10-Q 1 fdx-20231130.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 November 30, 2023

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 December 18, 2023

Common Stock, par value $0.10 per share

 

249,892,548

 

 

 


 

FEDEX CORPORATION

INDEX

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets
November 30, 2023 and May 31, 2023

 

3

Condensed Consolidated Statements of Income
Three and Six Months Ended November 30, 2023 and 2022

 

5

Condensed Consolidated Statements of Comprehensive Income
Three and Six Months Ended November 30, 2023 and 2022

 

6

Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 2023 and 2022

 

7

Condensed Consolidated Statements of Changes In Common Stockholders’ Investment
Three and Six Months Ended November 30, 2023 and 2022

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Report of Independent Registered Public Accounting Firm

 

20

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

 

21

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

43

ITEM 4. Controls and Procedures

 

43

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

 

43

ITEM 1A. Risk Factors

 

44

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

 

44

ITEM 5. Other Information

 

44

ITEM 6. Exhibits

 

45

Signature

 

46

 

 

 

Exhibit 10.1

 

 

Exhibit 10.2

 

 

Exhibit 10.3

 

 

Exhibit 10.4

 

 

Exhibit 10.5

 

 

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)

 

 

 

November 30,
2023
(Unaudited)

 

 

May 31,
2023

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,729

 

 

$

6,856

 

Receivables, less allowances of $767 and $800

 

 

10,665

 

 

 

10,188

 

Spare parts, supplies, and fuel, less allowances of $286 and $276

 

 

632

 

 

 

604

 

Prepaid expenses and other

 

 

1,091

 

 

 

962

 

Total current assets

 

 

19,117

 

 

 

18,610

 

PROPERTY AND EQUIPMENT, AT COST

 

 

83,281

 

 

 

80,624

 

Less accumulated depreciation and amortization

 

 

41,749

 

 

 

39,926

 

Net property and equipment

 

 

41,532

 

 

 

40,698

 

OTHER LONG-TERM ASSETS

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

17,243

 

 

 

17,347

 

Goodwill

 

 

6,468

 

 

 

6,435

 

Other assets

 

 

3,691

 

 

 

4,053

 

Total other long-term assets

 

 

27,402

 

 

 

27,835

 

 

 

$

88,051

 

 

$

87,143

 

 

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)

 

 

 

November 30,
2023
(Unaudited)

 

 

May 31,
2023

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Current portion of long-term debt

 

$

334

 

 

$

126

 

Accrued salaries and employee benefits

 

 

2,732

 

 

 

2,475

 

Accounts payable

 

 

4,002

 

 

 

3,848

 

Operating lease liabilities

 

 

2,433

 

 

 

2,390

 

Accrued expenses

 

 

4,747

 

 

 

4,747

 

Total current liabilities

 

 

14,248

 

 

 

13,586

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

20,193

 

 

 

20,453

 

OTHER LONG-TERM LIABILITIES

 

 

 

 

 

 

Deferred income taxes

 

 

4,386

 

 

 

4,489

 

Pension, postretirement healthcare, and other benefit obligations

 

 

2,854

 

 

 

3,130

 

Self-insurance accruals

 

 

3,688

 

 

 

3,339

 

Operating lease liabilities

 

 

15,222

 

 

 

15,363

 

Other liabilities

 

 

694

 

 

 

695

 

Total other long-term liabilities

 

 

26,844

 

 

 

27,016

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

Common stock, $0.10 par value; 800 million shares authorized; 318 million shares
   issued as of November 30, 2023 and May 31, 2023

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

3,849

 

 

 

3,769

 

Retained earnings

 

 

36,605

 

 

 

35,259

 

Accumulated other comprehensive loss

 

 

(1,294

)

 

 

(1,327

)

Treasury stock, at cost

 

 

(12,426

)

 

 

(11,645

)

Total common stockholders’ investment

 

 

26,766

 

 

 

26,088

 

 

 

$

88,051

 

 

$

87,143

 

 

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
November 30,

 

 

Six Months Ended
November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

$

22,165

 

 

$

22,814

 

 

$

43,846

 

 

$

46,056

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,833

 

 

 

7,792

 

 

 

15,618

 

 

 

15,651

 

Purchased transportation

 

 

5,395

 

 

 

5,665

 

 

 

10,431

 

 

 

11,432

 

Rentals and landing fees

 

 

1,138

 

 

 

1,195

 

 

 

2,289

 

 

 

2,354

 

Depreciation and amortization

 

 

1,040

 

 

 

1,046

 

 

 

2,111

 

 

 

2,070

 

Fuel

 

 

1,328

 

 

 

1,593

 

 

 

2,429

 

 

 

3,415

 

Maintenance and repairs

 

 

854

 

 

 

882

 

 

 

1,678

 

 

 

1,786

 

Business optimization and realignment costs

 

 

145

 

 

 

36

 

 

 

250

 

 

 

74

 

Other

 

 

3,156

 

 

 

3,429

 

 

 

6,279

 

 

 

6,907

 

 

 

 

20,889

 

 

 

21,638

 

 

 

41,085

 

 

 

43,689

 

OPERATING INCOME

 

 

1,276

 

 

 

1,176

 

 

 

2,761

 

 

 

2,367

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(97

)

 

 

(127

)

 

 

(188

)

 

 

(269

)

Other retirement plans, net

 

 

41

 

 

 

101

 

 

 

80

 

 

 

202

 

Other, net

 

 

(18

)

 

 

(91

)

 

 

(28

)

 

 

(87

)

 

 

 

(74

)

 

 

(117

)

 

 

(136

)

 

 

(154

)

INCOME BEFORE INCOME TAXES

 

 

1,202

 

 

 

1,059

 

 

 

2,625

 

 

 

2,213

 

PROVISION FOR INCOME TAXES

 

 

302

 

 

 

271

 

 

 

647

 

 

 

550

 

NET INCOME

 

$

900

 

 

$

788

 

 

$

1,978

 

 

$

1,663

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.59

 

 

$

3.08

 

 

$

7.88

 

 

$

6.46

 

Diluted

 

$

3.55

 

 

$

3.07

 

 

$

7.79

 

 

$

6.41

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

1.26

 

 

$

1.15

 

 

$

2.52

 

 

$

3.45

 

 

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

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

NET INCOME

 

$

900

 

 

$

788

 

 

$

1,978

 

 

$

1,663

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax (expense) benefit of ($3) and $1 in 2023 and $9 and $27 in 2022

 

 

28

 

 

 

(70

)

 

 

 

 

 

(279

)

Prior service credit arising during period, net of tax (expense) of ($11) and ($11) in 2023 and $0 and $0 in 2022

 

 

36

 

 

 

 

 

 

36

 

 

 

 

Amortization of prior service credit, net of benefit of $0 and $0 in 2023 and $1 and $1 in 2022

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(3

)

 

 

 

62

 

 

 

(71

)

 

 

33

 

 

 

(282

)

COMPREHENSIVE INCOME

 

$

962

 

 

$

717

 

 

$

2,011

 

 

$

1,381

 

 

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)

 

 

 

Six Months Ended
November 30,

 

 

 

2023

 

 

2022

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

1,978

 

 

$

1,663

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,111

 

 

 

2,070

 

Provision for uncollectible accounts

 

 

216

 

 

 

425

 

Stock-based compensation

 

 

96

 

 

 

108

 

Other noncash items including leases and deferred income taxes

 

 

1,427

 

 

 

1,589

 

Business optimization and realignment costs, net of payments

 

 

(28

)

 

 

(40

)

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(687

)

 

 

(512

)

Other assets

 

 

(110

)

 

 

(214

)

Accounts payable and other liabilities

 

 

(975

)

 

 

(1,994

)

Other, net

 

 

(24

)

 

 

30

 

Cash provided by operating activities

 

 

4,004

 

 

 

3,125

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

 

(2,595

)

 

 

(3,142

)

Purchase of investments

 

 

(75

)

 

 

(78

)

Proceeds from asset dispositions and other

 

 

62

 

 

 

20

 

Cash used in investing activities

 

 

(2,608

)

 

 

(3,200

)

Financing Activities:

 

 

 

 

 

 

Principal payments on debt

 

 

(94

)

 

 

(32

)

Proceeds from stock issuances

 

 

211

 

 

 

89

 

Dividends paid

 

 

(635

)

 

 

(598

)

Purchase of treasury stock

 

 

(1,000

)

 

 

(1,500

)

Other, net

 

 

 

 

 

1

 

Cash used in financing activities

 

 

(1,518

)

 

 

(2,040

)

Effect of exchange rate changes on cash

 

 

(5

)

 

 

(136

)

Net decrease in cash and cash equivalents

 

 

(127

)

 

 

(2,251

)

Cash and cash equivalents at beginning of period

 

 

6,856

 

 

 

6,897

 

Cash and cash equivalents at end of period

 

$

6,729

 

 

$

4,646

 

 

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

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

32

 

 

$

32

 

 

$

32

 

 

$

32

 

Ending Balance

 

 

32

 

 

 

32

 

 

 

32

 

 

 

32

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

3,800

 

 

 

3,751

 

 

 

3,769

 

 

 

3,712

 

Purchase of treasury stock

 

 

2

 

 

 

(300

)

 

 

(34

)

 

 

(300

)

Employee incentive plans and other

 

 

47

 

 

 

36

 

 

 

114

 

 

 

75

 

Ending Balance

 

 

3,849

 

 

 

3,487

 

 

 

3,849

 

 

 

3,487

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

36,021

 

 

 

33,060

 

 

 

35,259

 

 

 

32,782

 

Net Income

 

 

900

 

 

 

788

 

 

 

1,978

 

 

 

1,663

 

Cash dividends declared ($1.26, $1.15, $2.52, and $3.45 per share)

 

 

(316

)

 

 

(291

)

 

 

(632

)

 

 

(888

)

Ending Balance

 

 

36,605

 

 

 

33,557

 

 

 

36,605

 

 

 

33,557

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(1,356

)

 

 

(1,314

)

 

 

(1,327

)

 

 

(1,103

)

Other comprehensive income (loss), net of tax (expense) benefit of ($14), $10, ($10), and $28

 

 

62

 

 

 

(71

)

 

 

33

 

 

 

(282

)

Ending Balance

 

 

(1,294

)

 

 

(1,385

)

 

 

(1,294

)

 

 

(1,385

)

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(11,963

)

 

 

(10,389

)

 

 

(11,645

)

 

 

(10,484

)

Purchase of treasury stock (2.0, 7.9, 3.9, and 7.9 million shares)

 

 

(509

)

 

 

(1,200

)

 

 

(974

)

 

 

(1,200

)

Employee incentive plans and other (0.4, 0.1, 1.5, and 0.8 million shares)

 

 

46

 

 

 

13

 

 

 

193

 

 

 

108

 

Ending Balance

 

 

(12,426

)

 

 

(11,576

)

 

 

(12,426

)

 

 

(11,576

)

Total Common Stockholders’ Investment Balance

 

$

26,766

 

 

$

24,115

 

 

$

26,766

 

 

$

24,115

 

 

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, 2023 (“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, 2023, and the results of our operations for the three- and six-month periods ended November 30, 2023 and 2022, cash flows for the six-month periods ended November 30, 2023 and 2022, and changes in common stockholders’ investment for the three- and six-month periods ended November 30, 2023 and 2022. Operating results for the three- and six-month period ended November 30, 2023 are not necessarily indicative of the results that may be expected for the year ending May 31, 2024.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2024 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 $828 million and $686 million at November 30, 2023 and May 31, 2023, respectively. Contract assets net of deferred unearned revenue were $591 million and $484 million at November 30, 2023 and May 31, 2023, 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 $21 million and $19 million at November 30, 2023 and May 31, 2023, 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 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

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

REVENUE BY SERVICE TYPE

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment:

 

 

 

 

 

 

 

 

 

 

 

 

Package:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. overnight box

 

$

2,158

 

 

$

2,237

 

 

$

4,346

 

 

$

4,553

 

U.S. overnight envelope

 

 

447

 

 

 

474

 

 

 

932

 

 

 

999

 

U.S. deferred

 

 

1,208

 

 

 

1,253

 

 

 

2,395

 

 

 

2,540

 

Total U.S. domestic package revenue

 

 

3,813

 

 

 

3,964

 

 

 

7,673

 

 

 

8,092

 

International priority

 

 

2,390

 

 

 

2,823

 

 

 

4,717

 

 

 

5,720

 

International economy

 

 

1,088

 

 

 

711

 

 

 

2,109

 

 

 

1,418

 

Total international export package revenue

 

 

3,478

 

 

 

3,534

 

 

 

6,826

 

 

 

7,138

 

International domestic(1)

 

 

1,086

 

 

 

1,036

 

 

 

2,110

 

 

 

2,010

 

Total package revenue

 

 

8,377

 

 

 

8,534

 

 

 

16,609

 

 

 

17,240

 

Freight:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

584

 

 

 

784

 

 

 

1,166

 

 

 

1,580

 

International priority

 

 

569

 

 

 

811

 

 

 

1,122

 

 

 

1,699

 

International economy

 

 

422

 

 

 

388

 

 

 

847

 

 

 

765

 

International airfreight

 

 

29

 

 

 

39

 

 

 

61

 

 

 

80

 

Total freight revenue

 

 

1,604

 

 

 

2,022

 

 

 

3,196

 

 

 

4,124

 

Other

 

 

273

 

 

 

308

 

 

 

534

 

 

 

627

 

Total FedEx Express segment

 

 

10,254

 

 

 

10,864

 

 

 

20,339

 

 

 

21,991

 

FedEx Ground segment

 

 

8,639

 

 

 

8,393

 

 

 

17,059

 

 

 

16,553

 

FedEx Freight segment

 

 

2,360

 

 

 

2,454

 

 

 

4,651

 

 

 

5,177

 

FedEx Services segment

 

 

65

 

 

 

68

 

 

 

137

 

 

 

138

 

Other and eliminations(2)

 

 

847

 

 

 

1,035

 

 

 

1,660

 

 

 

2,197

 

 

 

$

22,165

 

 

$

22,814

 

 

$

43,846

 

 

$

46,056

 

(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. (“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 represented by the Air Line Pilots Association, International (“ALPA”) and are employed under a collective bargaining agreement that took effect on November 2, 2015. The agreement became amendable in November 2021. Bargaining for a successor agreement began in May 2021, and in November 2022 the National Mediation Board, which is the U.S. governmental agency that oversees labor agreements for entities covered by the Railway Labor Act of 1926, as amended, began actively mediating the negotiations. In July 2023, FedEx Express’s pilots failed to ratify the tentative successor agreement that was approved by ALPA’s FedEx Express Master Executive Council the prior month. Bargaining for a successor agreement continues. The conduct of mediated negotiations has no effect on our operations. A small number of our other employees are members of unions.

STOCK-BASED COMPENSATION. We have three types of equity-based compensation: stock options, restricted stock, and, for outside directors, restricted stock units. The key terms of the stock option and restricted stock awards granted under our outstanding incentive stock plans and financial disclosures about these programs are set forth in our Annual Report. The key terms of the restricted stock units granted to our outside directors are set forth in our Current Report on Form 8-K dated September 21, 2023 and filed with the SEC on September 22, 2023.

Our stock-based compensation expense was $40 million for the three-month period ended November 30, 2023 and $96 million for the six-month period ended November 30, 2023. Our stock-based compensation expense was $40 million for the three-month period ended November 30, 2022 and $108 million for the six-month period ended November 30, 2022. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

 

- 10 -


 

BUSINESS OPTIMIZATION AND REALIGNMENT COSTS. In the second 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, lower our overhead and support costs, and transform our digital capabilities. 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 optimized network through Network 2.0.

 

In the fourth quarter of 2023, we announced one FedEx, a consolidation plan to ultimately bring FedEx Express, FedEx Ground Package System, Inc. (“FedEx Ground”), FedEx Corporate Services, Inc. (“FedEx Services”), and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx brand. FedEx Freight, Inc. will continue to provide less-than-truckload (“LTL”) freight transportation services as a stand-alone and separate company under Federal Express Corporation. The organizational redesign will be implemented in phases with the new legal structure complete by June 2024. One FedEx will help facilitate our DRIVE transformation program to improve long-term profitability, including Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada.

 

We have announced the implementation of Network 2.0 in more than 20 markets, including the phased transition of all FedEx Ground operations and personnel in Canada to FedEx Express beginning in April 2024. Under Network 2.0, FedEx will continue to utilize both employee couriers and contracted service providers.

 

We incurred costs associated with our business optimization activities of $145 million ($110 million, net of tax, or $0.44 per diluted share) in the second quarter and $250 million ($191 million, net of tax, or $0.75 per diluted share) in the first half of 2024. These costs were primarily related to professional services and severance. We recognized $36 million ($27 million, net of tax, or $0.11 per diluted share) of costs under this program, including idling our operations in Russia, in the second quarter and $60 million ($46 million, net of tax, or $0.18 per diluted share) in the first half of 2023. These costs were primarily related to consulting services. Business optimization costs are included in Corporate, other, and eliminations, FedEx Express, and FedEx Ground.

 

In 2021, FedEx Express announced a workforce reduction plan in Europe related to the network integration of TNT Express. The plan affected approximately 5,000 employees in Europe across operational teams and back-office functions and was completed in 2023. 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. These costs were related to certain employee severance arrangements. The pre-tax cost of our business realignment activities through 2023 was approximately $430 million.

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, 2023, we had €165 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, 2023, the hedge remains effective.

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SUPPLIER FINANCE PROGRAM. We offer a voluntary Supply Chain Finance (“SCF”) program through one of our financial institutions to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities, and payment terms, and they issue invoices to us based on the agreed-upon contractual terms. If our suppliers choose to participate in the SCF program, they determine which invoices, if any, to sell to the financial institution to receive an early discounted payment, while we settle the net payment amount with our financial institution on the payment due dates. We guarantee these payments with the financial institution.

Amounts due to our suppliers that participate in the SCF program are included in accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of November 30, 2023 and May 31, 2023, suppliers have been approved to sell to them $76 million and $76 million, respectively, of our outstanding payment obligations.

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.

Recently Adopted Accounting Standards

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. We adopted this standard effective June 1, 2023. The adoption of this standard did not have a material effect on our consolidated financial statements and related disclosures.

Accounting Standards Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), and in December 2022 subsequently issued ASU 2022-06, to temporarily ease the potential burden in accounting for reference rate reform. The standards provide 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 standards 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 standards were effective upon issuance and can generally be applied through December 31, 2024. 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, 2023, we continue to monitor our contracts and transactions for potential application of these ASUs.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statements and related disclosures.

EQUITY AND OTHER 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.

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During the second quarter of 2024, we purchased $100 million of debt securities with effective maturities ranging from less than one year to approximately three years. These investments have been recognized in “Cash and cash equivalents” and “Other assets” on our consolidated balance sheets.

As of November 30, 2023, these investments are not material to our financial position or results of operations.

TREASURY SHARES. In December 2021, our Board of Directors authorized a stock repurchase program of up to $5 billion of FedEx common stock. As part of the repurchase program, we completed an accelerated share repurchase (“ASR”) agreement with a bank during the second quarter of 2024 to repurchase an aggregate of $500 million of our common stock.

During the second quarter of 2024, 2.0 million shares were repurchased under the ASR agreement at an average price of $256.24 per share for a total of $500 million. 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.

During the six months ended November 30, 2023, we repurchased 3.9 million shares of FedEx common stock under ASR agreements at an average price of $256.33 per share for a total of $1.0 billion. During the six months ended November 30, 2022, we repurchased 7.9 million shares of FedEx common stock under an ASR agreement at an average price of $151.46 per share for a total of $1.2 billion. As of November 30, 2023, approximately $1.6 billion 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. On November 17, 2023, our Board of Directors declared a quarterly dividend of $1.26 per share of common stock. The dividend will be paid on January 2, 2024 to stockholders of record as of the close of business on December 11, 2023. 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 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 $113 million for the three-month period ended November 30, 2023 and $216 million for the six-month period ended November 30, 2023. Credit losses were $180 million for the three-month period ended November 30, 2022 and $425 million for the six-month period ended November 30, 2022. Our allowance for credit losses was $426 million at November 30, 2023 and $472 million at May 31, 2023.

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(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 November 30 (in millions; amounts in parentheses indicate debits to AOCI):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Foreign currency translation loss:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(1,390

)

 

$

(1,357

)

 

$

(1,362

)

 

$

(1,148

)

Translation adjustments

 

 

28

 

 

 

(70

)

 

 

 

 

 

(279

)

Balance at end of period

 

 

(1,362

)

 

 

(1,427

)

 

 

(1,362

)

 

 

(1,427

)

Retirement plans adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

34

 

 

 

43

 

 

 

35

 

 

 

45

 

Prior service credit arising during period

 

 

36

 

 

 

 

 

 

36

 

 

 

 

Reclassifications from AOCI

 

 

(2

)

 

 

(1

)

 

 

(3

)

 

 

(3

)

Balance at end of period

 

 

68

 

 

 

42

 

 

 

68

 

 

 

42

 

Accumulated other comprehensive (loss) at end of period

 

$

(1,294

)

 

$

(1,385

)

 

$

(1,294

)

 

$

(1,385

)

The following table presents details of the reclassifications from AOCI for the periods ended November 30 (in millions; amounts in parentheses indicate debits to earnings):

 

 

 

Amount Reclassified from
AOCI

 

 

Affected Line Item in the
Income Statement

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

2023

 

 

2022