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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, 2019

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

0.700% Notes due 2022

 

FDX 22B

 

New York Stock Exchange

1.000% Notes due 2023

 

FDX 23A

 

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

1.300% Notes due 2031

 

FDX 31

 

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 13, 2019

Common Stock, par value $0.10 per share

 

261,119,074

 

 

 

 

 


 

FEDEX CORPORATION

INDEX

 

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets

November 30, 2019 and May 31, 2019

 

3

Condensed Consolidated Statements of Income
Three and Six Months Ended November 30, 2019 and 2018

 

5

Condensed Consolidated Statements of Comprehensive Income
Three and Six Months Ended November 30, 2019 and 2018

 

6

Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 2019 and 2018

 

7

Condensed Consolidated Statements of Changes In Common Stockholders’ Investment

Three and Six Months Ended November 30, 2019 and 2018

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Report of Independent Registered Public Accounting Firm

 

31

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

 

32

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

56

ITEM 4. Controls and Procedures

 

56

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

 

57

ITEM 1A. Risk Factors

 

57

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

 

59

ITEM 6. Exhibits

 

60

Signature

 

62

 

 

 

Exhibit 10.1

 

 

Exhibit 10.2

 

 

Exhibit 10.3

 

 

Exhibit 10.4

 

 

Exhibit 10.5

 

 

Exhibit 10.6

 

 

Exhibit 10.7

 

 

Exhibit 10.8

 

 

Exhibit 10.9

 

 

Exhibit 10.10

 

 

Exhibit 10.11

 

 

Exhibit 10.12

 

 

Exhibit 15.1

 

 

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,

2019

(Unaudited)

 

 

May 31,

2019

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,031

 

 

$

2,319

 

Receivables, less allowances of $315 and $300

 

 

9,709

 

 

 

9,116

 

Spare parts, supplies and fuel, less allowances of $330 and $335

 

 

576

 

 

 

553

 

Prepaid expenses and other

 

 

882

 

 

 

1,098

 

Total current assets

 

 

13,198

 

 

 

13,086

 

PROPERTY AND EQUIPMENT, AT COST

 

 

62,715

 

 

 

59,511

 

Less accumulated depreciation and amortization

 

 

30,307

 

 

 

29,082

 

Net property and equipment

 

 

32,408

 

 

 

30,429

 

OTHER LONG-TERM ASSETS

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

14,097

 

 

 

 

Goodwill

 

 

6,861

 

 

 

6,884

 

Other assets

 

 

3,390

 

 

 

4,004

 

Total other long-term assets

 

 

24,348

 

 

 

10,888

 

 

 

$

69,954

 

 

$

54,403

 

 

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,

2019

(Unaudited)

 

 

May 31,

2019

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Short-term borrowings

 

$

150

 

 

$

 

Current portion of long-term debt

 

 

16

 

 

 

964

 

Accrued salaries and employee benefits

 

 

1,632

 

 

 

1,741

 

Accounts payable

 

 

3,283

 

 

 

3,030

 

Operating lease liabilities

 

 

1,928

 

 

 

 

Accrued expenses

 

 

3,538

 

 

 

3,278

 

Total current liabilities

 

 

10,547

 

 

 

9,013

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

18,691

 

 

 

16,617

 

OTHER LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

3,072

 

 

 

2,821

 

Pension, postretirement healthcare and other benefit obligations

 

 

4,156

 

 

 

5,095

 

Self-insurance accruals

 

 

1,921

 

 

 

1,899

 

Operating lease liabilities

 

 

12,432

 

 

 

 

Deferred lease obligations

 

 

 

 

 

531

 

Other liabilities

 

 

476

 

 

 

670

 

Total other long-term liabilities

 

 

22,057

 

 

 

11,016

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

Common stock, $0.10 par value; 800 million shares authorized; 318 million shares

   issued as of November 30, 2019 and May 31, 2019

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

3,287

 

 

 

3,231

 

Retained earnings

 

 

25,431

 

 

 

24,648

 

Accumulated other comprehensive loss

 

 

(866

)

 

 

(865

)

Treasury stock, at cost

 

 

(9,225

)

 

 

(9,289

)

Total common stockholders’ investment

 

 

18,659

 

 

 

17,757

 

 

 

$

69,954

 

 

$

54,403

 

 

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

 

 

Six Months Ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUES

 

$

17,324

 

 

$

17,824

 

 

$

34,372

 

 

$

34,876

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

6,235

 

 

 

6,260

 

 

 

12,322

 

 

 

12,520

 

Purchased transportation

 

 

4,328

 

 

 

4,346

 

 

 

8,356

 

 

 

8,313

 

Rentals and landing fees

 

 

924

 

 

 

836

 

 

 

1,844

 

 

 

1,659

 

Depreciation and amortization

 

 

901

 

 

 

828

 

 

 

1,780

 

 

 

1,636

 

Fuel

 

 

890

 

 

 

1,052

 

 

 

1,760

 

 

 

2,038

 

Maintenance and repairs

 

 

774

 

 

 

751

 

 

 

1,542

 

 

 

1,486

 

Asset impairment charges

 

 

66

 

 

 

 

 

 

66

 

 

 

 

Other

 

 

2,652

 

 

 

2,583

 

 

 

5,171

 

 

 

4,985

 

 

 

 

16,770

 

 

 

16,656

 

 

 

32,841

 

 

 

32,637

 

OPERATING INCOME

 

 

554

 

 

 

1,168

 

 

 

1,531

 

 

 

2,239

 

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(151

)

 

 

(131

)

 

 

(288

)

 

 

(258

)

Other retirement plans income

 

 

168

 

 

 

158

 

 

 

336

 

 

 

316

 

Other, net

 

 

1

 

 

 

(18

)

 

 

(11

)

 

 

(19

)

 

 

 

18

 

 

 

9

 

 

 

37

 

 

 

39

 

INCOME BEFORE INCOME TAXES

 

 

572

 

 

 

1,177

 

 

 

1,568

 

 

 

2,278

 

PROVISION FOR INCOME TAXES

 

 

12

 

 

 

242

 

 

 

263

 

 

 

508

 

NET INCOME

 

$

560

 

 

$

935

 

 

$

1,305

 

 

$

1,770

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

2.15

 

 

$

3.56

 

 

$

5.00

 

 

$

6.71

 

Diluted

 

$

2.13

 

 

$

3.51

 

 

$

4.97

 

 

$

6.60

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.65

 

 

$

0.65

 

 

$

1.95

 

 

$

1.95

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

NET INCOME

 

$

560

 

 

$

935

 

 

$

1,305

 

 

$

1,770

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense of $7 and $4 in 2019 and tax benefit of $7 and $31 in 2018

 

 

72

 

 

 

(31

)

 

 

(11

)

 

 

(193

)

Amortization of prior service credit, net of tax benefit of $6 and $12 in 2019 and tax benefit of $7 and $14 in 2018

 

 

(20

)

 

 

(23

)

 

 

(41

)

 

 

(46

)

 

 

 

52

 

 

 

(54

)

 

 

(52

)

 

 

(239

)

COMPREHENSIVE INCOME

 

$

612

 

 

$

881

 

 

$

1,253

 

 

$

1,531

 

 

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,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,305

 

 

$

1,770

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,780

 

 

 

1,636

 

Asset impairment charges

 

 

66

 

 

 

 

Provision for uncollectible accounts

 

 

208

 

 

 

160

 

Stock-based compensation

 

 

104

 

 

 

108

 

Deferred income taxes and other noncash items

 

 

1,164

 

 

 

236

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

(684

)

 

 

(1,343

)

Other assets

 

 

(162

)

 

 

(111

)

Accounts payable and other liabilities

 

 

(1,691

)

 

 

(227

)

Other, net

 

 

(16

)

 

 

(50

)

Cash provided by operating activities

 

 

2,074

 

 

 

2,179

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(3,266

)

 

 

(2,634

)

Proceeds from asset dispositions and other

 

 

4

 

 

 

53

 

Cash used in investing activities

 

 

(3,262

)

 

 

(2,581

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from short-term borrowings, net

 

 

150

 

 

 

248

 

Principal payments on debt

 

 

(1,021

)

 

 

(785

)

Proceeds from debt issuances

 

 

2,093

 

 

 

1,233

 

Proceeds from stock issuances

 

 

26

 

 

 

45

 

Dividends paid

 

 

(339

)

 

 

(173

)

Purchase of treasury stock

 

 

(3

)

 

 

(1,271

)

Other, net

 

 

(5

)

 

 

1

 

Cash provided by (used in) financing activities

 

 

901

 

 

 

(702

)

Effect of exchange rate changes on cash

 

 

(1

)

 

 

(38

)

Net decrease in cash and cash equivalents

 

 

(288

)

 

 

(1,142

)

Cash and cash equivalents at beginning of period

 

 

2,319

 

 

 

3,265

 

Cash and cash equivalents at end of period

 

$

2,031

 

 

$

2,123

 

 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

32

 

 

$

32

 

 

$

32

 

 

$

32

 

Ending Balance

 

 

32

 

 

 

32

 

 

 

32

 

 

 

32

 

Additional Paid-in-Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

3,257

 

 

 

3,154

 

 

 

3,231

 

 

 

3,117

 

Employee incentive plans and other

 

 

30

 

 

 

31

 

 

 

56

 

 

 

68

 

Ending Balance

 

 

3,287

 

 

 

3,185

 

 

 

3,287

 

 

 

3,185

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

25,048

 

 

 

25,315

 

 

 

24,648

 

 

 

24,823

 

Net Income

 

 

560

 

 

 

935

 

 

 

1,305

 

 

 

1,770

 

Cash dividends declared ($0.65, $0.65, $1.95, and $1.95 per share)

 

 

(170

)

 

 

(170

)

 

 

(509

)

 

 

(514

)

Employee incentive plans and other

 

 

(7

)

 

 

 

 

 

(9

)

 

 

1

 

Adoption of new accounting standards on June 1, 2019(1)

 

 

 

 

 

 

 

 

(4

)

 

 

 

Ending Balance

 

 

25,431

 

 

 

26,080

 

 

 

25,431

 

 

 

26,080

 

Accumulated Other Comprehensive Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(918

)

 

 

(763

)

 

 

(865

)

 

 

(578

)

Other comprehensive income, net of tax (expense)/benefit of ($1), $14, $8, and $45

 

 

52

 

 

 

(54

)

 

 

(52

)

 

 

(239

)

Reclassification to retained earnings due to the adoption of a new accounting standard on June 1, 2019(2)

 

 

 

 

 

 

 

 

51

 

 

 

 

Ending Balance

 

 

(866

)

 

 

(817

)

 

 

(866

)

 

 

(817

)

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(9,253

)

 

 

(8,565

)

 

 

(9,289

)

 

 

(7,978

)

Purchase of treasury stock (0.0, 2.8, 0.02, and 5.4 million shares)

 

 

 

 

 

(646

)

 

 

(3

)

 

 

(1,271

)

Employee incentive plans and other (0.2, 0.2, 0.5, and 0.5 million shares)

 

 

28

 

 

 

25

 

 

 

67

 

 

 

63

 

Ending Balance

 

 

(9,225

)

 

 

(9,186

)

 

 

(9,225

)

 

 

(9,186

)

Total Common Stockholders' Investment Balance

 

$

18,659

 

 

$

19,294

 

 

$

18,659

 

 

$

19,294

 

 

(1)

Relates to the adoption of Accounting Standards Update (“ASU”) 2016-02 and ASU 2018-02.

 

(2)

Relates to the adoption of ASU 2018-02.

 

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, 2019 (“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, 2019, and the results of our operations for the three- and six-month periods ended November 30, 2019 and 2018, cash flows for the six-month periods ended November 30, 2019 and 2018, and changes in common stockholders’ investment for the three- and six-month periods ended November 30, 2019 and 2018. Operating results for the three- and six-month periods ended November 30, 2019 are not necessarily indicative of the results that may be expected for the year ending May 31, 2020.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2020 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year.

RECLASSIFICATIONS. Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year presentation.

REVENUE RECOGNITION

Contract Assets and Liabilities

Contract assets include billed and unbilled amounts resulting from in-transit packages, 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 packages totaled $513 million and $533 million at November 30, 2019 and May 31, 2019, respectively. Contract assets net of deferred unearned revenue were $