| 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, 2020 (“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, 2021, and the results of our operations for the three- and nine-month periods ended February 28, 2021 and February 29, 2020, cash flows for the nine-month periods ended February 28, 2021 and February 29, 2020, and changes in common stockholders’ investment for the three- and nine-month periods ended February 28, 2021 and February 29, 2020. Operating results for the three- and nine-month periods ended February 28, 2021 and February 29, 2020 are not necessarily indicative of the results that may be expected for the year ending May 31, 2021. Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2021 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., shipments 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 tot aled $677 million were $544 million customers were $9 million Disaggregation of Revenue The following table provides revenue by service type (in millions) for the periods ended February 28, 2021 and February 29, 2020. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
Three Months Ended
Nine Months Ended
2021
2020
2021
2020
REVENUE BY SERVICE TYPE
FedEx Express segment:
Package:
U.S. overnight box
$
2,078
$
1,865
$
5,951
$
5,595
U.S. overnight envelope
444
459
1,305
1,395
U.S. deferred
1,418
1,127
3,718
3,063
Total U.S. domestic package revenue
3,940
3,451
10,974
10,053
International priority
2,596
1,710
7,423
5,344
International economy
653
810
1,927
2,538
Total international export package revenue
3,249
2,520
9,350
7,882
International domestic (1)
1,162
1,075
3,456
3,316
Total package revenue
8,351
7,046
23,780
21,251
Freight:
U.S.
860
739
2,492
2,132
International priority
775
439
2,165
1,376
International economy
383
499
1,162
1,556
International airfreight
56
61
196
197
Total freight revenue
2,074
1,738
6,015
5,261
Other (2)
363
140
1,008
441
Total FedEx Express segment
10,788
8,924
30,803
26,953
FedEx Ground segment
7,980
5,845
22,364
16,339
FedEx Freight segment
1,836
1,738
5,598
5,487
FedEx Services segment
8
6
24
15
Other and eliminations (3)
898
974
2,605
3,065
$
21,510
$
17,487
$
61,394
$
51,859
(1)
International domestic revenue relates to our international intra-country operations.
(2)
Includes the operations of FedEx Custom Critical, Inc. (“FedEx Custom Critical”) and FedEx Cross Border Holdings, Inc. (“FedEx Cross Border”) for the periods ended February 28, 2021. Effective March 1, 2020 and June 1, 2020, respectively, the results of FedEx Custom Critical and FedEx Cross Border are included in the Federal Express Corporation (“FedEx Express”) segment prospectively.
(3)
Includes the FedEx Logistics, Inc. (“FedEx Logistics”) and FedEx Office and Print Services, Inc. (“FedEx Office”) operating segments, as well as the financial results of ShopRunner, Inc. (“ShopRunner”) beginning December 23, 2020. IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets are less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. During the second quarter of 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FedEx Express to align with the needs of the U.S. domestic network and modernize its aircraft fleet. As a consequence of this decision, noncash impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) were recorded in the FedEx Express segment in the second quarter of 2020. EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FedEx Express, who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. The collective bargaining agreement is scheduled to become amendable in November 2021. Other than the pilots at FedEx Express, a small number of our employees are members of unions. BUSINESS ACQUISITION. On December 2 3 , 2020, we acquired ShopRunner, an e-commerce platform that directly connects brands and merchants with online shoppers for $ million in cash from operations . The majority of the purchase price was allocated to goodwill and intangibles . The financial results of ShopRunner are included in “Corporate, other and eliminations” from the date of acquisition and were not material to our results of operations ; t herefore, pro forma financial information has not been provided. 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 $40 million for the three-month period ended February 28, 2021 and $161 million for the nine-month period ended February 28, 2021. Our stock-based compensation expense was $33 million for the three-month period ended February 29, 2020 and $137 million for the nine-month period ended February 29, 2020. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report. BUSINESS REALIGNMENT COSTS. In January 2021, FedEx Express announced a workforce reduction plan in Europe as it nears the completion of the network integration of TNT Express. The plan will impact between 5,500 and 6,300 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 over an 18-month period in accordance with local country processes and regulations. We incurred costs of $10 million ($8 million, net of tax, or $0.03 per diluted share) during the third quarter of 2021 associated with our business realignment activities. These costs are related to certain employee severance arrangements. We expect the pre-tax cost of our business realignment activities to range from $300 million to $575 million. These charges are expected to be incurred through fiscal 2023 and will be classified as business realignment costs. 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. 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. We have €640 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 subsidiary. As of February 28, 2021, the hedge remains effective. RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements. Recently Adopted Accounting Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 that amends the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables, to utilize an expected loss methodology in place of the incurred loss methodology. We adopted this standard effective June 1, 2020. We updated our process for estimating the expected credit loss to include a review of forecast information that may impact expected collectability over the lifetime of the asset. See Note 2 for additional information. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-15 that reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. We adopted this standard effective June 1, 2020 and appl ied these changes prospectively. The adoption of t his standard d id n o t have a material impact on our consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We early adopted this standard effective June 1, 2020. The adoption of this standard did not have a material impact 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. We did not repurchase any shares of FedEx common stock during the nine months of 2021. As of February 28, 2021, 5.1 million shares remained under the stock repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time. Effective March 16, 2021, we further amended our amended and restated $2.0 billion five-year DIVIDENDS DECLARED PER COMMON SHARE. On February 12, 2021, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend will be paid on April 1, 2021 to stockholders of record as of the close of business on March 8, 2021. 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. Effective March 16, 2021, the Credit Agreements no longer contain the temporary covenant added in the fourth quarter of 2020 restricting us from increasing the amount of our quarterly dividend payable per share of common stock from $0.65 per share. There are no other material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. |
