FEDEX CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our internal control over financial reporting includes, among other things, defined policies and procedures for conducting and governing our business, sophisticated information systems for processing transactions and a properly staffed, professional internal audit department. Mechanisms are in place to monitor the effectiveness of our internal control over financial reporting and actions are taken to correct all identified deficiencies. Our procedures for financial reporting include the active involvement of senior management, our Audit Committee and our staff of highly qualified financial and legal professionals. Management, with the participation of our principal executive and financial officers, assessed our internal control over financial reporting as of May 31, 2021, the end of our fiscal year. Management based its assessment on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Based on this assessment, management has concluded that our internal control over financial reporting was effective as of May 31, 2021. The effectiveness of our internal control over financial reporting as of May 31, 2021, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’s consolidated financial statements included in this Annual Report on Form 10-K. Ernst & Young LLP’s report on the Company’s internal control over financial reporting is included in this Annual Report on Form 10-K. - 74 - Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of FedEx Corporation Opinion on Internal Control Over Financial Reporting We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, FedEx Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of May 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of May 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows and changes in common stockholders’ investment for each of the three years in the period ended May 31, 2021, and the related notes and our report dated July 19, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Memphis, Tennessee July 19, 2021 - 75 - Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of FedEx Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of FedEx Corporation (the Company) as of May 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows and changes in common stockholders’ investment for each of the three years in the period ended May 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at May 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of May 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated July 19, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Pension Projected Benefit Obligation Description of the Matter At May 31, 2021, the Company’s aggregated projected benefit obligation for U.S. pension plans was $31.4 billion and exceeded the $29.8 billion fair value of U.S. pension plan assets, resulting in an unfunded U.S. pension obligation of $1.6 billion. The net periodic benefit income for the year ended May 31, 2021 for the U.S. pension plans was $1.3 billion. As explained in Note 14 to the consolidated financial statements, the Company sponsors defined benefit pension plans that provide retirement benefits to certain U.S. employees. The Company’s projected benefit obligations for the U.S. pension plans are measured using actuarial techniques that reflect management’s assumptions for discount rate, future salary increases, employee turnover, mortality, and retirement ages. Auditing the projected benefit obligation for the U.S. pension plans was complex due to the highly judgmental nature and significant effect of the discount rate used in the measurement process. The discount rate is developed by utilizing the yield on a theoretical portfolio of high-grade corporate bonds that match cash flows to benefit payments, limit the concentration by industry and issuer, and apply screening criteria to exclude bonds with a call feature unless they have a low probability of being called. - 76 - How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s process for estimating the projected benefit obligation for the U.S. pension plans, including management’s review of the significant assumptions and assessment of the data inputs provided to the actuary. To test the projected benefit obligation of the U.S. pension plans, our audit procedures included, among others, evaluating the methodologies used, the significant actuarial assumptions described above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the change in the projected benefit obligation of the U.S. pension plans from the prior year due to the change in service cost, interest cost, actuarial gains and losses, benefit payments, contributions and other activities. In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the discount rate. As part of this assessment, we compared management’s selected discount rate to an independently developed range of reasonable discount rates. Additionally, we compared the projected future cash flows of the U.S. pension plans to the prior year projections and compared the current year benefits paid to the prior year projected cash flows. We also tested the completeness and accuracy of the underlying data, including the participant data provided to management’s actuarial specialists. Valuation of Self-Insurance Accruals Description of the Matter At May 31, 2021, the Company’s self-insurance accruals reflected in the balance sheet were $4.0 billion. As explained in Note 1 to the consolidated financial statements, self-insurance accruals include costs associated with workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee healthcare and disability programs. These accrued liabilities are primarily based on the actuarially estimated cost of claims, including incurred-but-not-reported (IBNR) claims. Auditing the Company’s self-insurance accruals is complex due to the significant measurement uncertainty inherent to the estimate, the application of management judgment, and the use of various actuarial methods. In addition, the accruals are sensitive due to the volume of claims and the amount of time that can pass before the final cost is known. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s process for estimating self-insurance accruals, including management’s review of the assumptions used, results of calculations and assessment of data underlying the accruals. To evaluate the self-insurance accruals, our audit procedures included, among others, testing the completeness and accuracy of the underlying claims data used by the Company. We involved our actuarial specialists to assist in our evaluation of the methodologies applied by management in establishing the actuarially determined accrual and in reviewing the Company’s reinsurance contracts by policy year to assess the Company’s self-insured retentions, deductibles, and coverage limits. We compared the Company’s accrued amounts to a range developed by our actuarial specialists. Furthermore, we compared the Company’s historical estimates of expected incurred losses to actual losses experienced during the current year. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2002. Memphis, Tennessee July 19, 2021 - 77 - FEDEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN MILLIONS) May 31, 2021 2020 ASSETS CURRENT ASSETS Cash and cash equivalents $ 7,087 $ 4,881 Receivables, less allowances of $ 742 and $ 390 12,069 10,102 Spare parts, supplies and fuel, less allowances of $ 349 and $ 335 587 572 Prepaid expenses and other 837 828 Total current assets 20,580 16,383 PROPERTY AND EQUIPMENT, AT COST Aircraft and related equipment 26,268 24,518 Package handling and ground support equipment 13,012 11,382 Information technology 7,486 6,884 Vehicles and trailers 9,282 9,101 Facilities and other 14,029 13,139 70,077 65,024 Less accumulated depreciation and amortization 34,325 31,416 Net property and equipment 35,752 33,608 OTHER LONG-TERM ASSETS Operating lease right-of-use assets, net 15,383 13,917 Goodwill 6,992 6,372 Other assets 4,070 3,257 Total other long-term assets 26,445 23,546 $ 82,777 $ 73,537 The accompanying notes are an integral part of these consolidated financial statements. - 78 - FEDEX CORPORATION CONSOLIDATED BALANCE SHEETS (IN MILLIONS, EXCEPT SHARE DATA) May 31, 2021 2020 LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT CURRENT LIABILITIES Current portion of long-term debt $ 146 $ 51 Accrued salaries and employee benefits 2,903 1,569 Accounts payable 3,841 3,269 Operating lease liabilities 2,208 1,923 Accrued expenses 4,562 3,532 Total current liabilities 13,660 10,344 LONG-TERM DEBT, LESS CURRENT PORTION 20,733 21,952 OTHER LONG-TERM LIABILITIES Deferred income taxes 3,927 3,162 Pension, postretirement healthcare and other benefit obligations 3,501 5,019 Self-insurance accruals 2,430 2,104 Operating lease liabilities 13,375 12,195 Other liabilities 983 466 Total other long-term liabilities 24,216 22,946 COMMITMENTS AND CONTINGENCIES COMMON STOCKHOLDERS’ INVESTMENT Common stock, $ 0.10 par value; 800 million shares authorized; 318 million shares issued as of May 31, 2021 and 2020 32 32 Additional paid-in capital 3,481 3,356 Retained earnings 29,817 25,216 Accumulated other comprehensive loss ( 732 ) ( 1,147 ) Treasury stock, at cost ( 8,430 ) ( 9,162 ) Total common stockholders’ investment 24,168 18,295 $ 82,777 $ 73,537 The accompanying notes are an integral part of these consolidated financial statements. - 79 - FEDEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Years ended May 31, 2021 2020 2019 REVENUE $ 83,959 $ 69,217 $ 69,693 OPERATING EXPENSES: Salaries and employee benefits 30,173 25,031 24,776 Purchased transportation 21,674 17,466 16,654 Rentals and landing fees 4,155 3,712 3,360 Depreciation and amortization 3,793 3,615 3,353 Fuel 2,882 3,156 3,889 Maintenance and repairs 3,328 2,893 2,834 Business realignment costs 116 — 320 Goodwill and other asset impairment charges — 435 — Other 11,981 10,492 10,041 78,102 66,800 65,227 OPERATING INCOME 5,857 2,417 4,466 OTHER (EXPENSE) INCOME: Interest expense ( 793 ) ( 672 ) ( 588 ) Interest income 52 55 59 Other retirement plans income (expense) 1,983 ( 122 ) ( 3,251 ) Loss on debt extinguishment ( 393 ) — — Other, net ( 32 ) ( 9 ) ( 31 ) 817 ( 748 ) ( 3,811 ) INCOME BEFORE INCOME TAXES 6,674 1,669 655 PROVISION FOR INCOME TAXES 1,443 383 115 NET INCOME $ 5,231 $ 1,286 $ 540 BASIC EARNINGS PER COMMON SHARE $ 19.79 $ 4.92 $ 2.06 DILUTED EARNINGS PER COMMON SHARE $ 19.45 $ 4.90 $ 2.03 The accompanying notes are an integral part of these consolidated financial statements. - 80 - FEDEX CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN MILLIONS) Years Ended May 31, 2021 2020 2019 NET INCOME $ 5,231 $ 1,286 $ 540 OTHER COMPREHENSIVE LOSS: Foreign currency translation adjustments, net of tax expense of $ 13 in 2021 and tax benefits of $ 18 in 2020 and $ 29 in 2019 422 ( 254 ) ( 195 ) Amortization of prior service credit and other, net of tax benefits of $ 3 in 2021, $ 25 in 2020, and $ 28 in 2019 ( 7 ) ( 79 ) ( 92 ) 415 ( 333 ) ( 287 ) COMPREHENSIVE INCOME $ 5,646 $ 953 $ 253 The accompanying notes are an integral part of these consolidated financial statements. - 81 - FEDEX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN MILLIONS) Years ended May 31, 2021 2020 2019 OPERATING ACTIVITIES Net income $ 5,231 $ 1,286 $ 540 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,793 3,615 3,353 Provision for uncollectible accounts 577 442 295 Other noncash items including leases and deferred income tax 2,887 2,449 ( 233 ) Stock-based compensation 200 168 174 Retirement plans mark-to-market adjustments ( 1,176 ) 794 3,882 Loss on extinguishment of debt 393 — — Gain from sale of business — — ( 8 ) Business realignment costs 102 — 101 Goodwill and other asset impairment charges — 435 — Changes in assets and liabilities: Receivables ( 1,389 ) ( 1,331 ) ( 873 ) Other current assets ( 40 ) ( 59 ) ( 25 ) Pension and postretirement healthcare assets and liabilities, net ( 317 ) ( 908 ) ( 909 ) Accounts payable and other liabilities 71 ( 1,787 ) ( 571 ) Other, net ( 197 ) ( 7 ) ( 113 ) Cash provided by operating activities 10,135 5,097 5,613 INVESTING ACTIVITIES Capital expenditures ( 5,884 ) ( 5,868 ) ( 5,490 ) Business acquisitions, net of cash acquired ( 228 ) — ( 66 ) Proceeds from asset dispositions and other 102 22 83 Cash used in investing activities ( 6,010 ) ( 5,846 ) ( 5,473 ) FINANCING ACTIVITIES Payments on debt ( 6,318 ) ( 2,548 ) ( 1,436 ) Proceeds from debt issuances 4,212 6,556 2,463 Proceeds from stock issuances 740 64 101 Dividends paid ( 686 ) ( 679 ) ( 683 ) Purchase of treasury stock — ( 3 ) ( 1,480 ) Other, net ( 38 ) ( 9 ) ( 4 ) Cash (used in) provided by financing activities ( 2,090 ) 3,381 ( 1,039 ) Effect of exchange rate changes on cash 171 ( 70 ) ( 47 ) Net increase (decrease) in cash and cash equivalents 2,206 2,562 ( 946 ) Cash and cash equivalents at beginning of period 4,881 2,319 3,265 Cash and cash equivalents at end of period $ 7,087 $ 4,881 $ 2,319 The accompanying notes are an integral part of these consolidated financial statements. - 82 - FEDEX CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS’ INVESTMENT (IN MILLIONS, EXCEPT SHARE DATA) Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Balance at May 31, 2018 $ 32 $ 3,117 $ 24,823 $ ( 578 ) $ ( 7,978 ) $ 19,416 Net income — — 540 — — 540 Other comprehensive loss, net of tax of $ 57 — — — ( 287 ) — ( 287 ) Purchase of treasury stock ( 6.6 million shares) — — — — ( 1,480 ) ( 1,480 ) Cash dividends declared ($ 2.60 per share) — — ( 683 ) — — ( 683 ) Employee incentive plans and other ( 1.3 million shares issued) — 114 ( 32 ) — 169 251 Balance at May 31, 2019 32 3,231 24,648 ( 865 ) ( 9,289 ) 17,757 Net income — — 1,286 — — 1,286 Other comprehensive loss, net of tax of $ 43 — — — ( 333 ) — ( 333 ) Purchase of treasury stock ( 0.02 million shares) — — — — ( 3 ) ( 3 ) Cash dividends declared ($ 2.60 per share) — — ( 679 ) — — ( 679 ) Employee incentive plans and other ( 1.0 million shares issued) — 125 ( 35 ) — 130 220 Adoption of new accounting standards on June 1, 2019 (1) — — ( 4 ) — — ( 4 ) Reclassification to retained earnings due to the adoption of a new accounting standard on June 1, 2019 (2) — — — 51 — 51 Balance at May 31, 2020 32 3,356 25,216 ( 1,147 ) ( 9,162 ) 18,295 Net income — — 5,231 — — 5,231 Other comprehensive gain, net of tax of ($ 10 ) — — — 415 — 415 Cash dividends declared ($ 2.60 per share) — — ( 686 ) — — ( 686 ) Employee incentive plans and other ( 5.4 million shares issued) — 125 56 — 732 913 Balance at May 31, 2021 $ 32 $ 3,481 $ 29,817 $ ( 732 ) $ ( 8,430 ) $ 24,168 (1) Relates to the adoption of Accounting Standards Update (“ASU”) 2016-02 and ASU 2018-02 . (2) Relates to the adoption of ASU 2018-02. The accompanying notes are an integral part of these consolidated financial statements. - 83 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: DESCRIPTION OF BUSINESS SEGMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS SEGMENTS. FedEx Corporation (“FedEx”) provides 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. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments. Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our operating segments. FISCAL YEARS . Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2021 or ended May 31 of the year referenced. PRINCIPLES OF CONSOLIDATION . The consolidated financial statements include the accounts of FedEx and its subsidiaries, substantially all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated in consolidation. REVENUE RECOGNITION . Satisfaction of Performance Obligation A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with U.S. generally accepted accounting principles (“GAAP”). To determine the proper revenue recognition method for contracts, we evaluate whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most of our contracts, the customer contracts with us to provide distinct services within a single contract, primarily transportation services. Substantially all of our contracts with customers for transportation services include only one performance obligation, the transportation services themselves. However, if a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable standalone sales prices. In these instances, the observable standalone sales are used to determine the standalone selling price. For transportation services, revenue is recognized over time as we perform the services in the contract because of the continuous transfer of control to the customer. Our customers receive the benefit of our services as the goods are transported from one location to another. If we were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. We use the cost-to-cost measure of progress for our package delivery contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue, including ancillary or accessorial fees and reductions for estimated customer incentives, is recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. For our FedEx Freight and freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer. We also provide customized customer-specific solutions, such as supply chain management solutions and inventory and service parts logistics, through which we provide the service of integrating a complex set of tasks and components into a single capability. For these arrangements, the majority of which are conducted by our FedEx Logistics, Inc. (“FedEx Logistics”) operating segment, the entire contract is accounted for as one performance obligation. For these performance obligations, we typically have a right to consideration from customers in an amount that corresponds directly with the value to the customers of our performance completed to date, and as such we recognize revenue in the amount to which we have a right to invoice the customer. - 84 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Contract Modification Contracts are often modified to account for changes in the rates we charge our customers or to add additional distinct services. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations or alters the existing arrangement. Contract modifications that add distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are distinct. Variable Consideration Certain contracts contain customer incentives, guaranteed service refunds and other provisions that can either increase or decrease the transaction price. These incentives are generally awarded based upon achieving certain performance metrics. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts of revenue, which may be reduced by incentives or other contract provisions, in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of anticipated customer spending and all information (historical, current and forecasted) that is reasonably available to us. Principal vs. Agent Considerations Transportation services are provided with the use of employees and independent businesses that contract with FedEx. GAAP requires us to evaluate whether our businesses themselves promise to transfer services to the customer (as the principal) or to arrange for services to be provided by another party (as the agent) using a control model. Based on our evaluation of the control model, we determined that FedEx is the principal to the transaction for most of these services and revenue is recognized on a gross basis based on the transfer of control to the customer. Costs associated with independent businesses providing transportation services are recognized as incurred and included in the caption “Purchased transportation” in the accompanying consolidated statements of income. Our contract logistics, global trade services and certain transportation businesses engage in certain transactions wherein they act as agents. Revenue from these transactions is recorded on a net basis. Net revenue includes billings to customers less third-party charges, including transportation or handling costs, fees, commissions and taxes and duties. 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 $ 715 million and $ 563 million at May 31, 2021 and May 31, 2020, respectively. Contract assets net of deferred unearned revenue were $ 572 million and $ 456 million at May 31, 2021 and May 31, 2020, respectively. Contract assets are included within current assets in the accompanying consolidated balance sheets. Contract liabilities related to advance payments from customers were $ 9 million and $ 10 million at May 31, 2021 and May 31, 2020, respectively. Contract liabilities are included within current liabilities in the accompanying consolidated balance sheets. Payment terms Certain of our revenue-producing transactions are subject to taxes and duties, such as sales tax, assessed by governmental authorities. We present these revenues net of tax. Under the typical payment terms of our customer contracts, the customer pays at periodic intervals (e.g., every 15 days, 30 days, 45 days, etc.) for shipments included on invoices received. It is not customary business practice to extend payment terms past 90 days, and as such, we do not have a practice of including a significant financing component within our revenue contracts with customers. Disaggregation of Revenue See Note 15 for disclosure of disaggregated revenue for the periods ended May 31. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance. - 85 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CREDIT RISK. We routinely grant credit to many of our customers for transportation and business services without collateral. The risk of credit loss in our trade receivables is substantially mitigated by our credit evaluation process, short collection terms and sales to a large number of customers, as well as the low revenue per transaction for most of our services. Allowances for potential credit losses are determined based on historical experience and the impact of current economic conditions. Historically, credit losses have been within management’s expectations. ADVERTISING. Advertising and promotion costs are expensed as incurred and are classified in other operating expenses. Advertising and promotion expenses were $ 428 million in 2021, $ 427 million in 2020 and $ 468 million in 2019. CASH EQUIVALENTS. Cash in excess of current operating requirements is invested in short-term, interest-bearing instruments with maturities of three months or less at the date of purchase and is stated at cost, which approximates market value. SPARE PARTS, SUPPLIES AND FUEL. Spare parts (principally aircraft-related) are reported at weighted-average cost. Allowances for obsolescence are provided for spare parts currently identified as excess or obsolete as well as expected to be on hand at the date the aircraft are retired from service. These allowances are provided over the estimated useful life of the related aircraft and engines. The majority of our supplies and fuel are reported at weighted-average cost. PROPERTY AND EQUIPMENT . Expenditures for major additions, improvements and flight equipment modifications are capitalized when such costs are determined to extend the useful life of the asset or are part of the cost of acquiring the asset. Expenditures for equipment overhaul costs of engines or airframes prior to their operational use are capitalized as part of the cost of such assets as they are costs required to ready the asset for its intended use. Maintenance and repairs costs are charged to expense as incurred, except for certain aircraft engine maintenance costs incurred under third-party service agreements. These agreements result in costs being expensed based on cycles or hours flown and are subject to annual escalation. These service contracts transfer risk to third-party service providers and generally fix the amount we pay for maintenance to the service provider as a rate per cycle or flight hour, in exchange for maintenance and repairs under a predefined maintenance program. We capitalize certain direct internal and external costs associated with the development of internal-use software, including implementation of cloud computing service arrangements. Gains and losses on sales of property used in operations are classified within operating expenses and historically have been nominal. For financial reporting purposes, we record depreciation and amortization of property and equipment on a straight-line basis over the asset’s service life or related lease term, if shorter. For income tax purposes, depreciation is computed using accelerated methods when applicable. The depreciable lives and net book value of our property and equipment are as follows (dollars in millions): Net Book Value at May 31, Range 2021 2020 Wide-body aircraft and related equipment 15 to 30 years $ 14,812 $ 13,448 Narrow-body and feeder aircraft and related equipment 5 to 30 years 2,307 2,478 Package handling and ground support equipment 3 to 30 years 5,269 4,499 Information technology 2 to 10 years 1,863 1,795 Vehicles and trailers 3 to 15 years 4,033 4,345 Facilities and other 2 to 40 years 7,468 7,043 Substantially all property and equipment have no material residual values. The majority of aircraft costs are depreciated on a straight-line basis over 15 to 30 years . We periodically evaluate the estimated service lives and residual values used to depreciate our property and equipment. Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operatio ns, was $ 3.8 billion in 2021 , $ 3.6 billion in 2020 and $ 3.4 billion in 2019. Depreciation and amortization expense includes amortization of assets under finance leases. CAPITALIZED INTEREST . Interest on funds used to finance the acquisition and modification of aircraft, including purchase deposits, construction of certain facilities and development of certain software up to the date the asset is ready for its intended use, is capitalized and included in the cost of the asset if the asset is actively under construction. Capitalized interest was $ 68 million in 2021 , $ 54 million in 2020 and $ 64 million in 2019. - 86 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. For assets that are to be held and used, an impairment is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined based on quoted market values, discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value. We operate integrated transportation networks so cash flows for most of our operating assets to be held and used are assessed at a network level, not at an individual asset level, for our analysis of impairment. During 2020, we made the decision to permanently retire from service 10 Airbus A310-300 aircraft and 12 related engines at FedEx Express to align with the needs of the U.S. domestic network and modernize its aircraft fleet . As a consequence of this decision, we recognized noncash impairment charges of $ 66 million ($ 50 million, net of tax, or $ 0.19 per diluted share) in the FedEx Express segment in 2020. In the normal management of our aircraft fleet, we routinely idle aircraft and engines temporarily due to maintenance cycles and adjustments of our network capacity to match seasonality and overall customer demand levels. Temporarily idled assets are classified as available-for-use, and we continue to record depreciation expense associated with these assets. These temporarily idled assets are assessed for impairment and remaining life on a quarterly basis. The criteria for determining whether an asset has been permanently removed from service (and, as a result, is potentially impaired) include, but are not limited to, our global economic outlook and the impact of our outlook on our current and projected volume levels, including capacity needs during our peak shipping seasons; the introduction of new fleet types or decisions to permanently retire an aircraft fleet from operations; and changes to planned service expansion activities. At May 31, 2021, we had nine aircraft temporarily idled. These aircraft have been idled for an average of 17 months and are expected to return to revenue service. GOODWILL. Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Several factors give rise to goodwill in our acquisitions, such as the expected benefits from synergies of the combination and the existing workforce of the acquired business. Goodwill is reviewed at least annually for impairment. In our evaluation of goodwill impairment, we perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we proceed to test goodwill for impairment, including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for our reporting units is determined using an income or market approach incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations. Unless circumstances otherwise dictate, we perform our annual impairment testing in the fourth quarter. See Note 5 for additional information. INTANGIBLE ASSETS . Intangible assets primarily include customer relationships, technology assets and trademarks acquired in business combinations. Intangible assets are amortized over periods ranging from 1 to 15 years , either on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized. See Note 5 for additional information. PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined benefit pension and other postretirement benefit plans are measured using actuarial techniques that reflect management’s assumptions for discount rate, investment returns on plan assets, salary increases, expected retirement, mortality, employee turnover and future increases in healthcare costs. We determine the discount rate (which is required to be the rate at which the projected benefit obligation (“PBO”) could be effectively settled as of the measurement date) with the assistance of actuaries, who calculate the yield on a theoretical portfolio of high-grade corporate bonds (rated Aa or better) with cash flows that are designed to match our expected benefit payments in future years. We use the fair value of plan assets to calculate the expected return on assets (“EROA”) for interim and segment reporting purposes. Our EROA is a judgmental estimate which is reviewed on an annual basis and revised as appropriate. The accounting guidance related to employers’ accounting for defined benefit pension and other postretirement plans requires recognition in the balance sheet of the funded status of these plans. We use “mark-to-market” or MTM accounting and immediately recognize changes in the fair value of plan assets and actuarial gains or losses in our results annually in the fourth quarter each year. The annual MTM adjustment is recognized at the corporate level and does not impact segment results. The remaining components of pension and postretirement healthcare expense, primarily service and interest costs and the EROA, are recorded on a quarterly basis. Only service cost is recognized in segment level operating results. INCOME TAXES. Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The liability method is used to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid. - 87 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates to make this determination and, thus, there is a risk that these estimates will have to be revised as new information is received. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. We believe we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets that are not subject to valuation allowances. We record the taxes for global intangible low-taxed income as a period cost. We recognize liabilities for uncertain income tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available to management. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to the related provision. We classify interest related to income tax liabilities as interest expense, and if applicable, penalties are recognized as a component of income tax expense. The income tax liabilities and accrued interest and penalties that are due within one year of the balance sheet date are presented as current liabilities. The noncurrent portion of our income tax liabilities and accrued interest and penalties are recorded in the caption “Other liabilities” in the accompanying consolidated balance sheets. SELF-INSURANCE ACCRUALS. We are self-insured for costs associated with workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities and benefits paid under employee healthcare and disability programs. Accruals are primarily based on the actuarially estimated cost of claims, which includes incurred-but-not-reported claims. Current workers’ compensation claims, vehicle and general liability, employee healthcare claims and long-term disability are included in accrued expenses. We self-insure up to certain limits that vary by operating company and type of risk. Claims costs are recognized on a gross basis and a receivable is recorded for amounts covered by third party insurance. Periodically, we evaluate the level of insurance coverage and adjust insurance levels based on risk tolerance and premium expense. LEASES. We lease certain facilities, aircraft, equipment and vehicles under operating and finance leases. A determination of whether a contract contains a lease is made at the inception of the arrangement. Our leased facilities include national, regional and metropolitan sorting facilities, retail facilities and administrative buildings. Our leases generally contain options to extend or terminate the lease. We reevaluate our leases on a regular basis to consider the economic and strategic incentives of exercising the renewal options, and how they align with our operating strategy. Therefore, substantially all the renewal option periods are not included within the lease term and the associated payments are not included in the measurement of the right-of-use asset and lease liability as the options to extend are not reasonably certain at lease commencement. Short-term leases with an initial term of 12 months or less are not recognized in the right-to-use asset and lease liability on the consolidated balance sheets. The lease liabilities are measured at the lease commencement date and determined using the present value of the minimum lease payments not yet paid and our incremental borrowing rate, which approximates the rate at which we would borrow, on a collateralized basis, over the term of a lease in the applicable currency environment. The interest rate implicit in the lease is generally not determinable in transactions where we are the lessee. For real estate leases, we account for lease components and non-lease components (such as common area maintenance) as a single lease component. Certain real estate leases require additional payments based on sales volume and index-based rate increases, as well as reimbursement for real estate taxes, common area maintenance and insurance, which are expensed as incurred as variable lease costs. Certain leases contain fixed lease payments for items such as real estate taxes, common area maintenance and insurance. These fixed payments are considered part of the lease payment and included in the right-of-use assets and lease liabilities. See Note 8 for additional information. - 88 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 May 31, 2021, we designated € 210 million of debt 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 May 31, 2021, the hedge remains effective. FOREIGN CURRENCY TRANSLATION. Translation gains and losses of foreign operations that use local currencies as the functional currency are accumulated and reported, net of applicable deferred income taxes, as a component of Accumulated Other Comprehensive Income (“AOCI”) within common stockholders’ investment. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in the caption “Other, net” in the accompanying consolidated statements of income and were immaterial for each period presented. EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FedEx Express, who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. The collective bargaining agreement is scheduled to become amendable in November 2021. Bargaining for a successor agreement began in May 2021. A small number of our other employees are members of unions. STOCK-BASED COMPENSATION. The accounting guidance related to share-based payments requires recognition of compensation expense for stock-based awards using a fair value method. We use the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock awards is based on the stock price of the award on the grant date. We record stock-based compensation expense in the “Salaries and employee benefits” caption in the accompanying consolidated statements of income. We issue new shares or treasury shares from stock repurchases to cover employee stock option exercises and restricted stock grants. TREASURY SHARES. In January 2016, our Board of Directors authorized a stock repurchase program of up to 25 million shares. During 2021, we did not repurchase any shares of FedEx common stock. As of May 31, 2021, 5.1 million shares remained under the stock repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time. In 2020, we repurchased 0.02 million shares of FedEx common stock at an average price of $ 156.90 per share for a total of $ 3 million. In 2019, we repurchased 6.6 million shares of FedEx common stock at an average price of $ 222.94 per share for a total of $ 1.5 billion. Effective March 16, 2021, we further amended our amended and restated $ 2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and entered into a new $ 1.5 billion 364 -day credit agreement (the “364-Day Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”). The Credit Agreements no longer contain the temporary covenant added in the fourth quarter of 2020 restricting us from repurchasing any shares of our common stock. See Note 7 for more information on the Credit Agreements. DIVIDENDS DECLARED PER COMMON SHARE. On June 14, 2021 , our Board of Directors declared a quarterly dividend of $ 0.75 per share of common stock. The dividend was paid on July 12, 2021 to stockholders of record as of the close of business on June 28, 2021 . Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis. Effective March 16, 2021, the Credit Agreements no longer contain the temporary covenant added in the fourth quarter of 2020 restricting us from increasing the amount of our quarterly dividend payable per share of common stock from $ 0.65 per share. There are no 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. - 89 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BUSINESS REALIGNMENT COSTS . In January 2021, FedEx Express announced a workforce reduction plan in Europe as it nears the completion of the network integration of TNT Express. The plan will impact between 5,500 and 6,300 employees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur over an 18 -month period in accordance with local country processes and regulations. We incurred costs during 2021 of $ 116 million ($ 90 million, net of tax, or $ 0.33 per diluted share) associated with our business realignment activities. These costs are related to certain employee severance arrangements. Approximately $ 15 million was paid under this program in 2021. We expect the pre-tax cost of our business realignment activities to range from $ 300 million to $ 575 million through fiscal 2023. The actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans. During 2019, we conducted a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. As a result of this program, approximately 1,500 employees left the company. Costs of the benefits provided under the U.S.-based voluntary employee buyout program of $ 320 million were recognized in 2019 when eligible employees accepted their offers, and included approximately $ 50 million of costs associated with funding to healthcare reimbursement accounts. Severance payments under this program were made at the time of departure and totaled approximately $ 50 million in 2020 and $ 220 million in 2019. USE OF ESTIMATES . The preparation of our consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenue and expenses and the disclosure of contingent liabilities. Management makes its best estimate of the ultimate outcome for these items based on historical trends and other information available when the financial statements are prepared. Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: self-insurance accruals; retirement plan obligations; long-term incentive accruals; tax liabilities; loss contingencies; litigation claims; impairment assessments on long-lived assets (including goodwill) that rely on projections of future cash flows; and purchase price allocations. NOTE 2: RECENT ACCOUNTING GUIDANCE New accounting rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements. Recently Adopted Accounting Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13 that amends the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables, to utilize an expected loss methodology in place of the incurred loss methodology. We adopted this standard effective June 1, 2020 . We updated our process for estimating the expected credit loss to include a review of forecast information that may impact expected collectability over the lifetime of the asset. See Note 3 for additional information. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. In August 2018, the FASB issued ASU 2018-15 that reduces the complexity of accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. We adopted this standard effective June 1, 2020 and applied these changes prospectively. The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. In December 2019, the FASB issued ASU 2019-12, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We early adopted this standard effective June 1, 2020 . The adoption of this standard did not have a material impact on our consolidated financial statements and related disclosures. - 90 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3: CREDIT LOSSES We are exposed to credit losses primarily through our trade receivables. We assess ability to pay for certain customers by conducting a credit review, which considers the customer’s established credit rating and our assessment of creditworthiness. We determine the allowance for credit losses on accounts receivable using a combination of specific reserves for accounts that are deemed to exhibit credit loss indicators and general reserves that are determined using loss rates based on historical write-offs by geography and recent forecast information, including underlying economic expectations. We update our estimate of credit loss reserves quarterly, considering recent write-offs, collections information and underlying economic expectations. Credit losses were $ 577 million in 2021, $ 442 million in 2020 and $ 295 million in 2019. Our allowance for credit losses was $ 358 million as of May 31, 2021 and $ 175 million at May 31, 2020. NOTE 4: BUSINESS COMBINATIONS On December 23, 2020, we acquired ShopRunner, Inc. (“ShopRunner”), an e-commerce platform that directly connects brands and merchants with online shoppers, for $ 228 million in cash from operations. The majority of the purchase price was allocated to goodwill and intangibles. The financial results of ShopRunner are included in “Corporate, other and eliminations” from the date of acquisition and were not material to our results of operations; therefore, pro forma financial information has not been provided. On May 1, 2019, we acquired the international express division of FC (Flying Cargo) Express Ltd. for $ 67 million in cash from operations. The majority of the purchase price was allocated to goodwill. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition and were not material to our results of operations; therefore, pro forma financial information has not been provided. On October 1, 2018, we acquired the controlling interest in an existing joint venture with Swiss Post, which operates a Swiss-wide transport system with connections to TNT Express’s global network. The controlling interest was acquired through the noncash contribution of a complementary Swiss business into the venture, resulting in the recognition of an immaterial gain. The majority of the purchase price was allocated to goodwill and other intangibles. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition and were not material to our results of operations; therefore, pro forma financial information has not been provided. NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS GOODWILL. The carrying amount of goodwill attributable to each reportable operating segment and changes therein are as follows (in millions): FedEx Express Segment FedEx Ground Segment FedEx Freight Segment Corporate, Other and Eliminations Total Goodwill at May 31, 2019 $ 5,016 $ 840 $ 767 $ 1,945 $ 8,568 Accumulated impairment charges — — ( 133 ) ( 1,551 ) ( 1,684 ) Balance as of May 31, 2019 5,016 840 634 394 6,884 Impairment charges — — — ( 358 ) ( 358 ) Other (1) ( 147 ) — — ( 7 ) ( 154 ) Balance as of May 31, 2020 4,869 840 634 29 6,372 Goodwill acquired (2) 18 103 — 40 161 Other (1) 471 — — ( 12 ) 459 Balance as of May 31, 2021 $ 5,358 $ 943 $ 634 $ 57 $ 6,992 Accumulated goodwill impairment charges as of May 31, 2021 $ — $ — $ ( 133 ) $ ( 1,909 ) $ ( 2,042 ) (1) Primarily currency translation adjustments and purchase price allocation-related adjustments. ( 2 ) Goodwill acquired relates to the acquisition of ShopRunner. See Note 4 for more information. Our reporting units with significant recorded goodwill include FedEx Express, FedEx Ground and FedEx Freight. We evaluated these reporting units during the fourth quarter and the estimated fair value of each of these reporting units exceeded their carrying values as of the end of 2021 and 2020; therefore, we do not believe that any of these reporting units were impaired as of the balance sheet dates. - 91 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In 2020, we recorded impairment charges of $ 358 million predominantly attributable to our FedEx Office and Print Services, Inc. (“FedEx Office”) reporting unit. The coronavirus (“COVID-19”) pandemic resulted in store closures and declining print revenue at FedEx Office during the fourth quarter of 2020. Based on these factors, our outlook for the FedEx Office business and retail industry changed in the fourth quarter of 2020, which contributed $ 348 million to the goodwill impairment charge. No impairments of goodwill were recognized during 2021 or 2019. OTHER INTANGIBLE ASSETS. The summary of our intangible assets and related accumulated amortization at May 31, 2021 and 2020 is as follows (in millions): 2021 2020 Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value Customer relationships $ 591 $ ( 299 ) $ 292 $ 641 $ ( 327 ) $ 314 Technology 65 ( 35 ) 30 65 ( 57 ) 8 Trademarks and other 1 ( 1 ) — 132 ( 132 ) — Total $ 657 $ ( 335 ) $ 322 $ 838 $ ( 516 ) $ 322 Amortization expense for intangible assets was $ 49 million in 2021, $ 66 million in 2020 and $ 82 million in 2019. Expected amortization expense for the next five years is as follows (in millions): 2022 $ 52 2023 49 2024 48 2025 47 2026 46 NOTE 6: SELECTED CURRENT LIABILITIES The components of selected current liability captions at May 31 were as follows (in millions): 2021 2020 Accrued Salaries and Employee Benefits Salaries $ 626 $ 436 Employee benefits, including variable compensation 1,350 319 Compensated absences 927 814 $ 2,903 $ 1,569 Accrued Expenses Self-insurance accruals $ 1,535 $ 1,223 Taxes other than income taxes 637 417 Other 2,390 1,892 $ 4,562 $ 3,532 - 92 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS The components of long-term debt (net of discounts and debt issuance costs), along with maturity dates for the years subsequent to May 31, 2021, are as follows (in millions): May 31, 2021 2020 Interest Rate% Maturity Senior secured debt: 1.875 2034 $ 932 $ — Senior unsecured debt: 3.40 2022 — 498 2.625-2.70 2023 — 748 4.00 2024 — 747 3.20-3.80 2025 — 1,687 3.25 2026 746 745 3.30 2027 — 446 3.40 2028 496 496 4.20 2029 397 397 3.10-4.25 2030 1,733 1,732 2.40 2031 989 — 4.90 2034 496 495 3.90 2035 494 494 3.25 2041 739 — 3.875-4.10 2043 985 984 5.10 2044 742 742 4.10 2045 641 641 4.55-4.75 2046 2,461 2,461 4.40 2047 736 735 4.05 2048 986 986 4.95 2049 836 835 5.25 2050 1,226 1,225 4.50 2065 246 246 7.60 2098 237 237 Euro senior unsecured debt: 0.70 2022 — 695 1.00 2023 — 815 0.45 2026 607 541 1.625 2027 1,516 1,351 0.45 2029 725 — 1.30 2032 604 539 0.95 2033 784 — Total senior unsecured debt 19,422 21,518 Finance lease obligations 525 485 20,879 22,003 Less current portion 146 51 $ 20,733 $ 21,952 Interest on our U.S. dollar fixed-rate notes is paid semi-annually. Interest on our euro fixed-rate notes is paid annually. The weighted average interest rate on long-term debt was 3.4 % as of May 31, 2021. Long-term debt, including current maturities and exclusive of finance leases, had estimated fair values of $ 23.1 billion at May 31, 2021 and $ 22.8 billion at May 31, 2020. 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. 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. - 93 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During August 2020, FedEx Express 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 “Trusts”). The Certificates are secured by 19 Boeing aircraft with a net book value of $ 1.9 billion at May 31, 2021. The payment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx. FedEx Express is using the proceeds from the issuance for general corporate purposes. Each Trust meets the definition of a variable interest entity, or VIE, as defined in the Consolidations topic of the Codification (ASC 810), and must be considered for consolidation in our financial statements. Our assessment of the Trusts considers both quantitative and qualitative factors, including the purpose for which the Trust was established and the nature of the risks related to the Trusts. Neither FedEx nor FedEx Express invests in or possesses a financial interest in the Trusts. Rather, FedEx Express has an obligation to make interest and principal payments, which are fully and unconditionally guaranteed by FedEx, and is not the primary beneficiary of the Trusts. Based on this analysis, we determined that we are not required to consolidate the Trusts. On March 16, 2021, we entered into an amended and restated $ 2.0 billion Five-Year Credit Agreement and a $ 1.5 billion 364 -Day Credit Agreement. The Five-Year Credit Agreement expires in March 2026 and includes a $ 250 million letter of credit sublimit. The 364 -Day Credit Agreement expires in March 2022 . The Credit Agreements are available to finance our operations and other cash flow needs. As of May 31, 2021, no commercial paper was outstanding, and we had $ 250 million of the letter of credit sublimit unused under the Five-Year Credit Agreement. Outstanding commercial paper reduces the amount available to borrow under the Credit Agreements. Prior to the amendment of the Five-Year Credit Agreement and entry into the current 364-Day Credit Agreement on March 16, 2021, our credit agreements contained a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans MTM adjustments, noncash pension service costs and noncash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.75 to 1.0, calculated as of May 31, 2021 on a rolling four-quarters basis. Effective March 16, 2021, we are required to maintain a ratio of debt to adjusted EBITDA of not more than 3.5 to 1.0, calculated as of the end of the applicable quarter on a rolling four-quarter basis. The ratio of our debt to adjusted EBITDA was 1.97 to 1.0 at May 31, 2021. We believe the financial covenant discussed above is the only significant restrictive covenant in the Credit Agreements. The Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with the financial covenant and all other covenants in the Credit Agreements and do not expect the covenants to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants in the Credit Agreements, our access to financing could become limited. During the fourth quarter of 2021, we issued $ 3.25 billion of senior unsecured debt under our current shelf registration statement, comprised of € 600 million of 0.45 % fixed-rate notes due in May 2029 (the “Sustainability Notes”), € 650 million of 0.95 % fixed-rate notes due in May 2033 , $ 1.0 billion of 2.40 % fixed-rate notes due in May 2031 and $ 750 million of 3.25 % fixed-rate notes due in May 2041 . We used the net proceeds from these offerings to redeem the $ 500 million aggregate principal amount outstanding of our 3.40 % notes due 2022 , the € 640 million aggregate principal amount outstanding of our 0.70 % notes due 2022 , the $ 500 million aggregate principal amount outstanding of our 2.625 % notes due 2023 , the € 750 million aggregate principal amount outstanding of our 1.00 % notes due 2023 , the $ 250 million aggregate principal amount outstanding of our 2.70 % notes due 2023 , the $ 750 million aggregate principal amount outstanding of our 4.00 % notes due 2024 , the $ 700 million aggregate principal amount outstanding of our 3.20 % notes due 2025 , the $ 1.0 billion aggregate principal amount outstanding of our 3.80 % notes due 2025 and the $ 450 million aggregate principal amount outstanding of our 3.30 % notes due 2027 . We intend to use an amount equal to the net proceeds from the offering of the Sustainability Notes to fund or refinance a portfolio of new or ongoing projects in the following areas: clean transportation; green buildings; energy efficiency; eco-efficient and/or circular economy adapted products, production technologies and processes; pollution prevention and control; renewable energy; and socioeconomic advancement and empowerment. As a result of the debt redemption, we recognized a loss on debt extinguishment of $ 393 million in 2021. - 94 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8: LEASES The following table is a summary of the components of net lease cost for the period ended May 31 (in millions): 2021 2020 Operating lease cost $ 2,848 $ 2,668 Finance lease cost: Amortization of right-of-use assets 23 18 Interest on lease liabilities 17 12 Total finance lease cost 40 30 Short-term lease cost 387 197 Variable lease cost 1,318 1,160 Net lease cost $ 4,593 $ 4,055 Lease expenses are primarily included in the “Rentals and landing fees” line item. Amounts related to embedded leases are included in the “Purchased transportation,” “Fuel” and “Other” line items in the accompanying consolidated statements of income. Supplemental cash flow information related to leases for the period ended May 31 is as follows (in millions): 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows paid for operating leases $ 2,750 $ 2,608 Operating cash flows paid for interest portion of finance leases 16 14 Financing cash flows paid for principal portion of finance leases 75 84 Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,703 $ 1,915 Right-of-use assets obtained in exchange for new finance lease liabilities $ 126 $ 484 Supplemental balance sheet information related to leases as of May 31 is as follows (dollars in millions): 2021 2020 Operating leases: Operating lease right-of-use assets, net $ 15,383 $ 13,917 Current portion of operating lease liabilities 2,208 1,923 Operating lease liabilities 13,375 12,195 Total operating lease liabilities $ 15,583 $ 14,118 Finance leases: Net property and equipment $ 504 $ 480 Current portion of long-term debt 96 51 Long-term debt, less current portion 429 434 Total finance lease liabilities $ 525 $ 485 Weighted-average remaining lease term Operating leases 9.9 9.9 Finance leases 30.1 32.0 Weighted-average discount rate Operating leases 2.94 % 3.19 % Finance leases 3.43 % 3.58 % - 95 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We utilize certain aircraft, land, facilities, retail locations and equipment under finance and operating leases that expire at various dates through 2060 . We leased 3 % of our total aircraft fleet under operating leases as of May 31, 2021 and 5 % as of May 31, 2020. A portion of our supplemental aircraft are leased by us under agreements that provide for cancellation upon 30 days’ notice. Our leased facilities include national, regional and metropolitan sorting facilities, retail facilities and administrative buildings. A summary of future minimum lease payments under noncancelable operating and finance leases with an initial or remaining term in excess of one year at May 31, 2021 is as follows (in millions): Aircraft and Related Equipment Facilities and Other Total Operating Leases Finance Leases Total Leases 2022 $ 234 $ 2,403 $ 2,637 $ 19 $ 2,656 2023 198 2,255 2,453 106 2,559 2024 102 1,986 2,088 24 2,112 2025 69 1,739 1,808 24 1,832 2026 61 1,516 1,577 23 1,600 Thereafter 184 7,358 7,542 698 8,240 Total lease payments 848 17,257 18,105 894 18,999 Less imputed interest ( 66 ) ( 2,456 ) ( 2,522 ) ( 369 ) ( 2,891 ) Present value of lease liability $ 782 $ 14,801 $ 15,583 $ 525 $ 16,108 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 May 31, 2021, 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 $ 2.5 billion and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from 2022 to 2023 . FedEx Express makes payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass-through certificates. The pass-through certificates are not direct obligations of, or guaranteed by, FedEx or FedEx Express. We are the lessee under certain operating leases covering a portion of our leased aircraft in which the lessors are trusts established specifically to purchase, finance and lease these aircraft to us. These leasing entities are variable interest entities. We are not the primary beneficiary of the leasing entities, as the lease terms are at market at the inception of the lease and do not include a residual value guarantee, fixed-price purchase option or similar feature that obligates us to absorb decreases in value or entitles us to participate in increases in the value of the aircraft. Therefore, we are not required to consolidate any of these entities as the primary beneficiary. Our maximum exposure under these leases is included in the summary of future minimum lease payments. NOTE 9: PREFERRED STOCK Our Certificate of Incorporation authorizes the Board of Directors, at its discretion, to issue up to 4,000,000 shares of preferred stock. The stock is issuable in series, which may vary as to certain rights and preferences, and has no par value. As of May 31, 2021, none of these shares had been issued. - 96 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10: ACCUMULATED OTHER COMPREHENSIVE INCOME The following table provides changes in AOCI, net of tax, reported in the consolidated financial statements for the years ended May 31 (in millions; amounts in parentheses indicate debits to AOCI): 2021 2020 2019 Foreign currency translation loss: Balance at beginning of period $ ( 1,207 ) $ ( 954 ) $ ( 759 ) Translation adjustments 422 ( 254 ) ( 195 ) Reclassification to retained earnings due to the adoption of ASU 2018-02 — 1 — Balance at end of period ( 785 ) ( 1,207 ) ( 954 ) Retirement plans adjustments: Balance at beginning of period 60 89 181 Prior service cost (credit) arising during period — 3 — Reclassifications from AOCI ( 7 ) ( 82 ) ( 92 ) Reclassification to retained earnings due to the adoption of ASU 2018-02 — 50 — Balance at end of period 53 60 89 Accumulated other comprehensive loss at end of period $ ( 732 ) $ ( 1,147 ) $ ( 865 ) The following table presents details of the reclassifications from AOCI for the years ended May 31 (in millions; amounts in parentheses indicate debits to earnings): Amount Reclassified from AOCI Affected Line Item in the Income Statement 2021 2020 2019 Amortization of retirement plans prior service credits, before tax $ 10 $ 107 $ 120 Other retirement plans income (expense) Income tax benefit ( 3 ) ( 25 ) ( 28 ) Provision for income taxes AOCI reclassifications, net of tax $ 7 $ 82 $ 92 Net income NOTE 11: STOCK-BASED COMPENSATION Our total stock-based compensation expense for the years ended May 31 was as follows (in millions): 2021 2020 2019 Stock-based compensation expense $ 200 $ 168 $ 174 We have two types of equity-based compensation: stock options and restricted stock. STOCK OPTIONS . Under the provisions of our incentive stock plan, key employees and non-employee directors may be granted options to purchase shares of our common stock at a price not less than its fair market value on the date of grant. Vesting requirements are determined at the discretion of the Compensation Committee of our Board of Directors. Option-vesting periods range from one to four years , with 82 % of our options vesting ratably over four years. Compensation expense associated with these awards is recognized on a straight-line basis over the requisite service period of the award. RESTRICTED STOCK. Under the terms of our incentive stock plan, restricted shares of our common stock are awarded to key employees. All restrictions on the shares expire ratably over a four-year period . Shares are valued at the market price on the date of award. The terms of our restricted stock provide for continued vesting subsequent to the employee’s retirement. Compensation expense associated with these awards is recognized on a straight-line basis over the shorter of the requisite service period or the stated vesting period. - 97 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ASSUMPTIONS . The key assumptions for the Black-Scholes valuation method include the expected life of the option, stock price volatility, a risk-free interest rate and dividend yield. The following table includes the weighted-average Black-Scholes value per share of our stock option grants, the intrinsic value of options exercised (in millions) and the key weighted-average assumptions used in the valuation calculations for options granted during the years ended May 31, followed by a discussion of our methodology for developing each of the assumptions used in the valuation model: 2021 2020 2019 Weighted-average Black-Scholes value per share $ 44.11 $ 33.97 $ 61.42 Intrinsic value of options exercised $ 593 $ 44 $ 122 Black-Scholes Assumptions: Expected lives 6.4 years 6.4 years 6.4 years Expected volatility 30 % 23 % 21 % Risk-free interest rate 1.32 % 1.91 % 2.94 % Dividend yield 1.710 % 1.630 % 0.935 % The expected life represents an estimate of the period of time options are expected to remain outstanding, and we examine actual stock option exercises to determine the expected life of the options. Options granted have a maximum term of 10 years. Expected volatilities are based on the actual changes in the market value of our stock and are calculated using daily market value changes from the date of grant over a past period equal to the expected life of the options. The risk-free interest rate is the U.S. Treasury Strip rate posted at the date of grant having a term equal to the expected life of the option. The expected dividend yield is the annual rate of dividends per share over the exercise price of the option. The following table summarizes information regarding stock option activity for the year ended May 31, 2021: Stock Options Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term Aggregate Intrinsic Value (in millions) (1) Outstanding at June 1, 2020 16,124,745 $ 167.79 Granted 4,717,412 $ 168.73 Exercised ( 5,063,165 ) 146.10 Forfeited ( 453,495 ) 168.99 Outstanding at May 31, 2021 15,325,497 $ 175.19 6.8 $ 2,139 Exercisable 7,054,806 $ 173.26 4.9 $ 999 Expected to vest 7,676,476 $ 176.85 8.5 $ 1,059 Available for future grants 12,233,805 (1) Only presented for options with market value at May 31, 2021 in excess of the exercise price of the option. The options granted during 2021 are primarily related to our principal annual stock option grant in June 2020. The following table summarizes information regarding vested and unvested restricted stock for the year ended May 31, 2021: Restricted Stock Shares Weighted- Average Grant Date Fair Value Unvested at June 1, 2020 371,690 $ 192.19 Granted 335,004 $ 155.19 Vested ( 167,767 ) 188.62 Forfeited ( 1,646 ) 221.09 Unvested at May 31, 2021 537,281 $ 170.16 - 98 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS During the year ended May 31, 2020, there were 207,012 shares of restricted stock granted with a weighted-average fair value of $ 158.58 per share. During the year ended May 31, 2019, there were 149,579 shares of restricted stock granted with a weighted-average fair value of $ 253.28 per share. Stock option vesting during the years ended May 31 was as follows: Stock Options Vested during the year Fair value (in millions) 2021 2,492,039 $ 115 2020 2,073,310 $ 99 2019 2,249,301 $ 115 As of May 31, 2021, there was $ 275 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested share-based compensation arrangements. This compensation expense is expected to be recognized on a straight-line basis over the remaining weighted-average vesting period of approximately two years . Total shares outstanding or available for grant related to equity compensation at May 31, 2021 represented 10 % of the total outstanding common and equity compensation shares and equity compensation shares available for grant. NOTE 12: COMPUTATION OF EARNINGS PER SHARE The calculation of basic and diluted earnings per common share for the years ended May 31 was as follows (in millions, except per share amounts): 2021 2020 2019 Basic earnings per common share: Net earnings allocable to common shares (1) $ 5,220 $ 1,284 $ 539 Weighted-average common shares 264 261 262 Basic earnings per common share $ 19.79 $ 4.92 $ 2.06 Diluted earnings per common share: Net earnings allocable to common shares (1) $ 5,221 $ 1,284 $ 539 Weighted-average common shares 264 261 262 Dilutive effect of share-based awards 4 1 3 Weighted-average diluted shares 268 262 265 Diluted earnings per common share $ 19.45 $ 4.90 $ 2.03 Anti-dilutive options excluded from diluted earnings per common share 3.5 11.7 5.4 (1) Net earnings available to participating securities were immaterial in all periods presented. - 99 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows (in millions): 2021 2020 2019 Current provision (benefit) Domestic: Federal $ 199 $ ( 230 ) $ ( 107 ) State and local 158 67 64 Foreign 284 198 243 641 35 200 Deferred provision (benefit) Domestic: Federal 667 475 ( 61 ) State and local 70 1 ( 7 ) Foreign 65 ( 128 ) ( 17 ) 802 348 ( 85 ) $ 1,443 $ 383 $ 115 Pre-tax earnings of foreign operations for 2021, 2020 and 2019 were $ 1.8 billion, $ 634 million and $ 929 million, respectively. These amounts represent only a portion of total results associated with international shipments and do not represent our international results of operations. A reconciliation of total income tax expense and the amount computed by applying the statutory federal income tax to income before income taxes for the years ended May 31 is as follows (dollars in millions): 2021 2020 2019 Taxes computed at federal statutory rate $ 1,401 $ 350 $ 138 (Decreases) increases in income tax from: Benefit from U.S. tax loss carryback to prior years ( 279 ) ( 71 ) — State and local income taxes, net of federal benefit 179 53 44 Foreign operations 138 38 ( 1 ) Benefits from share-based payments ( 69 ) ( 5 ) ( 18 ) Uncertain tax positions 65 ( 14 ) 8 Foreign tax rate enactments ( 61 ) ( 10 ) 50 Non-deductible expenses 53 70 79 Valuation allowance 14 ( 129 ) ( 79 ) Goodwill impairment charges — 75 — U.S. deferred tax adjustments related to foreign operations — 51 — Tax Cuts and Jobs Act (“TCJA”) — — ( 71 ) Foreign tax credits from distributions — — ( 8 ) Other, net 2 ( 25 ) ( 27 ) Provision for income taxes $ 1,443 $ 383 $ 115 Effective Tax Rate 21.6 % 23.0 % 17.6 % On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to address the economic impact of the COVID-19 pandemic in the United States. Among other things, the CARES Act allows a five-year carryback period for tax losses generated in 2019 through 2021. The 2021 tax provision includes a benefit of $ 279 million from an increase in our 2020 tax loss that the CARES Act allows to be carried back to 2015, when the U.S. federal income tax rate was 35 %. The increase in our estimated 2020 tax loss is attributable to our Application for Change in Accounting Method discussed below, voluntary contributions to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) and other accelerated deductions claimed on the 2020 tax return filed in 2021. The 2021 tax provision also includes a benefit of $ 66 million from a tax rate increase in the Netherlands applied to our deferred tax asset balances and was unfavorably impacted by an increase in uncertain tax positions for matters in multiple jurisdictions. - 100 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We filed an application with the Internal Revenue Service (“IRS”) in 2020 requesting approval to change our accounting method for depreciation to allow retroactive application of tax regulations issued during 2020 on certain assets placed in service during 2018 and 2019. During 2021, the IRS issued guidance granting automatic approval to change the method of accounting for these assets resulting in an income tax benefit of $ 130 million. The 2020 tax provision includes a benefit of $ 133 million from the reduction of a valuation allowance on certain foreign tax loss carryforwards and a benefit of $ 71 million in connection with our estimated 2020 tax loss that the CARES Act allows to be carried back to 2015, a tax year when the U.S. federal income tax rate was 35 %. The 2020 tax provision also includes a deferred income tax expense of $ 51 million for a change in deferred tax balances related to future foreign tax credits from our international structure as a result of changes in legal entity forecasts during the fourth quarter. The 2020 effective tax rate was negatively impacted by decreased earnings in certain non-U.S. jurisdictions. The 2019 tax provision includes a benefit of $ 90 million from the reduction of a valuation allowance on tax loss carryforwards due to certain business operational changes from the integration of FedEx Express and TNT Express in a local jurisdiction, which impacted our determination of the realizability of the deferred tax asset in that jurisdiction and an expense of $ 50 million from a tax rate decrease in the Netherlands applied to our deferred tax balances. The 2019 tax provision was also favorably impacted by the TCJA, which resulted in benefits of approximately $ 75 million from accelerated deductions claimed at a federal rate of 29.2 % on our 2018 U.S. income tax return filed in 2019. Due to our May 31 fiscal year-end, our U.S. statutory rate reduction from 35 % to 21 % under the TCJA was phased in, resulting in a U.S. statutory federal rate of 29.2 % for 2018 and a statutory federal rate of 21 % for 2019 and subsequent years. As provided for in the TCJA, our historical earnings were subject to the one-time transition tax and can now be repatriated to the U.S. with a de minimis tax cost. We continue to assert that both our historical and current earnings in our foreign subsidiaries are permanently reinvested and therefore no deferred taxes or withholding taxes have been provided, including deferred taxes on any additional outside basis difference (e.g., stock basis differences attributable to acquisition or other permanent differences). The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions): 2021 2020 Deferred Tax Assets Deferred Tax Liabilities Deferred Tax Assets Deferred Tax Liabilities Property, equipment, leases and intangibles $ 4,248 $ 9,731 $ 3,819 $ 8,745 Employee benefits 1,178 — 1,448 — Self-insurance accruals 799 — 647 — Other 497 52 579 375 Net operating loss/credit carryforwards 934 — 1,262 — Valuation allowances ( 382 ) — ( 450 ) — $ 7,274 $ 9,783 $ 7,305 $ 9,120 The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions): 2021 2020 Noncurrent deferred tax assets (1) $ 1,418 $ 1,347 Noncurrent deferred tax liabilities ( 3,927 ) ( 3,162 ) $ ( 2,509 ) $ ( 1,815 ) (1) Noncurrent deferred tax assets are included in the line item “Other Assets” in our accompanying consolidated balance sheets. We have approximately $ 3.0 billion of net operating loss carryovers in various foreign jurisdictions, $ 1.2 billion of state operating loss carryovers and $ 100 million of U.S. federal operating loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss carryforwards, which expire over varying periods starting in 2022. Therefore, we establish valuation allowances if it is more likely than not that deferred income tax assets will not be realized. We believe that we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets. The reduction in the valuation allowance balance includes a decrease of $ 70 million from the integration of certain foreign FedEx Express and TNT Express legal entities which did not impact current year tax expense due to an offsetting decrease in related deferred tax assets. See Note 1 for more information on our policy for assessing the recoverability of deferred tax assets and valuation allowances. - 101 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS We are subject to taxation in the U.S. and various U.S. state, local and foreign jurisdictions. We are currently under examination by the IRS for the 2016 through 201 9 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 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 $ 233 million through 2019 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. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions): 2021 2020 2019 Balance at beginning of year $ 129 $ 164 $ 161 Increases for tax positions taken in the current year 3 3 — Increases for tax positions taken in prior years 69 4 31 Decreases for tax positions taken in prior years ( 6 ) ( 10 ) ( 4 ) Settlements ( 6 ) ( 31 ) ( 21 ) Changes due to currency translation 3 ( 1 ) ( 3 ) Balance at end of year $ 192 $ 129 $ 164 Our liabilities recorded for uncertain tax positions include $ 190 million at May 31, 2021 and $ 127 million at May 31, 2020 associated with positions that, if favorably resolved, would provide a benefit to our income tax expense. We classify interest related to income tax liabilities as interest expense and, if applicable, penalties are recognized as a component of income tax expense. The balance of accrued interest and penalties was $ 61 million on May 31, 2021 and $ 41 million on May 31, 2020. Our consolidated statements of income for 2021 include $ 20 million of interest expense associated with our uncertain tax positions. Interest for 2020 and 2019 as well as penalties included in our consolidated statements of income are immaterial. It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal and foreign tax jurisdictions, or from the resolution of various proceedings between U.S. and foreign tax authorities. It is reasonably possible that the amount of the benefit with respect to certain of our unrecognized tax positions will increase or decrease within the next 12 months. However, estimates of the amounts or ranges for individual matters where a material change is reasonably possible cannot be made. We believe we have recorded adequate amounts of tax reserves, including interest and penalties, for any adjustments that may occur. NOTE 14: 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. The accounting guidance related to postretirement benefits requires recognition in the balance sheet of the funded status of defined benefit pension and other postretirement benefit plans, and the recognition in either expense or AOCI of unrecognized gains or losses and prior service costs or credits. We use MTM accounting for the recognition of our actuarial gains and losses related to our defined benefit pension and postretirement healthcare plans as described in Note 1. The funded status is measured as the difference between the fair value of the plan’s assets and the PBO of the plan. A summary of our retirement plan costs over the past three years is as follows (in millions): 2021 2020 2019 Defined benefit pension plans $ 88 $ 148 $ 112 Defined contribution plans 685 574 561 Postretirement healthcare plans 83 86 75 Retirement plans MTM (gain) loss ( 1,176 ) 794 3,882 $ ( 320 ) $ 1,602 $ 4,630 - 102 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of the MTM adjustments are as follows (in millions): 2021 2020 2019 Actual versus expected return on assets $ ( 1,712 ) $ ( 2,024 ) $ 476 Discount rate change ( 397 ) 2,997 1,780 Demographic experience: Current year actuarial loss 302 50 739 Change in future assumptions 685 ( 229 ) 887 Curtailment gain on TNT Netherlands pension plan ( 54 ) — — Total MTM (gain) loss $ ( 1,176 ) $ 794 $ 3,882 2021 Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was 12.90 %, which was higher than our expected return of 6.75 %. Positive portfolio returns derived from our return-seeking assets were partially offset by losses from our fixed-income assets due to rising long-term interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 3.05 % at May 31, 2020 to 3.11 % at May 31, 2021. The demographic experience in 2021 reflects an update to our mortality and retirement rate assumptions and a current-year actuarial loss due to unfavorable experience compared to various demographic assumptions. 2020 The weighted-average discount rate for all our pension and postretirement healthcare plans decreased from 3.69 % at May 31, 2019 to 3.05 % at May 31, 2020. The demographic experience in 2020 reflects an update to our mortality assumption and a current-year actuarial loss due to unfavorable experience compared to various demographic assumptions. The actual rate of return, which is net of all fees and expenses, on our U.S. Pension Plan assets of 15.00 % was higher than our expected return of 6.75 %, as return-seeking assets, primarily equities, were positive despite equity market volatility. Additionally, fixed-income assets performed as expected as interest rates declined. 2019 The weighted-average discount rate for all our pension and postretirement healthcare plans decreased from 4.11 % at May 31, 2018 to 3.69 % at May 31, 2019. The demographic experience in 2019 reflects updates to several forward-looking assumptions, including retirement rates, disability incidence rates and salary increase assumptions, and a current-year actuarial loss due to unfavorable experience compared to various demographic assumptions. The actual rate of return, which is net of all fees and expenses, on our U.S. Pension Plan assets of 4.05 % was lower than our expected return of 6.75 %, as lower-than-expected equity returns negatively impacted return-seeking assets while fixed-income assets performed as expected due to declining interest rates. PENSION PLANS . Our largest pension plan covers certain U.S. employees age 21 and over, with at least one year of service. Pension benefits for most employees are accrued under a cash balance formula we call the Portable Pension Account (“PPA”). Under the PPA, the retirement benefit is expressed as a dollar amount in a notional account that grows with annual credits based on pay, age and years of credited service, and interest on the notional account balance. The PPA benefit is payable as a lump sum or an annuity at retirement at the election of the employee. The plan interest credit rate varies from year to year based on a U.S. Treasury index. Prior to 2009, certain employees earned benefits using a traditional pension formula (based on average earnings and years of service). Benefits under this formula were capped on May 31, 2008 for most employees. We also sponsor or participate in nonqualified benefit plans covering certain of our U.S. employee groups and other pension plans covering certain of our international employees. The international defined benefit pension plans provide benefits primarily based on earnings and years of service and are funded in compliance with local laws and practices. The majority of our international obligations are for defined benefit pension plans in the Netherlands and the United Kingdom. - 103 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In November 2019, 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 will introduce 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 PPA pension formula will be 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 company 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 match of up to 8%. Changes to the new 401(k) plan structure become effective beginning 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. POSTRETIREMENT HEALTHCARE PLANS . Certain of our subsidiaries offer medical, dental and vision coverage to eligible U.S. retirees and their eligible dependents and a small number of international employees. U.S. employees covered by the principal plan become eligible for these benefits at age 55 and older, if they have permanent, continuous service of at least 10 years after attainment of age 45 if hired prior to January 1, 1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988. Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer cost, which has been reached under most plans, so these benefits are not subject to future inflation. Effective January 1, 2018, certain of our U.S. postretirement healthcare benefits were converted to a lump-sum benefit in a notional retiree health reimbursement account (HRA) for eligible participants. The HRA is available to reimburse a participant for qualifying healthcare premium costs and limits the company liability to the HRA account balance. The amount of the credit is based on age at January 1, 2018 or upon age at retirement thereafter. In connection with this change, retiree health coverage was closed to most new employees hired on or after January 1, 2018. PENSION PLAN ASSUMPTIONS. The accounting for pension and postretirement healthcare plans includes numerous assumptions, such as: discount rates; expected long-term investment returns on plan assets; future salary increases; employee turnover; mortality; and retirement ages. Weighted-average actuarial assumptions used to determine the benefit obligations and net periodic benefit cost of our plans are as follows: U.S. Pension Plans International Pension Plans Postretirement Healthcare Plans 2021 2020 2019 2021 2020 2019 2021 2020 2019 Discount rate used to determine benefit obligation 3.23 % 3.14 % 3.85 % 1.83 % 1.79 % 1.92 % 2.81 % 2.95 % 3.70 % Discount rate used to determine net periodic benefit cost 3.14 3.85 4.27 1.79 1.92 2.34 2.95 3.70 4.33 Rate of increase in future compensation levels used to determine benefit obligation 5.06 5.17 5.10 2.83 2.19 2.27 — — — Rate of increase in future compensation levels used to determine net periodic benefit cost 5.17 5.10 4.43 2.19 2.43 2.22 — — — Expected long-term rate of return on assets 6.75 6.75 6.75 2.71 3.26 3.12 — — — Interest crediting rate used to determine net periodic benefit cost 4.00 4.00 4.00 2.00 2.20 2.20 — — — Interest crediting rate used to determine benefit obligation 4.00 4.00 4.00 2.50 2.00 2.20 — — — Our U.S. Pension Plan assets are invested primarily in publicly tradable securities, and our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of third-party pension fund investment managers. As part of our strategy to manage pension costs and funded status volatility, we follow a liability-driven investment strategy to better align plan assets with liabilities. - 104 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Establishing the expected future rate of investment return on our pension assets is a judgmental matter, which we review on an annual basis and revise as appropriate. Management considers the following factors in determining this assumption: • the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets; • the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can reasonably expect those investment classes to earn over time, net of all fees and expenses; and • the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could expect if investments were made strictly in indexed funds. For consolidated pension expense, we assumed a 6.75 % expected long-term rate of return on our U.S. Pension Plan assets in 2021, 2020 and 2019. For 2022, we have decreased our EROA assumption to 6.50 % due to the significant increase in 2021 administrative expenses payable from the pension trust due to higher Pension Benefit Guaranty Corporation (“PBGC”) variable-rate premiums (“VRP”) and based on our long-term outlook for the capital markets. The higher 2021 PBGC VRP resulted in a 25 -basis point lower rate of return compared to 2020. The historical annual return on our U.S. Pension Plan assets, calculated on a compound geometric basis, was 7.9 %, net of all fees and expenses, for the 15-year period ended May 31, 2021. The investment strategy for our U.S. Pension Plan assets is to utilize a diversified mix of public equities, fixed-income, and alternative investments to earn a long-term investment return that meets our pension plan obligations. Our largest asset classes are Corporate Fixed Income Securities and Government Fixed Income Securities (which are largely benchmarked against the Barclays Long Government, Barclays Long Corporate or the Citigroup 20+ STRIPS indices), and U.S. and non-U.S. Equities (which are mainly benchmarked to the S&P 500 Index and MSCI indices). Accordingly, we do not have any significant concentrations of risk. Active management strategies are utilized within the plan in an effort to realize investment returns in excess of market indices. Our investment strategy also includes the limited use of derivative financial instruments on a discretionary basis to improve investment returns and manage portfolio risk. The following is a description of the valuation methodologies used for investments measured at fair value: • Cash and cash equivalents . Level 1 investments include cash, cash equivalents and foreign currency valued using exchange rates. Level 2 investments include short-term investment funds which are collective funds priced at a constant value by the administrator of the funds. • Domestic, international and global equities . Level 1 investments are valued at the closing price or last trade reported on the major market on which the individual securities are traded. • Fixed income . We determine the fair value of Level 2 corporate bonds, U.S. and non-U.S. government securities and other fixed-income securities by using bid evaluation pricing models or quoted prices of securities with similar characteristics. • Alternative Investments . The valuation of Level 3 investments requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. Investments in private equity, debt, real estate, hedge funds and other private investments are valued at estimated fair value based on quarterly financial information received from the investment advisor and/or general partner. These estimates incorporate factors such as contributions and distributions, market transactions, market comparables and performance multiples. - 105 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The fair values of investments by level and asset category and the weighted-average asset allocations for our U.S. Pension Plans and our most significant international pension plans at the measurement date are presented in the following table (in millions): Plan Assets at Measurement Date 2021 Asset Class (U.S. Plans) Fair Value Actual % Target Range % (1) Quoted Prices in Active Markets Level 1 Other Observable Inputs Level 2 Unobservable Inputs Level 3 Cash and cash equivalents $ 614 2 % 0 - 5% $ 36 $ 578 Equities 30 - 50 U.S. large cap equity (2) 4,038 14 1,644 International equities (2) 4,664 16 3,792 2 Global equities (2) 1,668 6 U.S. SMID cap equity 967 3 884 5 Fixed-income securities 50 - 70 Corporate 8,714 29 8,714 Government (2) 5,190 17 3,296 Mortgage-backed and other (2) 1,065 3 226 Alternative investments (2) 2,855 10 0 - 15 $ 537 Other 10 — ( 14 ) ( 4 ) Total U.S. plan assets $ 29,785 100 % $ 6,342 $ 12,817 $ 537 Asset Class (International Plans) Cash and cash equivalents $ 10 1 % $ 10 Equities International equities (2) 123 7 Global equities (2) 335 18 Fixed-income securities Corporate (2) 434 23 Government (2) 574 30 350 Mortgage-backed and other (2) 217 12 Other (2) 189 9 19 $ 36 Total international plan assets $ 1,882 100 % $ 379 $ 36 (1) Target ranges have not been provided for international plan assets as they are managed at an individual country level. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total. - 106 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Plan Assets at Measurement Date 2020 Asset Class (U.S. Plans) Fair Value Actual % Target Range % (1) Quoted Prices in Active Markets Level 1 Other Observable Inputs Level 2 Unobservable Inputs Level 3 Cash and cash equivalents $ 709 3 % 0 - 5% $ 278 $ 431 Equities 30 - 50 U.S. large cap equity (2) 3,070 11 1,172 International equities (2) 3,314 12 2,738 Global equities (2) 1,350 5 U.S. SMID cap equity 673 3 673 Fixed-income securities 50 - 70 Corporate 7,983 30 7,983 Government (2) 6,928 26 4,652 Mortgage-backed and other (2) 634 2 170 Alternative investments (2) 2,264 8 0 - 15 $ 416 Other 53 — 57 ( 3 ) Total U.S. plan assets $ 26,978 100 % $ 4,918 $ 13,233 $ 416 Asset Class (International Plans) Cash and cash equivalents $ 9 1 % $ 9 Equities International equities (2) 72 5 Global equities (2) 218 15 Fixed-income securities Corporate (2) 342 23 Government (2) 510 34 Mortgage-backed and other (2) 188 12 318 Other (2) 158 10 13 $ 63 Total international plan assets $ 1,497 100 % $ 340 $ 63 (1) Target ranges have not been provided for international plan assets as they are managed at an individual country level. (2) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy but are included in the total. The change in fair value of Level 3 assets that use significant unobservable inputs is shown in the table below (in millions): U.S. Pension Plans 2021 2020 Balance at beginning of year $ 416 $ 302 Actual return on plan assets: Assets held during current year 41 19 Assets sold during the year 22 16 Purchases, sales and settlements 58 79 Balance at end of year $ 537 $ 416 - 107 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables provide a reconciliation of the changes in the pension and postretirement healthcare plans’ benefit obligations and fair value of assets over the two-year period ended May 31, 2021 and a statement of the funded status as of May 31, 2021 and 2020 (in millions): U.S. Pension Plans International Pension Plans Postretirement Healthcare Plans 2021 2020 2021 2020 2021 2020 Accumulated Benefit Obligation (“ABO”) $ 30,455 $ 29,272 $ 2,417 $ 2,012 Changes in PBO and Accumulated Postretirement Benefit Obligation (“APBO”) PBO/APBO at the beginning of year $ 30,199 $ 26,554 $ 2,242 $ 2,301 $ 1,314 $ 1,221 Service cost 851 768 83 96 44 42 Interest cost 959 1,000 43 43 39 44 Actuarial loss (gain) 362 2,817 105 ( 87 ) 125 85 Benefits paid ( 948 ) ( 940 ) ( 53 ) ( 41 ) ( 112 ) ( 127 ) Settlements — — ( 11 ) ( 6 ) — — Other — — 202 ( 64 ) 46 49 PBO/APBO at the end of year $ 31,423 $ 30,199 $ 2,611 $ 2,242 $ 1,456 $ 1,314 Change in Plan Assets Fair value of plan assets at the beginning of year $ 26,978 $ 23,320 $ 1,713 $ 1,578 $ — $ — Actual return on plan assets 3,436 3,530 114 146 — — Company contributions 319 1,068 142 86 64 77 Benefits paid ( 948 ) ( 940 ) ( 53 ) ( 41 ) ( 112 ) ( 127 ) Settlements — — ( 11 ) ( 6 ) — — Other — — 228 ( 50 ) 48 50 Fair value of plan assets at the end of year $ 29,785 $ 26,978 $ 2,133 $ 1,713 $ — $ — Funded Status of the Plans $ ( 1,638 ) $ ( 3,221 ) $ ( 478 ) $ ( 529 ) $ ( 1,456 ) $ ( 1,314 ) Amount Recognized in the Balance Sheet at May 31: Noncurrent asset $ — $ — $ 231 $ 142 $ — $ — Current pension, postretirement healthcare and other benefit obligations ( 41 ) ( 38 ) ( 18 ) ( 17 ) ( 110 ) ( 104 ) Noncurrent pension, postretirement healthcare and other benefit obligations ( 1,597 ) ( 3,183 ) ( 691 ) ( 654 ) ( 1,346 ) ( 1,210 ) Net amount recognized $ ( 1,638 ) $ ( 3,221 ) $ ( 478 ) $ ( 529 ) $ ( 1,456 ) $ ( 1,314 ) Amounts Recognized in AOCI and not yet reflected in Net Periodic Benefit Cost: Prior service (credit) cost and other $ ( 61 ) $ ( 68 ) $ ( 6 ) $ ( 7 ) $ — $ 1 Our pension plans included the following components at May 31 (in millions): PBO Fair Value of Plan Assets Funded Status 2021 Qualified $ 31,225 $ 29,785 $ ( 1,440 ) Nonqualified 198 — ( 198 ) International Plans 2,611 2,133 ( 478 ) Total $ 34,034 $ 31,918 $ ( 2,116 ) 2020 Qualified $ 30,004 $ 26,978 $ ( 3,026 ) Nonqualified 195 — ( 195 ) International Plans 2,242 1,713 ( 529 ) Total $ 32,441 $ 28,691 $ ( 3,750 ) - 108 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The table above provides the PBO, fair value of plan assets and funded status of our pension plans on an aggregated basis. The following tables present our plans on a disaggregated basis to show those plans (as a group) whose assets did not exceed their liabilities. The fair value of plan assets for pension plans with a PBO or ABO in excess of plan assets at May 31 were as follows (in millions): PBO Exceeds the Fair Value of Plan Assets 2021 2020 U.S. Pension Benefits Fair value of plan assets $ 29,785 $ 26,978 PBO ( 31,423 ) ( 30,199 ) Net funded status $ ( 1,638 ) $ ( 3,221 ) International Pension Benefits Fair value of plan assets $ 241 $ 205 PBO ( 950 ) ( 876 ) Net funded status $ ( 709 ) $ ( 671 ) ABO Exceeds the Fair Value of Plan Assets 2021 2020 U.S. Pension Benefits ABO (1) $ ( 29,083 ) $ ( 29,272 ) Fair value of plan assets 28,383 26,978 PBO ( 29,888 ) ( 30,199 ) Net funded status $ ( 1,505 ) $ ( 3,221 ) International Pension Benefits ABO (1) $ ( 722 ) $ ( 637 ) Fair value of plan assets 206 175 PBO ( 908 ) ( 840 ) Net funded status $ ( 702 ) $ ( 665 ) (1) ABO not used in determination of funded status. Contributions to our U.S. Pension Plans for the years ended May 31 were as follows (in millions): 2021 2020 Required $ — $ — Voluntary 300 1,000 $ 300 $ 1,000 For 2022, no pension contributions are required for our U.S. Pension Plans as they are fully funded under the Employee Retirement Income Security Act. However, we expect to make voluntary contributions of $ 500 million to these plans in 2022. Net periodic benefit cost for the three years ended May 31 were as follows (in millions): U.S. Pension Plans International Pension Plans Postretirement Healthcare Plans 2021 2020 2019 2021 2020 2019 2021 2020 2019 Service cost $ 851 $ 768 $ 689 $ 83 $ 96 $ 94 $ 44 $ 42 $ 35 Interest cost 959 1,000 951 43 43 49 39 44 40 Expected return on plan assets ( 1,786 ) ( 1,601 ) ( 1,505 ) ( 52 ) ( 51 ) ( 46 ) — — — Amortization of prior service credit ( 8 ) ( 105 ) ( 118 ) ( 2 ) ( 2 ) ( 2 ) — — — Actuarial (gains) losses and other ( 1,288 ) 888 3,537 ( 13 ) ( 179 ) 80 125 85 265 Net periodic benefit cost $ ( 1,272 ) $ 950 $ 3,554 $ 59 $ ( 93 ) $ 175 $ 208 $ 171 $ 340 Amounts recognized in other comprehensive income were primarily related to amortization of prior service cost in our U.S. Pension Plans of $ 8 million in 2021 and $ 105 million in 2020 ($ 6 million, net of tax, in 2021 and $ 80 million, net of tax, in 2020). - 109 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Benefit payments, which reflect expected future service, are expected to be paid as follows for the years ending May 31 (in millions): U.S. Pension Plans International Pension Plans Postretirement Healthcare Plans 2022 $ 1,178 $ 55 $ 110 2023 1,246 57 120 2024 1,333 60 129 2025 1,417 65 137 2026 1,505 73 139 2027-2031 8,661 487 541 These estimates are based on assumptions about future events. Actual benefit payments may vary significantly from these estimates. Future medical benefit claims costs are estimated to increase at an annual rate of 5.6 % during 2022, decreasing to an annual growth rate of 4.0 % in 2045 and thereafter. NOTE 15: BUSINESS SEGMENTS AND DISAGGREGATED REVENUE 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. (“FedEx Custom Critical”) (time-critical transportation) FedEx Cross Border Holdings, Inc. (“FedEx Cross Border”) (cross-border e-commerce technology and e-commerce transportation solutions) 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) Effective March 1, 2020, the results of FedEx Custom Critical are included in the FedEx Express segment prospectively as the impact to prior periods was not material. This change was made to reflect our internal management reporting structure. Effective June 1, 2020, the results of FedEx Cross Border are included in the FedEx Express segment prospectively as the impact to prior periods was not material. This change was made to reflect our internal management reporting structure. 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 impact 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. - 110 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Intersegment Transactions Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, as well as certain other costs and credits not attributed to our core business, including certain costs associated with developing our innovate digitally strategic pillar. These costs are not allocated to the other business segments. 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. Additionally, Corporate and other includes the financial results of ShopRunner beginning December 23, 2020. 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. - 111 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table provides a reconciliation of reportable segment revenue, depreciation and amortization, operating income (loss) and segment assets to consolidated financial statement totals (in millions) for the years ended or as of May 31: FedEx Express Segment FedEx Ground Segment FedEx Freight Segment FedEx Services Segment Corporate, other and eliminations Consolidated Total Revenue 2021 $ 42,078 $ 30,496 $ 7,833 $ 32 $ 3,520 $ 83,959 2020 35,513 22,733 7,102 22 3,847 69,217 2019 37,331 20,522 7,582 22 4,236 69,693 Depreciation and amortization 2021 $ 1,946 $ 843 $ 417 $ 462 $ 125 $ 3,793 2020 1,894 789 381 413 138 3,615 2019 1,801 728 332 355 137 3,353 Operating income (loss) 2021 (1) $ 2,810 $ 3,193 $ 1,005 $ — $ ( 1,151 ) $ 5,857 2020 (2) 996 2,014 580 — ( 1,173 ) 2,417 2019 (3) 2,176 2,663 615 — ( 988 ) 4,466 Segment assets (4) 2021 $ 46,356 $ 29,134 $ 7,371 $ 8,639 $ ( 8,723 ) $ 82,777 2020 41,252 24,700 6,434 7,285 ( 6,134 ) 73,537 2019 33,247 17,561 4,736 6,061 ( 7,202 ) 54,403 (1) Includes TNT Express integration expenses of $ 210 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes business realignment costs of $ 116 million included in the FedEx Express segment. (2) Includes TNT Express integration expenses of $ 270 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes noncash goodwill and other asset impairment charges of $ 435 million primarily related to goodwill impairment at FedEx Office and from the decision to permanently retire certain aircraft and related engines at FedEx Express. (3) Includes TNT Express integration expenses (including restructuring charges) of $ 388 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes business realignment costs of $ 320 million included in “Corporate, other and eliminations” and costs incurred in connection with the settlement of a legal matter involving FedEx Ground of $ 46 million. (4) Segment assets include intercompany receivables. The following table provides a reconciliation of reportable segment capital expenditures to consolidated totals for the years ended May 31 (in millions): FedEx Express Segment FedEx Ground Segment FedEx Freight Segment FedEx Services Segment Other Consolidated Total 2021 $ 3,503 $ 1,446 $ 320 $ 512 $ 103 $ 5,884 2020 3,560 1,083 539 527 159 5,868 2019 3,550 808 544 440 148 5,490 - 112 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents revenue by service type and geographic information for the years ended or as of May 31 (in millions): 2021 2020 2019 (1) REVENUE BY SERVICE TYPE FedEx Express segment: Package: U.S. overnight box $ 8,116 $ 7,234 $ 7,663 U.S. overnight envelope 1,791 1,776 1,829 U.S. deferred 4,984 4,038 4,225 Total U.S. domestic package revenue 14,891 13,048 13,717 International priority 10,317 7,354 7,405 International economy 2,632 3,082 3,446 Total international export package revenue 12,949 10,436 10,851 International domestic (2) 4,640 4,179 4,540 Total package revenue 32,480 27,663 29,108 Freight: U.S. 3,325 2,998 3,025 International priority 3,030 1,915 2,070 International economy 1,582 1,930 2,123 International airfreight 245 270 314 Total freight revenue 8,182 7,113 7,532 Other (3) 1,416 737 691 Total FedEx Express segment 42,078 35,513 37,331 FedEx Ground segment 30,496 22,733 20,522 FedEx Freight segment 7,833 7,102 7,582 FedEx Services segment 32 22 22 Other and eliminations (4) 3,520 3,847 4,236 $ 83,959 $ 69,217 $ 69,693 GEOGRAPHICAL INFORMATION (5) Revenue: U.S. $ 58,792 $ 48,404 $ 47,584 International: FedEx Express segment 23,085 19,177 20,424 FedEx Ground segment 735 479 467 FedEx Freight segment 190 192 207 FedEx Services segment 1 1 1 Other 1,156 964 1,010 Total international revenue 25,167 20,813 22,109 $ 83,959 $ 69,217 $ 69,693 Noncurrent assets: U.S. $ 49,407 $ 45,691 $ 33,189 International 12,790 11,463 8,128 $ 62,197 $ 57,154 $ 41,317 (1) Prior year amounts have been revised to conform to the current year presentation . (2) International domestic revenue relates to our intra-country operations. (3) Includes the operations of FedEx Custom Critical beginning March 1, 2020 and FedEx Cross Border beginning June 1, 2020. ( 4 ) Includes the FedEx Office and FedEx Logistics operating segments, as well as the financial results of ShopRunner beginning December 23, 2020. ( 5 ) International revenue includes shipments that either originate in or are destined to locations outside the United States, which could include U.S. payors. Noncurrent assets include property and equipment, goodwill and other long-term assets. Our flight equipment is registered in the U.S. and is included as U.S. assets; however, many of our aircraft operate internationally. - 113 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16: SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in millions): 2021 2020 2019 Cash payments for: Interest (net of capitalized interest) $ 819 $ 639 $ 617 Income taxes $ 1,374 $ 389 $ 407 Income tax refunds received ( 55 ) ( 353 ) ( 36 ) Cash tax payments, net $ 1,319 $ 36 $ 371 NOTE 17: GUARANTEES AND INDEMNIFICATIONS In conjunction with certain transactions, primarily the lease, sale or purchase of real estate, operating assets or services in the ordinary course of business and in connection with business sales and acquisitions, we may provide routine guarantees or indemnifications (e.g., environmental, fuel, tax and intellectual property infringement), the terms of which range in duration, and often they are not limited and have no specified maximum obligation. As a result of the TNT Express acquisition, we have assumed a guarantee related to the demerger of TNT Express and PostNL Holding B.V., which occurred in 2011, for pension benefits earned prior to the date of the demerger. The risk of making payments associated with this guarantee is remote. The overall maximum potential amount of the obligation under such guarantees and indemnifications cannot be reasonably estimated. Historically, we have not been required to make significant payments under our guarantee or indemnification obligations and no material amounts have been recognized in our financial statements for the underlying fair value of these obligations. NOTE 18: COMMITMENTS Annual purchase commitments under various contracts as of May 31, 2021 were as follows (in millions): Aircraft and Aircraft Related Other (1) Total 2022 $ 1,898 $ 1,025 $ 2,923 2023 2,567 711 3,278 2024 1,017 512 1,529 2025 479 404 883 2026 432 347 779 Thereafter 2,325 252 2,577 Total $ 8,718 $ 3,251 $ 11,969 (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 May 31, 2021, our obligation to purchase six Boeing 777 Freighter (“B777F”) 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. We have several aircraft modernization programs underway that are supported by the purchase of B777F 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. - 114 - FEDEX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of May 31, 2021, we had $ 948 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 consolidated balance sheets. Aircraft and aircraft-related contracts are subject to price escalations. The following table is a summary of the key aircraft we are committed to purchase as of May 31, 2021, with the year of expected delivery: Cessna SkyCourier 408 ATR 72-600F B767F B777F Total 2022 9 9 13 4 35 2023 12 6 13 2 33 2024 12 6 4 4 26 2025 12 6 — 2 20 2026 5 1 — — 6 Thereafter — — — — — Total 50 28 30 12 120 On June 22, 2021, 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 . NOTE 19: 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 alleges 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. Any appeal of the dismissal must be made by July 28, 2021. 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. NOTE 20: RELATED PARTY TRANSACTIONS During 2021, our Chairman of the Board and Chief Executive Officer, Frederick W. Smith, sold his approximate 10 % ownership interest in the Washington, D.C. National Football League professional football team, and Mr. Smith is no longer a member of its board of directors. FedEx has a multi-year naming rights agreement with Washington Football, Inc. granting us certain marketing rights, including the right to name the stadium where the team plays and other events are held “FedExField.” - 115 - ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.