10-Q 1 fdx-20220831.htm 10-Q 10-Q
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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 August 31, 2022

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:

 

 

 

 

 

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

0.450% Notes due 2025

 

FDX 25A

 

New York Stock Exchange

1.625% Notes due 2027

 

FDX 27

 

New York Stock Exchange

0.450% Notes due 2029

 

FDX 29A

 

New York Stock Exchange

1.300% Notes due 2031

 

FDX 31

 

New York Stock Exchange

0.950% Notes due 2033

 

FDX 33

 

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

 

 

 

 

 

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 September 20, 2022

Common Stock, par value $0.10 per share

 

260,219,792

 

 

 


 

FEDEX CORPORATION

INDEX

 

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets
August 31, 2022 and May 31, 2022

 

3

Condensed Consolidated Statements of Income
Three Months Ended August 31, 2022 and 2021

 

5

Condensed Consolidated Statements of Comprehensive Income
Three Months Ended August 31, 2022 and 2021

 

6

Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 2022 and 2021

 

7

Condensed Consolidated Statements of Changes In Common Stockholders’ Investment
Three Months Ended August 31, 2022 and 2021

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Report of Independent Registered Public Accounting Firm

 

19

ITEM 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

20

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

39

ITEM 4. Controls and Procedures

 

40

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

 

40

ITEM 1A. Risk Factors

 

40

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

40

ITEM 5. Other Information

 

41

ITEM 6. Exhibits

 

42

Signature

 

43

 

 

 

Exhibit 15.1

 

 

Exhibit 22

 

 

Exhibit 31.1

 

 

Exhibit 31.2

 

 

Exhibit 32.1

 

 

Exhibit 32.2

 

 

Exhibit 101.1 Interactive Data Files

Exhibit 104.1 Cover Page Interactive Data File

 

 

 

- 2 -


 

FEDEX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN MILLIONS)

 

 

 

August 31,
2022
(Unaudited)

 

 

May 31,
2022

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,850

 

 

$

6,897

 

Receivables, less allowances of $786 and $692

 

 

11,055

 

 

 

11,863

 

Spare parts, supplies, and fuel, less allowances of $363 and $360

 

 

647

 

 

 

637

 

Prepaid expenses and other

 

 

1,054

 

 

 

968

 

Total current assets

 

 

19,606

 

 

 

20,365

 

PROPERTY AND EQUIPMENT, AT COST

 

 

76,712

 

 

 

75,275

 

Less accumulated depreciation and amortization

 

 

37,906

 

 

 

37,184

 

Net property and equipment

 

 

38,806

 

 

 

38,091

 

OTHER LONG-TERM ASSETS

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

17,219

 

 

 

16,613

 

Goodwill

 

 

6,316

 

 

 

6,544

 

Other assets

 

 

3,879

 

 

 

4,381

 

Total other long-term assets

 

 

27,414

 

 

 

27,538

 

 

 

$

85,826

 

 

$

85,994

 

 

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)

 

 

 

August 31,
2022
(Unaudited)

 

 

May 31,
2022

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Current portion of long-term debt

 

$

139

 

 

$

82

 

Accrued salaries and employee benefits

 

 

2,263

 

 

 

2,531

 

Accounts payable

 

 

4,167

 

 

 

4,030

 

Operating lease liabilities

 

 

2,470

 

 

 

2,443

 

Accrued expenses

 

 

4,726

 

 

 

5,188

 

Total current liabilities

 

 

13,765

 

 

 

14,274

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

19,918

 

 

 

20,182

 

OTHER LONG-TERM LIABILITIES

 

 

 

 

 

 

Deferred income taxes

 

 

4,134

 

 

 

4,093

 

Pension, postretirement healthcare, and other benefit obligations

 

 

4,055

 

 

 

4,448

 

Self-insurance accruals

 

 

3,042

 

 

 

2,889

 

Operating lease liabilities

 

 

15,118

 

 

 

14,487

 

Other liabilities

 

 

654

 

 

 

682

 

Total other long-term liabilities

 

 

27,003

 

 

 

26,599

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

Common stock, $0.10 par value; 800 million shares authorized; 318 million shares
   issued as of August 31, 2022 and May 31, 2022

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

3,751

 

 

 

3,712

 

Retained earnings

 

 

33,060

 

 

 

32,782

 

Accumulated other comprehensive loss

 

 

(1,314

)

 

 

(1,103

)

Treasury stock, at cost

 

 

(10,389

)

 

 

(10,484

)

Total common stockholders’ investment

 

 

25,140

 

 

 

24,939

 

 

 

$

85,826

 

 

$

85,994

 

 

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
 August 31,

 

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

REVENUE

 

$

23,242

 

 

$

22,003

 

OPERATING EXPENSES:

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,859

 

 

 

7,776

 

Purchased transportation

 

 

5,767

 

 

 

5,659

 

Rentals and landing fees

 

 

1,159

 

 

 

1,133

 

Depreciation and amortization

 

 

1,024

 

 

 

971

 

Fuel

 

 

1,822

 

 

 

1,009

 

Maintenance and repairs

 

 

904

 

 

 

869

 

Business realignment and optimization costs

 

 

38

 

 

 

67

 

Other

 

 

3,478

 

 

 

3,121

 

 

 

 

22,051

 

 

 

20,605

 

OPERATING INCOME

 

 

1,191

 

 

 

1,398

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

Interest, net

 

 

(142

)

 

 

(160

)

Other retirement plans income

 

 

101

 

 

 

216

 

Other, net

 

 

4

 

 

 

3

 

 

 

 

(37

)

 

 

59

 

INCOME BEFORE INCOME TAXES

 

 

1,154

 

 

 

1,457

 

PROVISION FOR INCOME TAXES

 

 

279

 

 

 

345

 

NET INCOME

 

$

875

 

 

$

1,112

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

Basic

 

$

3.37

 

 

$

4.17

 

Diluted

 

$

3.33

 

 

$

4.09

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

2.30

 

 

$

1.50

 

 

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

 

 

 

August 31,

 

 

 

2022

 

 

2021

 

NET INCOME

 

$

875

 

 

$

1,112

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax benefit of $18 in 2022 and tax benefit of $0 in 2021

 

 

(209

)

 

 

(147

)

Amortization of prior service credit, net of tax benefit of $0 in 2022 and $0 in 2021

 

 

(2

)

 

 

(2

)

 

 

 

(211

)

 

 

(149

)

COMPREHENSIVE INCOME

 

$

664

 

 

$

963

 

 

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)

 

 

 

Three Months Ended
 August 31,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

875

 

 

$

1,112

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,024

 

 

 

971

 

Provision for uncollectible accounts

 

 

245

 

 

 

117

 

Stock-based compensation

 

 

68

 

 

 

69

 

Other noncash items including leases and deferred income taxes

 

 

774

 

 

 

884

 

Business realignment and optimization costs/(payments), net

 

 

(14

)

 

 

36

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

259

 

 

 

726

 

Other assets

 

 

(170

)

 

 

(171

)

Accounts payable and other liabilities

 

 

(1,473

)

 

 

(1,616

)

Other, net

 

 

19

 

 

 

(44

)

Cash provided by operating activities

 

 

1,607

 

 

 

2,084

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

 

(1,284

)

 

 

(1,570

)

Purchase of investments

 

 

(35

)

 

 

 

Proceeds from asset dispositions and other

 

 

10

 

 

 

20

 

Cash used in investing activities

 

 

(1,309

)

 

 

(1,550

)

Financing Activities:

 

 

 

 

 

 

Principal payments on debt

 

 

(29

)

 

 

(64

)

Proceeds from stock issuances

 

 

81

 

 

 

84

 

Dividends paid

 

 

(299

)

 

 

(200

)

Purchase of treasury stock

 

 

 

 

 

(549

)

Other, net

 

 

 

 

 

(1

)

Cash used in financing activities

 

 

(247

)

 

 

(730

)

Effect of exchange rate changes on cash

 

 

(98

)

 

 

(38

)

Net decrease in cash and cash equivalents

 

 

(47

)

 

 

(234

)

Cash and cash equivalents at beginning of period

 

 

6,897

 

 

 

7,087

 

Cash and cash equivalents at end of period

 

$

6,850

 

 

$

6,853

 

 

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

 

 

 

August 31,

 

 

 

2022

 

 

2021

 

Common Stock

 

 

 

 

 

 

Beginning Balance

 

$

32

 

 

$

32

 

Ending Balance

 

 

32

 

 

 

32

 

Additional Paid-in Capital

 

 

 

 

 

 

Beginning Balance

 

 

3,712

 

 

 

3,481

 

Employee incentive plans and other

 

 

39

 

 

 

129

 

Ending Balance

 

 

3,751

 

 

 

3,610

 

Retained Earnings

 

 

 

 

 

 

Beginning Balance

 

 

32,782

 

 

 

29,817

 

Net Income

 

 

875

 

 

 

1,112

 

Cash dividends declared ($2.30 and $1.50 per share)

 

 

(597

)

 

 

(400

)

Employee incentive plans and other

 

 

 

 

 

(67

)

Ending Balance

 

 

33,060

 

 

 

30,462

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

Beginning Balance

 

 

(1,103

)

 

 

(732

)

Other comprehensive income, net of tax benefit of $18 and $0

 

 

(211

)

 

 

(149

)

Ending Balance

 

 

(1,314

)

 

 

(881

)

Treasury Stock

 

 

 

 

 

 

Beginning Balance

 

 

(10,484

)

 

 

(8,430

)

Purchase of treasury stock (0.0 and 1.9 million shares)

 

 

 

 

 

(549

)

Employee incentive plans and other (0.7 and 0.6 million shares)

 

 

95

 

 

 

77

 

Ending Balance

 

 

(10,389

)

 

 

(8,902

)

Total Common Stockholders’ Investment Balance

 

$

25,140

 

 

$

24,321

 

 

 

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, 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 August 31, 2022, and the results of our operations for the three-month periods ended August 31, 2022 and 2021, cash flows for the three-month periods ended August 31, 2022 and 2021, and changes in common stockholders’ investment for the three-month periods ended August 31, 2022 and 2021. Operating results for the three-month period ended August 31, 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 totaled $774 million and $861 million at August 31, 2022 and May 31, 2022, respectively. Contract assets net of deferred unearned revenue were $556 million and $623 million at August 31, 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 customers were $14 million and $8 million at August 31, 2022 and May 31, 2022, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets.

- 9 -


 

Disaggregation of Revenue

The following table provides revenue by service type (in millions) for the periods ended August 31. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.

 

 

Three Months Ended

 

 

 

2022

 

 

2021

 

REVENUE BY SERVICE TYPE

 

 

 

 

 

 

FedEx Express segment:

 

 

 

 

 

 

Package:

 

 

 

 

 

 

U.S. overnight box

 

$

2,316

 

 

$

2,170

 

U.S. overnight envelope

 

 

525

 

 

 

482

 

U.S. deferred

 

 

1,287

 

 

 

1,231

 

Total U.S. domestic package revenue

 

 

4,128

 

 

 

3,883

 

International priority

 

 

2,897

 

 

 

2,839

 

International economy

 

 

707

 

 

 

669

 

Total international export package revenue

 

 

3,604

 

 

 

3,508

 

International domestic(1)

 

 

974

 

 

 

1,114

 

Total package revenue

 

 

8,706

 

 

 

8,505

 

Freight:

 

 

 

 

 

 

U.S.

 

 

796

 

 

 

775

 

International priority

 

 

888

 

 

 

873

 

International economy

 

 

377

 

 

 

414

 

International airfreight

 

 

41

 

 

 

47

 

Total freight revenue

 

 

2,102

 

 

 

2,109

 

Other

 

 

319

 

 

 

352

 

Total FedEx Express segment

 

 

11,127

 

 

 

10,966

 

FedEx Ground segment

 

 

8,160

 

 

 

7,677

 

FedEx Freight segment

 

 

2,723

 

 

 

2,251

 

FedEx Services segment

 

 

70

 

 

 

35

 

Other and eliminations(2)

 

 

1,162

 

 

 

1,074

 

 

 

$

23,242

 

 

$

22,003

 

(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.

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 $68 million for the three-month period ended August 31, 2022 and $69 million for the three-month period ended August 31, 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 reduction plan in Europe related to the network integration of TNT Express. The plan will affect approximately 5,000 employees 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.

- 10 -


 

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 quarter of 2023. We recognized $67 million ($52 million, net of tax, or $0.19 per diluted share) of costs under this program in the first quarter of 2022. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $46 million in the first quarter of 2023. We expect the pre-tax cost of our business realignment activities to be approximately $420 million through 2023. The 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.

 

In the first quarter of 2023, FedEx announced 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. We plan to consolidate our sortation facilities and equipment, reduce pickup and delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimization.

 

We incurred costs associated with our business optimization activities of $24 million ($19 million, net of tax, or $0.07 per diluted share) in the first quarter of 2023. These costs are related to consulting services and are included in Corporate, other, and eliminations. We expect the pre-tax cost of our business optimization activities to be approximately $2.0 billion through 2025.

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 August 31, 2022, we had €93 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 August 31, 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 August 31, 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 impact on our consolidated financial statements and related disclosures.

- 11 -


 

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. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We are assessing the impact of this new standard on our consolidated 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 August 31, 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. We did not repurchase any shares of FedEx common stock during the first quarter of 2023. As of August 31, 2022, $4.1 billion remained available to use for repurchases under the program.

DIVIDENDS DECLARED PER COMMON SHARE. On August 12, 2022, our Board of Directors declared a quarterly dividend of $1.15 per share of common stock. The dividend will be paid on October 3, 2022 to stockholders of record as of the close of business on September 2, 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.

(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 forecasted 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 $245 million for the three-month period ended August 31, 2022 and $117 million for the three-month period ended August 31, 2021. Our allowance for credit losses was $426 million at August 31, 2022 and $340 million at May 31, 2022.

(3) Accumulated Other Comprehensive Loss

The following table provides changes in accumulated other comprehensive income (“AOCI”), net of tax, reported in our unaudited condensed consolidated financial statements for the three-month periods ended August 31 (in millions; amounts in parentheses indicate debits to AOCI):

 

 

 

2022

 

 

2021

 

Foreign currency translation loss:

 

 

 

 

 

 

Balance at beginning of period

 

$

(1,148

)