED IN INVESTING ACTIVITIES |
|
| (5 | ) |
|
| (3,767 | ) |
|
| (245 | ) |
|
| — |
|
|
| (4,017 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 797 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 797 |
|
Net transfers from (to) Parent |
|
| 807 |
|
|
| (895 | ) |
|
| 88 |
|
|
| — |
|
|
| — |
|
Payment on loan between subsidiaries |
|
| 210 |
|
|
| — |
|
|
| (210 | ) |
|
| — |
|
|
| — |
|
Proceeds from debt issuances |
|
| 1,481 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,481 |
|
Principal payments on debt |
|
| — |
|
|
| (17 | ) |
|
| (14 | ) |
|
| — |
|
|
| (31 | ) |
Proceeds from stock issuances |
|
| 284 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 284 |
|
Dividends paid |
|
| (402 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (402 | ) |
Purchase of treasury stock |
|
| (558 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (558 | ) |
Other, net |
|
| 2 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
| 2,621 |
|
|
| (908 | ) |
|
| (136 | ) |
|
| — |
|
|
| 1,577 |
|
Effect of exchange rate changes on cash |
|
| (6 | ) |
|
| 61 |
|
|
| 43 |
|
|
| — |
|
|
| 98 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (927 | ) |
|
| 50 |
|
|
| (313 | ) |
|
| 10 |
|
|
| (1,180 | ) |
Cash and cash equivalents at beginning of period |
|
| 1,884 |
|
|
| 325 |
|
|
| 1,807 |
|
|
| (47 | ) |
|
| 3,969 |
|
Cash and cash equivalents at end of period |
| $ | 957 |
|
| $ | 375 |
|
| $ | 1,494 |
|
| $ | (37 | ) |
| $ | 2,789 |
|
- 25 -
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended February 28, 2017
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
| $ | (1,497 | ) |
| $ | 3,615 |
|
| $ | 529 |
|
| $ | (2 | ) |
| $ | 2,645 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| — |
|
|
| (3,456 | ) |
|
| (334 | ) |
|
| — |
|
|
| (3,790 | ) |
Proceeds from asset dispositions and other |
|
| 85 |
|
|
| 16 |
|
|
| 22 |
|
|
| — |
|
|
| 123 |
|
CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
| 85 |
|
|
| (3,440 | ) |
|
| (312 | ) |
|
| — |
|
|
| (3,667 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from (to) Parent |
|
| 117 |
|
|
| (148 | ) |
|
| 31 |
|
|
| — |
|
|
| — |
|
Payment on loan between subsidiaries |
|
| 36 |
|
|
| (15 | ) |
|
| (21 | ) |
|
| — |
|
|
| — |
|
Intercompany dividends |
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
Principal payments on debt |
|
| — |
|
|
| (33 | ) |
|
| (16 | ) |
|
| — |
|
|
| (49 | ) |
Proceeds from debt issuances |
|
| 1,190 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,190 |
|
Proceeds from stock issuances |
|
| 265 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 265 |
|
Dividends paid |
|
| (319 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (319 | ) |
Purchase of treasury stock |
|
| (358 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (358 | ) |
Other, net |
|
| (8 | ) |
|
| (12 | ) |
|
| 22 |
|
|
| — |
|
|
| 2 |
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES |
|
| 923 |
|
|
| (207 | ) |
|
| 15 |
|
|
| — |
|
|
| 731 |
|
Effect of exchange rate changes on cash |
|
| (10 | ) |
|
| 7 |
|
|
| (67 | ) |
|
| — |
|
|
| (70 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (499 | ) |
|
| (25 | ) |
|
| 165 |
|
|
| (2 | ) |
|
| (361 | ) |
Cash and cash equivalents at beginning of period |
|
| 1,974 |
|
|
| 326 |
|
|
| 1,277 |
|
|
| (43 | ) |
|
| 3,534 |
|
Cash and cash equivalents at end of period |
| $ | 1,475 |
|
| $ | 301 |
|
| $ | 1,442 |
|
| $ | (45 | ) |
| $ | 3,173 |
|
- 26 -
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors and Stockholders
FedEx Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation (the Company) as of February 28, 2018, andNovember 30, 2020, the related condensed consolidated statements of income, and comprehensive income and changes in common stockholders’ investment for the three-monththree- and nine-monthsix-month periods ended February 28, 2018November 30, 2020 and February 28, 2017 and2019, the condensed consolidated statements of cash flows for the nine-monthsix-month periods ended February 28, 2018November 30, 2020 and February 28, 2017. These2019, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements are the responsibility of the Company’s management.for them to be in conformity with U.S. generally accepted accounting principles.
We conducted our reviewhave previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB), the consolidated balance sheet of the Company as of May 31, 2020, the related consolidated statements of income, comprehensive income, cash flows and changes in common stockholders’ investment for the year then ended, and the related notes (not presented herein); and in our report dated July 20, 2020, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial informationstatements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States),PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of FedEx Corporation as of May 31, 2017, and the related consolidated statements of income, comprehensive income, changes in stockholders’ investment, and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated July 17, 2017. In our opinion, the accompanying condensed consolidated balance sheet of FedEx Corporation as of May 31, 2017, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP |
Memphis, Tennessee
March 21, 2018December 17, 2020
- 2720 -
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition
GENERAL
The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations and critical accounting estimates of FedEx Corporation (“FedEx”). This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 20172020 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results.
We provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independentlycollaboratively and managed collaboratively,innovating digitally, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), including TNT Express B.V. (“TNT Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Inc.Corporation (“FedEx Freight”), a leading U.S.North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), form the core ofconstitute our reportable segments.
As noted in our Annual Report, beginning in the first quarter of 2018, we began to report TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation. See Note 7 of the accompanying unaudited condensed consolidated financial statements for further discussion.
Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office support functions that support our transportationoperating segments. In addition,See the FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”). See “Reportable Segments” section of this MD&A for further discussion. Additional information on our businesses can also be found in our Annual Report.
The key indicators necessary to understand our operating results include:
the overall customer demand for our various services based on macro-economic factors and the global economy;
• | the overall customer demand for our various services based on macroeconomic factors and the global economy; |
the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size;
• | the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size; |
the mix of services purchased by our customers;
• | the mix of services purchased by our customers; |
the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments);
• | the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments); |
our ability to manage our network capacity and cost structure (capital expenditures and operating expenses) to match shifting volume levels; and
• | our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and |
the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.
• | the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. |
The majorityMany of our operating expenses are directly impacted by revenue and volume levels. Accordingly,levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with the changechanges in revenuesrevenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than those factors strictly related to changes in revenuesrevenue and volume.volumes. The line item “Other operating expenses” predominantlyexpense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor and security), insurance, uniforms and professional fees, taxes and licenses and uniforms.fees.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 20182021 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment and the FedEx Freight segment.
- 2821 -
CONSOLIDATED RESULTS
The following tables compare summary operating results and changes in revenue and operating income (loss) (dollars in millions, except per share amounts) for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenues |
| $ | 16,526 |
|
| $ | 14,997 |
|
|
| 10 |
|
|
| $ | 48,136 |
|
| $ | 44,591 |
|
|
| 8 |
|
| ||||||||||||||||||||||||||
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Revenue |
| $ | 20,563 |
|
| $ | 17,324 |
|
|
| 19 |
|
|
| $ | 39,884 |
|
| $ | 34,372 |
|
|
| 16 |
|
| ||||||||||||||||||||||||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
FedEx Express segment |
|
| 424 |
|
|
| 557 |
|
|
| (24 | ) |
|
|
| 1,574 |
|
|
| 1,873 |
|
|
| (16 | ) |
|
|
| 900 |
|
|
| 236 |
|
|
| 281 |
|
|
|
| 1,610 |
|
|
| 521 |
|
|
| 209 |
|
|
FedEx Ground segment |
|
| 634 |
|
|
| 515 |
|
|
| 23 |
|
|
|
| 1,781 |
|
|
| 1,590 |
|
|
| 12 |
|
|
|
| 552 |
|
|
| 342 |
|
|
| 61 |
|
|
|
| 1,386 |
|
|
| 986 |
|
|
| 41 |
|
|
FedEx Freight segment |
|
| 55 |
|
|
| 41 |
|
|
| 34 |
|
|
|
| 349 |
|
|
| 264 |
|
|
| 32 |
|
|
|
| 252 |
|
|
| 141 |
|
|
| 79 |
|
|
|
| 526 |
|
|
| 335 |
|
|
| 57 |
|
|
Eliminations, corporate and other |
|
| (112 | ) |
|
| (88 | ) |
|
| (27 | ) |
|
|
| (324 | ) |
|
| (271 | ) |
|
| (20 | ) |
| ||||||||||||||||||||||||||
Corporate, other and eliminations |
|
| (239 | ) |
|
| (165 | ) |
|
| (45 | ) |
|
|
| (467 | ) |
|
| (311 | ) |
|
| (50 | ) |
| ||||||||||||||||||||||||||
Consolidated operating income |
|
| 1,001 |
|
|
| 1,025 |
|
|
| (2 | ) |
|
|
| 3,380 |
|
|
| 3,456 |
|
|
| (2 | ) |
|
|
| 1,465 |
|
|
| 554 |
|
|
| 164 |
|
|
|
| 3,055 |
|
|
| 1,531 |
|
|
| 100 |
|
|
Operating margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
|
| 4.5 | % |
|
| 6.5 | % |
|
| (200 | ) | bp |
|
| 5.7 | % |
|
| 7.3 | % |
|
| (160 | ) | bp |
|
| 8.7 | % |
|
| 2.6 | % |
|
| 610 |
| bp |
|
| 8.0 | % |
|
| 2.9 | % |
|
| 510 |
| bp |
FedEx Ground segment |
|
| 12.1 | % |
|
| 11.0 | % |
|
| 110 |
| bp |
|
| 12.0 | % |
|
| 11.9 | % |
|
| 10 |
| bp |
|
| 7.5 | % |
|
| 6.4 | % |
|
| 110 |
| bp |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 20 |
| bp |
FedEx Freight segment |
|
| 3.2 | % |
|
| 2.7 | % |
|
| 50 |
| bp |
|
| 6.7 | % |
|
| 5.6 | % |
|
| 110 |
| bp |
|
| 13.0 | % |
|
| 7.6 | % |
|
| 540 |
| bp |
|
| 14.0 | % |
|
| 8.9 | % |
|
| 510 |
| bp |
Consolidated operating margin |
|
| 6.1 | % |
|
| 6.8 | % |
|
| (70 | ) | bp |
|
| 7.0 | % |
|
| 7.8 | % |
|
| (80 | ) | bp |
|
| 7.1 | % |
|
| 3.2 | % |
|
| 390 |
| bp |
|
| 7.7 | % |
|
| 4.5 | % |
|
| 320 |
| bp |
Consolidated net income |
| $ | 2,074 |
|
| $ | 562 |
|
|
| 269 |
|
|
| $ | 3,445 |
|
| $ | 1,977 |
|
|
| 74 |
|
|
| $ | 1,226 |
|
| $ | 560 |
|
|
| 119 |
|
|
| $ | 2,471 |
|
| $ | 1,305 |
|
|
| 89 |
|
|
Diluted earnings per share |
| $ | 7.59 |
|
| $ | 2.07 |
|
|
| 267 |
|
|
| $ | 12.63 |
|
| $ | 7.31 |
|
|
| 73 |
|
|
| $ | 4.55 |
|
| $ | 2.13 |
|
|
| 114 |
|
|
| $ | 9.26 |
|
| $ | 4.97 |
|
|
| 86 |
|
|
|
| Change in Revenue |
|
| Change in Operating Income |
|
| Change in Revenue |
|
| Change in Operating Income (Loss) |
| ||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||
FedEx Express segment |
| $ | 801 |
|
| $ | 1,705 |
|
| $ | (133 | ) |
| $ | (299 | ) |
| $ | 1,284 |
|
| $ | 1,986 |
|
| $ | 664 |
|
| $ | 1,089 |
|
FedEx Ground segment |
|
| 534 |
|
|
| 1,393 |
|
|
| 119 |
|
|
| 191 |
|
|
| 2,029 |
|
|
| 3,890 |
|
|
| 210 |
|
|
| 400 |
|
FedEx Freight segment |
|
| 202 |
|
|
| 461 |
|
|
| 14 |
|
|
| 85 |
|
|
| 92 |
|
|
| 13 |
|
|
| 111 |
|
|
| 191 |
|
FedEx Services segment |
|
| 8 |
|
|
| 15 |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
Eliminations, corporate and other |
|
| (16 | ) |
|
| (29 | ) |
|
| (24 | ) |
|
| (53 | ) | ||||||||||||||||
Corporate, other and eliminations |
|
| (169 | ) |
|
| (384 | ) |
|
| (74 | ) |
|
| (156 | ) | ||||||||||||||||
|
| $ | 1,529 |
|
| $ | 3,545 |
|
| $ | (24 | ) |
| $ | (76 | ) |
| $ | 3,239 |
|
| $ | 5,512 |
|
| $ | 911 |
|
| $ | 1,524 |
|
Overview
OurElevated demand for our residential delivery services, resulting from the ongoing impact of the coronavirus (“COVID-19”) pandemic, continued during the second quarter of 2021. In addition, demand for our business-to-business delivery services strengthened relative to the first quarter of 2021 as COVID-19-related restrictions moderated globally during the second quarter. As a result, our revenue and operating income declined slightlyimproved during the second quarter and first half of 2021. We continued to incur increased operating expenses to support elevated levels of demand for our services in the thirdCOVID-19 pandemic environment, including additional labor expenses, costs of operating our seven-day network at FedEx Ground and costs of operating our air network to support higher demand in key international supply chains impacted by constrained commercial air capacity. We also incurred increased operating expenses related to personal protective equipment and medical/safety supplies, as well as additional security and cleaning services, in order to protect our team members and customers during the COVID-19 pandemic, of approximately $50 million in the second quarter and $150 million in the first half of 2018 primarily2021. In addition, we incurred costs associated with network contingencies, including additional personnel to support operations through the peak season during the pandemic.
Our consolidated operating income improved during both the second quarter and first half of 2021 due to significantly higher incentive compensation accruals (described below), higher peak-related costsinternational export and U.S. domestic package volume growth at FedEx Express, increased TNT Express integration expenses and the negative impacts of inclement winter weather at FedEx Express. These factors were partially offset by increased yields and the favorable net impact of fuel at all of our transportation segments andresidential volume growth at FedEx Ground and pricing initiatives across all of our transportation segments. Higher purchased transportation expenses at FedEx Freight. The NotPetya cyberattack (described below)Ground are also drove lower resultsdriven by increased residential product mix in both the nine months of 2018.
Net income for the thirdsecond quarter and nine monthsfirst half of 2018 was positively2021. Additionally, higher variable incentive compensation expense negatively impacted year-over-year second quarter comparisons by approximately $215 million and first half comparisons by approximately $410 million.
- 22 -
The loss of business from a provisional benefit of $1.15 billion ($4.21 per diluted share) attributable to the enactment of the Tax Cuts and Jobs Act (“TCJA”), specifically related to the remeasurement of our net U.S. deferred tax liability.large customer negatively impacted earnings in 2020. In addition, during the second quarter of 2020, we recognized a one-time benefitrecorded asset impairment charges of $204$66 million ($0.75 per diluted share) from a $1.5 billion contribution to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) in February 2018 and a benefit of $165 million ($0.60 per diluted share) related to a lower statutory income tax rate on fiscal 2018 year- to-date earnings. See the “Income Taxes” section below for further information.
During the third quarter of 2018 we announced more than $3.2 billion in wage increases, bonuses, pension funding and expanded U.S. capital investment following the passage of the TCJA. In connection with this, during the third quarter of 2018 we made a pension funding contribution (noted above) and funded increases in performance-based incentive compensation plans. The incentive compensation adjustments made in the third quarter of 2018 include the year-to-date impact of the announced changes. Expenses related to wage increases will start to be recognized during the fourth quarter of 2018.
We incurred TNT Express integration expenses totaling an aggregate of $106 million ($9250 million, net of tax, or $0.34$0.19 per diluted share) associated with the decision to permanently retire certain aircraft and related engines at FedEx Express. See Note 1 of the accompanying unaudited condensed consolidated financial statements for additional information.
We incurred integration expenses totaling $48 million ($36 million, net of tax, or $0.13 per diluted share) in the thirdsecond quarter of 2018, a $28and $97 million increase from the third quarter of 2017. TNT Express integration expenses were an aggregate $341 million ($26574 million, net of tax, or $0.97$0.28 per diluted share) in the nine monthsfirst half of 2018,2021, a $137$16 million increasedecrease from
- 29 -
the nine monthssecond quarter and a $38 million decrease from the first half of 2017.2020. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees, salaries and wages, advertising expenses andemployee benefits, travel and include any restructuring charges at TNT Express.advertising expenses. Internal salaries and wagesemployee benefits are included only to the extent the individuals are assigned full timefull-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporation.Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures.
As previously announced, on June 27, 2017,Consolidated net income in the worldwide operationssecond quarter and first half of 2021 includes a pre-tax, noncash mark-to-market (“MTM”) net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) associated with freezing our TNT Express were significantlyNetherlands Pension Plan. See the “Retirement Plan MTM Adjustment” section of this MD&A and Note 7 of the accompanying unaudited condensed consolidated financial statements for additional information.
The comparison of net income between 2021 and 2020 is affected by the cyberattack known as NotPetya. Immediately following the attack, contingency plans were implemented to recover TNT Express operations and communications systems, and substantially all TNT Express services were fully restoreda tax benefit of $191 million ($0.71 per diluted share) recognized during the first quarter of 2018. As of the second quarter of 2018, all2021, primarily attributable to guidance issued by the Internal Revenue Service (“IRS”) during the quarter, and a tax benefit of TNT Express’s critical operational systems were fully restored, critical business data was recovered$133 million ($0.51 per diluted share) from the reduction of a valuation allowance recognized during the second quarter and shipping services and solutions were back in place.
Our results for the first half of 2018 were negatively impacted by2020. See the NotPetya cyberattack by an estimated $400 million ($1.14 per diluted share“Income Taxes” section of this MD&A for the nine months of 2018), primarily from loss of revenue due to decreased shipments in the TNT Express network, as well as incremental costs to restore information technology systems. In addition, we continued to experience lingering revenue impacts from the NotPetya cyberattack in the third quarter of 2018 in the form of lower volumes at TNT Express.further information.
- 3023 -
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends (in thousands) over the five most recent quarters:
| (1) | International domestic average daily package volume |
(2) | International average daily freight pounds relate to our international priority, economy and airfreight services. |
- 3124 -
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends over the five most recent quarters:
| (1) | International export revenue per package relates to our international priority and economy services. International domestic revenue per package |
(2) | International revenue per pound relates to our international priority, economy and airfreight services. |
- 25 -
Revenue
Revenue
Revenues increased 10%19% in the thirdsecond quarter and 8%16% in the nine monthsfirst half of 20182021 primarily due to improved performancevolume growth in residential delivery services at FedEx Ground and U.S. domestic package volume growth at FedEx Express, both reflecting increased e-commerce demand resulting from the ongoing impact of the COVID-19 pandemic. In addition, demand for our business-to-business delivery services strengthened relative to the first quarter of 2021 as COVID-19-related restrictions moderated globally during the second quarter. International export package volume growth at FedEx Express and pricing initiatives across all of our transportation segments. Revenues at FedEx Express increased 9%segments also contributed to the increase in revenue during the thirdsecond quarter and 7% in the nine monthsfirst half of 2018 due to improved base yields and favorable exchange rates, despite impacts from the NotPetya cyberattack discussed above. At FedEx Ground, revenues increased 11% in the third quarter and 10% in the nine months of 2018 due to volume growth and increased yields. FedEx Freight revenues increased 14% in the third quarter and 10% in the nine months of 2018 due to higher LTL revenue per shipment and average daily LTL shipments. Higher fuel surcharges had a positive impact on revenues2021. Additionally, one additional operating day at all of our transportation segments positively impacted revenue in the thirdfirst half of 2021. These positive factors were partially offset by lower fuel surcharges at all of our transportation segments during both the second quarter and nine monthsfirst half of 2018.2021.
- 32 -
At FedEx Ground, revenue increased 38% in the second quarter and 37% in the first half of 2021 primarily due to residential delivery volume growth. This sharp increase in demand is the result of a shift in consumer shopping patterns accelerated by the COVID-19 pandemic. Revenue at FedEx Express increased 14% in the second quarter and 11% in the first half of 2021 due to international export and U.S. domestic package volume growth. FedEx Freight revenue increased 5% in the second quarter of 2021 primarily due to higher revenue per shipment. Revenue at FedEx Freight remained flat in the first half of 2021 due to higher revenue per shipment, partially offset by decreased average daily shipments.
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
| ||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ | 5,981 |
|
| $ | 5,395 |
|
| $ | 17,241 |
|
| $ | 16,059 |
|
| $ | 7,443 |
|
| $ | 6,235 |
|
|
| 19 |
|
|
| $ | 14,295 |
|
| $ | 12,322 |
|
|
| 16 |
|
Purchased transportation |
|
| 3,935 |
|
|
| 3,498 |
|
|
| 11,220 |
|
|
| 10,169 |
|
|
| 5,407 |
|
|
| 4,328 |
|
|
| 25 |
|
|
|
| 10,384 |
|
|
| 8,356 |
|
|
| 24 |
|
Rentals and landing fees |
|
| 873 |
|
|
| 834 |
|
|
| 2,526 |
|
|
| 2,426 |
|
|
| 1,006 |
|
|
| 924 |
|
|
| 9 |
|
|
|
| 1,942 |
|
|
| 1,844 |
|
|
| 5 |
|
Depreciation and amortization |
|
| 786 |
|
|
| 762 |
|
|
| 2,293 |
|
|
| 2,241 |
|
|
| 936 |
|
|
| 901 |
|
|
| 4 |
|
|
|
| 1,862 |
|
|
| 1,780 |
|
|
| 5 |
|
Fuel |
|
| 914 |
|
|
| 735 |
|
|
| 2,435 |
|
|
| 2,043 |
|
|
| 625 |
|
|
| 890 |
|
|
| (30 | ) |
|
|
| 1,190 |
|
|
| 1,760 |
|
|
| (32 | ) |
Maintenance and repairs |
|
| 628 |
|
|
| 588 |
|
|
| 1,968 |
|
|
| 1,765 |
|
|
| 815 |
|
|
| 774 |
|
|
| 5 |
|
|
|
| 1,621 |
|
|
| 1,542 |
|
|
| 5 |
|
Asset impairment charges |
|
| — |
|
|
| 66 |
|
| NM |
|
|
|
| — |
|
|
| 66 |
|
| NM |
| ||||||||||||||||||
Other |
|
| 2,408 |
|
|
| 2,160 |
|
|
| 7,073 |
|
|
| 6,432 |
|
|
| 2,866 |
|
|
| 2,652 |
|
|
| 8 |
|
|
|
| 5,535 |
|
|
| 5,171 |
|
|
| 7 |
|
Total operating expenses |
| $ | 15,525 |
|
| $ | 13,972 |
|
| $ | 44,756 |
|
| $ | 41,135 |
|
|
| 19,098 |
|
|
| 16,770 |
|
|
| 14 |
|
|
|
| 36,829 |
|
|
| 32,841 |
|
|
| 12 |
|
Operating income |
| $ | 1,001 |
|
| $ | 1,025 |
|
| $ | 3,380 |
|
| $ | 3,456 |
|
| $ | 1,465 |
|
| $ | 554 |
|
|
| 164 |
|
|
| $ | 3,055 |
|
| $ | 1,531 |
|
|
| 100 |
|
|
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| ||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
|
| Six Months Ended |
|
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
|
| 2018 |
|
| 2017 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 36.2 |
| % |
|
| 36.0 |
| % |
|
| 35.8 |
| % |
|
| 36.0 |
| % |
|
| 36.2 |
| % |
|
| 36.0 |
| % |
|
| 35.8 |
| % |
|
| 35.8 |
| % |
Purchased transportation |
|
| 23.8 |
|
|
| 23.3 |
|
|
| 23.3 |
|
|
| 22.8 |
|
|
|
| 26.3 |
|
|
| 25.0 |
|
|
| 26.0 |
|
|
| 24.3 |
|
| ||||||
Rentals and landing fees |
|
| 5.3 |
|
|
| 5.6 |
|
|
| 5.2 |
|
|
| 5.4 |
|
|
|
| 4.9 |
|
|
| 5.3 |
|
|
| 4.9 |
|
|
| 5.4 |
|
| ||||||
Depreciation and amortization |
|
| 4.7 |
|
|
| 5.1 |
|
|
| 4.8 |
|
|
| 5.0 |
|
|
|
| 4.6 |
|
|
| 5.2 |
|
|
| 4.7 |
|
|
| 5.2 |
|
| ||||||
Fuel |
|
| 5.5 |
|
|
| 4.9 |
|
|
| 5.1 |
|
|
| 4.6 |
|
|
|
| 3.0 |
|
|
| 5.1 |
|
|
| 3.0 |
|
|
| 5.1 |
|
| ||||||
Maintenance and repairs |
|
| 3.8 |
|
|
| 3.9 |
|
|
| 4.1 |
|
|
| 4.0 |
|
|
|
| 4.0 |
|
|
| 4.5 |
|
|
| 4.0 |
|
|
| 4.5 |
|
| ||||||
Asset impairment charges |
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| 0.2 |
|
| |||||||||||||||||||||||
Other |
|
| 14.6 |
|
|
| 14.4 |
|
|
| 14.7 |
|
|
| 14.4 |
|
|
|
| 13.9 |
|
|
| 15.3 |
|
|
| 13.9 |
|
|
| 15.0 |
|
| ||||||
Total operating expenses |
|
| 93.9 |
|
|
| 93.2 |
|
|
| 93.0 |
|
|
| 92.2 |
|
|
|
| 92.9 |
|
|
| 96.8 |
|
|
| 92.3 |
|
|
| 95.5 |
|
| ||||||
Operating margin |
|
| 6.1 |
| % |
|
| 6.8 |
| % |
|
| 7.0 |
| % |
|
| 7.8 |
| % |
|
| 7.1 |
| % |
|
| 3.2 |
| % |
|
| 7.7 |
| % |
|
| 4.5 |
| % |
Operating margin declinedVolume growth, as discussed in the third“Revenue” section of this MD&A, contributed to a 25% increase in purchased transportation costs in the second quarter and a 24% increase in the first half of 2018 primarily2021, as a resultwell as an increase in salaries and employee benefits expense of significantly19% in the second quarter and 16% in the first half of 2021. Purchased transportation costs were also higher incentive compensation accruals, higher peak-related costsin both the second quarter and first half of 2021 driven by increased residential product mix at FedEx Express, the negative impacts of inclement winter weather at FedEx Express and increased TNT Express integration expenses. The impacts of the NotPetya cyberattack discussed above also drove the operating margin decline in the nine months of 2018.
SalariesGround. In addition, salaries and employee benefits expense increased 11% in both the thirdsecond quarter and 7% in the nine monthsfirst half of 2018 primarily due to merit increases and significantly higher incentive compensation accruals at all of our transportation segments, unfavorable exchange rates at FedEx Express and higher staffing at FedEx Ground and FedEx Freight. Purchased transportation costs increased 12% in the third quarter and 10% in the nine months of 2018 primarily2021 due to higher volumes at all of our transportation segments, unfavorable exchange rates at FedEx Expressvariable incentive compensation expense and increased rates and higher fuel expenses at FedEx Ground. Other expenses increased 11% in the third quarter of 2018 primarily due to unfavorable exchange rates, increased outside service contracts at FedEx Express and TNT Express integration expenses. Other expenses increased 10% in the nine months of 2018 due to these same factors as well as higher self-insurance reserves at FedEx Ground. Maintenance and repairs expense increased 12% in the nine months of 2018 primarily due to the timing of aircraft engine maintenance events at FedEx Express.merit increases.
- 3326 -
The following graph for our transportation segments shows our average cost of jet and vehicle fuel per gallon for the five most recent quarters:
Fuel expense increased 24%decreased 30% in the thirdsecond quarter and 19%32% in the nine monthsfirst half of 2018 primarily2021 due to increasedlower fuel prices. Fuel prices represent only one component of the two factors we consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the third quartersecond quarters of 20182021 and 20172020 in the accompanying discussionsdiscussion of each of our transportation segments.
Effective February 6, 2017, FedEx Express and FedEx Ground fuel surcharges are adjusted on a weekly basis. The fuel surcharge is based on a weekly fuel price from two weeks prior to the week in which it is assessed. The index used to determine the fuel surcharge percentage for our FedEx Freight business continues to adjust weekly. Some FedEx Express international fuel surcharges continue to incorporate a timing lag of approximately six to eight weeks.
Prior to February 6, 2017, our fuel surcharges for the FedEx Express and FedEx Ground businesses incorporated a timing lag of approximately six to eight weeks before they were adjusted for changes in fuel prices. For example, the fuel surcharge index in effect at FedEx Express in January 2017 was set based on November 2016 fuel prices.
Beyond these factors, the manner in which we purchase fuel also influences the net impact of fuel on our results. For example, our contracts for jet fuel purchases at FedEx Express are tied to various indices, including the U.S. Gulf Coast index. While many of these indices are aligned, each index may fluctuate at a different pace, driving variability in the prices paid for jet fuel. Furthermore, under these contractual arrangements, approximately 70% of our jet fuel is purchased based on the index price for the preceding week, with the remainder of our purchases tied to the index price for the preceding month, rather than based on daily spot rates. These contractual provisions mitigate the impact of rapidly changing daily spot rates on our jet fuel purchases.
Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term. The net impact of fuel on operating income described below and for each segment below excludes the impact from these table changes.
The net impact of fuel had a significantslight benefit to operating income in the thirdsecond quarter and nine monthsfirst half of 20182021 as higherdecreased fuel surcharges more than offset increasedprices outpaced lower fuel prices.surcharges.
TheAsset Impairment Charges
During the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FedEx Express to align with the needs of the U.S. domestic network and modernize its aircraft fleet. As a consequence of this decision, noncash impairment charges of $66 million ($50 million, net impact of fuel on our operating results does not consider the effects that fuel surcharge levels may have on our business, including changes in demand and shiftstax, or $0.19 per diluted share) were recorded in the mixFedEx Express segment in the second quarter of services purchased by our customers. While fluctuations in fuel surcharge percentages can be significant from period to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and extra service charges we obtain for these services and the level of pricing discounts offered.2020.
- 3427 -
Retirement Plan MTM Adjustment
We incurred a pre-tax, noncash MTM net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) in the second quarter of 2021 related to amendments to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100 employees will be frozen effective December 31, 2020. Effective January 1, 2021, these employees will begin earning pension benefits under a separate, multi-employer pension plan. See Note 7 of the accompanying unaudited condensed consolidated financial statements for additional information.
Income Taxes
On December 22, 2017,Our effective tax rate was 12.8% for the United States government enacted comprehensivesecond quarter and 18.0% for the first half of 2021, compared to 2.1% for the second quarter and 16.8% for the first half of 2020. The 2021 tax legislation throughrates include a benefit of $191 million from an increase in our 2020 tax loss that the TCJA. The TCJA significantly changesCoronavirus Aid, Relief, and Economic Security Act (“CARES Act”) will allow to be carried back to 2015, when the U.S. corporate income tax system including, among other things, lowering the statutory federal income tax rate was 35%. The increase in our estimated 2020 tax loss is attributable to our Application for Change in Accounting Method filed with the IRS during the fourth quarter of 2020 discussed below and other accelerated deductions to be claimed on the 2020 tax return. The 2020 tax rates included a $133 million benefit from 35%a valuation allowance reduction which, when combined with substantially lower consolidated earnings, produced a significantly lower rate for the second quarter of 2020 compared to 21%, eliminating or reducingthe second quarter of 2021.
We filed an application with the IRS in 2020 requesting approval to change our accounting method for depreciation to allow retroactive application of tax regulations issued during 2020 on certain assets placed in service during 2018 and 2019. During the second quarter of 2021, the IRS issued guidance granting automatic approval to change the method of accounting for these assets resulting in an income tax deductions, and implementing a modified territorial tax system that includes a one-time transition tax on previously deferred foreign earnings. Due to our May 31 fiscal year end, the lower rate will be phased in, resulting in a U.S. statutory federal ratebenefit of 29.2% for 2018 and a 21% statutory federal rate for subsequent years.
In December 2017, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin (“SAB”) 118, which provides guidance on accounting$130 million for the tax effects of the TCJA. SAB 118 provides for a measurement period of up to one year from the enactment date for companies to complete the accounting for the initial income tax effects of the TCJA. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting is complete and provide a provisional estimate (where determinable) of the income tax effects of the TCJA where the accounting is incomplete. The provisional estimate is required to be updated throughout the measurement period. second quarter.
As of February 28, 2018, we have not completed our initial accounting of the tax effects of the TCJA; however, where determinable, we have made an estimate of the effects on our existing deferred tax balances and the one-time transition tax. During the quarter, we recognized a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred tax liability and a provisional benefit of $36 million from foreign tax credits exceeding the one-time transition tax on previously deferred foreign earnings.
In addition to the provisional amounts above, we recognized a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans in February 2018 and a benefit of $165 million related to a lower statutory income tax rate on fiscal 2018 year-to-date earnings.
The following table provides a reconciliation of the 2017 effective tax rates to the 2018 effective tax rates, including the impact of the TCJA, for the periods ended February 28:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
|
| 2018 |
|
| 2018 |
| ||
2017 Effective Tax Rate |
|
| 37.5 | % |
|
| 36.6 | % |
Remeasurement of net U.S. deferred tax liability |
|
| (131.5 | ) |
|
| (38.4 | ) |
Effect of February 2018 pension contribution (a) |
|
| (23.3 | ) |
|
| (6.8 | ) |
Lower statutory tax rate |
|
| (18.9 | ) |
|
| (5.5 | ) |
Transition tax |
|
| (4.1 | ) |
|
| (1.2 | ) |
Other (b) |
|
| 3.0 |
|
|
| 0.3 |
|
2018 Effective Tax Rate |
|
| (137.3 | )% |
|
| (15.0 | )% |
|
|
|
|
We are subject to taxation in the United States and various U.S. state, local and foreign jurisdictions. We are currently under examination by the Internal Revenue Service (“IRS”)IRS for the 20142016 and 20152017 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next twelve months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes wouldis not expected to be material to our consolidated financial statements. As
During the second quarter of February 28,2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 there were no material changesand 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $233 million through 2019 attributable to our liabilities for unrecognized tax benefits subsequent to May 31, 2017.
See Note 5interpretation of the accompanying unaudited condensed consolidated financial statements for further discussion relatedTCJA and the Internal Revenue Code. If we are ultimately unsuccessful in defending our position, we may be required to income taxes.reverse the benefit previously recorded.
Business AcquisitionAcquisitions
On October 13, 2017, FedEx acquired Northwest Research,December 2, 2020, we agreed to acquire ShopRunner, Inc. (“ShopRunner”), a leader in inventory researchan e-commerce platform that directly connects brands and management, for $50 million inmerchants with online shoppers. The cost of the acquisition will not be material and will be funded with cash from operations. The majority of the purchase price was allocatedThis acquisition is expected to property and equipment.be completed in December 2020, subject to customary conditions, including regulatory approval. The financial results of this acquired business areShopRunner will be included in the FedEx Services segment“Corporate, other and eliminations” from the date of acquisition and wereare not expected to be material to our results of operations.operations in 2021.
- 3528 -
We expect yieldanticipate the continuing impacts of the COVID-19 pandemic will drive increased demand for our FedEx Ground and volume growth at allFedEx Express services in the second half of our transportation segments to supportthe fiscal year resulting in improved year-over-year revenue and earnings growth in the fourth quarter and full year of 2018, prior to any mark-to-market benefit plans adjustment. We expect to continue implementing various cost management plansoperating income at FedEx Groundthose two segments for the remainder of 2018. Our fourth quarter2021. In addition, yield management and full-year 2018 results will be negatively affected by our TNT Express integration activitiesimproved productivity is anticipated to contribute to revenue and operating income growth at the FedEx Freight segment in 2021. However, the uncertainty concerning the COVID-19 pandemic, as well as the potential for additional government-related restrictions, continues to make any expectations for the second half of 2021 inherently less certain. If our current trends continue, we expect certain expenses, including higher variable incentive compensation accruals, rising labor costs and increased compensationsupply and other costs related to the COVID-19 pandemic, to continue to be incurred during the remainder of 2021. We also expect headwinds related to the December 31, 2020 expiration of the aviation excise tax holiday created by the CARES Act and a higher effective income tax rate for certainthe second half of 2021.
Government travel warnings as well as existing restrictions related to the COVID-19 pandemic are expected to continue to impact the demand for commercial air travel, thereby reducing available air freight capacity. As a result of these ongoing capacity constraints, we expect continued strong demand for international priority shipments for the remainder of 2021 to necessitate increased usage of our hourly team membersassets to support demand in key international supply chains. In addition, we anticipate a modest increase in volumes from the delivery of COVID-19 vaccines. We will continue managing network capacity, flexing our network and higher incentive compensation formaking adjustments as needed to align with volumes and operating conditions.
In response to current business conditions, we are extending certain surcharges beyond the peak shipping period, although at a reduced rate. These surcharges will begin on January 18, 2021 and may be adjusted in future periods as business or market conditions evolve.
We have expanded FedEx Ground seven-day residential delivery coverage to nearly 95 percent of the U.S. population and will continue to optimize our salaried personnel. Our expectations for earnings growth in 2018 assumes moderate economic growth.
network capacity to meet evolving customer needs. During the remainder of 2018,2021, we will continuefocus on last-mile residential delivery optimization, including by directing certain U.S. day-definite residential FedEx Express shipments into the FedEx Ground network to increase efficiency and lower our cost-to-serve. We also are focused on improving revenue quality and lowering costs through advanced technology aimed at improving productivity and safety.
We are continuing to execute our TNT Express integration plans.plans and are scheduled to complete the integration of the FedEx Express and TNT Express linehaul and pickup-and-delivery operations and begin offering an enhanced portfolio of international services in 2021. We will leverage the capabilities that TNT Express adds to our portfolio, which are expected to improve our European revenue and profitability, which continue to underperform our expectations for that market. We expect to complete the final phase of international air network interoperability in early calendar 2022.
We expect to incur approximately $80 million of integration expenses in the remainder of 2021 in the form of professional fees, outside service contracts, salaries and wages and other operating expenses. We expect the aggregate integration program expense, including restructuring charges atexpenses to be $1.7 billion through the completion of the physical network integration of TNT Express overinto FedEx Express in 2022.
As we approach the four yearscompletion of the physical network integration of TNT Express in 2022, we are evaluating opportunities and pursuing initiatives in addition to be approximately $1.4 billionthe integration to continue to transform and optimize the FedEx Express international business, particularly in Europe. These actions are focused on reducing the complexity and fragmentation of our international business, improving efficiency to meet changing customer expectations and business dynamics, lowering costs, increasing profitability and improving service levels. We expect to incur approximately $450 million of theseadditional costs, during 2018. The timing and amount of integration expensesover multiple years, which may be material, including transformation costs and capital investments in any future period may change as we implement our plans.related to these actions.
The integration process is complex as it spans over 200 countries and involves combining our pickup and delivery operations at a local level, ourOur expectations for the remainder of 2021 are dependent on key external factors, including no further weakening of global and regional air and ground networks, and our extensive operations, customs clearance, sales and back-office information technology systems. In addition, a portion of our integration expenses relateeconomic conditions or additional shut-downs related to the ongoing establishment of our newCOVID-19 pandemic, current fuel price expectations, and no additional adverse developments in international corporate structure which will leverage synergies to maximize our international profitability, ultimately benefiting our effective tax rate. The integration is expected to be substantially complete by the end of 2020. We are targeting operating income improvement at the FedEx Express segment of $1.2 billion to $1.5 billion in 2020 from 2017 assuming moderate economic growthtrade policies and current accounting rules and tax laws. This target includes TNT Express synergies as well as base business and other operational improvements across the global FedEx Express network. Although we are targeting to complete our integration program by the end of 2020, we are investing in opportunities to improve the capabilities of the integrated business for future profitability, including periods beyond 2020.
As noted above, we recorded a provisional reduction to our net U.S. deferred tax liability during the third quarter of 2018 in connection with the recently enacted TCJA. The final impact of the TCJA on our reported results for fiscal year 2018 and beyond may differ from the estimates recorded, possibly materially, due to changes in interpretations and assumptions we have made, future guidance that may be issued, and other changes that may occur as we complete our analysis of the TCJA. relations.
Other Outlook Matters. For details on key 20182021 capital projects, refer to the “Liquidity Outlook” section of this MD&A.
FedEx Ground previously announced plans to implement the Independent Service Provider (“ISP”) model throughout its entire U.S. pickup and delivery network. The transition to the ISP model is being accomplished on a district-by-district basis and is expected to be completed in the second half of calendar 2020. As of February 28, 2018, 64% of FedEx Ground volume was being delivered by small businesses operating under the ISP model. The costs associated with these transitions will be recognized in the periods incurred and are not expected to be material to any future quarter.
See “Forward-Looking Statements” and Part II, Item 1A “Risk Factors” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.
RECENT ACCOUNTING GUIDANCE
See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.
- 3629 -
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with FedEx Services, form the core ofconstitute our reportable segments. Our reportable segments include the following businesses:
FedEx Express Segment | FedEx Express (express |
| |
| FedEx FedEx Cross Border Holdings, Inc. (“FedEx Cross Border”) (cross-border e-commerce technology and |
|
|
FedEx Ground Segment | FedEx Ground (small-package ground delivery) |
|
|
| |
FedEx Freight Segment | FedEx Freight (LTL freight |
| |
|
|
FedEx Services Segment | FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services and back-office functions) |
|
Effective March 1, 2018, we realigned our specialty logistics and e-commerce solutions in a new organizational structure under FedEx Trade Networks, Inc. in the FedEx Express segment. The realignment allows us to improve our ability to deliver the capabilities of our specialty companies to customers. The new structure includes FedEx Custom Critical, FedEx Cross Border, FedEx Supply Chain, FedEx Trade Networks Transport & Brokerage and, effective June 1, 2018, a new company called FedEx Forward Depots. Prior period segment results will be recast to conform to current year presentation beginning in the fourth quarter of 2018.
FEDEX SERVICES SEGMENT
The operating expense line item “Intercompany charges” on the accompanying unaudited condensed consolidated financial statements of our transportation segments reflects the allocations from the FedEx Services segment to the respective transportationoperating segments. The allocations of net operating costs are based on metrics such as relative revenuesrevenue or estimated services provided.
The FedEx Services segment provides direct and indirect support to our transportation businesses,operating segments, and we allocate all of the net operating costs of the FedEx Services segment (including the net operating results of FedEx Office) to reflect the full cost of operating our transportation businesses in the results of those segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office, which are an immaterial component of our allocations, are allocated to FedEx Express and FedEx Ground. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our transportationoperating segments. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.
ELIMINATIONS, CORPORATE, OTHER AND OTHERELIMINATIONS
Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the other business segments. Also, the results of the FedEx Logistics, Inc. (“FedEx Logistics”) and FedEx Office and Print Services, Inc. (“FedEx Office”) operating segments are included in corporate and other. FedEx Office provides an array of document and business services and retail access to our customers for our package transportation businesses. FedEx Logistics provides integrated supply chain management solutions, specialty transportation, customs brokerage and global ocean and air freight forwarding.
In the second quarter and first half of 2021, the decrease in revenue in “Corporate, other and eliminations” was due to a significant decline in non-shipping revenue at FedEx Office resulting from the COVID-19 pandemic. The transfer of FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment contributed to the decrease in revenue in the second quarter and first half of 2021.
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment.segment in order to optimize our resources. For example, during the second quarter and first half of 2021, FedEx Freight provided road and intermodal support for both FedEx Ground and FedEx Express and FedEx Ground provided delivery support for certain FedEx Express packages as part of our last-mile optimization efforts. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenuesrevenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenuesrevenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
Corporate and other includes corporate headquarters costs for executive officers and certain legal and financial functions, as well as certain other costs and credits not attributed to our core business. These costs are not allocated to the business segments.
- 3730 -
FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred orand economy services, which provide delivery on a time-definite or day-definite basis. As discussed in our Annual Report, we are reporting TNT Express as part of the FedEx Express segment. Prior year amounts have been revised to conform to the current year presentation, including revised statistical information. The following tables compare revenues,revenue, operating expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 1,836 |
|
| $ | 1,742 |
|
|
| 5 |
|
|
| $ | 5,373 |
|
| $ | 5,173 |
|
|
| 4 |
|
|
| $ | 2,012 |
|
| $ | 1,864 |
|
|
| 8 |
|
|
| $ | 3,873 |
|
| $ | 3,730 |
|
|
| 4 |
|
|
U.S. overnight envelope |
|
| 435 |
|
|
| 422 |
|
|
| 3 |
|
|
|
| 1,317 |
|
|
| 1,287 |
|
|
| 2 |
|
|
|
| 435 |
|
|
| 457 |
|
|
| (5 | ) |
|
|
| 861 |
|
|
| 936 |
|
|
| (8 | ) |
|
U.S. deferred |
|
| 996 |
|
|
| 954 |
|
|
| 4 |
|
|
|
| 2,796 |
|
|
| 2,598 |
|
|
| 8 |
|
|
|
| 1,204 |
|
|
| 980 |
|
|
| 23 |
|
|
|
| 2,300 |
|
|
| 1,936 |
|
|
| 19 |
|
|
Total U.S. domestic package revenue |
|
| 3,267 |
|
|
| 3,118 |
|
|
| 5 |
|
|
|
| 9,486 |
|
|
| 9,058 |
|
|
| 5 |
|
|
|
| 3,651 |
|
|
| 3,301 |
|
|
| 11 |
|
|
|
| 7,034 |
|
|
| 6,602 |
|
|
| 7 |
|
|
International priority |
|
| 1,813 |
|
|
| 1,667 |
|
|
| 9 |
|
|
|
| 5,393 |
|
|
| 5,144 |
|
|
| 5 |
|
|
|
| 2,510 |
|
|
| 1,817 |
|
|
| 38 |
|
|
|
| 4,827 |
|
|
| 3,634 |
|
|
| 33 |
|
|
International economy |
|
| 793 |
|
|
| 692 |
|
|
| 15 |
|
|
|
| 2,378 |
|
|
| 2,101 |
|
|
| 13 |
|
|
|
| 658 |
|
|
| 873 |
|
|
| (25 | ) |
|
|
| 1,274 |
|
|
| 1,728 |
|
|
| (26 | ) |
|
Total international export package revenue |
|
| 2,606 |
|
|
| 2,359 |
|
|
| 10 |
|
|
|
| 7,771 |
|
|
| 7,245 |
|
|
| 7 |
|
|
|
| 3,168 |
|
|
| 2,690 |
|
|
| 18 |
|
|
|
| 6,101 |
|
|
| 5,362 |
|
|
| 14 |
|
|
International domestic(1) |
|
| 1,128 |
|
|
| 1,033 |
|
|
| 9 |
|
|
|
| 3,386 |
|
|
| 3,136 |
|
|
| 8 |
|
|
|
| 1,206 |
|
|
| 1,165 |
|
|
| 4 |
|
|
|
| 2,294 |
|
|
| 2,241 |
|
|
| 2 |
|
|
Total package revenue |
|
| 7,001 |
|
|
| 6,510 |
|
|
| 8 |
|
|
|
| 20,643 |
|
|
| 19,439 |
|
|
| 6 |
|
|
|
| 8,025 |
|
|
| 7,156 |
|
|
| 12 |
|
|
|
| 15,429 |
|
|
| 14,205 |
|
|
| 9 |
|
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 739 |
|
|
| 667 |
|
|
| 11 |
|
|
|
| 2,040 |
|
|
| 1,895 |
|
|
| 8 |
|
|
|
| 799 |
|
|
| 698 |
|
|
| 14 |
|
|
|
| 1,632 |
|
|
| 1,393 |
|
|
| 17 |
|
|
International priority |
|
| 551 |
|
|
| 471 |
|
|
| 17 |
|
|
|
| 1,581 |
|
|
| 1,396 |
|
|
| 13 |
|
|
|
| 737 |
|
|
| 473 |
|
|
| 56 |
|
|
|
| 1,390 |
|
|
| 937 |
|
|
| 48 |
|
|
International economy |
|
| 492 |
|
|
| 437 |
|
|
| 13 |
|
|
|
| 1,354 |
|
|
| 1,265 |
|
|
| 7 |
|
|
|
| 408 |
|
|
| 541 |
|
|
| (25 | ) |
|
|
| 779 |
|
|
| 1,057 |
|
|
| (26 | ) |
|
International airfreight |
|
| 86 |
|
|
| 84 |
|
|
| 2 |
|
|
|
| 259 |
|
|
| 270 |
|
|
| (4 | ) |
|
|
| 65 |
|
|
| 70 |
|
|
| (7 | ) |
|
|
| 140 |
|
|
| 136 |
|
|
| 3 |
|
|
Total freight revenue |
|
| 1,868 |
|
|
| 1,659 |
|
|
| 13 |
|
|
|
| 5,234 |
|
|
| 4,826 |
|
|
| 8 |
|
|
|
| 2,009 |
|
|
| 1,782 |
|
|
| 13 |
|
|
|
| 3,941 |
|
|
| 3,523 |
|
|
| 12 |
|
|
Other(2) |
|
| 501 |
|
|
| 400 |
|
|
| 25 |
|
|
|
| 1,499 |
|
|
| 1,406 |
|
|
| 7 |
|
|
|
| 334 |
|
|
| 146 |
|
|
| 129 |
|
|
|
| 645 |
|
|
| 301 |
|
|
| 114 |
|
|
Total revenues |
|
| 9,370 |
|
|
| 8,569 |
|
|
| 9 |
|
|
|
| 27,376 |
|
|
| 25,671 |
|
|
| 7 |
|
| ||||||||||||||||||||||||||
Total revenue |
|
| 10,368 |
|
|
| 9,084 |
|
|
| 14 |
|
|
|
| 20,015 |
|
|
| 18,029 |
|
|
| 11 |
|
| ||||||||||||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 3,484 |
|
|
| 3,170 |
|
|
| 10 |
|
|
|
| 10,001 |
|
|
| 9,393 |
|
|
| 6 |
|
|
|
| 3,922 |
|
|
| 3,405 |
|
|
| 15 |
|
|
|
| 7,664 |
|
|
| 6,777 |
|
|
| 13 |
|
|
Purchased transportation |
|
| 1,478 |
|
|
| 1,286 |
|
|
| 15 |
|
|
|
| 4,346 |
|
|
| 3,963 |
|
|
| 10 |
|
|
|
| 1,449 |
|
|
| 1,267 |
|
|
| 14 |
|
|
|
| 2,753 |
|
|
| 2,499 |
|
|
| 10 |
|
|
Rentals and landing fees |
|
| 532 |
|
|
| 511 |
|
|
| 4 |
|
|
|
| 1,520 |
|
|
| 1,483 |
|
|
| 2 |
|
|
|
| 542 |
|
|
| 505 |
|
|
| 7 |
|
|
|
| 1,046 |
|
|
| 1,018 |
|
|
| 3 |
|
|
Depreciation and amortization |
|
| 425 |
|
|
| 420 |
|
|
| 1 |
|
|
|
| 1,254 |
|
|
| 1,252 |
|
|
| — |
|
|
|
| 482 |
|
|
| 469 |
|
|
| 3 |
|
|
|
| 959 |
|
|
| 931 |
|
|
| 3 |
|
|
Fuel |
|
| 782 |
|
|
| 633 |
|
|
| 24 |
|
|
|
| 2,088 |
|
|
| 1,753 |
|
|
| 19 |
|
|
|
| 529 |
|
|
| 754 |
|
|
| (30 | ) |
|
|
| 1,025 |
|
|
| 1,497 |
|
|
| (32 | ) |
|
Maintenance and repairs |
|
| 420 |
|
|
| 386 |
|
|
| 9 |
|
|
|
| 1,327 |
|
|
| 1,158 |
|
|
| 15 |
|
|
|
| 542 |
|
|
| 514 |
|
|
| 5 |
|
|
|
| 1,093 |
|
|
| 1,031 |
|
|
| 6 |
|
|
Asset impairment charges |
|
| — |
|
|
| 66 |
|
| NM |
|
|
|
| — |
|
|
| 66 |
|
| NM |
|
| ||||||||||||||||||||||||||||
Intercompany charges |
|
| 528 |
|
|
| 473 |
|
|
| 12 |
|
|
|
| 1,521 |
|
|
| 1,403 |
|
|
| 8 |
|
|
|
| 486 |
|
|
| 500 |
|
|
| (3 | ) |
|
|
| 947 |
|
|
| 969 |
|
|
| (2 | ) |
|
Other |
|
| 1,297 |
|
|
| 1,133 |
|
|
| 14 |
|
|
|
| 3,745 |
|
|
| 3,393 |
|
|
| 10 |
|
|
|
| 1,516 |
|
|
| 1,368 |
|
|
| 11 |
|
|
|
| 2,918 |
|
|
| 2,720 |
|
|
| 7 |
|
|
Total operating expenses |
|
| 8,946 |
|
|
| 8,012 |
|
|
| 12 |
|
|
|
| 25,802 |
|
|
| 23,798 |
|
|
| 8 |
|
|
|
| 9,468 |
|
|
| 8,848 |
|
|
| 7 |
|
|
|
| 18,405 |
|
|
| 17,508 |
|
|
| 5 |
|
|
Operating income |
| $ | 424 |
|
| $ | 557 |
|
|
| (24 | ) |
|
| $ | 1,574 |
|
| $ | 1,873 |
|
|
| (16 | ) |
|
| $ | 900 |
|
| $ | 236 |
|
|
| 281 |
|
|
| $ | 1,610 |
|
| $ | 521 |
|
|
| 209 |
|
|
Operating margin |
|
| 4.5 | % |
|
| 6.5 | % |
|
| (200 | ) | bp |
|
| 5.7 | % |
|
| 7.3 | % |
|
| (160 | ) | bp |
|
| 8.7 | % |
|
| 2.6 | % |
|
| 610 |
| bp |
|
| 8.0 | % |
|
| 2.9 | % |
|
| 510 |
| bp |
| (1) | International domestic |
| (2) | Includes the operations of FedEx |
- 3831 -
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| |||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
|
| 2018 |
|
| 2017 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 37.2 |
| % |
|
| 37.0 |
| % |
|
| 36.5 |
| % |
|
| 36.6 |
| % |
|
| 37.8 |
| % |
|
| 37.5 |
| % |
|
| 38.3 |
| % |
|
| 37.6 |
| % |
Purchased transportation |
|
| 15.8 |
|
|
| 15.0 |
|
|
| 15.9 |
|
|
| 15.4 |
|
|
|
| 14.0 |
|
|
| 13.9 |
|
|
| 13.8 |
|
|
| 13.9 |
|
| ||||||
Rentals and landing fees |
|
| 5.7 |
|
|
| 6.0 |
|
|
| 5.6 |
|
|
| 5.8 |
|
|
|
| 5.2 |
|
|
| 5.6 |
|
|
| 5.2 |
|
|
| 5.6 |
|
| ||||||
Depreciation and amortization |
|
| 4.5 |
|
|
| 4.9 |
|
|
| 4.6 |
|
|
| 4.9 |
|
|
|
| 4.7 |
|
|
| 5.2 |
|
|
| 4.8 |
|
|
| 5.1 |
|
| ||||||
Fuel |
|
| 8.4 |
|
|
| 7.4 |
|
|
| 7.6 |
|
|
| 6.8 |
|
|
|
| 5.1 |
|
|
| 8.3 |
|
|
| 5.1 |
|
|
| 8.3 |
|
| ||||||
Maintenance and repairs |
|
| 4.5 |
|
|
| 4.5 |
|
|
| 4.8 |
|
|
| 4.5 |
|
|
|
| 5.2 |
|
|
| 5.6 |
|
|
| 5.5 |
|
|
| 5.7 |
|
| ||||||
Asset impairment charges |
|
| — |
|
|
| 0.7 |
|
|
| — |
|
|
| 0.4 |
|
| |||||||||||||||||||||||
Intercompany charges |
|
| 5.6 |
|
|
| 5.5 |
|
|
| 5.6 |
|
|
| 5.5 |
|
|
|
| 4.7 |
|
|
| 5.5 |
|
|
| 4.7 |
|
|
| 5.4 |
|
| ||||||
Other |
|
| 13.8 |
|
|
| 13.2 |
|
|
| 13.7 |
|
|
| 13.2 |
|
|
|
| 14.6 |
|
|
| 15.1 |
|
|
| 14.6 |
|
|
| 15.1 |
|
| ||||||
Total operating expenses |
|
| 95.5 |
|
|
| 93.5 |
|
|
| 94.3 |
|
|
| 92.7 |
|
|
|
| 91.3 |
|
|
| 97.4 |
|
|
| 92.0 |
|
|
| 97.1 |
|
| ||||||
Operating margin |
|
| 4.5 |
| % |
|
| 6.5 |
| % |
|
| 5.7 |
| % |
|
| 7.3 |
| % |
|
| 8.7 |
| % |
|
| 2.6 |
| % |
|
| 8.0 |
| % |
|
| 2.9 |
| % |
The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
|
| Three Months Ended |
|
| Percent |
|
| Six Months Ended |
|
| Percent |
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||
Package Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
| 1,315 |
|
|
| 1,322 |
|
|
| (1 | ) |
|
| 1,249 |
|
|
| 1,286 |
|
|
| (3 | ) |
|
| 1,453 |
|
|
| 1,244 |
|
|
| 17 |
|
|
| 1,369 |
|
|
| 1,231 |
|
|
| 11 |
|
U.S. overnight envelope |
|
| 541 |
|
|
| 549 |
|
|
| (1 | ) |
|
| 548 |
|
|
| 559 |
|
|
| (2 | ) |
|
| 512 |
|
|
| 547 |
|
|
| (6 | ) |
|
| 497 |
|
|
| 554 |
|
|
| (10 | ) |
U.S. deferred |
|
| 1,026 |
|
|
| 1,025 |
|
|
| — |
|
|
| 946 |
|
|
| 904 |
|
|
| 5 |
|
|
| 1,339 |
|
|
| 1,012 |
|
|
| 32 |
|
|
| 1,272 |
|
|
| 994 |
|
|
| 28 |
|
Total U.S. domestic ADV |
|
| 2,882 |
|
|
| 2,896 |
|
|
| — |
|
|
| 2,743 |
|
|
| 2,749 |
|
|
| — |
|
|
| 3,304 |
|
|
| 2,803 |
|
|
| 18 |
|
|
| 3,138 |
|
|
| 2,779 |
|
|
| 13 |
|
International priority |
|
| 529 |
|
|
| 535 |
|
|
| (1 | ) |
|
| 525 |
|
|
| 522 |
|
|
| 1 |
|
|
| 748 |
|
|
| 565 |
|
|
| 32 |
|
|
| 722 |
|
|
| 548 |
|
|
| 32 |
|
International economy |
|
| 266 |
|
|
| 253 |
|
|
| 5 |
|
|
| 265 |
|
|
| 250 |
|
|
| 6 |
|
|
| 296 |
|
|
| 315 |
|
|
| (6 | ) |
|
| 277 |
|
|
| 304 |
|
|
| (9 | ) |
Total international export ADV |
|
| 795 |
|
|
| 788 |
|
|
| 1 |
|
|
| 790 |
|
|
| 772 |
|
|
| 2 |
|
|
| 1,044 |
|
|
| 880 |
|
|
| 19 |
|
|
| 999 |
|
|
| 852 |
|
|
| 17 |
|
International domestic |
|
| 2,445 |
|
|
| 2,471 |
|
|
| (1 | ) |
|
| 2,447 |
|
|
| 2,391 |
|
|
| 2 |
|
|
| 2,635 |
|
|
| 2,669 |
|
|
| (1 | ) |
|
| 2,464 |
|
|
| 2,509 |
|
|
| (2 | ) |
Total ADV |
|
| 6,122 |
|
|
| 6,155 |
|
|
| (1 | ) |
|
| 5,980 |
|
|
| 5,912 |
|
|
| 1 |
|
|
| 6,983 |
|
|
| 6,352 |
|
|
| 10 |
|
|
| 6,601 |
|
|
| 6,140 |
|
|
| 8 |
|
Revenue per package (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 22.53 |
|
| $ | 21.24 |
|
|
| 6 |
|
| $ | 22.64 |
|
| $ | 21.17 |
|
|
| 7 |
|
| $ | 21.98 |
|
| $ | 23.78 |
|
|
| (8 | ) |
| $ | 22.10 |
|
| $ | 23.86 |
|
|
| (7 | ) |
U.S. overnight envelope |
|
| 12.97 |
|
|
| 12.41 |
|
|
| 5 |
|
|
| 12.64 |
|
|
| 12.12 |
|
|
| 4 |
|
|
| 13.50 |
|
|
| 13.26 |
|
|
| 2 |
|
|
| 13.53 |
|
|
| 13.29 |
|
|
| 2 |
|
U.S. deferred |
|
| 15.66 |
|
|
| 15.00 |
|
|
| 4 |
|
|
| 15.56 |
|
|
| 15.13 |
|
|
| 3 |
|
|
| 14.27 |
|
|
| 15.39 |
|
|
| (7 | ) |
|
| 14.12 |
|
|
| 15.34 |
|
|
| (8 | ) |
U.S. domestic composite |
|
| 18.29 |
|
|
| 17.36 |
|
|
| 5 |
|
|
| 18.20 |
|
|
| 17.34 |
|
|
| 5 |
|
|
| 17.54 |
|
|
| 18.70 |
|
|
| (6 | ) |
|
| 17.51 |
|
|
| 18.71 |
|
|
| (6 | ) |
International priority |
|
| 55.26 |
|
|
| 50.28 |
|
|
| 10 |
|
|
| 54.06 |
|
|
| 51.82 |
|
|
| 4 |
|
|
| 53.26 |
|
|
| 51.03 |
|
|
| 4 |
|
|
| 52.24 |
|
|
| 52.25 |
|
|
| — |
|
International economy |
|
| 48.01 |
|
|
| 44.05 |
|
|
| 9 |
|
|
| 47.24 |
|
|
| 44.24 |
|
|
| 7 |
|
|
| 35.29 |
|
|
| 43.94 |
|
|
| (20 | ) |
|
| 35.84 |
|
|
| 44.71 |
|
|
| (20 | ) |
International export composite |
|
| 52.83 |
|
|
| 48.27 |
|
|
| 9 |
|
|
| 51.77 |
|
|
| 49.37 |
|
|
| 5 |
|
|
| 48.17 |
|
|
| 48.49 |
|
|
| (1 | ) |
|
| 47.69 |
|
|
| 49.55 |
|
|
| (4 | ) |
International domestic |
|
| 7.44 |
|
|
| 6.74 |
|
|
| 10 |
|
|
| 7.29 |
|
|
| 6.90 |
|
|
| 6 |
|
|
| 7.27 |
|
|
| 6.92 |
|
|
| 5 |
|
|
| 7.27 |
|
|
| 7.03 |
|
|
| 3 |
|
Composite package yield |
|
| 18.45 |
|
|
| 17.06 |
|
|
| 8 |
|
|
| 18.17 |
|
|
| 17.31 |
|
|
| 5 |
|
| $ | 18.24 |
|
| $ | 17.88 |
|
|
| 2 |
|
| $ | 18.26 |
|
| $ | 18.21 |
|
|
| — |
|
Freight Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily freight pounds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 8,757 |
|
|
| 8,458 |
|
|
| 4 |
|
|
| 8,311 |
|
|
| 8,231 |
|
|
| 1 |
|
|
| 9,511 |
|
|
| 8,364 |
|
|
| 14 |
|
|
| 9,175 |
|
|
| 8,188 |
|
|
| 12 |
|
International priority |
|
| 5,430 |
|
|
| 5,238 |
|
|
| 4 |
|
|
| 5,342 |
|
|
| 5,145 |
|
|
| 4 |
|
|
| 6,234 |
|
|
| 5,230 |
|
|
| 19 |
|
|
| 5,862 |
|
|
| 5,010 |
|
|
| 17 |
|
International economy |
|
| 13,209 |
|
|
| 12,578 |
|
|
| 5 |
|
|
| 12,215 |
|
|
| 12,095 |
|
|
| 1 |
|
|
| 13,560 |
|
|
| 15,241 |
|
|
| (11 | ) |
|
| 12,581 |
|
|
| 14,473 |
|
|
| (13 | ) |
International airfreight |
|
| 1,757 |
|
|
| 1,995 |
|
|
| (12 | ) |
|
| 1,850 |
|
|
| 1,941 |
|
|
| (5 | ) |
|
| 1,605 |
|
|
| 1,726 |
|
|
| (7 | ) |
|
| 1,590 |
|
|
| 1,640 |
|
|
| (3 | ) |
Total average daily freight pounds |
|
| 29,153 |
|
|
| 28,269 |
|
|
| 3 |
|
|
| 27,718 |
|
|
| 27,412 |
|
|
| 1 |
|
|
| 30,910 |
|
|
| 30,561 |
|
|
| 1 |
|
|
| 29,208 |
|
|
| 29,311 |
|
|
| — |
|
Revenue per pound (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 1.36 |
|
| $ | 1.27 |
|
|
| 7 |
|
| $ | 1.29 |
|
| $ | 1.21 |
|
|
| 7 |
|
| $ | 1.33 |
|
| $ | 1.32 |
|
|
| 1 |
|
| $ | 1.39 |
|
| $ | 1.34 |
|
|
| 4 |
|
International priority |
|
| 1.64 |
|
|
| 1.45 |
|
|
| 13 |
|
|
| 1.56 |
|
|
| 1.43 |
|
|
| 9 |
|
|
| 1.88 |
|
|
| 1.43 |
|
|
| 31 |
|
|
| 1.85 |
|
|
| 1.47 |
|
|
| 26 |
|
International economy |
|
| 0.60 |
|
|
| 0.56 |
|
|
| 7 |
|
|
| 0.58 |
|
|
| 0.55 |
|
|
| 5 |
|
|
| 0.48 |
|
|
| 0.56 |
|
|
| (14 | ) |
|
| 0.48 |
|
|
| 0.57 |
|
|
| (16 | ) |
International airfreight |
|
| 0.78 |
|
|
| 0.68 |
|
|
| 15 |
|
|
| 0.74 |
|
|
| 0.73 |
|
|
| 1 |
|
|
| 0.64 |
|
|
| 0.65 |
|
|
| (2 | ) |
|
| 0.69 |
|
|
| 0.65 |
|
|
| 6 |
|
Composite freight yield |
|
| 1.02 |
|
|
| 0.95 |
|
|
| 7 |
|
|
| 0.99 |
|
|
| 0.93 |
|
|
| 6 |
|
| $ | 1.03 |
|
| $ | 0.93 |
|
|
| 11 |
|
| $ | 1.05 |
|
| $ | 0.95 |
|
|
| 11 |
|
|
|
| International domestic statistics |
- 3932 -
FedEx Express Segment RevenuesRevenue
FedEx Express segment revenuesrevenue increased 9%14% in the thirdsecond quarter and 7%11% in the nine monthsfirst half of 20182021 due to international export and U.S. domestic package volume growth, partially offset by lower fuel surcharges. The demand for our U.S. domestic residential service offerings continued to accelerate during the second quarter of 2021 due to the COVID-19 pandemic. Revenue was also positively impacted by pricing initiatives resulting from global air freight capacity constraints in the second quarter and first half of 2021 and one additional operating day in the first half of 2021. FedEx Express segment revenue includes a benefit from a reduction in aviation excise taxes on cargo provided by the CARES Act in the second quarter and first half of 2021.
International export package average daily volumes increased 19% in the second quarter and 17% in the first half of 2021 led by volume growth from Asia-Pacific and Europe. International export package yields decreased 4% in the first half of 2021 primarily due to lower fuel surcharges and base yield declines driven by lower weight per package, partially offset by favorable exchange rates and pricing initiatives resulting from global air freight capacity constraints. U.S. domestic package average daily volumes increased 18% in the second quarter and 13% in the first half of 2021 driven by growth in deferred service offerings, reflecting increased e-commerce demand resulting from the COVID-19 pandemic. U.S. domestic package yields decreased 6% in both the second quarter and first half of 2021 due to decreased base yields driven by lower weight per package, as well as lower fuel surcharges. Composite freight yields increased 11% in both the second quarter and first half of 2021 primarily due to improved base yields, favorable exchange rates and higher fuel surcharges, despite impacts from the NotPetya cyberattack discussed above.
International export package yields increased 9% in the third quarter of 2018 due to higher fuel surcharges, favorable exchange rates and higher base rates. International export package yields increased 5% in the nine months of 2018 due to higher fuel surcharges and favorable exchange rates. International export average daily volumes increased 1% in the third quarter and 2% in the nine months of 2018 primarily due to increased international economy shipments. This benefit was partially offset by lower fuel surcharges. Other revenue increased 129% in the decreasesecond quarter and 114% in volumethe first half of 2021 due to the NotPetya cyberattack. U.S. domestic package yields increased 5% intransfer of FedEx Custom Critical and FedEx Cross Border into the third quarter and nine months of 2018 primarily due to higher base rates and fuel surcharges. Freight yields increased 7% in the third quarter and 6% in the nine months of 2018 primarily due to higher base rates, favorable exchange rates and higher fuel surcharges. Average daily freight pounds increased 3% in the third quarter of 2018 primarily due to higher volume in international and U.S. freight services.FedEx Express segment.
OurFedEx Express’s U.S. domestic and outbound fuel surcharge and the international fuel surchargessurcharge ranged as follows for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
U.S. Domestic and Outbound Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
| 5.05 | % |
|
| 2.50 | % |
|
| 2.21 | % |
|
| 0.96 | % |
|
| 3.50 | % |
|
| 7.21 | % |
|
| 2.73 | % |
|
| 7.21 | % |
High |
|
| 5.91 |
|
|
| 3.40 |
|
|
| 5.91 |
|
|
| 3.40 |
|
|
| 3.83 |
|
|
| 8.45 |
|
|
| 4.12 |
|
|
| 8.45 |
|
Weighted-average |
|
| 5.56 |
|
|
| 2.97 |
|
|
| 4.31 |
|
|
| 2.30 |
|
|
| 3.64 |
|
|
| 7.53 |
|
|
| 3.54 |
|
|
| 7.54 |
|
International Fuel Surcharges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
International Export and Freight Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Low |
|
| 6.25 |
|
|
| 2.60 |
|
|
| 3.38 |
|
|
| 1.16 |
|
|
| 1.17 |
|
|
| 6.74 |
|
|
| 0.28 |
|
|
| 6.74 |
|
High |
|
| 15.87 |
|
|
| 11.25 |
|
|
| 15.87 |
|
|
| 11.25 |
|
|
| 16.52 |
|
|
| 18.56 |
|
|
| 17.00 |
|
|
| 18.56 |
|
Weighted-average |
|
| 12.24 |
|
|
| 8.21 |
|
|
| 10.53 |
|
|
| 7.48 |
|
|
| 10.67 |
|
|
| 15.64 |
|
|
| 10.49 |
|
|
| 15.59 |
|
International Domestic Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Low |
|
| 2.62 |
|
|
| 3.20 |
|
|
| 2.62 |
|
|
| 3.20 |
| ||||||||||||||||
High |
|
| 19.21 |
|
|
| 19.40 |
|
|
| 20.33 |
|
|
| 19.47 |
| ||||||||||||||||
Weighted-average |
|
| 5.91 |
|
|
| 7.29 |
|
|
| 5.92 |
|
|
| 7.39 |
|
Effective January 1, 2018, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. Effective February 6, 2017, FedEx Express fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Express implemented a 3.9% average list price increase for U.S. domestic, U.S. export and U.S. import services and a change to the U.S. domestic dimensional weight divisor.
FedEx Express Segment Operating Income
FedEx Express segment operating income and margin decreasedincreased 281% in the thirdsecond quarter of 2018 due to higher incentive compensation accruals, higher peak-related costs, increased TNT Express integration expenses, the negative impacts of inclement winter weather and unfavorable exchange rates, partially offset by yield growth and positive net impact of fuel. The NotPetya cyberattack discussed above also drove declining results209% in the nine months of 2018.
The NotPetya cyberattack had an estimated $400 million negative impact for the first half of 2018 with lingering impacts2021 due to international export and U.S. domestic package volume growth. FedEx Express segment operating results include approximately $70 million in the thirdsecond quarter and $135 million in the first half of 2018.2021 related to a benefit from a reduction in aviation excise taxes provided by the CARES Act. Results also included $86for the second quarter and first half of 2020 were negatively impacted by $66 million of TNTasset impairment charges associated with the decision to permanently retire certain aircraft and related engines at FedEx Express. These factors were partially offset by higher variable incentive compensation expense of approximately $120 million in the second quarter and $230 million in the first half of 2021. In addition, we continued to incur increased operating expenses to support elevated levels of demand for our services in the COVID-19 pandemic environment in the second quarter and first half of 2021, including costs of operating our global network to support higher demand, which is partially impacted by constrained commercial air capacity.
FedEx Express segment results included $43 million of integration expenses in the thirdsecond quarter and $270$80 million of such expenses in the nine monthsfirst half of 2018,2021, a $33$6 million increasedecrease from the thirdsecond quarter and $148a $26 million increasedecrease from the nine monthsfirst half of 2017.2020.
- 33 -
Salaries and employee benefits increased 10% in the third quarter and 6% in the nine months of 2018 primarily due to merit increases, unfavorable exchange rates and higher incentive compensation accruals. Purchased transportationexpense increased 15% in the thirdsecond quarter and 13% in the first half of 2021 primarily due to staffing to support volume growth and higher variable incentive compensation expense. In addition, increased costs associated with network contingencies as a result of the COVID-19 pandemic contributed to the increase in salaries and employee benefits expense in both the second quarter and first half of 2021. Purchased transportation expense increased 14% in the second quarter and 10% in the nine monthsfirst half of 2018 due to unfavorable exchange rates and increased international volume. Other expenses increased 14% in the third quarter and 10% in the nine months of 20182021 primarily due to unfavorable exchange rates,the transfer of FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment. Other operating expense increased outside service contracts and TNT Express integration expenses. Intercompany charges increased 12%11% in the thirdsecond quarter and 7% in the first half of 20182021 primarily due to higher incentive compensation accruals. Maintenanceoutside service contract expense and repairs increased 15%bad debt expense. Additionally, higher operating supplies, partially offset by decreased travel, both driven by the COVID-19 pandemic, negatively impacted other operating expense in both the nine monthssecond quarter and first half of 2018 primarily due to the timing of aircraft engine maintenance events.2021.
Fuel expense increased 24%decreased 30% in the thirdsecond quarter and 19%32% in the nine monthsfirst half of 20182021 due to increasedlower fuel prices. However, theThe net impact of fuel had a moderate benefitslightly negative impact to operating income in the thirdsecond quarter and first half of 2018 and a significant benefit to operating income in the nine months of 20182021 as higherlower fuel surcharges more than offset increasedoutpaced decreased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
- 4034 -
FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. The following tables compare revenues,revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts) and operating expenses as a percent of revenue for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
FedEx Ground |
| $ | 4,824 |
|
| $ | 4,296 |
|
|
| 12 |
|
|
| $ | 13,586 |
|
| $ | 12,202 |
|
|
| 11 |
|
| ||||||||||||||||||||||||||
FedEx Supply Chain |
|
| 398 |
|
|
| 392 |
|
|
| 2 |
|
|
|
| 1,204 |
|
|
| 1,195 |
|
|
| 1 |
|
| ||||||||||||||||||||||||||
Total revenues |
|
| 5,222 |
|
|
| 4,688 |
|
|
| 11 |
|
|
|
| 14,790 |
|
|
| 13,397 |
|
|
| 10 |
|
| ||||||||||||||||||||||||||
Revenue |
| $ | 7,344 |
|
| $ | 5,315 |
|
|
| 38 |
|
|
| $ | 14,384 |
|
| $ | 10,494 |
|
|
| 37 |
|
| ||||||||||||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 956 |
|
|
| 834 |
|
|
| 15 |
|
|
|
| 2,711 |
|
|
| 2,420 |
|
|
| 12 |
|
|
|
| 1,557 |
|
|
| 971 |
|
|
| 60 |
|
|
|
| 2,831 |
|
|
| 1,842 |
|
|
| 54 |
|
|
Purchased transportation |
|
| 2,235 |
|
|
| 2,015 |
|
|
| 11 |
|
|
|
| 6,194 |
|
|
| 5,568 |
|
|
| 11 |
|
|
|
| 3,488 |
|
|
| 2,561 |
|
|
| 36 |
|
|
|
| 6,779 |
|
|
| 4,864 |
|
|
| 39 |
|
|
Rentals |
|
| 209 |
|
|
| 197 |
|
|
| 6 |
|
|
|
| 617 |
|
|
| 567 |
|
|
| 9 |
|
|
|
| 289 |
|
|
| 249 |
|
|
| 16 |
|
|
|
| 553 |
|
|
| 488 |
|
|
| 13 |
|
|
Depreciation and amortization |
|
| 187 |
|
|
| 177 |
|
|
| 6 |
|
|
|
| 537 |
|
|
| 508 |
|
|
| 6 |
|
|
|
| 205 |
|
|
| 195 |
|
|
| 5 |
|
|
|
| 409 |
|
|
| 388 |
|
|
| 5 |
|
|
Fuel |
|
| 4 |
|
|
| 3 |
|
|
| 33 |
|
|
|
| 10 |
|
|
| 8 |
|
|
| 25 |
|
|
|
| 5 |
|
|
| 4 |
|
|
| 25 |
|
|
|
| 9 |
|
|
| 7 |
|
|
| 29 |
|
|
Maintenance and repairs |
|
| 82 |
|
|
| 83 |
|
|
| (1 | ) |
|
|
| 249 |
|
|
| 237 |
|
|
| 5 |
|
|
|
| 124 |
|
|
| 98 |
|
|
| 27 |
|
|
|
| 231 |
|
|
| 185 |
|
|
| 25 |
|
|
Intercompany charges |
|
| 371 |
|
|
| 330 |
|
|
| 12 |
|
|
|
| 1,087 |
|
|
| 983 |
| �� |
| 11 |
|
|
|
| 446 |
|
|
| 394 |
|
|
| 13 |
|
|
|
| 878 |
|
|
| 769 |
|
|
| 14 |
|
|
Other |
|
| 544 |
|
|
| 534 |
|
|
| 2 |
|
|
|
| 1,604 |
|
|
| 1,516 |
|
|
| 6 |
|
|
|
| 678 |
|
|
| 501 |
|
|
| 35 |
|
|
|
| 1,308 |
|
|
| 965 |
|
|
| 36 |
|
|
Total operating expenses |
|
| 4,588 |
|
|
| 4,173 |
|
|
| 10 |
|
|
|
| 13,009 |
|
|
| 11,807 |
|
|
| 10 |
|
|
|
| 6,792 |
|
|
| 4,973 |
|
|
| 37 |
|
|
|
| 12,998 |
|
|
| 9,508 |
|
|
| 37 |
|
|
Operating income |
| $ | 634 |
|
| $ | 515 |
|
|
| 23 |
|
|
| $ | 1,781 |
|
| $ | 1,590 |
|
|
| 12 |
|
|
| $ | 552 |
|
| $ | 342 |
|
|
| 61 |
|
|
| $ | 1,386 |
|
| $ | 986 |
|
|
| 41 |
|
|
Operating margin |
|
| 12.1 | % |
|
| 11.0 | % |
|
| 110 |
| bp |
|
| 12.0 | % |
|
| 11.9 | % |
|
| 10 |
| bp |
|
| 7.5 | % |
|
| 6.4 | % |
|
| 110 |
| bp |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 20 |
| bp |
Average daily package volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,315 |
|
|
| 9,556 |
|
|
| 29 |
|
|
|
| 11,931 |
|
|
| 9,192 |
|
|
| 30 |
|
|
FedEx Ground |
|
| 8,993 |
|
|
| 8,522 |
|
|
| 6 |
|
|
|
| 8,408 |
|
|
| 7,963 |
|
|
| 6 |
|
| ||||||||||||||||||||||||||
Revenue per package (yield) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 9.42 |
|
| $ | 8.80 |
|
|
| 7 |
|
|
| $ | 9.38 |
|
| $ | 8.96 |
|
|
| 5 |
|
|
FedEx Ground |
| $ | 8.64 |
|
| $ | 8.12 |
|
|
| 6 |
|
|
| $ | 8.49 |
|
| $ | 8.05 |
|
|
| 5 |
|
|
|
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| ||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
|
| 2018 |
|
| 2017 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 18.3 |
| % |
|
| 17.8 |
| % |
|
| 18.3 |
| % |
|
| 18.1 |
| % |
|
| 21.2 |
| % |
|
| 18.3 |
| % |
|
| 19.7 |
| % |
|
| 17.6 |
| % |
Purchased transportation |
|
| 42.8 |
|
|
| 43.0 |
|
|
| 41.9 |
|
|
| 41.5 |
|
|
|
| 47.5 |
|
|
| 48.2 |
|
|
| 47.1 |
|
|
| 46.3 |
|
| ||||||
Rentals |
|
| 4.0 |
|
|
| 4.2 |
|
|
| 4.2 |
|
|
| 4.2 |
|
|
|
| 3.9 |
|
|
| 4.7 |
|
|
| 3.9 |
|
|
| 4.6 |
|
| ||||||
Depreciation and amortization |
|
| 3.6 |
|
|
| 3.7 |
|
|
| 3.6 |
|
|
| 3.8 |
|
|
|
| 2.8 |
|
|
| 3.7 |
|
|
| 2.8 |
|
|
| 3.7 |
|
| ||||||
Fuel |
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
|
| 0.1 |
|
| ||||||
Maintenance and repairs |
|
| 1.6 |
|
|
| 1.8 |
|
|
| 1.7 |
|
|
| 1.8 |
|
|
|
| 1.7 |
|
|
| 1.8 |
|
|
| 1.6 |
|
|
| 1.8 |
|
| ||||||
Intercompany charges |
|
| 7.1 |
|
|
| 7.0 |
|
|
| 7.3 |
|
|
| 7.3 |
|
|
|
| 6.1 |
|
|
| 7.4 |
|
|
| 6.1 |
|
|
| 7.3 |
|
| ||||||
Other |
|
| 10.4 |
|
|
| 11.4 |
|
|
| 10.9 |
|
|
| 11.3 |
|
|
|
| 9.2 |
|
|
| 9.4 |
|
|
| 9.1 |
|
|
| 9.2 |
|
| ||||||
Total operating expenses |
|
| 87.9 |
|
|
| 89.0 |
|
|
| 88.0 |
|
|
| 88.1 |
|
|
|
| 92.5 |
|
|
| 93.6 |
|
|
| 90.4 |
|
|
| 90.6 |
|
| ||||||
Operating margin |
|
| 12.1 |
| % |
|
| 11.0 |
| % |
|
| 12.0 |
| % |
|
| 11.9 |
| % |
|
| 7.5 |
| % |
|
| 6.4 |
| % |
|
| 9.6 |
| % |
|
| 9.4 |
| % |
FedEx Ground Segment RevenuesRevenue
FedEx Ground segment revenuesrevenue increased 11%38% in the thirdsecond quarter and 10%37% in the nine monthsfirst half of 20182021 primarily due to residential delivery volume growthgrowth. This sharp increase in demand resulted from a shift in consumer shopping patterns accelerated by the COVID-19 pandemic. In addition, we experienced increased demand for our business-to-business delivery services relative to the first quarter of 2021 as COVID-19-related restrictions moderated during the second quarter. Additionally, revenue was positively impacted by yield management in the second quarter and increased yields. first half of 2021 and one additional operating day in the first half of 2021.
Average daily volume at FedEx Ground increased 6%29% in the thirdsecond quarter and nine months30% in the first half of 20182021 primarily due to continued growth in our residential services.services driven by e-commerce. FedEx Ground yieldyields increased 6% during7% in the thirdsecond quarter and 5% duringin the nine monthsfirst half of 20182021 primarily drivendue to yield improvement actions, partially offset by higher base rates and higherlower fuel surcharges.
- 4135 -
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel, as published by the Department of Energy. OurThe fuel surcharge ranged as follows for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Low |
|
| 5.30 | % |
|
| 4.00 | % |
|
| 4.00 | % |
|
| 3.30 | % |
|
| 5.50 | % |
|
| 6.75 | % |
|
| 5.50 | % |
|
| 6.75 | % |
High |
|
| 5.80 |
|
|
| 4.50 |
|
|
| 5.80 |
|
|
| 4.50 |
|
|
| 5.75 |
|
|
| 7.00 |
|
|
| 5.75 |
|
|
| 7.25 |
|
Weighted-average |
|
| 5.50 |
|
|
| 4.10 |
|
|
| 5.00 |
|
|
| 3.90 |
|
|
| 5.73 |
|
|
| 6.92 |
|
|
| 5.74 |
|
|
| 6.98 |
|
Effective January 1, 2018, FedEx Ground announced a 4.9% average list price increase. In addition, as announced on September 18, 2017, dimensional weight pricing applies to the majority of FedEx SmartPost shipments effective January 22, 2018. Effective February 6, 2017, FedEx Ground fuel surcharges are adjusted on a weekly basis compared to the previous monthly adjustment. On January 2, 2017, FedEx Ground implemented a 4.9% average list price increase and a change to the U.S. domestic dimensional weight divisor.
FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 23%61% in the thirdsecond quarter and 12%41% in the nine monthsfirst half of 20182021 primarily due to residential delivery volume growth increased yields and benefits associated with ongoing cost management. Higheryield improvement. These factors were partially offset by higher purchased transportation seasonal staffing and network expansion costscontractor settlement rates resulting from residential product mix, as well as additional labor expenses and higher incentive compensationself-insurance accruals partially offset these benefits.in the second quarter and first half of 2021.
Purchased transportation expense increased 11%36% in the thirdsecond quarter and nine months39% in the first half of 2018 primarily2021 due to higher volumes,volume and increased rates and higher fuel expenses.residential product mix. Salaries and employee benefits expense increased 15%60% in the thirdsecond quarter and 12%54% in the nine monthsfirst half of 20182021 due to additional staffing to support volume growth, including costs associated with operating our seven-day network, merit increases and higher variable incentive compensation accruals,expense. In addition, increased costs associated with network expansioncontingencies as a result of the COVID-19 pandemic contributed to the increase in salaries and merit increases. Intercompany chargesemployee benefits expense in both the second quarter and first half of 2021. Other operating expense increased 12%35% in the thirdsecond quarter and 11%36% in the nine monthsfirst half of 2018 primarily due to higher incentive compensation accruals. Other expenses increased 6% in the nine months of 20182021 primarily due to higher self-insurance reserves. Rentalsaccruals and depreciation and amortization expense increased 6%higher operating supplies driven by the COVID-19 pandemic.
The net impact of fuel had a moderate benefit to operating income in the thirdsecond quarter and 7% infirst half of 2021 as decreased fuel prices outpaced lower fuel surcharges. See the nine months“Fuel” section of 2018 due to network expansion.
Independent Contractor Model
FedEx Ground is involved in lawsuitsthis MD&A for a description and administrative proceedings claiming that owner-operators engaged under a contractor model no longer in use should have been treated as employees of FedEx Ground, rather than independent contractors. In addition, we are defending joint-employer cases where it is alleged that FedEx Ground should be treated as an employeradditional discussion of the drivers employed by owner-operators engaged by FedEx Ground. These cases are in varying stagesnet impact of litigation. We will continue to vigorously defend ourselves in these proceedings and continue to believe that owner-operators engaged by FedEx Ground are properly classified as independent contractors and that FedEx Ground is not an employer of the drivers employed by these owner-operators.
For additional informationfuel on the FedEx Ground Independent Service Provider model, see “Other Outlook Matters” under Consolidated Results of this MD&A.
our operating results.
- 4236 -
FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenues,revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics and operating expenses as a percent of revenue for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2018 |
|
| 2017 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenues |
| $ | 1,694 |
|
| $ | 1,492 |
|
|
| 14 |
|
|
| $ | 5,208 |
|
| $ | 4,747 | �� |
|
| 10 |
|
| ||||||||||||||||||||||||||
Revenue |
| $ | 1,936 |
|
| $ | 1,844 |
|
|
| 5 |
|
|
| $ | 3,762 |
|
| $ | 3,749 |
|
|
| — |
|
| ||||||||||||||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 825 |
|
|
| 733 |
|
|
| 13 |
|
|
|
| 2,455 |
|
|
| 2,266 |
|
|
| 8 |
|
|
|
| 915 |
|
|
| 900 |
|
|
| 2 |
|
|
|
| 1,773 |
|
|
| 1,819 |
|
|
| (3 | ) |
|
Purchased transportation |
|
| 263 |
|
|
| 230 |
|
|
| 14 |
|
|
|
| 792 |
|
|
| 739 |
|
|
| 7 |
|
|
|
| 209 |
|
|
| 187 |
|
|
| 12 |
|
|
|
| 379 |
|
|
| 374 |
|
|
| 1 |
|
|
Rentals |
|
| 41 |
|
|
| 36 |
|
|
| 14 |
|
|
|
| 114 |
|
|
| 101 |
|
|
| 13 |
|
|
|
| 59 |
|
|
| 52 |
|
|
| 13 |
|
|
|
| 115 |
|
|
| 104 |
|
|
| 11 |
|
|
Depreciation and amortization |
|
| 77 |
|
|
| 69 |
|
|
| 12 |
|
|
|
| 219 |
|
|
| 199 |
|
|
| 10 |
|
|
|
| 105 |
|
|
| 97 |
|
|
| 8 |
|
|
|
| 211 |
|
|
| 191 |
|
|
| 10 |
|
|
Fuel |
|
| 127 |
|
|
| 99 |
|
|
| 28 |
|
|
|
| 336 |
|
|
| 282 |
|
|
| 19 |
|
|
|
| 90 |
|
|
| 132 |
|
|
| (32 | ) |
|
|
| 155 |
|
|
| 255 |
|
|
| (39 | ) |
|
Maintenance and repairs |
|
| 52 |
|
|
| 50 |
|
|
| 4 |
|
|
|
| 169 |
|
|
| 159 |
|
|
| 6 |
|
|
|
| 57 |
|
|
| 68 |
|
|
| (16 | ) |
|
|
| 110 |
|
|
| 133 |
|
|
| (17 | ) |
|
Intercompany charges |
|
| 130 |
|
|
| 120 |
|
|
| 8 |
|
|
|
| 384 |
|
|
| 370 |
|
|
| 4 |
|
|
|
| 122 |
|
|
| 130 |
|
|
| (6 | ) |
|
|
| 241 |
|
|
| 256 |
|
|
| (6 | ) |
|
Other |
|
| 124 |
|
|
| 114 |
|
|
| 9 |
|
|
|
| 390 |
|
|
| 367 |
|
|
| 6 |
|
|
|
| 127 |
|
|
| 137 |
|
|
| (7 | ) |
|
|
| 252 |
|
|
| 282 |
|
|
| (11 | ) |
|
Total operating expenses |
|
| 1,639 |
|
|
| 1,451 |
|
|
| 13 |
|
|
|
| 4,859 |
|
|
| 4,483 |
|
|
| 8 |
|
|
|
| 1,684 |
|
|
| 1,703 |
|
|
| (1 | ) |
|
|
| 3,236 |
|
|
| 3,414 |
|
|
| (5 | ) |
|
Operating income |
| $ | 55 |
|
| $ | 41 |
|
|
| 34 |
|
|
| $ | 349 |
|
| $ | 264 |
|
|
| 32 |
|
|
| $ | 252 |
|
| $ | 141 |
|
|
| 79 |
|
|
| $ | 526 |
|
| $ | 335 |
|
|
| 57 |
|
|
Operating margin |
|
| 3.2 | % |
|
| 2.7 | % |
|
| 50 |
| bp |
|
| 6.7 | % |
|
| 5.6 | % |
|
| 110 |
| bp |
|
| 13.0 | % |
|
| 7.6 | % |
|
| 540 |
| bp |
|
| 14.0 | % |
|
| 8.9 | % |
|
| 510 |
| bp |
Average daily LTL shipments (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Average daily shipments (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Priority |
|
| 69.7 |
|
|
| 65.6 |
|
|
| 6 |
|
|
|
| 73.5 |
|
|
| 70.3 |
|
|
| 5 |
|
|
|
| 78.1 |
|
|
| 77.4 |
|
|
| 1 |
|
|
|
| 74.6 |
|
|
| 78.0 |
|
|
| (4 | ) |
|
Economy |
|
| 30.6 |
|
|
| 29.0 |
|
|
| 6 |
|
|
|
| 31.5 |
|
|
| 30.9 |
|
|
| 2 |
|
|
|
| 32.9 |
|
|
| 32.6 |
|
|
| 1 |
|
|
|
| 31.5 |
|
|
| 32.7 |
|
|
| (4 | ) |
|
Total average daily LTL shipments |
|
| 100.3 |
|
|
| 94.6 |
|
|
| 6 |
|
|
|
| 105.0 |
|
|
| 101.2 |
|
|
| 4 |
|
| ||||||||||||||||||||||||||
Weight per LTL shipment (lbs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Total average daily shipments |
|
| 111.0 |
|
|
| 110.0 |
|
|
| 1 |
|
|
|
| 106.1 |
|
|
| 110.7 |
|
|
| (4 | ) |
| ||||||||||||||||||||||||||
Weight per shipment (lbs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Priority |
|
| 1,232 |
|
|
| 1,179 |
|
|
| 4 |
|
|
|
| 1,205 |
|
|
| 1,173 |
|
|
| 3 |
|
|
|
| 1,106 |
|
|
| 1,139 |
|
|
| (3 | ) |
|
|
| 1,101 |
|
|
| 1,147 |
|
|
| (4 | ) |
|
Economy |
|
| 1,133 |
|
|
| 1,155 |
|
|
| (2 | ) |
|
|
| 1,144 |
|
|
| 1,121 |
|
|
| 2 |
|
|
|
| 1,015 |
|
|
| 983 |
|
|
| 3 |
|
|
|
| 1,006 |
|
|
| 971 |
|
|
| 4 |
|
|
Composite weight per LTL shipment |
|
| 1,202 |
|
|
| 1,172 |
|
|
| 3 |
|
|
|
| 1,187 |
|
|
| 1,157 |
|
|
| 3 |
|
| ||||||||||||||||||||||||||
LTL revenue per shipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Composite weight per shipment |
|
| 1,079 |
|
|
| 1,092 |
|
|
| (1 | ) |
|
|
| 1,073 |
|
|
| 1,095 |
|
|
| (2 | ) |
| ||||||||||||||||||||||||||
Revenue per shipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Priority |
| $ | 242.49 |
|
| $ | 224.63 |
|
|
| 8 |
|
|
| $ | 233.31 |
|
| $ | 220.64 |
|
|
| 6 |
|
|
| $ | 264.05 |
|
| $ | 258.90 |
|
|
| 2 |
|
|
| $ | 262.02 |
|
| $ | 257.14 |
|
|
| 2 |
|
|
Economy |
|
| 295.31 |
|
|
| 272.74 |
|
|
| 8 |
|
|
|
| 285.99 |
|
|
| 262.72 |
|
|
| 9 |
|
|
|
| 313.35 |
|
|
| 295.29 |
|
|
| 6 |
|
|
|
| 308.15 |
|
|
| 295.53 |
|
|
| 4 |
|
|
Composite LTL revenue per shipment |
| $ | 259.20 |
|
| $ | 239.82 |
|
|
| 8 |
|
|
| $ | 249.32 |
|
| $ | 233.64 |
|
|
| 7 |
|
| ||||||||||||||||||||||||||
LTL yield (revenue per hundredweight) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Composite revenue per shipment |
| $ | 278.66 |
|
| $ | 270.38 |
|
|
| 3 |
|
|
| $ | 275.71 |
|
| $ | 268.83 |
|
|
| 3 |
|
| ||||||||||||||||||||||||||
Revenue per hundredweight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Priority |
| $ | 19.67 |
|
| $ | 19.06 |
|
|
| 3 |
|
|
| $ | 19.37 |
|
| $ | 18.81 |
|
|
| 3 |
|
|
| $ | 23.86 |
|
| $ | 22.74 |
|
|
| 5 |
|
|
| $ | 23.79 |
|
| $ | 22.41 |
|
|
| 6 |
|
|
Economy |
|
| 26.07 |
|
|
| 23.61 |
|
|
| 10 |
|
|
|
| 24.99 |
|
|
| 23.44 |
|
|
| 7 |
|
|
|
| 30.88 |
|
|
| 30.05 |
|
|
| 3 |
|
|
|
| 30.62 |
|
|
| 30.43 |
|
|
| 1 |
|
|
Composite LTL yield |
| $ | 21.56 |
|
| $ | 20.47 |
|
|
| 5 |
|
|
| $ | 21.01 |
|
| $ | 20.19 |
|
|
| 4 |
|
| ||||||||||||||||||||||||||
Composite revenue per hundredweight |
| $ | 25.82 |
|
| $ | 24.75 |
|
|
| 4 |
|
|
| $ | 25.69 |
|
| $ | 24.54 |
|
|
| 5 |
|
|
|
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| ||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
|
| 2018 |
|
| 2017 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 48.7 |
| % |
|
| 49.1 |
| % |
|
| 47.1 |
| % |
|
| 47.7 |
| % |
|
| 47.3 |
| % |
|
| 48.8 |
| % |
|
| 47.1 |
| % |
|
| 48.5 |
| % |
Purchased transportation |
|
| 15.5 |
|
|
| 15.4 |
|
|
| 15.2 |
|
|
| 15.6 |
|
|
|
| 10.8 |
|
|
| 10.1 |
|
|
| 10.1 |
|
|
| 10.0 |
|
| ||||||
Rentals |
|
| 2.4 |
|
|
| 2.4 |
|
|
| 2.2 |
|
|
| 2.1 |
|
|
|
| 3.0 |
|
|
| 2.8 |
|
|
| 3.1 |
|
|
| 2.8 |
|
| ||||||
Depreciation and amortization |
|
| 4.6 |
|
|
| 4.6 |
|
|
| 4.2 |
|
|
| 4.2 |
|
|
|
| 5.4 |
|
|
| 5.3 |
|
|
| 5.6 |
|
|
| 5.1 |
|
| ||||||
Fuel |
|
| 7.5 |
|
|
| 6.6 |
|
|
| 6.5 |
|
|
| 5.9 |
|
|
|
| 4.7 |
|
|
| 7.2 |
|
|
| 4.1 |
|
|
| 6.8 |
|
| ||||||
Maintenance and repairs |
|
| 3.1 |
|
|
| 3.4 |
|
|
| 3.2 |
|
|
| 3.4 |
|
|
|
| 2.9 |
|
|
| 3.7 |
|
|
| 2.9 |
|
|
| 3.6 |
|
| ||||||
Intercompany charges |
|
| 7.7 |
|
|
| 8.1 |
|
|
| 7.4 |
|
|
| 7.8 |
|
|
|
| 6.3 |
|
|
| 7.1 |
|
|
| 6.4 |
|
|
| 6.8 |
|
| ||||||
Other |
|
| 7.3 |
|
|
| 7.7 |
|
|
| 7.5 |
|
|
| 7.7 |
|
|
|
| 6.6 |
|
|
| 7.4 |
|
|
| 6.7 |
|
|
| 7.5 |
|
| ||||||
Total operating expenses |
|
| 96.8 |
|
|
| 97.3 |
|
|
| 93.3 |
|
|
| 94.4 |
|
|
|
| 87.0 |
|
|
| 92.4 |
|
|
| 86.0 |
|
|
| 91.1 |
|
| ||||||
Operating margin |
|
| 3.2 |
| % |
|
| 2.7 |
| % |
|
| 6.7 |
| % |
|
| 5.6 |
| % |
|
| 13.0 |
| % |
|
| 7.6 |
| % |
|
| 14.0 |
| % |
|
| 8.9 |
| % |
- 4337 -
FedEx Freight Segment RevenuesRevenue
FedEx Freight segment revenuesrevenue increased 14%5% in the thirdsecond quarter and 10% in the nine months of 20182021 primarily due to higher LTLrevenue per shipment. FedEx Freight segment revenue remained flat in the first half of 2021 due to higher revenue per shipment, andpartially offset by decreased average daily LTL shipments. LTL revenue
Revenue per shipment increased 8%3% in both the thirdsecond quarter and 7% in the nine monthsfirst half of 20182021 primarily due to higher base rates driven byreflecting our ongoing yield managementrevenue quality initiatives, higherpartially offset by lower fuel surcharges and higherlower weight per shipment. Average daily LTL shipments increased 6%1% in the thirdsecond quarter and 4%of 2021 due to volumes returning to pre-COVID-19 levels. Despite the increased demand in the nine monthssecond quarter of 2018 due to higher2021, demand for our LTL service offerings.offerings in the first half of 2021 was negatively impacted by the COVID-19 pandemic and related supply chain disruptions, resulting in a 4% decrease in average daily shipments.
The weekly indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed LTLFedEx Freight fuel surcharge ranged as follows for the periods ended February 28:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Low |
|
| 23.10 | % |
|
| 21.00 | % |
|
| 20.90 | % |
|
| 20.20 | % |
|
| 21.00 | % |
|
| 23.50 | % |
|
| 21.00 | % |
|
| 23.50 | % |
High |
|
| 24.00 |
|
|
| 21.60 |
|
|
| 24.00 |
|
|
| 21.60 |
|
|
| 21.40 |
|
|
| 24.00 |
|
|
| 21.40 |
|
|
| 24.40 |
|
Weighted-average |
|
| 23.59 |
|
|
| 21.40 |
|
|
| 22.46 |
|
|
| 20.80 |
|
|
| 21.10 |
|
|
| 23.80 |
|
|
| 21.20 |
|
|
| 23.80 |
|
Effective January 1, 2018, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates. On January 2, 2017, FedEx Freight implemented a 4.9% average increase in certain U.S. and other shipping rates.
FedEx Freight Segment Operating Income
FedEx Freight segment operating income increased 34%79% in the thirdsecond quarter and 32%57% in the nine monthsfirst half of 2018 primarily2021 driven by higher LTLcontinued focus on revenue per shipment. quality initiatives, aligning our cost structure with current business levels and improving operational efficiencies. These positive factors more than offset the negative impact on volumes from the COVID-19 pandemic and weaker economic conditions for the first half of 2021.
Salaries and employee benefits expense increased 13%only 2% in the thirdsecond quarter of 2021 primarily due to improved operational productivity, in spite of higher variable incentive compensation expense, merit increases and 8%higher volumes. Salaries and employee benefits expense decreased 3% in the nine monthsfirst half of 2018 driven2021 primarily due to improved operational productivity and lower volumes, partially offset by higher staffing levels to support volume growth, highervariable incentive compensation accrualsexpense and merit increases. Purchased transportation expense increased 14%12% in the thirdsecond quarter and 7% in the nine months of 20182021 primarily due to higher volumesutilization of third-party rail providers and increased rates.rates from third-party motor providers.
Fuel expense increased 28%decreased 32% in the thirdsecond quarter and 19%39% in the nine monthsfirst half of 20182021 primarily due to higherlower fuel prices. The net impact of fuel had a moderate benefitslightly negative impact to operating income in the thirdsecond quarter and nine monthsfirst half of 20182021 as higherlower fuel surcharges more than offset increasedoutpaced decreased fuel prices.
See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
- 4438 -
LIQUIDITY
Cash and cash equivalents totaled $2.8$8.3 billion at February 28, 2018,November 30, 2020, compared to $4.0$4.9 billion at May 31, 2017.2020. The following table provides a summary of our cash flows for the nine-monthsix-month periods ended February 28November 30 (in millions):
|
| 2018 |
|
| 2017 |
|
| 2020 |
|
| 2019 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 3,445 |
|
| $ | 1,977 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
Noncash charges and credits |
|
| 1,691 |
|
|
| 2,953 |
|
|
| 3,808 |
|
|
| 3,322 |
|
Gain from sale of investment |
|
| — |
|
|
| (35 | ) | ||||||||
Changes in assets and liabilities |
|
| (3,974 | ) |
|
| (2,250 | ) |
|
| (1,049 | ) |
|
| (2,553 | ) |
Cash provided by operating activities |
|
| 1,162 |
|
|
| 2,645 |
|
|
| 5,230 |
|
|
| 2,074 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (3,994 | ) |
|
| (3,790 | ) |
|
| (2,826 | ) |
|
| (3,266 | ) |
Business acquisitions, net of cash acquired |
|
| (44 | ) |
|
| — |
| ||||||||
Proceeds from asset dispositions and other |
|
| 21 |
|
|
| 123 |
|
|
| 14 |
|
|
| 4 |
|
Cash used in investing activities |
|
| (4,017 | ) |
|
| (3,667 | ) |
|
| (2,812 | ) |
|
| (3,262 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 797 |
|
|
| — |
|
|
| — |
|
|
| 150 |
|
Principal payments on debt |
|
| (31 | ) |
|
| (49 | ) |
|
| (75 | ) |
|
| (1,021 | ) |
Proceeds from debt issuances |
|
| 1,481 |
|
|
| 1,190 |
|
|
| 970 |
|
|
| 2,093 |
|
Proceeds from stock issuances |
|
| 284 |
|
|
| 265 |
|
|
| 431 |
|
|
| 26 |
|
Dividends paid |
|
| (402 | ) |
|
| (319 | ) |
|
| (341 | ) |
|
| (339 | ) |
Purchase of treasury stock |
|
| (558 | ) |
|
| (358 | ) |
|
| — |
|
|
| (3 | ) |
Other |
|
| 6 |
|
|
| 2 |
| ||||||||
Other, net |
|
| (12 | ) |
|
| (5 | ) | ||||||||
Cash provided by financing activities |
|
| 1,577 |
|
|
| 731 |
|
|
| 973 |
|
|
| 901 |
|
Effect of exchange rate changes on cash |
|
| 98 |
|
|
| (70 | ) |
|
| 67 |
|
|
| (1 | ) |
Net decrease in cash and cash equivalents |
| $ | (1,180 | ) |
| $ | (361 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | 3,458 |
|
| $ | (288 | ) | ||||||||
Cash and cash equivalents at the end of period |
| $ | 2,789 |
|
| $ | 3,173 |
|
| $ | 8,339 |
|
| $ | 2,031 |
|
Cash flows from operating activities decreased $1.5increased $3.2 billion in the nine monthsfirst half of 20182021 primarily due to voluntaryhigher net income and lower pension contributions, the payment of a previously accrued legal settlement and the NotPetya cyberattack.contributions. Capital expenditures increaseddecreased during the nine monthsfirst half of 20182021 primarily due to aircraftlower spending related to vehicles and related equipment purchases at FedEx Express, increased spending on facilities and other atacross all of our transportation segments and increased vehicle purchases at FedEx Freight, partially offset by lower spending related to package handling and ground support equipment at FedEx Ground.segments. See the “Capital Resources” section of this MD&A for a discussion of capital expenditures during 20182021 and 2017.2020.
During the third quarterAugust 2020, FedEx Express issued $970 million of 2018, we issued $1.5 billionPass Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of senior unsecured debt under our current shelf registration statement. We used the net proceeds for a voluntary incremental contribution1.875% due in February 2018 to our U.S. Pension Plans.2034 utilizing pass through trusts. The Certificates are secured by 19 Boeing aircraft. The payment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx. FedEx Express is using the proceeds from the issuance for general corporate purposes. See Note 34 of the accompanying unaudited condensed consolidated financial statements for further discussion of this debt issuance.
Duringadditional information regarding the third quarter of 2018, we issued commercial paper which provided us with additional short-term liquidity. As of February 28, 2018, we have $800 million of commercial paper outstanding. See Note 3terms of the accompanying unaudited condensed consolidated financial statements for further discussion.
In January 2016, our Board of Directors authorized a share repurchase program of up to 25 million shares. During the third quarter of 2018, we repurchased 1.2 million shares of FedEx common stock at an average price of $248.73 per share for a total of $288 million. During the nine months of 2018, we repurchased 2.4 million shares of FedEx common stock at an average price of $232.00 per share for a total of $558 million. As of February 28, 2018, 13.6 million shares remained under the current share repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.Certificates.
- 4539 -
Our operations are capital intensive, characterized by significant investments in aircraft, vehicles and trailers, technology, facilities, and package handling and sort equipment. The amount and timing of capital additions depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing tax laws and actions of regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the periods ended February 28November 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percent Change |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020/2019 |
| |||||||
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months |
|
| Six Months |
| ||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Ended |
|
| Ended |
| ||||||||
Aircraft and related equipment |
| $ | 500 |
|
| $ | 587 |
|
| $ | 1,273 |
|
| $ | 1,128 |
|
|
| (15 | ) |
|
| 13 |
| ||
Package handling and ground support equipment |
|
| 344 |
|
|
| 267 |
|
|
| 561 |
|
|
| 408 |
|
|
| 29 |
|
|
| 38 |
| ||
Vehicles and trailers |
|
| 104 |
|
|
| 399 |
|
|
| 141 |
|
|
| 660 |
|
|
| (74 | ) |
|
| (79 | ) | ||
Information technology |
|
| 177 |
|
|
| 243 |
|
|
| 371 |
|
|
| 465 |
|
|
| (27 | ) |
|
| (20 | ) | ||
Facilities and other |
|
| 277 |
|
|
| 352 |
|
|
| 480 |
|
|
| 605 |
|
|
| (21 | ) |
|
| (21 | ) | ||
Total capital expenditures |
| $ | 1,402 |
|
| $ | 1,848 |
|
| $ | 2,826 |
|
| $ | 3,266 |
|
|
| (24 | ) |
|
| (13 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
FedEx Express segment |
| $ | 804 |
|
| $ | 1,061 |
|
| $ | 1,832 |
|
| $ | 2,012 |
|
|
| (24 | ) |
|
| (9 | ) | ||
FedEx Ground segment |
|
| 387 |
|
|
| 447 |
|
|
| 591 |
|
|
| 543 |
|
|
| (13 | ) |
|
| 9 |
| ||
FedEx Freight segment |
|
| 59 |
|
|
| 131 |
|
|
| 98 |
|
|
| 317 |
|
|
| (55 | ) |
|
| (69 | ) | ||
FedEx Services segment |
|
| 129 |
|
|
| 154 |
|
|
| 247 |
|
|
| 305 |
|
|
| (16 | ) |
|
| (19 | ) | ||
Other |
|
| 23 |
|
|
| 55 |
|
|
| 58 |
|
|
| 89 |
|
|
| (58 | ) |
|
| (35 | ) | ||
Total capital expenditures |
| $ | 1,402 |
|
| $ | 1,848 |
|
| $ | 2,826 |
|
| $ | 3,266 |
|
|
| (24 | ) |
|
| (13 | ) |
Capital expenditures decreased during the first half of 2021 primarily due to lower spending related to vehicles and facilities across all of our transportation segments, as well as decreased spending on information technology at FedEx Services and FedEx Freight, partially offset by increased spending on package handling equipment at FedEx Ground and higher spending related to aircraft at FedEx Express.
GUARANTOR FINANCIAL INFORMATION
We are providing the following information in compliance with Rule 13-01 of Regulation S-X, “Financial Disclosures aboutGuarantors and Issuers of Guaranteed Securities” with respect to our senior unsecured debt securities and the Certificates. As of November 30, 2020, we had outstanding $21.9 billion of senior unsecured debt securities and $970 million of Certificates.
Substantially all of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx (“Guarantor Subsidiaries”). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee.
Additionally, FedEx fully and unconditionally guarantees the payment obligations of FedEx Express in respect of the Certificates. See Note 6 to the financial statements included in our Annual Report for additional information regarding the terms of the senior unsecured debt securities and Note 4 of the accompanying consolidated financial statements for additional information regarding the terms of the Certificates.
- 40 -
The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent and Guarantor Subsidiaries
The following table presents the summarized balance sheet information as of November 30, 2020 and May 31, 2020 (in millions):
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| Percent Change |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018/2017 |
| |||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months |
|
| Nine Months |
| ||||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| Ended |
|
| Ended |
| ||||||
Aircraft and related equipment |
| $ | 591 |
|
| $ | 284 |
|
| $ | 1,631 |
|
| $ | 1,319 |
|
|
| 108 |
|
|
| 24 |
|
Package handling and ground support equipment |
|
| 207 |
|
|
| 295 |
|
|
| 621 |
|
|
| 819 |
|
|
| (30 | ) |
|
| (24 | ) |
Vehicles |
|
| 237 |
|
|
| 219 |
|
|
| 748 |
|
|
| 737 |
|
|
| 8 |
|
|
| 1 |
|
Information technology |
|
| 116 |
|
|
| 134 |
|
|
| 378 |
|
|
| 412 |
|
|
| (13 | ) |
|
| (8 | ) |
Facilities and other |
|
| 221 |
|
|
| 177 |
|
|
| 616 |
|
|
| 503 |
|
|
| 25 |
|
|
| 22 |
|
Total capital expenditures |
| $ | 1,372 |
|
| $ | 1,109 |
|
| $ | 3,994 |
|
| $ | 3,790 |
|
|
| 24 |
|
|
| 5 |
|
FedEx Express segment |
| $ | 860 |
|
| $ | 479 |
|
| $ | 2,316 |
|
| $ | 2,034 |
|
|
| 80 |
|
|
| 14 |
|
FedEx Ground segment |
|
| 227 |
|
|
| 387 |
|
|
| 974 |
|
|
| 1,127 |
|
|
| (41 | ) |
|
| (14 | ) |
FedEx Freight segment |
|
| 198 |
|
|
| 152 |
|
|
| 397 |
|
|
| 360 |
|
|
| 30 |
|
|
| 10 |
|
FedEx Services segment |
|
| 87 |
|
|
| 91 |
|
|
| 307 |
|
|
| 269 |
|
|
| (4 | ) |
|
| 14 |
|
Total capital expenditures |
| $ | 1,372 |
|
| $ | 1,109 |
|
| $ | 3,994 |
|
| $ | 3,790 |
|
|
| 24 |
|
|
| 5 |
|
|
| November 30, 2020 |
|
| May 31, 2020 |
| ||
Current Assets |
| $ | 14,448 |
|
| $ | 11,014 |
|
Intercompany Receivable |
|
| 3,866 |
|
|
| 3,985 |
|
Total Assets |
|
| 81,975 |
|
|
| 62,089 |
|
Current Liabilities |
|
| 8,392 |
|
|
| 7,030 |
|
Intercompany Payable |
|
| — |
|
|
| 519 |
|
Total Liabilities |
|
| 53,505 |
|
|
| 49,844 |
|
The following table presents the summarized statement of income information for the six-month period ended November 30, 2020 (in millions):
Revenue |
| $ | 29,141 |
|
Intercompany Charges, net |
|
| (1,434 | ) |
Operating Income |
|
| 2,206 |
|
Intercompany Charges, net |
|
| 71 |
|
Income Before Income Taxes |
|
| 2,354 |
|
Net Income |
| $ | 2,028 |
|
The following tables present summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent Guarantor and Subsidiary Issuer
The following table presents the summarized balance sheet information as of November 30, 2020 and May 31, 2020 (in millions):
|
| November 30, 2020 |
|
| May 31, 2020 |
| ||
Current Assets |
| $ | 7,065 |
|
| $ | 4,444 |
|
Intercompany Receivable |
|
| 1,220 |
|
|
| 3,918 |
|
Total Assets |
|
| 62,730 |
|
|
| 57,375 |
|
Current Liabilities |
|
| 4,205 |
|
|
| 3,546 |
|
Intercompany Payable |
|
| 6,233 |
|
|
| 7,853 |
|
Total Liabilities |
|
| 46,161 |
|
|
| 45,140 |
|
CapitalThe following table presents the summarized statement of income information for the six-month period ended November 30, 2020 (in millions):
Revenue |
| $ | 10,988 |
|
Intercompany Charges, net |
|
| (575 | ) |
Operating Income |
|
| 667 |
|
Intercompany Charges, net |
|
| 274 |
|
Income Before Income Taxes |
|
| 1,773 |
|
Net Income |
| $ | 1,727 |
|
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LIQUIDITY OUTLOOK
In response to current business and economic conditions as referenced above in the “Outlook” section of this MD&A, we have and will continue to actively manage our cash flow, defer certain expenditures increased duringand seek to protect capital for unforeseen challenges from the nine months of 2018 primarily due to aircraftongoing pandemic. With over $8.3 billion in cash and related equipment purchases at FedEx Express, which included $3.5 billion in available liquidity under our $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and $1.5 billion 364-day credit agreement (“the delivery of ten Boeing 767-300 Freighter aircraft364-Day Credit Agreement” and three Boeing 777 Freighter (“B777F”together with the Five-Year Credit Agreement, the “Credit Agreements”) aircraft, increased spending on facilities and other at all of our transportation segments and increased vehicle purchases at FedEx Freight, partially offset by lower spending related to package handling and ground support equipment at FedEx Ground.
LIQUIDITY OUTLOOK
We, we believe that our cash and cash equivalents, cash flow from operations and available financing sources arewill be adequate to meet internal and external liquidity needs. As business and economic conditions improve, we will be evaluating our liquidity needs, including working capital capital expenditure requirements and debt payment obligations. allocation strategy with a priority on strengthening our balance sheet.
Our cash and cash equivalents balance at February 28, 2018 included $1.1November 30, 2020 includes $1.9 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost, as the enactment of the TCJA significantly reduced the cost of repatriating foreign earnings from a U.S. tax perspective. We do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations. Although we expect higher
Our capital expenditures are expected to be approximately $5.1 billion in 2018,2021, a $0.8 billion decrease from 2020. The slight increase in our expected capital expenditures from the estimate in our Annual Report is due to capital investment for additional capacity initiatives in support of increased volumes. Total capital expenditures will include aircraft modernization at FedEx Express and strategic investments to improve productivity and safety. We invested $1.3 billion in aircraft and related equipment in the first half of 2021 and expect to invest an additional $450 million for aircraft and related equipment during the remainder of 2021. In addition, we are making investments over multiple years of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1.5 billion to modernize the FedEx Express Memphis World Hub. We expect these investments in hubs will provide productivity gains. We anticipate that our cash flow from operations will be sufficient to fund these expenditures.our capital expenditures for the remainder of 2021. Historically, we have been successful in obtaining unsecured financing from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on a variety of economic factors. We are currently re-evaluating our permanent reinvestment strategy as a result of the TCJA and, as of the date of this filing, any deferred tax liability associated with a change of assertion is not expected to be material.
Our capital expenditures are expected to be approximately $5.8 billion in 2018 and include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion, primarily at FedEx Ground, and new and replacement vehicles at all of our transportation segments. We expect to invest an additional $867 million for aircraft and aircraft-related equipment during the remainder of 2018. In addition, over multiple years, we will be investing over $1.5 billion to significantly expand the FedEx Express Indianapolis hub and over $1 billion to modernize and expand the Memphis SuperHub.
During the first quarter of 2021, FedEx Express entered into an agreement to accelerate the delivery of two B777Fexecuted a contract amendment rescheduling Boeing 767-300 Freighter aircraft fromdeliveries as follows: 2021 to 2020, one B777F aircraft from 2021 to 2019,– 18 aircraft; 2022 – 11 aircraft; 2023 – 13 aircraft; and one B777F aircraft from 2022 to 2020.
Upon maturity of commercial paper during the fourth quarter of 2018, we will re-evaluate our short-term liquidity needs and assess whether to issue additional commercial paper in order to maintain this short-term liquidity.2024 – 4 aircraft.
We have a shelf registration statement filed with the SECSecurities and Exchange Commission (“SEC”) that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.stock and allows pass through trusts formed by FedEx Express to sell, in one or more future offerings, pass through certificates.
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During the quarter, we amended our five-year revolving credit facility to increase the aggregate amount available under the facility from $1.75 billion to $2.0 billion. The facilityFive-Year Credit Agreement expires in November 2020.March 2025 and includes a $250 million letter of credit sublimit. The 364-Day Credit Agreement expires in March 2021. The Credit Agreements are available to finance our operations and other cash flow needs. See Note 31 and Note 4 of the accompanying unaudited condensed consolidated financial statements for a description of the terms and significant covenants of our revolving credit facility.the Credit Agreements.
During the nine months of 2018, we have made contributions totaling $2.5 billionContributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans,Plans”) are not required during 2021; however, we may make voluntary contributions in the second half of which $22 million were required. We do not expect to make any additional contributions to our U.S. Pension Plans during the fourth quarter of 2018.2021. Our U.S. Pension Plans have ample funds to meet expected benefit payments.
Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, anda commercial paper rating of A-2 and a ratings outlook of “stable.“negative.” Moody’s Investors Service has assigned ourus an unsecured debt a credit rating of Baa2, and oura commercial paper a rating of P-2 and a ratings outlook of “stable.“negative.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.
CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth a summary of ourThere have been no material changes to the contractual cash obligations as of February 28, 2018. Certain of these contractual obligations are reflectedcommitments described in Part II, Item 7 in our balanceAnnual Report.
We do not have any guarantees or other off-balance sheet while others are disclosed as future obligations under accounting principles generally accepted in the United States. Except for the current portion offinancing arrangements, including variable interest entities, which we believe could have a material impact on long-term debt, this table does not include amounts already recorded in our balance sheet as current liabilities at February 28, 2018. We have certain contingent liabilities that are not accrued in our balance sheet in accordance with accounting principles generally accepted in the United States. These contingent liabilities are not included in the table below. We have other long-term liabilities reflected in our balance sheet, including deferred income taxes, qualified and nonqualified pension and postretirement healthcare plan liabilities and other self-insurance accruals. The payment obligations associated with these liabilities are not reflected in the table below due to the absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of our total cash expenditures for any of the periods presented.financial condition or liquidity.
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| Payments Due by Fiscal Year (Undiscounted) (in millions) |
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|
| 2018 (1) |
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| 2019 |
|
| 2020 |
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| 2021 |
|
| 2022 |
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| Thereafter |
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| Total |
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Operating activities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 632 |
|
| $ | 2,408 |
|
| $ | 2,115 |
|
| $ | 1,878 |
|
| $ | 1,695 |
|
| $ | 9,193 |
|
| $ | 17,921 |
|
Non-capital purchase obligations and other |
|
| 254 |
|
|
| 794 |
|
|
| 683 |
|
|
| 480 |
|
|
| 304 |
|
|
| 2,925 |
|
|
| 5,440 |
|
Interest on long-term debt |
|
| 104 |
|
|
| 607 |
|
|
| 543 |
|
|
| 531 |
|
|
| 531 |
|
|
| 9,877 |
|
|
| 12,193 |
|
Quarterly contributions to our U.S. Pension Plans |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Investing activities: |
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and aircraft-related capital commitments |
|
| 492 |
|
|
| 1,717 |
|
|
| 1,868 |
|
|
| 1,162 |
|
|
| 1,310 |
|
|
| 890 |
|
|
| 7,439 |
|
Other capital purchase obligations |
|
| 73 |
|
|
| 3 |
|
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 7 |
|
|
| 87 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
| 3 |
|
|
| 1,367 |
|
|
| 1,015 |
|
|
| — |
|
|
| — |
|
|
| 14,500 |
|
|
| 16,885 |
|
Total |
| $ | 1,558 |
|
| $ | 6,896 |
|
| $ | 6,225 |
|
| $ | 4,053 |
|
| $ | 3,841 |
|
| $ | 37,392 |
|
| $ | 59,965 |
|
|
|
Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above. Such purchase orders often represent authorizations to purchase rather than binding agreements. See Note 89 of the accompanying unaudited condensed consolidated financial statements for more information.
Operating Activities
The amounts reflected in the table above for operating leases represent future minimum lease payments under noncancelable operating leases (principally aircraft and facilities) with an initial or remaining term in excess of one year at February 28, 2018.additional information on our purchase commitments.
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IncludedOTHER BUSINESS MATTERS
On June 24, 2019, FedEx filed suit in U.S. District Court in the table above withinDistrict of Columbia seeking to enjoin the caption entitled “Non-capital purchase obligations and other” is our estimateU.S. Department of the current portion of the liability ($49 million) for uncertain tax positions and amounts for purchase obligations that represent noncancelable agreements to purchase goods or services that are not capital related. Such contracts include those for printing and advertising and promotions contracts. We cannot reasonably estimate the timing of the long-term payments or the amount by which the liability for uncertain tax positions will increase or decrease over time; therefore, the long-term portion of the liability for uncertain tax positions ($32 million) is excludedCommerce (the “DOC”) from the table.
The amounts reflectedenforcing prohibitions contained in the table above for interest on long-term debt represent future interest payments due on our long-term debt.
Investing Activities
The amounts reflected inExport Administration Regulations against FedEx. On September 11, 2020, the table above for capital purchase obligations represent noncancelable agreementscourt granted the DOC’s motion to purchase capital-related equipment. Such contracts include those for certain purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other equipment.
We had $922 million in deposits and progress payments as of February 28, 2018 on aircraft purchases and other planned aircraft-related transactions.
Financing Activities
The amounts reflected indismiss the table above for long-term debt represent future scheduled principal payments on our long-term debt.lawsuit. On November 5, 2020, we appealed this decision.
Additional information on amounts included within the operating, investing and financing activities captions in the table above can be found in our Annual Report.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.
GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any other change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of February 28, 2018,November 30, 2020, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.
Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.
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Certain statements in this report, including (but not limited to) those contained in “Income Taxes,” “Outlook,“Business Acquisitions,” “Liquidity,”“Outlook” and “Liquidity Outlook,” “Contractual Cash Obligations and Off-Balance Sheet Arrangements” and “Critical Accounting Estimates,”Outlook” and the “General,” “Financing Arrangements,” “Income Taxes,” “Retirement Plans,” “Commitments” and “Contingencies” notes to theour unaudited condensed consolidated financial statements, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance and business.business and the assumptions underlying such statements. Forward-looking statements include those preceded by, followed by or that include the words “will,” “may,” “could,” “would,” “should,” “will,” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:
• | the negative impacts of the COVID-19 pandemic; |
• | economic conditions in the global markets in which we operate; |
economic conditions in the global markets in which we operate;
• | significant changes in the volumes of shipments transported through our networks, customer demand for our various services or the prices we obtain for our services; |
• | anti-trade measures and additional changes in international trade policies and relations; |
• | a significant data breach or other disruption to our technology infrastructure; |
• | our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame and at the expected cost and to achieve the expected benefits from the combined businesses; |
significant changes in the volumes of shipments transported through our networks, customer demand for our various services or the prices we obtain for our services;
• | our ability to continue to transform and optimize the FedEx Express international business, particularly in Europe; |
• | our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and achieve the anticipated benefits and associated cost savings of such strategies and actions; |
• | damage to our reputation or loss of brand equity; |
• | our ability to retain and attract employee talent and maintain our company culture; |
a significant data breach or other disruption to our technology infrastructure, which can adversely affect our reputation, business or results of operations;
the ongoing impact of the significant cyberattack that TNT Express experienced in the first quarter of fiscal 2018;
our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame or at the expected cost;
damage to our reputation or loss of brand equity;
the price and availability of jet and vehicle fuel;
our ability to manage our network capacity and cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;
the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to fluctuating fuel prices) or to maintain or grow our market share;
our ability to effectively operate, integrate, leverage and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses, including their goodwill;
our ability to achieve the FedEx Express profit improvement goal;
our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility;
the impact of costs related to (i) challenges to the status of owner-operators engaged by FedEx Ground as independent contractors and direct employers of drivers providing services on their behalf, and (ii) any related changes to our relationship with these owner-operators and their drivers;
the impact of the United Kingdom’s vote to leave the European Union;
any impact on our business from disruptions or modifications in service by, or changes in the business or financial soundness of, the U.S. Postal Service, which is a significant customer and vendor of FedEx;
the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services;
any impacts on our businesses resulting from evolving or new domestic or international government laws and regulation, which could be unfavorable to our business, including regulatory actions affecting global aviation or other transportation rights, increased air cargo and other security or safety requirements, and tax, accounting, trade (such as protectionist measures or restrictions on free trade), labor (such as card-check legislation, joint employment standards or changes to the Railway Labor Act of 1926, as amended, affecting FedEx Express employees), environmental (such as global climate change legislation) or postal rules;
future guidance and interpretations relating to the recently enacted TCJA and our ability to realize the benefits of certain provisions of the TCJA;
adverse weather conditions or localized natural disasters in key geographic areas, such as earthquakes, volcanoes, wildfires, and hurricanes, which can disrupt our electrical service, damage our property, disrupt our operations, increase our fuel costs and adversely affect our shipment levels;
- 4943 -
• | the impact of the United Kingdom’s withdrawal from the European Union and the terms of their future trading relationship beyond December 31, 2020; |
• | the price and availability of jet and vehicle fuel; |
• | our ability to manage our network capacity and cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels; |
• | the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our revenue and market share; |
• | any impacts on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, policies and actions, which could be unfavorable to our business, including regulatory or other actions affecting data privacy and sovereignty, global aviation or other transportation rights, increased air cargo, pilot flight and duty time and other security or safety requirements, export controls, the use of new technology and accounting, trade (such as protectionist measures or restrictions on free trade), foreign exchange intervention in response to currency volatility, labor (such as joint employment standards, changes to the Railway Labor Act of 1926, as amended, affecting FedEx Express employees or increased minimum wage requirements), environmental (such as global climate change legislation) or postal rules; |
• | future changes in tax laws and regulations, interpretations, challenges or judicial decisions related to our tax positions; |
• | our ability to successfully complete the acquisition of ShopRunner; |
• | our ability to execute and effectively operate, integrate, leverage and grow acquired businesses and to continue to support the value we allocate to these acquired businesses, including their goodwill and other intangible assets, as well as additional costs incurred in connection with the integration of acquired businesses; |
• | our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility; |
• | the impact of costs related to lawsuits in which it is alleged that FedEx Ground should be treated as an employer of drivers employed by service providers engaged by FedEx Ground; |
• | increased insurance and claims expenses related to vehicle accidents, workers’ compensation claims and general business liabilities; |
• | any impact on our business from disruptions or modifications in service by, or changes in the business or financial soundness of, the U.S. Postal Service, which is a vendor and significant customer of FedEx; |
• | the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
• | increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
• | our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; |
• | our ability to successfully mitigate unique technological, operational and regulatory risks related to our autonomous delivery strategy; |
the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;
• | constraints, volatility or disruption in the capital markets and our ability to maintain our current credit ratings, commercial paper ratings, senior unsecured debt credit ratings and Credit Agreement financial covenants; |
• | widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
• | human capital management risks, including changes in our ability to attract and retain drivers, package and freight handlers, commercial pilots and other employees, as well as health and safety issues; |
- 44 -
• | the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies; |
changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Brazilian real, Canadian dollar and Mexican peso, which can affect our sales levels and foreign currency sales prices;
• | changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar and Mexican peso, which can affect our sales levels and foreign currency sales prices; |
• | any liability resulting from and the costs of defending against class-action, derivative and other litigation, such as wage-and-hour, joint employment, securities and discrimination and retaliation claims, and any other legal or governmental proceedings, including the matters discussed in Note 10 of the accompanying unaudited condensed consolidated financial statements; |
• | the outcome of future negotiations to reach new collective bargaining agreements — including with the union that represents the pilots of FedEx Express (the current pilot agreement is scheduled to become amendable in November 2021) and with the union elected in 2015 to represent drivers at a FedEx Freight, Inc. facility in the U.S.; |
• | the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization; |
market acceptance of our new service and growth initiatives;
• | the alternative interest rates we are able to negotiate with counterparties pursuant to the relevant provisions of our Credit Agreements in the event the London Interbank Offered Rate or the euro interbank offered rate cease to exist and we make borrowings under the agreements; and |
any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour, joint employment, and discrimination and retaliation claims, and any other legal or governmental proceedings;
the outcome of future negotiations to reach new collective bargaining agreements — including with the union that represents the pilots of FedEx Express (the current pilot agreement is scheduled to become amendable in November 2021) and with the union elected in 2015 to represent drivers at a FedEx Freight facility;
the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information technology redundancy and complexity throughout the organization;
governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion or sub-optimal routing of our vehicles and aircraft;
widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
availability of financing on terms acceptable to us and our ability to maintain our current credit ratings, especially given the capital intensity of our operations; and
other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q.
• | other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q. |
As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
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Item 3. Quantitative and QualitativeQualitative Disclosures About Market Risk
As of February 28, 2018,November 30, 2020, there were no material changes in our market risk sensitive instruments and positions since our disclosures in our Annual Report.
The principal foreign currency exchange rate risks to which we are exposed are inrelate to the euro, Chinese yuan, British pound, Brazilian real, Canadian dollar, Australian dollar and Mexican peso. Historically, our exposure to foreign currency fluctuations is more significant with respect to our revenuesrevenue than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During the nine monthsfirst half of 2018,2021, the U.S. dollar weakened relative to the currencies of the foreign countries in which we operate, as compared to May 31, 2017,the first six months of 2020, and this weakening had a slightly negativepositive impact on our results.
While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our indexed fuel surcharges. For additional discussion of our indexed fuel surcharges, see the “Fuel” section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”
Item 4. Controls and Procedures
The management of FedEx, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of February 28, 2018November 30, 2020 (the end of the period covered by this Quarterly Report on Form 10-Q).
During our fiscal quarter ended February 28, 2018,November 30, 2020, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, the majority of our accounting, finance and legal employees continued working remotely. We continue to monitor the COVID-19 pandemic and its effects on the design and operating effectiveness of our internal control over financial reporting.
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For a description of all material pending legal proceedings, see Note 910 of the accompanying unaudited condensed consolidated financial statements.
Other than the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report (under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition”) in response to Part I, Item 1A of Form 10-K.
A significant data breach or other disruption to
The COVID-19 pandemic has had certain adverse effects on our technology infrastructure could disrupt ourbusiness, results of operations and resultfinancial condition, and we expect such adverse effects will continue. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Due to the crucial role we play in the loss ofmoving supply chains and delivering critical confidential information, adversely impacting our reputation,relief, we are considered an essential business or results of operations. Our abilityand we continue to attractoperate under and retain customers,respond to efficiently operate our businesses,evolving governmental and to compete effectively depends in part upon the sophistication and reliability of our technology network, including our ability to provide features of service that are important to our customers, to protect our confidential business information and the information provided by our customers, and to maintain customer confidence in our ability to protect our systems and to provide services consistent with their expectations. We are subject to risks imposed by data breaches and operational disruptions, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists. Data breaches of companies and governments have increased in recent years as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Additionally, risks such as code anomalies, “Acts of God,” transitional challenges in migrating operating company functionality to our FedEx enterprise automation platform, data leakage and human error pose a direct threat to our products, services and data and could result in unauthorized access to sensitive or confidential data regarding our operations, customers, employees, and suppliers, including personal information.
We also use technology and systems from third-party service providers, including cloud service providers, for a variety of reasons and such providers may have access to information we maintain about our company, customers, employees and vendors or operate systems that are critical to our business operations and services. Like us, our third-party service providers are subject to risks imposed by data breaches and cyber-attacks. We have security processes, protocols and standards in place, including contractual provisions requiring such security measures, that are applicable to our service providers and are designed to protect information that is held by them, or to which they have access, as a result of their engagements with us. Nevertheless, a cyber-attack could defeat one or more of our third-party service providers’ security measures, allowing an attacker to obtain information about our company, customers, employees and vendors or disrupt our operations. Our third-party service providers may also experience operational disruptions or human error that could result in unauthorized access to sensitive or confidential data regarding our operations, customers, employees and suppliers, including personal information.
Any disruption to our complex, global technology infrastructure, including those impacting our computer systems and websites, could result in the loss of confidential business or customer information, adversely impact our operations, customer service, volumes and revenues, or could lead to litigation or investigations, resulting in significant costs. These types of adverse impacts could also occur in the event the confidentiality, integrity or availability of company and customer information was compromised due to a data loss by FedEx or a trusted third party. Recently, there has also been heightened regulatory and enforcement focus on data protectionother restrictions issued in the U.S. and abroad,globally. The disruption of global supply chains and failurethe global economy has materially affected our business, results of operations and financial condition. We expect the full impact of the COVID-19 pandemic, including the extent of its effect on our financial condition and results of operations, to be dictated by future developments which remain uncertain and cannot be predicted, such as its duration and spread, the success of efforts to contain it and treat its impact, the possibility of additional subsequent widespread outbreaks, and the impact of actions taken in response. The COVID-19 pandemic has had, and we expect will continue to have, certain negative impacts on our business, including, but not limited to, the following:
• | The COVID-19 pandemic has had a rapid and significant negative impact on the global economy. The disruption of global supply chains, interruption in economic activity, preventative measures taken to alleviate the pandemic (such as governmental and other restrictions and other responsive measures), and increased economic uncertainty caused by the pandemic have resulted in increased global economic weakness of an unknown duration. Although certain of the responsive measures and COVID-19-related restrictions moderated globally during the second quarter of 2021, the ongoing pandemic, including large outbreaks in various regions, has resulted, and may continue to result, in their reinstitution. Continued weak global economic conditions reduced business-to-business demand for certain of our services in the first half of 2021. The various governmental and other restrictions and slow down of commercial activities in major markets around the world has also led to unprecedented demand for residential delivery services, rivaling our peak holiday season traffic. During 2020, we incurred increased costs associated with this demand and lower composite yields than our typical service mix, and we continued to incur increased costs associated with this demand in the first half of 2021. Prolonged economic weakness, including an extended period of elevated levels of unemployment in the U.S. and other regions, could further reduce discretionary consumer spending and consumer confidence, which could have a further adverse effect on our results of operations. |
• | We have made significant operational adjustments to align our services with shipping volumes and operating conditions and to comply with evolving governmental orders, rules and regulations. As a result, we are incurring costs associated with network contingencies, including additional personnel to support operations through the peak season during the pandemic. We may continue to incur similar expenses in the future. If we are unable to remain agile and continue to flex our networks to align with shipping volumes, customer needs, market demands and operating conditions, or are unable to continuously respond to evolving governmental policies for the duration of a prolonged period of economic recovery, our business operations could be negatively impacted, which could have a further adverse effect on our results of operations. |
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• | We rely on a global workforce and our business demands we take measures to protect the health and safety of our team members, customers and others with whom we do business, while continuing to effectively manage our employees and maintain business operations. We have taken additional measures and are incurring increased operating expenses related to personal protective equipment and medical/safety supplies, as well as additional security and cleaning services in order to protect our team members and customers during the COVID-19 pandemic, and continue to work with customers to accommodate special requests around modified store hours, closings, and delivery alternatives to comply with applicable government restrictions and safety guidance. Due to the size, scope and geographically dispersed nature of our operations, the expenses we incur to protect the health and safety of certain of our employees may be higher than similar expenses incurred by companies in other industries. Additionally, our business operations may be disrupted if a significant portion of our workforce is unable to work safely and effectively due to illness, quarantines, government actions, or other restrictions or measures responsive to the pandemic, or if members of senior management or our Board of Directors (the “Board”) are unable to perform their duties for an extended period of time. Measures taken across our business operations to address health and safety may not be sufficient to prevent the spread of COVID-19 among our team members, customers and others. Therefore, we could face operational disruptions and incur additional expenses, including devoting additional resources to assisting employees diagnosed with COVID-19 and further changing health and safety protocols and processes, that could adversely affect our business and results of operations. |
• | A significant number of our employees as well as customers and others with whom we do business continue to work remotely in response to the COVID-19 pandemic. Our business operations may be disrupted, and we may experience increased risk of adverse effects to our business, if a significant portion of our workforce or certain business operations are negatively impacted as a result of remote work arrangements, including due to cyber risks or other disruption to our technology infrastructure. Further, if our FedEx Express Memphis World Hub or another key operating facility experiences closures or worker shortages as a result of COVID-19, whether temporary or sustained, our business operations would be significantly disrupted. |
• | Cost management and various cost-containment actions implemented across our business in response to the COVID-19 pandemic could hinder execution of our business strategy, including deferral of certain planned capital projects. Planned 2021 capital expenditures are below 2020 levels, as we have decreased planned spending on vehicles and trailers, delayed certain facility expansions and postponed certain information technology initiatives. The COVID-19 pandemic has also delayed completion of capital improvements and certain other initiatives in Europe related to the integration of TNT Express. These actions could result in increased costs to successfully implement our business strategy and effectively respond to changes in market dynamics, and could adversely affect our business and results of operations. For additional discussion, see Part I, Item 1 of our Annual Report under the caption “Strategy.” |
• | We cannot be certain that loss or delay in the collection of accounts receivable will not have a material adverse effect on our results of operations and financial condition. For additional discussion, see Part II, Item 7 of our Annual Report under the caption “Liquidity Outlook.” |
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many other risks described under the heading “Risk Factors” in our Annual Report, any of which could materially and adversely affect our business, results of operations and financial condition. Such risks include, but are not limited to, additional changes in international trade policies and relations; our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame and at the expected cost; our strong reputation and the value of the FedEx brand; our ability to manage our capital intensive businesses; changes to the business and financial soundness of the U.S. Postal Service; workforce availability; employee healthcare benefit costs; constraints, volatility or foreign data protection regulationsdisruption in the capital markets and our ability to access sources of financing and liquidity; and the impact of litigation or claims from customers, team members, suppliers, regulators or other data protection standards may expose usthird parties relating to litigation, fines, sanctionsthe COVID-19 pandemic or other penalties, whichour actions in response to the pandemic.
The United Kingdom’s withdrawal from the European Union (“EU”) could harm our reputation and adversely impact our business, results of operations and financial condition.
We have investedOn January 31, 2020, the United Kingdom left the EU (“Brexit”). The United Kingdom and continueEU are now in a transitional period during which the United Kingdom will maintain access to invest in technology security initiatives, information technology risk managementthe EU single market and disaster recovery plans. The development and maintenance of these measures is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Despite our efforts, we are not fully insulated from data breaches, technology disruptions or data loss, which could adversely impact our competitiveness and results of operations. For instance, in May 2017 FedEx was one of many companies attackedthe global trade deals negotiated by the rapidly spreading ransomware described as WannaCry that exploited vulnerability in Microsoft WindowsEU on behalf of its members, and infected computers using that program, encrypting filesremain subject to EU law, until December 31, 2020.
The uncertainty regarding the status of Brexit has negatively impacted the United Kingdom’s and holding them for ransom. Additionally, during the third quarterEU’s economies. This negative impact will likely continue until the United Kingdom and EU reach and implement a definitive resolution on their future trading relationship. Any additional impact of 2018 we discovered an unsecured server hosted byBrexit will depend on the terms of such resolution, if one of our third-party cloud service providers, which exposed some archived account information related to a service discontinued after our 2015 acquisition of Bongo International, LLC. The server has been secured, and we have found no indication that any information has been misappropriated in connection withis ultimately reached. Even if the incident. Neither incident caused a material disruption to our systems or resulted in any material costs to FedEx. In addition, in June 2017 TNT Express worldwide operations were significantly affected dueUnited Kingdom maintains access to the infiltrationEU single market and trade deals following the transition period, Brexit could result in further economic downturn globally. If the United Kingdom ultimately loses access to the EU single market and trade deals, significant market and economic disruption would likely occur, our customer experience, service quality and international operations would likely be negatively impacted, and the demand for our services could be depressed. As of an information technology virus known as NotPetya, as further described inDecember 17, 2020, the following risk factor.
While weUnited Kingdom and EU have significant security processes and initiatives in place, we may be unable to detect or preventnot reached a material breach or disruption in the future.resolution regarding their future trading relationship beyond December 31, 2020.
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TNT Express experienced a significant cyberattackAdditionally, we may face new regulations regarding trade, aviation, tax, security and employees, among others, in the first quarter of fiscal 2018 and the ongoing impact could negatively affect our results of operations and financial condition in the future, particularly if our continuing recovery efforts do not proceed as expected. On June 28, 2017, we announced that the worldwide operations of TNT Express were significantly affected by the cyberattack known as NotPetya, which involved the spread of an information technology virus that infiltrated TNT Express systems and encrypted its data. While TNT Express’s critical operational systems have been fully restored, critical business data has been recovered and shipping services and solutions are back in place, not all customers are shipping at pre-attack volume levels and we are continuing to engage in related recovery efforts. Our results of operations and financial conditionUnited Kingdom. Compliance with such regulations could be costly, negatively impacted in the future ifimpacting our recovery efforts do not proceed as expected, particularly if lost revenues or incremental costs associated with the cyberattack exceed our expectations. The following consequences or potential consequences of the cyberattack could have an adverse impact on our results of operations and financial condition in the future:
loss of revenue due to permanent customer loss or sustained lower volumes from pre-existing customers;
additional costs due to claims for service failures;
higher effective tax rate due to reduced international earnings;
longer and more costly integration (due to increased expenses and capital spending requirements) of TNT Express and FedEx Express;
investments in enhanced systems in order to prevent future attacks;
cost of incentives offered to customers to restore confidence and maintain business, relationships;
reputational damage resulting in the failure to retain or attract customers;
costs associated with potential litigation or governmental investigations;
costs associated with any data breach or data loss to third parties that is discovered; and
other consequences of which we are not currently aware but may subsequently discover.
We could be subject to adverse changes in regulations and interpretations or challenges to our tax positions relating to the Tax Cuts and Jobs Act. We are subject to taxation in the U.S. and numerous foreign jurisdictions. From time to time, changes in tax laws or regulations may be proposed or enacted that could significantly affect our overall tax liability. For example, on December 22, 2017, the United States government enacted comprehensive tax legislation through the TCJA, which significantly changes the U.S. corporate income tax system. The TCJA requires complex computations to be performed that were not previously required in U.S. tax law, significant judgments, estimates and calculations to be made in interpreting its provisions, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the TCJA will be applied or otherwise administered that is different from our interpretation. In addition, further legislative action could be taken to address questions or issues caused by the TCJA. As we complete our analysis of the TCJA, collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional amounts that we have recorded that may adversely impact our results of operations and financial condition. Additionally, stateBrexit could also adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign governments may enact tax lawsexchange markets, including volatility in response to the TCJA or other global initiatives that could result in further changes to our taxationvalue of the euro and adversely impact our results of operations and financial condition.the British pound.
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Item 2. Unregistered Sales of EquityEquity Securities and Use of Proceeds
The following table provides information on FedEx’s repurchasesWe did not repurchase any shares of ourFedEx common stock during the thirdsecond quarter of 2018:2021.
ISSUER PURCHASES OF EQUITY SECURITIES
Period |
| Total Number of Shares Purchased |
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| Average Price Paid per Share |
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| Total Number of Shares Purchased as Part of Publicly Announced Program |
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| Maximum Number of Shares That May Yet Be Purchased Under the Program |
| ||||
Dec. 1-31, 2017 |
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| 195,000 |
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| $ | 241.14 |
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| 195,000 |
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| 14,580,000 |
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Jan. 1-31, 2018 |
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| 272,800 |
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| 266.12 |
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| 272,800 |
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| 14,307,200 |
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Feb. 1-28, 2018 |
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| 690,000 |
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| 244.00 |
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| 690,000 |
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| 13,617,200 |
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Total |
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| 1,157,800 |
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| $ | 248.73 |
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| 1,157,800 |
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The repurchases were made under theOn January 26, 2016, we announced a stock repurchase program approved by our Board, of Directors and announced on January 26, 2016 and through which we are authorized to purchase, in the open market or in privately negotiated transactions, up to an aggregate of 25 million shares of our common stock. As of March 20, 2018, 13.2December 15, 2020, 5.1 million shares remained authorized for purchase under the January 2016 stock repurchase program, which is the only such program that currently exists. The program does not have an expiration date. See Note 1 of the accompanying unaudited condensed consolidated financial statements for further discussion.
Item 5. Other Information
Compensatory Arrangements of Certain Officers
In June 2020, we announced that given then-current economic and business uncertainty resulting from the COVID-19 pandemic, there would not be an annual incentive compensation plan for executive officers for fiscal 2021. In September 2020, based on strong financial results for the first quarter of fiscal 2021, FedEx’s Board, upon the recommendation of its Compensation Committee, approved an annual incentive plan for FedEx’s employees, excluding executive officers (the “fiscal 2021 AIC Plan”). On December 14, 2020, the Board, upon the recommendation of its Compensation Committee, approved including FedEx’s executive officers in the fiscal 2021 AIC Plan. The decision to include executive officers in the plan was based on FedEx’s strong financial results for the first half of fiscal 2021 due in part to the leadership provided by the executive officers and successful execution of FedEx’s strategies during the COVID-19 pandemic.
In order to continue motivating management to improve FedEx’s overall financial performance, the performance measure selected for the fiscal 2021 AIC Plan is consolidated operating income. The consolidated operating income threshold, target, and maximum objectives under the fiscal 2021 AIC plan are specified levels of fiscal 2021 consolidated operating income. Actual consolidated operating income performance that exceeds the fiscal 2021 target objective for consolidated operating income under the fiscal 2021 AIC plan will result in an above-target payout opportunity, up to the maximum payout amount.
The maximum payout opportunity under the plan for each executive officer is 150% of the target amount. However, the actual payout for plan participants, including all executive officers other than FedEx’s Chairman of the Board and Chief Executive Officer (“Chairman and CEO”), may be adjusted downward depending on the achievement level of their respective individual performance objectives, as determined by the Chairman and CEO or President and Chief Operating Officer, as applicable. The AIC payout amount for the Chairman and CEO may be adjusted upward or downward by the independent Board members based on their annual evaluation of his performance, which will consider factors including (but not limited to) FedEx’s stock price performance, market share, analyst ratings, and performance versus competitors. In addition, the independent directors will consider the achievement of the Chairman and CEO’s individual objectives for fiscal 2021.
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The fiscal 2021 AIC target payouts for FedEx’s named executive officers, as a percentage of their respective base salary actually paid during fiscal 2021, are as follows:
Name | Target Payout | ||
Frederick W. Smith Chairman of the Board and Chief Executive Officer | 165 | % | |
Michael C. Lenz Executive Vice President and Chief Financial Officer | 120 | % | |
Rajesh Subramaniam President and Chief Operating Officer | 140 | % | |
Donald F. Colleran President and Chief Executive Officer Federal Express Corporation | 120 | % | |
Robert B. Carter Executive Vice President, FedEx Information Services and Chief Information Officer | 120 | % | |
Alan B. Graf, Jr.* Former Chief Financial Officer | 120 | % |
* Mr. Graf served as FedEx’s Executive Vice President and Chief Financial Officer until September 21, 2020 and will retire effective December 31, 2020. He is eligible to receive a pro rata payout under the fiscal 2021 AIC plan based on the portion of the plan period during which he is employed.
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Item 6. Exhibits
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32.1 |
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32.2 |
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101.1 |
| Interactive Data |
104.1 | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101.1). |
* | Information in this exhibit identified by brackets is confidential and has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it (i) is not material and (ii) would likely cause competitive harm to FedEx if publicly disclosed. |
˄Certain attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K because the information contained therein is not material and is not otherwise publicly disclosed. FedEx will furnish supplementally a copy of such attachments to the SEC or its staff upon request.
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| FEDEX CORPORATION |
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Date: |
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| /s/ JOHN L. MERINO |
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| JOHN L. MERINO |
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| CORPORATE VICE PRESIDENT AND |
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| PRINCIPAL ACCOUNTING OFFICER |
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E-2