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General | 6 Months Ended
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Nov. 30, 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, 2022 (“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 November 30, 2022, and the results of our operations for the three- and six-month periods ended November 30, 2022 and 2021, cash flows for the six-month periods ended November 30, 2022 and 2021, and changes in common stockholders’ investment for the three- and six-month periods ended November 30, 2022 and 2021. Operating results for the three- and six-month periods ended November 30, 2022 are not necessarily indicative of the results that may be expected for the year ending May 31, 2023. Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2023 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 total ed $883 million and $861 million at November 30, 2022 and May 31, 2022, respectively. Contract assets net of deferred unearned revenue we re $655 million and $623 million at November 30, 2022 and May 31, 2022, respectively. Contract assets are included within current assets in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities related to advance payments from customer s were $15 million a nd $8 million at November 30, 2022 and May 31, 2022, 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 November 30. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
|  | Three Months Ended |  |  | Six Months Ended |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
REVENUE BY SERVICE TYPE |  |  |  |  |  |  |  |  |  |  |  |
FedEx Express segment: |  |  |  |  |  |  |  |  |  |  |  |
Package: |  |  |  |  |  |  |  |  |  |  |  |
U.S. overnight box |  | $ | 2,237 |  |  | $ | 2,249 |  |  | $ | 4,553 |  |  | $ | 4,419 |
U.S. overnight envelope |  |  | 474 |  |  |  | 474 |  |  |  | 999 |  |  |  | 956 |
U.S. deferred |  |  | 1,253 |  |  |  | 1,307 |  |  |  | 2,540 |  |  |  | 2,538 |
Total U.S. domestic package revenue |  |  | 3,964 |  |  |  | 4,030 |  |  |  | 8,092 |  |  |  | 7,913 |
International priority |  |  | 2,823 |  |  |  | 3,107 |  |  |  | 5,720 |  |  |  | 5,946 |
International economy |  |  | 711 |  |  |  | 706 |  |  |  | 1,418 |  |  |  | 1,375 |
Total international export package revenue |  |  | 3,534 |  |  |  | 3,813 |  |  |  | 7,138 |  |  |  | 7,321 |
International domestic(1) |  |  | 1,036 |  |  |  | 1,147 |  |  |  | 2,010 |  |  |  | 2,261 |
Total package revenue |  |  | 8,534 |  |  |  | 8,990 |  |  |  | 17,240 |  |  |  | 17,495 |
Freight: |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 784 |  |  |  | 775 |  |  |  | 1,580 |  |  |  | 1,550 |
International priority |  |  | 811 |  |  |  | 994 |  |  |  | 1,699 |  |  |  | 1,867 |
International economy |  |  | 388 |  |  |  | 438 |  |  |  | 765 |  |  |  | 852 |
International airfreight |  |  | 39 |  |  |  | 47 |  |  |  | 80 |  |  |  | 94 |
Total freight revenue |  |  | 2,022 |  |  |  | 2,254 |  |  |  | 4,124 |  |  |  | 4,363 |
Other |  |  | 308 |  |  |  | 361 |  |  |  | 627 |  |  |  | 713 |
Total FedEx Express segment |  |  | 10,864 |  |  |  | 11,605 |  |  |  | 21,991 |  |  |  | 22,571 |
FedEx Ground segment |  |  | 8,393 |  |  |  | 8,264 |  |  |  | 16,553 |  |  |  | 15,941 |
FedEx Freight segment |  |  | 2,454 |  |  |  | 2,272 |  |  |  | 5,177 |  |  |  | 4,523 |
FedEx Services segment |  |  | 68 |  |  |  | 77 |  |  |  | 138 |  |  |  | 112 |
Other and eliminations(2) |  |  | 1,035 |  |  |  | 1,256 |  |  |  | 2,197 |  |  |  | 2,330 |
|  | $ | 22,814 |  |  | $ | 23,474 |  |  | $ | 46,056 |  |  | $ | 45,477 |
(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, Inc. (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. In November 2022, the National Mediation Board (“NMB”) began actively mediating the negotiations. The NMB is the U.S. governmental agency that oversees labor agreements for entities covered by the Railway Labor Act of 1926, as amended. The conduct of mediated negotiations has no impact on our operations. A small number of our other employees are members of unions. 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 w as $40 million f or the three-month period ended November 30, 2022 and $108 mill ion for the six-month period ended November 30, 2022. Our stock-based compensation expense was $43 million for the three-month period ended November 30, 2021 and $112 million for the six-month period ended November 30, 2021. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report. BUSINESS REALIGNMENT AND OPTIMIZATION COSTS. In 2021, FedEx Express announced a workforce reduc tion plan in Europe related to the network integration of TNT Express. The plan affects 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. No business realignment costs were incurred in the second quarter of 2023. We incurred costs associated with our business realignment activities of $14 million ($11 million, net of tax, or $0.04 per diluted share) in the first half of 2023. We incurred costs associated with our business realignment activities of $44 million ($34 million, net of tax, or $0.13 per diluted share) in the second quarter and $111 million ($85 million, net of tax, or $0.31 per diluted share) in the first half of 2022. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $38 million in the second quarter and $84 million in the first half of 2023. We expect the pre-tax cost of our business realignment activities to b e approximately $415 million through 2023. The actual amount and timing of business realignment costs and related cost savings r esulting 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. In the first quarter of 2023, FedEx announced DRIVE, a comprehensive program to improve the company’s long-term profitability. This program includes a business optimization plan to drive efficiency among our transportation segments and lower our overhead and support costs. At FedEx Express, we plan to restructure the air network, optimize sorts and surface linehaul, drive efficiencies in Europe, and harmonize the global clearance process to lower costs. At FedEx Ground Package System, Inc. (“FedEx Ground”), we are transforming our pickup-and-delivery, package sortation, and transportation operations through enhanced planning tools, advanced data analytics, and increased focus on investment returns in order to drive efficiency improvements. Additionally, we plan to transform our back-office operations through automation, modernizing our infrastructure and further consolidating the shared-services functions, resulting in procurement and other cost savings from shared and allocated overhead expenses. The DRIVE program will also facilitate the achievement of Network 2.0, a plan to consolidate sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul networks by moving beyond discrete collaboration to an end-to-end optimized network. We incurred costs associated with our business optimization activities, including idling our operations in Russia, of $36 million ($27 million, net of tax, or $0.11 per diluted share) in the second quarter and $60 million ($46 million, net of tax, or $0.18 per diluted share) in the first half of 2023. T hese costs are primarily related to consulting services and are included in Corporate, other, and eliminations and FedEx Express. For additional information about the business realignment and optimization costs, see the section titled “Business Realignment and Optimization 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 November 30, 2022, we had €120 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 November 30, 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 November 30, 2022, we continue to monitor our contracts and transactions for potential application of this ASU. 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. The adoption of this standard did not have a material effect on our consolidated financial statements and related disclosures. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. Our historical accounting is consistent with these clarifications. We early adopted this standard effective September 1, 2022. The adoption of this standard did not have an effect on our consolidated financial statements and related disclosures. In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations, which requires a buyer in a supplier finance program (e.g., reverse factoring) to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. The changes will be effective June 1, 2023 (fiscal 2024). We are assessing the effect of this new standard on our consolidated financial statements. EQUITY INVESTMENTS. Equity investments in private companies for which we do not have the ability to exercise significant influence are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified as “Other assets” on our consolidated balance sheets with adjustments recognized in “Other (expense) income, net” on our consolidated statements of income. Each reporting period, we perform a qualitative assessment to evaluate whether the investment is impaired. Our assessment includes a review of available recent operating results and trends, recent sales/acquisitions of the investee securities, and other publicly available data. If the investment is impaired, we write it down to its estimated fair value. Equity investments that have readily determinable fair values, including investments for which we have elected the fair value option, are included in “Other assets” on our consolidated balance sheets and measured at fair value with changes recognized in “Other (expense) income, net” on our consolidated statements of income. As of November 30, 2022, these investments were not material to our financial position or results of operations. TREASURY SHARES. In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock. As part of the repurchase program, we entered into an accelerated share repurchase (“ASR”) agreement with a bank in October 2022 to repurchase an aggregate of $1.5 billion of our common stock. During the second quarter of 202 3, 7.9 mil lion shares were delivered under the ASR agreement, which represented approximately 80% of the total number of shares to be delivered. The final number of shares will be delivered upon settlement of the ASR agreement in December 2022 and will be 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 7.9 million shares delivered under the ASR agreement were the only shares of FedEx common stock we repurchased during the second quarter of 2023. The amount of the purchase price related to the shares to be delivered in December 2022 was accounted for as a reduction to additional paid-in capital in the accompanying consolidated statement of stockholders’ investment for the three-month and six-month periods ended November 30, 2022. During the six months ended November 30, 2022, we repurchased 7.9 million shares of FedEx common stock at an average of $151.46 per share for a total of $1.2 billion. As of November 30, 20 22, approximately $2.6 b illion remained available to use for repurchases under the program. Shares under the 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. O n November 18, 2022, our Board of Directors declared a quarterly dividend of $1.15 p er share of common stock. The dividend will be paid on January 3, 2023 to stockholders of record as of the close of business on December 12, 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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