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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, 2021

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 17, 2021

Common Stock, par value $0.10 per share

 

265,650,056

 

 

 

 

 


 

 

FEDEX CORPORATION

INDEX

 

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets
August 31, 2021 and May 31, 2021

 

3

Condensed Consolidated Statements of Income
Three Months Ended August 31, 2021 and 2020

 

5

Condensed Consolidated Statements of Comprehensive Income
Three Months Ended August 31, 2021 and 2020

 

6

Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 2021 and 2020

 

7

Condensed Consolidated Statements of Changes In Common Stockholders’ Investment
Three Months Ended August 31, 2021 and 2020

 

8

Notes to Condensed Consolidated Financial Statements

 

9

Report of Independent Registered Public Accounting Firm

 

18

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

 

19

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

 

40

ITEM 4. Controls and Procedures

 

40

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

 

41

ITEM 1A. Risk Factors

 

41

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

 

42

ITEM 5. Other Information

 

42

ITEM 6. Exhibits

 

43

Signature

 

44

 

 

 

Exhibit 10.1

 

 

Exhibit 10.2

 

 

Exhibit 10.3

 

 

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,

2021

(Unaudited)

 

 

May 31,

2021

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,853

 

 

$

7,087

 

Receivables, less allowances of $790 and $742

 

 

11,125

 

 

 

12,069

 

Spare parts, supplies, and fuel, less allowances of $348 and $349

 

 

577

 

 

 

587

 

Prepaid expenses and other

 

 

991

 

 

 

837

 

Total current assets

 

 

19,546

 

 

 

20,580

 

PROPERTY AND EQUIPMENT, AT COST

 

 

71,542

 

 

 

70,077

 

Less accumulated depreciation and amortization

 

 

35,061

 

 

 

34,325

 

Net property and equipment

 

 

36,481

 

 

 

35,752

 

OTHER LONG-TERM ASSETS

 

 

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

15,414

 

 

 

15,383

 

Goodwill

 

 

6,843

 

 

 

6,992

 

Other assets

 

 

3,764

 

 

 

4,070

 

Total other long-term assets

 

 

26,021

 

 

 

26,445

 

 

 

$

82,048

 

 

$

82,777

 

 

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,

2021

(Unaudited)

 

 

May 31,

2021

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

125

 

 

 

146

 

Accrued salaries and employee benefits

 

 

2,200

 

 

 

2,903

 

Accounts payable

 

 

3,822

 

 

 

3,841

 

Operating lease liabilities

 

 

2,263

 

 

 

2,208

 

Accrued expenses

 

 

4,500

 

 

 

4,562

 

Total current liabilities

 

 

12,910

 

 

 

13,660

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

20,554

 

 

 

20,733

 

OTHER LONG-TERM LIABILITIES

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

3,969

 

 

 

3,927

 

Pension, postretirement healthcare, and other benefit obligations

 

 

3,451

 

 

 

3,501

 

Self-insurance accruals

 

 

2,484

 

 

 

2,430

 

Operating lease liabilities

 

 

13,382

 

 

 

13,375

 

Other liabilities

 

 

977

 

 

 

983

 

Total other long-term liabilities

 

 

24,263

 

 

 

24,216

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

 

 

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

   issued as of August 31, 2021 and May 31, 2021

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

3,610

 

 

 

3,481

 

Retained earnings

 

 

30,462

 

 

 

29,817

 

Accumulated other comprehensive loss

 

 

(881

)

 

 

(732

)

Treasury stock, at cost

 

 

(8,902

)

 

 

(8,430

)

Total common stockholders’ investment

 

 

24,321

 

 

 

24,168

 

 

 

$

82,048

 

 

$

82,777

 

 

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,

 

 

 

2021

 

 

2020

 

REVENUE

 

$

22,003

 

 

$

19,321

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

7,776

 

 

 

6,852

 

Purchased transportation

 

 

5,659

 

 

 

4,977

 

Rentals and landing fees

 

 

1,133

 

 

 

936

 

Depreciation and amortization

 

 

971

 

 

 

926

 

Fuel

 

 

1,009

 

 

 

565

 

Maintenance and repairs

 

 

869

 

 

 

806

 

Business realignment costs

 

 

67

 

 

 

 

Other

 

 

3,121

 

 

 

2,669

 

 

 

 

20,605

 

 

 

17,731

 

OPERATING INCOME

 

 

1,398

 

 

 

1,590

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

Interest, net

 

 

(160

)

 

 

(184

)

Other retirement plans income

 

 

216

 

 

 

201

 

Other, net

 

 

3

 

 

 

(1

)

 

 

 

59

 

 

 

16

 

INCOME BEFORE INCOME TAXES

 

 

1,457

 

 

 

1,606

 

PROVISION FOR INCOME TAXES

 

 

345

 

 

 

361

 

NET INCOME

 

$

1,112

 

 

$

1,245

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

Basic

 

$

4.17

 

 

$

4.75

 

Diluted

 

$

4.09

 

 

$

4.72

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

1.50

 

 

$

1.30

 

 

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,

 

 

 

2021

 

 

2020

 

NET INCOME

 

$

1,112

 

 

$

1,245

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax benefit of $0 in 2021 and $2 in 2020

 

 

(147

)

 

 

129

 

Amortization of prior service credit, net of tax benefit of $0 in 2021 and $1 in 2020

 

 

(2

)

 

 

(2

)

 

 

 

(149

)

 

 

127

 

COMPREHENSIVE INCOME

 

$

963

 

 

$

1,372

 

 

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,

 

 

 

2021

 

 

2020

 

Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

1,112

 

 

$

1,245

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

971

 

 

 

926

 

Provision for uncollectible accounts

 

 

117

 

 

 

143

 

Stock-based compensation

 

 

69

 

 

 

75

 

Other noncash items including leases and deferred income taxes

 

 

884

 

 

 

531

 

Business realignment costs

 

 

36

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Receivables

 

 

726

 

 

 

(387

)

Other assets

 

 

(171

)

 

 

(30

)

Accounts payable and other liabilities

 

 

(1,616

)

 

 

198

 

Other, net

 

 

(44

)

 

 

(50

)

Cash provided by operating activities

 

 

2,084

 

 

 

2,651

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(1,570

)

 

 

(1,424

)

Proceeds from asset dispositions and other

 

 

20

 

 

 

6

 

Cash used in investing activities

 

 

(1,550

)

 

 

(1,418

)

Financing Activities:

 

 

 

 

 

 

 

 

Principal payments on debt

 

 

(64

)

 

 

(45

)

Proceeds from debt issuances

 

 

 

 

 

959

 

Proceeds from stock issuances

 

 

84

 

 

 

82

 

Dividends paid

 

 

(200

)

 

 

(170

)

Purchase of treasury stock

 

 

(549

)

 

 

 

Other, net

 

 

(1

)

 

 

(1

)

Cash (used in) provided by financing activities

 

 

(730

)

 

 

825

 

Effect of exchange rate changes on cash

 

 

(38

)

 

 

15

 

Net (decrease) increase in cash and cash equivalents

 

 

(234

)

 

 

2,073

 

Cash and cash equivalents at beginning of period

 

 

7,087

 

 

 

4,881

 

Cash and cash equivalents at end of period

 

$

6,853

 

 

$

6,954

 

 

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,

 

 

 

2021

 

 

2020

 

Common Stock

 

 

 

 

 

 

 

 

Beginning Balance

 

$

32

 

 

$

32

 

Ending Balance

 

 

32

 

 

 

32

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

Beginning Balance

 

 

3,481

 

 

 

3,356

 

Employee incentive plans and other

 

 

129

 

 

 

19

 

Ending Balance

 

 

3,610

 

 

 

3,375

 

Retained Earnings

 

 

 

 

 

 

 

 

Beginning Balance

 

 

29,817

 

 

 

25,216

 

Net Income

 

 

1,112

 

 

 

1,245

 

Cash dividends declared ($1.50 and $1.30 per share)

 

 

(400

)

 

 

(341

)

Employee incentive plans and other

 

 

(67

)

 

 

(12

)

Ending Balance

 

 

30,462

 

 

 

26,108

 

Accumulated Other Comprehensive Income

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(732

)

 

 

(1,147

)

Other comprehensive income, net of tax benefit of $0 and $3

 

 

(149

)

 

 

127

 

Ending Balance

 

 

(881

)

 

 

(1,020

)

Treasury Stock

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(8,430

)

 

 

(9,162

)

Purchase of treasury stock (1.9 and 0.0 million shares)

 

 

(549

)

 

 

 

Employee incentive plans and other (0.6 and 1.0 million shares)

 

 

77

 

 

 

129

 

Ending Balance

 

 

(8,902

)

 

 

(9,033

)

Total Common Stockholders’ Investment Balance

 

$

24,321

 

 

$

19,462

 

 

 

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, 2021 (“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, 2021, and the results of our operations for the three-month periods ended August 31, 2021 and 2020, cash flows for the three-month periods ended August 31, 2021 and 2020, and changes in common stockholders’ investment for the three-month periods ended August 31, 2021 and 2020. Operating results for the three-month period ended August 31, 2021 are not necessarily indicative of the results that may be expected for the year ending May 31, 2022.

Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2022 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 $718 million and $715 million at August 31, 2021 and May 31, 2021, respectively. Contract assets net of deferred unearned revenue were $514 million and $572 million at August 31, 2021 and May 31, 2021, 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 $11 million and $9 million at August 31, 2021 and May 31, 2021, 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

 

 

 

2021

 

 

2020

 

REVENUE BY SERVICE TYPE

 

 

 

 

 

 

 

 

FedEx Express segment:

 

 

 

 

 

 

 

 

Package:

 

 

 

 

 

 

 

 

U.S. overnight box

 

$

2,170

 

 

$

1,861

 

U.S. overnight envelope

 

 

482

 

 

 

426

 

U.S. deferred

 

 

1,231

 

 

 

1,096

 

Total U.S. domestic package revenue

 

 

3,883

 

 

 

3,383

 

International priority

 

 

2,839

 

 

 

2,317

 

International economy

 

 

669

 

 

 

616

 

Total international export package revenue

 

 

3,508

 

 

 

2,933

 

International domestic(1)

 

 

1,114

 

 

 

1,088

 

Total package revenue

 

 

8,505

 

 

 

7,404

 

Freight:

 

 

 

 

 

 

 

 

U.S.

 

 

775

 

 

 

833

 

International priority

 

 

873

 

 

 

653

 

International economy

 

 

414

 

 

 

371

 

International airfreight

 

 

47

 

 

 

75

 

Total freight revenue

 

 

2,109

 

 

 

1,932

 

Other

 

 

352

 

 

 

311

 

Total FedEx Express segment

 

 

10,966

 

 

 

9,647

 

FedEx Ground segment

 

 

7,677

 

 

 

7,040

 

FedEx Freight segment

 

 

2,251

 

 

 

1,826

 

FedEx Services segment

 

 

35

 

 

 

8

 

Other and eliminations(2)

 

 

1,074

 

 

 

800

 

 

 

$

22,003

 

 

$

19,321

 

(1)

International domestic revenue relates to our international intra-country operations.

(2)

Includes the FedEx Office and Print Services, Inc. (“FedEx Office”), FedEx Logistics, Inc. (“FedEx Logistics”), and FedEx Dataworks, Inc. (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segments. The financial results of FedEx Dataworks are included in the period ended August 31, 2021.

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. The collective bargaining agreement is scheduled to become amendable in November 2021. Bargaining for a successor agreement began in May 2021. 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 $69 million for the three-month period ended August 31, 2021 and $75 million for the three-month period ended August 31, 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.

- 10 -


 

We incurred costs during the first quarter of 2022 of $67 million ($52 million, net of tax, or $0.19 per diluted share) associated with our business realignment activities. We recognized $116 million ($90 million, net of tax, or $0.33 per diluted share) of costs under this program in the second half of 2021. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $31 million in the first quarter of 2022. We expect the pre-tax cost of our business realignment activities to range from $300 million to $575 million through fiscal 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. For additional information about the business realignment costs, see the section titled “Business Realignment 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, 2021, we had €215 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, 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.

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 generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate or another reference to be discontinued because of reference rate reform. The expedients and exceptions provided in ASU 2020-04 are optional and may be elected over time individually or in aggregate, through December 31, 2022, as reference rate reform activities occur. Any expedients and exceptions elected must be applied prospectively for all eligible contract modifications. We have not adopted any of the optional expedients or exceptions as of August 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions, as well as the impact on our consolidated financial statements and related disclosures, during the effective period as circumstances evolve.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends lease classification requirements for lessors to align with practice under Topic 840. These changes will be effective June 1, 2022 (fiscal 2023). We expect this new guidance will have minimal impact on our financial reporting.

TREASURY SHARES. In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares. 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.

During the first quarter of 2022, we repurchased 1.9 million shares of FedEx common stock at an average price of $287.51 per share for a total of $549 million. As of August 31, 2021, 3.2 million shares remained available for repurchase under the stock repurchase authorization.

- 11 -


 

DIVIDENDS DECLARED PER COMMON SHARE. On August 13, 2021, our Board of Directors declared a quarterly dividend of $0.75 per share of common stock. The dividend will be paid on October 1, 2021 to stockholders of record as of the close of business on September 3, 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. 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 for certain customers to pay 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 and collections information and underlying economic expectations.

Credit losses were $117 million for the three-month period ended August 31, 2021 and $143 million for the three-month period ended August 31, 2020. Our allowance for credit losses was $346 million at August 31, 2021 and $358 million at May 31, 2021.

(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):

 

 

 

2021

 

 

2020

 

Foreign currency translation loss:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(785

)

 

$

(1,207

)

Translation adjustments

 

 

(147

)

 

 

129

 

Balance at end of period

 

 

(932

)

 

 

(1,078

)

Retirement plans adjustments:

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

53

 

 

 

60

 

Reclassifications from AOCI

 

 

(2

)

 

 

(2

)

Balance at end of period

 

 

51

 

 

 

58

 

Accumulated other comprehensive (loss) at end of period

 

$

(881

)

 

$

(1,020

)

The following table presents details of the reclassifications from AOCI for the three-month periods ended August 31 (in millions; amounts in parentheses indicate debits to earnings):

 

 

 

Amount Reclassified from

AOCI

 

 

Affected Line Item in the

Income Statement

 

 

2021

 

 

2020

 

 

 

Amortization of retirement plans

   prior service credits, before tax

 

$

2

 

 

$

3

 

 

Other retirement plans income

Income tax benefit

 

 

 

 

 

(1

)

 

Provision for income taxes

AOCI reclassifications, net of tax

 

$

2

 

 

$

2

 

 

Net income

 

(4) Financing Arrangements

We have a shelf registration statement filed with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.

FedEx Express has issued $970 million of Pass-Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of 1.875% due in February 2034 utilizing pass-through trusts. The Certificates are secured by 19 Boeing aircraft with a net book value of $1.8 billion at August 31, 2021. The payment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx. FedEx Express is using the proceeds from the issuance for general corporate purposes.

- 12 -


 

We have a $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and a $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”). The Five-Year Credit Agreement expires in March 2026 and includes a $250 million letter of credit sublimit. The 364-Day Credit Agreement expires in March 2022. The Credit Agreements are available to finance our operations and other cash flow needs. As of August 31, 2021, no commercial paper was outstanding, and we had $250 million of the letter of credit sublimit unused under the Five-Year Credit Agreement. Outstanding commercial paper reduces the amount available to borrow under the Credit Agreements.

Our Credit Agreements contain a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans mark-to-market adjustments, noncash pension service costs, and noncash asset impairment charges) before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of August 31, 2021 on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was 1.98 to 1.0 at August 31, 2021.

We believe the financial covenant discussed above is the only significant restrictive covenant in the Credit Agreements. The Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with the financial covenant and all other covenants in the Credit Agreements and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants in the Credit Agreements, our access to financing could become limited.

Long-term debt, including current maturities and exclusive of finance leases, had carrying values of $20.2 billion at August 31, 2021 and $20.7 billion at May 31, 2021, compared with estimated fair values of $23.8 billion at August 31, 2021 and $23.1 billion at May 31, 2021. The annualized weighted-average interest rate on long-term debt was 3.5% at August 31, 2021. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

(5) Computation of Earnings Per Share

The calculation of basic and diluted earnings per common share for the three-month periods ended August 31 was as follows (in millions, except per share amounts):

 

 

 

2021

 

 

2020

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

Net earnings allocable to common shares(1)

 

$

1,110

 

 

$

1,243

 

Weighted-average common shares

 

 

266

 

 

 

262

 

Basic earnings per common share

 

$

4.17

 

 

$

4.75

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

Net earnings allocable to common shares(1)

 

$

1,110

 

 

$

1,243

 

Weighted-average common shares

 

 

266

 

 

 

262

 

Dilutive effect of share-based awards

 

 

5

 

 

 

1

 

Weighted-average diluted shares

 

 

271

 

 

 

263

 

Diluted earnings per common share

 

$

4.09

 

 

$

4.72

 

Anti-dilutive options excluded from diluted earnings per

   common share

 

 

2.7

 

 

 

9.0

 

 

(1)

Net earnings available to participating securities were immaterial in all periods presented.

(6) Retirement Plans

We sponsor programs that provide retirement benefits to most of our employees. These programs include defined benefit pension plans, defined contribution plans, and postretirement healthcare plans. Key terms of our retirement plans are provided in our Annual Report.

Our retirement plans costs for the three-month periods ended August 31 were as follows (in millions):

 

 

 

2021

 

 

2020

 

Defined benefit pension plans, net

 

$

(3

)

 

$

25

 

Defined contribution plans

 

 

180

 

 

 

159

 

Postretirement healthcare plans

 

 

22

 

 

 

21

 

 

 

$

199

 

 

$

205

 

- 13 -


 

 

 

Net periodic benefit cost of the pension and postretirement healthcare plans for the three-month periods ended August 31 included the following components (in millions):

 

 

 

U.S. Pension Plans

 

 

International Pension Plans

 

 

Postretirement Healthcare Plans

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Service cost

 

$

208

 

 

$

213

 

 

$

15

 

 

$

23

 

 

$

12

 

 

$

11

 

Other retirement plans expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Interest cost

 

 

256

 

 

 

240

 

 

 

12

 

 

 

10

 

 

 

10

 

 

 

10