filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REP****ORT 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 and Finance 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, 2024, 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, 2024.
The effectiveness of our internal control over financial reporting as of May 31, 2024, has been audited by Ernst & Young LLP (PCAOB ID: 42), 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.
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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, 2024, 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, 2024, 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, 2024 and 2023, 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, 2024, and the related notes and our report dated July 15, 2024 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 15, 2024
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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, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2024, 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, 2024, 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 15, 2024 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 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 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.
| U.S. Pension Projected Benefit Obligation | ||
| Description of the Matter | The Company sponsors defined benefit pension plans that provide retirement benefits to certain U.S. employees. At May 31, 2024, the Company’s aggregated projected benefit obligation for U.S. pension plans was $26.3 billion and exceeded the $25.8 billion fair value of U.S. pension plan assets, resulting in an unfunded U.S. pension obligation of $0.5 billion. As explained in Note 1 and Note 13 to the consolidated financial statements, the Company’s projected benefit obligation for the U.S. pension plans is measured using actuarial techniques that reflect management’s assumptions for discount rate and demographic experience, such as mortality and retirement ages. Auditing the projected benefit obligation of 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 has a significant effect on the projected benefit obligation and is developed by utilizing the yield on a theoretical portfolio of high-grade corporate bonds with cash flows that are designed to match expected benefit payments in future years. |
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| 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 of 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 benefit payments. 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, 2024, the Company’s self-insurance accruals reflected in the balance sheet were $5.6 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 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 significant 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 15, 2024
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FEDEX CORPORATION
CONSOLIDATED BA****LANCE SHEETS
(IN MILLIONS)
| May 31, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 6,501 | $ | 6,856 | ||||
| Receivables, less allowances of $775 and $800 | 10,087 | 10,188 | ||||||
| Spare parts, supplies, and fuel, less allowances of $288 and $276 | 614 | 604 | ||||||
| Prepaid expenses and other | 1,005 | 962 | ||||||
| Total current assets | 18,207 | 18,610 | ||||||
| PROPERTY AND EQUIPMENT, AT COST | ||||||||
| Aircraft and related equipment | 30,525 | 29,108 | ||||||
| Package handling and ground support equipment | 17,880 | 16,839 | ||||||
| Information technology | 9,203 | 8,792 | ||||||
| Vehicles and trailers | 10,568 | 10,191 | ||||||
| Facilities and other | 16,215 | 15,694 | ||||||
| Total property and equipment, at cost | 84,391 | 80,624 | ||||||
| Less accumulated depreciation and amortization | 42,900 | 39,926 | ||||||
| Net property and equipment | 41,491 | 40,698 | ||||||
| OTHER LONG-TERM ASSETS | ||||||||
| Operating lease right-of-use assets, net | 17,115 | 17,347 | ||||||
| Goodwill | 6,423 | 6,435 | ||||||
| Other assets | 3,771 | 4,053 | ||||||
| Total other long-term assets | 27,309 | 27,835 | ||||||
| TOTAL ASSETS | $ | 87,007 | $ | 87,143 |
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
| May 31, | ||||||||
| 2024 | 2023 | |||||||
| LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Current portion of long-term debt | $ | 68 | $ | 126 | ||||
| Accrued salaries and employee benefits | 2,673 | 2,475 | ||||||
| Accounts payable | 3,189 | 3,848 | ||||||
| Operating lease liabilities | 2,463 | 2,390 | ||||||
| Accrued expenses | 4,962 | 4,747 | ||||||
| Total current liabilities | 13,355 | 13,586 | ||||||
| LONG-TERM DEBT, LESS CURRENT PORTION | 20,135 | 20,453 | ||||||
| OTHER LONG-TERM LIABILITIES | ||||||||
| Deferred income taxes | 4,482 | 4,489 | ||||||
| Pension, postretirement healthcare, and other benefit obligations | 2,010 | 3,130 | ||||||
| Self-insurance accruals | 3,701 | 3,339 | ||||||
| Operating lease liabilities | 15,053 | 15,363 | ||||||
| Other liabilities | 689 | 695 | ||||||
| Total other long-term liabilities | 25,935 | 27,016 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| COMMON STOCKHOLDERS’ INVESTMENT | ||||||||
| Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of May 31, 2024 and 2023 | 32 | 32 | ||||||
| Additional paid-in capital | 3,988 | 3,769 | ||||||
| Retained earnings | 38,649 | 35,259 | ||||||
| Accumulated other comprehensive loss | (1,359 | ) | (1,327 | ) | ||||
| Treasury stock, at cost | (13,728 | ) | (11,645 | ) | ||||
| Total common stockholders’ investment | 27,582 | 26,088 | ||||||
| TOTAL LIABILITIES AND COMMON STOCKHOLDERS’ INVESTMENT | $ | 87,007 | $ | 87,143 |
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED STATE****MENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| Years ended May 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| REVENUE | $ | 87,693 | $ | 90,155 | $ | 93,512 | ||||||
| OPERATING EXPENSES: | ||||||||||||
| Salaries and employee benefits | 30,961 | 31,019 | 32,058 | |||||||||
| Purchased transportation | 20,921 | 21,790 | 24,118 | |||||||||
| Rentals and landing fees | 4,571 | 4,738 | 4,712 | |||||||||
| Depreciation and amortization | 4,287 | 4,176 | 3,970 | |||||||||
| Fuel | 4,710 | 5,909 | 5,115 | |||||||||
| Maintenance and repairs | 3,291 | 3,357 | 3,372 | |||||||||
| Goodwill and other asset impairment charges | 157 | 117 | — | |||||||||
| Business optimization and realignment costs | 582 | 309 | 278 | |||||||||
| Other | 12,654 | 13,828 | 13,644 | |||||||||
| TOTAL OPERATING EXPENSES | 82,134 | 85,243 | 87,267 | |||||||||
| OPERATING INCOME | 5,559 | 4,912 | 6,245 | |||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||
| Interest expense | (745 | ) | (694 | ) | (689 | ) | ||||||
| Interest income | 370 | 198 | 53 | |||||||||
| Other retirement plans income (expense) | 722 | 1,054 | (726 | ) | ||||||||
| Other, net | (70 | ) | (107 | ) | 13 | |||||||
| TOTAL OTHER INCOME (EXPENSE) | 277 | 451 | (1,349 | ) | ||||||||
| INCOME BEFORE INCOME TAXES | 5,836 | 5,363 | 4,896 | |||||||||
| PROVISION FOR INCOME TAXES | 1,505 | 1,391 | 1,070 | |||||||||
| NET INCOME | $ | 4,331 | $ | 3,972 | $ | 3,826 | ||||||
| BASIC EARNINGS PER COMMON SHARE | $ | 17.41 | $ | 15.60 | $ | 14.54 | ||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | 17.21 | $ | 15.48 | $ | 14.33 |
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED STATEMENTS O****F COMPREHENSIVE INCOME
(IN MILLIONS)
| Years Ended May 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| NET INCOME | $ | 4,331 | $ | 3,972 | $ | 3,826 | ||||||
| OTHER COMPREHENSIVE LOSS: | ||||||||||||
| Foreign currency translation adjustments, net of tax benefits of $5 in 2024, $25 in 2023, and $17 in 2022 | (60 | ) | (214 | ) | (363 | ) | ||||||
| Prior service credit arising during period, net of tax (expense) of ($11) in 2024, $0 in 2023, and $0 in 2022 | 36 | — | — | |||||||||
| Amortization of prior service credits and other, net of tax expense of $2 in 2024, $2 in 2023, and $2 in 2022 | (8 | ) | (10 | ) | (8 | ) | ||||||
| TOTAL OTHER COMPREHENSIVE LOSS | (32 | ) | (224 | ) | (371 | ) | ||||||
| COMPREHENSIVE INCOME | $ | 4,299 | $ | 3,748 | $ | 3,455 |
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED STATEME****NTS OF CASH FLOWS
(IN MILLIONS)
| Years ended May 31, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 4,331 | $ | 3,972 | $ | 3,826 | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 4,287 | 4,176 | 3,970 | |||||||||
| Provision for uncollectible accounts | 421 | 696 | 403 | |||||||||
| Other noncash items including leases and deferred income taxes | 2,919 | 3,472 | 2,931 | |||||||||
| Stock-based compensation | 163 | 182 | 190 | |||||||||
| Retirement plans mark-to-market adjustments | (561 | ) | (650 | ) | 1,578 | |||||||
| Goodwill and other asset impairment charges | 157 | 117 | — | |||||||||
| Business optimization and realignment costs, net of payments | 26 | 23 | 53 | |||||||||
| Changes in assets and liabilities: | ||||||||||||
| Receivables | (270 | ) | 782 | (310 | ) | |||||||
| Other current assets | (43 | ) | 48 | (158 | ) | |||||||
| Pension and postretirement healthcare assets and liabilities, net | (522 | ) | (623 | ) | (697 | ) | ||||||
| Accounts payable and other liabilities | (2,553 | ) | (3,331 | ) | (1,861 | ) | ||||||
| Other, net | (43 | ) | (16 | ) | (93 | ) | ||||||
| Cash provided by operating activities | 8,312 | 8,848 | 9,832 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Capital expenditures | (5,176 | ) | (6,174 | ) | (6,763 | ) | ||||||
| Purchase of investments | (176 | ) | (84 | ) | (147 | ) | ||||||
| Proceeds from sale of investments | 38 | — | — | |||||||||
| Proceeds from asset dispositions and other | 114 | 84 | 94 | |||||||||
| Cash used in investing activities | (5,200 | ) | (6,174 | ) | (6,816 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
| Principal payments on debt | (147 | ) | (152 | ) | (161 | ) | ||||||
| Proceeds from stock issuances | 491 | 231 | 184 | |||||||||
| Dividends paid | (1,259 | ) | (1,177 | ) | (793 | ) | ||||||
| Purchase of treasury stock | (2,500 | ) | (1,500 | ) | (2,248 | ) | ||||||
| Other, net | (11 | ) | 1 | (1 | ) | |||||||
| Cash used in financing activities | (3,426 | ) | (2,597 | ) | (3,019 | ) | ||||||
| Effect of exchange rate changes on cash | (41 | ) | (118 | ) | (187 | ) | ||||||
| Net decrease in cash and cash equivalents | (355 | ) | (41 | ) | (190 | ) | ||||||
| Cash and cash equivalents at beginning of period | 6,856 | 6,897 | 7,087 | |||||||||
| Cash and cash equivalents at end of period | $ | 6,501 | $ | 6,856 | $ | 6,897 |
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANG****ES 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, 2021 | $ | 32 | $ | 3,481 | $ | 29,817 | $ | **(**732 | ) | $ | **(**8,430 | ) | $ | 24,168 | |||||||||
| Net income | — | — | 3,826 | — | — | 3,826 | |||||||||||||||||
| Other comprehensive loss, net of tax of $19 | — | — | — | (371 | ) | — | (371 | ) | |||||||||||||||
| Purchase of treasury stock (8.9 million shares) | — | (9 | ) | — | — | (2,239 | ) | (2,248 | ) | ||||||||||||||
| Cash dividends declared ($3.00 per share) | — | — | (793 | ) | — | — | (793 | ) | |||||||||||||||
| Employee incentive plans and other (1.4 million shares issued) | — | 240 | (68 | ) | — | 185 | 357 | ||||||||||||||||
| Balance at May 31, 2022 | 32 | 3,712 | 32,782 | **(**1,103 | ) | **(**10,484 | ) | 24,939 | |||||||||||||||
| Net income | — | — | 3,972 | — | — | 3,972 | |||||||||||||||||
| Other comprehensive loss, net of tax of $27 | — | — | — | (224 | ) | — | (224 | ) | |||||||||||||||
| Purchase of treasury stock (9.2 million shares) | — | (82 | ) | — | — | (1,418 | ) | (1,500 | ) | ||||||||||||||
| Cash dividends declared ($5.86 per share) | — | — | (1,495 | ) | — | — | (1,495 | ) | |||||||||||||||
| Employee incentive plans and other (1.9 million shares issued) | — | 139 | — | — | 257 | 396 | |||||||||||||||||
| Balance at May 31, 2023 | 32 | 3,769 | 35,259 | **(**1,327 | ) | **(**11,645 | ) | 26,088 | |||||||||||||||
| Net income | — | — | 4,331 | — | — | 4,331 | |||||||||||||||||
| Other comprehensive loss, net of tax of $4 | — | — | — | (32 | ) | — | (32 | ) | |||||||||||||||
| Purchase of treasury stock (9.8 million shares) | — | (22 | ) | — | — | (2,495 | ) | (2,517 | ) | ||||||||||||||
| Cash dividends declared ($3.78 per share) | — | — | (941 | ) | — | — | (941 | ) | |||||||||||||||
| Employee incentive plans and other (3.1 million shares issued) | — | 241 | — | — | 412 | 653 | |||||||||||||||||
| Balance at May 31, 2024 | $ | 32 | $ | 3,988 | $ | 38,649 | $ | **(**1,359 | ) | $ | **(**13,728 | ) | $ | 27,582 |
The accompanying notes are an integral part of these consolidated financial statements.
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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, offering integrated business solutions utilizing our flexible, efficient, and intelligent network. During the fiscal years ended May 31, 2024 and 2023, our primary operating companies were 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 and its less-than-truckload (“LTL”) operating subsidiary FedEx Freight, Inc. (“FedEx Freight”), a leading North American provider of LTL freight transportation services. For these periods, these companies represented our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constituted our reportable segments. Our FedEx Services segment provided sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that supported our operating segments during these periods.
FISCAL YEARS. Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2024 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.
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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 $672 million and $686 million at May 31, 2024 and May 31, 2023, respectively. Contract assets net of deferred unearned revenue were $463 million and $484 million at May 31, 2024 and May 31, 2023, respectively. Contract assets are included within current assets in the accompanying consolidated balance sheets. Contract liabilities related to advance payments from customers were $23 million and $19 million at May 31, 2024 and May 31, 2023, 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 14 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.
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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 $421 million in 2024, $435 million in 2023, and $470 million in 2022.
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 | 2024 | 2023 | ||||||||
| Wide-body aircraft and related equipment | 18 to 30 years | $ | 17,936 | $ | 16,973 | |||||
| Narrow-body and feeder aircraft and related equipment | 5 to 30 years | 1,849 | 2,038 | |||||||
| Package handling and ground support equipment | 3 to 15 years | 7,607 | 7,562 | |||||||
| Information technology | 3 to 7 years | 1,722 | 1,859 | |||||||
| Vehicles and trailers | 3 to 15 years | 4,053 | 3,996 | |||||||
| Facilities and other | 1 to 33 years | 8,324 | 8,270 |
Substantially all property and equipment have no material residual values. The majority of aircraft costs are depreciated on a straight-line basis over 18 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 operations, was $4.3 billion in 2024, $4.2 billion in 2023, and $4.0 billion in 2022. 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 $81 million in 2024, $77 million in 2023, and $62 million in 2022.
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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.
In 2024, we made the decision to permanently retire from service 22 Boeing 757-200 aircraft and seven related engines to align with the plans of FedEx Express to modernize its aircraft fleet, improve its global network, and better align air network capacity to match current and anticipated shipment volumes. As a consequence of this decision, a noncash impairment charge of $157 million ($120 million, net of tax, or $0.48 per diluted share) was recorded in 2024.
In 2023, we made the decision to permanently retire from service 12 Boeing MD-11F aircraft and 25 related engines, four Boeing 757-200 aircraft and one related engine, and two Airbus A300-600 aircraft and eight related engines for the same reasons stated above. As a consequence of this decision, a noncash impairment charge of $70 million ($54 million, net of tax, or $0.21 per diluted share) was recorded in 2023.
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, 2024, we had 19 aircraft temporarily idled. These aircraft have been idled for an average of eight 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 4 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 4 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, and employee turnover. 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
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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.
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, capital 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, as a result, 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 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, 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.
We are also self-insured for certain short-term employee healthcare claims, which are included within other accrued expenses.
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.
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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 asset and lease liability. See Note 7 for additional information.
DERIVATIVE FINANCIAL INSTRUMENTS. We record all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. We are not subject to any master netting agreements.
SUPPLIER FINANCE PROGRAM. We offer voluntary Supply Chain Finance (“SCF”) programs through financial institutions to certain of our suppliers. We agree to commercial terms with our suppliers, including prices, quantities, and payment terms, and they issue invoices to us based on the agreed-upon contractual terms. If our suppliers choose to participate in the SCF programs, they determine which invoices, if any, to sell to the financial institutions to receive an early discounted payment, while we settle the invoice amount with the financial institutions on the payment due dates. We guarantee these payments with the financial institutions.
Amounts due to our suppliers that participate in the SCF programs are included in accounts payable in our consolidated balance sheets. We have been informed by the participating financial institutions that as of May 31, 2024 and May 31, 2023, suppliers have been approved to sell to them $94 million and $83 million, respectively, of our outstanding payment obligations. A rollforward of obligations confirmed and paid during the year is presented below (in millions):
| 2024 | ||||
| Confirmed obligations outstanding at the beginning of the year | $ | 83 | ||
| Invoices confirmed during the year | 686 | |||
| Confirmed invoices paid during the year | (678 | ) | ||
| Currency translation adjustments | 3 | |||
| Confirmed obligations outstanding at the end of the year | $ | 94 |
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 loss (“AOCL”) 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. Our pilots, who are a small number of our total employees, are represented by the Air Line Pilots Association, International (“ALPA”) and are employed under a collective bargaining agreement that took effect on November 2, 2015. The agreement became amendable in November 2021. Bargaining for a successor agreement began in May 2021, and in November 2022 the National Mediation Board (“NMB”) began actively mediating the negotiations. In July 2023, the pilots failed to ratify the tentative successor agreement that was approved by ALPA’s FedEx Master Executive Council the prior month. Bargaining for a successor agreement continues. In April 2024, the NMB rejected ALPA’s request for a proffer of arbitration. The conduct of mediated negotiations has no effect on our operations. Once a new agreement is ratified, we expect to amend our pension plan offered to the pilots, which will result in a remeasurement of our pension benefit obligation.
INVESTMENTS IN EQUITY AND DEBT SECURITIES. Investments in equity securities with a readily determinable fair value are carried at fair value. For equity securities without readily determinable fair values that qualify for the net asset value (“NAV”) practical expedient, we have elected to apply the NAV practical expedient to estimate fair value. Changes in fair value are recognized in “Other income (expense)” on our consolidated statements of income.
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We apply the measurement alternative to all other investments in equity securities without a readily determinable fair value. Under the measurement alternative these equity securities are accounted for at cost, with adjustments for observable changes in prices and impairments recognized in “Other income (expense)” on our consolidated statements of income. We perform a qualitative assessment each reporting period to evaluate whether these equity securities are impaired. Our assessment includes a review of recent operating results and trends and other publicly available data. If an investment is impaired, we write it down to its estimated fair value.
Investments in debt securities, which are considered short-term investments, are classified as “available-for-sale” and are carried at fair value. Realized gains and losses on available-for-sale debt securities are included in net income, while unrealized gains and losses, net of tax, are included in our consolidated balance sheet as a component of AOCL.
Investments in equity securities and debt securities are recorded within “Other assets” and “Prepaid expenses and other,” respectively, on our consolidated balance sheets.
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 and restricted stock units (“RSUs”) are 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. Shares not issued for restricted stock grants are available to be issued for stock option grants.
TREASURY SHARES. In December 2021, our Board of Directors authorized a stock repurchase program of up to $5 billion of FedEx common stock. As of February 29, 2024, $564 million remained available to be used for repurchases under the 2021 program. In March 2024, our Board of Directors authorized a new stock repurchase program for additional repurchases of up to $5 billion of FedEx common stock.
During 2024, we completed four accelerated share repurchase (“ASR”) transactions with banks to repurchase 9.8 million shares of FedEx common stock at an average price of $255.34 per share for a total of $2.5 billion. During 2023, we repurchased 9.2 million shares of FedEx common stock at an average price of $163.39 per share for a total of $1.5 billion.
The final number of shares delivered upon settlement of the ASR agreements was determined based on a discount to the volume-weighted average price of our stock during the term of the transaction. The repurchased shares were accounted for as a reduction to common stockholders’ investment in the accompanying consolidated balance sheets and resulted in a reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for basic and diluted earnings per share.
In June 2024, we executed an ASR agreement with two banks as part of the 2021 and 2024 repurchase programs to repurchase $1 billion of our common stock with a completion date of no later than the end of the first quarter of 2025. As of July 15, 2024, approximately $4.1 billion remained available for repurchases under the 2024 repurchase program.
Shares under the 2024 repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock, and general market conditions. No time limits were set for the completion of the programs, however the programs may be suspended or discontinued at any time.
DIVIDENDS DECLARED PER COMMON SHARE. On June 10, 2024, our Board of Directors declared a quarterly cash dividend of $1.38 per share of common stock. The dividend was paid on July 9, 2024 to stockholders of record as of the close of business on June 24, 2024. Each quarterly dividend payment is subject to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an annual basis. There are no material restrictions on our ability to declare dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer funds to us in the form of cash dividends, loans, or advances.
B**USINESS OPTIMIZATION AND REALIGNMENT COSTS. In the second quarter of 2023, FedEx announced DRIVE, a comprehensive program to improve the company’s long-term profitability. This program includes a business optimization plan to drive efficiency among our transportation segments, lower our overhead and support costs, and transform our digital capabilities. We have commenced our plan to consolidate our sortation facilities and equipment, reduce pickup-and-delivery routes, and optimize our enterprise linehaul network by moving beyond discrete collaboration to an end-to-end optimized network through Network 2.0, the multi-year effort to improve the efficiency with which FedEx picks up, transports, and delivers packages in the U.S. and Canada.
In the fourth quarter of 2023, we announced one FedEx, a consolidation plan to ultimately bring FedEx Ground and FedEx Services into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground express network under the respected FedEx brand. FedEx Freight continues to provide LTL freight transportation services as a separate subsidiary. The
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organizational redesign was implemented in phases with full legal implementation effective June 1, 2024. One FedEx will help facilitate our DRIVE transformation program to improve long-term profitability.
FedEx is making progress with Network 2.0, as the company has implemented Network 2.0 optimization in more than 50 locations in the U.S. Contracted service providers will handle the pickup and delivery of packages in some locations while employee couriers will handle others.
We incurred costs associated with our business optimization activities of $582 million ($444 million, net of tax, or $1.77 per diluted share) in 2024 and $273 million ($209 million, net of tax, or $0.81 per diluted share) in 2023. The costs incurred in 2024 were primarily related to professional fees and severance, and are included in Corporate, other, and eliminations, FedEx Express, and FedEx Ground. The costs incurred in 2023 were primarily related to consulting services, severance, professional fees, and idling our operations in Russia, and are included in Corporate, other, and eliminations and FedEx Express. We did not incur costs associated with our business optimization activities in 2022.
In 2021, FedEx Express announced a workforce reduction plan in Europe related to the network integration of TNT Express. The plan affected approximately 5,000 employees in Europe across operational teams and back-office functions and was completed during 2023. We incurred costs of $36 million ($27 million, net of tax, or $0.11 per diluted share) in 2023 and $278 million ($214 million, net of tax, or $0.80 per diluted share) in 2022 associated with our business realignment activities. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $118 million in 2023 and approximately $225 million in 2022. The cumulative pre-tax cost of our business realignment activities was approximately $430 million. We did not incur any costs related to business realignment activities in 2024.
In June 2024, FedEx Express announced a workforce reduction plan in Europe as part of its ongoing measures to reduce structural costs. The plan will impact between 1,700 and 2,000 employees in Europe across back-office and commercial functions. The execution of the plan is subject to a consultation process that is expected to occur over an 18-month period in accordance with local country processes and regulations. We expect the pre-tax cost of the severance benefits and legal and professional fees to be provided under and related to the plan to range from $250 million to $375 million in cash expenditures. These charges are expected to be incurred through fiscal 2026 and will be classified as business optimization expenses.
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 affect our reported results and the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.
Recently Adopted Accounting Standards
In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50): Disclosure of Supplier Finance Program Obligations, which requires a buyer in a supplier finance program (e.g., reverse factoring) to disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude. The amendments do not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. We adopted this standard effective June 1, 2023 (fiscal 2024). The adoption of this standard did not have a material effect on our consolidated financial statements or internal controls. See Note 1 for further discussion about our supplier finance program obligations.
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New Accounting Standards and Accounting Standards Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), and in December 2022 subsequently issued ASU 2022-06 to temporarily ease the potential burden in accounting for reference rate reform. The standards provide optional expedients and exceptions for applying accounting principles generally accepted in the United States to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The standards apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate to be discontinued because of reference rate reform. The standards were effective upon issuance and can generally be applied through December 31, 2024. While there has been no material effect to our financial condition, results of operations, or cash flows from reference rate reform as of May 31, 2024, we continue to monitor our contracts and transactions for potential application of these ASUs.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosures about a public entity’s reportable segments and requires more enhanced information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. The update will be effective for annual periods beginning after December 15, 2023 (fiscal 2025). We are assessing the effect of this update on our consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which expands disclosures in an entity’s income tax rate reconciliation table and regarding cash taxes paid both in the U.S. and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024 (fiscal 2026). We are assessing the effect of this update on our consolidated financial statements and related disclosures.
In March 2024, the Securities and Exchange Commission (“SEC”) adopted final rules requiring public entities to provide certain climate-related information in their registration statements and annual reports. As part of the disclosures, entities will be required to quantify certain effects of severe weather events and other natural conditions in a note to their audited financial statements. The rules will be effective for annual periods beginning in calendar 2025 (fiscal 2026). In April 2024, the SEC voluntarily stayed implementation of the final rules pending certain legal challenges. We are assessing the effect of the new rules on our consolidated financial statements and related disclosures.
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 $421 million in 2024, $696 million in 2023, and $403 million in 2022. Our allowance for credit losses was $436 million at May 31, 2024 and $472 million at May 31, 2023.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: 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, 2022 | $ | 4,925 | $ | 932 | $ | 767 | $ | 1,962 | $ | 8,586 | ||||||||||
| Accumulated impairment charges | — | — | (133 | ) | (1,909 | ) | (2,042 | ) | ||||||||||||
| Balance as of May 31, 2022 | 4,925 | 932 | 634 | 53 | 6,544 | |||||||||||||||
| Impairment charges | — | — | — | (36 | ) | (36 | ) | |||||||||||||
| Other(1) | (72 | ) | — | — | (1 | ) | (73 | ) | ||||||||||||
| Balance as of May 31, 2023 | 4,853 | 932 | 634 | 16 | 6,435 | |||||||||||||||
| Other(1) | (12 | ) | — | — | — | (12 | ) | |||||||||||||
| Balance as of May 31, 2024 | $ | 4,841 | $ | 932 | $ | 634 | $ | 16 | $ | 6,423 | ||||||||||
| Accumulated goodwill impairment charges as of May 31, 2024 | $ | — | $ | — | $ | (133 | ) | $ | (1,945 | ) | $ | (2,078 | ) |
(1)
Primarily currency translation adjustments.
Our reporting units with significant recorded goodwill include FedEx Express, FedEx Ground, and FedEx Freight. We evaluated these reporting units during the fourth quarters of 2024 and 2023 and the estimated fair value of each of these reporting units exceeded their carrying values as of the end of 2024 and 2023; therefore, we do not believe that any of these reporting units were impaired as of the balance sheet dates.
In connection with our annual impairment testing of goodwill conducted in the fourth quarter of 2023, we recorded an impairment charge of $36 million for all of the goodwill attributable to our FedEx Dataworks, Inc. (“FedEx Dataworks”) reporting unit. The key factors contributing to the goodwill impairment were underperformance of the ShopRunner business during 2023, including base business erosion, and the failure to attain the level of operating synergies and revenue and profit growth anticipated at the time of acquisition. Based on these factors, our outlook for the business changed in the fourth quarter of 2023.
OTHER INTANGIBLE ASSETS. The summary of our intangible assets and related accumulated amortization at May 31, 2024 and 2023 is as follows (in millions):
| 2024 | 2023 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Customer relationships | $ | 570 | $ | (405 | ) | $ | 165 | $ | 583 | $ | (369 | ) | $ | 214 | ||||||||||
| Technology | 62 | (46 | ) | 16 | 62 | (42 | ) | 20 | ||||||||||||||||
| Trademarks and other | 1 | (1 | ) | — | 1 | (1 | ) | — | ||||||||||||||||
| Total | $ | 633 | $ | (452 | ) | $ | 181 | $ | 646 | $ | (412 | ) | $ | 234 |
As part of our review of long-lived assets in the fourth quarter of 2024, there were no impairments recorded for our reporting units. During the fourth quarter of 2023, we reviewed long-lived assets at FedEx Dataworks for impairment. Based on our reviews, we recognized an $11 million asset impairment charge related to customer relationships from the ShopRunner acquisition.
Amortization expense for intangible assets was $47 million in 2024, $52 million in 2023, and $52 million in 2022.
Expected amortization expense for the next five years is as follows (in millions):
| 2025 | $ | 45 | |
| 2026 | 45 | ||
| 2027 | 43 | ||
| 2028 | 41 | ||
| 2029 | 2 |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: SELECTED CURRENT LIABILITIES
The components of selected current liability captions at May 31 were as follows (in millions):
| 2024 | 2023 | |||||||
| Accrued salaries and employee benefits | ||||||||
| Salaries | $ | 757 | $ | 828 | ||||
| Employee benefits, including variable compensation | 977 | 689 | ||||||
| Compensated absences | 939 | 958 | ||||||
| $ | 2,673 | $ | 2,475 | |||||
| Accrued expenses | ||||||||
| Self-insurance accruals | $ | 1,931 | $ | 1,730 | ||||
| Taxes other than income taxes | 334 | 305 | ||||||
| Other | 2,697 | 2,712 | ||||||
| $ | 4,962 | $ | 4,747 |
NOTE 6: 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, 2024, are as follows (in millions):
| May 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Interest Rate % | Maturity | |||||||||||||
| Senior secured debt: | ||||||||||||||
| 1.875 | 2034 | $ | 780 | $ | 831 | |||||||||
| Senior unsecured debt: | ||||||||||||||
| 3.25 | 2026 | 748 | 748 | |||||||||||
| 3.40 | 2028 | 498 | 497 | |||||||||||
| 4.20 | 2029 | 398 | 398 | |||||||||||
| 3.10-4.25 | 2030 | 1,739 | 1,737 | |||||||||||
| 2.40 | 2031 | 992 | 991 | |||||||||||
| 4.90 | 2034 | 497 | 496 | |||||||||||
| 3.90 | 2035 | 495 | 495 | |||||||||||
| 3.25 | 2041 | 740 | 740 | |||||||||||
| 3.875-4.10 | 2043 | 986 | 985 | |||||||||||
| 5.10 | 2044 | 743 | 743 | |||||||||||
| 4.10 | 2045 | 642 | 641 | |||||||||||
| 4.55-4.75 | 2046 | 2,464 | 2,463 | |||||||||||
| 4.40 | 2047 | 737 | 736 | |||||||||||
| 4.05 | 2048 | 987 | 987 | |||||||||||
| 4.95 | 2049 | 836 | 836 | |||||||||||
| 5.25 | 2050 | 1,227 | 1,226 | |||||||||||
| 4.50 | 2065 | 246 | 246 | |||||||||||
| 7.60 | 2098 | 237 | 237 | |||||||||||
| Euro senior unsecured debt: | ||||||||||||||
| 0.45 | 2026 | 542 | 537 | |||||||||||
| 1.625 | 2027 | 1,353 | 1,341 | |||||||||||
| 0.45 | 2029 | 647 | 641 | |||||||||||
| 1.30 | 2032 | 539 | 534 | |||||||||||
| 0.95 | 2033 | 699 | 693 | |||||||||||
| Total senior unsecured debt | 18,992 | 18,948 | ||||||||||||
| Finance lease obligations | 431 | 800 | ||||||||||||
| 20,203 | 20,579 | |||||||||||||
| Less current portion | 68 | 126 | ||||||||||||
| $ | 20,135 | $ | 20,453 |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 3.5% as of May 31, 2024. Long-term debt, including current maturities and exclusive of finance leases, had estimated fair values of $17.5 billion at May 31, 2024 and $17.5 billion at May 31, 2023. 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 SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.
FedEx Express has issued $970 million of Pass-Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of 1.875% due in February 2034 utilizing pass-through trusts. The Certificates are secured by 19 Boeing aircraft with a net book value of $1.7 billion at May 31, 2024. The payment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx.
The following table sets forth the future scheduled principal payments due by fiscal year on our long-term debt (in millions):
| Debt Principal | ||||||||
| 2025 | $ | 52 | ||||||
| 2026 | 1,344 | |||||||
| 2027 | 1,409 | |||||||
| 2028 | 552 | |||||||
| 2029 | 1,103 | |||||||
| Thereafter | 15,517 | |||||||
| Subtotal | 19,977 | |||||||
| Discount and debt issuance costs | (205 | ) | ||||||
| Total debt | $ | 19,772 |
On March 15, 2024, we replaced our $2.0 billion five-year credit agreement (the “Old Five-Year Credit Agreement”) and our $1.5 billion three-year credit agreement (the “Old Three-Year Credit Agreement” and together with the Old Five-Year Credit Agreement, the “Old Credit Agreements”) with a $1.75 billion three-year credit agreement (the “New Three-Year Credit Agreement”) and a $1.75 billion five-year credit agreement (the “New Five-Year Credit Agreement” and together with the New Three-Year Credit Agreement, the “New Credit Agreements”). The New Three-Year Credit Agreement and the New Five-Year Credit Agreement expire in March 2027 and March 2029, respectively, and each has a $125 million letter of credit sublimit. The New Credit Agreements are available to finance our operations and other cash flow needs. As of May 31, 2024, no amounts were outstanding under the New Credit Agreements, no commercial paper was outstanding, and we had $250 million of the letter of credit sublimit unused under the New Credit Agreements. Outstanding commercial paper reduces the amount available to borrow under the New Credit Agreements.
The New Credit Agreements contain a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans mark-to-market adjustments, noncash pension service costs, noncash asset impairment charges, business optimization and restructuring expenses, and pro forma cost savings and synergies associated with an acquisition) before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the last day of each fiscal quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was 1.8 to 1.0 at May 31, 2024.
The New Credit Agreements amended the financial covenant included in the Old Credit Agreements to (i) net unrestricted cash and cash equivalents up to $500 million from the definition of debt and (ii) add back business optimization and restructuring expenses and pro forma cost savings and synergies associated with an acquisition to adjusted EBITDA. The aggregate amount of adjustments for business optimization and restructuring expenses and pro forma cost savings and synergies associated with an acquisition may not exceed 10% of adjusted EBITDA (calculated after giving effect to any such addback and such cap and all other permitted addbacks and adjustments) in any period. Additionally, following the consummation of an acquisition for which the aggregate cash consideration is at least $250 million, FedEx may elect to increase the ratio to 4.0 to 1.0 with respect to the last day of the fiscal quarter during which such acquisition is consummated and the last day of each of the immediately following three consecutive fiscal quarters, provided that there must be at least two consecutive fiscal quarters between such elections during which the ratio is 3.5 to 1.0.
The financial covenant discussed above is the only significant restrictive covenant in the New Credit Agreements. The New Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business. We are in compliance with the financial covenant and all other covenants in the New 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 New Credit Agreements, our access to financing could become limited. Our commercial paper program is backed by unused commitments under the New Credit Agreements.
NOTE 7: LEASES
The following table is a summary of the components of net lease cost for the period ended May 31 (in millions):
| 2024 | 2023 | ||||||||
| Operating lease cost | $ | 3,326 | $ | 3,300 | |||||
| Finance lease cost: | |||||||||
| Amortization of right-of-use assets | 30 | 36 | |||||||
| Interest on lease liabilities | 24 | 18 | |||||||
| Total finance lease cost | 54 | 54 | |||||||
| Short-term lease cost | 494 | 531 | |||||||
| Variable lease cost | 1,714 | 1,435 | |||||||
| Net lease cost | $ | 5,588 | $ | 5,320 |
Supplemental cash flow information related to leases for the period ended May 31 is as follows (in millions):
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows paid for operating leases | $ | 3,319 | $ | 3,207 | ||||
| Operating cash flows paid for interest portion of finance leases | 15 | 15 | ||||||
| Financing cash flows paid for principal portion of finance leases | 80 | 94 | ||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 2,083 | $ | 3,317 | ||||
| Right-of-use assets obtained in exchange for new finance lease liabilities | $ | 10 | $ | 414 |
Supplemental balance sheet information related to leases as of May 31 is as follows (dollars in millions):
| 2024 | 2023 | |||||||
| Operating leases: | ||||||||
| Operating lease right-of-use assets, net | $ | 17,115 | $ | 17,347 | ||||
| Current portion of operating lease liabilities | 2,463 | 2,390 | ||||||
| Operating lease liabilities | 15,053 | 15,363 | ||||||
| Total operating lease liabilities | $ | 17,516 | $ | 17,753 | ||||
| Finance leases: | ||||||||
| Net property and equipment | $ | 373 | $ | 821 | ||||
| Current portion of long-term debt | 18 | 75 | ||||||
| Long-term debt, less current portion | 413 | 725 | ||||||
| Total finance lease liabilities | $ | 431 | $ | 800 | ||||
| Weighted-average remaining lease term | ||||||||
| Operating leases | 9.5 | 9.5 | ||||||
| Finance leases | 29.8 | 27.5 | ||||||
| Weighted-average discount rate | ||||||||
| Operating leases | 3.79 | % | 3.42 | % | ||||
| Finance leases | 3.63 | % | 4.22 | % |
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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 2078. We leased less than 1% of our total aircraft fleet under operating leases as of May 31, 2024 and 1% as of May 31, 2023. 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, 2024 is as follows (in millions):
| Aircraft and Related Equipment | Facilities and Other | Total Operating Leases | Finance Leases | Total Leases | ||||||||||||||||
| 2025 | $ | 123 | $ | 2,909 | $ | 3,032 | $ | 33 | $ | 3,065 | ||||||||||
| 2026 | 119 | 2,763 | 2,882 | 30 | 2,912 | |||||||||||||||
| 2027 | 118 | 2,455 | 2,573 | 22 | 2,595 | |||||||||||||||
| 2028 | 118 | 2,123 | 2,241 | 21 | 2,262 | |||||||||||||||
| 2029 | 111 | 1,763 | 1,874 | 19 | 1,893 | |||||||||||||||
| Thereafter | 136 | 8,411 | 8,547 | 630 | 9,177 | |||||||||||||||
| Total lease payments | 725 | 20,424 | 21,149 | 755 | 21,904 | |||||||||||||||
| Less imputed interest | (85 | ) | (3,548 | ) | (3,633 | ) | (324 | ) | (3,957 | ) | ||||||||||
| Present value of lease liability | $ | 640 | $ | 16,876 | $ | 17,516 | $ | 431 | $ | 17,947 |
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, 2024, 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 equipment and have undiscounted future payments of approximately $0.9 billion and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from 2025 to 2027.
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 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 8: 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, 2024, none of these shares had been issued.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table provides changes in AOCL, net of tax, reported in the consolidated financial statements for the years ended May 31 (in millions; amounts in parentheses indicate debits to AOCL):
| 2024 | 2023 | 2022 | ||||||||||
| Foreign currency translation loss: | ||||||||||||
| Balance at beginning of period | $ | (1,362 | ) | $ | (1,148 | ) | $ | (785 | ) | |||
| Translation adjustments | (60 | ) | (214 | ) | (363 | ) | ||||||
| Balance at end of period | (1,422 | ) | (1,362 | ) | (1,148 | ) | ||||||
| Retirement plans adjustments: | ||||||||||||
| Balance at beginning of period | 35 | 45 | 53 | |||||||||
| Prior service credit arising during period | 36 | — | — | |||||||||
| Amortization of prior service credits | (8 | ) | (10 | ) | (8 | ) | ||||||
| Balance at end of period | 63 | 35 | 45 | |||||||||
| AOCL at end of period | $ | (1,359 | ) | $ | (1,327 | ) | $ | (1,103 | ) |
NOTE 10: STOCK-BASED COMPENSATION
Our total stock-based compensation expense for the years ended May 31 was as follows (in millions):
| 2024 | 2023 | 2022 | ||||||||||
| Stock-based compensation expense | $ | 163 | $ | 182 | $ | 190 |
We have three types of equity-based compensation: stock options, restricted stock, and RSUs.
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 and Human Resources Committee of our Board of Directors. Option-vesting periods range from one to four years, with the majority 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 AND RSUs. Under the terms of our incentive stock plan, restricted shares of our common stock are awarded to key employees and RSUs are awarded to non-employee directors. Restrictions on shares of restricted stock expire ratably over a four-year period and restrictions on the RSUs expire after one year (or the date of the next annual meeting of stockholders, if earlier). Restricted stock and RSUs 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.
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:
| 2024 | 2023 | 2022 | ||||||||||
| Weighted-average Black-Scholes value per share | $ | 79.48 | $ | 63.44 | $ | 80.21 | ||||||
| Intrinsic value of options exercised | $ | 290 | $ | 160 | $ | 150 | ||||||
| Black-Scholes assumptions: | ||||||||||||
| Expected lives | 6.4 years | 6.4 years | 6.4 years | |||||||||
| Expected volatility | 35 | % | 34 | % | 32 | % | ||||||
| Risk-free interest rate | 3.94 | % | 1.68 | % | 0.65 | % | ||||||
| Dividend yield | 2.030 | % | 1.694 | % | 0.983 | % |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2024:
| Stock Options | ||||||||||||||||
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value (in millions)****(1) | |||||||||||||
| Outstanding at June 1, 2023 | 15,191,189 | $ | 199.89 | |||||||||||||
| Granted | 1,837,624 | $ | 234.69 | |||||||||||||
| Exercised | (2,927,083 | ) | $ | 167.76 | ||||||||||||
| Forfeited | (643,740 | ) | $ | 225.82 | ||||||||||||
| Outstanding at May 31, 2024 | 13,457,990 | $ | 210.35 | 5.9 | $ | 665 | ||||||||||
| Exercisable | 9,110,750 | $ | 204.61 | 4.8 | $ | 508 | ||||||||||
| Expected to vest | 3,930,202 | $ | 222.43 | 8.1 | $ | 143 | ||||||||||
| Available for future grants | 11,967,683 |
(1)
Only presented for options with market value at May 31, 2024 in excess of the exercise price of the option.
The options granted during 2024 are primarily related to our principal annual stock option grant in June 2023.
The following table summarizes information regarding vested and unvested restricted stock and RSUs for the year ended May 31, 2024:
| Restricted Stock and RSUs | ||||||||
| Shares/Units | Weighted- Average Grant Date Fair Value | |||||||
| Unvested at June 1, 2023 | 379,934 | $ | 199.91 | |||||
| Granted | 169,371 | $ | 239.33 | |||||
| Vested | (187,241 | ) | $ | 192.34 | ||||
| Forfeited | (12,092 | ) | $ | 215.85 | ||||
| Unvested at May 31, 2024 | 349,972 | $ | 226.11 | |||||
| Available for future grants | 751,017 |
During the year ended May 31, 2023, there were 160,286 shares of restricted stock granted with a weighted-average fair value of $208.57 per share. During the year ended May 31, 2022, there were 115,172 shares of restricted stock granted with a weighted-average fair value of $276.26 per share.
Stock option vesting during the years ended May 31 was as follows:
| Stock Options | ||||||||
| Vested during the year | Fair value (in millions) | |||||||
| 2024 | 2,599,042 | $ | 137 | |||||
| 2023 | 2,711,215 | $ | 137 | |||||
| 2022 | 3,005,727 | $ | 138 |
As of May 31, 2024, there was $216 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 three years.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total shares outstanding or available for grant related to equity compensation at May 31, 2024 represented 10% of the total outstanding common and equity compensation shares and equity compensation shares available for grant.
NOTE 11: 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):
| 2024 | 2023 | 2022 | ||||||||||
| Basic earnings per common share: | ||||||||||||
| Net earnings allocable to common shares(1) | $ | 4,325 | $ | 3,966 | $ | 3,819 | ||||||
| Weighted-average common shares | 248 | 254 | 263 | |||||||||
| Basic earnings per common share | $ | 17.41 | $ | 15.60 | $ | 14.54 | ||||||
| Diluted earnings per common share: | ||||||||||||
| Net earnings allocable to common shares(1) | $ | 4,325 | $ | 3,966 | $ | 3,819 | ||||||
| Weighted-average common shares | 248 | 254 | 263 | |||||||||
| Dilutive effect of share-based awards | 3 | 2 | 3 | |||||||||
| Weighted-average diluted shares | 251 | 256 | 266 | |||||||||
| Diluted earnings per common share | $ | 17.21 | $ | 15.48 | $ | 14.33 | ||||||
| Anti-dilutive options excluded from diluted earnings per common share | 5.8 | 7.4 | 4.0 |
(1)
Net earnings available to participating securities were immaterial in all periods presented.
NOTE 12: INCOME TAXES
The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
| 2024 | 2023 | 2022 | ||||||||||
| Current provision | ||||||||||||
| Domestic: | ||||||||||||
| Federal | $ | 1,184 | $ | 579 | $ | 311 | ||||||
| State and local | 218 | 157 | 120 | |||||||||
| Foreign | 265 | 209 | 317 | |||||||||
| 1,667 | 945 | 748 | ||||||||||
| Deferred provision | ||||||||||||
| Domestic: | ||||||||||||
| Federal | (82 | ) | 369 | 267 | ||||||||
| State and local | 60 | 37 | 21 | |||||||||
| Foreign | (140 | ) | 40 | 34 | ||||||||
| (162 | ) | 446 | 322 | |||||||||
| $ | 1,505 | $ | 1,391 | $ | 1,070 |
Pre-tax earnings of foreign operations for 2024, 2023, and 2022 were $0.5 billion, $0.6 billion, and $1.4 billion, respectively. These amounts represent only a portion of total results associated with international shipments and do not represent our international results of operations.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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):
| 2024 | 2023 | 2022 | ||||||||||
| Taxes computed at federal statutory rate | $ | 1,226 | $ | 1,126 | $ | 1,028 | ||||||
| Increases (decreases) in income tax from: | ||||||||||||
| U.S. and foreign return-to-provision adjustments | 11 | (44 | ) | (142 | ) | |||||||
| State and local income taxes, net of federal benefit | 177 | 152 | 116 | |||||||||
| Foreign operations | 65 | 96 | 115 | |||||||||
| Non-deductible expenses | 48 | 40 | 48 | |||||||||
| Uncertain tax positions | (21 | ) | 60 | (18 | ) | |||||||
| Benefits from share-based payments | (26 | ) | (18 | ) | (13 | ) | ||||||
| Valuation allowance | 59 | 59 | 33 | |||||||||
| Foreign tax rate enactments | — | 3 | (30 | ) | ||||||||
| State deferred tax remeasurement | 54 | — | — | |||||||||
| Goodwill impairment charges | — | 8 | — | |||||||||
| Other, net | (88 | ) | (91 | ) | (67 | ) | ||||||
| Provision for income taxes | $ | 1,505 | $ | 1,391 | $ | 1,070 | ||||||
| Effective Tax Rate | 25.8 | % | 25.9 | % | 21.9 | % |
The 2024 tax provision includes an unfavorable income tax expense of $54 million from the remeasurement of U.S. state deferred tax balances to reflect aggregate temporary differences at the expected applicable tax rates after the merger of FedEx Ground and FedEx Services into Federal Express Corporation.
The 2023 tax provision was negatively impacted by an expense of $46 million related to a write-down and valuation allowance on certain foreign tax credit carryforwards due to operational changes which impacted the determination of the realizability of the deferred tax asset. The 2023 tax provision was also negatively impacted by lower earnings in certain non-U.S. jurisdictions.
The 2022 tax provision includes a benefit of $142 million related to revisions of prior year tax estimates for actual tax return results. The 2022 tax provision was also favorably impacted by changes in our corporate legal entity structure.
We regularly assess the need for cash in the U.S., as well as in our foreign subsidiaries, and will occasionally repatriate back to the U.S. excess earnings above working capital needs that can be repatriated with an immaterial tax cost. We assert all other earnings, both historical and current 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). Determination of the amount of unrecognized deferred income tax liability related to any remaining undistributed foreign earnings and additional outside basis differences is not practicable.
The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
| 2024 | 2023 | |||||||||||||||
| Deferred Tax Assets | Deferred Tax Liabilities | Deferred Tax Assets | Deferred Tax Liabilities | |||||||||||||
| Property, equipment, leases, and intangibles | $ | 4,597 | $ | 10,815 | $ | 4,608 | $ | 10,965 | ||||||||
| Employee benefits | 744 | 68 | 876 | — | ||||||||||||
| Self-insurance accruals | 1,183 | — | 1,085 | — | ||||||||||||
| Other | 561 | 140 | 454 | 62 | ||||||||||||
| Net operating loss/credit carryforwards | 1,306 | — | 1,149 | — | ||||||||||||
| Valuation allowances | (537 | ) | — | (471 | ) | — | ||||||||||
| $ | 7,854 | $ | 11,023 | $ | 7,701 | $ | 11,027 |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
| 2024 | 2023 | |||||||
| Noncurrent deferred tax assets(1) | $ | 1,313 | $ | 1,163 | ||||
| Noncurrent deferred tax liabilities | (4,482 | ) | (4,489 | ) | ||||
| $ | (3,169 | ) | $ | (3,326 | ) |
(1)
Noncurrent deferred tax assets are included in the line item “Other Assets” in our accompanying consolidated balance sheets.
We have approximately $3.7 billion of net operating loss carryovers in various foreign jurisdictions, $1.7 billion of state operating loss carryovers, and $157 million of U.S. federal operating loss and capital loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss carryforwards, which expire over varying periods starting in 2025. 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 increase in the valuation allowance balance during 2024 includes $36 million related to foreign net operating losses, $19 million for state income tax credits, and $4 million for a capital loss. See Note 1 for more information on our policy for assessing the recoverability of deferred tax assets and valuation allowances.
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 Internal Revenue Service for the 2016 through 2021 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.
During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $226 million attributable to our interpretation of the TCJA and the Internal Revenue Code. In March 2023, the District Court ruled that the regulation is invalid and contradicts the plain terms of the tax code. We continue to work towards obtaining a final judgment for the applicable refund amounts due to the regulation being invalid. Once the District Court enters a final judgment, the U.S. government could file an appeal with the U.S. Court of Appeals for the Sixth Circuit. 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 for the years ended May 31 is as follows (in millions):
| 2024 | 2023 | 2022 | ||||||||||
| Balance at beginning of year | $ | 212 | $ | 169 | $ | 192 | ||||||
| Increases for tax positions taken in the current year | 5 | 3 | 14 | |||||||||
| Increases for tax positions taken in prior years | 4 | 68 | 8 | |||||||||
| Decreases for tax positions taken in prior years | (3 | ) | (7 | ) | (15 | ) | ||||||
| Settlements | (31 | ) | (15 | ) | (32 | ) | ||||||
| Changes due to currency translation | (1 | ) | (6 | ) | 2 | |||||||
| Balance at end of year | $ | 186 | $ | 212 | $ | 169 |
Our liabilities recorded for uncertain tax positions include $184 million at May 31, 2024 and $211 million at May 31, 2023 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 $59 million at May 31, 2024 and $54 million at May 31, 2023.
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
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 13: 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 AOCL 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):
| 2024 | 2023 | 2022 | ||||||||||
| Defined benefit pension plans | $ | 363 | $ | 236 | $ | (2 | ) | |||||
| Defined contribution plans | 968 | 955 | 824 | |||||||||
| Postretirement healthcare plans | 85 | 92 | 89 | |||||||||
| Pension plans MTM (gain) loss | (561 | ) | (650 | ) | 1,578 | |||||||
| $ | 855 | $ | 633 | $ | 2,489 |
The components of the MTM adjustments are as follows (in millions):
| 2024 | 2023 | 2022 | ||||||||||
| Actual versus expected return on assets | $ | (67 | ) | $ | 2,492 | $ | 5,109 | |||||
| Discount rate change | (1,139 | ) | (3,395 | ) | (4,486 | ) | ||||||
| Demographic experience: | ||||||||||||
| Current year actuarial loss | 67 | 142 | 504 | |||||||||
| Change in future assumptions | 577 | 110 | 314 | |||||||||
| Termination of TNT Express Netherlands pension plan | — | — | 224 | |||||||||
| Pension plan amendments, including curtailment gains | 1 | 1 | (87 | ) | ||||||||
| Total MTM (gain) loss | $ | (561 | ) | $ | (650 | ) | $ | 1,578 |
2024
Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was 6.80%, which was higher than our expected rate of return of 6.50%. Performance was driven by public equities and alternatives, offset by modest losses in fixed income due to higher interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 5.17% at May 31, 2023 to 5.53% at May 31, 2024. The demographic experience in 2024 reflects an update to our retirement rate and short-term cash balance interest crediting assumptions.
2023
Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was -2.70%, which was lower than our expected rate of return of 6.50%. Negative portfolio returns derived due to losses in both equities and our fixed-income assets due to market volatility and rising interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 4.21% at May 31, 2022 to 5.17% at May 31, 2023. The demographic experience in 2023 reflects an update to our short-term cash balance interest crediting assumption.
2022
Net of all fees and expenses, the actual rate of return on our U.S. Pension Plan assets was -10.8%, which was lower than our expected rate of return of 6.50%. Negative portfolio returns derived due to losses in both equities and our fixed-income assets due to market volatility and rising interest rates. The weighted-average discount rate for all our pension and postretirement healthcare plans increased from 3.11% at May 31, 2021 to 4.21% at May 31, 2022. The demographic experience in 2022 reflects an update to our mortality assumption and a current year actuarial loss due to unfavorable experience compared to various demographic assumptions.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 United Kingdom.
In 2020, we announced the closing of our U.S.-based defined benefit pension plans to new non-union employees hired on or after January 1, 2020. We introduced an all-401(k) plan retirement benefit structure for eligible employees with a higher company match of up to 8% across all U.S.-based operating companies in 2022. During calendar 2021, current eligible employees under the PPA pension formula were given a one-time option to continue to be eligible for pension compensation credits under the existing PPA formula and remain in the existing 401(k) plan with its 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 became effective January 1, 2022. See Note 1 for additional information on expected amendments to our pension plan offered to FedEx Express pilots.
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.
The U.S. postretirement healthcare benefit is 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 retirement. 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 | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Discount rate used to determine benefit obligation | 5.58 | % | 5.20 | % | 4.25 | % | 4.29 | % | 4.21 | % | 3.09 | % | 5.63 | % | 5.37 | % | 4.35 | % | ||||||||||||||||||
| Discount rate used to determine net periodic benefit cost | 5.20 | 4.25 | 3.23 | 4.21 | 3.09 | 1.83 | 5.37 | 4.35 | 2.81 | |||||||||||||||||||||||||||
| Rate of increase in future compensation levels used to determine benefit obligation | 5.29 | 5.13 | 5.11 | 3.06 | 3.04 | 2.89 | — | — | — | |||||||||||||||||||||||||||
| Rate of increase in future compensation levels used to determine net periodic benefit cost | 5.13 | 5.11 | 5.06 | 3.04 | 2.89 | 2.83 | — | — | — | |||||||||||||||||||||||||||
| Expected long-term rate of return on assets | 6.50 | 6.50 | 6.50 | 3.55 | 2.26 | 2.39 | — | — | — | |||||||||||||||||||||||||||
| Interest crediting rate used to determine benefit obligation | 4.32 | 4.23 | 4.00 | 2.90 | 2.40 | 3.70 | — | — | — | |||||||||||||||||||||||||||
| Interest crediting rate used to determine net periodic benefit cost | 4.23 | 4.00 | 4.00 | 2.40 | 3.70 | 2.50 | — | — | — |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 6.50% expected long-term rate of return on our U.S. Pension Plan assets in 2024, 2023, and 2022. The historical annual return on our U.S. Pension Plan assets, calculated on a compound geometric basis, was 7.60%, net of all fees and expenses, for the 15-year period ended May 31, 2024.
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 Bloomberg Barclays Long Government, Bloomberg Barclays Long Corporate, or the Bloomberg Barclays 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.
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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 plan at the measurement date are presented in the following table (in millions):
| Plan Assets at Measurement Date | ||||||||||||||||||||||
| 2024 | ||||||||||||||||||||||
| Asset Class (U.S. Plan) | 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 | $ | 577 | 2 | % | 0 - 5% | $ | 130 | $ | 447 | |||||||||||||
| Equities | 25 - 40 | |||||||||||||||||||||
| U.S. large cap equity(2) | 3,376 | 13 | 1,382 | |||||||||||||||||||
| International equities(2) | 2,631 | 10 | 1,780 | |||||||||||||||||||
| Global equities(2) | 1,397 | 5 | ||||||||||||||||||||
| U.S. SMID cap equity | 926 | 4 | 916 | 10 | ||||||||||||||||||
| Fixed-income securities | 40 - 60 | |||||||||||||||||||||
| Corporate | 6,502 | 25 | 6,502 | |||||||||||||||||||
| Government(2) | 4,194 | 16 | 2,335 | |||||||||||||||||||
| Mortgage-backed and other(2) | 1,514 | 6 | 205 | |||||||||||||||||||
| Alternative investments(2) | 4,777 | 19 | 15 - 25 | $ | 1,075 | |||||||||||||||||
| Other | (97 | ) | — | (111 | ) | 14 | ||||||||||||||||
| Total U.S. plan assets | $ | 25,797 | 100 | % | $ | 4,097 | $ | 9,513 | $ | 1,075 | ||||||||||||
| Asset Class (International Plan) | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 8 | 2 | % | $ | 8 | ||||||||||||||||
| Fixed-income securities | ||||||||||||||||||||||
| Corporate(2) | 62 | 18 | ||||||||||||||||||||
| Government(2) | 177 | 52 | 149 | |||||||||||||||||||
| Other(2) | 94 | 28 | ||||||||||||||||||||
| Total international plan assets | $ | 341 | 100 | % | $ | 157 | $ | — |
(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.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Plan Assets at Measurement Date | ||||||||||||||||||||||
| 2023 | ||||||||||||||||||||||
| 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 | $ | 815 | 3 | % | 0 - 5% | $ | 22 | $ | 793 | |||||||||||||
| Equities | 30 - 50 | |||||||||||||||||||||
| U.S. large cap equity(2) | 2,928 | 12 | 1,268 | |||||||||||||||||||
| International equities(2) | 2,821 | 11 | 1,912 | |||||||||||||||||||
| Global equities(2) | 1,192 | 5 | ||||||||||||||||||||
| U.S. SMID cap equity | 768 | 3 | 764 | 4 | ||||||||||||||||||
| Fixed-income securities | 40 - 60 | |||||||||||||||||||||
| Corporate | 6,403 | 26 | 6,403 | |||||||||||||||||||
| Government(2) | 4,334 | 17 | 2,497 | |||||||||||||||||||
| Mortgage-backed and other(2) | 1,386 | 6 | 527 | |||||||||||||||||||
| Alternative investments(2) | 4,196 | 17 | 0 - 15 | $ | 937 | |||||||||||||||||
| Other | (17 | ) | — | (33 | ) | 16 | ||||||||||||||||
| Total U.S. plan assets | $ | 24,826 | 100 | % | $ | 3,933 | $ | 10,240 | $ | 937 | ||||||||||||
| Asset Class (International Plan) | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 7 | 2 | % | $ | 7 | ||||||||||||||||
| Fixed-income securities | ||||||||||||||||||||||
| Corporate(2) | 57 | 17 | ||||||||||||||||||||
| Government(2) | 178 | 53 | 159 | |||||||||||||||||||
| Other(2) | 95 | 28 | ||||||||||||||||||||
| Total international plan assets | $ | 337 | 100 | % | $ | 166 | $ | — | ||||||||||||||
(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 | ||||||||
| 2024 | 2023 | |||||||
| Balance at beginning of year | $ | 937 | $ | 811 | ||||
| Actual return on plan assets: | ||||||||
| Assets held during current year | 59 | 66 | ||||||
| Assets sold during the year | 30 | 28 | ||||||
| Purchases, sales, and settlements, net | 49 | 32 | ||||||
| Balance at end of year | $ | 1,075 | $ | 937 |
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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, 2024 and a statement of the funded status as of May 31, 2024 and 2023 (in millions):
| U.S. Pension Plans | International Pension Plans | Postretirement Healthcare Plans | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Accumulated Benefit Obligation (“ABO”) | $ | 25,756 | $ | 25,825 | $ | 885 | $ | 848 | ||||||||||||||||
| Changes in PBO and Accumulated Postretirement Benefit Obligation (“APBO”) | ||||||||||||||||||||||||
| PBO/APBO at the beginning of year | $ | 26,426 | $ | 28,702 | $ | 990 | $ | 1,096 | $ | 1,169 | $ | 1,286 | ||||||||||||
| Service cost | 544 | 651 | 38 | 44 | 27 | 37 | ||||||||||||||||||
| Interest cost | 1,362 | 1,218 | 42 | 34 | 61 | 55 | ||||||||||||||||||
| Actuarial (gain) loss | (514 | ) | (2,882 | ) | 3 | (121 | ) | 18 | (138 | ) | ||||||||||||||
| Benefits paid | (1,534 | ) | (1,263 | ) | (39 | ) | (35 | ) | (89 | ) | (107 | ) | ||||||||||||
| Settlements | — | — | (11 | ) | (20 | ) | — | — | ||||||||||||||||
| Other | — | — | (5 | ) | (8 | ) | (24 | ) | 36 | |||||||||||||||
| PBO/APBO at the end of year | $ | 26,284 | $ | 26,426 | $ | 1,018 | $ | 990 | $ | 1,162 | $ | 1,169 | ||||||||||||
| Change in Plan Assets | ||||||||||||||||||||||||
| Fair value of plan assets at the beginning of year | $ | 24,826 | $ | 25,970 | $ | 579 | $ | 663 | $ | — | $ | — | ||||||||||||
| Actual return on plan assets | 1,674 | (707 | ) | 12 | (83 | ) | — | — | ||||||||||||||||
| Company contributions | 831 | 826 | 50 | 55 | 67 | 71 | ||||||||||||||||||
| Benefits paid | (1,534 | ) | (1,263 | ) | (39 | ) | (35 | ) | (89 | ) | (107 | ) | ||||||||||||
| Settlements | — | — | (11 | ) | (20 | ) | — | — | ||||||||||||||||
| Other | — | — | 11 | (1 | ) | 22 | 36 | |||||||||||||||||
| Fair value of plan assets at the end of year | $ | 25,797 | $ | 24,826 | $ | 602 | $ | 579 | $ | — | $ | — | ||||||||||||
| Funded Status of the Plans | $ | (487 | ) | $ | (1,600 | ) | $ | (416 | ) | $ | (411 | ) | $ | (1,162 | ) | $ | (1,169 | ) | ||||||
| Amount Recognized in the Balance Sheet at May 31: | ||||||||||||||||||||||||
| Noncurrent asset | $ | — | $ | — | $ | 73 | $ | 88 | $ | — | $ | — | ||||||||||||
| Current pension, and other benefit obligations | (35 | ) | (39 | ) | (22 | ) | (23 | ) | (81 | ) | (84 | ) | ||||||||||||
| Noncurrent pension, and other benefit obligations | (452 | ) | (1,561 | ) | (467 | ) | (476 | ) | (1,081 | ) | (1,085 | ) | ||||||||||||
| Net amount recognized | $ | (487 | ) | $ | (1,600 | ) | $ | (416 | ) | $ | (411 | ) | $ | (1,162 | ) | $ | (1,169 | ) | ||||||
| Amounts Recognized in AOCL and not yet reflected in Net Periodic Benefit Cost: | ||||||||||||||||||||||||
| Prior service cost (credit) | $ | (39 | ) | $ | (47 | ) | $ | 3 | $ | 4 | $ | (43 | ) | $ | — |
Our pension plans included the following components at May 31 (in millions):
| PBO | Fair Value of Plan Assets | Funded Status | ||||||||||
| 2024 | ||||||||||||
| Qualified | $ | 26,152 | $ | 25,797 | $ | (355 | ) | |||||
| Nonqualified | 132 | — | (132 | ) | ||||||||
| International Plans | 1,018 | 602 | (416 | ) | ||||||||
| Total | $ | 27,302 | $ | 26,399 | $ | (903 | ) | |||||
| 2023 | ||||||||||||
| Qualified | $ | 26,269 | $ | 24,826 | $ | (1,443 | ) | |||||
| Nonqualified | 157 | — | (157 | ) | ||||||||
| International Plans | 990 | 579 | (411 | ) | ||||||||
| Total | $ | 27,416 | $ | 25,405 | $ | (2,011 | ) |
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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 | ||||||||
| 2024 | 2023 | |||||||
| U.S. Pension Benefits | ||||||||
| Fair value of plan assets | $ | 25,797 | $ | 24,826 | ||||
| PBO | (26,284 | ) | (26,426 | ) | ||||
| Net funded status | $ | (487 | ) | $ | (1,600 | ) | ||
| International Pension Benefits | ||||||||
| Fair value of plan assets | $ | 239 | $ | 223 | ||||
| PBO | (728 | ) | (722 | ) | ||||
| Net funded status | $ | (489 | ) | $ | (499 | ) |
| ABO Exceeds the Fair Value of Plan Assets | ||||||||
| 2024 | 2023 | |||||||
| U.S. Pension Benefits | ||||||||
| ABO(1) | $ | (124 | ) | $ | (25,825 | ) | ||
| Fair value of plan assets | — | 24,826 | ||||||
| PBO | (132 | ) | (26,426 | ) | ||||
| Net funded status | $ | (132 | ) | $ | (1,600 | ) | ||
| International Pension Benefits | ||||||||
| ABO(1) | $ | (575 | ) | $ | (562 | ) | ||
| Fair value of plan assets | 216 | 201 | ||||||
| PBO | (703 | ) | (700 | ) | ||||
| Net funded status | $ | (487 | ) | $ | (499 | ) |
(1)
ABO not used in determination of funded status.
Contributions to our qualified U.S. Pension Plans for the years ended May 31 were as follows (in millions):
| 2024 | 2023 | |||||||
| Required | $ | — | $ | — | ||||
| Voluntary | 800 | 800 | ||||||
| $ | 800 | $ | 800 |
For 2025, no pension contributions are required for our U.S. Pension Plan as it is fully funded under the Employee Retirement Income Security Act. However, we expect to make voluntary contributions of $800 million to the plan in 2025.
Net periodic benefit (income) cost for the years ended May 31 were as follows (in millions):
| U.S. Pension Plans | International Pension Plans | Postretirement Healthcare Plans | ||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | 2024 | 2023 | 2022 | ||||||||||||||||||||||||||||
| Service cost | $ | 544 | $ | 651 | $ | 835 | $ | 38 | $ | 44 | $ | 56 | $ | 27 | $ | 37 | $ | 48 | ||||||||||||||||||
| Interest cost | 1,362 | 1,218 | 1,020 | 42 | 34 | 32 | 61 | 55 | 41 | |||||||||||||||||||||||||||
| Expected return on plan assets | (1,598 | ) | (1,688 | ) | (1,910 | ) | (18 | ) | (14 | ) | (26 | ) | — | — | — | |||||||||||||||||||||
| Amortization of prior service credit | (7 | ) | (7 | ) | (7 | ) | — | (2 | ) | (2 | ) | (3 | ) | — | — | |||||||||||||||||||||
| Actuarial losses (gains) and other | (590 | ) | (487 | ) | 1,683 | 13 | (25 | ) | 87 | 16 | (138 | ) | (192 | ) | ||||||||||||||||||||||
| Net periodic benefit (income) cost | $ | (289 | ) | $ | (313 | ) | $ | 1,621 | $ | 75 | $ | 37 | $ | 147 | $ | 101 | $ | (46 | ) | $ | (103 | ) |
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Amounts recognized in other comprehensive loss were primarily related to amortization of prior service cost in our U.S. Pension Plans of $7 million in 2024 and $7 million in 2023 ($6 million, net of tax, in 2024 and $6 million, net of tax, in 2023).
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 Plan | International Pension Plans | Postretirement Healthcare Plans | ||||||||||
| 2025 | $ | 1,555 | $ | 57 | $ | 81 | ||||||
| 2026 | 1,620 | 51 | 91 | |||||||||
| 2027 | 1,695 | 56 | 102 | |||||||||
| 2028 | 1,762 | 59 | 113 | |||||||||
| 2029 | 1,824 | 70 | 121 | |||||||||
| 2030-2034 | 9,805 | 417 | 652 |
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 7.30% during 2025, decreasing to an annual growth rate of 4.0% in 2045 and thereafter.
NOTE 14: BUSINESS SEGMENTS AND DISAGGREGATED REVENUE
FedEx Express, FedEx Ground, and FedEx Freight represented our major service lines and, along with FedEx Services, constituted our reportable segments for 2024, 2023 and 2022. Our reportable segments for these periods included the following businesses:
| FedEx Express Segment | FedEx Express (express transportation, small-package ground delivery, and freight transportation) |
| FedEx Custom Critical, Inc. (time-critical transportation) | |
| FedEx Ground Segment | FedEx Ground (small-package ground delivery) |
| FedEx Freight Segment | FedEx Freight (LTL freight transportation) |
| FedEx Services Segment | FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions) |
In the fourth quarter of 2023, FedEx announced one FedEx, a consolidation plan to bring FedEx Ground and FedEx Services into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground express network under the respected FedEx brand. The organizational redesign was implemented in phases with full legal implementation effective June 1, 2024. During the implementation process in 2024, each of our reportable segments continued to have discrete financial information that was regularly reviewed when evaluating performance and making resource allocation decisions, and aligned with our management reporting structure and our internal financial reporting. Beginning in the first quarter of fiscal 2025, our reportable segments will be Federal Express Corporation and FedEx Freight. Additionally, the results of FedEx Custom Critical, Inc. will be included in the FedEx Freight segment instead of the Federal Express segment. This change was made to reflect our new management reporting structure. Prior-year amounts will be revised to reflect this presentation.
References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.
FedEx Services Segment
During 2024, 2023, and 2022, the FedEx Services segment operated 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 allowed us to obtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions were performed on a regional basis and reported by FedEx Express in their natural expense line items.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The FedEx Services segment provided direct and indirect support to our operating segments, and we allocated 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 reviewed and evaluated the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance was evaluated based on the effect of its total allocated net operating costs on our operating segments.
Operating expenses for each of our transportation segments included the allocations from the FedEx Services segment to the respective transportation segments. These allocations included charges and credits for administrative services provided between operating companies. The allocations of net operating costs were based on metrics such as relative revenue or estimated services provided. We believe these allocations approximated the net cost of providing these functions. Our allocation methodologies were refined periodically, as necessary, to reflect changes in our businesses.
Other Intersegment Transactions
Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing integrated business solutions through our FedEx Dataworks operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members. ShopRunner, Inc. was merged into FedEx Dataworks during 2023.
Also included in Corporate and other is the FedEx Office and Print Services, Inc. (“FedEx Office”) operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.
The results of Corporate, other, and eliminations are not allocated to the other business segments.
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. Billings for such services are based on negotiated rates, 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.
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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 | ||||||||||||||||||||||||
| 2024 | $ | 40,857 | $ | 34,256 | $ | 9,082 | $ | 260 | $ | 3,238 | $ | 87,693 | ||||||||||||
| 2023 | 42,743 | 33,507 | 9,632 | 301 | 3,972 | 90,155 | ||||||||||||||||||
| 2022 | 45,814 | 33,232 | 9,532 | 253 | 4,681 | 93,512 | ||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| 2024 | $ | 2,172 | $ | 1,119 | $ | 402 | $ | 465 | $ | 129 | $ | 4,287 | ||||||||||||
| 2023 | 2,105 | 1,020 | 387 | 529 | 135 | 4,176 | ||||||||||||||||||
| 2022 | 2,007 | 919 | 406 | 513 | 125 | 3,970 | ||||||||||||||||||
| Operating income (loss) | ||||||||||||||||||||||||
| 2024(1) | $ | 776 | $ | 4,049 | $ | 1,814 | $ | — | $ | (1,080 | ) | $ | 5,559 | |||||||||||
| 2023(2) | 1,064 | 3,140 | 1,925 | — | (1,217 | ) | 4,912 | |||||||||||||||||
| 2022(3) | 2,922 | 2,642 | 1,663 | — | (982 | ) | 6,245 | |||||||||||||||||
| Segment assets(4) | ||||||||||||||||||||||||
| 2024 | $ | 48,699 | $ | 17,884 | $ | 11,389 | $ | 7,078 | $ | 1,957 | $ | 87,007 | ||||||||||||
| 2023 | 47,754 | 36,815 | 10,197 | 7,415 | (15,038 | ) | 87,143 | |||||||||||||||||
| 2022 | 47,604 | 32,645 | 8,904 | 8,389 | (11,548 | ) | 85,994 |
(1)
Includes business optimization costs of $331 million included in “Corporate, other, and eliminations” and $143 million and $108 million included in the FedEx Express and FedEx Ground segments, respectively. Includes noncash asset impairment charges of $157 million related to the decision to permanently retire certain aircraft and related engines at FedEx Express. Also includes a $57 million benefit included in “Corporate, other, and eliminations” for an insurance reimbursement related to pre- and post-judgment interest in connection with a FedEx Ground legal matter.
(2)
Includes business optimization costs of $262 million included in “Corporate, other, and eliminations” and business optimization and realignment costs of $11 million and $36 million, respectively, included in the FedEx Express segment. Includes noncash other asset impairment charges of $70 million related to the decision to permanently retire certain aircraft and related engines at FedEx Express and goodwill and other asset impairment charges of $47 million at FedEx Dataworks related to the ShopRunner acquisition. Also includes $35 million in connection with a FedEx Ground legal matter included in “Corporate, other, and eliminations.”
(3)
Includes business realignment costs of $278 million included in the FedEx Express segment, as well as a charge of $210 million related to the pre- and post-judgment interest in connection with a separate FedEx Ground legal matter included in “Corporate, other, and eliminations.” Also includes TNT Express integration expenses of $132 million included in “Corporate, other, and eliminations” and the FedEx Express segment.
(4)
Segment assets include intercompany receivables. In the fourth quarter of 2024, FedEx Ground settled an intercompany balance of $19.5 billion with FedEx in preparation for the one FedEx consolidation.
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 | ||||||||||||||||||||
| 2024 | $ | 3,291 | $ | 1,018 | $ | 461 | $ | 282 | $ | 124 | $ | 5,176 | |||||||||||||
| 2023 | 3,055 | 1,995 | 556 | 431 | 137 | 6,174 | |||||||||||||||||||
| 2022 | 3,637 | 2,139 | 319 | 565 | 103 | 6,763 |
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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):
| 2024 | 2023 | 2022 | ||||||||||
| REVENUE BY SERVICE TYPE | ||||||||||||
| FedEx Express segment: | ||||||||||||
| Package: | ||||||||||||
| U.S. overnight box | $ | 8,689 | $ | 8,916 | $ | 9,084 | ||||||
| U.S. overnight envelope | 1,854 | 1,980 | 1,971 | |||||||||
| U.S. deferred | 4,928 | 5,128 | 5,330 | |||||||||
| Total U.S. domestic package revenue | 15,471 | 16,024 | 16,385 | |||||||||
| International priority | 9,455 | 10,939 | 12,130 | |||||||||
| International economy | 4,273 | 2,911 | 2,838 | |||||||||
| Total international export package revenue | 13,728 | 13,850 | 14,968 | |||||||||
| International domestic(1) | 4,178 | 4,043 | 4,340 | |||||||||
| Total package revenue | 33,377 | 33,917 | 35,693 | |||||||||
| Freight: | ||||||||||||
| U.S. | 2,418 | 2,906 | 3,041 | |||||||||
| International priority | 2,205 | 3,060 | 3,840 | |||||||||
| International economy | 1,677 | 1,510 | 1,653 | |||||||||
| International airfreight | 126 | 166 | 177 | |||||||||
| Total freight revenue | 6,426 | 7,642 | 8,711 | |||||||||
| Other | 1,054 | 1,184 | 1,410 | |||||||||
| Total FedEx Express segment | 40,857 | 42,743 | 45,814 | |||||||||
| FedEx Ground segment | 34,256 | 33,507 | 33,232 | |||||||||
| FedEx Freight segment | 9,082 | 9,632 | 9,532 | |||||||||
| FedEx Services segment | 260 | 301 | 253 | |||||||||
| Other and eliminations(2) | 3,238 | 3,972 | 4,681 | |||||||||
| $ | 87,693 | $ | 90,155 | $ | 93,512 | |||||||
| GEOGRAPHICAL INFORMATION**(3)** | ||||||||||||
| Revenue: | ||||||||||||
| U.S. | $ | 63,531 | $ | 64,890 | $ | 64,941 | ||||||
| International: | ||||||||||||
| FedEx Express segment | 22,291 | 23,090 | 25,564 | |||||||||
| FedEx Ground segment | 844 | 860 | 857 | |||||||||
| FedEx Freight segment | 266 | 264 | 235 | |||||||||
| FedEx Services segment | 1 | 1 | 1 | |||||||||
| Other | 760 | 1,050 | 1,914 | |||||||||
| Total international revenue | 24,162 | 25,265 | 28,571 | |||||||||
| $ | 87,693 | $ | 90,155 | $ | 93,512 | |||||||
| Noncurrent assets: | ||||||||||||
| U.S. | $ | 56,822 | $ | 56,449 | $ | 53,311 | ||||||
| International | 11,978 | 12,084 | 12,318 | |||||||||
| $ | 68,800 | $ | 68,533 | $ | 65,629 |
(1)
International domestic revenue relates to our intra-country operations.
(2)
Includes the FedEx Office, FedEx Logistics, and FedEx Dataworks operating segments.
(3)
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, operating lease right-of-use assets, 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.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15: DERIVATIVE FINANCIAL INSTRUMENTS
RISK MANAGEMENT OBJECTIVE OF USING DERIVATIVES. We enter into derivative financial instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of cash receipts and cash payments principally related to our investments.
Certain of our foreign operations expose us to fluctuations of foreign exchange rates. These fluctuations may impact the value of our cash receipts and payments in terms of our functional currency.
NET INVESTMENT HEDGES. We are exposed to fluctuations in foreign exchange rates on investments we hold in foreign entities. We use debt denominated in foreign currency and fixed-to-fixed cross-currency swaps to hedge our exposure to changes in foreign exchange rates on certain of our foreign investments. Cross-currency swaps involve the receipt of functional-currency-fixed rate amounts from a counterparty in exchange for us making foreign-currency-fixed rate payments over the life of the agreement. Cross-currency swaps also involve final exchanges of the functional-currency principal amounts for the foreign-currency principal amounts between us and the counterparty.
For debt and foreign currency derivatives designated as net investment hedges, the gain or loss on the derivative is reported in AOCL as part of the cumulative translation adjustment. Amounts are reclassified out of AOCL into earnings when the hedged net investment is either sold or substantially liquidated.
As of May 31, 2024, we had €173 million of debt designated to reduce the volatility of the U.S. dollar value of a portion of our net investment in a euro-denominated consolidated subsidiary.
During 2024, we entered into certain foreign currency derivatives to hedge our net investments in foreign operations. The following foreign currency derivatives were outstanding as of May 31, 2024 (notional amounts in millions):
| Foreign Currency Derivative | Number of Instruments | Notional Sold | Notional Purchased | |||||||||
| Cross-currency swaps | 4 | € | (468 | ) | $ | 500 |
The following table presents the fair value of our derivatives, including their classification on the consolidated balance sheet, as of May 31, 2024 (in millions):
| Balance Sheet Location | 2024 | |||||
| Asset Derivatives | ||||||
| Cross-currency swaps | Prepaid expenses and other | $ | 8 | |||
| Liability Derivatives | ||||||
| Cross-currency swaps | Other liabilities | $ | 14 |
The estimated fair values were determined using pricing models that rely on market-based inputs such as foreign currency exchange rates and yield curves. The fair value of our derivative financial instruments 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 derivative financial instruments, either directly or indirectly.
During 2024, we recognized a $6 million loss in AOCL related to our cross-currency swaps, which excludes any adjustments for the impact of deferred income taxes.
As of May 31, 2024, we have not posted any collateral related to our cross-currency swaps. No amounts have been reclassified out of AOCL during 2024 for our net investment hedges. As of May 31, 2024, our net investment hedges remain effective.
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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):
| 2024 | 2023 | 2022 | ||||||||||
| Cash payments for: | ||||||||||||
| Interest (net of capitalized interest) | $ | 744 | $ | 694 | $ | 695 | ||||||
| Income taxes | $ | 1,555 | $ | 1,096 | $ | 751 | ||||||
| Income tax refunds received | (122 | ) | (53 | ) | (574 | ) | ||||||
| Cash tax payments, net | $ | 1,433 | $ | 1,043 | $ | 177 |
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. 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, 2024 were as follows (in millions):
| Aircraft and Aircraft Related | Other**(1)** | Total | ||||||||||
| 2025 | $ | 1,408 | $ | 860 | $ | 2,268 | ||||||
| 2026 | 665 | 656 | 1,321 | |||||||||
| 2027 | 276 | 426 | 702 | |||||||||
| 2028 | 342 | 321 | 663 | |||||||||
| 2029 | 309 | 253 | 562 | |||||||||
| Thereafter | 1,338 | 14 | 1,352 | |||||||||
| Total | $ | 4,338 | $ | 2,530 | $ | 6,868 |
(1)
Primarily information technology and advertising contracts.
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. 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 under way that are supported by the purchase of Boeing 777 Freighter (“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.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of May 31, 2024, we had $611 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 aircraft we were committed to purchase as of May 31, 2024, with the year of expected delivery:
| Cessna SkyCourier 408 | ATR 72-600F | B767F | B777F | Total | ||||||||||||||||
| 2025 | 17 | 7 | 11 | 2 | 37 | |||||||||||||||
| 2026 | 14 | 3 | 3 | — | 20 | |||||||||||||||
| 2027 | — | — | — | — | — | |||||||||||||||
| 2028 | — | — | — | — | — | |||||||||||||||
| 2029 | — | — | — | — | — | |||||||||||||||
| Thereafter | — | — | — | — | — | |||||||||||||||
| Total | 31 | 10 | 14 | 2 | 57 |
NOTE 19: INVESTMENTS
EQUITY SECURITIES
The summary of our investments in equity securities at May 31, 2024 and 2023 is as follows (in millions):
| 2024 | 2023 | |||||||
| Equity securities with readily determinable fair values | $ | 100 | $ | 91 | ||||
| Equity securities without readily determinable fair values - NAV practical expedient | 37 | 26 | ||||||
| Equity securities without readily determinable fair values - measurement alternative | 223 | 185 | ||||||
| Total equity securities | $ | 360 | $ | 302 |
Equity securities with a readily determinable fair value are Level 1 investments that are valued at the closing price or last trade reported on the major market on which the individual securities are traded. For equity securities without readily determinable fair values that qualify for the NAV practical expedient, we have elected to apply the NAV practical expedient to estimate fair value. We apply the measurement alternative for all other equity securities without readily determinable fair values, where adjustments to cost are made for observable price changes and any impairments. For equity securities where the measurement alternative is applied, annual and cumulative amounts of impairments, downward adjustments, and upward adjustments were immaterial for 2024 and 2023.
Unrealized gains and (losses) recognized during the reporting period on all equity securities still held at May 31, 2024, 2023, and 2022 were $14 million, ($48) million, and $60 million respectively.
DEBT SECURITIES
The carrying values of our investments in debt securities are classified as available-for-sale and reported at their estimated fair values in our consolidated balance sheets and consisted of the following (in millions):
| Gross Unrealized | ||||||||||||||||
| Cost | Gains | Losses | Estimated Fair Value | |||||||||||||
| May 31, 2024 | ||||||||||||||||
| Fixed-income securities | $ | 76 | $ | 1 | $ | — | $ | 77 | ||||||||
| Total debt securities | $ | 76 | $ | 1 | $ | — | $ | 77 |
Debt securities are 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 financial instruments, either directly or indirectly. Realized gains and losses were immaterial for 2024. We did not invest in debt securities during 2023.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 20: CONTINGENCIES
Service Provider Lawsuits. FedEx Ground is defending against lawsuits in which it is alleged that FedEx Ground should be treated as an employer or 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 payments, including wages and penalties, 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.
FedEx Services Employment Lawsuit. In May 2021, FedEx Services was named as a defendant in a lawsuit filed in the U.S. District Court for the Southern District of Texas related to the termination of a former FedEx Services employee. The complaint alleged race discrimination and retaliation for complaints of discrimination under Section 1981 of the Civil Rights Act of 1866 and Title VII of the Civil Rights Act of 1964. After trial, in October 2022, the jury found in favor of FedEx Services on the race discrimination claims but awarded the plaintiff compensatory damages of approximately $1.0 million for emotional distress and punitive damages of $365 million for the retaliation claims. The court entered final judgment in the amount of approximately $366 million. FedEx Services appealed the verdict to the U.S. Court of Appeals for the Fifth Circuit. FedEx Services argued on appeal that FedEx Services is entitled to judgment as a matter of law on the retaliation claims, plaintiff’s claims were not timely filed, punitive damages are not available as a matter of law and, if allowed, must be reduced to no greater than a single-digit multiple of the award for compensatory damages based on the United States Supreme Court’s ruling in State Farm v. Campbell, and the compensatory damages award must be reduced to conform with the evidence and the Fifth Circuit’s maximum recovery rule. FedEx Services argued in the alternative that a new trial should be granted.
In February 2024, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit reduced the jury’s emotional distress award of approximately $1.0 million to approximately $250,000 and vacated the jury’s $365 million award for punitive damages based on its finding that FedEx Services made good faith efforts to comply with the law. In March 2024, the full Fifth Circuit unanimously denied plaintiff’s petition for rehearing. In June 2024, plaintiff petitioned the U.S. Supreme Court for review of the Fifth Circuit’s reduction of the emotional distress award and determination that FedEx Services’s employment agreement provides a reasonable time for filing Section 1981 claims. The petition does not challenge the Fifth’s Circuit’s decision to vacate the punitive damages award. An immaterial loss accrual has been recorded in FedEx’s consolidated financial statements.
FedEx Ground Negligence Lawsuit. In December 2022, FedEx Ground was named as a defendant in a lawsuit filed in Texas state court related to the alleged kidnapping and first-degree murder of a minor by a driver employed by a service provider engaged by FedEx Ground. The complaint alleges compensatory and punitive damages against FedEx Ground for negligent and gross negligent hiring and retention, as well as negligent entrustment. The service provider and driver are also named as defendants in the lawsuit. An immaterial loss accrual has been recorded in FedEx’s consolidated financial statements. It is reasonably possible that an additional material loss could be incurred. At this stage of the litigation, we cannot estimate the amount or range of such additional loss, if any.
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 other 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.
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