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 29,November 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.) |
|
|
942 South Shady Grove Road, Memphis, Tennessee | 38120 |
(Address of principal executive offices) | (ZIP Code) |
Registrant’s telephone number, including area code: (901) 818-7500
Securities registered pursuant to Section 12(b) of the Act:
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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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ | Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐ |
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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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FEDEX CORPORATION
INDEX
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| PAGE |
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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 | |
Condensed Consolidated Statements of Changes In Common Stockholders’ Investment
|
| 8 |
| 9 | |
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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 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
|
| February 29, 2020 (Unaudited) |
|
| May 31, 2019 |
|
| November 30, 2020 (Unaudited) |
|
| May 31, 2020 |
| |||||
ASSETS |
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CURRENT ASSETS |
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| |
Cash and cash equivalents |
| $ | 1,766 |
|
| $ | 2,319 |
|
| $ | 8,339 |
|
| $ | 4,881 |
| |
Receivables, less allowances of $307 and $300 |
|
| 9,323 |
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| 9,116 |
| |||||||||
Spare parts, supplies and fuel, less allowances of $332 and $335 |
|
| 568 |
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| 553 |
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Receivables, less allowances of $617 and $390 |
|
| 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 |
|
| 884 |
|
|
| 1,098 |
|
|
| 922 |
|
|
| 828 |
| |
Total current assets |
|
| 12,541 |
|
|
| 13,086 |
|
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| 21,265 |
|
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| 16,383 |
| |
PROPERTY AND EQUIPMENT, AT COST |
|
| 64,305 |
|
|
| 59,511 |
|
|
| 67,514 |
|
|
| 65,024 |
| |
Less accumulated depreciation and amortization |
|
| 30,999 |
|
|
| 29,082 |
|
|
| 32,904 |
|
|
| 31,416 |
| |
Net property and equipment |
|
| 33,306 |
|
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| 30,429 |
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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 |
|
| 13,981 |
|
|
| — |
|
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| 14,845 |
|
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| 13,917 |
| |
Goodwill |
|
| 6,814 |
|
|
| 6,884 |
|
|
| 6,702 |
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|
| 6,372 |
| |
Other assets |
|
| 3,372 |
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|
| 4,004 |
|
|
| 3,734 |
|
|
| 3,257 |
| |
Total other long-term assets |
|
| 24,167 |
|
|
| 10,888 |
|
|
| 25,281 |
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| 23,546 |
| |
|
| $ | 70,014 |
|
| $ | 54,403 |
|
| $ | 81,156 |
|
| $ | 73,537 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
|
| February 29, 2020 (Unaudited) |
|
| May 31, 2019 |
|
| November 30, 2020 (Unaudited) |
|
| May 31, 2020 |
| ||||
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT |
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CURRENT LIABILITIES |
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Short-term borrowings |
| $ | 300 |
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| $ | — |
| ||||||||
Current portion of long-term debt |
|
| 35 |
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|
| 964 |
|
| $ | 97 |
|
| $ | 51 |
|
Accrued salaries and employee benefits |
|
| 1,472 |
|
|
| 1,741 |
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|
| 2,159 |
|
|
| 1,569 |
|
Accounts payable |
|
| 3,193 |
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| 3,030 |
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| 3,733 |
|
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| 3,269 |
|
Operating lease liabilities |
|
| 1,902 |
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|
| — |
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| 2,123 |
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|
| 1,923 |
|
Accrued expenses |
|
| 3,423 |
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| 3,278 |
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| 4,003 |
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| 3,532 |
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Total current liabilities |
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| 10,325 |
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| 9,013 |
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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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| 18,973 |
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| 16,617 |
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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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| 3,101 |
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| 2,821 |
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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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| 4,165 |
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| 5,095 |
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| 5,088 |
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| 5,019 |
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Self-insurance accruals |
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| 1,933 |
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| 1,899 |
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| 2,250 |
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| 2,104 |
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Operating lease liabilities |
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| 12,232 |
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|
| — |
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| 13,009 |
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| 12,195 |
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Deferred lease obligations |
|
| — |
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| 531 |
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Other liabilities |
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| 454 |
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| 670 |
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| 963 |
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| 466 |
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Total other long-term liabilities |
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| 21,885 |
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| 11,016 |
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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 29, 2020 and May 31, 2019 |
|
| 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 |
|
| 32 |
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| 32 |
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Additional paid-in capital |
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| 3,324 |
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| 3,231 |
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| 3,400 |
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| 3,356 |
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Retained earnings |
|
| 25,569 |
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| 24,648 |
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| 27,208 |
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| 25,216 |
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Accumulated other comprehensive loss |
|
| (887 | ) |
|
| (865 | ) |
|
| (898 | ) |
|
| (1,147 | ) |
Treasury stock, at cost |
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| (9,207 | ) |
|
| (9,289 | ) |
|
| (8,703 | ) |
|
| (9,162 | ) |
Total common stockholders’ investment |
|
| 18,831 |
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| 17,757 |
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| 21,039 |
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| 18,295 |
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| $ | 70,014 |
|
| $ | 54,403 |
|
| $ | 81,156 |
|
| $ | 73,537 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended November 30, |
|
| Six Months Ended November 30, |
| ||||||||||||||||||||
|
| February 29, 2020 |
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| February 28, 2019 |
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| February 29, 2020 |
|
| February 28, 2019 |
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| 2020 |
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| 2019 |
|
| 2020 |
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| 2019 |
| ||||||||
REVENUE |
| $ | 17,487 |
|
| $ | 17,010 |
|
| $ | 51,859 |
|
| $ | 51,886 |
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| $ | 20,563 |
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| $ | 17,324 |
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| $ | 39,884 |
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| $ | 34,372 |
|
OPERATING EXPENSES: |
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Salaries and employee benefits |
|
| 6,382 |
|
|
| 6,069 |
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| 18,704 |
|
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| 18,589 |
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|
| 7,443 |
|
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| 6,235 |
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| 14,295 |
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|
| 12,322 |
|
Purchased transportation |
|
| 4,558 |
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| 4,253 |
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| 12,914 |
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|
| 12,566 |
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|
| 5,407 |
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| 4,328 |
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|
| 10,384 |
|
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| 8,356 |
|
Rentals and landing fees |
|
| 964 |
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|
| 874 |
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|
| 2,808 |
|
|
| 2,533 |
|
|
| 1,006 |
|
|
| 924 |
|
|
| 1,942 |
|
|
| 1,844 |
|
Depreciation and amortization |
|
| 908 |
|
|
| 851 |
|
|
| 2,688 |
|
|
| 2,487 |
|
|
| 936 |
|
|
| 901 |
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|
| 1,862 |
|
|
| 1,780 |
|
Fuel |
|
| 879 |
|
|
| 907 |
|
|
| 2,639 |
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|
| 2,945 |
|
|
| 625 |
|
|
| 890 |
|
|
| 1,190 |
|
|
| 1,760 |
|
Maintenance and repairs |
|
| 684 |
|
|
| 658 |
|
|
| 2,226 |
|
|
| 2,144 |
|
|
| 815 |
|
|
| 774 |
|
|
| 1,621 |
|
|
| 1,542 |
|
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| 66 |
|
Business realignment costs |
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
| ||||||||||||||||
Other |
|
| 2,701 |
|
|
| 2,483 |
|
|
| 7,872 |
|
|
| 7,468 |
|
|
| 2,866 |
|
|
| 2,652 |
|
|
| 5,535 |
|
|
| 5,171 |
|
|
|
| 17,076 |
|
|
| 16,099 |
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|
| 49,917 |
|
|
| 48,736 |
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|
| 19,098 |
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|
| 16,770 |
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|
| 36,829 |
|
|
| 32,841 |
|
OPERATING INCOME |
|
| 411 |
|
|
| 911 |
|
|
| 1,942 |
|
|
| 3,150 |
|
|
| 1,465 |
|
|
| 554 |
|
|
| 3,055 |
|
|
| 1,531 |
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OTHER INCOME (EXPENSE): |
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OTHER (EXPENSE) INCOME: |
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Interest, net |
|
| (155 | ) |
|
| (135 | ) |
|
| (443 | ) |
|
| (393 | ) |
|
| (184 | ) |
|
| (151 | ) |
|
| (368 | ) |
|
| (288 | ) |
Other retirement plans income |
|
| 168 |
|
|
| 158 |
|
|
| 504 |
|
|
| 474 |
|
|
| 150 |
|
|
| 168 |
|
|
| 351 |
|
|
| 336 |
|
Other, net |
|
| (4 | ) |
|
| (3 | ) |
|
| (15 | ) |
|
| (22 | ) |
|
| (25 | ) |
|
| 1 |
|
|
| (26 | ) |
|
| (11 | ) |
|
|
| 9 |
|
|
| 20 |
|
|
| 46 |
|
|
| 59 |
|
|
| (59 | ) |
|
| 18 |
|
|
| (43 | ) |
|
| 37 |
|
INCOME BEFORE INCOME TAXES |
|
| 420 |
|
|
| 931 |
|
|
| 1,988 |
|
|
| 3,209 |
|
|
| 1,406 |
|
|
| 572 |
|
|
| 3,012 |
|
|
| 1,568 |
|
PROVISION FOR INCOME TAXES |
|
| 105 |
|
|
| 192 |
|
|
| 368 |
|
|
| 700 |
|
|
| 180 |
|
|
| 12 |
|
|
| 541 |
|
|
| 263 |
|
NET INCOME |
| $ | 315 |
|
| $ | 739 |
|
| $ | 1,620 |
|
| $ | 2,509 |
|
| $ | 1,226 |
|
| $ | 560 |
|
| $ | 2,471 |
|
| $ | 1,305 |
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EARNINGS PER COMMON SHARE: |
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Basic |
| $ | 1.21 |
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| $ | 2.83 |
|
| $ | 6.21 |
|
| $ | 9.55 |
|
| $ | 4.64 |
|
| $ | 2.15 |
|
| $ | 9.40 |
|
| $ | 5.00 |
|
Diluted |
| $ | 1.20 |
|
| $ | 2.80 |
|
| $ | 6.17 |
|
| $ | 9.41 |
|
| $ | 4.55 |
|
| $ | 2.13 |
|
| $ | 9.26 |
|
| $ | 4.97 |
|
DIVIDENDS DECLARED PER COMMON SHARE |
| $ | 0.65 |
|
| $ | 0.65 |
|
| $ | 2.60 |
|
| $ | 2.60 |
|
| $ | 0.65 |
|
| $ | 0.65 |
|
| $ | 1.95 |
|
| $ | 1.95 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN MILLIONS)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| November 30, |
|
| November 30, |
| ||||||||||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
NET INCOME |
| $ | 315 |
|
| $ | 739 |
|
| $ | 1,620 |
|
| $ | 2,509 |
|
| $ | 1,226 |
|
| $ | 560 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
OTHER COMPREHENSIVE INCOME (LOSS): |
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Foreign currency translation adjustments, net of tax benefit of $6 and $3 in 2020 and tax expense of $9 and tax benefit of $22 in 2019 |
|
| (1 | ) |
|
| 103 |
|
|
| (12 | ) |
|
| (90 | ) | ||||||||||||||||
Amortization of prior service credit, net of tax benefit of $7 and $19 in 2020 and tax benefit of $7 and $21 in 2019 |
|
| (20 | ) |
|
| (23 | ) |
|
| (61 | ) |
|
| (69 | ) | ||||||||||||||||
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 | ) | ||||||||||||||||
|
|
| (21 | ) |
|
| 80 |
|
|
| (73 | ) |
|
| (159 | ) |
|
| 122 |
|
|
| 52 |
|
|
| 249 |
|
|
| (52 | ) |
COMPREHENSIVE INCOME |
| $ | 294 |
|
| $ | 819 |
|
| $ | 1,547 |
|
| $ | 2,350 |
|
| $ | 1,348 |
|
| $ | 612 |
|
| $ | 2,720 |
|
| $ | 1,253 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
|
| Nine Months Ended |
|
| Six Months Ended November 30, |
| ||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating Activities: |
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|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,620 |
|
| $ | 2,509 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 2,688 |
|
|
| 2,487 |
|
|
| 1,862 |
|
|
| 1,780 |
|
Asset impairment charges |
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
Provision for uncollectible accounts |
|
| 295 |
|
|
| 221 |
|
|
| 291 |
|
|
| 208 |
|
Stock-based compensation |
|
| 137 |
|
|
| 141 |
|
|
| 121 |
|
|
| 104 |
|
Retirement plan mark-to-market adjustment |
|
| 52 |
|
|
| — |
| ||||||||
Other noncash items and deferred income taxes |
|
| 1,758 |
|
|
| 250 |
|
|
| 1,482 |
|
|
| 1,164 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables |
|
| (504 | ) |
|
| (780 | ) |
|
| (1,100 | ) |
|
| (684 | ) |
Other assets |
|
| (149 | ) |
|
| (96 | ) |
|
| (56 | ) |
|
| (162 | ) |
Accounts payable and other liabilities |
|
| (2,612 | ) |
|
| (1,307 | ) |
|
| 241 |
|
|
| (1,691 | ) |
Other, net |
|
| (21 | ) |
|
| (102 | ) |
|
| (134 | ) |
|
| (16 | ) |
Cash provided by operating activities |
|
| 3,278 |
|
|
| 3,323 |
|
|
| 5,230 |
|
|
| 2,074 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (4,705 | ) |
|
| (3,757 | ) |
|
| (2,826 | ) |
|
| (3,266 | ) |
Proceeds from asset dispositions and other |
|
| 15 |
|
|
| 62 |
|
|
| 14 |
|
|
| 4 |
|
Cash used in investing activities |
|
| (4,690 | ) |
|
| (3,695 | ) |
|
| (2,812 | ) |
|
| (3,262 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 298 |
|
|
| 220 |
|
|
| — |
|
|
| 150 |
|
Principal payments on debt |
|
| (1,045 | ) |
|
| (874 | ) |
|
| (75 | ) |
|
| (1,021 | ) |
Proceeds from debt issuances |
|
| 2,093 |
|
|
| 2,463 |
|
|
| 970 |
|
|
| 2,093 |
|
Proceeds from stock issuances |
|
| 38 |
|
|
| 58 |
|
|
| 431 |
|
|
| 26 |
|
Dividends paid |
|
| (509 | ) |
|
| (514 | ) |
|
| (341 | ) |
|
| (339 | ) |
Purchase of treasury stock |
|
| (3 | ) |
|
| (1,365 | ) |
|
| — |
|
|
| (3 | ) |
Other, net |
|
| (5 | ) |
|
| 5 |
|
|
| (12 | ) |
|
| (5 | ) |
Cash provided by (used in) financing activities |
|
| 867 |
|
|
| (7 | ) | ||||||||
Cash provided by financing activities |
|
| 973 |
|
|
| 901 |
| ||||||||
Effect of exchange rate changes on cash |
|
| (8 | ) |
|
| (14 | ) |
|
| 67 |
|
|
| (1 | ) |
Net decrease in cash and cash equivalents |
|
| (553 | ) |
|
| (393 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 3,458 |
|
|
| (288 | ) | ||||||||
Cash and cash equivalents at beginning of period |
|
| 2,319 |
|
|
| 3,265 |
|
|
| 4,881 |
|
|
| 2,319 |
|
Cash and cash equivalents at end of period |
| $ | 1,766 |
|
| $ | 2,872 |
|
| $ | 8,339 |
|
| $ | 2,031 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 7 -
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ INVESTMENT
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| November 30, |
|
| November 30, |
| ||||||||||||||||||||
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| February 29, 2020 |
|
| February 28, 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
| $ | 32 |
|
Ending Balance |
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
|
| 32 |
|
Additional Paid-in-Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Additional Paid-in Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Beginning Balance |
|
| 3,287 |
|
|
| 3,185 |
|
|
| 3,231 |
|
|
| 3,117 |
|
|
| 3,375 |
|
|
| 3,257 |
|
|
| 3,356 |
|
|
| 3,231 |
|
Employee incentive plans and other |
|
| 37 |
|
|
| 24 |
|
|
| 93 |
|
|
| 92 |
|
|
| 25 |
|
|
| 30 |
|
|
| 44 |
|
|
| 56 |
|
Ending Balance |
|
| 3,324 |
|
|
| 3,209 |
|
|
| 3,324 |
|
|
| 3,209 |
|
|
| 3,400 |
|
|
| 3,287 |
|
|
| 3,400 |
|
|
| 3,287 |
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| 25,431 |
|
|
| 26,080 |
|
|
| 24,648 |
|
|
| 24,823 |
|
|
| 26,108 |
|
|
| 25,048 |
|
|
| 25,216 |
|
|
| 24,648 |
|
Net Income |
|
| 315 |
|
|
| 739 |
|
|
| 1,620 |
|
|
| 2,509 |
|
|
| 1,226 |
|
|
| 560 |
|
|
| 2,471 |
|
|
| 1,305 |
|
Cash dividends declared ($0.65, $0.65, $2.60, and $2.60 per share) |
|
| (170 | ) |
|
| (169 | ) |
|
| (679 | ) |
|
| (683 | ) | ||||||||||||||||
Cash dividends declared ($0.65, $0.65, $1.95 and $1.95 per share) |
|
| (172 | ) |
|
| (170 | ) |
|
| (513 | ) |
|
| (509 | ) | ||||||||||||||||
Employee incentive plans and other |
|
| (7 | ) |
|
| — |
|
|
| (16 | ) |
|
| 1 |
|
|
| 46 |
|
|
| (7 | ) |
|
| 34 |
|
|
| (9 | ) |
Adoption of new accounting standards on June 1, 2019(1) |
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Ending Balance |
|
| 25,569 |
|
|
| 26,650 |
|
|
| 25,569 |
|
|
| 26,650 |
|
|
| 27,208 |
|
|
| 25,431 |
|
|
| 27,208 |
|
|
| 25,431 |
|
Accumulated Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| (866 | ) |
|
| (817 | ) |
|
| (865 | ) |
|
| (578 | ) |
|
| (1,020 | ) |
|
| (918 | ) |
|
| (1,147 | ) |
|
| (865 | ) |
Other comprehensive income, net of tax (expense)/benefit of $13, ($2), $22, and $43 |
|
| (21 | ) |
|
| 80 |
|
|
| (73 | ) |
|
| (159 | ) | ||||||||||||||||
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 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 51 |
|
Ending Balance |
|
| (887 | ) |
|
| (737 | ) |
|
| (887 | ) |
|
| (737 | ) |
|
| (898 | ) |
|
| (866 | ) |
|
| (898 | ) |
|
| (866 | ) |
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
| (9,225 | ) |
|
| (9,186 | ) |
|
| (9,289 | ) |
|
| (7,978 | ) |
|
| (9,033 | ) |
|
| (9,253 | ) |
|
| (9,162 | ) |
|
| (9,289 | ) |
Purchase of treasury stock (0.0, 0.6, 0.02, and 6.0 million shares) |
|
| — |
|
|
| (93 | ) |
|
| (3 | ) |
|
| (1,365 | ) | ||||||||||||||||
Employee incentive plans and other (0.1, 0.1, 0.6, and 0.6 million shares) |
|
| 18 |
|
|
| 19 |
|
|
| 85 |
|
|
| 83 |
| ||||||||||||||||
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 |
|
| (9,207 | ) |
|
| (9,260 | ) |
|
| (9,207 | ) |
|
| (9,260 | ) |
|
| (8,703 | ) |
|
| (9,225 | ) |
|
| (8,703 | ) |
|
| (9,225 | ) |
Total Common Stockholders' Investment Balance |
| $ | 18,831 |
|
| $ | 19,894 |
|
| $ | 18,831 |
|
| $ | 19,894 |
| ||||||||||||||||
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, 20192020 (“Annual Report”). Significant 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 29,November 30, 2020, and the results of our operations for the three- and nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019, cash flows for the nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019, and changes in common stockholders’ investment for the three- and nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019. Operating results for the three- and nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 2020.2021.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 20202021 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.
RECLASSIFICATIONS. Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year presentation.
REVENUE RECOGNITION.
Contract Assets and Liabilities
Contract assets include billed and unbilled amounts resulting from in-transit packages,shipments, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., packages have been delivered). Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions. 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 in-transit packagesshipments totaled $491$701 million and $533$563 million at February 29,November 30, 2020 and May 31, 2019,2020, respectively. Contract assets net of deferred unearned revenue were $360$499 million and $364$456 million at February 29,November 30, 2020 and May 31, 2019,2020, 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 and $11 million at February 29,November 30, 2020 and May 31, 2019,2020, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets.
- 9 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Disaggregation of Revenue
The following table provides revenue by service type (in millions) for the periods ended February 29, 2020 and February 28, 2019.November 30. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
REVENUE BY SERVICE TYPE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 1,865 |
|
| $ | 1,844 |
|
| $ | 5,595 |
|
| $ | 5,678 |
|
| $ | 2,012 |
|
| $ | 1,864 |
|
| $ | 3,873 |
|
| $ | 3,730 |
|
U.S. overnight envelope |
|
| 459 |
|
|
| 433 |
|
|
| 1,395 |
|
|
| 1,345 |
|
|
| 435 |
|
|
| 457 |
|
|
| 861 |
|
|
| 936 |
|
U.S. deferred |
|
| 1,127 |
|
|
| 1,119 |
|
|
| 3,063 |
|
|
| 3,131 |
|
|
| 1,204 |
|
|
| 980 |
|
|
| 2,300 |
|
|
| 1,936 |
|
Total U.S. domestic package revenue |
|
| 3,451 |
|
|
| 3,396 |
|
|
| 10,053 |
|
|
| 10,154 |
|
|
| 3,651 |
|
|
| 3,301 |
|
|
| 7,034 |
|
|
| 6,602 |
|
International priority |
|
| 1,710 |
|
|
| 1,738 |
|
|
| 5,344 |
|
|
| 5,508 |
|
|
| 2,510 |
|
|
| 1,817 |
|
|
| 4,827 |
|
|
| 3,634 |
|
International economy |
|
| 810 |
|
|
| 806 |
|
|
| 2,538 |
|
|
| 2,541 |
|
|
| 658 |
|
|
| 873 |
|
|
| 1,274 |
|
|
| 1,728 |
|
Total international export package revenue |
|
| 2,520 |
|
|
| 2,544 |
|
|
| 7,882 |
|
|
| 8,049 |
|
|
| 3,168 |
|
|
| 2,690 |
|
|
| 6,101 |
|
|
| 5,362 |
|
International domestic(1) |
|
| 1,075 |
|
|
| 1,078 |
|
|
| 3,316 |
|
|
| 3,412 |
|
|
| 1,206 |
|
|
| 1,165 |
|
|
| 2,294 |
|
|
| 2,241 |
|
Total package revenue |
|
| 7,046 |
|
|
| 7,018 |
|
|
| 21,251 |
|
|
| 21,615 |
|
|
| 8,025 |
|
|
| 7,156 |
|
|
| 15,429 |
|
|
| 14,205 |
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 739 |
|
|
| 772 |
|
|
| 2,132 |
|
|
| 2,294 |
|
|
| 799 |
|
|
| 698 |
|
|
| 1,632 |
|
|
| 1,393 |
|
International priority |
|
| 439 |
|
|
| 477 |
|
|
| 1,376 |
|
|
| 1,574 |
|
|
| 737 |
|
|
| 473 |
|
|
| 1,390 |
|
|
| 937 |
|
International economy |
|
| 499 |
|
|
| 495 |
|
|
| 1,556 |
|
|
| 1,568 |
|
|
| 408 |
|
|
| 541 |
|
|
| 779 |
|
|
| 1,057 |
|
International airfreight |
|
| 61 |
|
|
| 76 |
|
|
| 197 |
|
|
| 244 |
|
|
| 65 |
|
|
| 70 |
|
|
| 140 |
|
|
| 136 |
|
Total freight revenue |
|
| 1,738 |
|
|
| 1,820 |
|
|
| 5,261 |
|
|
| 5,680 |
|
|
| 2,009 |
|
|
| 1,782 |
|
|
| 3,941 |
|
|
| 3,523 |
|
Other |
|
| 140 |
|
|
| 167 |
|
|
| 441 |
|
|
| 536 |
|
|
| 334 |
|
|
| 146 |
|
|
| 645 |
|
|
| 301 |
|
Total FedEx Express segment |
|
| 8,924 |
|
|
| 9,005 |
|
|
| 26,953 |
|
|
| 27,831 |
|
|
| 10,368 |
|
|
| 9,084 |
|
|
| 20,015 |
|
|
| 18,029 |
|
FedEx Ground segment |
|
| 5,845 |
|
|
| 5,261 |
|
|
| 16,339 |
|
|
| 15,202 |
|
|
| 7,344 |
|
|
| 5,315 |
|
|
| 14,384 |
|
|
| 10,494 |
|
FedEx Freight segment |
|
| 1,738 |
|
|
| 1,750 |
|
|
| 5,487 |
|
|
| 5,627 |
|
|
| 1,936 |
|
|
| 1,844 |
|
|
| 3,762 |
|
|
| 3,749 |
|
FedEx Services segment |
|
| 6 |
|
|
| 4 |
|
|
| 15 |
|
|
| 17 |
|
|
| 8 |
|
|
| 5 |
|
|
| 16 |
|
|
| 9 |
|
Other and eliminations |
|
| 974 |
|
|
| 990 |
|
|
| 3,065 |
|
|
| 3,209 |
|
|
| 907 |
|
|
| 1,076 |
|
|
| 1,707 |
|
|
| 2,091 |
|
|
| $ | 17,487 |
|
| $ | 17,010 |
|
| $ | 51,859 |
|
| $ | 51,886 |
|
| $ | 20,563 |
|
| $ | 17,324 |
|
| $ | 39,884 |
|
| $ | 34,372 |
|
| (1) | International domestic revenue relates to our international intra-country operations. |
|
| 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. |
LEASES. We lease certain facilities, aircraft, equipment and vehicles under operating and finance leases. A determination of whether a contract contains a lease is made at the inception of the arrangement. Our leased facilities include national, regional and metropolitan sorting facilities, retail facilities and administrative buildings. We leased 5% of our total aircraft fleet as of February 29, 2020 and 6% as of May 31, 2019.
Our leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement.
The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee.
- 10 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For real estate leases, we account for lease components and non-lease components (such as common area maintenance) as a single lease component. Certain real estate leases require additional payments based on sales volume and index-based rate increases, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Certain leases contain fixed lease payments for items such as real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities.
See Note 8 for additional information.
IMPAIRMENT OF LONG-LIVED ASSETSASSETS.. 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 isare 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.
We operate integrated transportation networks, and accordingly, cash flows for most of our operating assets to be held and used are assessed at a network level, not at an individual asset level, for our analysis of impairment.
InDuring the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FederalFedEx Express Corporation (“FedEx Express”) to align with the needs of the U.S. domestic network and modernize its aircraft fleet.fleet. As a consequence of this decision, noncash impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) were recorded in the FedEx Express segment in the second quarter. NaNquarter of these aircraft were temporarily idled.2020.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FedEx Express, who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. The collective bargaining agreement is scheduled to become amendable in November 2021. Other than the pilots at FedEx Express, and drivers at one FedEx Freight, Inc. facility, our U.S. employees have thus far chosen not to unionize (we acquired FedEx Supply Chain Distribution System, Inc. in 2015, which already had a small number of our employees who are members of unions). Additionally, certain FedEx Express non-U.S. employeesunions.
- 10 -
BUSINESS ACQUISITION. On December 2, 2020, we agreed to acquire ShopRunner, Inc. (“ShopRunner”), an e-commerce platform that directly connects brands and merchants 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, and a union has been certifiednot expected to represent owner-drivers at a FedEx Freight Canada, Corp. facility.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 $33$46 million for the three-month period ended February 29,November 30, 2020 and $137$121 million for the nine-monthsix-month period ended February 29,November 30, 2020. Our stock-based compensation expense was $33$37 million for the three-month period ended February 28,November 30, 2019 and $141$104 million for the nine-monthsix-month period ended February 28,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.
- 11 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 the currency translation adjustment section of 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. Accordingly, additional disclosures about cash flow hedges are excluded from this quarterly report. On August 13, 2019, we designated €294We have €640 million of debt and on November 8, 2019, we designated an additional €98 million of debt, for a total of €392 million, 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 consolidated subsidiary. As of February 29,November 30, 2020, the requirements for the application of hedge accounting continue to be met and 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 June 2016, the Financial Accounting Standards Board (“FASB”) issued a new lease accounting standard, which requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. Lessees are required to 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 are recognized on a straight-line basis, while those determined to be finance leases are recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement.
We adopted this new standard on June 1, 2019 using a modified retrospective transition method. Using the modified retrospective transition method of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to retained earnings on June 1, 2019. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We also elected the practical expedient to not separate lease and non-lease components for the majority of our classes of assets. For leases in which the lease and non-lease components have been combined, the lease expense includes expenses such as common area maintenance. We have made an accounting policy election not to recognize leases with an initial term of 12 months or less on the consolidated balance sheet.
The adoption of the new lease accounting standard resulted in the recognition of an operating lease liability of $14.2 billion and an operating right-of-use asset of $14.1 billion, with an immaterial impact on our income statement compared to the previous lease accounting model. Existing prepaid asset and net deferred rent liability balances of $154 million and $309 million, respectively, were recorded to the right-of-use asset. The cumulative effect of the adoption to retained earnings was an increase of $57 million ($47 million, net of tax), primarily related to the reclassification of deferred gains related to sale-leasebacks of aircraft. Substantially all of our lease arrangements are operating leases under the new standard. The new standard had a material impact on our balance sheet, but did not materially impact consolidated operating results and had no impact on operating cash flows.
See “Leases” and Note 8 for additional information.
In February 2018, the FASB issued ASU 2018-02 that permits companies to reclassify the income tax effect of the Tax Cuts and Jobs Act (“TCJA”) on items within Accumulated Other Comprehensive Income (“AOCI”) to retained earnings. We adopted this new standard on June 1, 2019.
New Accounting Standards and Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 that changes how entities will measure credit lossesamends the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income.income, including trade receivables, to utilize an expected loss methodology in place of the incurred loss methodology. We will adoptadopted this standard effective June 1, 2020 (fiscal 2021). This2020. We updated our process for estimating the expected credit loss to include a review of forecast information that may impact expected collectability over the lifetime of the asset. See Note 2 for additional information. The adoption of this standard willdid not have a material impact on our consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15 that reduces the complexity of 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 will adoptadopted this standard effective June 1, 2020 (fiscal 2021) and applyapplied these changes prospectively. This new guidance willThe adoption of this standard did not have a minimalmaterial impact on our consolidated financial reporting.statements and related disclosures.
- 12 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ThisWe early adopted this standard is effective June 1, 2021 (fiscal 2022). We are currently evaluating the impact2020. The adoption of this new standard but dodid not currently expect it will have a material impact on our consolidated financial statements and related disclosures.
In March 2020, the SEC amended Rule 3-10 of Regulation S-X regarding financial disclosure requirements for registered debt offerings involving subsidiaries as either issuers or guarantors and affiliates whose securities are pledged as collateral. This new guidance narrows the circumstances that require separate financial statements of subsidiary issuers and guarantors and streamlines the alternative disclosures required in lieu of those statements. This rule is effective January 4, 2021 (fiscal 2021) with earlier adoption permitted. We are currently evaluating the impact of this new rule on our consolidated financial statements and related disclosures.- 11 -
TREASURY SHARES. In January 2016, our Board of Directors authorizedapproved a stock 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.
We did 0t repurchaseDuring 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 Five-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 duringbetween May 27, 2020 and May 31, 2021.
See Note 4 for more information on the third quarter of 2020. Duringamendments to the nine months of 2020, we repurchased 0.02 million shares of FedEx common stock at an average price of $156.90 per share for a total of $3 million. As of February 29, 2020, 5.1 million shares remained under the stock repurchase authorization.Credit Agreements.
DIVIDENDS DECLARED PER COMMON SHARE. On February 14,November 20, 2020, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend will be paid on April 1,December 28, 2020 to stockholders of record as of the close of business on March 9,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 basis. 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 May 31, 2020.
(3) Accumulated Other Comprehensive LossIncome
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 29, 2020 and February 28, 2019November 30 (in millions; amounts in parentheses indicate debits to AOCI):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Foreign currency translation loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
| $ | (964 | ) |
| $ | (952 | ) |
| $ | (954 | ) |
| $ | (759 | ) |
| $ | (1,078 | ) |
| $ | (1,036 | ) |
| $ | (1,207 | ) |
| $ | (954 | ) |
Translation adjustments |
|
| (1 | ) |
|
| 103 |
|
|
| (12 | ) |
|
| (90 | ) |
|
| 124 |
|
|
| 72 |
|
|
| 253 |
|
|
| (11 | ) |
Reclassification to retained earnings due to the adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Balance at end of period |
|
| (965 | ) |
|
| (849 | ) |
|
| (965 | ) |
|
| (849 | ) |
|
| (954 | ) |
|
| (964 | ) |
|
| (954 | ) |
|
| (964 | ) |
Retirement plans adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| 98 |
|
|
| 135 |
|
|
| 89 |
|
|
| 181 |
|
|
| 58 |
|
|
| 118 |
|
|
| 60 |
|
|
| 89 |
|
Reclassifications from AOCI |
|
| (20 | ) |
|
| (23 | ) |
|
| (61 | ) |
|
| (69 | ) |
|
| (2 | ) |
|
| (20 | ) |
|
| (4 | ) |
|
| (41 | ) |
Reclassification to retained earnings due to the adoption of ASU 2018-02 |
|
| — |
|
|
| — |
|
|
| 50 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50 |
|
Balance at end of period |
|
| 78 |
|
|
| 112 |
|
|
| 78 |
|
|
| 112 |
|
|
| 56 |
|
|
| 98 |
|
|
| 56 |
|
|
| 98 |
|
Accumulated other comprehensive (loss) at end of period |
| $ | (887 | ) |
| $ | (737 | ) |
| $ | (887 | ) |
| $ | (737 | ) |
| $ | (898 | ) |
| $ | (866 | ) |
| $ | (898 | ) |
| $ | (866 | ) |
- 1312 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table presents details of the reclassifications from AOCI for the periods ended February 29, 2020 and February 28, 2019November 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 |
|
|
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
|
| ||||||||
Amortization of retirement plans prior service credits, before tax |
| $ | 27 |
|
| $ | 30 |
|
| $ | 80 |
|
| $ | 90 |
|
| Salaries and employee benefits |
| $ | 2 |
|
| $ | 26 |
|
| $ | 5 |
|
| $ | 53 |
|
| Other retirement plans income |
Income tax benefit |
|
| (7 | ) |
|
| (7 | ) |
|
| (19 | ) |
|
| (21 | ) |
| Provision for income taxes |
|
| — |
|
|
| (6 | ) |
|
| (1 | ) |
|
| (12 | ) |
| Provision for income taxes |
AOCI reclassifications, net of tax |
| $ | 20 |
|
| $ | 23 |
|
| $ | 61 |
|
| $ | 69 |
|
| 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 first quarterAugust 2020, FedEx Express issued $970 million of 2020, we issued $2.1 billionPass Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of senior unsecured debt under our current shelf registration statement, comprised of $1.0 billion of 3.10% fixed-rate notes1.875% due in August 2029, €500 millionFebruary 2034 utilizing pass through trusts (the “Trusts”). The Certificates are secured by 19 Boeing aircraft with a net book value of 0.45% fixed-rate notes due in August 2025 and €500 million of 1.30% fixed-rate notes due in August 2031. We used the net proceeds to make voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) during the first quarter of 2020 and to redeem the $400 million aggregate principal amount of 2.30% notes due February 1, 2020 and the €500 million aggregate principal amount of 0.50% notes due April 9,$1.9 billion at November 30, 2020. The remaining netpayment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx. FedEx Express is using the proceeds are being usedfrom 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 five-yearFive-Year credit agreement (the “Five-Year Credit Agreement”)Agreement and a $1.5 billion 364-day credit agreement (the “364-Day364-Day Credit Agreement” and, together with the Five-Year Credit Agreement, the “Credit Agreements”).Agreement. The Five-Year Credit Agreement expires in 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. The Credit Agreements contain a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans mark-to-market adjustments, noncash pension service costs and noncash 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 2.82.6 to 1.0 at February 29,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 the 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 the financial covenant and all other covenants in 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 2020, we issued2021 is provided in our Annual Report.
Outstanding commercial paper to provide us with additional short-term liquidity. The maximum amount outstanding during the quarter was $1.1 billion. 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 29,November 30, 2020, $300 million of0 commercial paper was outstanding and $0.3 million in letters of credit were outstanding, leaving $3.200$3.5 billion available under the Credit Agreements for future borrowings.
Long-term debt, including current maturities and exclusive of finance leases, had carrying values of $18.5$22.8 billion at February 29,November 30, 2020 and $17.5$21.5 billion at May 31, 2019,2020, compared with estimated fair values of $20.0$27.2 billion at February 29,November 30, 2020 and $17.8$22.8 billion at May 31, 2019.2020. The annualized weighted-average interest rate on long-term debt was 3.5% at February 29,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.
- 1413 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4)(5) Computation of Earnings Per Share
The calculation of basic and diluted earnings per common share for the periods ended February 29, 2020 and February 28, 2019November 30 was as follows (in millions, except per share amounts):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocable to common shares(1) |
| $ | 314 |
|
| $ | 738 |
|
| $ | 1,617 |
|
| $ | 2,506 |
|
| $ | 1,224 |
|
| $ | 559 |
|
| $ | 2,466 |
|
| $ | 1,303 |
|
Weighted-average common shares |
|
| 261 |
|
|
| 261 |
|
|
| 261 |
|
|
| 262 |
|
|
| 264 |
|
|
| 261 |
|
|
| 263 |
|
|
| 261 |
|
Basic earnings per common share |
| $ | 1.21 |
|
| $ | 2.83 |
|
| $ | 6.21 |
|
| $ | 9.55 |
|
| $ | 4.64 |
|
| $ | 2.15 |
|
| $ | 9.40 |
|
| $ | 5.00 |
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings allocable to common shares(1) |
| $ | 314 |
|
| $ | 738 |
|
| $ | 1,617 |
|
| $ | 2,506 |
|
| $ | 1,224 |
|
| $ | 559 |
|
| $ | 2,466 |
|
| $ | 1,303 |
|
Weighted-average common shares |
|
| 261 |
|
|
| 261 |
|
|
| 261 |
|
|
| 262 |
|
|
| 264 |
|
|
| 261 |
|
|
| 263 |
|
|
| 261 |
|
Dilutive effect of share-based awards |
|
| 1 |
|
|
| 2 |
|
|
| 1 |
|
|
| 4 |
|
|
| 5 |
|
|
| 1 |
|
|
| 3 |
|
|
| 1 |
|
Weighted-average diluted shares |
|
| 262 |
|
|
| 263 |
|
|
| 262 |
|
|
| 266 |
|
|
| 269 |
|
|
| 262 |
|
|
| 266 |
|
|
| 262 |
|
Diluted earnings per common share |
| $ | 1.20 |
|
| $ | 2.80 |
|
| $ | 6.17 |
|
| $ | 9.41 |
|
| $ | 4.55 |
|
| $ | 2.13 |
|
| $ | 9.26 |
|
| $ | 4.97 |
|
Anti-dilutive options excluded from diluted earnings per common share |
|
| 11.7 |
|
|
| 7.2 |
|
|
| 11.2 |
|
|
| 5.0 |
|
|
| 1.3 |
|
|
| 11.2 |
|
|
| 5.1 |
|
|
| 11.0 |
|
| (1) | Net earnings available to participating securities were immaterial in all periods presented. |
(5)(6) Income Taxes
Our effective tax rate was 25.0%12.8% for the thirdsecond quarter and 18.5%18.0% for the nine monthsfirst half of 20202021, compared with 20.6%to 2.1% for the thirdsecond quarter and 21.8%16.8% for the nine monthsfirst half of 2019.2020. The 2021 tax rate for the nine months of 2020 includesrates include a benefit of $133$191 million from the reduction of a valuation allowance on certain foreignan increase in our 2020 tax loss carryforwards duethat the Coronavirus Aid, Relief, and Economic Security Act will allow to operational changes which impactedbe carried back to 2015, when the determinationU.S. 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 realizability of the deferred2020 tax asset in that jurisdiction.return. The 2020 tax rates were negatively impacted by decreased earnings in certain non-U.S. jurisdictions. The tax rates for the third quarter and nine months of 2019 included a $133 million benefit of $90 million from the reduction of 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 the 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 loss carryforwards, partially offset by an expensebenefit of $50$130 million fromfor the impactsecond quarter.
During the second quarter of 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 our deferredunrepatriated 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 and 2019 attributable to the enactmentdenial of foreign tax credits under the regulation. We have recorded a lower tax rate in the Netherlands. The tax rate for the nine monthscumulative benefit of $233 million through 2019 was also favorably impacted byattributable to our interpretation of the TCJA which resultedand the Internal Revenue Code. If we are ultimately unsuccessful in an approximate $60 million taxdefending our position, we may be required to reverse the benefit from accelerated deductions claimed on our 2018 tax return filed in 2019.previously recorded.
(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 29, 2020 and February 28, 2019November 30 were as follows (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Defined benefit pension plans, net |
| $ | 38 |
|
| $ | 28 |
|
| $ | 112 |
|
| $ | 85 |
|
| $ | 27 |
|
| $ | 37 |
|
| $ | 52 |
|
| $ | 74 |
|
Defined contribution plans |
|
| 147 |
|
|
| 138 |
|
|
| 425 |
|
|
| 415 |
|
|
| 153 |
|
|
| 136 |
|
|
| 311 |
|
|
| 278 |
|
Postretirement healthcare plans |
|
| 21 |
|
|
| 19 |
|
|
| 64 |
|
|
| 56 |
|
|
| 20 |
|
|
| 21 |
|
|
| 41 |
|
|
| 43 |
|
Retirement plan mark-to-market (“MTM”) net loss |
|
| 52 |
|
|
| — |
|
|
| 52 |
|
|
| — |
| ||||||||||||||||
|
| $ | 206 |
|
| $ | 185 |
|
| $ | 601 |
|
| $ | 556 |
|
| $ | 252 |
|
| $ | 194 |
|
| $ | 456 |
|
| $ | 395 |
|
- 15 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended February 29, 2020 and February 28, 2019November 30 included the following components (in millions):
|
| Three Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| ||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Service cost |
| $ | 192 |
|
| $ | 173 |
|
| $ | 25 |
|
| $ | 23 |
|
| $ | 10 |
|
| $ | 9 |
|
| $ | 212 |
|
| $ | 192 |
|
| $ | 26 |
|
| $ | 24 |
|
| $ | 11 |
|
| $ | 10 |
|
Other retirement plans (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
| 250 |
|
|
| 237 |
|
|
| 11 |
|
|
| 13 |
|
|
| 11 |
|
|
| 10 |
|
|
| 239 |
|
|
| 250 |
|
|
| 11 |
|
|
| 11 |
|
|
| 9 |
|
|
| 11 |
|
Expected return on plan assets |
|
| (400 | ) |
|
| (376 | ) |
|
| (13 | ) |
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| (446 | ) |
|
| (401 | ) |
|
| (13 | ) |
|
| (13 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (26 | ) |
|
| (30 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (25 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
MTM net loss |
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
|
| (176 | ) |
|
| (169 | ) |
|
| (3 | ) |
|
| 1 |
|
|
| 11 |
|
|
| 10 |
|
|
| (209 | ) |
|
| (176 | ) |
|
| 50 |
|
|
| (3 | ) |
|
| 9 |
|
|
| 11 |
|
|
| $ | 16 |
|
| $ | 4 |
|
| $ | 22 |
|
| $ | 24 |
|
| $ | 21 |
|
| $ | 19 |
|
| $ | 3 |
|
| $ | 16 |
|
| $ | 76 |
|
| $ | 21 |
|
| $ | 20 |
|
| $ | 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||||||||||||||||||||||||
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
|
| U.S. Pension Plans |
|
| International Pension Plans |
|
| Postretirement Healthcare Plans |
| ||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||||||
Service cost |
| $ | 576 |
|
| $ | 517 |
|
| $ | 73 |
|
| $ | 72 |
|
| $ | 31 |
|
| $ | 26 |
|
| $ | 425 |
|
| $ | 384 |
|
| $ | 49 |
|
| $ | 48 |
|
| $ | 22 |
|
| $ | 21 |
|
Other retirement plans (income) expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
| 750 |
|
|
| 713 |
|
|
| 33 |
|
|
| 38 |
|
|
| 33 |
|
|
| 30 |
|
|
| 479 |
|
|
| 500 |
|
|
| 21 |
|
|
| 22 |
|
|
| 19 |
|
|
| 22 |
|
Expected return on plan assets |
|
| (1,201 | ) |
|
| (1,129 | ) |
|
| (39 | ) |
|
| (36 | ) |
|
| — |
|
|
| — |
|
|
| (892 | ) |
|
| (801 | ) |
|
| (25 | ) |
|
| (26 | ) |
|
| — |
|
|
| — |
|
Amortization of prior service credit and other |
|
| (78 | ) |
|
| (89 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (4 | ) |
|
| (52 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| — |
|
MTM net loss |
|
| — |
|
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
|
|
| (529 | ) |
|
| (505 | ) |
|
| (8 | ) |
|
| 1 |
|
|
| 33 |
|
|
| 30 |
|
|
| (417 | ) |
|
| (353 | ) |
|
| 47 |
|
|
| (5 | ) |
|
| 19 |
|
|
| 22 |
|
|
| $ | 47 |
|
| $ | 12 |
|
| $ | 65 |
|
| $ | 73 |
|
| $ | 64 |
|
| $ | 56 |
|
| $ | 8 |
|
| $ | 31 |
|
| $ | 96 |
|
| $ | 43 |
|
| $ | 41 |
|
| $ | 43 |
|
For 2021, 0 pension contributions are required for our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) as they are fully funded under the Employee Retirement Income Security Act. We made voluntary contributions to our U.S. Pension Plans of $1.0 billion during the nine monthsfirst half of 2020 and 2019.2020.
DuringWe 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) planall-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.companies in 2022. During 2020,calendar 2021, current eligible employees under the Portable Pension Account (PPA)(“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, 2021.2022. 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.
(7)(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 Corporation (“FedEx Freight”), a leading 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”), constitute our reportable segments.
- 16 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Our reportable segments include the following businesses:
FedEx Express Segment | FedEx Express (express transportation, small-package ground delivery and freight transportation) |
|
FedEx Cross Border (cross-border e-commerce technology and e-commerce transportation
|
| |
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) |
|
|
References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment and the FedEx Freight segment.
Effective June 1, 2019, the results of the FedEx Office operating segment are included in “Corporate, other and eliminations.” This change was made to reflect our internal management reporting structure. Prior year amounts have been revised to reflect current year presentation.
FedEx Services Segment
The FedEx Services segment operates combined sales, marketing, administrative and information-technology functions in shared services operations for U.S. customers of our major business units and certain back-office support to our operating 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 provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. 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 operating 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 revenue 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 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 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, cross-border e-commerce technology and e-commerce transportation solutions, 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 revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
- 17 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table provides a reconciliation of reportable segment revenue and operating income (loss) to our unaudited condensed consolidated financial statement totals for the periods ended February 29, 2020 and February 28, 2019November 30 (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
| $ | 8,924 |
|
| $ | 9,005 |
|
| $ | 26,953 |
|
| $ | 27,831 |
|
FedEx Ground segment |
|
| 5,845 |
|
|
| 5,261 |
|
|
| 16,339 |
|
|
| 15,202 |
|
FedEx Freight segment |
|
| 1,738 |
|
|
| 1,750 |
|
|
| 5,487 |
|
|
| 5,627 |
|
FedEx Services segment |
|
| 6 |
|
|
| 4 |
|
|
| 15 |
|
|
| 17 |
|
Other and eliminations |
|
| 974 |
|
|
| 990 |
|
|
| 3,065 |
|
|
| 3,209 |
|
|
| $ | 17,487 |
|
| $ | 17,010 |
|
| $ | 51,859 |
|
| $ | 51,886 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
| $ | 137 |
|
| $ | 389 |
|
| $ | 658 |
|
| $ | 1,407 |
|
FedEx Ground segment |
|
| 355 |
|
|
| 586 |
|
|
| 1,341 |
|
|
| 1,852 |
|
FedEx Freight segment |
|
| 113 |
|
|
| 97 |
|
|
| 448 |
|
|
| 421 |
|
Corporate, other and eliminations |
|
| (194 | ) |
|
| (161 | ) |
|
| (505 | ) |
|
| (530 | ) |
|
| $ | 411 |
|
| $ | 911 |
|
| $ | 1,942 |
|
| $ | 3,150 |
|
(8) Leases
The following table is a summary of the components of net lease cost for the periods ended February 29, 2020 (in millions):
|
| Three Months Ended |
|
| Nine Months Ended |
|
| ||
|
| 2020 |
|
| 2020 |
|
| ||
Operating lease cost (1) |
| $ | 675 |
|
| $ | 2,025 |
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
| 6 |
|
|
| 12 |
|
|
Interest on lease liabilities |
|
| 6 |
|
|
| 8 |
|
|
Total finance lease cost |
|
| 12 |
|
|
| 20 |
|
|
Short-term lease cost |
|
| 60 |
|
|
| 141 |
|
|
Variable lease cost(1) |
|
| 301 |
|
|
| 850 |
|
|
Net lease cost |
| $ | 1,048 |
|
| $ | 3,036 |
|
|
(1) Expenses are primarily accounted for in the “Rentals and landing fees” line item. Additional amounts related to embedded leases are accounted for in the “Purchased transportation,” “Fuel” and “Other” line items in the unaudited condensed consolidated statements of income.
Supplemental cash flow information related to leases for the nine months ended February 29 is as follows (in millions):
|
| 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows paid for operating leases |
| $ | 2,016 |
|
Operating cash flows paid for interest portion of finance leases |
|
| 10 |
|
Financing cash flows paid for principal portion of finance leases |
|
| 84 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 1,390 |
|
Right-of-use assets obtained in exchange for new finance lease liabilities |
| $ | 464 |
|
- 18 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Supplemental balance sheet information related to leases as of February 29 is as follows (in millions, except lease term and discount rate):
|
| 2020 |
| |
Operating leases: |
|
|
|
|
Operating lease right-of-use assets, net |
| $ | 13,981 |
|
|
|
|
|
|
Current portion of operating lease liabilities |
|
| 1,902 |
|
Operating lease liabilities |
|
| 12,232 |
|
Total operating lease liabilities |
| $ | 14,134 |
|
|
|
|
|
|
Finance leases: |
|
|
|
|
Net property and equipment |
| $ | 464 |
|
|
|
|
|
|
Current portion of long-term debt |
|
| 35 |
|
Long-term debt, less current portion |
|
| 437 |
|
Total finance lease liabilities |
| $ | 472 |
|
|
|
|
|
|
Weighted-average remaining lease term |
|
|
|
|
Operating leases |
|
| 10.0 |
|
Finance leases |
|
| 33.3 |
|
|
|
|
|
|
Weighted-average discount rate |
|
|
|
|
Operating leases |
|
| 3.23 | % |
Finance leases |
|
| 3.59 | % |
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 29, 2020 is as follows (in millions):
|
| Aircraft and Related Equipment |
|
| Facilities and Other |
|
| Total Operating Leases |
|
| Finance Leases |
|
| Total Leases |
| |||||
2020 (remainder) |
| $ | 38 |
|
| $ | 413 |
|
| $ | 451 |
|
| $ | 31 |
|
| $ | 482 |
|
2021 |
|
| 249 |
|
|
| 2,181 |
|
|
| 2,430 |
|
|
| 26 |
|
|
| 2,456 |
|
2022 |
|
| 234 |
|
|
| 1,941 |
|
|
| 2,175 |
|
|
| 26 |
|
|
| 2,201 |
|
2023 |
|
| 198 |
|
|
| 1,733 |
|
|
| 1,931 |
|
|
| 25 |
|
|
| 1,956 |
|
2024 |
|
| 102 |
|
|
| 1,512 |
|
|
| 1,614 |
|
|
| 24 |
|
|
| 1,638 |
|
Thereafter |
|
| 314 |
|
|
| 7,757 |
|
|
| 8,071 |
|
|
| 728 |
|
|
| 8,799 |
|
Total lease payments |
|
| 1,135 |
|
|
| 15,537 |
|
|
| 16,672 |
|
|
| 860 |
|
|
| 17,532 |
|
Less imputed interest |
|
| (99 | ) |
|
| (2,439 | ) |
|
| (2,538 | ) |
|
| (388 | ) |
|
| (2,926 | ) |
Present value of lease liability |
| $ | 1,036 |
|
| $ | 13,098 |
|
| $ | 14,134 |
|
| $ | 472 |
|
| $ | 14,606 |
|
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.
As of February 29, 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 $1.7 billion, and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from fiscal 2020 to fiscal 2022.
- 19 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As previously disclosed in our Annual Report and under the previous lease accounting standard, future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2019 would have been as follows (in millions):
|
| Operating Leases |
| |||||||||
|
| Aircraft and Related Equipment |
|
| Facilities and Other |
|
| Total Operating Leases |
| |||
2020 |
| $ | 288 |
|
| $ | 2,209 |
|
| $ | 2,497 |
|
2021 |
|
| 230 |
|
|
| 2,033 |
|
|
| 2,263 |
|
2022 |
|
| 212 |
|
|
| 1,816 |
|
|
| 2,028 |
|
2023 |
|
| 154 |
|
|
| 1,625 |
|
|
| 1,779 |
|
2024 |
|
| 58 |
|
|
| 1,428 |
|
|
| 1,486 |
|
Thereafter |
|
| 85 |
|
|
| 7,977 |
|
|
| 8,062 |
|
Total |
| $ | 1,027 |
|
| $ | 17,088 |
|
| $ | 18,115 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
| 907 |
|
|
| 1,076 |
|
|
| 1,707 |
|
|
| 2,091 |
|
|
| $ | 20,563 |
|
| $ | 17,324 |
|
| $ | 39,884 |
|
| $ | 34,372 |
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
| $ | 900 |
|
| $ | 236 |
|
| $ | 1,610 |
|
| $ | 521 |
|
FedEx Ground segment |
|
| 552 |
|
|
| 342 |
|
|
| 1,386 |
|
|
| 986 |
|
FedEx Freight segment |
|
| 252 |
|
|
| 141 |
|
|
| 526 |
|
|
| 335 |
|
Corporate, other and eliminations |
|
| (239 | ) |
|
| (165 | ) |
|
| (467 | ) |
|
| (311 | ) |
|
| $ | 1,465 |
|
| $ | 554 |
|
| $ | 3,055 |
|
| $ | 1,531 |
|
(9) Commitments
As of February 29,November 30, 2020, our purchase commitments under various contracts for the remainder of 20202021 and annually thereafter were as follows (in millions):
|
| Aircraft and Related |
|
| Other(1) |
|
| Total |
|
| Aircraft and Related |
|
| Other(1) |
|
| Total |
| ||||||
2020 (remainder) |
| $ | 159 |
|
| $ | 331 |
|
| $ | 490 |
| ||||||||||||
2021 |
|
| 2,285 |
|
|
| 797 |
|
|
| 3,082 |
| ||||||||||||
2021 (remainder) |
| $ | 771 |
|
| $ | 550 |
|
| $ | 1,321 |
| ||||||||||||
2022 |
|
| 2,630 |
|
|
| 570 |
|
|
| 3,200 |
|
|
| 2,203 |
|
|
| 678 |
|
|
| 2,881 |
|
2023 |
|
| 2,069 |
|
|
| 381 |
|
|
| 2,450 |
|
|
| 2,389 |
|
|
| 461 |
|
|
| 2,850 |
|
2024 |
|
| 698 |
|
|
| 227 |
|
|
| 925 |
|
|
| 1,000 |
|
|
| 302 |
|
|
| 1,302 |
|
2025 |
|
| 602 |
|
|
| 226 |
|
|
| 828 |
| ||||||||||||
Thereafter |
|
| 3,358 |
|
|
| 585 |
|
|
| 3,943 |
|
|
| 2,679 |
|
|
| 397 |
|
|
| 3,076 |
|
Total |
| $ | 11,199 |
|
| $ | 2,891 |
|
| $ | 14,090 |
|
| $ | 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 29,November 30, 2020, our obligation to purchase 6 Boeing 777 Freighter (“B777F”) aircraft and 3 Boeing 767-300 Freighter (“B767F”) 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 2020, FedEx Express exercised options to purchase an additional 6 B767F aircraft for delivery in 2022.
During the third quarter of 2020,2021, FedEx Express executed twoa contract amendmentsamendment rescheduling 2 B777FBoeing 767-300 Freighter (“B767F”) aircraft deliveries fromas follows: 2021 – 18 aircraft; 2022 – 11 aircraft; 2023 to 2022– 13 aircraft; and 2 B767F aircraft deliveries from 2022 to 2023.
- 20 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)2024 – 4 aircraft.
As of February 29,November 30, 2020, we had $733$830 million in deposits and progress payments 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 related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of February 29,November 30, 2020 with the year of expected delivery:
|
| Cessna SkyCourier 408 |
|
| ATR 72-600F |
|
| B767F |
|
| B777F |
|
| Total |
|
| Cessna SkyCourier 408 |
|
| ATR 72-600F |
|
| B767F |
|
| B777F |
|
| Total |
| ||||||||||
2020 (remainder) |
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
| ||||||||||||||||||||
2021 |
|
| 12 |
|
|
| 5 |
|
|
| 18 |
|
|
| 2 |
|
|
| 37 |
| ||||||||||||||||||||
2021 (remainder) |
|
| — |
|
|
| 3 |
|
|
| 11 |
|
|
| — |
|
|
| 14 |
| ||||||||||||||||||||
2022 |
|
| 12 |
|
|
| 6 |
|
|
| 16 |
|
|
| 5 |
|
|
| 39 |
|
|
| 9 |
|
|
| 8 |
|
|
| 11 |
|
|
| 5 |
|
|
| 33 |
|
2023 |
|
| 12 |
|
|
| 6 |
|
|
| 8 |
|
|
| 2 |
|
|
| 28 |
|
|
| 12 |
|
|
| 6 |
|
|
| 13 |
|
|
| 2 |
|
|
| 33 |
|
2024 |
|
| 14 |
|
|
| 6 |
|
|
| — |
|
|
| 4 |
|
|
| 24 |
|
|
| 12 |
|
|
| 6 |
|
|
| 4 |
|
|
| 4 |
|
|
| 26 |
|
2025 |
|
| 12 |
|
|
| 6 |
|
|
| — |
|
|
| 2 |
|
|
| 20 |
| ||||||||||||||||||||
Thereafter |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| 2 |
|
|
| 9 |
|
|
| 5 |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Total |
|
| 50 |
|
|
| 30 |
|
|
| 48 |
|
|
| 15 |
|
|
| 143 |
|
|
| 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 November 30, 2020 is as follows (in millions):
|
| 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 |
|
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.
As 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. FedEx Ground is defending lawsuits in which it is alleged that FedEx Ground should be treated as ana joint employer of drivers employed by service 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 could, among other things, entitle service providers’ drivers to certain wage payments from the service providers and FedEx Ground, and result in employment and withholding tax and benefit liability for FedEx Ground. We continue to believe that FedEx Ground is not an employer or joint employer of the drivers of these independent businesses.
Federal Securities Litigation and Derivative Lawsuits. 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 -
Derivative Lawsuit Related to New York Cigarette Litigation. On September 17, 2019 and November 6,October 3, 2019, FedEx its Board of Directors and certain present and former FedEx directors and officers were named as defendants in twoa stockholder derivative lawsuitslawsuit filed in the U.S. DistrictDelaware 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 against FedEx Ground in December 2013 and November 2014 and against FedEx Ground and FedEx Freight in July 2017. The underlying lawsuits related to the alleged shipment of cigarettes to New York residents in contravention of several statutes, as well as common law nuisance claims, and were dismissed by the court in December 2018 following entry into a final settlement agreement for approximately $35 million. The settlement did not include any admission of liability by FedEx Ground or FedEx Freight. In addition to the District of Delaware. The complaints, which have been consolidated, repeatsettlement amount, we recognized approximately $10 million for certain attorney’s fees in connection with the allegations in the federal securities litigation complaints discussed above, and assert new claims against the FedEx Board of Directors and certain present and former directors and officers for breach of fiduciary duty, waste of corporate assets, unjust enrichment, insider selling and violations of the federal securities laws.underlying lawsuits. 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.
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.lawsuit.
Prior to our acquisition of TNT Express, a lawsuit was filed in Simões Filho, Bahia, Brazil against a subsidiary of TNT Express alleging violations of Brazilian environmental laws. Specifically, the lawsuit alleges that in 2012, certain employees unlawfully discarded non-toxic trash on a highway. We could be subject to monetary sanctions and fines related to such activity that exceed $100,000. We believe that the aggregate amount of any such sanctions and fines will be immaterial.
Other 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.
- 21 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)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 29, 2020 and February 28, 2019November 30 was as follows (in millions):
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Cash payments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (net of capitalized interest) |
| $ | 511 |
|
| $ | 498 |
|
| $ | 377 |
|
| $ | 279 |
|
Income taxes |
| $ | 291 |
|
| $ | 346 |
|
| $ | 526 |
|
| $ | 162 |
|
Income tax refunds received |
|
| (321 | ) |
|
| (34 | ) |
|
| (22 | ) |
|
| (23 | ) |
Cash tax (refunds) payments, net |
| $ | (30 | ) |
| $ | 312 |
| ||||||||
Cash tax payments, net |
| $ | 504 |
|
| $ | 139 |
|
- 22 -
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(12) 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 $18.5 billion of our public 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.
- 23 -
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 29, 2020
|
|
|
|
|
| Guarantor |
|
| Non-guarantor |
|
|
|
|
|
|
|
|
| ||
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 246 |
|
| $ | 203 |
|
| $ | 1,333 |
|
| $ | (16 | ) |
| $ | 1,766 |
|
Receivables, less allowances |
|
| 71 |
|
|
| 5,752 |
|
|
| 3,585 |
|
|
| (85 | ) |
|
| 9,323 |
|
Spare parts, supplies, fuel, prepaid expenses and other, less allowances |
|
| 207 |
|
|
| 895 |
|
|
| 350 |
|
|
| — |
|
|
| 1,452 |
|
Total current assets |
|
| 524 |
|
|
| 6,850 |
|
|
| 5,268 |
|
|
| (101 | ) |
|
| 12,541 |
|
PROPERTY AND EQUIPMENT, AT COST |
|
| 28 |
|
|
| 59,777 |
|
|
| 4,500 |
|
|
| — |
|
|
| 64,305 |
|
Less accumulated depreciation and amortization |
|
| 18 |
|
|
| 28,761 |
|
|
| 2,220 |
|
|
| — |
|
|
| 30,999 |
|
Net property and equipment |
|
| 10 |
|
|
| 31,016 |
|
|
| 2,280 |
|
|
| — |
|
|
| 33,306 |
|
INTERCOMPANY RECEIVABLE |
|
| 3,349 |
|
|
| (136 | ) |
|
| — |
|
|
| (3,213 | ) |
|
| — |
|
OPERATING LEASE RIGHT-OF-USE ASSETS, NET |
|
| 38 |
|
|
| 11,715 |
|
|
| 2,228 |
|
|
| — |
|
|
| 13,981 |
|
GOODWILL |
|
| — |
|
|
| 1,587 |
|
|
| 5,227 |
|
|
| — |
|
|
| 6,814 |
|
INVESTMENT IN SUBSIDIARIES |
|
| 35,407 |
|
|
| 5,020 |
|
|
| — |
|
|
| (40,427 | ) |
|
| — |
|
OTHER ASSETS |
|
| 962 |
|
|
| 1,134 |
|
|
| 1,763 |
|
|
| (487 | ) |
|
| 3,372 |
|
|
| $ | 40,290 |
|
| $ | 57,186 |
|
| $ | 16,766 |
|
| $ | (44,228 | ) |
| $ | 70,014 |
|
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings |
| $ | 300 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 300 |
|
Current portion of long-term debt |
|
| — |
|
|
| 27 |
|
|
| 8 |
|
|
| — |
|
|
| 35 |
|
Accrued salaries and employee benefits |
|
| 87 |
|
|
| 975 |
|
|
| 410 |
|
|
| — |
|
|
| 1,472 |
|
Accounts payable |
|
| 194 |
|
|
| 1,554 |
|
|
| 1,545 |
|
|
| (100 | ) |
|
| 3,193 |
|
Operating lease liabilities |
|
| 4 |
|
|
| 1,435 |
|
|
| 463 |
|
|
| — |
|
|
| 1,902 |
|
Accrued expenses |
|
| 416 |
|
|
| 2,033 |
|
|
| 975 |
|
|
| (1 | ) |
|
| 3,423 |
|
Total current liabilities |
|
| 1,001 |
|
|
| 6,024 |
|
|
| 3,401 |
|
|
| (101 | ) |
|
| 10,325 |
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 18,298 |
|
|
| 634 |
|
|
| 41 |
|
|
| — |
|
|
| 18,973 |
|
INTERCOMPANY PAYABLE |
|
| — |
|
|
| — |
|
|
| 3,213 |
|
|
| (3,213 | ) |
|
| — |
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| — |
|
|
| 3,016 |
|
|
| 572 |
|
|
| (487 | ) |
|
| 3,101 |
|
Operating lease liabilities |
|
| 36 |
|
|
| 10,378 |
|
|
| 1,818 |
|
|
| — |
|
|
| 12,232 |
|
Other liabilities |
|
| 2,124 |
|
|
| 3,473 |
|
|
| 955 |
|
|
| — |
|
|
| 6,552 |
|
Total other long-term liabilities |
|
| 2,160 |
|
|
| 16,867 |
|
|
| 3,345 |
|
|
| (487 | ) |
|
| 21,885 |
|
COMMON STOCKHOLDERS’ INVESTMENT |
|
| 18,831 |
|
|
| 33,661 |
|
|
| 6,766 |
|
|
| (40,427 | ) |
|
| 18,831 |
|
|
| $ | 40,290 |
|
| $ | 57,186 |
|
| $ | 16,766 |
|
| $ | (44,228 | ) |
| $ | 70,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 24 -
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2019
|
|
|
|
|
| Guarantor |
|
| Non-guarantor |
|
|
|
|
|
|
|
|
| ||
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 826 |
|
| $ | 158 |
|
| $ | 1,381 |
|
| $ | (46 | ) |
| $ | 2,319 |
|
Receivables, less allowances |
|
| 56 |
|
|
| 5,603 |
|
|
| 3,684 |
|
|
| (227 | ) |
|
| 9,116 |
|
Spare parts, supplies, fuel, prepaid expenses and other, less allowances |
|
| 366 |
|
|
| 953 |
|
|
| 332 |
|
|
| — |
|
|
| 1,651 |
|
Total current assets |
|
| 1,248 |
|
|
| 6,714 |
|
|
| 5,397 |
|
|
| (273 | ) |
|
| 13,086 |
|
PROPERTY AND EQUIPMENT, AT COST |
|
| 25 |
|
|
| 55,341 |
|
|
| 4,145 |
|
|
| — |
|
|
| 59,511 |
|
Less accumulated depreciation and amortization |
|
| 17 |
|
|
| 27,066 |
|
|
| 1,999 |
|
|
| — |
|
|
| 29,082 |
|
Net property and equipment |
|
| 8 |
|
|
| 28,275 |
|
|
| 2,146 |
|
|
| — |
|
|
| 30,429 |
|
INTERCOMPANY RECEIVABLE |
|
| 2,877 |
|
|
| (405 | ) |
|
| — |
|
|
| (2,472 | ) |
|
| — |
|
GOODWILL |
|
| — |
|
|
| 1,589 |
|
|
| 5,295 |
|
|
| — |
|
|
| 6,884 |
|
INVESTMENT IN SUBSIDIARIES |
|
| 33,725 |
|
|
| 5,449 |
|
|
| — |
|
|
| (39,174 | ) |
|
| — |
|
OTHER ASSETS |
|
| 995 |
|
|
| 1,811 |
|
|
| 1,789 |
|
|
| (591 | ) |
|
| 4,004 |
|
|
| $ | 38,853 |
|
| $ | 43,433 |
|
| $ | 14,627 |
|
| $ | (42,510 | ) |
| $ | 54,403 |
|
LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 959 |
|
| $ | 2 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 964 |
|
Accrued salaries and employee benefits |
|
| 143 |
|
|
| 1,100 |
|
|
| 498 |
|
|
| — |
|
|
| 1,741 |
|
Accounts payable |
|
| 16 |
|
|
| 1,469 |
|
|
| 1,808 |
|
|
| (263 | ) |
|
| 3,030 |
|
Accrued expenses |
|
| 521 |
|
|
| 1,853 |
|
|
| 914 |
|
|
| (10 | ) |
|
| 3,278 |
|
Total current liabilities |
|
| 1,639 |
|
|
| 4,424 |
|
|
| 3,223 |
|
|
| (273 | ) |
|
| 9,013 |
|
LONG-TERM DEBT, LESS CURRENT PORTION |
|
| 16,322 |
|
|
| 287 |
|
|
| 8 |
|
|
| — |
|
|
| 16,617 |
|
INTERCOMPANY PAYABLE |
|
| — |
|
|
| — |
|
|
| 2,472 |
|
|
| (2,472 | ) |
|
| — |
|
OTHER LONG-TERM LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
| — |
|
|
| 2,832 |
|
|
| 580 |
|
|
| (591 | ) |
|
| 2,821 |
|
Other liabilities |
|
| 3,135 |
|
|
| 3,965 |
|
|
| 1,095 |
|
|
| — |
|
|
| 8,195 |
|
Total other long-term liabilities |
|
| 3,135 |
|
|
| 6,797 |
|
|
| 1,675 |
|
|
| (591 | ) |
|
| 11,016 |
|
COMMON STOCKHOLDERS’ INVESTMENT |
|
| 17,757 |
|
|
| 31,925 |
|
|
| 7,249 |
|
|
| (39,174 | ) |
|
| 17,757 |
|
|
| $ | 38,853 |
|
| $ | 43,433 |
|
| $ | 14,627 |
|
| $ | (42,510 | ) |
| $ | 54,403 |
|
- 25 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended February 29, 2020
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUE |
| $ | — |
|
| $ | 12,925 |
|
| $ | 4,658 |
|
| $ | (96 | ) |
| $ | 17,487 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 24 |
|
|
| 4,934 |
|
|
| 1,424 |
|
|
| — |
|
|
| 6,382 |
|
Purchased transportation |
|
| — |
|
|
| 3,211 |
|
|
| 1,392 |
|
|
| (45 | ) |
|
| 4,558 |
|
Rentals and landing fees |
|
| 2 |
|
|
| 749 |
|
|
| 216 |
|
|
| (3 | ) |
|
| 964 |
|
Depreciation and amortization |
|
| — |
|
|
| 789 |
|
|
| 119 |
|
|
| — |
|
|
| 908 |
|
Fuel |
|
| — |
|
|
| 839 |
|
|
| 40 |
|
|
| — |
|
|
| 879 |
|
Maintenance and repairs |
|
| — |
|
|
| 597 |
|
|
| 87 |
|
|
| — |
|
|
| 684 |
|
Intercompany charges, net |
|
| (93 | ) |
|
| (574 | ) |
|
| 667 |
|
|
| — |
|
|
| — |
|
Other |
|
| 67 |
|
|
| 1,842 |
|
|
| 840 |
|
|
| (48 | ) |
|
| 2,701 |
|
|
|
| — |
|
|
| 12,387 |
|
|
| 4,785 |
|
|
| (96 | ) |
|
| 17,076 |
|
OPERATING INCOME |
|
| — |
|
|
| 538 |
|
|
| (127 | ) |
|
| — |
|
|
| 411 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 315 |
|
|
| 22 |
|
|
| — |
|
|
| (337 | ) |
|
| — |
|
Interest, net |
|
| (159 | ) |
|
| 3 |
|
|
| 1 |
|
|
| — |
|
|
| (155 | ) |
Other retirement plans income |
|
| — |
|
|
| 163 |
|
|
| 5 |
|
|
| — |
|
|
| 168 |
|
Intercompany charges, net |
|
| 160 |
|
|
| (120 | ) |
|
| (40 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (1 | ) |
|
| 11 |
|
|
| (14 | ) |
|
| — |
|
|
| (4 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| 315 |
|
|
| 617 |
|
|
| (175 | ) |
|
| (337 | ) |
|
| 420 |
|
Provision for income taxes (benefit) |
|
| — |
|
|
| 82 |
|
|
| 23 |
|
|
| — |
|
|
| 105 |
|
NET INCOME (LOSS) |
| $ | 315 |
|
| $ | 535 |
|
| $ | (198 | ) |
| $ | (337 | ) |
| $ | 315 |
|
COMPREHENSIVE INCOME (LOSS) |
| $ | 298 |
|
| $ | 535 |
|
| $ | (202 | ) |
| $ | (337 | ) |
| $ | 294 |
|
- 26 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended February 28, 2019
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUE |
| $ | — |
|
| $ | 12,443 |
|
| $ | 4,667 |
|
| $ | (100 | ) |
| $ | 17,010 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 28 |
|
|
| 4,720 |
|
|
| 1,321 |
|
|
| — |
|
|
| 6,069 |
|
Purchased transportation |
|
| — |
|
|
| 2,749 |
|
|
| 1,547 |
|
|
| (43 | ) |
|
| 4,253 |
|
Rentals and landing fees |
|
| 1 |
|
|
| 677 |
|
|
| 197 |
|
|
| (1 | ) |
|
| 874 |
|
Depreciation and amortization |
|
| — |
|
|
| 731 |
|
|
| 120 |
|
|
| — |
|
|
| 851 |
|
Fuel |
|
| — |
|
|
| 838 |
|
|
| 69 |
|
|
| — |
|
|
| 907 |
|
Maintenance and repairs |
|
| — |
|
|
| 573 |
|
|
| 87 |
|
|
| (2 | ) |
|
| 658 |
|
Business realignment costs |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Intercompany charges, net |
|
| (93 | ) |
|
| (397 | ) |
|
| 490 |
|
|
| — |
|
|
| — |
|
Other |
|
| 60 |
|
|
| 1,771 |
|
|
| 698 |
|
|
| (46 | ) |
|
| 2,483 |
|
|
|
| — |
|
|
| 11,662 |
|
|
| 4,529 |
|
|
| (92 | ) |
|
| 16,099 |
|
OPERATING INCOME |
|
| — |
|
|
| 781 |
|
|
| 138 |
|
|
| (8 | ) |
|
| 911 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 739 |
|
|
| 16 |
|
|
| — |
|
|
| (755 | ) |
|
| — |
|
Interest, net |
|
| (109 | ) |
|
| (54 | ) |
|
| 28 |
|
|
| — |
|
|
| (135 | ) |
Other retirement plans income |
|
| — |
|
|
| 155 |
|
|
| 3 |
|
|
| — |
|
|
| 158 |
|
Intercompany charges, net |
|
| 149 |
|
|
| (89 | ) |
|
| (60 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (40 | ) |
|
| 71 |
|
|
| (42 | ) |
|
| 8 |
|
|
| (3 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| 739 |
|
|
| 880 |
|
|
| 67 |
|
|
| (755 | ) |
|
| 931 |
|
Provision for income taxes |
|
| — |
|
|
| 147 |
|
|
| 45 |
|
|
| — |
|
|
| 192 |
|
NET INCOME (LOSS) |
| $ | 739 |
|
| $ | 733 |
|
| $ | 22 |
|
| $ | (755 | ) |
| $ | 739 |
|
COMPREHENSIVE INCOME (LOSS) |
| $ | 713 |
|
| $ | 732 |
|
| $ | 129 |
|
| $ | (755 | ) |
| $ | 819 |
|
- 27 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended February 29, 2020
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUE |
| $ | — |
|
| $ | 37,474 |
|
| $ | 14,660 |
|
| $ | (275 | ) |
| $ | 51,859 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 66 |
|
|
| 14,441 |
|
|
| 4,197 |
|
|
| — |
|
|
| 18,704 |
|
Purchased transportation |
|
| — |
|
|
| 8,619 |
|
|
| 4,416 |
|
|
| (121 | ) |
|
| 12,914 |
|
Rentals and landing fees |
|
| 6 |
|
|
| 2,175 |
|
|
| 633 |
|
|
| (6 | ) |
|
| 2,808 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 2,335 |
|
|
| 352 |
|
|
| — |
|
|
| 2,688 |
|
Fuel |
|
| — |
|
|
| 2,497 |
|
|
| 142 |
|
|
| — |
|
|
| 2,639 |
|
Maintenance and repairs |
|
| — |
|
|
| 1,966 |
|
|
| 261 |
|
|
| (1 | ) |
|
| 2,226 |
|
Asset impairment charges |
|
| — |
|
|
| 66 |
|
|
| — |
|
|
| — |
|
|
| 66 |
|
Intercompany charges, net |
|
| (249 | ) |
|
| (1,677 | ) |
|
| 1,926 |
|
|
| — |
|
|
| — |
|
Other |
|
| 176 |
|
|
| 5,261 |
|
|
| 2,582 |
|
|
| (147 | ) |
|
| 7,872 |
|
|
|
| — |
|
|
| 35,683 |
|
|
| 14,509 |
|
|
| (275 | ) |
|
| 49,917 |
|
OPERATING INCOME |
|
| — |
|
|
| 1,791 |
|
|
| 151 |
|
|
| — |
|
|
| 1,942 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 1,620 |
|
|
| 66 |
|
|
| — |
|
|
| (1,686 | ) |
|
| — |
|
Interest, net |
|
| (476 | ) |
|
| 23 |
|
|
| 9 |
|
|
| 1 |
|
|
| (443 | ) |
Other retirement plans income |
|
| 1 |
|
|
| 488 |
|
|
| 15 |
|
|
| — |
|
|
| 504 |
|
Intercompany charges, net |
|
| 485 |
|
|
| (357 | ) |
|
| (127 | ) |
|
| (1 | ) |
|
| — |
|
Other, net |
|
| (10 | ) |
|
| 38 |
|
|
| (43 | ) |
|
| — |
|
|
| (15 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| 1,620 |
|
|
| 2,049 |
|
|
| 5 |
|
|
| (1,686 | ) |
|
| 1,988 |
|
Provision for income taxes (benefit) |
|
| — |
|
|
| 388 |
|
|
| (20 | ) |
|
| — |
|
|
| 368 |
|
NET INCOME (LOSS) |
| $ | 1,620 |
|
| $ | 1,661 |
|
| $ | 25 |
|
| $ | (1,686 | ) |
| $ | 1,620 |
|
COMPREHENSIVE INCOME (LOSS) |
| $ | 1,569 |
|
| $ | 1,620 |
|
| $ | 44 |
|
| $ | (1,686 | ) |
| $ | 1,547 |
|
- 28 -
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Nine Months Ended February 28, 2019
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
REVENUE |
| $ | — |
|
| $ | 37,685 |
|
| $ | 14,503 |
|
| $ | (302 | ) |
| $ | 51,886 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 110 |
|
|
| 14,300 |
|
|
| 4,179 |
|
|
| — |
|
|
| 18,589 |
|
Purchased transportation |
|
| — |
|
|
| 7,780 |
|
|
| 4,912 |
|
|
| (126 | ) |
|
| 12,566 |
|
Rentals and landing fees |
|
| 4 |
|
|
| 1,948 |
|
|
| 585 |
|
|
| (4 | ) |
|
| 2,533 |
|
Depreciation and amortization |
|
| 1 |
|
|
| 2,133 |
|
|
| 353 |
|
|
| — |
|
|
| 2,487 |
|
Fuel |
|
| — |
|
|
| 2,708 |
|
|
| 237 |
|
|
| — |
|
|
| 2,945 |
|
Maintenance and repairs |
|
| 1 |
|
|
| 1,874 |
|
|
| 271 |
|
|
| (2 | ) |
|
| 2,144 |
|
Business realignment costs |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4 |
|
Intercompany charges, net |
|
| (357 | ) |
|
| (772 | ) |
|
| 1,129 |
|
|
| — |
|
|
| — |
|
Other |
|
| 238 |
|
|
| 4,991 |
|
|
| 2,410 |
|
|
| (171 | ) |
|
| 7,468 |
|
|
|
| 1 |
|
|
| 34,962 |
|
|
| 14,076 |
|
|
| (303 | ) |
|
| 48,736 |
|
OPERATING INCOME |
|
| (1 | ) |
|
| 2,723 |
|
|
| 427 |
|
|
| 1 |
|
|
| 3,150 |
|
OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries |
|
| 2,509 |
|
|
| 145 |
|
|
| — |
|
|
| (2,654 | ) |
|
| — |
|
Interest, net |
|
| (439 | ) |
|
| 44 |
|
|
| 2 |
|
|
| — |
|
|
| (393 | ) |
Other retirement plans income |
|
| — |
|
|
| 466 |
|
|
| 8 |
|
|
| — |
|
|
| 474 |
|
Intercompany charges, net |
|
| 454 |
|
|
| (335 | ) |
|
| (119 | ) |
|
| — |
|
|
| — |
|
Other, net |
|
| (14 | ) |
|
| 18 |
|
|
| (26 | ) |
|
| — |
|
|
| (22 | ) |
INCOME (LOSS) BEFORE INCOME TAXES |
|
| 2,509 |
|
|
| 3,061 |
|
|
| 292 |
|
|
| (2,653 | ) |
|
| 3,209 |
|
Provision for income taxes |
|
| — |
|
|
| 579 |
|
|
| 121 |
|
|
| — |
|
|
| 700 |
|
NET INCOME (LOSS) |
| $ | 2,509 |
|
| $ | 2,482 |
|
| $ | 171 |
|
| $ | (2,653 | ) |
| $ | 2,509 |
|
COMPREHENSIVE INCOME (LOSS) |
| $ | 2,443 |
|
| $ | 2,514 |
|
| $ | 46 |
|
| $ | (2,653 | ) |
| $ | 2,350 |
|
- 29 -
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended February 29, 2020
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
| $ | (1,794 | ) |
| $ | 4,864 |
|
| $ | 178 |
|
| $ | 30 |
|
| $ | 3,278 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (2 | ) |
|
| (4,288 | ) |
|
| (415 | ) |
|
| — |
|
|
| (4,705 | ) |
Proceeds from asset dispositions and other |
|
| (12 | ) |
|
| 20 |
|
|
| 7 |
|
|
| — |
|
|
| 15 |
|
CASH USED IN INVESTING ACTIVITIES |
|
| (14 | ) |
|
| (4,268 | ) |
|
| (408 | ) |
|
| — |
|
|
| (4,690 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 298 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 298 |
|
Net transfers from (to) Parent |
|
| 597 |
|
|
| (869 | ) |
|
| 272 |
|
|
| — |
|
|
| — |
|
Payment on loan between subsidiaries |
|
| (326 | ) |
|
| — |
|
|
| 326 |
|
|
| — |
|
|
| — |
|
Intercompany dividends |
|
| — |
|
|
| 398 |
|
|
| (398 | ) |
|
| — |
|
|
| — |
|
Principal payments on debt |
|
| (956 | ) |
|
| (81 | ) |
|
| (8 | ) |
|
| — |
|
|
| (1,045 | ) |
Proceeds from debt issuances |
|
| 2,093 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,093 |
|
Proceeds from stock issuances |
|
| 38 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 38 |
|
Dividends paid |
|
| (509 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (509 | ) |
Purchase of treasury stock |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
Other, net |
|
| (4 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (5 | ) |
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
| 1,228 |
|
|
| (552 | ) |
|
| 191 |
|
|
| — |
|
|
| 867 |
|
Effect of exchange rate changes on cash |
|
| — |
|
|
| 1 |
|
|
| (9 | ) |
|
| — |
|
|
| (8 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (580 | ) |
|
| 45 |
|
|
| (48 | ) |
|
| 30 |
|
|
| (553 | ) |
Cash and cash equivalents at beginning of period |
|
| 826 |
|
|
| 158 |
|
|
| 1,381 |
|
|
| (46 | ) |
|
| 2,319 |
|
Cash and cash equivalents at end of period |
| $ | 246 |
|
| $ | 203 |
|
| $ | 1,333 |
|
| $ | (16 | ) |
| $ | 1,766 |
|
- 30 -
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended February 28, 2019
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non-guarantor Subsidiaries |
|
| Eliminations |
|
| Consolidated |
| |||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
| $ | (109 | ) |
| $ | 3,136 |
|
| $ | 322 |
|
| $ | (26 | ) |
| $ | 3,323 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (3 | ) |
|
| (3,359 | ) |
|
| (395 | ) |
|
| — |
|
|
| (3,757 | ) |
Proceeds from asset dispositions and other |
|
| (45 | ) |
|
| 86 |
|
|
| 21 |
|
|
| — |
|
|
| 62 |
|
CASH USED IN INVESTING ACTIVITIES |
|
| (48 | ) |
|
| (3,273 | ) |
|
| (374 | ) |
|
| — |
|
|
| (3,695 | ) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 220 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 220 |
|
Net transfers from (to) Parent |
|
| 2 |
|
|
| (31 | ) |
|
| 29 |
|
|
| — |
|
|
| — |
|
Payment on loan between subsidiaries |
|
| (29 | ) |
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
Intercompany dividends |
|
| — |
|
|
| 114 |
|
|
| (114 | ) |
|
| — |
|
|
| — |
|
Principal payments on debt |
|
| (750 | ) |
|
| (117 | ) |
|
| (7 | ) |
|
| — |
|
|
| (874 | ) |
Proceeds from debt issuances |
|
| 2,463 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,463 |
|
Proceeds from stock issuances |
|
| 58 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 58 |
|
Dividends paid |
|
| (514 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (514 | ) |
Purchase of treasury stock |
|
| (1,365 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,365 | ) |
Other, net |
|
| — |
|
|
| 127 |
|
|
| (122 | ) |
|
| — |
|
|
| 5 |
|
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
|
| 85 |
|
|
| 93 |
|
|
| (185 | ) |
|
| — |
|
|
| (7 | ) |
Effect of exchange rate changes on cash |
|
| — |
|
|
| (9 | ) |
|
| (5 | ) |
|
| — |
|
|
| (14 | ) |
Net decrease in cash and cash equivalents |
|
| (72 | ) |
|
| (53 | ) |
|
| (242 | ) |
|
| (26 | ) |
|
| (393 | ) |
Cash and cash equivalents at beginning of period |
|
| 1,485 |
|
|
| 257 |
|
|
| 1,538 |
|
|
| (15 | ) |
|
| 3,265 |
|
Cash and cash equivalents at end of period |
| $ | 1,413 |
|
| $ | 204 |
|
| $ | 1,296 |
|
| $ | (41 | ) |
| $ | 2,872 |
|
- 3119 -
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 29,November 30, 2020, and the related condensed consolidated statements of income, comprehensive income and changes in common stockholders’ investment for the three-monththree- and nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019, the related condensed consolidated statements of cash flows for the nine-monthsix-month periods ended February 29,November 30, 2020 and February 28, 2019, 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 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) (PCAOB), the consolidated balance sheet of the Company as of May 31, 2019,2020, 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 16, 2019,20, 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, 2019,2020, 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 statements 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 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.
/s/ Ernst & Young LLP |
Memphis, Tennessee
MarchDecember 17, 2020
- 3220 -
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, 20192020 (“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 Corporation (“FedEx Freight”), a leading 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”), constitute our reportable segments.
Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our operating segments. See the “Reportable Segments” section of this MD&A for further discussion. Additional information on our businesses can be found in our Annual Report.
As discussed in our Annual Report, as of June 1, 2019 the results of the FedEx Office and Print Services, Inc. (“FedEx Office”) operating segment are included in “Corporate, other and eliminations.” This change was made to reflect our internal management reporting structure. Prior year amounts have been revised to conform to the current year presentation.
The key indicators necessary to understand our operating results include:
• | 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 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); |
• | 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. |
Many of our operating expenses are directly impacted by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue 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 revenue and volumes. The line item “Other operating expense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor and security), insurance, uniforms and professional fees and uniforms.fees.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 20202021 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.
- 3321 -
RESULTS OF OPERATIONS
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 29, 2020 and February 28, 2019:
November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenue |
| $ | 17,487 |
|
| $ | 17,010 |
|
|
| 3 |
|
|
| $ | 51,859 |
|
| $ | 51,886 |
|
|
| — |
|
|
| $ | 20,563 |
|
| $ | 17,324 |
|
|
| 19 |
|
|
| $ | 39,884 |
|
| $ | 34,372 |
|
|
| 16 |
|
|
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
|
| 137 |
|
|
| 389 |
|
|
| (65 | ) |
|
|
| 658 |
|
|
| 1,407 |
|
|
| (53 | ) |
|
|
| 900 |
|
|
| 236 |
|
|
| 281 |
|
|
|
| 1,610 |
|
|
| 521 |
|
|
| 209 |
|
|
FedEx Ground segment |
|
| 355 |
|
|
| 586 |
|
|
| (39 | ) |
|
|
| 1,341 |
|
|
| 1,852 |
|
|
| (28 | ) |
|
|
| 552 |
|
|
| 342 |
|
|
| 61 |
|
|
|
| 1,386 |
|
|
| 986 |
|
|
| 41 |
|
|
FedEx Freight segment |
|
| 113 |
|
|
| 97 |
|
|
| 16 |
|
|
|
| 448 |
|
|
| 421 |
|
|
| 6 |
|
|
|
| 252 |
|
|
| 141 |
|
|
| 79 |
|
|
|
| 526 |
|
|
| 335 |
|
|
| 57 |
|
|
Corporate, other and eliminations |
|
| (194 | ) |
|
| (161 | ) |
|
| (20 | ) |
|
|
| (505 | ) |
|
| (530 | ) |
|
| 5 |
|
|
|
| (239 | ) |
|
| (165 | ) |
|
| (45 | ) |
|
|
| (467 | ) |
|
| (311 | ) |
|
| (50 | ) |
|
Consolidated operating income |
|
| 411 |
|
|
| 911 |
|
|
| (55 | ) |
|
|
| 1,942 |
|
|
| 3,150 |
|
|
| (38 | ) |
|
|
| 1,465 |
|
|
| 554 |
|
|
| 164 |
|
|
|
| 3,055 |
|
|
| 1,531 |
|
|
| 100 |
|
|
Operating margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment |
|
| 1.5 | % |
|
| 4.3 | % |
|
| (280 | ) | bp |
|
| 2.4 | % |
|
| 5.1 | % |
|
| (270 | ) | bp |
|
| 8.7 | % |
|
| 2.6 | % |
|
| 610 |
| bp |
|
| 8.0 | % |
|
| 2.9 | % |
|
| 510 |
| bp |
FedEx Ground segment |
|
| 6.1 | % |
|
| 11.1 | % |
|
| (500 | ) | bp |
|
| 8.2 | % |
|
| 12.2 | % |
|
| (400 | ) | bp |
|
| 7.5 | % |
|
| 6.4 | % |
|
| 110 |
| bp |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 20 |
| bp |
FedEx Freight segment |
|
| 6.5 | % |
|
| 5.5 | % |
|
| 100 |
| bp |
|
| 8.2 | % |
|
| 7.5 | % |
|
| 70 |
| bp |
|
| 13.0 | % |
|
| 7.6 | % |
|
| 540 |
| bp |
|
| 14.0 | % |
|
| 8.9 | % |
|
| 510 |
| bp |
Consolidated operating margin |
|
| 2.4 | % |
|
| 5.4 | % |
|
| (300 | ) | bp |
|
| 3.7 | % |
|
| 6.1 | % |
|
| (240 | ) | bp |
|
| 7.1 | % |
|
| 3.2 | % |
|
| 390 |
| bp |
|
| 7.7 | % |
|
| 4.5 | % |
|
| 320 |
| bp |
Consolidated net income |
| $ | 315 |
|
| $ | 739 |
|
|
| (57 | ) |
|
| $ | 1,620 |
|
| $ | 2,509 |
|
|
| (35 | ) |
|
| $ | 1,226 |
|
| $ | 560 |
|
|
| 119 |
|
|
| $ | 2,471 |
|
| $ | 1,305 |
|
|
| 89 |
|
|
Diluted earnings per share |
| $ | 1.20 |
|
| $ | 2.80 |
|
|
| (57 | ) |
|
| $ | 6.17 |
|
| $ | 9.41 |
|
|
| (34 | ) |
|
| $ | 4.55 |
|
| $ | 2.13 |
|
|
| 114 |
|
|
| $ | 9.26 |
|
| $ | 4.97 |
|
|
| 86 |
|
|
|
| Change in Revenue |
|
| Change in Operating Income (Loss) |
|
| 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 |
| $ | (81 | ) |
| $ | (878 | ) |
| $ | (252 | ) |
| $ | (749 | ) |
| $ | 1,284 |
|
| $ | 1,986 |
|
| $ | 664 |
|
| $ | 1,089 |
|
FedEx Ground segment |
|
| 584 |
|
|
| 1,137 |
|
|
| (231 | ) |
|
| (511 | ) |
|
| 2,029 |
|
|
| 3,890 |
|
|
| 210 |
|
|
| 400 |
|
FedEx Freight segment |
|
| (12 | ) |
|
| (140 | ) |
|
| 16 |
|
|
| 27 |
|
|
| 92 |
|
|
| 13 |
|
|
| 111 |
|
|
| 191 |
|
FedEx Services segment |
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
Corporate, other and eliminations |
|
| (16 | ) |
|
| (144 | ) |
|
| (33 | ) |
|
| 25 |
|
|
| (169 | ) |
|
| (384 | ) |
|
| (74 | ) |
|
| (156 | ) |
|
| $ | 477 |
|
| $ | (27 | ) |
| $ | (500 | ) |
| $ | (1,208 | ) |
| $ | 3,239 |
|
| $ | 5,512 |
|
| $ | 911 |
|
| $ | 1,524 |
|
Overview
Weaker global economic conditions, includingElevated demand for our residential delivery services, resulting from the ongoing impact of the COVID-19coronavirus (“COVID-19”) pandemic, negatively impactedcontinued during the second quarter of 2021. In addition, demand for our results inbusiness-to-business delivery services strengthened relative to the thirdfirst quarter of 2021 as COVID-19-related restrictions moderated globally during the second quarter. As a result, our revenue and operating income improved during the second quarter and nine monthsfirst half of 2020. The COVID-19 pandemic had a negative impact on the2021. We continued to incur increased operating expenses to support elevated levels of demand for our services in the COVID-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 2021. 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 its disruptioninternational export and U.S. domestic package volume growth at FedEx Express, residential volume growth at FedEx Ground and pricing initiatives across all of global manufacturing, supply chains and consumer spending duringour transportation segments. Higher purchased transportation expenses at FedEx Ground are also driven by increased residential product mix in both the third quarter of 2020. In addition, our results for the thirdsecond quarter and nine monthsfirst half of 2020 were2021. Additionally, higher variable incentive compensation expense negatively impacted year-over-year second quarter comparisons by higher self-insurance accruals, theapproximately $215 million and first half comparisons by approximately $410 million.
- 22 -
The loss of business from a large customer increased costs to expand services, the continued mix shift to lower-yielding services and an increased competitive pricing environment. These factors were partially offset by residential delivery volume growth at FedEx Ground and increased yields at FedEx Freight. Our third quarter 2020 results were positively impacted by approximately $100 million due to one additional operating weekday. The year-over-year comparison of variable incentive compensation expense negatively impacted our results by approximately $115 millionearnings in the third quarter of 2020, but positively impacted our results by approximately $250 million in the nine months of 2020. The year-over-year comparison of variable incentive compensation expense was impacted by the elimination of our variable incentive compensation payout in the third quarter of 2019 due to cost containment actions. DuringIn addition, during the second quarter of 2020, we recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) associated with the decision to permanently retire certain aircraft and related engines at FedEx Express (see “Asset Impairment Charges” belowExpress. See Note 1 of the accompanying unaudited condensed consolidated financial statements for more information).additional information.
Consolidated net income for the nine months of 2020 includes a tax benefit of $133We incurred integration expenses totaling $48 million ($0.51 per diluted share) from the reduction36 million, net of a valuation allowance on certain foreign tax, loss carryforwards. Consolidated net income for the third quarter of 2019 included tax benefits of $90 million ($0.34 per diluted share) from the reduction of a valuation allowance on certain tax loss carryforwards. This was partially offset by tax expense of $50 million ($0.19or $0.13 per diluted share) in the thirdsecond quarter of 2019 related to a lower enacted tax rate in the Netherlands applied to our deferred tax balances. See the “Income Taxes” section below for more information.
- 34 -
We incurred TNT Express integration expenses totaling $72and $97 million ($5674 million, net of tax, or $0.21$0.28 per diluted share) in the third quarter and $207 million ($161 million, netfirst half of tax, or $0.61 per diluted share) in the nine months of 2020,2021, a $3 million increase from the third quarter and a $97$16 million decrease from the nine monthssecond quarter and a $38 million decrease from the first half of 2019.2020. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees, salaries and employee benefits, travel and advertising expenses, and include any restructuring charges at TNT Express.expenses. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures.
Consolidated net income in the second 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 Netherlands 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 a tax benefit of $191 million ($0.71 per diluted share) recognized during the second quarter of 2021, primarily attributable to guidance issued by the Internal Revenue Service (“IRS”) during the quarter, and a tax benefit of $133 million ($0.51 per diluted share) from the reduction of a valuation allowance recognized during the second quarter and first half of 2020. See the “Income Taxes” section of this MD&A for further information.
- 3523 -
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 relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services. |
| (2) | International average daily freight pounds |
- 3624 -
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 relates to our international intra-country operations. |
| (2) | International revenue per pound relates to our international priority, economy and airfreight services. |
- 3725 -
Revenue
Revenue increased 3%19% in the thirdsecond quarter and 16% in the first half of 20202021 primarily due to volume growth in residential delivery services at FedEx Ground and U.S. domestic package volume growth at FedEx Ground. Revenue decreased slightly inExpress, both reflecting increased e-commerce demand resulting from the nine monthsongoing impact of 2020 primarily duethe COVID-19 pandemic. In addition, demand for our business-to-business delivery services strengthened relative to the lossfirst quarter of business from a large customer2021 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 also contributed to the impact from macroeconomic weakness. In addition,increase in revenue during the second quarter and first half of 2021. Additionally, one additional operating weekdayday 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 first half of 2020.2021.
At FedEx Ground, revenue increased 11%38% in the thirdsecond quarter and 7%37% in the nine monthsfirst half of 20202021 primarily due to residential delivery volume growth, partially offsetgrowth. This sharp increase in demand is the result of a shift in consumer shopping patterns accelerated by the loss of business from a large customer.COVID-19 pandemic. Revenue at FedEx Express decreased 1%increased 14% in the thirdsecond quarter and 3%11% in the nine monthsfirst half of 20202021 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 the loss of business from a large customer and lower freighthigher revenue as a result of macroeconomic weakness and trade uncertainty, as well as decreased international export package yields. In addition, unfavorable exchange rates and lower fuel surcharges negatively impacted revenueper shipment. Revenue at FedEx ExpressFreight remained flat in the nine monthsfirst half of 2020. These factors were2021 due to higher revenue per shipment, partially offset by international export package volume growth in both the third quarter and nine months of 2020. FedEx Freight revenue decreased 1% in the third quarter and 2% in the nine months of 2020 due to decreased average daily shipments, partially offset by higher revenue per shipment.shipments.
Operating Expenses
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
| $ | 6,382 |
|
| $ | 6,069 |
|
|
| 5 |
|
|
| $ | 18,704 |
|
| $ | 18,589 |
|
|
| 1 |
|
| $ | 7,443 |
|
| $ | 6,235 |
|
|
| 19 |
|
|
| $ | 14,295 |
|
| $ | 12,322 |
|
|
| 16 |
|
Purchased transportation |
|
| 4,558 |
|
|
| 4,253 |
|
|
| 7 |
|
|
|
| 12,914 |
|
|
| 12,566 |
|
|
| 3 |
|
|
| 5,407 |
|
|
| 4,328 |
|
|
| 25 |
|
|
|
| 10,384 |
|
|
| 8,356 |
|
|
| 24 |
|
Rentals and landing fees |
|
| 964 |
|
|
| 874 |
|
|
| 10 |
|
|
|
| 2,808 |
|
|
| 2,533 |
|
|
| 11 |
|
|
| 1,006 |
|
|
| 924 |
|
|
| 9 |
|
|
|
| 1,942 |
|
|
| 1,844 |
|
|
| 5 |
|
Depreciation and amortization |
|
| 908 |
|
|
| 851 |
|
|
| 7 |
|
|
|
| 2,688 |
|
|
| 2,487 |
|
|
| 8 |
|
|
| 936 |
|
|
| 901 |
|
|
| 4 |
|
|
|
| 1,862 |
|
|
| 1,780 |
|
|
| 5 |
|
Fuel |
|
| 879 |
|
|
| 907 |
|
|
| (3 | ) |
|
|
| 2,639 |
|
|
| 2,945 |
|
|
| (10 | ) |
|
| 625 |
|
|
| 890 |
|
|
| (30 | ) |
|
|
| 1,190 |
|
|
| 1,760 |
|
|
| (32 | ) |
Maintenance and repairs |
|
| 684 |
|
|
| 658 |
|
|
| 4 |
|
|
|
| 2,226 |
|
|
| 2,144 |
|
|
| 4 |
|
|
| 815 |
|
|
| 774 |
|
|
| 5 |
|
|
|
| 1,621 |
|
|
| 1,542 |
|
|
| 5 |
|
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 66 |
|
|
| — |
|
| NM |
|
|
| — |
|
|
| 66 |
|
| NM |
|
|
|
| — |
|
|
| 66 |
|
| NM |
| |||
Business realignment costs |
|
| — |
|
|
| 4 |
|
| NM |
|
|
|
| — |
|
|
| 4 |
|
| NM |
| |||||||||||||||||||||||||||
Other |
|
| 2,701 |
|
|
| 2,483 |
|
|
| 9 |
|
|
|
| 7,872 |
|
|
| 7,468 |
|
|
| 5 |
|
|
| 2,866 |
|
|
| 2,652 |
|
|
| 8 |
|
|
|
| 5,535 |
|
|
| 5,171 |
|
|
| 7 |
|
Total operating expenses |
|
| 17,076 |
|
|
| 16,099 |
|
|
| 6 |
|
|
|
| 49,917 |
|
|
| 48,736 |
|
|
| 2 |
|
|
| 19,098 |
|
|
| 16,770 |
|
|
| 14 |
|
|
|
| 36,829 |
|
|
| 32,841 |
|
|
| 12 |
|
Operating income |
| $ | 411 |
|
| $ | 911 |
|
|
| (55 | ) |
|
| $ | 1,942 |
|
| $ | 3,150 |
|
|
| (38 | ) |
| $ | 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 |
|
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 36.5 |
| % |
|
| 35.7 |
| % |
|
| 36.1 |
| % |
|
| 35.8 |
| % |
|
| 36.2 |
| % |
|
| 36.0 |
| % |
|
| 35.8 |
| % |
|
| 35.8 |
| % |
Purchased transportation |
|
| 26.1 |
|
|
| 25.0 |
|
|
| 24.9 |
|
|
| 24.2 |
|
|
|
| 26.3 |
|
|
| 25.0 |
|
|
| 26.0 |
|
|
| 24.3 |
|
| ||||||
Rentals and landing fees |
|
| 5.5 |
|
|
| 5.1 |
|
|
| 5.4 |
|
|
| 4.9 |
|
|
|
| 4.9 |
|
|
| 5.3 |
|
|
| 4.9 |
|
|
| 5.4 |
|
| ||||||
Depreciation and amortization |
|
| 5.2 |
|
|
| 5.0 |
|
|
| 5.2 |
|
|
| 4.8 |
|
|
|
| 4.6 |
|
|
| 5.2 |
|
|
| 4.7 |
|
|
| 5.2 |
|
| ||||||
Fuel |
|
| 5.0 |
|
|
| 5.3 |
|
|
| 5.1 |
|
|
| 5.7 |
|
|
|
| 3.0 |
|
|
| 5.1 |
|
|
| 3.0 |
|
|
| 5.1 |
|
| ||||||
Maintenance and repairs |
|
| 3.9 |
|
|
| 3.9 |
|
|
| 4.3 |
|
|
| 4.1 |
|
|
|
| 4.0 |
|
|
| 4.5 |
|
|
| 4.0 |
|
|
| 4.5 |
|
| ||||||
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| 0.2 |
|
| ||||||
Business realignment costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| |||||||||||||||||||||||
Other |
|
| 15.4 |
|
|
| 14.6 |
|
|
| 15.2 |
|
|
| 14.4 |
|
|
|
| 13.9 |
|
|
| 15.3 |
|
|
| 13.9 |
|
|
| 15.0 |
|
| ||||||
Total operating expenses |
|
| 97.6 |
|
|
| 94.6 |
|
|
| 96.3 |
|
|
| 93.9 |
|
|
|
| 92.9 |
|
|
| 96.8 |
|
|
| 92.3 |
|
|
| 95.5 |
|
| ||||||
Operating margin |
|
| 2.4 |
| % |
|
| 5.4 |
| % |
|
| 3.7 |
| % |
|
| 6.1 |
| % |
|
| 7.1 |
| % |
|
| 3.2 |
| % |
|
| 7.7 |
| % |
|
| 4.5 |
| % |
- 38 -
Our results declinedVolume growth, as discussed in the third quarter and nine months“Revenue” section of 2020 primarily duethis MD&A, contributed to weaker global economic conditions, including the impact of the COVID-19 pandemic, higher self-insurance accruals, the loss of business from a large customer and increased25% increase in purchased transportation costs to expand services. In addition, continued mix shift to lower-yielding services and an increased competitive pricing environment negatively impacted our results during the third quarter and nine months of 2020. These factors were partially offset by residential delivery volume growth at FedEx Ground and increased yields at FedEx Freight in the third quarter and nine months of 2020. Our results were also positively impacted by an additional operating weekday at all of our transportation segments in the third quarter of 2020. The year-over-year variable incentive compensation expense negatively impacted operating income comparisons in the third quarter of 2020 as discussed above; however, the operating income comparisons were benefited in the nine months of 2020.
During the second quarter of 2020, we recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) associated with the decision to permanently retire certain aircraft and related engines at FedEx Express (see “Asset Impairment Charges” below for more information).
The adoption of the new lease accounting standard duringa 24% increase in the first quarterhalf of 2020 resulted2021, as well as an increase in a reclassification from other operating expense to rentalssalaries and landing feesemployee benefits expense of $45 million19% in the thirdsecond quarter and $136 million16% in the nine monthsfirst half of 2020 and maintenance and repairs expense to rentals and landing fees expense of $11 million in the third quarter and $33 million in the nine months of 2020. These amounts were reclassified in order to properly align the lease and rental expenses to the appropriate line items in accordance with the new standard and are excluded from the following year-over-year expense change discussion.
Other operating expense increased 9% in the third quarter and 5% in the nine months of 2020 primarily due to higher self-insurance accruals and higher outside service contract expense, including costs associated with cloud computing services.2021. Purchased transportation costs increased 7%were also higher in both the thirdsecond quarter and 3% in the nine monthsfirst half of 2020 primarily due to higher volumes and2021 driven by increased contractor settlement ratesresidential product mix at FedEx Ground, including expanding residential delivery to seven days per week year-round. Depreciation and amortization expense increased 8% in the nine months of 2020 primarily due to continued strategic investment programs at all of our transportation segments. SalariesGround. In addition, salaries and employee benefits expense increased 5% in both the thirdsecond quarter and first half of 2020 primarily2021 due to the year-over-yearhigher variable incentive compensation expense comparison discussed above, higher staffing to support volume growth and merit increases. Salaries and employee benefits expense increased 1% in the nine months of 2020 primarily due to merit increases and higher staffing to support volume growth, partially offset by lower variable incentive compensation expense.
- 26 -
Fuel
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 decreased 3%30% in the thirdsecond quarter and 32% in the first half of 2020 primarily2021 due to lower usage. Fuel expense decreased 10% in the nine months of 2020 primarily due to decreased fuel prices. Fuel prices represent only one component of the 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 thirdsecond quarters of 20202021 and 20192020 in the accompanying discussion of each of our transportation segments.
- 39 -
Most of our 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. Some FedEx Express international fuel surcharges incorporate a timing lag of approximately six to eight weeks.
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 and preceding day, 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.
We routinely review our fuel surcharges. On March 2, 2020, we updated the tables used to determine our fuel surcharges at all of our transportation segments. On March 18, 2019, we updated the tables used to determine our fuel surcharges for FedEx Express U.S. domestic services and at FedEx Ground. On September 10, 2018, we updated the tables used to determine our fuel surcharges at FedEx Express and FedEx Ground. The net impact of fuel on operating income described abovebelow and for each segment below excludes the impact from these table changes.
The net impact of fuel had a slightly negative impactslight benefit to operating income in the thirdsecond quarter and nine monthsfirst half of 2020 due to lower fuel surcharges, partially offset by2021 as decreased fuel prices in the nine months of 2020.
The net impact ofoutpaced lower fuel on our operating results does not consider the effects that fuel surcharge levels may have on our business, including changes in demand and shifts in the mix of services purchased by our customers. In addition, our purchased transportation expense may be impacted by fuel costs. 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.surcharges.
Asset 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 of tax, or $0.19 per diluted share) were recorded in the FedEx Express segment in the second quarter. Sevenquarter of 2020.
- 27 -
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 aircraft were temporarily idled.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
Our effective tax rate was 25.0%12.8% for the thirdsecond quarter and 18.5%18.0% for the nine monthsfirst half of 20202021, compared with 20.6%to 2.1% for the thirdsecond quarter and 21.8%16.8% for the nine monthsfirst half of 2019.2020. The 2021 tax rate for the nine months of 2020 includesrates include a benefit of $133$191 million from the reduction of a valuation allowance on certain foreignan increase in our 2020 tax loss carryforwards duethat the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) will allow to operational changes which impactedbe carried back to 2015, when the determinationU.S. 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 realizability of the deferred2020 tax asset in that jurisdiction.return. The 2020 tax rates were negatively impacted by decreased earnings in certain non-U.S. jurisdictions. The tax rates for the third quarter and nine months of 2019 included a $133 million benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards, partially offset by an expense of $50 million from the impact on our deferred taxes attributable to the enactment ofreduction which, when combined with substantially lower consolidated earnings, produced a significantly lower tax rate in the Netherlands. The tax rate for the nine monthssecond quarter of 2019 was also favorably impacted by2020 compared to the Tax Cutssecond 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 Jobs Act (“TCJA”), which resulted2019. 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 approximate $60 millionincome tax benefit from accelerated deductions claimed on our 2018 tax return filed in 2019.of $130 million for the second quarter.
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 ServiceIRS for the 2016 and 2017 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 impact of any changes is not expected to be material to our consolidated financial statements.
During the second quarter of 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 and 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 interpretation of the TCJA and the Internal Revenue Code. If we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.
Business Acquisitions
On December 2, 2020, we agreed to acquire ShopRunner, Inc. (“ShopRunner”), an e-commerce platform that directly connects brands and merchants 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 not expected to be material to our results of operations in 2021.
- 4028 -
Outlook
While we expect continued revenue growth at FedEx Ground during the fourth quarter of 2020, we expect weaker global economic conditions to negatively impact our results at FedEx Express and FedEx Freight. In addition, we anticipate that higher operating costs at FedEx Ground from our expansion to year-round seven-day residential delivery will negatively impact our results in the fourth quarter of 2020.
We anticipate that weak global economic conditions will be exacerbated in the fourth quarter of 2020 by thecontinuing impacts of the COVID-19 pandemic will drive increased demand for our FedEx Ground and FedEx Express services in the second half of the fiscal year resulting in improved year-over-year revenue and operating income at those two segments for the remainder of 2021. In addition, yield management and improved 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 the disruption of manufacturing operationshigher variable incentive compensation accruals, rising labor costs and increased supply chains around the world. While the global economy may recover quickly from repercussions linkedand other costs related to the COVID-19 pandemic, we cannot currently predict if or whento continue to be incurred during the economic recovery will occur.
Our international operations are much more sensitiveremainder of 2021. We also expect headwinds related to changes in global trade than our U.S. domestic operations becausethe December 31, 2020 expiration of the aviation excise tax holiday created by the CARES Act and a higher concentrationeffective income tax rate for the second half of business-to-business2021.
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 internationally. The softer economic outlookfor the remainder of 2021 to necessitate increased usage of our assets 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 making 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 create an ongoing revenue shortfall from planned levels, particularly in Europe and Asia Pacific. Furthermore, the cost of maintaining two separate networks in Europe while we execute the TNT Express integration is expected to compound the impact of the revenue shortfall onoptimize our near-term results. We will continue to manage network capacity at FedEx Express by reducing international flight hours in the fourth quarter of 2020 if global economic conditions deteriorate further. However, if global airfreight demand increases as the world recovers from the COVID-19 pandemic, we have the ability to flex our network to meet evolving customer needs. During the needsremainder of our customers.
In the U.S. domestic package market, permanently expanding our FedEx Ground network operations to seven days per week year-round, combined with volume declines from the loss of a large customer, has created a near-term cost-to-volume disparity. In addition, an increasingly competitive pricing environment is expected to continue pressuring our margins. However,2021, we expect that our investments in our U.S. domestic package operations will ultimately result in higher revenue and increased productivity that more than offsets the implementation costs associated with these programs. We have made adjustments to our FedEx Express U.S. domestic air network to better match capacity with demand by accelerating retirement of certain aircraft in the second quarter of 2020. In addition, we are focusedfocus on optimizing the cost of last-mile residential deliveriesdelivery optimization, including by directing certain U.S. day-definite residential FedEx Express shipments into the FedEx Ground network beginning in March 2020. We expect last-mile optimization will allow us to increase efficiency and lower our cost-to-serve as e-commerce growth continues to impact our service mix.cost-to-serve. We also are focused on improving revenue quality and lowering costs through investments inadvanced technology aimed at improving productivity.productivity and safety.
For the fourth quarter of 2020, we will continueWe are continuing to execute our TNT Express integration plans and are focused on completing projects across our European hub and station locations that will allow interoperability between the ground networks for both FedEx Express and TNT Express packages. In addition, we continuescheduled to focus on integrating the FedEx Express and TNT Express linehaul and pickup-and-delivery operations for the key countries in Europe, which represent a significant percentage of international revenue, workforces and facilities. Integration activities in Europe are complex and require consultations with works councils and employee representatives in a number of countries. By the end of the fourth quarter 2020, we expect European ground network interoperability to be substantially completed. The next key integration milestones include completingcomplete the integration of the FedEx Express and TNT Express linehaul and pickup-and-delivery operations and completing a singlebegin offering an enhanced portfolio of international services duringin 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 during the first half ofin early calendar 2022. We expect synergies from the combined FedEx Express/TNT Express network will accelerate during 2021 once the linehaul and pickup-and-delivery networks are optimized, and expect synergy realization to increase significantly after international air network interoperability is completed.
We expect to incur approximately $100$80 million of integration expenses in the fourth quarterremainder of 20202021 in the form of professional fees, outside service contracts, salaries and wages and other operating expense.expenses. We expect the aggregate integration program expenses including restructuring charges at TNT Express, to be approximately $1.7 billion through 2021,the completion of the physical network integration of TNT Express into FedEx Express in 2022.
As we approach the completion of the physical network integration of TNT Express in 2022, we are evaluating opportunities and we may incur additional costs, including investments that will furtherpursuing initiatives in addition to the integration to continue to transform and optimize the combined businesses. The timingFedEx Express international business, particularly in Europe. These actions are focused on reducing the complexity and amountfragmentation of integration expensesour international business, improving efficiency to meet changing customer expectations and business dynamics, lowering costs, increasing profitability and improving service levels. We expect to incur additional costs, over multiple years, which may be material, including transformation costs and capital investments in any future period may change as we revise and implement our plans.related to these actions.
Our expectations for the fourth quarterremainder of 20202021 are dependent on key external factors, including no further weakening inof global economic conditions including the impact ofor additional shut-downs related to the COVID-19 pandemic, from our current forecast, current fuel price expectations, and no additional adverse developments in international trade policies and relations.
Other Outlook Matters. For details on key 20202021 capital projects, refer to the “Liquidity Outlook” section of this MD&A.
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.
- 4129 -
REPORTABLE SEGMENTS
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with FedEx Services, constitute our reportable segments. Our reportable segments include the following businesses:
FedEx Express Segment | FedEx Express (express |
| |
FedEx Custom Critical, Inc. (“FedEx Custom Critical”) (time-critical transportation) FedEx Cross Border Holdings, Inc. (“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) |
Effective March 1, 2020, the results of FedEx Custom Critical, Inc. will be included in the FedEx Express segment. This change was made to reflect our internal management reporting structure.
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 operating segments. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided.
The FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. 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 operating 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.
CORPORATE, OTHER AND ELIMINATIONS
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 is theother. 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 thebusinesses. FedEx Logistics Inc. operating segment, which provides integrated supply chain management solutions, specialty transportation, cross-border e-commerce technology and e-commerce transportation solutions, customs brokerage and global ocean and air freight forwarding.
In the nine monthssecond quarter and first half of 2020,2021, the decrease in revenue in “Corporate, other and eliminations” was driven primarily by lower transportation volumes due to weaknessa significant decline in the international economy as a result of trade uncertainty, including the impact ofnon-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 revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
- 4230 -
FEDEX EXPRESS SEGMENT
FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred and economy services, which provide delivery on a time-definite or day-definite basis. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin and operating expenses as a percent of revenue for the periods ended February 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Package: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 1,865 |
|
| $ | 1,844 |
|
|
| 1 |
|
|
| $ | 5,595 |
|
| $ | 5,678 |
|
|
| (1 | ) |
|
| $ | 2,012 |
|
| $ | 1,864 |
|
|
| 8 |
|
|
| $ | 3,873 |
|
| $ | 3,730 |
|
|
| 4 |
|
|
U.S. overnight envelope |
|
| 459 |
|
|
| 433 |
|
|
| 6 |
|
|
|
| 1,395 |
|
|
| 1,345 |
|
|
| 4 |
|
|
|
| 435 |
|
|
| 457 |
|
|
| (5 | ) |
|
|
| 861 |
|
|
| 936 |
|
|
| (8 | ) |
|
U.S. deferred |
|
| 1,127 |
|
|
| 1,119 |
|
|
| 1 |
|
|
|
| 3,063 |
|
|
| 3,131 |
|
|
| (2 | ) |
|
|
| 1,204 |
|
|
| 980 |
|
|
| 23 |
|
|
|
| 2,300 |
|
|
| 1,936 |
|
|
| 19 |
|
|
Total U.S. domestic package revenue |
|
| 3,451 |
|
|
| 3,396 |
|
|
| 2 |
|
|
|
| 10,053 |
|
|
| 10,154 |
|
|
| (1 | ) |
|
|
| 3,651 |
|
|
| 3,301 |
|
|
| 11 |
|
|
|
| 7,034 |
|
|
| 6,602 |
|
|
| 7 |
|
|
International priority |
|
| 1,710 |
|
|
| 1,738 |
|
|
| (2 | ) |
|
|
| 5,344 |
|
|
| 5,508 |
|
|
| (3 | ) |
|
|
| 2,510 |
|
|
| 1,817 |
|
|
| 38 |
|
|
|
| 4,827 |
|
|
| 3,634 |
|
|
| 33 |
|
|
International economy |
|
| 810 |
|
|
| 806 |
|
|
| — |
|
|
|
| 2,538 |
|
|
| 2,541 |
|
|
| — |
|
|
|
| 658 |
|
|
| 873 |
|
|
| (25 | ) |
|
|
| 1,274 |
|
|
| 1,728 |
|
|
| (26 | ) |
|
Total international export package revenue |
|
| 2,520 |
|
|
| 2,544 |
|
|
| (1 | ) |
|
|
| 7,882 |
|
|
| 8,049 |
|
|
| (2 | ) |
|
|
| 3,168 |
|
|
| 2,690 |
|
|
| 18 |
|
|
|
| 6,101 |
|
|
| 5,362 |
|
|
| 14 |
|
|
International domestic(1) |
|
| 1,075 |
|
|
| 1,078 |
|
|
| — |
|
|
|
| 3,316 |
|
|
| 3,412 |
|
|
| (3 | ) |
|
|
| 1,206 |
|
|
| 1,165 |
|
|
| 4 |
|
|
|
| 2,294 |
|
|
| 2,241 |
|
|
| 2 |
|
|
Total package revenue |
|
| 7,046 |
|
|
| 7,018 |
|
|
| — |
|
|
|
| 21,251 |
|
|
| 21,615 |
|
|
| (2 | ) |
|
|
| 8,025 |
|
|
| 7,156 |
|
|
| 12 |
|
|
|
| 15,429 |
|
|
| 14,205 |
|
|
| 9 |
|
|
Freight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 739 |
|
|
| 772 |
|
|
| (4 | ) |
|
|
| 2,132 |
|
|
| 2,294 |
|
|
| (7 | ) |
|
|
| 799 |
|
|
| 698 |
|
|
| 14 |
|
|
|
| 1,632 |
|
|
| 1,393 |
|
|
| 17 |
|
|
International priority |
|
| 439 |
|
|
| 477 |
|
|
| (8 | ) |
|
|
| 1,376 |
|
|
| 1,574 |
|
|
| (13 | ) |
|
|
| 737 |
|
|
| 473 |
|
|
| 56 |
|
|
|
| 1,390 |
|
|
| 937 |
|
|
| 48 |
|
|
International economy |
|
| 499 |
|
|
| 495 |
|
|
| 1 |
|
|
|
| 1,556 |
|
|
| 1,568 |
|
|
| (1 | ) |
|
|
| 408 |
|
|
| 541 |
|
|
| (25 | ) |
|
|
| 779 |
|
|
| 1,057 |
|
|
| (26 | ) |
|
International airfreight |
|
| 61 |
|
|
| 76 |
|
|
| (20 | ) |
|
|
| 197 |
|
|
| 244 |
|
|
| (19 | ) |
|
|
| 65 |
|
|
| 70 |
|
|
| (7 | ) |
|
|
| 140 |
|
|
| 136 |
|
|
| 3 |
|
|
Total freight revenue |
|
| 1,738 |
|
|
| 1,820 |
|
|
| (5 | ) |
|
|
| 5,261 |
|
|
| 5,680 |
|
|
| (7 | ) |
|
|
| 2,009 |
|
|
| 1,782 |
|
|
| 13 |
|
|
|
| 3,941 |
|
|
| 3,523 |
|
|
| 12 |
|
|
Other |
|
| 140 |
|
|
| 167 |
|
|
| (16 | ) |
|
|
| 441 |
|
|
| 536 |
|
|
| (18 | ) |
|
|
| 334 |
|
|
| 146 |
|
|
| 129 |
|
|
|
| 645 |
|
|
| 301 |
|
|
| 114 |
|
|
Total revenue |
|
| 8,924 |
|
|
| 9,005 |
|
|
| (1 | ) |
|
|
| 26,953 |
|
|
| 27,831 |
|
|
| (3 | ) |
|
|
| 10,368 |
|
|
| 9,084 |
|
|
| 14 |
|
|
|
| 20,015 |
|
|
| 18,029 |
|
|
| 11 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 3,520 |
|
|
| 3,389 |
|
|
| 4 |
|
|
|
| 10,297 |
|
|
| 10,303 |
|
|
| — |
|
|
|
| 3,922 |
|
|
| 3,405 |
|
|
| 15 |
|
|
|
| 7,664 |
|
|
| 6,777 |
|
|
| 13 |
|
|
Purchased transportation |
|
| 1,212 |
|
|
| 1,267 |
|
|
| (4 | ) |
|
|
| 3,711 |
|
|
| 3,928 |
|
|
| (6 | ) |
|
|
| 1,449 |
|
|
| 1,267 |
|
|
| 14 |
|
|
|
| 2,753 |
|
|
| 2,499 |
|
|
| 10 |
|
|
Rentals and landing fees |
|
| 538 |
|
|
| 504 |
|
|
| 7 |
|
|
|
| 1,556 |
|
|
| 1,448 |
|
|
| 7 |
|
|
|
| 542 |
|
|
| 505 |
|
|
| 7 |
|
|
|
| 1,046 |
|
|
| 1,018 |
|
|
| 3 |
|
|
Depreciation and amortization |
|
| 478 |
|
|
| 456 |
|
|
| 5 |
|
|
|
| 1,409 |
|
|
| 1,341 |
|
|
| 5 |
|
|
|
| 482 |
|
|
| 469 |
|
|
| 3 |
|
|
|
| 959 |
|
|
| 931 |
|
|
| 3 |
|
|
Fuel |
|
| 744 |
|
|
| 771 |
|
|
| (4 | ) |
|
|
| 2,241 |
|
|
| 2,515 |
|
|
| (11 | ) |
|
|
| 529 |
|
|
| 754 |
|
|
| (30 | ) |
|
|
| 1,025 |
|
|
| 1,497 |
|
|
| (32 | ) |
|
Maintenance and repairs |
|
| 429 |
|
|
| 433 |
|
|
| (1 | ) |
|
|
| 1,460 |
|
|
| 1,449 |
|
|
| 1 |
|
|
|
| 542 |
|
|
| 514 |
|
|
| 5 |
|
|
|
| 1,093 |
|
|
| 1,031 |
|
|
| 6 |
|
|
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 66 |
|
|
| — |
|
| NM |
|
|
|
| — |
|
|
| 66 |
|
| NM |
|
|
|
| — |
|
|
| 66 |
|
| NM |
|
| |||
Intercompany charges |
|
| 500 |
|
|
| 486 |
|
|
| 3 |
|
|
|
| 1,469 |
|
|
| 1,521 |
|
|
| (3 | ) |
|
|
| 486 |
|
|
| 500 |
|
|
| (3 | ) |
|
|
| 947 |
|
|
| 969 |
|
|
| (2 | ) |
|
Other |
|
| 1,366 |
|
|
| 1,310 |
|
|
| 4 |
|
|
|
| 4,086 |
|
|
| 3,919 |
|
|
| 4 |
|
|
|
| 1,516 |
|
|
| 1,368 |
|
|
| 11 |
|
|
|
| 2,918 |
|
|
| 2,720 |
|
|
| 7 |
|
|
Total operating expenses |
|
| 8,787 |
|
|
| 8,616 |
|
|
| 2 |
|
|
|
| 26,295 |
|
|
| 26,424 |
|
|
| — |
|
|
|
| 9,468 |
|
|
| 8,848 |
|
|
| 7 |
|
|
|
| 18,405 |
|
|
| 17,508 |
|
|
| 5 |
|
|
Operating income |
| $ | 137 |
|
| $ | 389 |
|
|
| (65 | ) |
|
| $ | 658 |
|
| $ | 1,407 |
|
|
| (53 | ) |
|
| $ | 900 |
|
| $ | 236 |
|
|
| 281 |
|
|
| $ | 1,610 |
|
| $ | 521 |
|
|
| 209 |
|
|
Operating margin |
|
| 1.5 | % |
|
| 4.3 | % |
|
| (280 | ) | bp |
|
| 2.4 | % |
|
| 5.1 | % |
|
| (270 | ) | bp |
|
| 8.7 | % |
|
| 2.6 | % |
|
| 610 |
| bp |
|
| 8.0 | % |
|
| 2.9 | % |
|
| 510 |
| bp |
| (1) | International domestic revenue relates to our international intra-country operations. |
(2) | Includes the operations of FedEx Custom Critical and FedEx Cross Border for the periods ended November 30, 2020. |
- 4331 -
|
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| ||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 39.5 |
| % |
|
| 37.6 |
| % |
|
| 38.2 |
| % |
|
| 37.0 |
| % |
|
| 37.8 |
| % |
|
| 37.5 |
| % |
|
| 38.3 |
| % |
|
| 37.6 |
| % |
Purchased transportation |
|
| 13.6 |
|
|
| 14.1 |
|
|
| 13.8 |
|
|
| 14.1 |
|
|
|
| 14.0 |
|
|
| 13.9 |
|
|
| 13.8 |
|
|
| 13.9 |
|
| ||||||
Rentals and landing fees |
|
| 6.0 |
|
|
| 5.6 |
|
|
| 5.8 |
|
|
| 5.2 |
|
|
|
| 5.2 |
|
|
| 5.6 |
|
|
| 5.2 |
|
|
| 5.6 |
|
| ||||||
Depreciation and amortization |
|
| 5.4 |
|
|
| 5.1 |
|
|
| 5.2 |
|
|
| 4.8 |
|
|
|
| 4.7 |
|
|
| 5.2 |
|
|
| 4.8 |
|
|
| 5.1 |
|
| ||||||
Fuel |
|
| 8.3 |
|
|
| 8.6 |
|
|
| 8.3 |
|
|
| 9.0 |
|
|
|
| 5.1 |
|
|
| 8.3 |
|
|
| 5.1 |
|
|
| 8.3 |
|
| ||||||
Maintenance and repairs |
|
| 4.8 |
|
|
| 4.8 |
|
|
| 5.4 |
|
|
| 5.2 |
|
|
|
| 5.2 |
|
|
| 5.6 |
|
|
| 5.5 |
|
|
| 5.7 |
|
| ||||||
Asset impairment charges |
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
|
| — |
|
|
| 0.7 |
|
|
| — |
|
|
| 0.4 |
|
| ||||||
Intercompany charges |
|
| 5.6 |
|
|
| 5.4 |
|
|
| 5.5 |
|
|
| 5.5 |
|
|
|
| 4.7 |
|
|
| 5.5 |
|
|
| 4.7 |
|
|
| 5.4 |
|
| ||||||
Other |
|
| 15.3 |
|
|
| 14.5 |
|
|
| 15.2 |
|
|
| 14.1 |
|
|
|
| 14.6 |
|
|
| 15.1 |
|
|
| 14.6 |
|
|
| 15.1 |
|
| ||||||
Total operating expenses |
|
| 98.5 |
|
|
| 95.7 |
|
|
| 97.6 |
|
|
| 94.9 |
|
|
|
| 91.3 |
|
|
| 97.4 |
|
|
| 92.0 |
|
|
| 97.1 |
|
| ||||||
Operating margin |
|
| 1.5 |
| % |
|
| 4.3 |
| % |
|
| 2.4 |
| % |
|
| 5.1 |
| % |
|
| 8.7 |
| % |
|
| 2.6 |
| % |
|
| 8.0 |
| % |
|
| 2.9 |
| % |
The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Percent |
|
| Nine Months Ended |
|
| Percent |
|
| Three Months Ended |
|
| Percent |
|
| Six Months Ended |
|
| Percent |
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2020 |
|
| 2019 |
|
| Change |
| ||||||||||||
Package Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
|
| 1,258 |
|
|
| 1,307 |
|
|
| (4 | ) |
|
| 1,240 |
|
|
| 1,282 |
|
|
| (3 | ) |
|
| 1,453 |
|
|
| 1,244 |
|
|
| 17 |
|
|
| 1,369 |
|
|
| 1,231 |
|
|
| 11 |
|
U.S. overnight envelope |
|
| 536 |
|
|
| 524 |
|
|
| 2 |
|
|
| 548 |
|
|
| 536 |
|
|
| 2 |
|
|
| 512 |
|
|
| 547 |
|
|
| (6 | ) |
|
| 497 |
|
|
| 554 |
|
|
| (10 | ) |
U.S. deferred |
|
| 1,215 |
|
|
| 1,224 |
|
|
| (1 | ) |
|
| 1,067 |
|
|
| 1,071 |
|
|
| — |
|
|
| 1,339 |
|
|
| 1,012 |
|
|
| 32 |
|
|
| 1,272 |
|
|
| 994 |
|
|
| 28 |
|
Total U.S. domestic ADV |
|
| 3,009 |
|
|
| 3,055 |
|
|
| (2 | ) |
|
| 2,855 |
|
|
| 2,889 |
|
|
| (1 | ) |
|
| 3,304 |
|
|
| 2,803 |
|
|
| 18 |
|
|
| 3,138 |
|
|
| 2,779 |
|
|
| 13 |
|
International priority |
|
| 542 |
|
|
| 530 |
|
|
| 2 |
|
|
| 546 |
|
|
| 537 |
|
|
| 2 |
|
|
| 748 |
|
|
| 565 |
|
|
| 32 |
|
|
| 722 |
|
|
| 548 |
|
|
| 32 |
|
International economy |
|
| 293 |
|
|
| 289 |
|
|
| 1 |
|
|
| 300 |
|
|
| 289 |
|
|
| 4 |
|
|
| 296 |
|
|
| 315 |
|
|
| (6 | ) |
|
| 277 |
|
|
| 304 |
|
|
| (9 | ) |
Total international export ADV |
|
| 835 |
|
|
| 819 |
|
|
| 2 |
|
|
| 846 |
|
|
| 826 |
|
|
| 2 |
|
|
| 1,044 |
|
|
| 880 |
|
|
| 19 |
|
|
| 999 |
|
|
| 852 |
|
|
| 17 |
|
International domestic(1) |
|
| 2,405 |
|
|
| 2,410 |
|
|
| — |
|
|
| 2,475 |
|
|
| 2,491 |
|
|
| (1 | ) |
|
| 2,635 |
|
|
| 2,669 |
|
|
| (1 | ) |
|
| 2,464 |
|
|
| 2,509 |
|
|
| (2 | ) |
Total ADV |
|
| 6,249 |
|
|
| 6,284 |
|
|
| (1 | ) |
|
| 6,176 |
|
|
| 6,206 |
|
|
| — |
|
|
| 6,983 |
|
|
| 6,352 |
|
|
| 10 |
|
|
| 6,601 |
|
|
| 6,140 |
|
|
| 8 |
|
Revenue per package (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box |
| $ | 23.54 |
|
| $ | 22.75 |
|
|
| 3 |
|
| $ | 23.75 |
|
| $ | 23.32 |
|
|
| 2 |
|
| $ | 21.98 |
|
| $ | 23.78 |
|
|
| (8 | ) |
| $ | 22.10 |
|
| $ | 23.86 |
|
|
| (7 | ) |
U.S. overnight envelope |
|
| 13.59 |
|
|
| 13.31 |
|
|
| 2 |
|
|
| 13.39 |
|
|
| 13.21 |
|
|
| 1 |
|
|
| 13.50 |
|
|
| 13.26 |
|
|
| 2 |
|
|
| 13.53 |
|
|
| 13.29 |
|
|
| 2 |
|
U.S. deferred |
|
| 14.73 |
|
|
| 14.76 |
|
|
| — |
|
|
| 15.11 |
|
|
| 15.38 |
|
|
| (2 | ) |
|
| 14.27 |
|
|
| 15.39 |
|
|
| (7 | ) |
|
| 14.12 |
|
|
| 15.34 |
|
|
| (8 | ) |
U.S. domestic composite |
|
| 18.21 |
|
|
| 17.93 |
|
|
| 2 |
|
|
| 18.53 |
|
|
| 18.50 |
|
|
| — |
|
|
| 17.54 |
|
|
| 18.70 |
|
|
| (6 | ) |
|
| 17.51 |
|
|
| 18.71 |
|
|
| (6 | ) |
International priority |
|
| 50.07 |
|
|
| 52.95 |
|
|
| (5 | ) |
|
| 51.53 |
|
|
| 54.01 |
|
|
| (5 | ) |
|
| 53.26 |
|
|
| 51.03 |
|
|
| 4 |
|
|
| 52.24 |
|
|
| 52.25 |
|
|
| — |
|
International economy |
|
| 43.88 |
|
|
| 44.94 |
|
|
| (2 | ) |
|
| 44.44 |
|
|
| 46.28 |
|
|
| (4 | ) |
|
| 35.29 |
|
|
| 43.94 |
|
|
| (20 | ) |
|
| 35.84 |
|
|
| 44.71 |
|
|
| (20 | ) |
International export composite |
|
| 47.90 |
|
|
| 50.12 |
|
|
| (4 | ) |
|
| 49.01 |
|
|
| 51.31 |
|
|
| (4 | ) |
|
| 48.17 |
|
|
| 48.49 |
|
|
| (1 | ) |
|
| 47.69 |
|
|
| 49.55 |
|
|
| (4 | ) |
International domestic(1) |
|
| 7.09 |
|
|
| 7.21 |
|
|
| (2 | ) |
|
| 7.05 |
|
|
| 7.21 |
|
|
| (2 | ) |
|
| 7.27 |
|
|
| 6.92 |
|
|
| 5 |
|
|
| 7.27 |
|
|
| 7.03 |
|
|
| 3 |
|
Composite package yield |
| $ | 17.90 |
|
| $ | 18.01 |
|
|
| (1 | ) |
| $ | 18.11 |
|
| $ | 18.33 |
|
|
| (1 | ) |
| $ | 18.24 |
|
| $ | 17.88 |
|
|
| 2 |
|
| $ | 18.26 |
|
| $ | 18.21 |
|
|
| — |
|
Freight Statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily freight pounds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
| 8,356 |
|
|
| 8,905 |
|
|
| (6 | ) |
|
| 8,244 |
|
|
| 8,705 |
|
|
| (5 | ) |
|
| 9,511 |
|
|
| 8,364 |
|
|
| 14 |
|
|
| 9,175 |
|
|
| 8,188 |
|
|
| 12 |
|
International priority |
|
| 4,752 |
|
|
| 5,030 |
|
|
| (6 | ) |
|
| 4,924 |
|
|
| 5,326 |
|
|
| (8 | ) |
|
| 6,234 |
|
|
| 5,230 |
|
|
| 19 |
|
|
| 5,862 |
|
|
| 5,010 |
|
|
| 17 |
|
International economy |
|
| 13,806 |
|
|
| 14,067 |
|
|
| (2 | ) |
|
| 14,252 |
|
|
| 14,292 |
|
|
| — |
|
|
| 13,560 |
|
|
| 15,241 |
|
|
| (11 | ) |
|
| 12,581 |
|
|
| 14,473 |
|
|
| (13 | ) |
International airfreight |
|
| 1,422 |
|
|
| 1,615 |
|
|
| (12 | ) |
|
| 1,567 |
|
|
| 1,697 |
|
|
| (8 | ) |
|
| 1,605 |
|
|
| 1,726 |
|
|
| (7 | ) |
|
| 1,590 |
|
|
| 1,640 |
|
|
| (3 | ) |
Total average daily freight pounds |
|
| 28,336 |
|
|
| 29,617 |
|
|
| (4 | ) |
|
| 28,987 |
|
|
| 30,020 |
|
|
| (3 | ) |
|
| 30,910 |
|
|
| 30,561 |
|
|
| 1 |
|
|
| 29,208 |
|
|
| 29,311 |
|
|
| — |
|
Revenue per pound (yield): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
| $ | 1.40 |
|
| $ | 1.40 |
|
|
| — |
|
| $ | 1.36 |
|
| $ | 1.39 |
|
|
| (2 | ) |
| $ | 1.33 |
|
| $ | 1.32 |
|
|
| 1 |
|
| $ | 1.39 |
|
| $ | 1.34 |
|
|
| 4 |
|
International priority |
|
| 1.47 |
|
|
| 1.53 |
|
|
| (4 | ) |
|
| 1.47 |
|
|
| 1.56 |
|
|
| (6 | ) |
|
| 1.88 |
|
|
| 1.43 |
|
|
| 31 |
|
|
| 1.85 |
|
|
| 1.47 |
|
|
| 26 |
|
International economy |
|
| 0.57 |
|
|
| 0.57 |
|
|
| — |
|
|
| 0.57 |
|
|
| 0.58 |
|
|
| (2 | ) |
|
| 0.48 |
|
|
| 0.56 |
|
|
| (14 | ) |
|
| 0.48 |
|
|
| 0.57 |
|
|
| (16 | ) |
International airfreight |
|
| 0.68 |
|
|
| 0.76 |
|
|
| (11 | ) |
|
| 0.66 |
|
|
| 0.76 |
|
|
| (13 | ) |
|
| 0.64 |
|
|
| 0.65 |
|
|
| (2 | ) |
|
| 0.69 |
|
|
| 0.65 |
|
|
| 6 |
|
Composite freight yield |
| $ | 0.97 |
|
| $ | 0.99 |
|
|
| (2 | ) |
| $ | 0.96 |
|
| $ | 1.00 |
|
|
| (4 | ) |
| $ | 1.03 |
|
| $ | 0.93 |
|
|
| 11 |
|
| $ | 1.05 |
|
| $ | 0.95 |
|
|
| 11 |
|
| (1) | International domestic statistics relate to our international intra-country operations. |
- 4432 -
FedEx Express Segment Revenue
FedEx Express segment revenue decreased 1%increased 14% in the thirdsecond quarter and 3%11% in the nine monthsfirst half of 2020 primarily2021 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 lossCOVID-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 business2021 and one additional operating day in the first half of 2021. FedEx Express segment revenue includes a benefit from a large customer, lower freight revenue and decreased international export package yields. In addition, unfavorable exchange rates and lower fuel surcharges negatively impacted revenuereduction in aviation excise taxes on cargo provided by the CARES Act in the nine months of 2020. These factors were partially offset by international export package volume growth in both the thirdsecond quarter and nine monthsfirst half of 2020. One additional operating weekday benefited revenue in the third quarter of 2020.2021.
Average daily freight pounds decreased 4% in the third quarter and 3% in the nine months of 2020 primarily due to lower volume in freight services as a result of macroeconomic weakness and trade uncertainty. Freight yields decreased 2% in the third quarter and 4% in the nine months of 2020 primarily due to base yield declines, lower fuel surcharges and unfavorable exchange rates. International export package average daily volumes increased 2%19% in both the thirdsecond quarter and nine months17% in the first half of 20202021 led by volume growth infrom Asia-Pacific and Europe. International export package yields decreased 4% in both the third quarterfirst half of 2021 primarily due to lower fuel surcharges and nine months of 2020 primarily driven by base yield declines driven by lower weight per package, partially offset by favorable exchange rates and unfavorable exchange rates.pricing initiatives resulting from global air freight capacity constraints. U.S. domestic package average daily volumes decreased 2%increased 18% in the thirdsecond quarter and 1%13% in the nine monthsfirst half of 20202021 driven by growth in deferred service offerings, reflecting increased e-commerce demand resulting from the loss of business from a large customer.COVID-19 pandemic. U.S. domestic package yields increased 2%decreased 6% in both the thirdsecond quarter and first half of 20202021 due to decreased base yields driven by higher base yields and higherlower weight per package, as well as lower fuel surcharges. International domestic package average daily volumes decreased 1%Composite freight yields increased 11% in both the nine monthssecond quarter and first half of 20202021 primarily due to targeted yield management actions. International domestic packageimproved base yields, decreased 2%partially offset by lower fuel surcharges. Other revenue increased 129% in both the thirdsecond quarter and nine months114% in the first half of 2020 as base yield improvement was more than offset by unfavorable exchange rates.2021 due to the transfer of FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment.
FedEx Express’s U.S. domestic and outbound fuel surcharge and international fuel surcharge ranged as follows for the periods ended February 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
U.S. Domestic and Outbound Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
| 7.25 | % |
|
| 5.47 | % |
|
| 7.21 | % |
|
| 5.47 | % |
|
| 3.50 | % |
|
| 7.21 | % |
|
| 2.73 | % |
|
| 7.21 | % |
High |
|
| 8.00 |
|
|
| 8.23 |
|
|
| 8.45 |
|
|
| 10.80 |
|
|
| 3.83 |
|
|
| 8.45 |
|
|
| 4.12 |
|
|
| 8.45 |
|
Weighted-average |
|
| 7.38 |
|
|
| 6.21 |
|
|
| 7.48 |
|
|
| 7.32 |
|
|
| 3.64 |
|
|
| 7.53 |
|
|
| 3.54 |
|
|
| 7.54 |
|
International Export and Freight Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
| 6.66 |
|
|
| 5.75 |
|
|
| 6.66 |
|
|
| 5.75 |
|
|
| 1.17 |
|
|
| 6.74 |
|
|
| 0.28 |
|
|
| 6.74 |
|
High |
|
| 18.09 |
|
|
| 15.57 |
|
|
| 18.56 |
|
|
| 18.09 |
|
|
| 16.52 |
|
|
| 18.56 |
|
|
| 17.00 |
|
|
| 18.56 |
|
Weighted-average |
|
| 15.23 |
|
|
| 12.74 |
|
|
| 15.47 |
|
|
| 14.11 |
|
|
| 10.67 |
|
|
| 15.64 |
|
|
| 10.49 |
|
|
| 15.59 |
|
International Domestic Fuel Surcharge: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low |
|
| 2.98 |
|
|
| 2.69 |
|
|
| 2.98 |
|
|
| 2.25 |
|
|
| 2.62 |
|
|
| 3.20 |
|
|
| 2.62 |
|
|
| 3.20 |
|
High |
|
| 19.18 |
|
|
| 20.63 |
|
|
| 19.47 |
|
|
| 20.63 |
|
|
| 19.21 |
|
|
| 19.40 |
|
|
| 20.33 |
|
|
| 19.47 |
|
Weighted-average |
|
| 7.32 |
|
|
| 5.89 |
|
|
| 7.36 |
|
|
| 5.88 |
|
|
| 5.91 |
|
|
| 7.29 |
|
|
| 5.92 |
|
|
| 7.39 |
|
On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx Express. On January 6, 2020, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. On March 18, 2019, we updated the tables used to determine our fuel surcharges for FedEx Express U.S. domestic services. On January 7, 2019, FedEx Express implemented a 4.9% average list price increase for U.S. domestic, U.S. export and U.S. import services. On September 10, 2018, we updated the tables used to determine our fuel surcharges at FedEx Express.
FedEx Express Segment Operating Income
FedEx Express segment operating income decreased 65%increased 281% in the thirdsecond quarter and 53%209% in the nine monthsfirst half of 2020 primarily2021 due to weaker global economic conditions, including the impact of the COVID-19 pandemic, continued mix shift to lower-yielding servicesinternational export and an increased competitive pricing environment. In addition, the loss of business from a large customer negatively impacted ourU.S. domestic package volume growth. FedEx Express segment operating results during the nine months of 2020. Operating income and operating margin were positively impacted by one additional operating weekday in the third quarter of 2020. The year-over-year variable incentive compensation expense negatively impacted operating income comparisons byinclude approximately $65$70 million in the thirdsecond quarter of 2020 as discussed above; however, the operating income comparisons were benefited by approximatelyand $135 million in the nine monthsfirst half of 2020. During2021 related to a benefit from a reduction in aviation excise taxes provided by the CARES Act. Results for the second quarter and first half of 2020 we recordedwere negatively impacted by $66 million of asset impairment charges of $66 million associated with the decision to permanently retire certain aircraft and related engines (see “Asset Impairment Charges” aboveat 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 more information).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 $62$43 million of TNT Express integration expenses in the thirdsecond quarter and $168$80 million of such expenses in the nine monthsfirst half of 2020,2021, a $6 million increase from the third quarter and an $89 million decrease from the nine monthssecond quarter and a $26 million decrease from the first half of 2019.2020.
- 4533 -
The lease standard reclassification discussedSalaries and employee benefits expense increased 15% in the “Overview” section above is excluded fromsecond quarter and 13% in the following year-over-yearfirst 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 change discussion.in both the second quarter and first half of 2021. Purchased transportation expense increased 14% in the second quarter and 10% in the first half of 2021 primarily due to the transfer of FedEx Custom Critical and FedEx Cross Border into the FedEx Express segment. Other operating expense increased 4%11% in both the thirdsecond quarter and nine months7% in the first half of 20202021 primarily due to higher outside service contract expense including costs associated with cloud computing services. Purchased transportationand bad debt expense. Additionally, higher operating supplies, partially offset by decreased travel, both driven by the COVID-19 pandemic, negatively impacted other operating expense decreased 6% in both the nine monthssecond quarter and first half of 2020 primarily due to lower freight volumes, resulting in lower utilization of third-party transportation providers, and favorable exchange rates. Depreciation and amortization expense increased 5% in the nine months of 2020 primarily due to continued investment in aircraft and related equipment. Salaries and employee benefits expense increased 4% in the third quarter of 2020 primarily due to the year-over-year variable incentive compensation expense comparison discussed above, higher staffing to support peak-related volume growth and merit increases.2021.
Fuel expense decreased 4%30% in the thirdsecond quarter and 32% in the first half of 2020 primarily2021 due to lower usage. Fuel expense decreased 11% in the nine months of 2020 primarily due to decreased fuel prices. The net impact of fuel had a slightly negative impact to operating income in the thirdsecond quarter and nine monthsfirst half of 2020 due to2021 as lower fuel surcharges partially offset byoutpaced 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.
- 4634 -
FEDEX GROUND SEGMENT
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 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 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenue |
| $ | 5,845 |
|
| $ | 5,261 |
|
|
| 11 |
|
|
| $ | 16,339 |
|
| $ | 15,202 |
|
|
| 7 |
|
|
| $ | 7,344 |
|
| $ | 5,315 |
|
|
| 38 |
|
|
| $ | 14,384 |
|
| $ | 10,494 |
|
|
| 37 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 1,046 |
|
|
| 874 |
|
|
| 20 |
|
|
|
| 2,888 |
|
|
| 2,570 |
|
|
| 12 |
|
|
|
| 1,557 |
|
|
| 971 |
|
|
| 60 |
|
|
|
| 2,831 |
|
|
| 1,842 |
|
|
| 54 |
|
|
Purchased transportation |
|
| 2,908 |
|
|
| 2,466 |
|
|
| 18 |
|
|
|
| 7,772 |
|
|
| 6,870 |
|
|
| 13 |
|
|
|
| 3,488 |
|
|
| 2,561 |
|
|
| 36 |
|
|
|
| 6,779 |
|
|
| 4,864 |
|
|
| 39 |
|
|
Rentals |
|
| 256 |
|
|
| 204 |
|
|
| 25 |
|
|
|
| 744 |
|
|
| 595 |
|
|
| 25 |
|
|
|
| 289 |
|
|
| 249 |
|
|
| 16 |
|
|
|
| 553 |
|
|
| 488 |
|
|
| 13 |
|
|
Depreciation and amortization |
|
| 197 |
|
|
| 185 |
|
|
| 6 |
|
|
|
| 585 |
|
|
| 538 |
|
|
| 9 |
|
|
|
| 205 |
|
|
| 195 |
|
|
| 5 |
|
|
|
| 409 |
|
|
| 388 |
|
|
| 5 |
|
|
Fuel |
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
|
| 11 |
|
|
| 11 |
|
|
| — |
|
|
|
| 5 |
|
|
| 4 |
|
|
| 25 |
|
|
|
| 9 |
|
|
| 7 |
|
|
| 29 |
|
|
Maintenance and repairs |
|
| 101 |
|
|
| 86 |
|
|
| 17 |
|
|
|
| 286 |
|
|
| 247 |
|
|
| 16 |
|
|
|
| 124 |
|
|
| 98 |
|
|
| 27 |
|
|
|
| 231 |
|
|
| 185 |
|
|
| 25 |
|
|
Intercompany charges |
|
| 405 |
|
|
| 362 |
|
|
| 12 |
|
|
|
| 1,174 |
|
|
| 1,140 |
|
|
| 3 |
|
|
|
| 446 |
|
|
| 394 |
|
|
| 13 |
|
|
|
| 878 |
|
|
| 769 |
|
|
| 14 |
|
|
Other |
|
| 573 |
|
|
| 494 |
|
|
| 16 |
|
|
|
| 1,538 |
|
|
| 1,379 |
|
|
| 12 |
|
|
|
| 678 |
|
|
| 501 |
|
|
| 35 |
|
|
|
| 1,308 |
|
|
| 965 |
|
|
| 36 |
|
|
Total operating expenses |
|
| 5,490 |
|
|
| 4,675 |
|
|
| 17 |
|
|
|
| 14,998 |
|
|
| 13,350 |
|
|
| 12 |
|
|
|
| 6,792 |
|
|
| 4,973 |
|
|
| 37 |
|
|
|
| 12,998 |
|
|
| 9,508 |
|
|
| 37 |
|
|
Operating income |
| $ | 355 |
|
| $ | 586 |
|
|
| (39 | ) |
|
| $ | 1,341 |
|
| $ | 1,852 |
|
|
| (28 | ) |
|
| $ | 552 |
|
| $ | 342 |
|
|
| 61 |
|
|
| $ | 1,386 |
|
| $ | 986 |
|
|
| 41 |
|
|
Operating margin |
|
| 6.1 | % |
|
| 11.1 | % |
|
| (500 | ) | bp |
|
| 8.2 | % |
|
| 12.2 | % |
|
| (400 | ) | bp |
|
| 7.5 | % |
|
| 6.4 | % |
|
| 110 |
| bp |
|
| 9.6 | % |
|
| 9.4 | % |
|
| 20 |
| bp |
Average daily package volume |
|
| 10,536 |
|
|
| 9,550 |
|
|
| 10 |
|
|
|
| 9,637 |
|
|
| 8,992 |
|
|
| 7 |
|
|
|
| 12,315 |
|
|
| 9,556 |
|
|
| 29 |
|
|
|
| 11,931 |
|
|
| 9,192 |
|
|
| 30 |
|
|
Revenue per package (yield) |
| $ | 8.78 |
|
| $ | 8.87 |
|
|
| (1 | ) |
|
| $ | 8.90 |
|
| $ | 8.88 |
|
|
| — |
|
|
| $ | 9.42 |
|
| $ | 8.80 |
|
|
| 7 |
|
|
| $ | 9.38 |
|
| $ | 8.96 |
|
|
| 5 |
|
|
|
| Percent of Revenue |
|
|
| Percent of Revenue |
|
| ||||||||||||||||||||||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 17.9 |
| % |
|
| 16.6 |
| % |
|
| 17.7 |
| % |
|
| 16.9 |
| % |
|
| 21.2 |
| % |
|
| 18.3 |
| % |
|
| 19.7 |
| % |
|
| 17.6 |
| % |
Purchased transportation |
|
| 49.7 |
|
|
| 46.9 |
|
|
| 47.6 |
|
|
| 45.2 |
|
|
|
| 47.5 |
|
|
| 48.2 |
|
|
| 47.1 |
|
|
| 46.3 |
|
| ||||||
Rentals |
|
| 4.4 |
|
|
| 3.9 |
|
|
| 4.5 |
|
|
| 3.9 |
|
|
|
| 3.9 |
|
|
| 4.7 |
|
|
| 3.9 |
|
|
| 4.6 |
|
| ||||||
Depreciation and amortization |
|
| 3.4 |
|
|
| 3.5 |
|
|
| 3.6 |
|
|
| 3.5 |
|
|
|
| 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 |
|
| 1.7 |
|
|
| 1.6 |
|
|
| 1.7 |
|
|
| 1.6 |
|
|
|
| 1.7 |
|
|
| 1.8 |
|
|
| 1.6 |
|
|
| 1.8 |
|
| ||||||
Intercompany charges |
|
| 6.9 |
|
|
| 6.9 |
|
|
| 7.2 |
|
|
| 7.5 |
|
|
|
| 6.1 |
|
|
| 7.4 |
|
|
| 6.1 |
|
|
| 7.3 |
|
| ||||||
Other |
|
| 9.8 |
|
|
| 9.4 |
|
|
| 9.4 |
|
|
| 9.1 |
|
|
|
| 9.2 |
|
|
| 9.4 |
|
|
| 9.1 |
|
|
| 9.2 |
|
| ||||||
Total operating expenses |
|
| 93.9 |
|
|
| 88.9 |
|
|
| 91.8 |
|
|
| 87.8 |
|
|
|
| 92.5 |
|
|
| 93.6 |
|
|
| 90.4 |
|
|
| 90.6 |
|
| ||||||
Operating margin |
|
| 6.1 |
| % |
|
| 11.1 |
| % |
|
| 8.2 |
| % |
|
| 12.2 |
| % |
|
| 7.5 |
| % |
|
| 6.4 |
| % |
|
| 9.6 |
| % |
|
| 9.4 |
| % |
FedEx Ground Segment Revenue
FedEx Ground segment revenue increased 11%38% in the thirdsecond quarter and 7%37% in the nine monthsfirst half of 20202021 primarily due to residential delivery volume growth, partially offsetgrowth. This sharp increase in demand resulted from a shift in consumer shopping patterns accelerated by the lossCOVID-19 pandemic. In addition, we experienced increased demand for our business-to-business delivery services relative to the first quarter of business from a large customer. Revenue2021 as COVID-19-related restrictions moderated during the second quarter. Additionally, revenue was also positively impacted by yield management in the timingsecond quarter and first half of Cyber Week, as well as2021 and one additional operating weekdayday in the third quarterfirst half of 2020.2021.
- 47 -
Average daily volume increased 10%29% in the thirdsecond quarter and 7%30% in the nine monthsfirst half of 20202021 primarily due to continued growth in residential services driven by e-commerce, as well as the timing of Cyber Week in the third quarter of 2020.e-commerce. FedEx Ground yields decreased 1%increased 7% in the thirdsecond quarter and remained flat5% in the nine monthsfirst half of 20202021 primarily due to continued mix shift to lower-yielding services.yield improvement actions, partially offset by lower fuel surcharges.
- 35 -
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. The fuel surcharge ranged as follows for the periods ended February 29, 2020 and February 28, 2019:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Low |
|
| 6.50 | % |
|
| 6.50 | % |
|
| 6.50 | % |
|
| 6.25 | % |
|
| 5.50 | % |
|
| 6.75 | % |
|
| 5.50 | % |
|
| 6.75 | % |
High |
|
| 7.00 |
|
|
| 7.50 |
|
|
| 7.25 |
|
|
| 7.75 |
|
|
| 5.75 |
|
|
| 7.00 |
|
|
| 5.75 |
|
|
| 7.25 |
|
Weighted-average |
|
| 6.91 |
|
|
| 6.84 |
|
|
| 6.96 |
|
|
| 6.86 |
|
|
| 5.73 |
|
|
| 6.92 |
|
|
| 5.74 |
|
|
| 6.98 |
|
On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx Ground. On January 6, 2020, FedEx Ground implemented a 4.9% average list price increase. On March 18, 2019, we updated the tables used to determine our fuel surcharges at FedEx Ground. On January 7, 2019, FedEx Ground implemented a 4.9% average list price increase. On September 10, 2018, we updated the tables used to determine our fuel surcharges at FedEx Ground.
FedEx Ground Segment Operating Income
FedEx Ground segment operating income decreased 39%increased 61% in the thirdsecond quarter and 28%41% in the nine monthsfirst half of 20202021 primarily due to higher self-insurance accruals, increased costs to expand servicesresidential delivery volume growth and the loss of business from a large customer. In addition, continued mix shift to lower-yielding services and an increased competitive pricing environment negatively impacted our results during the third quarter and nine months of 2020.yield improvement. These itemsfactors were partially offset by higher purchased transportation contractor settlement rates resulting from residential delivery volume growth in both the third quarter and nine months of 2020,product mix, as well as the timing of Cyber Weekadditional labor expenses and one additional operating weekdayhigher self-insurance accruals in the thirdsecond quarter and first half of 2020.2021.
The lease standard reclassification discussed in the “Overview” section above is excluded from the following year-over-year expense change discussion. Purchased transportation expense increased 18%36% in the thirdsecond quarter and 13%39% in the nine monthsfirst half of 20202021 due to higher volumesvolume and increased contractor settlement rates, including expanding operations to seven days per week year-round.residential product mix. Salaries and employee benefits expense increased 20%60% in the thirdsecond quarter and 12%54% in the nine monthsfirst half of 20202021 due to additional staffing to support volume growth, including expansion of seven day per week year-round operations,costs associated with operating our seven-day network, merit increases and network expansion. In addition, the year-over-year comparison ofhigher 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 negatively impacted our results in both the thirdsecond quarter and first half of 2020 as discussed above, but positively impacted our results in the nine months of 2020.2021. Other operating expense increased 16%35% in the thirdsecond quarter and 12%36% in the nine monthsfirst half of 20202021 primarily due to higher self-insurance accruals of approximately $110 million and $200 million, respectively.higher operating supplies driven by the COVID-19 pandemic.
The net impact of fuel had a slightly negative impactmoderate benefit to operating income in the thirdsecond quarter and first half of 2020 due to2021 as decreased fuel prices outpaced lower fuel surcharges and increased fuel prices. The net impact of fuel had a slightly negative impact to operating income in the nine months of 2020 due to lower fuel surcharges, partially offset by decreased fuel prices.surcharges. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
- 4836 -
FEDEX FREIGHT SEGMENT
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 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 29, 2020 and February 28, 2019:November 30:
|
| Three Months Ended |
|
| Percent |
|
|
| Nine Months Ended |
|
| Percent |
|
|
| Three Months Ended |
|
| Percent |
|
|
| Six Months Ended |
|
| Percent |
|
| ||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
|
| 2020 |
|
| 2019 |
|
| Change |
|
| ||||||||||||
Revenue |
| $ | 1,738 |
|
| $ | 1,750 |
|
|
| (1 | ) |
|
| $ | 5,487 |
|
| $ | 5,627 |
|
|
| (2 | ) |
|
| $ | 1,936 |
|
| $ | 1,844 |
|
|
| 5 |
|
|
| $ | 3,762 |
|
| $ | 3,749 |
|
|
| — |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 846 |
|
|
| 865 |
|
|
| (2 | ) |
|
|
| 2,665 |
|
|
| 2,712 |
|
|
| (2 | ) |
|
|
| 915 |
|
|
| 900 |
|
|
| 2 |
|
|
|
| 1,773 |
|
|
| 1,819 |
|
|
| (3 | ) |
|
Purchased transportation |
|
| 176 |
|
|
| 213 |
|
|
| (17 | ) |
|
|
| 550 |
|
|
| 722 |
|
|
| (24 | ) |
|
|
| 209 |
|
|
| 187 |
|
|
| 12 |
|
|
|
| 379 |
|
|
| 374 |
|
|
| 1 |
|
|
Rentals |
|
| 54 |
|
|
| 45 |
|
|
| 20 |
|
|
|
| 158 |
|
|
| 129 |
|
|
| 22 |
|
|
|
| 59 |
|
|
| 52 |
|
|
| 13 |
|
|
|
| 115 |
|
|
| 104 |
|
|
| 11 |
|
|
Depreciation and amortization |
|
| 92 |
|
|
| 88 |
|
|
| 5 |
|
|
|
| 283 |
|
|
| 242 |
|
|
| 17 |
|
|
|
| 105 |
|
|
| 97 |
|
|
| 8 |
|
|
|
| 211 |
|
|
| 191 |
|
|
| 10 |
|
|
Fuel |
|
| 130 |
|
|
| 131 |
|
|
| (1 | ) |
|
|
| 385 |
|
|
| 418 |
|
|
| (8 | ) |
|
|
| 90 |
|
|
| 132 |
|
|
| (32 | ) |
|
|
| 155 |
|
|
| 255 |
|
|
| (39 | ) |
|
Maintenance and repairs |
|
| 59 |
|
|
| 53 |
|
|
| 11 |
|
|
|
| 192 |
|
|
| 178 |
|
|
| 8 |
|
|
|
| 57 |
|
|
| 68 |
|
|
| (16 | ) |
|
|
| 110 |
|
|
| 133 |
|
|
| (17 | ) |
|
Intercompany charges |
|
| 133 |
|
|
| 128 |
|
|
| 4 |
|
|
|
| 389 |
|
|
| 403 |
|
|
| (3 | ) |
|
|
| 122 |
|
|
| 130 |
|
|
| (6 | ) |
|
|
| 241 |
|
|
| 256 |
|
|
| (6 | ) |
|
Other |
|
| 135 |
|
|
| 130 |
|
|
| 4 |
|
|
|
| 417 |
|
|
| 402 |
|
|
| 4 |
|
|
|
| 127 |
|
|
| 137 |
|
|
| (7 | ) |
|
|
| 252 |
|
|
| 282 |
|
|
| (11 | ) |
|
Total operating expenses |
|
| 1,625 |
|
|
| 1,653 |
|
|
| (2 | ) |
|
|
| 5,039 |
|
|
| 5,206 |
|
|
| (3 | ) |
|
|
| 1,684 |
|
|
| 1,703 |
|
|
| (1 | ) |
|
|
| 3,236 |
|
|
| 3,414 |
|
|
| (5 | ) |
|
Operating income |
| $ | 113 |
|
| $ | 97 |
|
|
| 16 |
|
|
| $ | 448 |
|
| $ | 421 |
|
|
| 6 |
|
|
| $ | 252 |
|
| $ | 141 |
|
|
| 79 |
|
|
| $ | 526 |
|
| $ | 335 |
|
|
| 57 |
|
|
Operating margin |
|
| 6.5 | % |
|
| 5.5 | % |
|
| 100 |
| bp |
|
| 8.2 | % |
|
| 7.5 | % |
|
| 70 |
| bp |
|
| 13.0 | % |
|
| 7.6 | % |
|
| 540 |
| bp |
|
| 14.0 | % |
|
| 8.9 | % |
|
| 510 |
| bp |
Average daily shipments (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority |
|
| 70.5 |
|
|
| 73.2 |
|
|
| (4 | ) |
|
|
| 75.5 |
|
|
| 78.7 |
|
|
| (4 | ) |
|
|
| 78.1 |
|
|
| 77.4 |
|
|
| 1 |
|
|
|
| 74.6 |
|
|
| 78.0 |
|
|
| (4 | ) |
|
Economy |
|
| 29.8 |
|
|
| 32.7 |
|
|
| (9 | ) |
|
|
| 31.8 |
|
|
| 34.3 |
|
|
| (7 | ) |
|
|
| 32.9 |
|
|
| 32.6 |
|
|
| 1 |
|
|
|
| 31.5 |
|
|
| 32.7 |
|
|
| (4 | ) |
|
Total average daily shipments |
|
| 100.3 |
|
|
| 105.9 |
|
|
| (5 | ) |
|
|
| 107.3 |
|
|
| 113.0 |
|
|
| (5 | ) |
|
|
| 111.0 |
|
|
| 110.0 |
|
|
| 1 |
|
|
|
| 106.1 |
|
|
| 110.7 |
|
|
| (4 | ) |
|
Weight per shipment (lbs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority |
|
| 1,137 |
|
|
| 1,210 |
|
|
| (6 | ) |
|
|
| 1,144 |
|
|
| 1,211 |
|
|
| (6 | ) |
|
|
| 1,106 |
|
|
| 1,139 |
|
|
| (3 | ) |
|
|
| 1,101 |
|
|
| 1,147 |
|
|
| (4 | ) |
|
Economy |
|
| 1,000 |
|
|
| 1,106 |
|
|
| (10 | ) |
|
|
| 980 |
|
|
| 1,050 |
|
|
| (7 | ) |
|
|
| 1,015 |
|
|
| 983 |
|
|
| 3 |
|
|
|
| 1,006 |
|
|
| 971 |
|
|
| 4 |
|
|
Composite weight per shipment |
|
| 1,096 |
|
|
| 1,178 |
|
|
| (7 | ) |
|
|
| 1,096 |
|
|
| 1,162 |
|
|
| (6 | ) |
|
|
| 1,079 |
|
|
| 1,092 |
|
|
| (1 | ) |
|
|
| 1,073 |
|
|
| 1,095 |
|
|
| (2 | ) |
|
Revenue per shipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority |
| $ | 265.17 |
|
| $ | 253.35 |
|
|
| 5 |
|
|
| $ | 259.61 |
|
| $ | 249.78 |
|
|
| 4 |
|
|
| $ | 264.05 |
|
| $ | 258.90 |
|
|
| 2 |
|
|
| $ | 262.02 |
|
| $ | 257.14 |
|
|
| 2 |
|
|
Economy |
|
| 308.65 |
|
|
| 308.44 |
|
|
| — |
|
|
|
| 299.59 |
|
|
| 299.17 |
|
|
| — |
|
|
|
| 313.35 |
|
|
| 295.29 |
|
|
| 6 |
|
|
|
| 308.15 |
|
|
| 295.53 |
|
|
| 4 |
|
|
Composite revenue per shipment |
| $ | 279.40 |
|
| $ | 270.82 |
|
|
| 3 |
|
|
| $ | 272.09 |
|
| $ | 264.89 |
|
|
| 3 |
|
|
| $ | 278.66 |
|
| $ | 270.38 |
|
|
| 3 |
|
|
| $ | 275.71 |
|
| $ | 268.83 |
|
|
| 3 |
|
|
Revenue per hundredweight: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority |
| $ | 23.33 |
|
| $ | 20.94 |
|
|
| 11 |
|
|
| $ | 22.69 |
|
| $ | 20.63 |
|
|
| 10 |
|
|
| $ | 23.86 |
|
| $ | 22.74 |
|
|
| 5 |
|
|
| $ | 23.79 |
|
| $ | 22.41 |
|
|
| 6 |
|
|
Economy |
|
| 30.85 |
|
|
| 27.89 |
|
|
| 11 |
|
|
|
| 30.57 |
|
|
| 28.48 |
|
|
| 7 |
|
|
|
| 30.88 |
|
|
| 30.05 |
|
|
| 3 |
|
|
|
| 30.62 |
|
|
| 30.43 |
|
|
| 1 |
|
|
Composite revenue per hundredweight |
| $ | 25.49 |
|
| $ | 22.99 |
|
|
| 11 |
|
|
| $ | 24.84 |
|
| $ | 22.79 |
|
|
| 9 |
|
|
| $ | 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 |
|
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
|
| 2020 |
|
| 2019 |
|
| ||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Salaries and employee benefits |
|
| 48.7 |
| % |
|
| 49.4 |
| % |
|
| 48.6 |
| % |
|
| 48.2 |
| % |
|
| 47.3 |
| % |
|
| 48.8 |
| % |
|
| 47.1 |
| % |
|
| 48.5 |
| % |
Purchased transportation |
|
| 10.1 |
|
|
| 12.2 |
|
|
| 10.0 |
|
|
| 12.8 |
|
|
|
| 10.8 |
|
|
| 10.1 |
|
|
| 10.1 |
|
|
| 10.0 |
|
| ||||||
Rentals |
|
| 3.1 |
|
|
| 2.6 |
|
|
| 2.9 |
|
|
| 2.3 |
|
|
|
| 3.0 |
|
|
| 2.8 |
|
|
| 3.1 |
|
|
| 2.8 |
|
| ||||||
Depreciation and amortization |
|
| 5.3 |
|
|
| 5.0 |
|
|
| 5.1 |
|
|
| 4.3 |
|
|
|
| 5.4 |
|
|
| 5.3 |
|
|
| 5.6 |
|
|
| 5.1 |
|
| ||||||
Fuel |
|
| 7.5 |
|
|
| 7.5 |
|
|
| 7.0 |
|
|
| 7.4 |
|
|
|
| 4.7 |
|
|
| 7.2 |
|
|
| 4.1 |
|
|
| 6.8 |
|
| ||||||
Maintenance and repairs |
|
| 3.4 |
|
|
| 3.0 |
|
|
| 3.5 |
|
|
| 3.2 |
|
|
|
| 2.9 |
|
|
| 3.7 |
|
|
| 2.9 |
|
|
| 3.6 |
|
| ||||||
Intercompany charges |
|
| 7.6 |
|
|
| 7.3 |
|
|
| 7.1 |
|
|
| 7.2 |
|
|
|
| 6.3 |
|
|
| 7.1 |
|
|
| 6.4 |
|
|
| 6.8 |
|
| ||||||
Other |
|
| 7.8 |
|
|
| 7.5 |
|
|
| 7.6 |
|
|
| 7.1 |
|
|
|
| 6.6 |
|
|
| 7.4 |
|
|
| 6.7 |
|
|
| 7.5 |
|
| ||||||
Total operating expenses |
|
| 93.5 |
|
|
| 94.5 |
|
|
| 91.8 |
|
|
| 92.5 |
|
|
|
| 87.0 |
|
|
| 92.4 |
|
|
| 86.0 |
|
|
| 91.1 |
|
| ||||||
Operating margin |
|
| 6.5 |
| % |
|
| 5.5 |
| % |
|
| 8.2 |
| % |
|
| 7.5 |
| % |
|
| 13.0 |
| % |
|
| 7.6 |
| % |
|
| 14.0 |
| % |
|
| 8.9 |
| % |
- 4937 -
FedEx Freight Segment Revenue
FedEx Freight segment revenue decreased 1%increased 5% in the thirdsecond quarter and 2% in the nine months of 20202021 primarily due to decreased average daily shipments, partially offset by higher revenue per shipment. Revenue was also positively impacted by one additional operating weekdayFedEx Freight segment revenue remained flat in the third quarterfirst half of 2020.
Average daily shipments decreased 5% in both the third quarter and nine months of 20202021 due to lower demand for our service offerings as a result of softer economic conditions. higher revenue per shipment, partially offset by decreased average daily shipments.
Revenue per shipment increased 3% in both the thirdsecond quarter and nine monthsfirst half of 20202021 primarily due to higher base rates reflecting our ongoing revenue quality initiatives, partially offset by lower fuel surcharges and lower weight per shipment. Average daily shipments increased 1% in the second quarter of 2021 due to volumes returning to pre-COVID-19 levels. Despite the increased demand in the second quarter of 2021, demand for our service 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 fuel surcharge is based on the average of the U.S. on-highway prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed FedEx Freight fuel surcharge ranged as follows for the periods ended February 29, 2020 and February 28, 2019:
November 30:
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Low |
|
| 23.00 | % |
|
| 23.40 | % |
|
| 23.00 | % |
|
| 23.40 | % |
|
| 21.00 | % |
|
| 23.50 | % |
|
| 21.00 | % |
|
| 23.50 | % |
High |
|
| 24.00 |
|
|
| 24.60 |
|
|
| 24.40 |
|
|
| 25.60 |
|
|
| 21.40 |
|
|
| 24.00 |
|
|
| 21.40 |
|
|
| 24.40 |
|
Weighted-average |
|
| 23.70 |
|
|
| 23.77 |
|
|
| 23.80 |
|
|
| 24.62 |
|
|
| 21.10 |
|
|
| 23.80 |
|
|
| 21.20 |
|
|
| 23.80 |
|
On March 2, 2020, we updated the tables used to determine our fuel surcharges at FedEx Freight. On January 6, 2020, FedEx Freight implemented a 5.9% average list price increase in certain U.S. and other shipping rates. On January 7, 2019, FedEx Freight implemented a 5.9% average list price increase in certain U.S. and other shipping rates.
FedEx Freight Segment Operating Income
FedEx Freight segment operating income increased 16%79% in the thirdsecond quarter and 6%57% in the nine monthsfirst half of 20202021 driven by continued focus on yield management andrevenue quality initiatives, aligning our cost structure with current and anticipated business levels enabling FedEx Freight to improve profit and improving operational efficiencies. These positive factors more than offset the negative impact of loweron volumes from softerthe COVID-19 pandemic and weaker economic conditions.conditions for the first half of 2021.
The lease standard reclassification discussedSalaries and employee benefits expense increased only 2% in the “Overview” section above is excluded from the following year-over-year expense change discussion. Purchased transportation expense decreased 17% in the thirdsecond quarter and 24% in the nine months of 20202021 primarily due to lower utilizationimproved operational productivity, in spite of third-party transportation providers, lower weight per shipmenthigher variable incentive compensation expense, merit increases and lowerhigher volumes. Salaries and employee benefits expense decreased 2%3% in the nine monthsfirst half of 20202021 primarily due to improved operational productivity and lower volumes, and improving productivities driven by the alignment of our cost structure, partially offset by higher variable incentive compensation expense and merit increases. Depreciation and amortizationPurchased transportation expense increased 17%12% in the nine monthssecond quarter of 20202021 primarily due to investments in vehicleshigher utilization of third-party rail providers and trailers, as well as facility expansion. Other operating expense increased 4% in both the third quarter and nine months of 2020 primarily due to a favorable adjustment in prior year self-insurance accruals, as well as increased bad debt expense.rates from third-party motor providers.
Fuel expense decreased 1%32% in the thirdsecond quarter and 39% in the first half of 20202021 primarily due to lower usage. Fuel expense decreased 8% in the nine months of 2020 primarily due to decreased fuel prices. The net impact of fuel had a moderatelyslightly negative impact to operating income in the thirdsecond quarter and first half of 2020 and a significantly negative impact in the nine months of 2020 due to2021 as lower fuel surcharges partially offset byoutpaced 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.
- 5038 -
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $1.8$8.3 billion at February 29,November 30, 2020, compared to $2.3$4.9 billion at May 31, 2019.2020. The following table provides a summary of our cash flows for the nine-monthsix-month periods ended February 29, 2020 and February 28, 2019November 30 (in millions):
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 1,620 |
|
| $ | 2,509 |
|
| $ | 2,471 |
|
| $ | 1,305 |
|
Noncash charges and credits |
|
| 4,944 |
|
|
| 3,099 |
|
|
| 3,808 |
|
|
| 3,322 |
|
Changes in assets and liabilities |
|
| (3,286 | ) |
|
| (2,285 | ) |
|
| (1,049 | ) |
|
| (2,553 | ) |
Cash provided by operating activities |
|
| 3,278 |
|
|
| 3,323 |
|
|
| 5,230 |
|
|
| 2,074 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (4,705 | ) |
|
| (3,757 | ) |
|
| (2,826 | ) |
|
| (3,266 | ) |
Proceeds from asset dispositions and other |
|
| 15 |
|
|
| 62 |
|
|
| 14 |
|
|
| 4 |
|
Cash used in investing activities |
|
| (4,690 | ) |
|
| (3,695 | ) |
|
| (2,812 | ) |
|
| (3,262 | ) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from short-term borrowings, net |
|
| 298 |
|
|
| 220 |
|
|
| — |
|
|
| 150 |
|
Principal payments on debt |
|
| (1,045 | ) |
|
| (874 | ) |
|
| (75 | ) |
|
| (1,021 | ) |
Proceeds from debt issuances |
|
| 2,093 |
|
|
| 2,463 |
|
|
| 970 |
|
|
| 2,093 |
|
Proceeds from stock issuances |
|
| 38 |
|
|
| 58 |
|
|
| 431 |
|
|
| 26 |
|
Dividends paid |
|
| (509 | ) |
|
| (514 | ) |
|
| (341 | ) |
|
| (339 | ) |
Purchase of treasury stock |
|
| (3 | ) |
|
| (1,365 | ) |
|
| — |
|
|
| (3 | ) |
Other, net |
|
| (5 | ) |
|
| 5 |
|
|
| (12 | ) |
|
| (5 | ) |
Cash provided by (used in) financing activities |
|
| 867 |
|
|
| (7 | ) | ||||||||
Cash provided by financing activities |
|
| 973 |
|
|
| 901 |
| ||||||||
Effect of exchange rate changes on cash |
|
| (8 | ) |
|
| (14 | ) |
|
| 67 |
|
|
| (1 | ) |
Net decrease in cash and cash equivalents |
| $ | (553 | ) |
| $ | (393 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | 3,458 |
|
| $ | (288 | ) | ||||||||
Cash and cash equivalents at the end of period |
| $ | 1,766 |
|
| $ | 2,872 |
|
| $ | 8,339 |
|
| $ | 2,031 |
|
Cash flows from operating activities decreased $45 millionincreased $3.2 billion in the nine monthsfirst half of 20202021 primarily due to higher net income and lower pension contributions. Capital expenditures decreased during the first half of 2021 primarily due to lower net income, partially offset by lower variable incentive compensation payments. Capital expenditures increased during the nine months of 2020 primarily due to higher spending related to facilities at FedEx Express, increased spending on vehicles and trailers atfacilities across all of our transportation segments and increased spending on information technology at FedEx Express, FedEx Services and FedEx Freight.segments. See the “Capital Resources” section of this MD&A for a discussion of capital expenditures during 20202021 and 2019.2020.
During the first quarterAugust 2020, FedEx Express issued $970 million of 2020, we issued $2.1 billionPass Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of senior unsecured debt under our current shelf registration statement, comprised of $1.0 billion of 3.10% fixed-rate notes1.875% due in August 2029, €500 millionFebruary 2034 utilizing pass through trusts. The Certificates are secured by 19 Boeing aircraft. The payment obligations of 0.45% fixed-rate notes dueFedEx Express in August 2025respect of the Certificates are fully and €500 million of 1.30% fixed-rate notes due in August 2031. We usedunconditionally guaranteed by FedEx. FedEx Express is using the net proceeds to make voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) duringfrom the first quarter of 2020 and to redeem the $400 million aggregate principal amount of 2.30% notes due February 1, 2020 and the €500 million aggregate principal amount of 0.50% notes due April 9, 2020. The remaining net proceeds are being usedissuance for general corporate purposes.
During the third quarter of 2020, we issued commercial paper to provide us with additional short-term liquidity. As of February 29, 2020, we had $300 million of commercial paper outstanding. See Note 34 of the accompanying unaudited condensed consolidated financial statements for further discussion.
In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares. Shares under this repurchase program may be repurchased from time to time inadditional information regarding the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needsterms 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. We did not repurchase any shares of FedEx common stock during the third quarter of 2020. During the nine months of 2020, we repurchased 0.02 million shares of FedEx common stock at an average price of $156.90 per share for a total of $3 million. As of February 29, 2020, 5.1 million shares remained under the stock repurchase authorization.Certificates.
- 5139 -
CAPITAL RESOURCES
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 and actions of regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the periods ended February 29, 2020 and February 28, 2019November 30 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percent Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percent Change |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020/2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2020/2019 |
| ||||||||||||
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months |
|
| Nine Months |
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months |
|
| Six Months |
| ||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Ended |
|
| Ended |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| Ended |
|
| Ended |
| ||||||||||||||
Aircraft and related equipment |
| $ | 399 |
|
| $ | 397 |
|
| $ | 1,527 |
|
| $ | 1,472 |
|
|
| 1 |
|
|
| 4 |
|
| $ | 500 |
|
| $ | 587 |
|
| $ | 1,273 |
|
| $ | 1,128 |
|
|
| (15 | ) |
|
| 13 |
| ||
Package handling and ground support equipment |
|
| 228 |
|
|
| 167 |
|
|
| 636 |
|
|
| 584 |
|
|
| 37 |
|
|
| 9 |
|
|
| 344 |
|
|
| 267 |
|
|
| 561 |
|
|
| 408 |
|
|
| 29 |
|
|
| 38 |
| ||
Vehicles and trailers |
|
| 260 |
|
|
| 206 |
|
|
| 920 |
|
|
| 640 |
|
|
| 26 |
|
|
| 44 |
|
|
| 104 |
|
|
| 399 |
|
|
| 141 |
|
|
| 660 |
|
|
| (74 | ) |
|
| (79 | ) | ||
Information technology |
|
| 239 |
|
|
| 182 |
|
|
| 704 |
|
|
| 515 |
|
|
| 31 |
|
|
| 37 |
|
|
| 177 |
|
|
| 243 |
|
|
| 371 |
|
|
| 465 |
|
|
| (27 | ) |
|
| (20 | ) | ||
Facilities and other |
|
| 313 |
|
|
| 171 |
|
|
| 918 |
|
|
| 546 |
|
|
| 83 |
|
|
| 68 |
|
|
| 277 |
|
|
| 352 |
|
|
| 480 |
|
|
| 605 |
|
|
| (21 | ) |
|
| (21 | ) | ||
Total capital expenditures |
| $ | 1,439 |
|
| $ | 1,123 |
|
| $ | 4,705 |
|
| $ | 3,757 |
|
|
| 28 |
|
|
| 25 |
|
| $ | 1,402 |
|
| $ | 1,848 |
|
| $ | 2,826 |
|
| $ | 3,266 |
|
|
| (24 | ) |
|
| (13 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
FedEx Express segment |
| $ | 929 |
|
| $ | 672 |
|
| $ | 2,941 |
|
| $ | 2,364 |
|
|
| 38 |
|
|
| 24 |
|
| $ | 804 |
|
| $ | 1,061 |
|
| $ | 1,832 |
|
| $ | 2,012 |
|
|
| (24 | ) |
|
| (9 | ) | ||
FedEx Ground segment |
|
| 275 |
|
|
| 137 |
|
|
| 818 |
|
|
| 566 |
|
|
| 101 |
|
|
| 45 |
|
|
| 387 |
|
|
| 447 |
|
|
| 591 |
|
|
| 543 |
|
|
| (13 | ) |
|
| 9 |
| ||
FedEx Freight segment |
|
| 97 |
|
|
| 176 |
|
|
| 414 |
|
|
| 403 |
|
|
| (45 | ) |
|
| 3 |
|
|
| 59 |
|
|
| 131 |
|
|
| 98 |
|
|
| 317 |
|
|
| (55 | ) |
|
| (69 | ) | ||
FedEx Services segment |
|
| 110 |
|
|
| 112 |
|
|
| 415 |
|
|
| 336 |
|
|
| (2 | ) |
|
| 24 |
|
|
| 129 |
|
|
| 154 |
|
|
| 247 |
|
|
| 305 |
|
|
| (16 | ) |
|
| (19 | ) | ||
Other |
|
| 28 |
|
|
| 26 |
|
|
| 117 |
|
|
| 88 |
|
|
| 8 |
|
|
| 33 |
|
|
| 23 |
|
|
| 55 |
|
|
| 58 |
|
|
| 89 |
|
|
| (58 | ) |
|
| (35 | ) | ||
Total capital expenditures |
| $ | 1,439 |
|
| $ | 1,123 |
|
| $ | 4,705 |
|
| $ | 3,757 |
|
|
| 28 |
|
|
| 25 |
|
| $ | 1,402 |
|
| $ | 1,848 |
|
| $ | 2,826 |
|
| $ | 3,266 |
|
|
| (24 | ) |
|
| (13 | ) |
Capital expenditures increaseddecreased during the nine monthsfirst half of 20202021 primarily due to higherlower spending related to facilities at FedEx Express, increased spending on vehicles and trailers atfacilities across all of our transportation segments, and increasedas well as decreased spending on information technology at FedEx Express, FedEx Services and FedEx Freight.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):
|
| 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 |
|
The 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 |
|
- 41 -
LIQUIDITY OUTLOOK
WeIn 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 and seek to protect capital for unforeseen challenges from the ongoing pandemic. With over $8.3 billion in cash and $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 364-Day Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”), we believe that our cash and cash equivalents, cash flow from operations and available financing sources will 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, debt payment obligations, pension contributions and TNT Express integration expenses. allocation strategy with a priority on strengthening our balance sheet.
Our cash and cash equivalents balance at February 29,November 30, 2020 includes $930 million$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.
Our capital expenditures are expected to be approximately $5.9$5.1 billion in 2020, and2021, 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 spending for aircraft and hub modernization at FedEx Express and strategic investments that increase our efficiency in handling large packages at FedEx Groundto improve productivity and investments in technology across all transportation segments that will further optimize our networks and enhance our capabilities.safety. We invested $1.5$1.3 billion in aircraft and related equipment in the nine monthsfirst half of 20202021 and expect to invest an additional $0.2 billion$450 million for aircraft and related equipment during the fourth quarterremainder of 2020.2021. In addition, we are making investments over multiple years in our facilities 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. Despite our declining capacity needs,We expect these investments in hubs will provide productivity gains in a competitive labor environment.gains. We anticipate that our cash flow from operations will be sufficient to fund our capital expenditures for the remainder of 2020.2021. 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.
During the first quarter of 2020,2021, FedEx Express exercised options to purchase an additional sixexecuted a contract amendment rescheduling Boeing 767-300 Freighter (“B767F”) aircraft for delivery in 2022.
During the third quarter of 2020, FedEx Express executed two contract amendments rescheduling two Boeing 777 Freighter aircraft deliveries fromas follows: 2021 – 18 aircraft; 2022 – 11 aircraft; 2023 to 2022– 13 aircraft; and two B767F aircraft deliveries from 2022 to 2023.2024 – 4 aircraft.
- 52 -
We have a shelf registration statement filed with the Securities 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.
We have a $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and a $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and, together with the Five-Year Credit Agreement, the “Credit Agreements”). The Five-Year Credit Agreement expires in 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 the Credit Agreements.
During the nine months of 2020,Contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) are not required during 2021; however, we mademay make voluntary contributions totaling $1.0 billion to our U.S. Pension Plans. We do not expect to make any additional contributions to our U.S. Pension Plans duringin the fourth quartersecond half of 2020.2021. 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, a commercial paper rating of A-2 and a ratings outlook of “negative.” Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa2, a commercial paper rating of P-2 and a ratings outlook of “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.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.
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 29, 2020.
|
| Payments Due by Fiscal Year (Undiscounted) (in millions) |
| |||||||||||||||||||||||||
|
| 2020 (1) |
|
| 2021 |
|
| 2022 |
|
| 2023 |
|
| 2024 |
|
| Thereafter |
|
| Total |
| |||||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases |
| $ | 451 |
|
| $ | 2,430 |
|
| $ | 2,175 |
|
| $ | 1,931 |
|
| $ | 1,614 |
|
| $ | 8,071 |
|
| $ | 16,672 |
|
Non-capital purchase obligations and other |
|
| 451 |
|
|
| 1,037 |
|
|
| 805 |
|
|
| 609 |
|
|
| 455 |
|
|
| 3,711 |
|
|
| 7,068 |
|
Interest on long-term debt |
|
| 134 |
|
|
| 648 |
|
|
| 648 |
|
|
| 619 |
|
|
| 598 |
|
|
| 10,181 |
|
|
| 12,828 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft and related capital commitments |
|
| 101 |
|
|
| 2,019 |
|
|
| 2,371 |
|
|
| 1,818 |
|
|
| 469 |
|
|
| 227 |
|
|
| 7,005 |
|
Other capital purchase obligations |
|
| 38 |
|
|
| 26 |
|
|
| 24 |
|
|
| 23 |
|
|
| 1 |
|
|
| 5 |
|
|
| 117 |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
| — |
|
|
| — |
|
|
| 1,194 |
|
|
| 1,563 |
|
|
| 750 |
|
|
| 15,228 |
|
|
| 18,735 |
|
Finance leases |
|
| 31 |
|
|
| 26 |
|
|
| 26 |
|
|
| 25 |
|
|
| 24 |
|
|
| 728 |
|
|
| 860 |
|
Total |
| $ | 1,206 |
|
| $ | 6,186 |
|
| $ | 7,243 |
|
| $ | 6,588 |
|
| $ | 3,911 |
|
| $ | 38,151 |
|
| $ | 63,285 |
|
|
|
Includedcommitments described in the table above within the caption entitled “Non-capital purchase obligations and other” is our estimate of the current portion of the liability ($100 million) for uncertain tax positions. We cannot reasonably estimate the timing of the long-term payments or the amount by which the liability will increase or decrease over time; therefore, the long-term portion of the liability ($35 million) is excluded from the table.
We had $733 million in deposits and progress payments as of February 29, 2020 on aircraft purchases and other planned aircraft-related transactions.
The amounts reflected in the table above for finance leases represent undiscounted future minimum lease payments under noncancelable finance leases with an initial or remaining term in excess of one year at February 29, 2020.
Additional information on amounts included within the operating, investing and financing activities captions in the table above can be foundPart II, Item 7 in our Annual Report.
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We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.
See Note 9 of the accompanying unaudited condensed consolidated financial statements for additional information on our purchase commitments.
- 42 -
OTHER BUSINESS MATTERS
During the first quarter of 2020,On June 24, 2019, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce (the “DOC”) from enforcing prohibitions contained in the Export Administration Regulations (the “EARs”) against FedEx. FedEx believes thatOn September 11, 2020, the EARs violate common carriers’ rightscourt granted the DOC’s motion to due process underdismiss the Fifth Amendment of the U.S. Constitution as they unreasonably hold common carriers strictly liable for shipments that may violate the EARs without requiring evidence that the carriers had knowledge of any violations.
The China State Post Bureau is currently conducting an investigation into the operations of FedEx Express regarding its handling of certain packages while attempting to comply with the EARs. FedEx Express has and will continue to fully cooperate with the Chinese authorities on the investigation.lawsuit. On November 5, 2020, we appealed this decision.
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 29,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.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in “Fuel,“Income Taxes,” “Business Acquisitions,” “Outlook” and “Liquidity Outlook” and the “General,” “Financing Arrangements,” “Income Taxes,” “Outlook,” “Liquidity Outlook,” “Contractual Cash Obligations and Off-Balance Sheet Arrangements” and “Critical Accounting Estimates,” and the “Financing Arrangements,” “Retirement Plans,” “Leases,” “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 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,” “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; |
• | 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; |
- 54 -
• | 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; |
• |
|
• | our ability to retain and attract employee talent and maintain our company culture; |
- 43 -
• | the |
• | the |
• | 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 |
• | future |
• | our ability to |
• | 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 |
• | 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 |
• | 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; |
- 55 -
• | constraints, volatility or disruption in the |
• | 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, |
- 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, 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) |
• | 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; |
• | the alternative interest rates we are able to negotiate with counterparties pursuant to the relevant provisions of our |
• | 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.
- 5645 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of February 29,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 relate to the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar and Mexican peso. Historically, our exposure to foreign currency fluctuations is more significant with respect to our revenue 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 2020,2021, the U.S. dollar strengthenedweakened relative to the currencies of the foreign countries in which we operate, as compared to May 31, 2019the first six months of 2020, and this strengtheningweakening had a slightly positive 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 Securities and Exchange Commission’sSEC’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 29,November 30, 2020 (the end of the period covered by this Quarterly Report on Form 10-Q).
In the first quarter of 2020, we adopted Accounting Standards Update 2016-02, Leases (Topic 842), and began implementing new systems and internal controls in conjunction with the new lease standard. The implementation of such systems and internal controls continued in the third quarter of 2020. In addition, during the second quarter of 2020, we began implementing new internal controls in conjunction with the migration to an enterprise resource planning cloud-based financial system. The implementation of such internal controls continued in the third quarter of 2020. During our fiscal quarter ended February 29,November 30, 2020, no change occurred in our internal control over financial reporting including the new controls described above, 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.
- 5746 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of all material pending legal proceedings, see Note 10 of the accompanying unaudited condensed consolidated financial statements.
Item 1A. Risk Factors
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.
The widespread outbreak of an illness or any other communicable disease, or any other public health crisis, could adversely affectCOVID-19 pandemic has had certain adverse effects on our business, results of operations and financial condition.condition, and we expect such adverse effects will continue. We could be negatively impacted by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. In December 2019, an outbreak of a new strain of coronavirus (“COVID-19”) began in Wuhan, Hubei Province, China. In March 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The extent ofDue to the impact of the COVID-19 pandemic on our operationalcrucial role we play in moving supply chains and financial performance, including our abilitydelivering critical relief, we are considered an essential business and we continue to execute our business strategiesoperate under and initiativesrespond to evolving governmental and other restrictions issued in the expected time frame, will depend on future developments, including the durationU.S. and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. An extended periodglobally. The disruption of global supply chainchains and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.
Additional changes in international trade policies and relations could significantly reduce the volume of goods transported globally and adversely affect our business and results of operations. The U.S. government has made significant changes in U.S. trade policy and has taken certain actions that have negatively impacted U.S. trade, including imposing tariffs on certain goods imported into the United States. To date, several governments, including the European Union (“EU”), China and India, have imposed tariffs on certain goods imported from the United States. These actions contributed to weakness in the global economy that adverselyhas materially affected our results of operations during fiscal 2019 and the first three quarters of fiscal 2020, and we expect such weakness to continue to be present during the fourth quarter of fiscal 2020. Any further changes in U.S. or international trade policy could trigger additional retaliatory actions by affected countries, resulting in “trade wars” and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with countries that impose anti-trade measures. Political uncertainty surrounding international trade and other disputes could also have a negative effect on consumer confidence and spending. Such conditions could have an adverse effect on 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 well asits 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 price of our common stock.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. |
- 47 -
• | 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 U.S. government has taken action to limitextent the ability of domestic companies to engage in commerce with certain foreign entities under certain circumstances. Given the nature ofCOVID-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 global recognizability, foreign governments may target FedEx by limiting the abilityAnnual Report, any of foreign entities to do business with us in certain instances, imposing monetary or other penalties or taking other retaliatory action, which could have an adverse effect onmaterially and adversely affect our business, results of operations and financial condition, as well as oncondition. Such risks include, but are not limited to, additional changes in international trade policies and relations; our ability to successfully integrate the price of our common stock. For example, the China State Post Bureau is currently conducting an investigation into thebusinesses and operations of FedEx Express regarding its handlingand TNT Express in the expected time frame and at the expected cost; our strong reputation and the value of certain packages while attemptingthe FedEx brand; our ability to comply withmanage our capital intensive businesses; changes to the Export Administration Regulations.business and financial soundness of the U.S. Postal Service; workforce availability; employee healthcare benefit costs; constraints, volatility or disruption 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 third parties relating to the COVID-19 pandemic or our actions in response to the pandemic.
The United Kingdom’s withdrawal from the EUEuropean Union (“EU”) could adversely impact our business, results of operations and financial condition. On January 31, 2020, the United Kingdom left the EU (“Brexit”). The United Kingdom and EU are now in a transitional period during which the United Kingdom will maintain access to the EU single market and to the global trade deals negotiated by the EU on behalf of its members, and remain subject to EU law, until December 31, 2020.
The uncertainty regarding the status of Brexit has negatively impacted the United Kingdom’s and the EU’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 Brexit will depend on the terms of such resolution.resolution, if one is ultimately reached. Even if the United Kingdom maintains access to the EU 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 December 17, 2020, the United Kingdom and EU have not reached a resolution regarding their future trading relationship beyond December 31, 2020.
- 5848 -
Additionally, we may face new regulations regarding trade, aviation, tax, security and employees, among others, in the United Kingdom. Compliance with such regulations could be costly, negatively impacting our business, results of operations and financial condition. Brexit could also adversely affect European and worldwide economic and market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the euro and the British pound.
Proposed pilot flight and duty time regulations could impair our operations and impose substantial costs on us. In September 2010, the Federal Aviation Administration (“FAA”) proposed regulations that would change the flight and duty time rules applicable to all-cargo air carriers. When the FAA issued final regulations in December 2011 (the “2011 regulations”), all-cargo carriers, including FedEx Express, were exempt from these new requirements. Instead, all-cargo carriers were required to continue complying with previously enacted flight and duty time rules and allowed to pursue the development of fatigue risk management systems to develop fatigue mitigations unique to each operation. In December 2012, the FAA reaffirmed the exclusion of all-cargo carriers from the 2011 regulations, and litigation in the U.S. Court of Appeals for the District of Columbia affirmed the FAA’s decision. However, legislation has recently been introduced in the U.S. Senate and U.S. House of Representatives that, if adopted, would require all-cargo carriers to comply with the 2011 regulations. Required compliance with the 2011 regulations would make it more difficult to avoid pilot fatigue and could impose substantial costs on us in order to maintain operational reliability.
- 59 -
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We did not repurchase any shares of FedEx common stock during the thirdsecond quarter of 2020.2021.
On January 26, 2016, we announced a stock repurchase program approved by our Board, of Directors, 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 13, 2019,December 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.
- 6049 -
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.
- 50 -
Item 6. Exhibits
Exhibit Number |
| Description of Exhibit |
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*˄10.1 |
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*˄10.2 |
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*˄10.3 |
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*˄10.4 |
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*˄10.5 |
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*˄10.6 |
| . |
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*˄10.7 |
| . |
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*˄ |
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15.1 |
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22 | List of Guarantor Subsidiaries and Subsidiary Issuers of Guaranteed Securities. | |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.1 |
| Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”).
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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. |
- 61 -
˄ 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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|
- 6251 -
SIGNATURE
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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