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General | 9 Months Ended
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Feb. 28, 2022
General [Abstract] |
General | (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, 2021 (“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 28, 2022, and the results of our operations for the three- and nine-month periods ended February 28, 2022 and 2021, cash flows for the nine-month periods ended February 28, 2022 and 2021, and changes in common stockholders’ investment for the three- and nine-month periods ended February 28, 2022 and 2021. Operating results for the three- and nine-month periods ended February 28, 2022 are not necessarily indicative of the results that may be expected for the year ending May 31, 2022. Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2022 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. REVENUE RECOGNITION. Contract Assets and Liabilities Contract assets include billed and unbilled amounts resulting from in-transit shipments, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., 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 shipments totaled $819 million and $715 million at February 28, 2022 and May 31, 2021, respectively. Contract assets net of deferred unearned revenue were $591 million a nd $572 million at February 28, 2022 and May 31, 2021, 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 $8 million and $9 million at February 28, 2022 and May 31, 2021, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets. Disaggregation of Revenue The following table provides revenue by service type (in millions) for the periods ended February 28. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
|  | Three Months Ended |  |  | Nine Months Ended |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
REVENUE BY SERVICE TYPE |  |  |  |  |  |  |  |  |  |  |  |
FedEx Express segment: |  |  |  |  |  |  |  |  |  |  |  |
Package: |  |  |  |  |  |  |  |  |  |  |  |
U.S. overnight box |  | $ | 2,275 |  |  | $ | 2,078 |  |  | $ | 6,694 |  |  | $ | 5,951 |
U.S. overnight envelope |  |  | 479 |  |  |  | 444 |  |  |  | 1,435 |  |  |  | 1,305 |
U.S. deferred |  |  | 1,422 |  |  |  | 1,418 |  |  |  | 3,960 |  |  |  | 3,718 |
Total U.S. domestic package revenue |  |  | 4,176 |  |  |  | 3,940 |  |  |  | 12,089 |  |  |  | 10,974 |
International priority |  |  | 2,991 |  |  |  | 2,596 |  |  |  | 8,937 |  |  |  | 7,423 |
International economy |  |  | 697 |  |  |  | 653 |  |  |  | 2,072 |  |  |  | 1,927 |
Total international export package revenue |  |  | 3,688 |  |  |  | 3,249 |  |  |  | 11,009 |  |  |  | 9,350 |
International domestic(1) |  |  | 1,016 |  |  |  | 1,162 |  |  |  | 3,277 |  |  |  | 3,456 |
Total package revenue |  |  | 8,880 |  |  |  | 8,351 |  |  |  | 26,375 |  |  |  | 23,780 |
Freight: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 712 |  |  |  | 860 |  |  |  | 2,262 |  |  |  | 2,492 |
International priority |  |  | 948 |  |  |  | 775 |  |  |  | 2,815 |  |  |  | 2,165 |
International economy |  |  | 378 |  |  |  | 383 |  |  |  | 1,230 |  |  |  | 1,162 |
International airfreight |  |  | 40 |  |  |  | 56 |  |  |  | 134 |  |  |  | 196 |
Total freight revenue |  |  | 2,078 |  |  |  | 2,074 |  |  |  | 6,441 |  |  |  | 6,015 |
Other |  |  | 346 |  |  |  | 363 |  |  |  | 1,059 |  |  |  | 1,008 |
Total FedEx Express segment |  |  | 11,304 |  |  |  | 10,788 |  |  |  | 33,875 |  |  |  | 30,803 |
FedEx Ground segment |  |  | 8,800 |  |  |  | 7,980 |  |  |  | 24,741 |  |  |  | 22,364 |
FedEx Freight segment |  |  | 2,253 |  |  |  | 1,836 |  |  |  | 6,776 |  |  |  | 5,598 |
FedEx Services segment |  |  | 65 |  |  |  | 8 |  |  |  | 177 |  |  |  | 24 |
Other and eliminations(2) |  |  | 1,219 |  |  |  | 898 |  |  |  | 3,549 |  |  |  | 2,605 |
|  | $ | 23,641 |  |  | $ | 21,510 |  |  | $ | 69,118 |  |  | $ | 61,394 |
(1) International domestic revenue relates to our international intra-country operations. (2) Includes the FedEx Office and Print Services, Inc. (“FedEx Office”), FedEx Logistics, Inc. (“FedEx Logistics”), and FedEx Dataworks (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segments. EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“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, and became amendable in November 2021. Bargaining for a successor agreement began in May 2021 and continues. A small number of our other employees are members of unions. EQUITY INVESTMENT. On December 8, 2021, FedEx Express finalized its strategic alliance with Delhivery Limited (“Delhivery”). In connection with the strategic alliance, FedEx Express and Delhivery entered into equity and commercial agreements. As part of the collaboration, FedEx Express made a $100 million equity investment in Delhivery, FedEx Express sold certain assets pertaining to its domestic business in India to Delhivery, and the companies entered into a long-term commercial agreement. FedEx Express will focus on international export and import services to and from India, and Delhivery will, in addition to FedEx, sell FedEx Express international services in the India market and provide pickup-and-delivery services across In dia. This transaction was recorded in the third quarter of 2022 and was not material to our results of operations. 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 $39 million for the three-month period ended February 28, 2022 and $151 million for the nine-month period ended February 28, 2022. Our stock-based compensation expense was $40 million for the three-month period ended February 28, 2021 and $161 million for the nine-month period ended February 28, 2021. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report. BUSINESS REALIGNMENT COSTS. In 2021, FedEx Express announced a workforce reduc tion plan in Europe as it nears the completion of the network integration of TNT Express. The plan will affect approximately 5,000 em ployees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur through 2023 in accordance with local country processes and regulations. We incurred costs associated with our business realignment activities o f $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months of 2022. We recognized $116 million ($90 million, net of tax, or $0.33 per diluted share) of costs under this program in the second half of 2021. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $30 million in the third quarter and $86 million in the nine months of 2022. We expect the pre-tax cost of our business realignment activities to range fro m $380 million to $450 million throu gh 2023. T he actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans and may differ from our current expectation and estimates. For additional information about the business realignment costs, see the section titled “Business Realignment Costs” included in Item 2 of this Form 10-Q (“Management’s Discussion and Analysis of Results of Operations and Financial Condition”). DERIVATIVE FINANCIAL INSTRUMENTS. Our risk management strategy includes the select use of derivative instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. In accordance with our risk management policies, we do not hold or issue derivative instruments for trading or speculative purposes. All derivative instruments are recognized in the financial statements at fair value, regardless of the purpose or intent for holding them. When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge, which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. If a derivative is designated as a cash flow hedge, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness is recorded in other comprehensive income. For net investment hedges, the entire change in the fair value is recorded in other comprehensive income. Any portion of a change in the fair value of a derivative that is considered to be ineffective, along with the change in fair value of any derivatives not designated in a hedging relationship, is immediately recognized in the income statement. We do not have any derivatives designated as a cash flow hedge for any period presented. As of February 28, 2022, we had €150 million of debt designated as a net investment hedge to reduce the volatility of the U.S. dollar value of a portion of our net investment in a euro-denominated consolidated subsidiary. As of February 28, 2022, the hedge remains effective. RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly affect 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. New Accounting Standards and Accounting Standards Not Yet Adopted In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying accounting principles generally accepted in the United States to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate to be discontinued because of reference rate reform. The guidance was effective upon issuance and can generally be applied through December 31, 2022. While there has been no material effect to our financial condition, results of operations, or cash flows from reference rate reform as of February 28, 2022, we continue to monitor our contracts and transactions for potential application of this ASU. See Note 4 for information on the replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”) in our Credit Agreements (defined below) on March 15, 2022. In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which provides alternative accounting for sales-type and direct financing leases with variable lease payments. The guidance allows lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or rate as an operating lease if certain criteria are met. These changes will be effective June 1, 2022 (fiscal 2023). We do not have leases classified as sales-type or direct financing and will apply the guidance on a prospective basis to applicable leases that commence or are modified on or after June 1, 2022. In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. These changes will be effective June 1, 2022 (fiscal 2023). We are assessing the effect of this new standard on our consolidated financial statements and related disclosures. TREASURY SHARES. In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares (the “2016 repurchase program”). In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (the “2022 repurchase program” and together with the 2016 repurchase program, the “repurchase programs”). As part of the repurchase programs, we entered into an accelerated share repurchase (“ASR”) agreement with a bank in December 2021 to repurchase an aggregate of $1.5 billion of our common stock. During the third quarter of 2022, the ASR transaction was completed, and 6.1 million shares were delivered under the ASR agreement. The final number of shares delivered upon settlement of the ASR agreement was determined based on a discount to the volume-weighted average price of our stock during the term of the transaction. The repurchased shares were accounted for as a reduction to common stockholders’ investment in the accompanying consolidated balance sheet and resulted in a reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share. The 6.1 million shares delivered under the ASR agreement were the only shares of FedEx common stock we repurchased during the third quarter of 2022. During the nine months ended February 28, 2022, including the ASR transaction, we repurchased 8.9 million shares of FedEx common stock at an average price of $253.85 per share for a total o f $2.2 billion. As of February 28, 2022, approximate ly $4.1 billion r emained available to use for repurchases under the 2022 repurchase program. No shares remain available for repurchase under the 2016 repurchase program. Shares under the 2022 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 limits were set for the completion of the program, and the program may be suspended or discontinued at any time. DIVIDENDS DECLARED PER COMMON SHARE. On Februar y 11, 2022, o ur Board of Directors declared a quarterly dividend of $0.75 per share of common stock. The dividend will be paid on April 1, 2022 to stockhol ders of record as of the close of business on March 7, 2022. 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. There are no 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.

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