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 February 28, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO__________

Commission File Number: 1-15829

 

FedEx Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

62-1721435

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

942 South Shady Grove Road, Memphis, Tennessee

38120

(Address of principal executive offices)

(ZIP Code)

 

Registrant’s telephone number, including area code: (901) 818-7500

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.10 per share

 

FDX

 

New York Stock Exchange

0.450% Notes due 2025

 

FDX 25A

 

New York Stock Exchange

1.625% Notes due 2027

 

FDX 27

 

New York Stock Exchange

0.450% Notes due 2029

 

FDX 29A

 

New York Stock Exchange

1.300% Notes due 2031

 

FDX 31

 

New York Stock Exchange

0.950% Notes due 2033

 

FDX 33

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Common Stock

 

Outstanding Shares at March 15, 2022

Common Stock, par value $0.10 per share

 

259,178,229

 

 

 


 

FEDEX CORPORATION

INDEX

 

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. Financial Statements

 

 

Condensed Consolidated Balance Sheets
February 28, 2022 and May 31, 2021

 

3

Condensed Consolidated Statements of Income
Three and Nine Months Ended February 28, 2022 and 2021

 

5

Condensed Consolidated Statements of Comprehensive Income
Three and Nine Months Ended February 28, 2022 and 2021

 

6

Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 2022 and 2021

 

7

Condensed Consolidated Statements of Changes In Common Stockholders’ Investment
Three and Nine Months Ended February 28, 2022 and 2021

 

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

 

44

ITEM 4. Controls and Procedures

 

45

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. Legal Proceedings

 

45

ITEM 1A. Risk Factors

 

45

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

 

46

ITEM 5. Other Information

 

46

ITEM 6. Exhibits

 

49

Signature

 

50

 

 

 

Exhibit 10.1

 

 

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)

 

 

 

February 28,
2022
(Unaudited)

 

 

May 31,
2021

 

ASSETS

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,065

 

 

$

7,087

 

Receivables, less allowances of $793 and $742

 

 

11,668

 

 

 

12,069

 

Spare parts, supplies, and fuel, less allowances of $356 and $349

 

 

611

 

 

 

587

 

Prepaid expenses and other

 

 

1,122

 

 

 

837

 

Total current assets

 

 

19,466

 

 

 

20,580

 

PROPERTY AND EQUIPMENT, AT COST

 

 

74,146

 

 

 

70,077

 

Less accumulated depreciation and amortization

 

 

36,770

 

 

 

34,325

 

Net property and equipment

 

 

37,376

 

 

 

35,752

 

OTHER LONG-TERM ASSETS

 

 

 

 

 

 

Operating lease right-of-use assets, net

 

 

16,605

 

 

 

15,383

 

Goodwill

 

 

6,755

 

 

 

6,992

 

Other assets

 

 

3,906

 

 

 

4,070

 

Total other long-term assets

 

 

27,266

 

 

 

26,445

 

 

 

$

84,108

 

 

$

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)

 

 

 

February 28,
2022
(Unaudited)

 

 

May 31,
2021

 

LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Current portion of long-term debt

 

$

116

 

 

$

146

 

Accrued salaries and employee benefits

 

 

2,489

 

 

 

2,903

 

Accounts payable

 

 

4,187

 

 

 

3,841

 

Operating lease liabilities

 

 

2,395

 

 

 

2,208

 

Accrued expenses

 

 

4,803

 

 

 

4,562

 

Total current liabilities

 

 

13,990

 

 

 

13,660

 

LONG-TERM DEBT, LESS CURRENT PORTION

 

 

20,393

 

 

 

20,733

 

OTHER LONG-TERM LIABILITIES

 

 

 

 

 

 

Deferred income taxes

 

 

4,331

 

 

 

3,927

 

Pension, postretirement healthcare, and other benefit obligations

 

 

3,100

 

 

 

3,501

 

Self-insurance accruals

 

 

2,597

 

 

 

2,430

 

Operating lease liabilities

 

 

14,450

 

 

 

13,375

 

Other liabilities

 

 

721

 

 

 

983

 

Total other long-term liabilities

 

 

25,199

 

 

 

24,216

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

COMMON STOCKHOLDERS’ INVESTMENT

 

 

 

 

 

 

Common stock, $0.10 par value; 800 million shares authorized; 318 million shares
   issued as of February 28, 2022 and May 31, 2021

 

 

32

 

 

 

32

 

Additional paid-in capital

 

 

3,686

 

 

 

3,481

 

Retained earnings

 

 

32,225

 

 

 

29,817

 

Accumulated other comprehensive loss

 

 

(887

)

 

 

(732

)

Treasury stock, at cost

 

 

(10,530

)

 

 

(8,430

)

Total common stockholders’ investment

 

 

24,526

 

 

 

24,168

 

 

 

$

84,108

 

 

$

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
 February 28,

 

 

Nine Months Ended
 February 28,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUE

 

$

23,641

 

 

$

21,510

 

 

$

69,118

 

 

$

61,394

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

8,244

 

 

 

8,010

 

 

 

24,155

 

 

 

22,305

 

Purchased transportation

 

 

6,272

 

 

 

5,660

 

 

 

18,172

 

 

 

16,044

 

Rentals and landing fees

 

 

1,225

 

 

 

1,131

 

 

 

3,535

 

 

 

3,073

 

Depreciation and amortization

 

 

986

 

 

 

956

 

 

 

2,952

 

 

 

2,818

 

Fuel

 

 

1,201

 

 

 

756

 

 

 

3,355

 

 

 

1,946

 

Maintenance and repairs

 

 

822

 

 

 

822

 

 

 

2,530

 

 

 

2,443

 

Business realignment costs

 

 

107

 

 

 

10

 

 

 

218

 

 

 

10

 

Other

 

 

3,458

 

 

 

3,160

 

 

 

9,880

 

 

 

8,695

 

 

 

 

22,315

 

 

 

20,505

 

 

 

64,797

 

 

 

57,334

 

OPERATING INCOME

 

 

1,326

 

 

 

1,005

 

 

 

4,321

 

 

 

4,060

 

OTHER (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(163

)

 

 

(187

)

 

 

(478

)

 

 

(555

)

Other retirement plans income

 

 

211

 

 

 

202

 

 

 

380

 

 

 

553

 

Other, net

 

 

1

 

 

 

29

 

 

 

(11

)

 

 

3

 

 

 

 

49

 

 

 

44

 

 

 

(109

)

 

 

1

 

INCOME BEFORE INCOME TAXES

 

 

1,375

 

 

 

1,049

 

 

 

4,212

 

 

 

4,061

 

PROVISION FOR INCOME TAXES

 

 

263

 

 

 

157

 

 

 

944

 

 

 

698

 

NET INCOME

 

$

1,112

 

 

$

892

 

 

$

3,268

 

 

$

3,363

 

EARNINGS PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

4.26

 

 

$

3.36

 

 

$

12.36

 

 

$

12.75

 

Diluted

 

$

4.20

 

 

$

3.30

 

 

$

12.17

 

 

$

12.55

 

DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.75

 

 

$

0.65

 

 

$

3.00

 

 

$

2.60

 

 

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

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

NET INCOME

 

$

1,112

 

 

$

892

 

 

$

3,268

 

 

$

3,363

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense of $3 and tax benefit of $1 in 2022 and tax expense of $1 and $5 in 2021

 

 

91

 

 

 

136

 

 

 

(150

)

 

 

389

 

Amortization of prior service credit, net of tax benefit of $1 and $2 in 2022 and $0 and $1 in 2021

 

 

(1

)

 

 

(2

)

 

 

(5

)

 

 

(6

)

 

 

 

90

 

 

 

134

 

 

 

(155

)

 

 

383

 

COMPREHENSIVE INCOME

 

$

1,202

 

 

$

1,026

 

 

$

3,113

 

 

$

3,746

 

 

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)

 

 

 

Nine Months Ended
 February 28,

 

 

 

2022

 

 

2021

 

Operating Activities:

 

 

 

 

 

 

Net income

 

$

3,268

 

 

$

3,363

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

2,952

 

 

 

2,818

 

Provision for uncollectible accounts

 

 

327

 

 

 

428

 

Stock-based compensation

 

 

151

 

 

 

161

 

Retirement plans mark-to-market adjustments

 

 

260

 

 

 

52

 

Other noncash items including leases and deferred income taxes

 

 

2,498

 

 

 

2,020

 

Business realignment costs

 

 

128

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Receivables

 

 

(66

)

 

 

(1,187

)

Other assets

 

 

(235

)

 

 

(165

)

Accounts payable and other liabilities

 

 

(2,892

)

 

 

63

 

Other, net

 

 

(61

)

 

 

(161

)

Cash provided by operating activities

 

 

6,330

 

 

 

7,392

 

Investing Activities:

 

 

 

 

 

 

Capital expenditures

 

 

(4,379

)

 

 

(4,202

)

Business acquisitions, net of cash acquired

 

 

 

 

 

(225

)

Purchase of investments

 

 

(145

)

 

 

 

Proceeds from asset dispositions and other

 

 

71

 

 

 

88

 

Cash used in investing activities

 

 

(4,453

)

 

 

(4,339

)

Financing Activities:

 

 

 

 

 

 

Principal payments on debt

 

 

(113

)

 

 

(105

)

Proceeds from debt issuances

 

 

 

 

 

970

 

Proceeds from stock issuances

 

 

151

 

 

 

482

 

Dividends paid

 

 

(598

)

 

 

(513

)

Purchase of treasury stock

 

 

(2,248

)

 

 

 

Other, net

 

 

 

 

 

(13

)

Cash (used in) provided by financing activities

 

 

(2,808

)

 

 

821

 

Effect of exchange rate changes on cash

 

 

(91

)

 

 

101

 

Net (decrease) increase in cash and cash equivalents

 

 

(1,022

)

 

 

3,975

 

Cash and cash equivalents at beginning of period

 

 

7,087

 

 

 

4,881

 

Cash and cash equivalents at end of period

 

$

6,065

 

 

$

8,856

 

 

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

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

32

 

 

$

32

 

 

$

32

 

 

$

32

 

Ending Balance

 

 

32

 

 

 

32

 

 

 

32

 

 

 

32

 

Additional Paid-in Capital

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

3,653

 

 

 

3,400

 

 

 

3,481

 

 

 

3,356

 

Employee incentive plans and other

 

 

42

 

 

 

45

 

 

 

214

 

 

 

89

 

Purchase of treasury stock

 

 

(9

)

 

 

 

 

 

(9

)

 

 

 

Ending Balance

 

 

3,686

 

 

 

3,445

 

 

 

3,686

 

 

 

3,445

 

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

31,307

 

 

 

27,208

 

 

 

29,817

 

 

 

25,216

 

Net Income

 

 

1,112

 

 

 

892

 

 

 

3,268

 

 

 

3,363

 

Cash dividends declared ($0.75, $0.65, $3.00, and $2.60 per share)

 

 

(194

)

 

 

(173

)

 

 

(792

)

 

 

(686

)

Employee incentive plans and other

 

 

 

 

 

(3

)

 

 

(68

)

 

 

31

 

Ending Balance

 

 

32,225

 

 

 

27,924

 

 

 

32,225

 

 

 

27,924

 

Accumulated Other Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(977

)

 

 

(898

)

 

 

(732

)

 

 

(1,147

)

Other comprehensive income, net of tax (expense)/benefit of ($2), ($1), $3, and ($4)

 

 

90

 

 

 

134

 

 

 

(155

)

 

 

383

 

Ending Balance

 

 

(887

)

 

 

(764

)

 

 

(887

)

 

 

(764

)

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

 

(9,075

)

 

 

(8,703

)

 

 

(8,430

)

 

 

(9,162

)

Purchase of treasury stock (6.1, 0.0, 8.9, and 0.0 million shares)

 

 

(1,491

)

 

 

 

 

 

(2,239

)

 

 

 

Employee incentive plans and other (0.3, 0.3, 1.1, and 3.7 million shares)

 

 

36

 

 

 

47

 

 

 

139

 

 

 

506

 

Ending Balance

 

 

(10,530

)

 

 

(8,656

)

 

 

(10,530

)

 

 

(8,656

)

Total Common Stockholders’ Investment Balance

 

$

24,526

 

 

$

21,981

 

 

$

24,526

 

 

$

21,981

 

 

 

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 February 28, 2022, and the results of our operations for the three- and nine-month periods ended February 28, 2022 and 2021, cash flows for the nine-month periods ended February 28, 2022 and 2021, and changes in common stockholders’ investment for the three- and nine-month periods ended February 28, 2022 and 2021. Operating results for the three- and nine-month periods ended February 28, 2022 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 $819 million and $715 million at February 28, 2022 and May 31, 2021, respectively. Contract assets net of deferred unearned revenue were $591 million and $572 million at February 28, 2022 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 $8 million and $9 million at February 28, 2022 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 February 28. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

REVENUE BY SERVICE TYPE

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment:

 

 

 

 

 

 

 

 

 

 

 

 

Package:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. overnight box

 

$

2,275

 

 

$

2,078

 

 

$

6,694

 

 

$

5,951

 

U.S. overnight envelope

 

 

479

 

 

 

444

 

 

 

1,435

 

 

 

1,305

 

U.S. deferred

 

 

1,422

 

 

 

1,418

 

 

 

3,960

 

 

 

3,718

 

Total U.S. domestic package revenue

 

 

4,176

 

 

 

3,940

 

 

 

12,089

 

 

 

10,974

 

International priority

 

 

2,991

 

 

 

2,596

 

 

 

8,937

 

 

 

7,423

 

International economy

 

 

697

 

 

 

653

 

 

 

2,072

 

 

 

1,927

 

Total international export package revenue

 

 

3,688

 

 

 

3,249

 

 

 

11,009

 

 

 

9,350

 

International domestic(1)

 

 

1,016

 

 

 

1,162

 

 

 

3,277

 

 

 

3,456

 

Total package revenue

 

 

8,880

 

 

 

8,351

 

 

 

26,375

 

 

 

23,780

 

Freight:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

712

 

 

 

860

 

 

 

2,262

 

 

 

2,492

 

International priority

 

 

948

 

 

 

775

 

 

 

2,815

 

 

 

2,165

 

International economy

 

 

378

 

 

 

383

 

 

 

1,230

 

 

 

1,162

 

International airfreight

 

 

40

 

 

 

56

 

 

 

134

 

 

 

196

 

Total freight revenue

 

 

2,078

 

 

 

2,074

 

 

 

6,441

 

 

 

6,015

 

Other

 

 

346

 

 

 

363

 

 

 

1,059

 

 

 

1,008

 

Total FedEx Express segment

 

 

11,304

 

 

 

10,788

 

 

 

33,875

 

 

 

30,803

 

FedEx Ground segment

 

 

8,800

 

 

 

7,980

 

 

 

24,741

 

 

 

22,364

 

FedEx Freight segment

 

 

2,253

 

 

 

1,836

 

 

 

6,776

 

 

 

5,598

 

FedEx Services segment

 

 

65

 

 

 

8

 

 

 

177

 

 

 

24

 

Other and eliminations(2)

 

 

1,219

 

 

 

898

 

 

 

3,549

 

 

 

2,605

 

 

 

$

23,641

 

 

$

21,510

 

 

$

69,118

 

 

$

61,394

 

(1)
International domestic revenue relates to our international intra-country operations.
(2)
Includes the FedEx Office and Print Services, Inc. (“FedEx Office”), FedEx Logistics, Inc. (“FedEx Logistics”), and FedEx Dataworks (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segments. 

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“FedEx Express”), who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015, and became amendable in November 2021. Bargaining for a successor agreement began in May 2021 and continues. A small number of our other employees are members of unions.

EQUITY INVESTMENT. On December 8, 2021, FedEx Express finalized its strategic alliance with Delhivery Limited (“Delhivery”). In connection with the strategic alliance, FedEx Express and Delhivery entered into equity and commercial agreements. As part of the collaboration, FedEx Express made a $100 million equity investment in Delhivery, FedEx Express sold certain assets pertaining to its domestic business in India to Delhivery, and the companies entered into a long-term commercial agreement. FedEx Express will focus on international export and import services to and from India, and Delhivery will, in addition to FedEx, sell FedEx Express international services in the India market and provide pickup-and-delivery services across India. This transaction was recorded in the third quarter of 2022 and was not material to our results of operations.

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 $39 million for the three-month period ended February 28, 2022 and $151 million for the nine-month period ended February 28, 2022. 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. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report.

 

- 10 -


 

BUSINESS REALIGNMENT COSTS. In 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 affect approximately 5,000 employees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur through 2023 in accordance with local country processes and regulations.

We incurred costs associated with our business realignment activities of $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months of 2022. 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 $30 million in the third quarter and $86 million in the nine months of 2022. We expect the pre-tax cost of our business realignment activities to range from $380 million to $450 million through 2023. The actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans and may differ from our current expectation and estimates. 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 February 28, 2022, we had 150 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 February 28, 2022, the hedge remains effective.

RECENT ACCOUNTING GUIDANCE. New accounting rules and disclosure requirements can significantly affect our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.

New Accounting Standards and Accounting Standards Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients and exceptions for applying accounting principles generally accepted in the United States to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate to be discontinued because of reference rate reform. The guidance was effective upon issuance and can generally be applied through December 31, 2022. While there has been no material effect to our financial condition, results of operations, or cash flows from reference rate reform as of February 28, 2022, we continue to monitor our contracts and transactions for potential application of this ASU. See Note 4 for information on the replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”) in our Credit Agreements (defined below) on March 15, 2022.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which provides alternative accounting for sales-type and direct financing leases with variable lease payments. The guidance allows lessors to classify and account for a lease with variable lease payments that do not depend on a reference index or rate as an operating lease if certain criteria are met. These changes will be effective June 1, 2022 (fiscal 2023). We do not have leases classified as sales-type or direct financing and will apply the guidance on a prospective basis to applicable leases that commence or are modified on or after June 1, 2022.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. These changes will be effective June 1, 2022 (fiscal 2023). We are assessing the effect of this new standard on our consolidated financial statements and related disclosures.

- 11 -


 

TREASURY SHARES. In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares (the “2016 repurchase program”). In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (the “2022 repurchase program” and together with the 2016 repurchase program, the “repurchase programs”). As part of the repurchase programs, we entered into an accelerated share repurchase (“ASR”) agreement with a bank in December 2021 to repurchase an aggregate of $1.5 billion of our common stock.

During the third quarter of 2022, the ASR transaction was completed, and 6.1 million shares were delivered under the ASR agreement. 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. The 6.1 million shares delivered under the ASR agreement were the only shares of FedEx common stock we repurchased during the third quarter of 2022.

During the nine months ended February 28, 2022, including the ASR transaction, we repurchased 8.9 million shares of FedEx common stock at an average price of $253.85 per share for a total of $2.2 billion. As of February 28, 2022, approximately $4.1 billion remained available to use for repurchases under the 2022 repurchase program. No shares remain available for repurchase under the 2016 repurchase program.

Shares under the 2022 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 February 11, 2022, our Board of Directors declared a quarterly dividend of $0.75 per share of common stock. The dividend will be paid on April 1, 2022 to stockholders of record as of the close of business on March 7, 2022. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis. There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances.

(2) Credit Losses

We are exposed to credit losses primarily through our trade receivables. We assess ability 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 $116 million for the three-month period ended February 28, 2022 and $327 million for the nine-month period ended February 28, 2022. Credit losses were $137 million for the three-month period ended February 28, 2021 and $428 million for the nine-month period ended February 28, 2021. Our allowance for credit losses was $390 million at February 28, 2022 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 periods ended February 28 (in millions; amounts in parentheses indicate debits to AOCI):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Foreign currency translation loss:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

(1,026

)

 

$

(954

)

 

$

(785

)

 

$

(1,207

)

Translation adjustments

 

 

91

 

 

 

136

 

 

 

(150

)

 

 

389

 

Balance at end of period

 

 

(935

)

 

 

(818

)

 

 

(935

)

 

 

(818

)

Retirement plans adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

49

 

 

 

56

 

 

 

53

 

 

 

60

 

Reclassifications from AOCI

 

 

(1

)

 

 

(2

)

 

 

(5

)

 

 

(6

)

Balance at end of period

 

 

48

 

 

 

54

 

 

 

48

 

 

 

54

 

Accumulated other comprehensive (loss) at end of period

 

$

(887

)

 

$

(764

)

 

$

(887

)

 

$

(764

)

 

- 12 -


 

The following table presents details of the reclassifications from AOCI for the periods ended February 28 (in millions; amounts in parentheses indicate debits to earnings):

 

 

 

Amount Reclassified from
AOCI

 

 

Affected Line Item in the
Income Statement

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

Amortization of retirement plans
   prior service credits, before tax

 

$

2

 

 

$

2

 

 

$

7

 

 

$

7

 

 

Other retirement plans income

Income tax benefit

 

 

(1

)

 

 

 

 

 

(2

)

 

 

(1

)

 

Provision for income taxes

AOCI reclassifications, net of tax

 

$

1

 

 

$

2

 

 

$

5

 

 

$

6

 

 

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 February 28, 2022. 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.

On March 15, 2022, we further amended our second amended and restated $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and replaced our previously existing $1.5 billion 364-day credit agreement (the “Terminated Credit Agreement”) with a $1.5 billion three-year credit agreement (the “Three-Year 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 Three-Year Credit Agreement expires in March 2025. The Credit Agreements are available to finance our operations and other cash flow needs. As of February 28, 2022, 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.

As a result of the discontinuation of LIBOR from recent reference rate reform, effective March 15, 2022, all references to LIBOR in the Five-Year Credit Agreement have been replaced with references to SOFR, the recommended risk-free reference rate of the Federal Reserve Board and Alternative Reference Rates Committee, and the additional procedures for transition to a reference rate other than LIBOR have been removed from the Five-Year Credit Agreement. The Three-Year Credit Agreement includes identical provisions regarding SOFR. We do not expect the change in rate to have a material impact on our financial condition, results of operations, or cash flows.

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 (“MTM”) 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 the last day of each fiscal quarter on a rolling four-quarters basis. The Terminated Credit Agreement also included this financial covenant. The ratio of our debt to adjusted EBITDA was 1.87 to 1.0 at February 28, 2022.

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 $20.0 billion at February 28, 2022 and $20.4 billion at May 31, 2021, compared with estimated fair values of $21.2 billion at February 28, 2022 and $23.1 billion at May 31, 2021. The annualized weighted-average interest rate on long-term debt was 3.5% at February 28, 2022. 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.

- 13 -


 

(5) Computation of Earnings Per Share

The calculation of basic and diluted earnings per common share for the periods ended February 28 was as follows (in millions, except per share amounts):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings allocable to common shares(1)

 

$

1,110

 

 

$

889

 

 

$

3,262

 

 

$

3,356

 

Weighted-average common shares

 

 

261

 

 

 

265

 

 

 

264

 

 

 

263

 

Basic earnings per common share

 

$

4.26

 

 

$

3.36

 

 

$

12.36

 

 

$

12.75

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings allocable to common shares(1)

 

$

1,110

 

 

$

889

 

 

$

3,262

 

 

$

3,356

 

Weighted-average common shares

 

 

261

 

 

 

265

 

 

 

264

 

 

 

263

 

Dilutive effect of share-based awards

 

 

4

 

 

 

5

 

 

 

4

 

 

 

4

 

Weighted-average diluted shares

 

 

265

 

 

 

270

 

 

 

268

 

 

 

267

 

Diluted earnings per common share

 

$

4.20

 

 

$

3.30

 

 

$

12.17

 

 

$

12.55

 

Anti-dilutive options excluded from diluted earnings per
   common share

 

 

4.4

 

 

 

2.0

 

 

 

3.8

 

 

 

4.1

 

 

(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 periods ended February 28 were as follows (in millions):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Defined benefit pension plans, net

 

$

2

 

 

$

20

 

 

$

(3

)

 

$

72

 

Defined contribution plans

 

 

226

 

 

 

182

 

 

 

577

 

 

 

493

 

Postretirement healthcare plans

 

 

22

 

 

 

21

 

 

 

67

 

 

 

62

 

Retirement plans MTM net loss

 

 

 

 

 

 

 

 

260

 

 

 

52

 

 

 

$

250

 

 

$

223

 

 

$

901

 

 

$

679

 

 

Net periodic benefit cost of the pension and postretirement healthcare plans for the periods ended February 28 included the following components (in millions):

 

 

 

Three Months Ended

 

 

 

U.S. Pension Plans

 

 

International Pension Plans

 

 

Postretirement Healthcare Plans

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Service cost

 

$

209

 

 

$

213

 

 

$

14

 

 

$

19

 

 

$

12

 

 

$

11

 

Other retirement plans expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest cost

 

 

254

 

 

 

240

 

 

 

8

 

 

 

10

 

 

 

10

 

 

 

10

 

Expected return on plan assets

 

 

(478

)

 

 

(447

)

 

 

(3

)

 

 

(13

)

 

 

 

 

 

 

Amortization of prior service credit and other

 

 

(1

)

 

 

(2

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

(225

)

 

 

(209

)

 

 

4

 

 

 

(3

)

 

 

10

 

 

 

10

 

 

 

$

(16

)

 

$

4

 

 

$

18

 

 

$

16

 

 

$

22

 

 

$

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 14 -


 

 

 

Nine Months Ended

 

 

 

U.S. Pension Plans

 

 

International Pension Plans

 

 

Postretirement Healthcare Plans

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Service cost

 

$

625

 

 

$

638

 

 

$

43

 

 

$

68

 

 

$

36

 

 

$

33

 

Other retirement plans expense (income):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest cost

 

 

765

 

 

 

719

 

 

 

27

 

 

 

31

 

 

 

31

 

 

 

29

 

Expected return on plan assets

 

 

(1,433

)

 

 

(1,339

)

 

 

(23

)

 

 

(38

)

 

 

 

 

 

 

Amortization of prior service credit and other

 

 

(5

)

 

 

(6

)

 

 

(2

)

 

 

(1

)

 

 

 

 

 

 

MTM net loss

 

 

36

 

 

 

 

 

 

224

 

 

 

52

 

 

 

 

 

 

 

 

 

 

(637

)

 

 

(626

)

 

 

226

 

 

 

44

 

 

 

31

 

 

 

29

 

 

 

$

(12

)

 

$

12

 

 

$

269

 

 

$

112

 

 

$

67

 

 

$

62

 

 

For 2022, no pension contributions are required for our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) as they are fully funded under the Employee Retirement Income Security Act. We made voluntary contributions to our U.S. Pension Plans of $500 million during the nine months of 2022.

In 2020, we announced the closing of our U.S.-based defined benefit pension plans to new non-union employees hired on or after January 1, 2020. We introduced an all-401(k) plan retirement benefit structure for eligible employees with a higher company match of up to 8% across all U.S.-based operating companies in 2022. During calendar 2021, current eligible employees under the Portable Pension Account (“PPA”) pension formula were given a one-time option to continue to be eligible for pension compensation credits under the existing PPA formula and remain in the existing 401(k) plan with its match of up to 3.5%, or to cease receiving compensation credits under the PPA and move to the new 401(k) plan with the higher company match of up to 8%. Changes to the new 401(k) plan structure became effective January 1, 2022. While this new program will provide employees greater flexibility and reduce our long-term pension costs, it will not have a material impact on current or near-term financial results.

In the second quarter of 2022, we incurred a pre-tax, noncash MTM net loss of $36 million related to the U.S. FedEx Freight Pension Plan. During the second quarter of 2022, 21% of FedEx Freight Corporation (“FedEx Freight”) employees elected to move from the current pension/401(k) benefit structure to the new 401(k)-only structure with a higher company match effective January 1, 2022. The $36 million net loss consisted of a $75 million MTM loss due to a lower discount rate, partially offset by a $39 million curtailment gain.

We incurred an additional pre-tax, noncash MTM net loss of $224 million in the second quarter of 2022 related to the termination of the TNT Express Netherlands Pension Plan. Effective October 1, 2021, the responsibility of all pension assets and liabilities of this plan was transferred to a separate, multi-employer pension plan.

In the second quarter of 2021, we incurred a pre-tax, noncash MTM net loss of $52 million related to amendments to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100 employees were frozen effective December 31, 2020. Effective January 1, 2021, these employees began earning pension benefits under a separate, multi-employer pension plan. This $52 million net loss consisted of a $106 million MTM loss due to a lower discount rate and a $54 million curtailment gain.

(7) Business Segment Information

We provide a broad portfolio of transportation, e-commerce, and business services through companies competing collectively, operating collaboratively, and innovating digitally under the respected FedEx brand. Our primary operating companies are FedEx Express, the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight, a leading North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments.

- 15 -


 

Our reportable segments include the following businesses:

 

FedEx Express Segment

FedEx Express (express transportation, small-package ground delivery, and freight transportation)

 

FedEx Custom Critical, Inc. (time-critical transportation)

 

FedEx Ground Segment

FedEx Ground (small-package ground delivery)

 

 

FedEx Freight Segment

FedEx Freight (LTL freight transportation)

 

 

FedEx Services Segment

FedEx Services (sales, marketing, information technology, communications, customer

     service, technical support, billing and collection services, and back-office functions)

 

 

During the third quarter of 2022, FedEx Cross Border Holdings, Inc. was merged into FedEx Express. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.

FedEx Services Segment

The FedEx Services segment operates combined sales, marketing, administrative, and information-technology functions in shared services operations for U.S. customers of our major business units and certain back-office support to our operating segments which allows us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis and reported by FedEx Express in their natural expense line items.

The FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the effect of its total allocated net operating costs on our operating segments.

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations also include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

Corporate, Other, and Eliminations

Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing our innovate digitally strategic pillar through our FedEx Dataworks operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members.

Also included in Corporate and other are the FedEx Office operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.

The results of Corporate, other, and eliminations are not allocated to the other business segments.

Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.

- 16 -


 

The following table provides a reconciliation of reportable segment revenue and operating income (loss) to our unaudited condensed consolidated financial statement totals for the periods ended February 28 (in millions):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment

 

$

11,304

 

 

$

10,788

 

 

$

33,875

 

 

$

30,803

 

FedEx Ground segment

 

 

8,800

 

 

 

7,980

 

 

 

24,741

 

 

 

22,364

 

FedEx Freight segment

 

 

2,253

 

 

 

1,836

 

 

 

6,776

 

 

 

5,598

 

FedEx Services segment

 

 

65

 

 

 

8

 

 

 

177

 

 

 

24

 

Other and eliminations

 

 

1,219

 

 

 

898

 

 

 

3,549

 

 

 

2,605

 

 

 

$

23,641

 

 

$

21,510

 

 

$

69,118

 

 

$

61,394

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment

 

$

520

 

 

$

463

 

 

$

2,036

 

 

$

2,073

 

FedEx Ground segment

 

 

641

 

 

 

702

 

 

 

1,793

 

 

 

2,088

 

FedEx Freight segment

 

 

337

 

 

 

119

 

 

 

1,061

 

 

 

645

 

Corporate, other, and eliminations

 

 

(172

)

 

 

(279

)

 

 

(569

)

 

 

(746

)

 

 

$

1,326

 

 

$

1,005

 

 

$

4,321

 

 

$

4,060

 

 

(8) Commitments

As of February 28, 2022, our purchase commitments under various contracts for the remainder of 2022 and annually thereafter were as follows (in millions):

 

 

 

Aircraft and Related

 

 

Other(1)

 

 

Total

 

2022 (remainder)

 

$

242

 

 

$

287

 

 

$

529

 

2023

 

 

2,636

 

 

 

838

 

 

 

3,474

 

2024

 

 

1,929

 

 

 

614

 

 

 

2,543

 

2025

 

 

1,392

 

 

 

463

 

 

 

1,855

 

2026

 

 

423

 

 

 

391

 

 

 

814

 

Thereafter

 

 

2,271

 

 

 

268

 

 

 

2,539

 

Total

 

$

8,893

 

 

$

2,861

 

 

$

11,754

 

 

(1)
Primarily equipment and advertising contracts.

The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of February 28, 2022, our obligation to purchase two Boeing 777 Freighter (“B777F”) aircraft and two Boeing 767-300 Freighter (“B767F”) aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as amended. Open purchase orders that are cancelable are not considered unconditional purchase obligations for financial reporting purposes and are not included in the table above.

During the first quarter of 2022, FedEx Express exercised options to purchase an additional 20 B767F aircraft, ten of which will be delivered in 2024 and ten of which will be delivered in 2025.

As of February 28, 2022, we had $677 million in deposits and progress payments on aircraft purchases and other planned aircraft-related transactions. These deposits are classified in the “Other assets” caption of our accompanying unaudited condensed consolidated balance sheets. Aircraft and related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of February 28, 2022 with the year of expected delivery:

 

 

 

Cessna SkyCourier 408

 

 

ATR 72-600F

 

 

B767F

 

 

B777F

 

 

Total

 

2022 (remainder)

 

 

3

 

 

 

5

 

 

 

3

 

 

 

 

 

 

11

 

2023

 

 

12

 

 

 

6

 

 

 

13

 

 

 

2

 

 

 

33

 

2024

 

 

12

 

 

 

6

 

 

 

14

 

 

 

4

 

 

 

36

 

2025

 

 

12

 

 

 

6

 

 

 

10

 

 

 

2

 

 

 

30

 

2026

 

 

11

 

 

 

1

 

 

 

 

 

 

 

 

 

12

 

Thereafter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

50

 

 

 

24

 

 

 

40

 

 

 

8

 

 

 

122

 

 

- 17 -


 

A summary of future minimum lease payments under noncancelable operating and finance leases with an initial or remaining term in excess of one year as of February 28, 2022 is as follows (in millions):

 

 

 

Aircraft
and Related
Equipment

 

 

Facilities
and Other

 

 

Total
Operating
Leases

 

 

Finance Leases

 

 

Total Leases

 

2022 (remainder)

 

$

33

 

 

$

531

 

 

$

564

 

 

$

52

 

 

$

616

 

2023

 

 

200

 

 

 

2,674

 

 

 

2,874

 

 

 

35

 

 

 

2,909

 

2024

 

 

111

 

 

 

2,343

 

 

 

2,454

 

 

 

31

 

 

 

2,485

 

2025

 

 

80

 

 

 

2,078

 

 

 

2,158

 

 

 

27

 

 

 

2,185

 

2026

 

 

73

 

 

 

1,826

 

 

 

1,899

 

 

 

22

 

 

 

1,921

 

Thereafter

 

 

223

 

 

 

9,139

 

 

 

9,362

 

 

 

691

 

 

 

10,053

 

Total lease payments

 

 

720

 

 

 

18,591

 

 

 

19,311

 

 

 

858

 

 

 

20,169

 

Less imputed interest

 

 

(55

)

 

 

(2,411

)

 

 

(2,466

)

 

 

(357

)

 

 

(2,823

)

Present value of lease liability

 

$

665

 

 

$

16,180

 

 

$

16,845

 

 

$

501

 

 

$

17,346

 

While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

As of February 28, 2022, FedEx has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for build-to-suit facilities and have undiscounted future payments of approximately $2.6 billion that will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from 2022 to 2023.

(9) Contingencies

 

Service Provider Lawsuits. FedEx Ground is defending lawsuits in which it is alleged that FedEx Ground should be treated as a joint employer of drivers employed by service providers engaged by FedEx Ground. These cases are in varying stages of litigation, and we are not currently able to estimate an amount or range of potential loss in all of these matters. However, we do not expect to incur, individually or in the aggregate, a material loss in these matters. Nevertheless, adverse determinations in these matters could, among other things, entitle service providers’ drivers to certain wage payments from the service providers and FedEx Ground and result in employment and withholding tax and benefit liability for FedEx Ground. We continue to believe that FedEx Ground is not an employer or joint employer of the drivers of these independent businesses.

Derivative Lawsuit Related to New York Cigarette Litigation. On October 3, 2019, FedEx and certain present and former FedEx directors and officers were named as defendants in a stockholder derivative lawsuit filed in the Delaware Court of Chancery. The complaint alleged the defendants breached their fiduciary duties in connection with the activities alleged in lawsuits filed by the City of New York and the State of New York against FedEx Ground in December 2013 and November 2014 and against FedEx Ground and FedEx Freight in July 2017. The underlying lawsuits related to the alleged shipment of cigarettes to New York residents in contravention of several statutes, as well as common law nuisance claims, and were dismissed by the court in December 2018 following entry into a final settlement agreement for approximately $35 million. The settlement did not include any admission of liability by FedEx Ground or FedEx Freight. In addition to the settlement amount, we recognized approximately $10 million for certain attorney’s fees in connection with the underlying lawsuits. On June 28, 2021, the stockholder derivative lawsuit was dismissed with prejudice. The dismissal was appealed on July 28, 2021. On February 25, 2022, the Delaware Supreme Court affirmed the dismissal, and the matter is now concluded.

Other Matters. FedEx and its subsidiaries are subject to other legal proceedings that arise in the ordinary course of business, including certain lawsuits containing various class-action allegations of wage-and-hour violations in which plaintiffs claim, among other things, that they were forced to work “off the clock,” were not paid overtime, or were not provided work breaks or other benefits, as well as lawsuits containing allegations that FedEx and its subsidiaries are responsible for third-party losses related to vehicle accidents that could exceed our insurance coverage for such losses. In the opinion of management, the aggregate liability, if any, with respect to these other actions will not have a material adverse effect on our financial position, results of operations, or cash flows.

Environmental Matters. SEC regulations require us to disclose certain information about proceedings arising under federal, state, or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to the SEC regulations, FedEx uses a threshold of $1 million or more for purposes of determining whether disclosure of any such proceedings is required. Applying this threshold, there are no environmental matters required to be disclosed for this period.

- 18 -


 

(10) Supplemental Cash Flow Information

Cash paid for interest expense and income taxes for the nine-month periods ended February 28 was as follows (in millions):

 

 

 

2022

 

 

2021

 

Cash payments for:

 

 

 

 

 

 

Interest (net of capitalized interest)

 

$

496

 

 

$

593

 

Income taxes

 

$

628

 

 

$

934

 

Income tax refunds received

 

 

(180

)

 

 

(42

)

Cash tax payments, net

 

$

448

 

 

$

892

 

 

- 19 -


 

REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM

 

 

To the Stockholders and Board of Directors of

FedEx Corporation

Results of Review of Interim Financial Statements

We have reviewed the accompanying condensed consolidated balance sheet of FedEx Corporation (the Company) as of February 28, 2022, the related condensed consolidated statements of income, comprehensive income, and changes in common stockholders’ investment for the three- and nine-month periods ended February 28, 2022 and 2021, the condensed consolidated statements of cash flows for the nine-month periods ended February 28, 2022 and 2021, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of May 31, 2021, the related consolidated statements of income, comprehensive income, cash flows, and changes in common stockholders’ investment for the year then ended, and the related notes (not presented herein); and in our report dated July 19, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2021 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ Ernst & Young LLP

 

Memphis, Tennessee

March 17, 2022

- 20 -


 

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

GENERAL

The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations, and critical accounting estimates of FedEx Corporation (“FedEx”). This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2021 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results.

We provide a broad portfolio of transportation, e-commerce, and business services through companies competing collectively, operating collaboratively, and innovating digitally under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Corporation (“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments.

Our FedEx Services segment operates combined sales, marketing, administrative, and information-technology functions in shared services operations for U.S. customers of our major business units and certain back-office support to our operating segments which allows us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis and reported by FedEx Express in their natural expense line items. See “Reportable Segments” for further discussion. Additional information on our businesses can be found in our Annual Report.

The key indicators necessary to understand our operating results include:

the overall customer demand for our various services based on macroeconomic factors and the global economy;
the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight and size;
the mix of services purchased by our customers;
the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per shipment or hundredweight for LTL freight shipments);
our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and
the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges.

Many of our operating expenses are directly affected by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends affecting expenses other than those factors strictly related to changes in revenue and volumes. The line item “Other operating expense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor, and security), insurance, professional fees, and operational supplies.

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. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.

- 21 -


 

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following tables compare summary operating results and changes in revenue and operating results (dollars in millions, except per share amounts) for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

 

Nine Months Ended

 

 

Percent

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

2022

 

 

2021

 

 

Change

 

 

Revenue

 

$

23,641

 

 

$

21,510

 

 

 

10

 

 

 

$

69,118

 

 

$

61,394

 

 

 

13

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment

 

 

520

 

 

 

463

 

 

 

12

 

 

 

 

2,036

 

 

 

2,073

 

 

 

(2

)

 

FedEx Ground segment

 

 

641

 

 

 

702

 

 

 

(9

)

 

 

 

1,793

 

 

 

2,088

 

 

 

(14

)

 

FedEx Freight segment

 

 

337

 

 

 

119

 

 

 

183

 

 

 

 

1,061

 

 

 

645

 

 

 

64

 

 

Corporate, other, and eliminations

 

 

(172

)

 

 

(279

)

 

 

38

 

 

 

 

(569

)

 

 

(746

)

 

 

24

 

 

Consolidated operating income

 

 

1,326

 

 

 

1,005

 

 

 

32

 

 

 

 

4,321

 

 

 

4,060

 

 

 

6

 

 

Operating margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment

 

 

4.6

%

 

 

4.3

%

 

 

30

 

bp

 

 

6.0

%

 

 

6.7

%

 

 

(70

)

bp

FedEx Ground segment

 

 

7.3

%

 

 

8.8

%

 

 

(150

)

bp

 

 

7.2

%

 

 

9.3

%

 

 

(210

)

bp

FedEx Freight segment

 

 

15.0

%

 

 

6.5

%

 

 

850

 

bp

 

 

15.7

%

 

 

11.5

%

 

 

420

 

bp

Consolidated operating margin

 

 

5.6

%

 

 

4.7

%

 

 

90

 

bp

 

 

6.3

%

 

 

6.6

%

 

 

(30

)

bp

Consolidated net income

 

$

1,112

 

 

$

892

 

 

 

25

 

 

 

$

3,268

 

 

$

3,363

 

 

 

(3

)

 

Diluted earnings per share

 

$

4.20

 

 

$

3.30

 

 

 

27

 

 

 

$

12.17

 

 

$

12.55

 

 

 

(3

)

 

 

 

 

Change in Revenue

 

 

Change in Operating Results

 

 

 

Three Months
Ended

 

 

Nine Months
Ended

 

 

Three Months
Ended

 

 

Nine Months
Ended

 

FedEx Express segment

 

$

516

 

 

$

3,072

 

 

$

57

 

 

$

(37

)

FedEx Ground segment

 

 

820

 

 

 

2,377

 

 

 

(61

)

 

 

(295

)

FedEx Freight segment

 

 

417

 

 

 

1,178

 

 

 

218

 

 

 

416

 

FedEx Services segment

 

 

57

 

 

 

153

 

 

 

 

 

 

 

Corporate, other, and eliminations

 

 

321

 

 

 

944

 

 

 

107

 

 

 

177

 

 

 

$

2,131

 

 

$

7,724

 

 

$

321

 

 

$

261

 

Overview

Operating income improved in the third quarter and nine months of 2022 due to yield management actions and the favorable net impact of fuel at all of our transportation segments, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Additionally, lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, benefited year-over-year operating income comparisons in the third quarter and nine months of 2022. Operating results in the third quarter and nine months of 2022 also benefited from two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight.

Our operating results for the third quarter and nine months of 2022 were negatively affected by the coronavirus (“COVID-19”) pandemic and labor market challenges. Global recovery from the impacts of the COVID-19 pandemic slowed with the onset of the Omicron variant, which spread quickly during the third quarter of 2022. The Omicron variant compounded pandemic-related pressures on our operations, resulting in reduced shipping demand and network disruptions. Our operating results for the third quarter and nine months of 2022 also reflect higher operating expenses related to labor market challenges and wage pressures. The challenging labor market contributed to global supply chain disruptions and affected the availability and cost of labor resulting in network inefficiencies, higher purchased transportation costs, and higher wage rates.

Operating income includes business realignment costs of $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months of 2022 associated with our workforce reduction plan in Europe previously announced in 2021. See the “Business Realignment Costs” section of this MD&A for more information.

- 22 -


 

We incurred TNT Express integration expenses totaling $29 million ($23 million, net of tax, or $0.08 per diluted share) in the third quarter and $92 million ($71 million, net of tax, or $0.27 per diluted share) in the nine months of 2022, a $20 million decrease from the third quarter and a $54 million decrease from the nine months of 2021. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, primarily related to professional and legal fees. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures. Integration expenses do not include costs associated with our business realignment activities (discussed above).

Consolidated net income in the nine months of 2022 includes a pre-tax, noncash net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) associated with our mark-to-market (“MTM”) retirement plans accounting adjustments. Consolidated net income in the nine months of 2021 includes a pre-tax, noncash MTM net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) associated with freezing our TNT Express Netherlands Pension Plan. See the “Retirement Plans MTM Adjustments” section of this MD&A and Note 6 of the accompanying unaudited condensed consolidated financial statements for additional information.

The comparison of net income between 2022 and 2021 is affected by a tax benefit of $78 million ($0.29 per diluted share) recognized in the third quarter of 2022 related to revisions of prior year estimates identified during the preparation of U.S. and foreign tax returns. The year-over-year comparisons of net income are also affected by a tax benefit of $299 million ($1.12 per diluted share) recognized during the nine months of 2021, of which we recognized $108 million during the third quarter of 2021 from a tax rate increase in the Netherlands applied to deferred tax balances and associated with voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) and a benefit of $191 million during the second quarter of 2021 from an increase in our 2020 tax loss that the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) allowed us to carry back to 2015, when the U.S. federal income tax rate was 35%. See the “Income Taxes” section of this MD&A for additional information.

During the third quarter of 2022, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (in addition to a 25 million share repurchase program authorized in 2016), and we entered into an accelerated share repurchase (“ASR”) agreement with a bank to repurchase an aggregate of $1.5 billion of our common stock. Share repurchases had a benefit of $0.06 per diluted share for the third quarter and nine months of 2022. See Note 1 of the accompanying unaudited condensed consolidated financial statements, “Financial Condition—Liquidity” below, and Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q for additional information on our repurchase programs (defined below).

- 23 -


 

The following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected volume trends (in thousands) over the five most recent quarters:

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http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_2.jpg.ashxhttp://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_3.jpg.ashx 

http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_4.jpg.ashxhttp://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_5.jpg.ashx 

(1)
International domestic average daily package volume relates to our international intra-country operations. International export average daily package volume relates to our international priority and economy services.
(2)
Ground commercial average daily package volume is calculated on a 5-day-per-week basis, while home delivery and economy average daily package volumes are calculated on a 7-day-per-week basis. Prior year statistical information has been revised to conform to the current year presentation.
(3)
International average daily freight pounds relate to our international priority, economy, and airfreight services.

- 24 -


 

 

The following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected yield trends over the five most recent quarters:

http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_6.jpg.ashxhttp://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_7.jpg.ashx 

http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_8.jpg.ashxhttp://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_9.jpg.ashx 

http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_10.jpg.ashx 

(1)
International export revenue per package relates to our international priority and economy services. International domestic revenue per package relates to our international intra-country operations.
(2)
International freight revenue per pound relates to our international priority, economy, and airfreight services.

- 25 -


 

Revenue

Revenue increased 10% in the third quarter and 13% in the nine months of 2022 primarily due to yield management actions and higher fuel surcharges, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight also contributed to the increase in revenue during the third quarter and nine months of 2022. In addition, we experienced severe winter weather in the prior year which positively affected the year-over-year comparisons in the third quarter and nine months of 2022. These factors were partially offset by decreased U.S. domestic package volume reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior.

Revenue at FedEx Express increased 5% in the third quarter and 10% in the nine months of 2022 due to package and international priority freight yield improvement, partially offset by decreased U.S. domestic package volume, as well as decreased international domestic package volume driven by yield management actions. Additionally, we experienced lower U.S. average daily freight pounds, primarily due to decreased demand and a reduction in charter flights, in the third quarter and nine months of 2022. At FedEx Ground, revenue increased 10% in the third quarter and 11% in the nine months of 2022 primarily due to yield improvement, as well as commercial and home delivery volume growth in the nine months of 2022. FedEx Freight revenue increased 23% in the third quarter and 21% in the nine months of 2022 primarily due to higher revenue per shipment and increased average daily shipments.

Operating Expenses

The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

 

Nine Months Ended

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

2022

 

 

2021

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

$

8,244

 

 

$

8,010

 

 

 

3

 

 

 

$

24,155

 

 

$

22,305

 

 

 

8

 

Purchased transportation

 

 

6,272

 

 

 

5,660

 

 

 

11

 

 

 

 

18,172

 

 

 

16,044

 

 

 

13

 

Rentals and landing fees

 

 

1,225

 

 

 

1,131

 

 

 

8

 

 

 

 

3,535

 

 

 

3,073

 

 

 

15

 

Depreciation and amortization

 

 

986

 

 

 

956

 

 

 

3

 

 

 

 

2,952

 

 

 

2,818

 

 

 

5

 

Fuel

 

 

1,201

 

 

 

756

 

 

 

59

 

 

 

 

3,355

 

 

 

1,946

 

 

 

72

 

Maintenance and repairs

 

 

822

 

 

 

822

 

 

 

 

 

 

 

2,530

 

 

 

2,443

 

 

 

4

 

Business realignment costs

 

 

107

 

 

 

10

 

 

NM

 

 

 

 

218

 

 

 

10

 

 

NM

 

Other

 

 

3,458

 

 

 

3,160

 

 

 

9

 

 

 

 

9,880

 

 

 

8,695

 

 

 

14

 

Total operating expenses

 

 

22,315

 

 

 

20,505

 

 

 

9

 

 

 

 

64,797

 

 

 

57,334

 

 

 

13

 

Operating income

 

$

1,326

 

 

$

1,005

 

 

 

32

 

 

 

$

4,321

 

 

$

4,060

 

 

 

6

 

 

 

 

Percent of Revenue

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

34.9

%

 

 

37.2

%

 

 

34.9

%

 

 

36.3

%

Purchased transportation

 

 

26.5

 

 

 

26.3

 

 

 

26.3

 

 

 

26.1

 

Rentals and landing fees

 

 

5.2

 

 

 

5.3

 

 

 

5.1

 

 

 

5.0

 

Depreciation and amortization

 

 

4.2

 

 

 

4.4

 

 

 

4.3

 

 

 

4.6

 

Fuel

 

 

5.1

 

 

 

3.5

 

 

 

4.8

 

 

 

3.2

 

Maintenance and repairs

 

 

3.5

 

 

 

3.8

 

 

 

3.7

 

 

 

4.0

 

Business realignment costs

 

 

0.4

 

 

 

0.1

 

 

 

0.3

 

 

 

 

Other

 

 

14.6

 

 

 

14.7

 

 

 

14.3

 

 

 

14.2

 

Total operating expenses

 

 

94.4

 

 

 

95.3

 

 

 

93.7

 

 

 

93.4

 

Operating margin

 

 

5.6

%

 

 

4.7

%

 

 

6.3

%

 

 

6.6

%

Operating income improved in the third quarter and nine months of 2022 driven by yield management actions and the favorable net impact of fuel at all of our transportation segments, as well as volume growth at FedEx Ground and FedEx Freight in the nine months of 2022. Lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, benefited our year-over-year operating income comparisons in the third quarter and nine months of 2022. Operating results in the third quarter and nine months of 2022 also benefited from two additional ground commercial operating weekdays at FedEx Ground and one additional operating day at FedEx Freight. These factors were partially offset by higher operating expenses including labor market challenges and wage pressures in the third quarter and nine months of 2022. In addition, the Omicron variant compounded pandemic-related pressures on our operations in the third quarter of 2022 which negatively impacted shipping demand, and caused network disruptions and staffing shortages, particularly at FedEx Express.

- 26 -


 

Purchased transportation costs increased 11% in the third quarter and 13% in the nine months of 2022 primarily due to the challenging labor market resulting in higher rates at FedEx Ground and increased utilization of third-party service providers at all transportation segments, as well as higher fuel surcharges. Salaries and employee benefits expense increased 3% in the third quarter and 8% in the nine months of 2022 primarily due to higher labor costs and network inefficiencies related to the constrained labor market and wage pressures, as well as merit increases, partially offset by lower variable incentive compensation expense. Other operating expenses increased 9% in the third quarter and 14% in the nine months of 2022 primarily due to increased costs related to self-insurance accruals, information technology expenses, variable costs associated with the constrained labor market, and additional volume-related expenses. Rentals and landing fees expense increased 8% in the third quarter and 15% in the nine months of 2022 primarily driven by increased vehicle and aircraft leases at FedEx Express and network expansion at FedEx Ground.

Fuel

The following graph for our transportation segments shows our average cost of vehicle and jet fuel per gallon for the five most recent quarters:

http://api.rkd.refinitiv.com/api/FilingsRetrieval3/.66624756.0000950170-22-004086img165780153_11.jpg.ashx 

Fuel expense increased 59% in the third quarter and 72% in the nine months of 2022 due to higher fuel prices. Fuel prices represent only one component of the factors we consider meaningful in understanding the effect of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the effect of fuel on our business. In order to provide information about the effect of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the three- and nine-month periods ended February 28, 2022 and 2021 in the accompanying discussion of each of our transportation segments.

Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term.

We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges at all of our transportation segments. The net impact of fuel on operating income described below and for each segment below excludes the effect from these table changes.

The net impact of fuel had a significant benefit to operating income in the third quarter and nine months of 2022 as higher fuel surcharges outpaced increased fuel prices.

For more information on potential impacts of fuel on our business and results of operations, see “Outlook” below and Part II, Item 1A. “Risk Factors.”

Business Realignment Costs

In 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 affect approximately 5,000 employees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur through 2023 in accordance with local country processes and regulations.

- 27 -


 

We incurred costs associated with our business realignment activities of $107 million ($82 million, net of tax, or $0.31 per diluted share) in the third quarter and $218 million ($168 million, net of tax, or $0.63 per diluted share) in the nine months of 2022. 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 $30 million in the third quarter and $86 million in the nine months of 2022. We expect the pre-tax cost of our business realignment activities to range from $380 million to $450 million through 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in 2024. The actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans and may differ from our current expectations and estimates.

Retirement Plans MTM Adjustments

In the nine months of 2022, we incurred a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) related to the termination of the TNT Express Netherlands Pension Plan and a curtailment charge related to the U.S. FedEx Freight Pension Plan.

The termination of the TNT Express Netherlands Pension Plan resulted in a pre-tax, noncash MTM net loss of $224 million in the second quarter of 2022. Effective October 1, 2021, the responsibility of all pension assets and liabilities of this plan was transferred to a separate, multi-employer pension plan. The remaining $36 million net loss related to the U.S. FedEx Freight Pension Plan consisted of a $75 million MTM loss due to a lower discount rate, partially offset by a $39 million curtailment gain. See Note 6 of the accompanying unaudited condensed consolidated financial statements for additional information.

In the second quarter of 2021, we incurred a pre-tax, noncash MTM net loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) related to amendments to the TNT Express Netherlands Pension Plan. Benefits for approximately 2,100 employees were frozen effective December 31, 2020. Effective January 1, 2021, these employees began earning pension benefits under a separate, multi-employer pension plan. This $52 million net loss consisted of a $106 million MTM loss due to a lower discount rate and a $54 million curtailment gain.

Income Taxes

Our effective tax rate was 19.1% for the third quarter and 22.4% for the nine months of 2022, compared to 15.0% for the third quarter and 17.2% for the nine months of 2021. The tax rate for the third quarter of 2022 includes a benefit of $78 million related to revisions of prior year tax estimates identified during the preparation of U.S. and foreign tax returns. The tax rate for the third quarter of 2021 includes benefits of $108 million from a tax rate increase in the Netherlands applied to our deferred tax balances and associated with voluntary contributions to our U.S. Pension Plans. The tax rate for the nine months of 2021 also includes a benefit of $191 million from an increase in our 2020 tax loss that the CARES Act allowed us to carry back to 2015, when the U.S. federal income tax rate was 35%.

We are subject to taxation in the United States and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2019 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.

During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $215 million through the third quarter of 2022 attributable to our interpretation of the TCJA and the Internal Revenue Code. We continue to pursue this lawsuit; however, if we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.

- 28 -


 

Equity Investment

On December 8, 2021, FedEx Express finalized its strategic alliance with Delhivery Limited (“Delhivery”). In connection with the strategic alliance, FedEx Express and Delhivery entered into equity and commercial agreements. As part of the collaboration, FedEx Express made a $100 million equity investment in Delhivery, FedEx Express sold certain assets pertaining to its domestic business in India to Delhivery, and the companies entered into a long-term commercial agreement. FedEx Express will focus on international export and import services to and from India, and Delhivery will, in addition to FedEx, sell FedEx Express international services in the India market and provide pickup-and-delivery services across India. This transaction was recorded in the third quarter of 2022 and was not material to our results of operations.

Russia and Ukraine Conflict

The crisis in Russia and Ukraine that began in February 2022 continues as of the date of this quarterly report. The safety of our team members in Ukraine is our top priority. We are providing team members in Ukraine with financial assistance and other resources. We will provide more than $1.5 million in humanitarian aid, which includes $1 million in in-kind shipping to organizations who are transporting supplies into the area and $550,000 in cash donations to non-government organizations in Europe. As we focus on the safety of our team members, we have suspended all services in Ukraine, Russia, and Belarus, which has not had and is not expected to have a material impact on our operating results. For more information about the conflict between Russia and Ukraine and its effect on FedEx’s business and results of operations, see Part II, Item IA “Risk Factors.”

Outlook

We anticipate revenue and operating income to improve in the fourth quarter of 2022 primarily as a result of yield growth. We are focused on yield management and improving revenue quality to better align with increased labor costs and inflationary pressures. We expect cost pressures associated with the challenging labor markets to subside in the fourth quarter of 2022 as we begin to lap the onset of labor market deterioration in the prior year. We will continue executing targeted actions to improve productivity both through advanced technology and optimization of operations in order to mitigate elevated labor costs. We will also continue optimizing capacity, including our FedEx Ground seven-day-per-week residential delivery network, to meet evolving customer needs, and flexing our network as needed to align with volumes and operating conditions.

We expect to complete the final phase of FedEx Express and TNT Express international air network interoperability in late March 2022, allowing us to leverage the capabilities that TNT Express adds to our portfolio, which is expected to improve our European revenue and profitability over time. We expect to incur approximately $60 million of integration expenses in the fourth quarter of 2022 primarily in the form of professional and legal fees. We expect the aggregate integration program expenses to be approximately $1.8 billion through the completion of the physical network integration of TNT Express into FedEx Express in 2022.

We will continue to execute initiatives in addition to the physical network integration to further transform and optimize the FedEx Express international business, particularly in Europe, in the fourth quarter of 2022. These actions are focused on reducing the complexity and fragmentation of our international business, improving efficiency to meet changing customer expectations and business dynamics, lowering costs, increasing profitability, and improving service levels. We expect to incur additional costs, over multiple years, including transformation costs and capital investments related to these actions. As part of this strategy, in 2021 we announced a workforce reduction plan in Europe. We expect the pre-tax cost of the severance benefits to be provided under the plan to range from $380 million to $450 million in cash expenditures through 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in 2024. See the “Business Realignment Costs” section of this MD&A for additional information.

Our expectations for the remainder of 2022 are dependent on key external factors, including no further weakening of global economic conditions or additional shut-downs related to the COVID-19 pandemic, continued gradual improvement in labor availability, current fuel price expectations, and no additional adverse geopolitical developments.

The uncertainty over the extent and duration of the ongoing conflict between Russia and Ukraine, and the impact it will have on the global economy, supply chains and fuel prices generally, and our business in particular, makes any expectations for the fourth quarter of 2022 inherently less certain. See “Russia and Ukraine Conflict” above and Part II, Item IA “Risk Factors” for more information.

Other Outlook Matters. For details on key 2022 capital projects, refer to the “Liquidity Outlook” section of this MD&A.

See “Forward-Looking Statements” and Part II, Item 1A “Risk Factors” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.

- 29 -


 

RECENT ACCOUNTING GUIDANCE

See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.

REPORTABLE SEGMENTS

FedEx Express, FedEx Ground, and FedEx Freight represent our major service lines and, along with FedEx Services, constitute our reportable segments. Our reportable segments include the following businesses:

 

FedEx Express Segment

FedEx Express (express transportation, small-package ground delivery, and freight transportation)

 

FedEx Custom Critical, Inc. (time-critical transportation)

 

 

FedEx Ground Segment

FedEx Ground (small-package ground delivery)

 

 

FedEx Freight Segment

FedEx Freight (LTL freight transportation)

 

 

FedEx Services Segment

FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions)

During the third quarter of 2022, FedEx Cross Border Holdings, Inc. was merged into FedEx Express.

FEDEX SERVICES SEGMENT

The FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the effect of its total allocated net operating costs on our operating segments.

Operating expenses for each of our transportation segments include the allocations from the FedEx Services segment to the respective transportation segments. These allocations include charges and credits for administrative services provided between operating companies. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.

CORPORATE, OTHER, AND ELIMINATIONS

Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing our innovate digitally strategic pillar through our FedEx Dataworks (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members.

Also included in Corporate and other are the FedEx Office and Print Services, Inc. operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics, Inc. (“FedEx Logistics”) operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.

The results of Corporate, other, and eliminations are not allocated to the other business segments.

In the third quarter and nine months of 2022, the increase in operating results in Corporate, other, and eliminations was primarily due to improved operating income at FedEx Logistics. Market capacity constraints related to the COVID-19 pandemic drove higher revenue due to increased yields, which was partially offset by higher purchased transportation costs.

- 30 -


 

Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during the third quarter and nine months of 2022 FedEx Ground provided delivery support for certain FedEx Express packages as part of our last-mile optimization efforts, and FedEx Freight provided road and intermodal support for both FedEx Ground and FedEx Express. In addition, FedEx Express is working with FedEx Logistics to secure air charters for U.S. customers. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.

FEDEX EXPRESS SEGMENT

FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

 

Nine Months Ended

 

 

Percent

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

2022

 

 

2021

 

 

Change

 

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Package:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. overnight box

 

$

2,275

 

 

$

2,078

 

 

 

9

 

 

 

$

6,694

 

 

$

5,951

 

 

 

12

 

 

U.S. overnight envelope

 

 

479

 

 

 

444

 

 

 

8

 

 

 

 

1,435

 

 

 

1,305

 

 

 

10

 

 

U.S. deferred

 

 

1,422

 

 

 

1,418

 

 

 

 

 

 

 

3,960

 

 

 

3,718

 

 

 

7

 

 

Total U.S. domestic package revenue

 

 

4,176

 

 

 

3,940

 

 

 

6

 

 

 

 

12,089

 

 

 

10,974

 

 

 

10

 

 

International priority

 

 

2,991

 

 

 

2,596

 

 

 

15

 

 

 

 

8,937

 

 

 

7,423

 

 

 

20

 

 

International economy

 

 

697

 

 

 

653

 

 

 

7

 

 

 

 

2,072

 

 

 

1,927

 

 

 

8

 

 

Total international export package revenue

 

 

3,688

 

 

 

3,249

 

 

 

14

 

 

 

 

11,009

 

 

 

9,350

 

 

 

18

 

 

International domestic(1)

 

 

1,016

 

 

 

1,162

 

 

 

(13

)

 

 

 

3,277

 

 

 

3,456

 

 

 

(5

)

 

Total package revenue

 

 

8,880

 

 

 

8,351

 

 

 

6

 

 

 

 

26,375

 

 

 

23,780

 

 

 

11

 

 

Freight:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

712

 

 

 

860

 

 

 

(17

)

 

 

 

2,262

 

 

 

2,492

 

 

 

(9

)

 

International priority

 

 

948

 

 

 

775

 

 

 

22

 

 

 

 

2,815

 

 

 

2,165

 

 

 

30

 

 

International economy

 

 

378

 

 

 

383

 

 

 

(1

)

 

 

 

1,230

 

 

 

1,162

 

 

 

6

 

 

International airfreight

 

 

40

 

 

 

56

 

 

 

(29

)

 

 

 

134

 

 

 

196

 

 

 

(32

)

 

Total freight revenue

 

 

2,078

 

 

 

2,074

 

 

 

 

 

 

 

6,441

 

 

 

6,015

 

 

 

7

 

 

Other

 

 

346

 

 

 

363

 

 

 

(5

)

 

 

 

1,059

 

 

 

1,008

 

 

 

5

 

 

Total revenue

 

 

11,304

 

 

 

10,788

 

 

 

5

 

 

 

 

33,875

 

 

 

30,803

 

 

 

10

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

4,182

 

 

 

4,352

 

 

 

(4

)

 

 

 

12,407

 

 

 

12,016

 

 

 

3

 

 

Purchased transportation

 

 

1,566

 

 

 

1,460

 

 

 

7

 

 

 

 

4,740

 

 

 

4,213

 

 

 

13

 

 

Rentals and landing fees

 

 

667

 

 

 

650

 

 

 

3

 

 

 

 

1,951

 

 

 

1,696

 

 

 

15

 

 

Depreciation and amortization

 

 

490

 

 

 

490

 

 

 

 

 

 

 

1,492

 

 

 

1,449

 

 

 

3

 

 

Fuel

 

 

1,040

 

 

 

647

 

 

 

61

 

 

 

 

2,897

 

 

 

1,672

 

 

 

73

 

 

Maintenance and repairs

 

 

509

 

 

 

549

 

 

 

(7

)

 

 

 

1,607

 

 

 

1,642

 

 

 

(2

)

 

Business realignment costs

 

 

107

 

 

 

10

 

 

NM

 

 

 

 

218

 

 

 

10

 

 

NM

 

 

Intercompany charges

 

 

494

 

 

 

509

 

 

 

(3

)

 

 

 

1,499

 

 

 

1,456

 

 

 

3

 

 

Other

 

 

1,729

 

 

 

1,658

 

 

 

4

 

 

 

 

5,028

 

 

 

4,576

 

 

 

10

 

 

Total operating expenses

 

 

10,784

 

 

 

10,325

 

 

 

4

 

 

 

 

31,839

 

 

 

28,730

 

 

 

11

 

 

Operating income

 

$

520

 

 

$

463

 

 

 

12

 

 

 

$

2,036

 

 

$

2,073

 

 

 

(2

)

 

Operating margin

 

 

4.6

%

 

 

4.3

%

 

 

30

 

bp

 

 

6.0

%

 

 

6.7

%

 

 

(70

)

bp

(1)
International domestic revenue relates to our international intra-country operations.

- 31 -


 

 

 

Percent of Revenue

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

37.0

%

 

 

40.3

%

 

 

36.6

%

 

 

39.0

%

Purchased transportation

 

 

13.9

 

 

 

13.5

 

 

 

14.0

 

 

 

13.7

 

Rentals and landing fees

 

 

5.9

 

 

 

6.0

 

 

 

5.8

 

 

 

5.5

 

Depreciation and amortization

 

 

4.3

 

 

 

4.6

 

 

 

4.4

 

 

 

4.7

 

Fuel

 

 

9.2

 

 

 

6.0

 

 

 

8.6

 

 

 

5.4

 

Maintenance and repairs

 

 

4.5

 

 

 

5.1

 

 

 

4.8

 

 

 

5.4

 

Business realignment costs

 

 

0.9

 

 

 

0.1

 

 

 

0.6

 

 

 

 

Intercompany charges

 

 

4.4

 

 

 

4.7

 

 

 

4.4

 

 

 

4.7

 

Other

 

 

15.3

 

 

 

15.4

 

 

 

14.8

 

 

 

14.9

 

Total operating expenses

 

 

95.4

 

 

 

95.7

 

 

 

94.0

 

 

 

93.3

 

Operating margin

 

 

4.6

%

 

 

4.3

%

 

 

6.0

%

 

 

6.7

%

The following table compares selected statistics (in thousands, except yield amounts) for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

Nine Months Ended

 

 

Percent

 

 

 

2022

 

 

2021

 

 

Change

 

 

2022

 

 

2021

 

 

Change

 

Package Statistics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily package volume (ADV):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. overnight box

 

 

1,457

 

 

 

1,529

 

 

 

(5

)

 

 

1,448

 

 

 

1,421

 

 

 

2

 

U.S. overnight envelope

 

 

497

 

 

 

508

 

 

 

(2

)

 

 

510

 

 

 

501

 

 

 

2

 

U.S. deferred

 

 

1,357

 

 

 

1,562

 

 

 

(13

)

 

 

1,297

 

 

 

1,367

 

 

 

(5

)

Total U.S. domestic ADV

 

 

3,311

 

 

 

3,599

 

 

 

(8

)

 

 

3,255

 

 

 

3,289

 

 

 

(1

)

International priority

 

 

799

 

 

 

765

 

 

 

4

 

 

 

801

 

 

 

736

 

 

 

9

 

International economy

 

 

282

 

 

 

294

 

 

 

(4

)

 

 

278

 

 

 

283

 

 

 

(2

)

Total international export ADV

 

 

1,081

 

 

 

1,059

 

 

 

2

 

 

 

1,079

 

 

 

1,019

 

 

 

6

 

International domestic(1)

 

 

1,866

 

 

 

2,353

 

 

 

(21

)

 

 

2,004

 

 

 

2,427

 

 

 

(17

)

Total ADV

 

 

6,258

 

 

 

7,011

 

 

 

(11

)

 

 

6,338

 

 

 

6,735

 

 

 

(6

)

Revenue per package (yield):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. overnight box

 

$

25.18

 

 

$

21.91

 

 

 

15

 

 

$

24.32

 

 

$

22.04

 

 

 

10

 

U.S. overnight envelope

 

 

15.54

 

 

 

14.08

 

 

 

10

 

 

 

14.82

 

 

 

13.72

 

 

 

8

 

U.S. deferred

 

 

16.90

 

 

 

14.65

 

 

 

15

 

 

 

16.07

 

 

 

14.32

 

 

 

12

 

U.S. domestic composite

 

 

20.34

 

 

 

17.66

 

 

 

15

 

 

 

19.55

 

 

 

17.56

 

 

 

11

 

International priority

 

 

60.43

 

 

 

54.71

 

 

 

10

 

 

 

58.74

 

 

 

53.08

 

 

 

11

 

International economy

 

 

39.85

 

 

 

35.87

 

 

 

11

 

 

 

39.26

 

 

 

35.85

 

 

 

10

 

International export composite

 

 

55.06

 

 

 

49.49

 

 

 

11

 

 

 

53.72

 

 

 

48.30

 

 

 

11

 

International domestic(1)

 

 

8.78

 

 

 

7.96

 

 

 

10

 

 

 

8.60

 

 

 

7.49

 

 

 

15

 

Composite package yield

 

$

22.89

 

 

$

19.21

 

 

 

19

 

 

$

21.90

 

 

$

18.58

 

 

 

18

 

Freight Statistics

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average daily freight pounds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

 

7,370

 

 

 

9,943

 

 

 

(26

)

 

 

8,029

 

 

 

9,426

 

 

 

(15

)

International priority

 

 

6,595

 

 

 

6,286

 

 

 

5

 

 

 

6,719

 

 

 

6,000

 

 

 

12

 

International economy

 

 

11,640

 

 

 

12,135

 

 

 

(4

)

 

 

12,126

 

 

 

12,435

 

 

 

(2

)

International airfreight

 

 

1,123

 

 

 

1,417

 

 

 

(21

)

 

 

1,198

 

 

 

1,534

 

 

 

(22

)

Total average daily freight pounds

 

 

26,728

 

 

 

29,781

 

 

 

(10

)

 

 

28,072

 

 

 

29,395

 

 

 

(5

)

Revenue per pound (yield):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

1.56

 

 

$

1.40

 

 

 

11

 

 

$

1.48

 

 

$

1.39

 

 

 

6

 

International priority

 

 

2.32

 

 

 

1.99

 

 

 

17

 

 

 

2.20

 

 

 

1.90

 

 

 

16

 

International economy

 

 

0.52

 

 

 

0.51

 

 

 

2

 

 

 

0.53

 

 

 

0.49

 

 

 

8

 

International airfreight

 

 

0.58

 

 

 

0.64

 

 

 

(9

)

 

 

0.59

 

 

 

0.67

 

 

 

(12

)

Composite freight yield

 

$

1.25

 

 

$

1.12

 

 

 

12

 

 

$

1.21

 

 

$

1.08

 

 

 

12

 

 

(1)
International domestic statistics relate to our international intra-country operations.

- 32 -


 

FedEx Express Segment Revenue

FedEx Express segment revenue increased 5% in the third quarter and 10% in the nine months of 2022 due to increased package and international priority freight yields driven by yield management actions, as well as higher fuel surcharges. In addition, severe winter weather experienced in the prior year positively affected our year-over-year comparisons in the third quarter and nine months of 2022. These factors were partially offset by decreased U.S. domestic package volume reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior, as well as decreased international domestic package volume driven by yield management actions in the third quarter and nine months of 2022. Additionally, we experienced lower U.S. average daily freight pounds primarily due to decreased demand and a reduction in charter flights in the third quarter and nine months of 2022.

FedEx Express segment revenue in the third quarter and nine months of 2021 included a benefit from a reduction in aviation excise taxes on cargo provided by the CARES Act, which expired on December 31, 2020.

International export package yield increased 11% in both the third quarter and nine months of 2022 primarily driven by higher fuel surcharges and base yield improvement. International export package average daily volumes increased 2% in the third quarter and 6% in the nine months of 2022 primarily due to growth in our international priority service offering, as industry-wide capacity constraints and actions to prioritize premium-yielding products drove a mix shift from international economy to international priority services. U.S. domestic package yield increased 15% in the third quarter and 11% in the nine months of 2022 driven by base rate improvement and higher fuel surcharges. U.S. domestic package average daily volumes decreased 8% in the third quarter and 1% in the nine months of 2022 primarily due to a decline in our deferred service offerings, reflecting year-over-year impacts of the COVID-19 pandemic on consumer behavior. Composite freight yield increased 12% in both the third quarter and nine months of 2022 primarily due to higher fuel surcharges and base yield improvement. Total average daily freight pounds decreased 10% in the third quarter and 5% in the nine months of 2022 primarily due to decreased demand and a reduction in charter flights. This decrease was partially offset by higher international priority freight pounds resulting from increased demand for international freight capacity during the third quarter and nine months of 2022. International domestic package yield increased 10% in the third quarter and 15% in the nine months of 2022 primarily due to base yield improvement. International domestic package average daily volumes decreased 21% in the third quarter and 17% in the nine months of 2022 primarily due to yield management actions.

FedEx Express’s U.S. domestic and outbound fuel surcharge and international fuel surcharge ranged as follows for the periods ended February 28:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

U.S. Domestic and Outbound Fuel Surcharge:

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

 

11.27

%

 

 

4.61

%

 

 

7.72

%

 

 

2.73

%

High

 

 

14.54

 

 

 

6.44

 

 

 

14.54

 

 

 

6.44

 

Weighted-average

 

 

12.61

 

 

 

5.21

 

 

 

10.64

 

 

 

4.13

 

International Export and Freight Fuel Surcharge:

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

 

10.41

 

 

 

2.96

 

 

 

6.39

 

 

 

0.28

 

High

 

 

29.45

 

 

 

19.88

 

 

 

29.45

 

 

 

19.88

 

Weighted-average

 

 

21.61

 

 

 

13.48

 

 

 

19.95

 

 

 

11.51

 

International Domestic Fuel Surcharge:

 

 

 

 

 

 

 

 

 

 

 

 

Low

 

 

4.96

 

 

 

4.25

 

 

 

3.88

 

 

 

2.62

 

High

 

 

44.76

 

 

 

20.39

 

 

 

44.76

 

 

 

20.39

 

Weighted-average

 

 

10.52

 

 

 

6.28

 

 

 

9.20

 

 

 

6.04

 

FedEx Express Segment Operating Income

FedEx Express segment operating income increased 12% in the third quarter of 2022 primarily due to yield management actions and the favorable net impact of fuel, partially offset by higher operating expenses related to labor market challenges and wage pressures. Operating income decreased 2% in the nine months of 2022 as higher operating expenses more than offset yield improvement and the favorable net impact of fuel. In addition, lower U.S. domestic package volume resulting from year-over-year impacts of the COVID-19 pandemic on consumer behavior negatively affected operating income in the third quarter and nine months of 2022. Further, we experienced lower U.S. average daily freight pounds primarily due to decreased demand and a reduction in charter flights in the third quarter and nine months of 2022. The Omicron variant compounded pandemic-related pressures on our operations in the third quarter of 2022, resulting in reduced shipping demand, network disruptions, and staffing shortages particularly affecting our air operations.

- 33 -


 

FedEx Express prior year operating results included a pre-tax benefit of approximately $30 million in the third quarter and $165 million in the nine months from a reduction in aviation excise taxes provided by the CARES Act, which negatively affected year-over-year comparisons in the third quarter and nine months of 2022. Lower variable incentive compensation expense, as well as severe winter weather experienced in the prior year, positively affected our year-over-year operating income comparisons in the third quarter and nine months of 2022.

FedEx Express segment results include business realignment costs of $107 million in the third quarter and $218 million in the nine months of 2022 associated with our workforce reduction plan in Europe. See the “Business Realignment Costs” section of this MD&A for more information. FedEx Express segment results also include $24 million of TNT Express integration expenses in the third quarter and $77 million of such expenses in the nine months of 2022, a $17 million decrease from the third quarter and a $44 million decrease from the nine months of 2021.

Purchased transportation expense increased 7% in the third quarter and 13% in the nine months of 2022 primarily due to higher utilization of third-party transportation providers and increased rates. Other operating expense increased 10% in the nine months of 2022 primarily due to higher outside service contract expense, which includes variable costs associated with the constrained labor market, as well as additional volume-related expenses and higher self-insurance accruals. Salaries and employee benefits expense decreased 4% in the third quarter of 2022 primarily due to lower variable incentive compensation expense, partially offset by higher labor costs related to the constrained labor market and wage pressures. Salaries and employee benefits expense increased 3% in the nine months of 2022 primarily due to higher labor costs related to the constrained labor market and wage pressures, partially offset by lower variable incentive compensation expense. Rentals and landing fees expense increased 15% in the nine months of 2022 primarily driven by increased vehicle and aircraft leases.

Fuel expense increased 61% in the third quarter and 73% in the nine months of 2022 due to increased fuel prices. The net impact of fuel had a significant benefit to operating income in the third quarter and nine months of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

FEDEX GROUND SEGMENT

FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. Prior year statistical information has been revised to conform to the current year presentation. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts), and operating expenses as a percent of revenue for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

 

Nine Months Ended

 

 

Percent

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

2022

 

 

2021

 

 

Change

 

 

Revenue

 

$

8,800

 

 

$

7,980

 

 

 

10

 

 

 

$

24,741

 

 

$

22,364

 

 

 

11

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,950

 

 

 

1,652

 

 

 

18

 

 

 

 

5,418

 

 

 

4,483

 

 

 

21

 

 

Purchased transportation

 

 

4,023

 

 

 

3,745

 

 

 

7

 

 

 

 

11,441

 

 

 

10,524

 

 

 

9

 

 

Rentals

 

 

373

 

 

 

306

 

 

 

22

 

 

 

 

1,039

 

 

 

859

 

 

 

21

 

 

Depreciation and amortization

 

 

233

 

 

 

214

 

 

 

9

 

 

 

 

682

 

 

 

623

 

 

 

9

 

 

Fuel

 

 

9

 

 

 

6

 

 

 

50

 

 

 

 

22

 

 

 

15

 

 

 

47

 

 

Maintenance and repairs

 

 

148

 

 

 

125

 

 

 

18

 

 

 

 

433

 

 

 

356

 

 

 

22

 

 

Intercompany charges

 

 

489

 

 

 

480

 

 

 

2

 

 

 

 

1,460

 

 

 

1,358

 

 

 

8

 

 

Other

 

 

934

 

 

 

750

 

 

 

25

 

 

 

 

2,453

 

 

 

2,058

 

 

 

19

 

 

Total operating expenses

 

 

8,159

 

 

 

7,278

 

 

 

12

 

 

 

 

22,948

 

 

 

20,276

 

 

 

13

 

 

Operating income

 

$

641

 

 

$

702

 

 

 

(9

)

 

 

$

1,793

 

 

$

2,088

 

 

 

(14

)

 

Operating margin

 

 

7.3

%

 

 

8.8

%

 

 

(150

)

bp

 

 

7.2

%

 

 

9.3

%

 

 

(210

)

bp

Average daily package volume (ADV)(1):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ground commercial

 

 

4,503

 

 

 

4,327

 

 

 

4

 

 

 

 

4,565

 

 

 

4,224

 

 

 

8

 

 

Home delivery

 

 

4,860

 

 

 

4,645

 

 

 

5

 

 

 

 

4,305

 

 

 

4,074

 

 

 

6

 

 

Economy

 

 

1,207

 

 

 

1,611

 

 

 

(25

)

 

 

 

1,216

 

 

 

1,669

 

 

 

(27

)

 

Total ADV

 

 

10,570

 

 

 

10,583

 

 

 

 

 

 

 

10,086

 

 

 

9,967

 

 

 

1

 

 

Revenue per package (yield)

 

$

10.62

 

 

$

9.72

 

 

 

9

 

 

 

$

10.40

 

 

$

9.49

 

 

 

10

 

 

(1)
Ground commercial ADV is calculated on a 5-day-per-week basis, while home delivery and economy ADV are calculated on a 7-day-per-week basis.

- 34 -


 

 

 

Percent of Revenue

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

22.2

%

 

 

20.7

%

 

 

21.9

%

 

 

20.0

%

Purchased transportation

 

 

45.7

 

 

 

46.9

 

 

 

46.2

 

 

 

47.1

 

Rentals

 

 

4.2

 

 

 

3.8

 

 

 

4.2

 

 

 

3.8

 

Depreciation and amortization

 

 

2.6

 

 

 

2.7

 

 

 

2.8

 

 

 

2.8

 

Fuel

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

 

 

0.1

 

Maintenance and repairs

 

 

1.7

 

 

 

1.6

 

 

 

1.8

 

 

 

1.6

 

Intercompany charges

 

 

5.6

 

 

 

6.0

 

 

 

5.9

 

 

 

6.1

 

Other

 

 

10.6

 

 

 

9.4

 

 

 

9.9

 

 

 

9.2

 

Total operating expenses

 

 

92.7

 

 

 

91.2

 

 

 

92.8

 

 

 

90.7

 

Operating margin

 

 

7.3

%

 

 

8.8

%

 

 

7.2

%

 

 

9.3

%

FedEx Ground Segment Revenue

FedEx Ground segment revenue increased 10% in the third quarter and 11% in the nine months of 2022 primarily due to yield management actions, higher fuel surcharges, and two additional ground commercial operating weekdays. Revenue also benefited from commercial and home delivery volume growth in the nine months of 2022. In addition, during the third quarter and nine months of 2021, we experienced severe winter weather which positively affected the year-over-year comparison in the third quarter and nine months of 2022. These factors were partially offset by the negative effects of the Omicron variant on demand during the third quarter of 2022.

FedEx Ground yield increased 9% in the third quarter and 10% in the nine months of 2022 primarily due to higher fuel surcharges, service mix, and pricing initiatives. Average daily volume remained flat in the third quarter of 2022 as lower economy volume offset growth in commercial and home delivery services. Average daily volume increased slightly in the nine months of 2022 primarily due to growth in commercial and home delivery services, partially offset by lower economy volume. Strategic actions to improve revenue quality and prioritize capacity for higher yielding business-to-consumer volume drove a mix shift from economy to home delivery services in the third quarter and nine months of 2022.

The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel, as published by the Department of Energy. The fuel surcharge ranged as follows for the periods ended February 28:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Low

 

 

11.75

%

 

 

5.75

%

 

 

8.00

%

 

 

5.50

%

High

 

 

13.00

 

 

 

7.00

 

 

 

13.00

 

 

 

7.00

 

Weighted-average

 

 

12.13

 

 

 

6.30

 

 

 

10.61

 

 

 

5.93

 

FedEx Ground Segment Operating Income

FedEx Ground segment operating income decreased 9% in the third quarter and 14% in the nine months of 2022 primarily due to higher operating expenses related to labor market challenges and wage pressures, as well as increased costs related to network expansion. The constrained labor market affected the availability and cost of labor resulting in higher purchased transportation costs, network inefficiencies, and higher wage rates. In addition, the Omicron variant negatively affected shipping demand during the third quarter of 2022. These factors were partially offset by yield management actions, the favorable net impact of fuel, and two additional ground commercial operating weekdays in the third quarter and nine months of 2022. Commercial and home delivery volume growth also benefited results in the nine months of 2022. Severe winter weather experienced in the prior year positively affected year-over-year operating income comparisons in the third quarter and nine months of 2022.

Salaries and employee benefits expense increased 18% in the third quarter and 21% in the nine months of 2022 due to increased labor expenses and network inefficiencies related to the constrained labor market and wage pressures. Purchased transportation expense increased 7% in the third quarter and 9% in the nine months of 2022 due to the challenging labor market resulting in increased rates, higher utilization of third-party providers, and network inefficiencies, as well as higher fuel surcharges. Other operating expense increased 25% in the third quarter and 19% in the nine months of 2022 primarily due to higher self-insurance accruals, higher variable costs associated with the constrained labor market, and additional volume-related expenses. Rentals expense increased 22% in the third quarter and 21% in the nine months of 2022 due to network expansion.

- 35 -


 

The net impact of fuel had a significant benefit to operating income in the third quarter and nine months of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

FEDEX FREIGHT SEGMENT

FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the periods ended February 28:

 

 

Three Months Ended

 

 

Percent

 

 

 

Nine Months Ended

 

 

Percent

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

2022

 

 

2021

 

 

Change

 

 

Revenue

 

$

2,253

 

 

$

1,836

 

 

 

23

 

 

 

$

6,776

 

 

$

5,598

 

 

 

21

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

1,014

 

 

 

911

 

 

 

11

 

 

 

 

3,031

 

 

 

2,684

 

 

 

13

 

 

Purchased transportation

 

 

237

 

 

 

203

 

 

 

17

 

 

 

 

720

 

 

 

582

 

 

 

24

 

 

Rentals

 

 

61

 

 

 

57

 

 

 

7

 

 

 

 

182

 

 

 

172

 

 

 

6

 

 

Depreciation and amortization

 

 

99

 

 

 

104

 

 

 

(5

)

 

 

 

303

 

 

 

315

 

 

 

(4

)

 

Fuel

 

 

152

 

 

 

103

 

 

 

48

 

 

 

 

434

 

 

 

258

 

 

 

68

 

 

Maintenance and repairs

 

 

65

 

 

 

54

 

 

 

20

 

 

 

 

195

 

 

 

164

 

 

 

19

 

 

Intercompany charges

 

 

128

 

 

 

128

 

 

 

 

 

 

 

386

 

 

 

369

 

 

 

5

 

 

Other

 

 

160

 

 

 

157

 

 

 

2

 

 

 

 

464

 

 

 

409

 

 

 

13

 

 

Total operating expenses

 

 

1,916

 

 

 

1,717

 

 

 

12

 

 

 

 

5,715

 

 

 

4,953

 

 

 

15

 

 

Operating income

 

$

337

 

 

$

119

 

 

 

183

 

 

 

$

1,061

 

 

$

645

 

 

 

64

 

 

Operating margin

 

 

15.0

%

 

 

6.5

%

 

 

850

 

bp

 

 

15.7

%

 

 

11.5

%

 

 

420

 

bp

Average daily shipments (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priority

 

 

75.0

 

 

 

72.6

 

 

 

3

 

 

 

 

78.9

 

 

 

74.0

 

 

 

7

 

 

Economy

 

 

30.4

 

 

 

31.1

 

 

 

(2

)

 

 

 

32.4

 

 

 

31.3

 

 

 

4

 

 

Total average daily shipments

 

 

105.4

 

 

 

103.7

 

 

 

2

 

 

 

 

111.3

 

 

 

105.3

 

 

 

6

 

 

Weight per shipment (lbs):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priority

 

 

1,104

 

 

 

1,110

 

 

 

(1

)

 

 

 

1,092

 

 

 

1,104

 

 

 

(1

)

 

Economy

 

 

959

 

 

 

950

 

 

 

1

 

 

 

 

945

 

 

 

988

 

 

 

(4

)

 

Composite weight per shipment

 

 

1,062

 

 

 

1,062

 

 

 

 

 

 

 

1,049

 

 

 

1,070

 

 

 

(2

)

 

Revenue per shipment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priority

 

$

329.05

 

 

$

275.44

 

 

 

19

 

 

 

$

307.86

 

 

$

266.30

 

 

 

16

 

 

Economy

 

 

376.76

 

 

 

315.11

 

 

 

20

 

 

 

 

352.50

 

 

 

310.39

 

 

 

14

 

 

Composite revenue per shipment

 

$

342.83

 

 

$

287.32

 

 

 

19

 

 

 

$

320.85

 

 

$

279.42

 

 

 

15

 

 

Revenue per hundredweight:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Priority

 

$

29.81

 

 

$

24.82

 

 

 

20

 

 

 

$

28.20

 

 

$

24.12

 

 

 

17

 

 

Economy

 

 

39.28

 

 

 

33.16

 

 

 

18

 

 

 

 

37.29

 

 

 

31.40

 

 

 

19

 

 

Composite revenue per hundredweight

 

$

32.28

 

 

$

27.06

 

 

 

19

 

 

 

$

30.58

 

 

$

26.12

 

 

 

17

 

 

 

 

 

Percent of Revenue

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

 

45.0

%

 

 

49.6

%

 

 

44.7

%

 

 

48.0

%

Purchased transportation

 

 

10.5

 

 

 

11.1

 

 

 

10.6

 

 

 

10.4

 

Rentals

 

 

2.7

 

 

 

3.1

 

 

 

2.7

 

 

 

3.1

 

Depreciation and amortization

 

 

4.4

 

 

 

5.7

 

 

 

4.5

 

 

 

5.6

 

Fuel

 

 

6.7

 

 

 

5.6

 

 

 

6.4

 

 

 

4.6

 

Maintenance and repairs

 

 

2.9

 

 

 

2.9

 

 

 

2.9

 

 

 

2.9

 

Intercompany charges

 

 

5.7

 

 

 

7.0

 

 

 

5.7

 

 

 

6.6

 

Other

 

 

7.1

 

 

 

8.5

 

 

 

6.8

 

 

 

7.3

 

Total operating expenses

 

 

85.0

 

 

 

93.5

 

 

 

84.3

 

 

 

88.5

 

Operating margin

 

 

15.0

%

 

 

6.5

%

 

 

15.7

%

 

 

11.5

%

 

- 36 -


 

FedEx Freight Segment Revenue

FedEx Freight segment revenue increased 23% in the third quarter and 21% in the nine months of 2022 primarily due to higher revenue per shipment reflecting our ongoing focus on improving revenue quality and profitable growth, increased average daily shipments, and higher fuel surcharges. In addition, severe winter weather experienced in the prior year, as well as one additional operating day, benefited our year-over-year comparisons in the third quarter and nine months of 2022.

Revenue per shipment increased 19% in the third quarter and 15% in the nine months of 2022 primarily due to higher base rates and higher fuel surcharges, which more than offset the effect of slightly lower weight per shipment. Average daily shipments increased 2% in the third quarter and 6% in the nine months of 2022 due to higher demand for our service offerings.

The weekly indexed fuel surcharge is based on the average of the U.S. on-highway prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed FedEx Freight fuel surcharge ranged as follows for the periods ended February 28:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Low

 

 

28.90

%

 

 

21.40

%

 

 

25.40

%

 

 

21.00

%

High

 

 

31.10

 

 

 

24.00

 

 

 

31.10

 

 

 

24.00

 

Weighted-average

 

 

29.60

 

 

 

22.50

 

 

 

27.50

 

 

 

21.60

 

FedEx Freight Segment Operating Income

FedEx Freight segment operating income increased significantly in the third quarter and nine months of 2022 driven by continued focus on revenue quality and profitable growth. Severe winter weather experienced in the prior year, as well as one additional operating day, benefited our year-over-year operating income comparisons in the third quarter and nine months of 2022. Higher purchased transportation costs, network inefficiencies, and higher wage rates as a result of constrained labor market conditions negatively affected results in the third quarter and nine months of 2022.

Salaries and employee benefits expense increased 11% in the third quarter and 13% in the nine months of 2022 primarily due to higher volumes, merit increases, and network inefficiencies in the constrained labor market. Purchased transportation expense increased 17% in the third quarter and 24% in the nine months of 2022 primarily due to the challenging labor market resulting in increased utilization of third-party service providers, as well as higher fuel surcharges and rates.

Fuel expense increased 48% in the third quarter and 68% in the nine months of 2022 primarily due to increased fuel prices. The net impact of fuel had a significant benefit to operating income in the third quarter and nine months of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.

- 37 -


 

FINANCIAL CONDITION

LIQUIDITY

Cash and cash equivalents totaled $6.1 billion at February 28, 2022, compared to $7.1 billion at May 31, 2021. The following table provides a summary of our cash flows for the nine-month periods ended February 28 (in millions):

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net income

 

$

3,268

 

 

$

3,363

 

Business realignment costs

 

 

128

 

 

 

 

Other noncash charges and credits

 

 

6,188

 

 

 

5,479

 

Changes in assets and liabilities

 

 

(3,254

)

 

 

(1,450

)

Cash provided by operating activities

 

 

6,330

 

 

 

7,392

 

Investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(4,379

)

 

 

(4,202

)

Business acquisitions, net of cash acquired

 

 

 

 

 

(225

)

Purchase of investments

 

 

(145

)

 

 

 

Proceeds from asset dispositions and other

 

 

71

 

 

 

88

 

Cash used in investing activities

 

 

(4,453

)

 

 

(4,339

)

Financing activities:

 

 

 

 

 

 

Principal payments on debt

 

 

(113

)

 

 

(105

)

Proceeds from debt issuances

 

 

 

 

 

970

 

Proceeds from stock issuances

 

 

151

 

 

 

482

 

Dividends paid

 

 

(598

)

 

 

(513

)

Purchase of treasury stock

 

 

(2,248

)

 

 

 

Other, net

 

 

 

 

 

(13

)

Cash (used in) provided by financing activities

 

 

(2,808

)

 

 

821

 

Effect of exchange rate changes on cash

 

 

(91

)

 

 

101

 

Net (decrease) increase in cash and cash equivalents

 

$

(1,022

)

 

$

3,975

 

Cash and cash equivalents at the end of period

 

$

6,065

 

 

$

8,856

 

Cash flows from operating activities decreased $1.1 billion in the nine months of 2022 primarily due to a decrease in income and other tax liabilities, including prior year relief from certain taxes in the U.S. pursuant to the CARES Act, and timing of variable incentive compensation payments, partially offset by lower accounts receivable due to the prior year effects of the COVID-19 pandemic, as well as higher net income (net of noncash items). Capital expenditures increased during the nine months of 2022 primarily due to increased spending on package handling equipment, vehicles and trailers, facilities, and information technology, partially offset by decreased aircraft spending. See “Capital Resources” for a discussion of capital expenditures during 2022 and 2021.

In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares (the “2016 repurchase program”). In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (the “2022 repurchase program” and together with the 2016 repurchase program, the “repurchase programs”). As part of the repurchase programs, we entered into an ASR agreement with a bank in December 2021 to repurchase an aggregate of $1.5 billion of our common stock.

During the third quarter of 2022, the ASR transaction was completed, and 6.1 million shares were delivered under the ASR agreement. During the nine months of 2022, including the ASR transaction, we repurchased 8.9 million shares of FedEx common stock at an average price of $253.85 per share for a total of $2.2 billion. As of February 28, 2022, approximately $4.1 billion remained available to use for repurchases under the 2022 repurchase program. No shares remain available for repurchase under the 2016 repurchase program. Shares under the 2022 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. See Note 1 of the accompanying unaudited condensed consolidated financial statements for additional information.

- 38 -


 

CAPITAL RESOURCES

Our operations are capital intensive, characterized by significant investments in aircraft, package handling and sort equipment, vehicles and trailers, technology, and facilities. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities.

The following table compares capital expenditures by asset category and reportable segment for the periods ended February 28 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent Change
2022/2021

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months

 

 

Nine Months

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

Ended

 

 

Ended

 

Aircraft and related equipment

 

$

136

 

 

$

536

 

 

$

1,482

 

 

$

1,809

 

 

 

(75

)

 

 

(18

)

Package handling and ground support equipment

 

 

410

 

 

 

304

 

 

 

1,120

 

 

 

865

 

 

 

35

 

 

 

29

 

Vehicles and trailers

 

 

227

 

 

 

139

 

 

 

373

 

 

 

280

 

 

 

63

 

 

 

33

 

Information technology

 

 

167

 

 

 

189

 

 

 

634

 

 

 

560

 

 

 

(12

)

 

 

13

 

Facilities and other

 

 

296

 

 

 

208

 

 

 

770

 

 

 

688

 

 

 

42

 

 

 

12

 

Total capital expenditures

 

$

1,236

 

 

$

1,376

 

 

$

4,379

 

 

$

4,202

 

 

 

(10

)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FedEx Express segment

 

$

462

 

 

$

732

 

 

$

2,339

 

 

$

2,564

 

 

 

(37

)

 

 

(9

)

FedEx Ground segment

 

 

572

 

 

 

349

 

 

 

1,379

 

 

 

940

 

 

 

64

 

 

 

47

 

FedEx Freight segment

 

 

84

 

 

 

130

 

 

 

125

 

 

 

228

 

 

 

(35

)

 

 

(45

)

FedEx Services segment

 

 

94

 

 

 

145

 

 

 

464

 

 

 

392

 

 

 

(35

)

 

 

18

 

Other

 

 

24

 

 

 

20

 

 

 

72

 

 

 

78

 

 

 

20

 

 

 

(8

)

Total capital expenditures

 

$

1,236

 

 

$

1,376

 

 

$

4,379

 

 

$

4,202

 

 

 

(10

)

 

 

4

 

Capital expenditures increased in the nine months of 2022 primarily due to increased spending on package handling equipment at all transportation segments, higher spending on vehicles and trailers at FedEx Express and FedEx Ground, increased spending on facilities at FedEx Ground, and higher information technology spending at FedEx Services, partially offset by decreased aircraft spending at FedEx Express.

GUARANTOR FINANCIAL INFORMATION

We are providing the following information in compliance with Rule 13-01 of Regulation S-X, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” with respect to our senior unsecured debt securities and Pass-Through Certificates, Series 2020-1AA (the “Certificates”).

The $19.4 billion principal amount of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx (“Guarantor Subsidiaries”). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate, and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee.

Additionally, FedEx fully and unconditionally guarantees the payment obligation of FedEx Express in respect of the $892 million principal amount of the Certificates. See Note 4 of the accompanying unaudited condensed consolidated financial statements and Note 7 to the financial statements included in our Annual Report for additional information regarding the terms of the Certificates.

- 39 -


 

The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.

Parent and Guarantor Subsidiaries

The following table presents the summarized balance sheet information as of February 28, 2022 and May 31, 2021 (in millions):

 

 

 

February 28,
2022

 

 

May 31,
2021

 

Current Assets

 

$

10,777

 

 

$

12,795

 

Intercompany Receivable

 

 

4,556

 

 

 

3,348

 

Total Assets

 

 

91,659

 

 

 

80,470

 

Current Liabilities

 

 

9,716

 

 

 

9,135

 

Intercompany Payable

 

 

 

 

 

 

Total Liabilities

 

 

57,522

 

 

 

55,783

 

The following table presents the summarized statement of income information for the nine-month period ended February 28, 2022 (in millions):

 

Revenue

 

$

50,033

 

Intercompany Charges, net

 

 

(3,659

)

Operating Income

 

 

3,682

 

Intercompany Charges, net

 

 

96

 

Income Before Income Taxes

 

 

3,743

 

Net Income

 

$

2,993

 

The following tables present summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.

Parent Guarantor and Subsidiary Issuer

The following table presents the summarized balance sheet information as of February 28, 2022 and May 31, 2021 (in millions):

 

 

 

February 28,
2022

 

 

May 31,
2021

 

Current Assets

 

$

3,847

 

 

$

5,281

 

Intercompany Receivable

 

 

 

 

 

 

Total Assets

 

 

67,983

 

 

 

67,084

 

Current Liabilities

 

 

4,868

 

 

 

4,325

 

Intercompany Payable

 

 

7,411

 

 

 

5,929

 

Total Liabilities

 

 

46,879

 

 

 

46,386

 

 

The following table presents the summarized statement of income information for the nine-month period ended February 28, 2022 (in millions):

 

Revenue

 

$

18,346

 

Intercompany Charges, net

 

 

(2,347

)

Operating Income

 

 

1,219

 

Intercompany Charges, net

 

 

376

 

Income Before Income Taxes

 

 

3,157

 

Net Income

 

$

2,762

 

 

- 40 -


 

LIQUIDITY OUTLOOK

In response to current business and economic conditions as referenced above in the “Outlook” section of this MD&A, we are continuing to actively manage and optimize our capital allocation in a still-challenging macroeconomic environment from the ongoing COVID-19 pandemic, labor availability and supply chain constraints, inflationary pressures, rising fuel prices, and geopolitical conflicts. We have $6.1 billion in cash at February 28, 2022 and $3.5 billion in available liquidity at March 15, 2022 under our $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and $1.5 billion three-year credit agreement (the “Three-Year Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”), and we believe that our cash and cash equivalents, cash from operations, and available financing sources will be adequate to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases.

Our cash and cash equivalents balance at February 28, 2022 includes $3.1 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations.

Our capital expenditures are expected to be approximately $7.0 billion in 2022, a $1.1 billion increase from 2021. While we continue to invest in our business, the capital intensity relative to revenue remains below historical levels. Total capital expenditures will include strategic investments to increase capacity to support elevated volume levels, aircraft modernization at FedEx Express, and investments in productivity and safety. We invested $1.5 billion in aircraft and related equipment in the nine months of 2022 and expect to invest an additional $0.8 billion for aircraft and related equipment during the remainder of 2022. In addition, we are making investments over multiple years of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1.5 billion to modernize the FedEx Express Memphis World Hub. We expect these investments in hubs will provide productivity gains. We anticipate that our cash flow from operations will be sufficient to fund our capital expenditures for the remainder of 2022. Historically, we have been successful in obtaining unsecured financing from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on a variety of economic factors.

We have several aircraft modernization programs underway that are supported by the purchase of Boeing 777 Freighter and Boeing 767-300 Freighter (“B767F”) aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.

During the first quarter of 2022, FedEx Express exercised options to purchase an additional 20 B767F aircraft, ten of which will be delivered in 2024 and ten of which will be delivered in 2025.

We have a shelf registration statement filed with the Securities and Exchange Commission (“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.

The Five-Year Credit Agreement expires in March 2026 and includes a $250 million letter of credit sublimit. The Three-Year Credit Agreement expires in March 2025. The Credit Agreements are available to finance our operations and other cash flow needs. See Note 4 of the accompanying unaudited condensed consolidated financial statements, as well as Part II, Item 5. “Other Information” for information on the recent amendment of the Five-Year Credit Agreement and replacement of our previously existing $1.5 billion 364-day credit agreement with the Three-Year Credit Agreement, the replacement of references to the London Interbank Offered Rate with the Secured Overnight Financing Rate, and a description of the other terms of and significant covenants in the Credit Agreements.

During the nine months of 2022, we made voluntary contributions totaling $500 million to our U.S. Pension Plans. We do not expect to make any additional contributions to our U.S. Pension Plans in the fourth quarter of 2022. We do not anticipate contributions to our U.S. Pension Plans will be required for the foreseeable future based on our funded status and the fact we have a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $4 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. Our U.S. Pension Plans have ample funds to meet expected benefit payments.

Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, a Certificates rating of AA-, a commercial paper rating of A-2, and a ratings outlook of “stable.” Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating of P-2, and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.

- 41 -


 

CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

There have been no material changes to the contractual commitments described in Part II, Item 7 in our Annual Report.

We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material effect on our financial condition or liquidity.

See Note 8 to the accompanying unaudited condensed consolidated financial statements for additional information on our purchase commitments.

OTHER BUSINESS MATTERS

On June 24, 2019, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce (the “DOC”) from enforcing prohibitions contained in the Export Administration Regulations against FedEx. On September 11, 2020, the court granted the DOC’s motion to dismiss the lawsuit. On November 5, 2020, we appealed this decision.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.

GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of February 28, 2022, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.

Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including (but not limited to) those contained in “Business Realignment Costs,” “Income Taxes,” “Russia and Ukraine Conflict,” “Outlook,” “Liquidity Outlook,” and “Critical Accounting Estimates,” and the “General,” “Financing Arrangements,” “Retirement Plans,” “Commitments,” and “Contingencies” notes to our unaudited condensed consolidated financial statements, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance, and business and the assumptions underlying such statements. Forward-looking statements include those preceded by, followed by, or that include the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends,” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:

economic conditions in the global markets in which we operate;
significant changes in the volumes of shipments transported through our networks, customer demand for our various services, or the prices we obtain for our services;
our ability to meet our labor and purchased transportation needs while controlling related costs and maintain our company culture;
a significant data breach or other disruption to our technology infrastructure;
the continuing effect of the COVID-19 pandemic;
anti-trade measures and additional changes in international trade policies and relations;

- 42 -


 

the effect of any international conflicts or terrorist activities, including the current conflict between Russia and Ukraine, on the United States and global economies in general, the transportation industry, or FedEx in particular, and what effects these events will have on our costs and the demand for our services;
our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and customer preferences, and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our ability to successfully implement our FedEx Express workforce reduction plan in Europe and to continue to transform and optimize the FedEx Express international business, particularly in Europe;
damage to our reputation or loss of brand equity;
changes in the business or financial soundness of the U.S. Postal Service (“USPS”), including strategic changes to its operations to reduce its reliance on the air network of FedEx Express, or our relationship with the USPS;
the price and availability of jet and vehicle fuel, including significant increases in fuel prices as a result of the ongoing conflict between Russia and Ukraine;
our ability to manage our network capacity and cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;
the effect of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our revenue and market share;
our ability to execute and effectively operate, integrate, leverage, and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses, including their goodwill and other intangible assets;
the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio;
the timeline for recovery of passenger airline cargo capacity;
any effects on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, policies, and actions, which could be unfavorable to our business, including regulatory or other actions affecting data protection; global aviation or other transportation rights; increased air cargo, pilot flight and duty time, and other security or safety requirements; export controls; the use of new technology and accounting; trade (such as protectionist measures or restrictions on free trade); foreign exchange intervention in response to currency volatility; labor (such as joint employment standards or changes to the Railway Labor Act of 1926, as amended, affecting FedEx Express employees); environmental (such as global climate change legislation); or postal rules;
adverse changes in tax laws, regulations, and interpretations or challenges to our tax positions;
the effect of costs related to lawsuits in which it is alleged that FedEx Ground should be treated as an employer of drivers employed by service providers engaged by FedEx Ground;
increased insurance and claims expenses related to workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee healthcare and disability programs;
our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;
our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040;
our ability to successfully mitigate unique technological, operational, and regulatory risks related to our autonomous delivery strategy;
our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility, as well as the outcome of future negotiations to reach new collective bargaining agreements;
increasing costs, the volatility of costs and funding requirements, and other legal mandates for employee benefits, especially pension and healthcare benefits;
the effects of global climate change;

- 43 -


 

widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
the increasing costs of compliance with federal, state, and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;
changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen, and Brazilian real, which can affect our sales levels and foreign currency sales prices;
any liability resulting from and the costs of defending against class-action, derivative, and other litigation, such as wage-and-hour, joint employment, securities, and discrimination and retaliation claims, and any other legal or governmental proceedings, including the matters discussed in Note 9 of the accompanying unaudited condensed consolidated financial statements;
the effect of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;
governmental underinvestment in transportation infrastructure, which could increase our costs and adversely affect our service levels due to traffic congestion, prolonged closure of key thoroughfares, or sub-optimal routing of our vehicles and aircraft;
disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;
constraints, volatility, or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, senior unsecured debt, and pass-through certificate credit ratings, and our ability to meet Credit Agreement financial covenants;
other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under Part I, Item IA. “Risk Factors” in our Annual Report, as updated by our quarterly reports on Form 10-Q.

As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of February 28, 2022, there were no material changes in our market risk sensitive instruments and positions since our disclosures in our Annual Report.

The principal foreign currency exchange rate risks to which we are exposed relate to the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen, and Brazilian real. Historically, our exposure to foreign currency fluctuations is more significant with respect to our revenue than our expenses, as a significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During the nine months of 2022, the U.S. dollar strengthened relative to the currencies of the foreign countries in which we operate, as compared to the first nine months of 2021, and this strengthening had a slightly positive effect on our results.

While we have market risk for changes in the price of vehicle and jet fuel, this risk is largely mitigated by our indexed fuel surcharges. For additional discussion of our indexed fuel surcharges, see the “Fuel” section of “Management’s Discussion and Analysis of Results of Operations and Financial Condition.”

- 44 -


 

Item 4. Controls and Procedures

The management of FedEx, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of February 28, 2022 (the end of the period covered by this Quarterly Report on Form 10-Q).

During our fiscal quarter ended February 28, 2022, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, the majority of our back office, including accounting, finance, and legal employees, continued working remotely. We continue to monitor the COVID-19 pandemic and its effects on the design and operating effectiveness of our internal control over financial reporting.

PART II. OTHER INFORMATION

For a description of all material pending legal proceedings, see Note 9 of the accompanying unaudited condensed consolidated financial statements.

Item 1A. Risk Factors

Other than the risk factors set forth below, there have been no material changes from the risk factors disclosed in our Annual Report in response to Part I, Item 1A of Form 10-K. Additional risks not currently known to us or that we currently deem to be immaterial also may materially affect our business, results of operations, financial condition, and the price of our common stock.

Difficulties in attracting and retaining employees by FedEx and our contracted service providers and increases in labor and purchased transportation costs have materially adversely affected our business and results of operations. Labor market challenges experienced in 2021 continued during the nine months of 2022 and drove increased operating expenses as the constrained labor market affected the availability and cost of labor resulting in network inefficiencies, higher purchased transportation costs, higher wage rates, and lower service levels. These challenges were exacerbated by the Omicron variant of the COVID-19 pandemic during the third quarter of 2022. See “Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition” of this report for more information. The extent and duration of the effect of these labor market challenges are subject to numerous factors, including the continuing effect of the COVID-19 pandemic, vaccine mandates that may be announced in jurisdictions in which our businesses operate, availability of qualified persons in the markets where we and our contracted service providers operate and unemployment levels within these markets, behavioral changes, prevailing wage rates and other benefits, health and other insurance costs, inflation, adoption of new or revised employment and labor laws and regulations (including increased minimum wage requirements) or government programs, safety levels of our operations, and our reputation within the labor market.

 

The ongoing conflict between Russia and Ukraine may adversely affect our business and results of operations. Given the nature of our business and our global operations, political, economic, and other conditions in foreign countries and regions, including geopolitical risks such as the current conflict between Russia and Ukraine, may adversely affect our business and results of operations. We have suspended all services in Ukraine, Russia, and Belarus, which has not had and is not expected to have a material impact on our operating results. The broader consequences of this conflict, which may include further sanctions, embargoes, regional instability, and geopolitical shifts; airspace bans relating to certain routes, or strategic decisions to alter certain routes; potential retaliatory action by the Russian government against companies, including us, as a result of the suspension of services in Russia, including nationalization of foreign businesses in Russia; increased tensions between the United States and countries in which we operate; and the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.

 

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To the extent the current conflict between Russia and Ukraine adversely affects our business, it may also have the effect of heightening many other risks disclosed in our Annual Report, any of which could materially and adversely affect our business and results of operations. Such risks include, but are not limited to, adverse effects on macroeconomic conditions, including inflation and business and consumer spending; disruptions to our global technology infrastructure, including through cyberattack, ransom attack, or cyber-intrusion; adverse changes in international trade policies and relations; our ability to maintain or increase our prices, including our fuel surcharges in response to rising fuel costs; our ability to implement and execute our business strategy, particularly with regard to our FedEx Express international business; disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs and could affect our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040; our ability to maintain our strong reputation and the value of the FedEx brand; terrorist activities targeting the transportation infrastructure; our exposure to foreign currency fluctuations; and constraints, volatility, or disruption in the capital markets.

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

The following table provides information on FedEx’s repurchases of our common stock during the third quarter of 2022:

ISSUER PURCHASES OF EQUITY SECURITIES

Period

 

Total Number of
Shares Purchased

 

 

Average Price
Paid per Share

 

 

Total Number of
Shares Purchased
as Part of
Publicly
Announced
Program

 

 

 

Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the
Program
($ in millions)

 

Dec. 1-31, 2021

 

 

4,793,864

 

 

$

247.64

 

 

 

4,793,864

 

 

 

$

4,070

 

Jan. 1-31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

4,070

 

Feb. 1-28, 2022

 

 

1,263,318

 

 

 

247.64

 

 

 

1,263,318

 

 

 

 

4,070

 

Total

 

 

6,057,182

 

 

 

 

 

 

6,057,182

 

 

 

$

4,070

 

In January 2016, our Board of Directors approved a stock repurchase program of up to 25 million shares (the “2016 repurchase program”). In December 2021, our Board of Directors authorized a new stock repurchase program of up to $5 billion of FedEx common stock (the “2022 repurchase program” and together with the 2016 repurchase program, the “repurchase programs”). As part of the repurchase programs, we entered into an accelerated share repurchase (“ASR”) agreement with a bank in December 2021 to repurchase an aggregate of $1.5 billion of our common stock. During the third quarter of 2022, the ASR transaction was completed, and 6.1 million shares were delivered under the ASR agreement. The 6.1 million shares delivered under the ASR agreement were the only shares of FedEx common stock we repurchased during the third quarter of 2022. No shares remain available for repurchase under the 2016 repurchase program.

Shares under the 2022 repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. As of March 15, 2022, approximately $4.1 billion remains available to be used for repurchases under the 2022 repurchase program, which is the only such program that currently exists. The program does not have an expiration date and may be suspended or discontinued at any time.

See Note 1 of the accompanying unaudited condensed consolidated financial statements for additional information regarding the 2022 repurchase program and the ASR transaction, and Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of our Quarterly Report on Form 10-Q for our fiscal quarter ended November 30, 2021 for additional information regarding the 2016 repurchase program.

Item 5. Other Information

Entry into a Material Definitive Agreement, Termination of a Material Definitive Agreement, and Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. On March 15, 2022, FedEx, as borrower, further amended our Second Amended and Restated $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and also entered into a $1.5 billion three-year credit agreement (the “Three-Year Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”). FedEx amended the Five-Year Credit Agreement and entered into the Three-Year Credit Agreement with a syndicate of banks and other financial institutions (the “Five-Year Lenders” and “Three-Year Lenders,” respectively), including JPMorgan Chase Bank, N.A., individually and as administrative agent, Bank of America, N.A., individually and as syndication agent, and Citibank, N.A., The Bank of Nova Scotia, Wells Fargo Bank, National Association, and Truist Bank, each individually and as a co-documentation agent. The amendment to the Five-Year Credit Agreement and the syndicate of lenders for the Three-Year Credit Agreement were arranged by JPMorgan Chase Bank, N.A., BofA Securities, Inc., Citigroup Global Markets Inc., The Bank of Nova Scotia, Wells Fargo Securities, LLC, and Truist Securities, Inc., as joint lead arrangers and joint bookrunners.

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The Three-Year Credit Agreement replaces the $1.5 billion 364-day credit agreement dated as of March 16, 2021, among FedEx, JPMorgan Chase Bank, N.A., individually and as administrative agent, and certain lenders (the “Terminated Credit Agreement”). The Terminated Credit Agreement was terminated effective March 15, 2022. The terms of the Terminated Credit Agreement are summarized in FedEx’s Form 10-Q filed with the Securities and Exchange Commission on March 18, 2021.

As a result of the discontinuation of the London Interbank Offered Rate (“LIBOR”), all prior references to LIBOR in the Five-Year Credit Agreement have been replaced with references to the Secured Overnight Financing Rate (“SOFR”), the recommended risk-free reference rate of the Federal Reserve Board and Alternative Reference Rates Committee. The Three-Year Credit Agreement includes identical provisions regarding SOFR.

The Five-Year Credit Agreement provides the terms under which the Five-Year Lenders will make available to FedEx an unsecured multi-currency revolving credit facility in an aggregate amount of up to $2.0 billion, including a $250 million sub-limit for letters of credit. FedEx may elect to increase the aggregate amount available under the facility to up to a total of $2.5 billion. The Three-Year Credit Agreement provides the terms under which the Three-Year Lenders will make available to FedEx an unsecured multi-currency revolving credit facility in an aggregate amount of up to $1.5 billion.

Borrowings under the Credit Agreements may be used for FedEx’s general corporate purposes, including acquisitions.

The Five-Year Lenders’ and the Three-Year Lenders’ commitments under the Credit Agreements will terminate on March 17, 2026 and March 14, 2025, respectively, unless terminated earlier by FedEx or by the administrative agent upon an event of default. FedEx may request up to two one-year extensions of the Three-Year Lenders’ commitments under the Three-Year Credit Agreement. FedEx’s obligations under the Credit Agreements are guaranteed by the same FedEx subsidiaries that guarantee FedEx’s outstanding public debt securities.

Loans under the Credit Agreements denominated in U.S. Dollars will bear interest at a rate per year generally equal to, at FedEx’s election, either:

the highest of (a) the interest rate quoted by the Wall Street Journal as the prime rate in the United States; (b) 0.5% plus the greater of (i) the federal funds effective rate and (ii) the overnight bank funding rate, each as determined by the Federal Reserve Bank of New York; and (c) the SOFR Rate (the “SOFR Rate”) for a one-month interest period plus 1.0%, plus the applicable margin for such loans (“ABR Loans”);
the SOFR Rate for the selected term, plus the applicable margin for such loans (“Term Benchmark Loans”); or
the daily SOFR Rate, plus the applicable margin for such loans (“RFR Loans”).

Loans under the Credit Agreements denominated in pounds sterling will be classified as RFR Loans and bear interest at a rate per year equal to the sterling overnight index average plus 0.0326% plus the applicable margin, while loans denominated in euros will be classified as Term Benchmark Loans and bear interest at a rate per year equal to the euro interbank offered rate for the relevant period determined by the European Money Markets Institute displayed on the page EURIBOR01 of the Reuters Service, subject to a statutory reserve adjustment, plus the applicable margin.

Letters of Credit issued under the Five-Year Credit Agreement will be assessed a fee based upon the applicable margin charged for Term Benchmark Loans. In addition, FedEx will pay the issuing banks a fronting fee of 0.125% per year on the undrawn and unexpired amount of each issued Letter of Credit.

FedEx will also pay commitment fees on the average daily undrawn amount of the facilities. The applicable margin for loans and the applicable commitment fees will vary depending upon FedEx’s senior unsecured non-credit-enhanced long-term debt ratings. For example, based upon FedEx’s current ratings of BBB (Standard & Poor’s) and Baa2 (Moody’s Investors Service), the applicable margin for ABR Loans would be 0.25%, the applicable margin for RFR or Term Benchmark Loans would be 1.25%, and the applicable commitment fee rate would be 0.125% per year on undrawn commitments under the Five-Year Credit Agreement and the Three-Year Credit Agreement.

The Credit Agreements contain customary affirmative and negative covenants, as well as customary events of default. The financial covenants in the Credit Agreements require FedEx 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 of not more than 3.5 to 1.0, calculated as of the last day of each fiscal quarter on a rolling four-quarters basis.

Certain of the Five-Year Lenders and Three-Year Lenders, as well as certain of the lenders under the Terminated Credit Agreement, and their affiliates engage in transactions with, and perform services for, FedEx and its affiliates in the ordinary course of business and have engaged, and may in the future engage, in other commercial banking transactions and investment banking, financial advisory, and other financial services transactions with FedEx and its affiliates.

- 47 -


 

The amendment to the Five-Year Credit Agreement and the Three-Year Credit Agreement will be filed as exhibits to FedEx’s annual report on Form 10-K for the fiscal year ending May 31, 2022.

- 48 -


 

Item 6. Exhibits

 

Exhibit

Number

 

Description of Exhibit

 

 

 

  ˄† 10.1

 

Supplemental Agreement No. 35 (and related side letters) dated as of December 10, 2021, amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing Company and FedEx Express.

 

 

 

   15.1

 

Letter re: Unaudited Interim Financial Statements.

 

 

 

   22

 

List of Guarantor Subsidiaries and Subsidiary Issuers of Guaranteed Securities.

 

 

 

   31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

   31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

   32.1

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

   32.2

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  101.1

 

Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”).

 

 

 

  104.1

 

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101.1).

 

 

 

˄ Information in this exhibit identified by brackets is confidential and has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type FedEx treats as private or confidential.

 

Certain attachments have been omitted pursuant to Item 601(a)(5) of Regulation S-K because the information contained therein is not material and is not otherwise publicly disclosed. FedEx will furnish supplementally a copy of such attachments to the SEC or its staff upon request.

 

 

- 49 -


 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

FedEx Corporation

 

 

 

 

Date: March 17, 2022

 

 

/s/ Jennifer L. Johnson

 

 

 

Jennifer L. Johnson

 

 

 

Corporate Vice President and

 

 

 

Principal Accounting Officer

 

- 50 -


EX-10.1

Exhibit 10.1

INFORMATION IN THIS EXHIBIT IDENTIFIED BY BRACKETS IS CONFIDENTIAL AND HAS BEEN EXCLUDED PURSUANT TO ITEM 601(B)(10)(IV) OF REGULATION S-K BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE THAT FEDEX TREATS AS PRIVATE OR CONFIDENTIAL.

 

LOGO

Supplemental Agreement No. 35

to

Purchase Agreement No. 3157

between

The Boeing Company

And

Federal Express Corporation

Relating to Boeing Model 777-FREIGHTER Aircraft

THIS SUPPLEMENTAL AGREEMENT No. 35 (SA-35), entered into as of December 10, 2021 by and between THE BOEING COMPANY (Boeing) and FEDERAL EXPRESS CORPORATION (Customer);

W I T N E S S E T H:

A. WHEREAS, the parties entered into Purchase Agreement No. 3157, dated November 7, 2006 (Purchase Agreement), relating to the purchase and sale of certain Boeing Model 777-FREIGHTER Aircraft (Aircraft);

B. WHEREAS, Customer desires to reschedule the delivery month of two (2) Option Aircraft under Letter Agreement 6-1162-RRO- 1062R1, Option Aircraft, to the Purchase Agreement as shown in the table below;

 

Existing Delivery

Month of Option

Aircraft

 

Revised Delivery

Month of Option

Aircraft

 

Existing Option

Exercise Date

 

Revised Option

Exercise Date

[*]   [*]   [*]   [*]
[*]   [*]   [*]   [*]

NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree to supplement the Purchase Agreement as follows:

All terms used herein and in the Purchase Agreement, and not defined herein, shall have the same meaning as in the Purchase Agreement.

1. Remove and replace, in its entirety, the “Table of Contents” with the revised Table of Contents, attached hereto, to reflect the changes made by this SA-35.

2. Revise and replace in its entirety the Letter Agreement 6- 1162-RRO-1062R1, Option Aircraft, with Letter Agreement 6-1162-RRO- 1062R2, Option Aircraft, attached hereto, to reflect the revised

 

P.A. No. 3157    1    SA-35

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO

 

delivery dates and revised option exercise dates of two (2) Option Aircraft described in Recital Paragraph B above. For the avoidance of doubt, Boeing and Customer acknowledge and agree that the rescheduling of the two (2) Option Aircraft described in Recital Paragraph B above is not made pursuant to paragraph 4.2 of Letter Agreement 6-1162-RRO-1062R2, Option Aircraft, and accordingly, [*]. Boeing and Customer further agree that, notwithstanding the reschedule, the Option Aircraft described in Recital Paragraph B will retain the performance guarantees set forth in 6-1162-RRO-1065, Performance Guarantees for Block B Aircraft.

3. Revise and replace in its entirety the Attachment to Letter Agreement 6-1162-RRO-1062R1, Option Aircraft, with the Attachment to Letter Agreement 6-1162-RRO-1062R2, Option Aircraft, attached hereto, to reflect the revised delivery dates and revised option exercise dates of two (2) Option Aircraft described in Recital Paragraph B above.

4. Remove and replace, in its entirety, Letter Agreement 6- 1162-RRO-1067R2, Special Matters for Options as detailed in Letter Agreement 6-1162-RRO-1062R1, with Letter Agreement 6-1162-RRO- 1067R3, Special Matters for Options as detailed in Letter Agreement 6-1162-RRO-1062R2, attached hereto, to reflect the letter agreement revision described in Article 2 above.

5. This SA-35 to the Purchase Agreement shall not be effective unless executed and delivered by the parties on or prior to December 15, 2021.

6. References in the Purchase Agreement and any supplemental agreements and associated letter agreements to letter agreements listed in the left column of the below table shall be deemed to refer to the corresponding letter agreement listed in the right column of the below table.

 

Reference

  

Replacement Reference

6-1162-RRO-1062R1    6-1162-RRO-1062R2
6-1162-RRO-1067R2    6-1162-RRO-1067R3

 

P.A. No. 3157    2    SA-35

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO

 

EXECUTED as of the day and year first above written.

 

FEDERAL EXPRESS CORPORATION     THE BOEING COMPANY
By:  

/s/ Kevin A. Burkhart

    By:  

/s/ McKenzie Kuckhahn

Name:   Kevin A. Burkhart     Name:   McKenzie Kuckhahn
Title:   Vice President     Title:   Attorney-In-Fact

LOGO

 

        P.A. No. 3157    3    SA-35

BOEING PROPRIETARY


LOGO

 

TABLE OF CONTENTS

 

         SA  
ARTICLES      NUMBER  

1.

  Quantity, Model and Description   

2.

  Delivery Schedule   

3.

  Price   

4.

  Payment   

5.

  Miscellaneous   
TABLE   

1.

  Aircraft Information Table      30  

1-A

  Block B Firm Aircraft Information Table      31  

1-B

  Block B Conditional Firm Aircraft Information Table      30  

1-C

  Block C Aircraft Information Table      13  

1-C1

  Block C Aircraft Information Table (MSN 39285)      11  

1-C2

  Block C Aircraft Information Table      29  

1-D

  Block D Aircraft Information Table      31  

1-E1

  Block E Firm Aircraft Information Table (Block E1)      34  

1-E2

  Block E Conditional Firm and Firm Aircraft Information Table (Block E2)      34  
EXHIBIT   

A.

  Aircraft Configuration      4  

A1.

  Aircraft Configuration (Block B Aircraft)      4  

A2.

  Aircraft Configuration (Block C Aircraft except MSN 39285)      11  

A3.

  Aircraft Configuration (Block C Aircraft w/ MSN 39285)      11  

A4.

  Aircraft Configuration (Block D Aircraft)      12  

A5.

  Aircraft Configuration (Block E Aircraft)      30  

B.

  Aircraft Delivery Requirements and Responsibilities   
SUPPLEMENTAL EXHIBITS   

AE1.

  Escalation Adjustment/Airframe and Optional Features   

CS1.

  Customer Support Variables   

EE1.

  Engine Escalation/Engine Warranty and   
  Patent Indemnity   

SLP1.

  Service Life Policy Components   

 

        P.A. No. 3157    4    SA-35

BOEING PROPRIETARY


LOGO

 

LETTER AGREEMENT

      

SA

NUMBER

3157-01

  777 Spare Parts Initial Provisioning   

3157-02

  Demonstration Flight Waiver   

6-1162-RCN-1785

  Demonstrated Compliance   

6-1162-RCN-1789

 

Option Aircraft

Attachment to Letter 6-1162-RCN-1789

  

Exercised

in SA # 4

6-1162-RCN-1790

  Special Matters   

6-1162-RCN-1791

  Performance Guarantees    4

6-1162-RCN-1792

  Liquidated Damages Non-Excusable Delay   

6-1162-RCN-1793

  Open Configuration Matters   

6-1162-RCN-1795

  AGTA Amended Articles   

6-1162-RCN-1796

  777 First-Look Inspection Program   

6-1162-RCN-1797

  Licensing and Customer Supplemental Type Certificates   

6-1162-RCN-1798

  777 Boeing Converted Freighter   

Deleted

in SA # 4

6-1162-RCN-1798R1

  777 Boeing Converted Freighter    4

6-1162-RCN-1799R1

  [*]    24

6-1162-RRO-1062 R2

  Option Aircraft    35
  Attachment to Letter 6-1162-RRO-1062R2    35

6-1162-RRO-1065

  Performance Guarantees for Block B Aircraft    4

6-1162-RRO-1066R1

  Special Matters for Block B Aircraft    22

6-1162-RRO-1067 R3

  Special Matters for Option Aircraft detailed in    35
  Letter Agreement 6-1162-RRO-1062R2   

6-1162-RRO-1068R1

  Special Provision – Block B and Block E2 Aircraft    30

FED-PA-LA-1000790R3

  Special Matters for Block C Aircraft    20

FED-PA-LA-1001683R2

  Special Matters for Block D Aircraft    19

6-1162-RRO-1144R7

  [*] as related to SAs #8, #13 through #16, SA # 18 through SA #20    20

6-1162-SCR-137

  777F Miscellaneous Matters    20

6-1162-SCR-154

  [*] Letter    22

6-1162-SCR-155

  [*] Engine Hard Mount Letter    22

6-1162-SCR-186

  [*], Non-Isolated Engine Mounts Letter    23

6-1162-SCR-193R1

  [*] Matters and [*] Special Matters    30

 

        P.A. No. 3157    5    SA-35

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO

 

LETTER AGREEMENT (Con’t)

   SA
NUMBER
 
6-1162-LKJ-0726    [*] –      24  
   SA-24 Accelerated Block B Aircraft   
6-1162-LKJ-0737R1    Special Matters – SA-26 Accelerated Block C Aircraft      29  
6-1162-LKJ-0758    Special Matters – SA-27 Accelerated Block B Aircraft      27  
6-1162-LKJ-0768    Special Matters – SA-28 Accelerated Aircraft      28  
6-1162-LKJ-0766    Special Matters – SA-29 Accelerated Aircraft      29  
6-1162-LKJ-0767    Special Considerations – SA-29      29  
FED-PA-3157-LA-1802894    Special Matters for Block E Aircraft      30  
6-1169-LKJ-0776    SA-30 Option Aircraft      30  
6-1169-LKJ-0777    Special Matters – SA-30 Option Aircraft      30  
6-1169-LKJ-0778R1    SA-30 and SA-32 [*] Matters      32  
FED-PA-3157-LA-2000906    [*] as related to SA-32 and SA-14      32  
FED-PA-3157-LA-1902776R1    Revisions to the Detailed Specification and Associated Unincorporated Changes Pricing for 777F Aircraft      33  
FED-PA-3157-LA-2104529    Revision of Certain 777 Option Aircraft      34  

 

        P.A. No. 3157    6    SA-35

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO

 

SUPPLEMENTAL AGREEMENTS

  

DATED AS OF:

Supplemental Agreement No. 1    May 12, 2008
Supplemental Agreement No. 2    July 14, 2008
Supplemental Agreement No. 3    December 15, 2008
Supplemental Agreement No. 4    January 9, 2009
Supplemental Agreement No. 5    January 11, 2010
Supplemental Agreement No. 6    March 17, 2010
Supplemental Agreement No. 7    March 17, 2010
Supplemental Agreement No. 8    April 30, 2010
Supplemental Agreement No. 9    June 18, 2010
Supplemental Agreement No. 10    June 18, 2010
Supplemental Agreement No. 11    August 19, 2010
Supplemental Agreement No. 12    September 3, 2010
Supplemental Agreement No. 13    August 27, 2010
Supplemental Agreement No. 14    October 25, 2010
Supplemental Agreement No. 15    October 29, 2010
Supplemental Agreement No. 16    January 31, 2011
Supplemental Agreement No. 17    February 14, 211
Supplemental Agreement No. 18    March 31, 2011
Supplemental Agreement No. 19    October 27, 2011
Supplemental Agreement No. 20    December 14, 2011
Supplemental Agreement No. 21    June 29, 2012
Supplemental Agreement No. 22    December 11, 2012
Supplemental Agreement No. 23    December 10, 2013
Supplemental Agreement No. 24    May 4, 2016
Supplemental Agreement No. 25    June 10, 2016

 

        P.A. No. 3157    7    SA-35

BOEING PROPRIETARY


LOGO

 

SUPPLEMENTAL AGREEMENTS (Con’t)

  

DATED AS OF:

Supplemental Agreement No. 26    February 10, 2017
Supplemental Agreement No. 27    October 12, 2017
Supplemental Agreement No. 28    January 28, 2018
Supplemental Agreement No. 29    February 2, 2018
Supplemental Agreement No. 30    June 18, 2018
Supplemental Agreement No. 31    September 14, 2018
Supplemental Agreement No. 32    February 28, 2020
Supplemental Agreement No. 33    December 30, 2020
Supplemental Agreement No. 34    October 13, 2021
Supplemental Agreement No. 35    December 10, 2021

 

        P.A. No. 3157    8    SA-35

BOEING PROPRIETARY


LOGO   

The Boeing Company

P.O. Box 3707

Seattle, WA 98124-2207

 

 

6-1162-RRO-1062R2

Federal Express Corporation

3610 Hacks Cross

Memphis TN 38125

 

Subject:    Option Aircraft
Reference:    Purchase Agreement No. 3157 (the Purchase Agreement) between The Boeing Company (Boeing) and Federal Express Corporation (Customer) relating to Model 777-FREIGHTER aircraft (the Aircraft)

This letter agreement (Letter Agreement) amends the Purchase Agreement. All terms used but not defined in this Letter Agreement have the same meaning as in the Purchase Agreement.

Subject to the terms and conditions contained in this Letter Agreement, in addition to the Aircraft described in the Tables to the Purchase Agreement as of the date of execution of this Letter Agreement, Customer will have the option to purchase additional Model 777- FREIGHTER aircraft as option aircraft (Option Aircraft). The delivery months, number of aircraft, Advance Payment Base Price per Option Aircraft and advance payment schedule are listed in the Attachment to this Letter Agreement. The Airframe Price shown includes the Engine Price.

 

1.

Aircraft Description and Changes

1.1 Option Aircraft Description: The Option Aircraft are described by the Detail Specification listed in the Attachment.

1.2 Changes: The Detail Specification of the Option Aircraft will be D019W007FED7F-1, Rev NEW, as revised to reflect:

 

  (i)

Changes that have been made to the Detail Specification of Customer’s Aircraft under the Purchase Agreement between the date of this letter and the time of Customer’s exercise of each option;

 

  (ii)

Changes required to obtain required regulatory certificates; and

 

  (iii)

Changes mutually agreed upon.

1.3 [*]

 

 

LA No. 6-1162-RRO-1062R2

Option Aircraft Page 1

               P.A. No. 3157 (SA-35)

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO   

 

2.

Price

2.1 The pricing elements of the Option Aircraft are listed in the Attachment.

2.2 Price Adjustments.

2.2.1 Changes. The price of the Option Aircraft will be adjusted to reflect changes discussed in paragraph 1.2 above, provided that the price for changes in 1.2 (ii) are subject to the terms of Section 3.2.2 of the AGTA [*].

2.2.2 Optional Features. Unless otherwise agreed by the parties, the Option Aircraft will contain the same Optional Features shown in Exhibit A2 to the Purchase Agreement, and the price of such Optional Features is shown in the Attachment hereto.

2.2.3 Escalation Adjustments. The Airframe Price and the price of Optional Features for Option Aircraft will be escalated on the same basis as the Aircraft.

 

3.

Payment.

3.1 [*].

 

 

        LA No. 6-1162-RRO-1062R2

        Option Aircraft Page 2

               P.A. No. 3157 (SA-35)

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO

  

 

3.2 Following option exercise, advance payments in the amounts and at the dates pursuant to the appropriate advance payment schedule as set forth in the Attachment will be payable for the Option Aircraft. The remainder of the Aircraft Price for the Option Aircraft will be paid at the time of delivery.

 

4.

Option Exercise.

4.1 Customer may exercise an option by giving written notice to Boeing on or before the date [*] prior to the delivery dates listed in the Attachment (Option Exercise Date). Upon option exercise, Boeing will have the right to adjust the scheduled delivery by [*].

4.2 [*]

 

 

        LA No. 6-1162-RRO-1062R2

        Option Aircraft Page 3

               P.A. No. 3157 (SA-35)

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO   

 

5.

Contract Terms.

Boeing and Customer will use their best efforts to amend the definitive agreement to add the exercised Option Aircraft as an Aircraft within 30 days following option exercise.

 

6.

Confidential Treatment.

Customer understands that certain commercial and financial information contained in this Letter Agreement is considered by Boeing as confidential. Customer agrees that it will treat this Letter Agreement and the information contained herein as confidential and will not, without the prior written consent of Boeing, disclose this Letter Agreement or any information contained herein to any other person or entity.

 

Very truly yours,
THE BOEING COMPANY
By /s/ McKenzie Kuckhahn                            
Its                 Attorney-In-Fact                         
ACCEPTED AND AGREED TO this
Date: December 10, 2021                                
FEDERAL EXPRESS CORPORATION
By /s/ Kevin A. Burkhart                                
Its Vice President                                             
Attachment

 

 

 

        LA No. 6-1162-RRO-1062R2

        Option Aircraft Page 4

               P.A. No. 3157 (SA-35)

BOEING PROPRIETARY


LOGO   

The Boeing Company

P.O. Box 3707

Seattle, WA 98124-2207

 

 

6-1162-RRO-1067R3

Federal Express Corporation

3131 Democrat Road

Memphis TN 38125

Subject: Special Matters for Options as detailed in Letter Agreement 6-1162-RRO-1062R2

 

Reference:   

A)   Purchase Agreement No. 3157 (the Purchase Agreement) between The Boeing Company (Boeing) and Federal Express Corporation (Customer) relating to Model 777-FREIGHTER aircraft (the Aircraft)

  

B)   Letter Agreement 6-1162-RRO-1062R2 Option Aircraft

This letter agreement (Letter Agreement) cancels and supersedes Letter Agreement 6-1162- RRO-1067R2 and amends and supplements the Purchase Agreement. All terms used but not defined in this Letter Agreement have the same meaning as in the Purchase Agreement.

 

1.

[*]

[*]

 

2.

[*]

[*]

 

3.

[*]

[*]

 

 

 

        6-1162-RRO-1067R3               

P.A. No. 3157 (SA-35)

Page 1                           

BOEING PROPRIETARY

 

*

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LOGO   

 

4.

[*]

[*]

 

5.

[*]

[*]

 

6.

INCREMENTAL AIRCRAFT COMMITMENT [*].

[*]

 

7.

ADVANCE PAYMENT SETOFF RIGHTS

Customer agrees that if it defaults on any monetary obligation under the Purchase Agreement and has failed to cure such default within five (5) calendar days of receiving written notice from Boeing, then Boeing may apply any/all advance payments paid by Customer to cure, in part or in whole, any default made with respect to any Aircraft or other obligation in the Purchase Agreement. In the event that Boeing exercises such setoff rights and applies any advance payments to cure any such default by Customer with respect to an Aircraft or other obligation in the Purchase Agreement, Boeing will be entitled to require Customer to replace within ten days of written notice, the amount of advance payments applied to cure such default such that the total amount of advance payments will be restored to the aggregate amount of advance payments owed at that time by Customer.

 

8.

[*]

[*]

 

 

        6-1162-RRO-1067R3               

P.A. No. 3157 (SA-35)

Page 2                           

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO   

 

9.

[*]

[*]

 

10.

[*]

[*]

 

11.

ASSIGNMENT

The [*] described in this Letter Agreement are [*] to Customer in consideration of Customer becoming the operator of the Option Aircraft, and cannot be assigned, in whole or in part, without the prior written consent of The Boeing Company.

 

 

 

        6-1162-RRO-1067R3               

P.A. No. 3157 (SA-35)

Page 3                           

BOEING PROPRIETARY

 

*

Blank spaces contained confidential information that has been excluded pursuant to Item 601(b)(10)(iv) of Regulation S-K because it is both (i) not material and (ii) the type that FedEx treats as private or confidential.


LOGO   

 

12.

PUBLIC ANNOUNCEMENT

Notwithstanding the terms in the Purchase Agreement, neither Party shall in any manner advertise or make any public statement regarding Customer’s purchase of the Option Aircraft without the prior written consent of the other Party. Neither Party shall disclose any details of this Agreement to any third party except as may be authorized in writing by an authorized officer of the other Party.

 

13.

CONFIDENTIAL TREATMENT.

Customer understands that certain commercial and financial information contained in this Letter Agreement /and attachment(s) hereto is considered by Boeing as confidential. Customer agrees that it will treat this Letter Agreement and the information contained herein as confidential and will not, without the prior written consent of Boeing, disclose this Letter Agreement or any information contained herein to any other person or entity.

If the foregoing correctly sets forth your understanding of our agreement with respect to matters described above, please indicate your acceptance and approval below.

 

Very truly yours,
THE BOEING COMPANY
By /s/ McKenzie Kuckhahn                             
Its                 Attorney-In-Fact                          
ACCEPTED AND AGREED TO this
Date: December 10, 2021                               
FEDERAL EXPRESS CORPORATION
By /s/ Kevin A. Burkhart                               
Its Vice President                                            

 

 

        6-1162-RRO-1067R3               

P.A. No. 3157 (SA-35)

Page 4                           

BOEING PROPRIETARY


LOGO   

 

 

 

 

        6-1162-RRO-1067R3               

P.A. No. 3157 (SA-35)

Page 5                           

BOEING PROPRIETARY

Omitted Attachments

Certain attachments to this exhibit regarding delivery and pricing of certain B777F aircraft manufactured by The Boeing Company for FedEx have been omitted pursuant to Item 601(a)(5) of Regulation S-K because the information contained therein is not material and is not otherwise publicly disclosed. FedEx will furnish supplementally copies of these attachments to the Securities and Exchange Commission or its staff upon request.

EX-15.1

 

 

EXHIBIT 15.1

To the Stockholders and Board of Directors of

FedEx Corporation

We are aware of the incorporation by reference in the following Registration Statements:

 

(1) Registration Statement (Form S-8 No. 333-234010) pertaining to the FedEx Corporation 2019 Omnibus Stock Incentive Plan,

(2) Registration Statement (Form S-8 No. 333-222198) pertaining to the FedEx Corporation 2010 Omnibus Stock Incentive Plan, as amended, and the FedEx Corporation 2019 Omnibus Stock Incentive Plan,

(3) Registration Statement (Form S-8 No. 333-192957) pertaining to the FedEx Corporation 2010 Omnibus Stock Incentive Plan,

(4) Registration Statement (Form S-8 No. 333-171232) pertaining to the FedEx Corporation 2010 Omnibus Stock Incentive Plan,

(5) Registration Statement (Form S-8 No. 333-45037) pertaining to the FDX Corporation Adjustment Program,

(6) Registration Statement (Form S-8 No. 333-100572) pertaining to the FedEx Corporation 2002 Stock Incentive Plan,

(7) Registration Statement (Form S-8 No. 333-111399) pertaining to the FedEx Corporation Incentive Stock Plan,

(8) Registration Statement (Form S-8 No. 333-121418) pertaining to the FedEx Corporation Incentive Stock Plan,

(9) Registration Statement (Form S-8 No. 333-130619) pertaining to the FedEx Corporation Incentive Stock Plan,

(10) Registration Statement (Form S-8 No. 333-156333) pertaining to the FedEx Corporation Incentive Stock Plan, and

(11) Registration Statement (Form S-3 No. 333-240157) of FedEx Corporation and Federal Express Corporation;

of our report dated March 17, 2022, relating to the unaudited condensed consolidated interim financial statements of FedEx Corporation that are included in its Form 10-Q for the quarter ended February 28, 2022.

/s/ Ernst & Young LLP

Memphis, Tennessee

March 17, 2022

 

 


EX-22

Exhibit 22

 

LIST OF SUBSIDIARY GUARANTORS

As of February 28, 2022, each of the following subsidiaries of FedEx Corporation (“FedEx”) has guaranteed each of the senior unsecured debt securities issued by FedEx listed below. FedEx owns, directly or indirectly, 100% of each guarantor subsidiary. The guarantees are (1) unsecured obligations of the respective guarantor subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several.

NAME OF GUARANTOR SUBSIDIARY

Jurisdiction of

INCORPORATION or

Organization

Federal Express Corporation

Delaware

FedEx Ground Package System, Inc.

Delaware

FedEx Freight Corporation

Delaware

FedEx Freight, Inc.

Arkansas

FedEx Corporate Services, Inc.

Delaware

FedEx Office and Print Services, Inc.

Texas

Federal Express Europe, Inc.

Delaware

Federal Express Holdings S.A., LLC

Delaware

Federal Express International, Inc.

Delaware

 

SENIOR UNSECURED DEBT SECURITIES OF FEDEX GUARANTEED BY THE GUARANTOR SUBSIDIARIES

0.450% Notes due 2025

3.250% Notes due 2026

1.625% Notes due 2027

3.400% Notes due 2028

4.200% Notes due 2028

0.450% Notes due 2029

3.100% Notes due 2029

4.250% Notes due 2030

1.300% Notes due 2031

2.400% Notes due 2031

0.950% Notes due 2033

4.900% Notes due 2034

3.900% Notes due 2035

3.250% Notes due 2041

3.875% Notes due 2042

4.100% Notes due 2043

5.100% Notes due 2044

4.100% Notes due 2045

4.750% Notes due 2045

4.550% Notes due 2046

4.400% Notes due 2047

4.050% Notes due 2048

4.950% Notes due 2048

5.250% Notes due 2050

4.500% Notes due 2065

 

 


 

 

SUBSIDIARY ISSUERS OF GUARANTEED SECURITIES

Pass-through trusts formed by Federal Express Corporation (“FedEx Express”), a Delaware corporation and wholly owned subsidiary of FedEx, offer for sale pass-through certificates of FedEx Express. Each pass-through certificate represents an interest in a pass-through trust. The property of the pass-through trust includes equipment notes issued by FedEx Express. FedEx fully and unconditionally guarantees the payment obligations due on the equipment notes underlying the pass-through certificates offered for sale by FedEx Express.

FedEx Express issued Pass-Through Certificates, Series 2020-1AA with a fixed interest rate of 1.875% due February 2034 utilizing pass-through trusts.

 

 

 


EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Frederick W. Smith, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of FedEx Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2022

 

/s/ Frederick W. Smith

Frederick W. Smith

Chairman and

Chief Executive Officer

 


EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael C. Lenz, certify that:

1.
I have reviewed this quarterly report on Form 10-Q of FedEx Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 17, 2022

 

/s/ Michael C. Lenz

Michael C. Lenz

Executive Vice President and

Chief Financial Officer

 


EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of FedEx Corporation (“FedEx”) on Form 10-Q for the period ended February 28, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frederick W. Smith, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx.

Date: March 17, 2022

 

/s/ Frederick W. Smith

Frederick W. Smith

Chairman and

Chief Executive Officer

 


EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of FedEx Corporation (“FedEx”) on Form 10-Q for the period ended February 28, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Lenz, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FedEx.

Date: March 17, 2022

 

/s/ Michael C. Lenz

Michael C. Lenz

Executive Vice President and

Chief Financial Officer