FEDEX CORP, 10-K filed on 7/16/2019
Annual Report
v3.19.2
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
May 31, 2019
Jul. 12, 2019
Nov. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Document Period End Date May 31, 2019    
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Registrant Name FedEx Corporation    
Entity Central Index Key 0001048911    
Current Fiscal Year End Date --05-31    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Filer Category Large Accelerated Filer    
Entity Shell Company false    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Public Float     $ 55.2
Entity Common Stock, Shares Outstanding   260,808,410  
Trading Symbol FDX    
v3.19.2
Consolidated Balance Sheets - USD ($)
$ in Millions
May 31, 2019
May 31, 2018
CURRENT ASSETS    
Cash and cash equivalents $ 2,319 $ 3,265
Receivables, less allowances of $300 and $401 9,116 8,481
Spare parts, supplies and fuel, less allowances of $335 and $268 553 525
Prepaid expenses and other 1,098 1,070
Total current assets 13,086 13,341
PROPERTY AND EQUIPMENT, AT COST    
Aircraft and related equipment 22,793 20,749
Package handling and ground support equipment 10,409 9,727
Information technology 6,268 5,794
Vehicles and trailers 8,339 7,708
Facilities and other 11,702 11,143
Gross property and equipment 59,511 55,121
Less accumulated depreciation and amortization 29,082 26,967
Net property and equipment 30,429 28,154
OTHER LONG-TERM ASSETS    
Goodwill 6,884 6,973
Other assets 4,004 3,862
Total other long-term assets 10,888 10,835
ASSETS [1] 54,403 52,330
CURRENT LIABILITIES    
Current portion of long-term debt 964 1,342
Accrued salaries and employee benefits 1,741 2,177
Accounts payable 3,030 2,977
Accrued expenses 3,278 3,131
Total current liabilities 9,013 9,627
LONG-TERM DEBT, LESS CURRENT PORTION 16,617 15,243
OTHER LONG-TERM LIABILITIES    
Deferred income taxes 2,821 2,867
Pension, postretirement healthcare and other benefit obligations 5,095 2,187
Self-insurance accruals 1,899 1,784
Deferred lease obligations 531 551
Deferred gains, principally related to aircraft transactions 99 121
Other liabilities 571 534
Total other long-term liabilities 11,016 8,044
COMMITMENTS AND CONTINGENCIES
COMMON STOCKHOLDERS' INVESTMENT    
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of May 31, 2019 and 2018 32 32
Additional paid-in capital 3,231 3,117
Retained earnings 24,648 24,823
Accumulated other comprehensive loss (865) (578)
Treasury stock, at cost (9,289) (7,978)
Total common stockholders’ investment 17,757 19,416
LIABILITIES AND COMMON STOCKHOLDERS' INVESTMENT $ 54,403 $ 52,330
[1] Segment assets include intercompany receivables.
v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
May 31, 2019
May 31, 2018
CURRENT ASSETS    
Allowances for receivables $ 300 $ 401
Allowances for spare parts, supplies and fuel $ 335 $ 268
COMMON STOCKHOLDERS' INVESTMENT    
Common stock, par value $ 0.10 $ 0.10
Common stock, shares authorized 800,000,000 800,000,000
Common stock, shares issued 318,000,000 318,000,000
v3.19.2
Consolidated Statements of Income - USD ($)
$ in Millions
12 Months Ended
May 31, 2019
May 31, 2018
May 31, 2017
Income Statement [Abstract]      
REVENUES [1] $ 69,693 $ 65,450 [2] $ 60,319 [2]
OPERATING EXPENSES:      
Salaries and employee benefits 24,776 23,795 21,989
Purchased transportation $ 16,654 $ 15,101 $ 13,630
Type of cost, good or service [extensible list] us-gaap:ShippingAndHandlingMember us-gaap:ShippingAndHandlingMember us-gaap:ShippingAndHandlingMember
Rentals and landing fees $ 3,360 $ 3,361 $ 3,240
Depreciation and amortization 3,353 3,095 2,995
Fuel 3,889 3,374 2,773
Maintenance and repairs 2,834 2,622 2,374
Business realignment costs 320    
Goodwill and other asset impairment charges   380  
Other 10,041 9,450 8,752
OPERATING EXPENSES 65,227 61,178 55,753
OPERATING INCOME 4,466 [3] 4,272 [4] 4,566 [5]
OTHER (EXPENSE) INCOME:      
Interest expense (588) (558) (512)
Interest income 59 48 33
Other retirement plans (expense) income (3,251) 598 471
Other, net (31) (7) 21
OTHER INCOME (EXPENSE) (3,811) 81 13
INCOME BEFORE INCOME TAXES 655 4,353 4,579
PROVISION FOR INCOME TAXES (BENEFIT) 115 (219) 1,582
NET INCOME $ 540 $ 4,572 $ 2,997
BASIC EARNINGS PER COMMON SHARE $ 2.06 $ 17.08 $ 11.24
DILUTED EARNINGS PER COMMON SHARE $ 2.03 $ 16.79 $ 11.07
[1] International revenue includes shipments that either originate in or are destined to locations outside the United States, which could include U.S. payors. Noncurrent assets include property and equipment, goodwill and other long-term assets. Our flight equipment is registered in the U.S. and is included as U.S. assets; however, many of our aircraft operate internationally.
[2] Prior year amounts have been revised to conform to the current year presentation.
[3] Includes TNT Express integration expenses and restructuring charges of $388 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes business realignment costs of $320 million and costs incurred in connection with the settlement of a legal matter involving FedEx Ground of $46 million.
[4] Includes TNT Express integration expenses and restructuring charges of $477 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes goodwill and other asset impairment charges of $380 million.
[5] Includes TNT Express integration expenses and restructuring charges of $327 million. These expenses are included in “Corporate, other and eliminations” and the FedEx Express segment. Also includes $39 million of charges for legal reserves related to certain U.S. Customs and Border Protection (“CBP”) matters involving FedEx Logistics and $22 million of charges in connection with the settlement of and certain expected losses relating to independent contractor litigation matters at FedEx Ground.
v3.19.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
May 31, 2019
[1],[2]
Feb. 28, 2019
[1],[2]
Nov. 30, 2018
[1],[2]
Aug. 31, 2018
[1],[2]
May 31, 2018
[3],[4]
Feb. 28, 2018
[3],[4]
Nov. 30, 2017
[3],[4]
Aug. 31, 2017
[3],[4]
May 31, 2019
May 31, 2018
May 31, 2017
Statement Of Income And Comprehensive Income [Abstract]                      
NET INCOME $ (1,969) $ 739 $ 935 $ 835 $ 1,127 $ 2,074 $ 775 $ 596 $ 540 $ 4,572 $ 2,997
OTHER COMPREHENSIVE LOSS:                      
Foreign currency translation adjustments, net of tax benefit of $29 in 2019, tax expense of $16 in 2018 and tax expense of $52 in 2017                 (195) (74) (171)
Amortization of prior service credit and other, net of tax benefits of $28 in 2019, $37 in 2018 and $43 in 2017                 (92) (89) (75)
Other comprehensive income (loss)                 (287) (163) (246)
COMPREHENSIVE INCOME                 $ 253 $ 4,409 $ 2,751
[1] The fourth quarter, third quarter, second quarter and first quarter of 2019 include $84 million, $69 million, $114 million and $121 million, respectively, of TNT Express integration expenses (including any restructuring charges). The fourth quarter and third quarter of 2019 include business realignment costs of $316 million and $4 million, respectively. The fourth quarter includes a net loss of $3.9 billion related to the annual MTM retirement plans accounting adjustment. The second quarter of 2019 includes costs incurred in connection with the settlement of a legal matter involving FedEx Ground of $46 million.
[2] The income tax benefit for the fourth quarter of 2019 was unfavorably impacted by $200 million due to the lower statutory tax rate under the TCJA on fiscal 2019 earnings and the annual retirement plans accounting MTM adjustment. The third quarter, second quarter and first quarter of 2019 include $60 million, $150 million and $135 million, respectively, of tax benefits primarily from the lower statutory tax rate under the TCJA on fiscal 2019 earnings. The third quarter of 2019 includes a tax benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards and a tax expense of $50 million related to a lower tax rate in the Netherlands applied to our deferred tax balances. The second quarter of 2019 includes a tax benefit of approximately $60 million from accelerated deductions claimed on our 2018 U.S. income tax return. In addition, we recognized a tax expense of $4 million in the second quarter of 2019 as a revision of the provisional benefit associated with the remeasurement of our net U.S. deferred tax liability upon completion of the accounting for the tax effects of the TCJA.
[3] The fourth quarter of 2018 includes a $255 million net tax benefit from corporate structuring transactions as part of the ongoing integration of FedEx Express and TNT Express. The fourth quarter, third quarter, and second quarter of 2018 include $133 million, $12 million, and $80 million, respectively, of tax benefits from foreign tax credits associated with distributions to the U.S. from foreign operations. The fourth quarter and third quarter of 2018 include $100 million and $165 million, respectively, of tax benefits related to a lower statutory income tax rate on fiscal 2018 earnings. In addition, the third quarter of 2018 includes the following TCJA-related items: a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred tax liability and a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans.
[4] The fourth quarter, third quarter, second quarter and first quarter of 2018 include $136 million, $106 million, $122 million and $112 million, respectively, of TNT Express integration expenses (including any restructuring charges). The fourth quarter of 2018 includes goodwill and other asset impairment charges related to FedEx Supply Chain of $380 million and a net gain of $10 million related to the annual MTM retirement plans accounting adjustment. The fourth quarter and first quarter of 2018 include charges for legal reserves related to certain CBP matters involving FedEx Logistics of $1 million and $7 million, respectively.
v3.19.2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
May 31, 2019
May 31, 2018
May 31, 2017
Other Comprehensive Income, Tax Amounts      
Foreign currency translation adjustments, tax expense (benefit) $ (29) $ 16 $ 52
Amortization of prior service credit and other, tax expense/benefit $ 28 $ 37 $ 43
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
May 31, 2019
May 31, 2018
May 31, 2017
OPERATING ACTIVITIES      
Net income $ 540 $ 4,572 $ 2,997
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization 3,353 3,095 2,995
Provision for uncollectible accounts 295 246 136
Deferred income taxes and other noncash items (233) (231) 909
Stock-based compensation 174 167 154
Retirement plans mark-to-market adjustment 3,882 (10) (24)
Gain from sale of business (8) (85)  
Gain from sale of investment     (35)
Business realignment costs 101    
Goodwill and other asset impairment charges   380  
Changes in assets and liabilities:      
Receivables (873) (1,049) (556)
Other current assets (25) (135) 78
Pension and postretirement healthcare assets and liabilities, net (909) (2,345) (1,688)
Accounts payable and other liabilities (571) 141 103
Other, net (113) (72) (139)
Cash provided by operating activities 5,613 4,674 4,930
INVESTING ACTIVITIES      
Capital expenditures (5,490) (5,663) (5,116)
Business acquisitions, net of cash acquired (66) (179)  
Proceeds from sale of business   123  
Proceeds from asset dispositions and other 83 42 135
Cash used in investing activities (5,473) (5,677) (4,981)
FINANCING ACTIVITIES      
Principal payments on debt (1,436) (38) (82)
Proceeds from debt issuances 2,463 1,480 1,190
Proceeds from stock issuances 101 327 337
Dividends paid (683) (535) (426)
Purchase of treasury stock (1,480) (1,017) (509)
Other, net (4) 10 18
Cash (used in) provided by financing activities (1,039) 227 528
Effect of exchange rate changes on cash (47) 72 (42)
Net (decrease) increase in cash and cash equivalents (946) (704) 435
Cash and cash equivalents at beginning of period 3,265 3,969 3,534
Cash and cash equivalents at end of period $ 2,319 $ 3,265 $ 3,969
v3.19.2
Consolidated Statements of Changes in Common Stockholders' Investment - USD ($)
$ in Millions
3 Months Ended 12 Months Ended
May 31, 2019
Aug. 31, 2018
May 31, 2018
Aug. 31, 2017
May 31, 2019
May 31, 2018
May 31, 2017
Beginning balance   $ 19,416   $ 16,073 $ 19,416 $ 16,073 $ 13,784
Net income $ (1,969) [1],[2] 835 [1],[2] $ 1,127 [3],[4] 596 [3],[4] 540 4,572 2,997
Other comprehensive loss, net of tax         (287) (163) (246)
Purchase of treasury stock         (1,480) (1,017) (509)
Cash dividends declared         (683) (535) (426)
Employee incentive plans and other         251 486 473
Ending balance 17,757   19,416   17,757 19,416 16,073
Common Stock              
Beginning balance   32   32 32 32 32
Ending balance 32   32   32 32 32
Additional Paid-In Capital              
Beginning balance   3,117   3,005 3,117 3,005 2,892
Employee incentive plans and other         114 112 113
Ending balance 3,231   3,117   3,231 3,117 3,005
Retained Earnings              
Beginning balance   24,823   20,833 24,823 20,833 18,371
Net income         540 4,572 2,997
Cash dividends declared         (683) (535) (426)
Employee incentive plans and other         (32) (47) (109)
Ending balance 24,648   24,823   24,648 24,823 20,833
Accumulated Other Comprehensive Loss              
Beginning balance   (578)   (415) (578) (415) (169)
Other comprehensive loss, net of tax         (287) (163) (246)
Ending balance (865)   (578)   (865) (578) (415)
Treasury Stock              
Beginning balance   $ (7,978)   $ (7,382) (7,978) (7,382) (7,342)
Purchase of treasury stock         (1,480) (1,017) (509)
Employee incentive plans and other         169 421 469
Ending balance $ (9,289)   $ (7,978)   $ (9,289) $ (7,978) $ (7,382)
[1] The fourth quarter, third quarter, second quarter and first quarter of 2019 include $84 million, $69 million, $114 million and $121 million, respectively, of TNT Express integration expenses (including any restructuring charges). The fourth quarter and third quarter of 2019 include business realignment costs of $316 million and $4 million, respectively. The fourth quarter includes a net loss of $3.9 billion related to the annual MTM retirement plans accounting adjustment. The second quarter of 2019 includes costs incurred in connection with the settlement of a legal matter involving FedEx Ground of $46 million.
[2] The income tax benefit for the fourth quarter of 2019 was unfavorably impacted by $200 million due to the lower statutory tax rate under the TCJA on fiscal 2019 earnings and the annual retirement plans accounting MTM adjustment. The third quarter, second quarter and first quarter of 2019 include $60 million, $150 million and $135 million, respectively, of tax benefits primarily from the lower statutory tax rate under the TCJA on fiscal 2019 earnings. The third quarter of 2019 includes a tax benefit of $90 million from the reduction of a valuation allowance on certain tax loss carryforwards and a tax expense of $50 million related to a lower tax rate in the Netherlands applied to our deferred tax balances. The second quarter of 2019 includes a tax benefit of approximately $60 million from accelerated deductions claimed on our 2018 U.S. income tax return. In addition, we recognized a tax expense of $4 million in the second quarter of 2019 as a revision of the provisional benefit associated with the remeasurement of our net U.S. deferred tax liability upon completion of the accounting for the tax effects of the TCJA.
[3] The fourth quarter of 2018 includes a $255 million net tax benefit from corporate structuring transactions as part of the ongoing integration of FedEx Express and TNT Express. The fourth quarter, third quarter, and second quarter of 2018 include $133 million, $12 million, and $80 million, respectively, of tax benefits from foreign tax credits associated with distributions to the U.S. from foreign operations. The fourth quarter and third quarter of 2018 include $100 million and $165 million, respectively, of tax benefits related to a lower statutory income tax rate on fiscal 2018 earnings. In addition, the third quarter of 2018 includes the following TCJA-related items: a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred tax liability and a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans.
[4] The fourth quarter, third quarter, second quarter and first quarter of 2018 include $136 million, $106 million, $122 million and $112 million, respectively, of TNT Express integration expenses (including any restructuring charges). The fourth quarter of 2018 includes goodwill and other asset impairment charges related to FedEx Supply Chain of $380 million and a net gain of $10 million related to the annual MTM retirement plans accounting adjustment. The fourth quarter and first quarter of 2018 include charges for legal reserves related to certain CBP matters involving FedEx Logistics of $1 million and $7 million, respectively.
v3.19.2
Consolidated Statements of Changes in Common Stockholders' Investment (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
May 31, 2019
May 31, 2018
May 31, 2017
Statement Of Stockholders Equity [Abstract]      
Other comprehensive loss, tax $ (57) $ (21) $ (9)
Purchase of treasury stock 6,600,000 4,300,000 3,000,000
Cash dividends declared, per share $ 2.60 $ 2.00 $ 1.60
Employee incentive plans and other, shares issued 1,300,000 3,100,000 3,500,000
v3.19.2
Description of Business and Summary of Significant Accounting Policies
12 Months Ended
May 31, 2019
Accounting Policies [Abstract]  
Description of Business and Summary of Significant Accounting Policies

NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS. FedEx Corporation (“FedEx”) provides a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Corporation (“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight transportation. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments. Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our transportation segments (FedEx Express, FedEx Ground and FedEx Freight) and other business units. In addition, the FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”).

FISCAL YEARS. Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2019 or ended May 31 of the year referenced.

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

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. We are not the primary beneficiary of, nor do we have a controlling financial interest in, any variable interest entity. Accordingly, we have not consolidated any variable interest entity.

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, such as transportation services. The majority 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. Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. For our 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” (formerly FedEx Trade Networks, Inc.)) 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.

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 performance obligations. 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 executed.

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 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 packages, as we have an unconditional right to payment only once all performance obligations have been completed (e.g., packages have been delivered). Contract assets are generally classified as current and the full balance is converted each quarter based on the short-term nature of the transactions. Our contract liabilities consist of advance payments and billings in excess of revenue. The full balance of deferred revenue is converted each quarter based on the short-term nature of the transactions.

Gross contract assets related to in-transit packages totaled $533 million and $542 million at May 31, 2019 and May 31, 2018, respectively. Contract assets net of deferred unearned revenue were $364 million and $363 million at May 31, 2019 and May 31, 2018, respectively. Contract assets are included within current assets in the accompanying consolidated balance sheets. Contract liabilities related to advance payments from customers were $11 million and $13 million at May 31, 2019 and May 31, 2018, 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, 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 revenues for the periods ended May 31. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.

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 $468 million in 2019, $442 million in 2018 and $458 million in 2017.

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. 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

 

2019

 

 

2018

 

Wide-body aircraft and related equipment

 

15 to 30 years

 

$

11,975

 

 

$

10,463

 

Narrow-body and feeder aircraft and related equipment

 

5 to 18 years

 

 

2,696

 

 

 

2,908

 

Package handling and ground support equipment

 

3 to 30 years

 

 

4,157

 

 

 

4,028

 

Information technology

 

2 to 10 years

 

 

1,553

 

 

 

1,277

 

Vehicles and trailers

 

3 to 15 years

 

 

4,042

 

 

 

3,747

 

Facilities and other

 

2 to 40 years

 

 

6,006

 

 

 

5,731

 

 

Substantially all property and equipment have no material residual values. The majority of aircraft costs are depreciated on a straight-line basis over 15 to 30 years. We periodically evaluate the estimated service lives and residual values used to depreciate our property and equipment. 

Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations, was $3.4 billion in 2019, $3.1 billion in 2018 and $2.9 billion in 2017. Depreciation and amortization expense includes amortization of assets under capital lease.

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 $64 million in 2019, $61 million in 2018 and $41 million in 2017.

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, and accordingly, 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 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 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, 2019, we had seven aircraft temporarily idled. These aircraft have been idled for an average of 23 months and are expected to return to revenue service.

SALE OF BUSINESS. On April 30, 2018, we sold a non-core business of TNT Express B.V. (“TNT Express”) and recorded a gain of $85 million in the FedEx Express segment.

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.

INTANGIBLE ASSETS. Intangible assets primarily include customer relationships, technology assets and trademarks acquired in business combinations. Intangible assets are amortized over periods ranging from 3 to 15 years, either on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized.

PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined benefit pension and other postretirement benefit plans are measured using actuarial techniques that reflect management’s assumptions for discount rate, investment returns on plan assets, salary increases, expected retirement, mortality, employee turnover and future increases in healthcare costs. We determine the discount rate (which is required to be the rate at which the projected benefit obligation (“PBO”) could be effectively settled as of the measurement date) with the assistance of actuaries, who calculate the yield on a theoretical portfolio of high-grade corporate bonds (rated Aa or better) with cash flows that are designed to match our expected benefit payments in future years. We use the fair value of plan assets to calculate the expected return on assets (“EROA”) for interim and segment reporting purposes. Our EROA is a judgmental matter which is reviewed on an annual basis and revised as appropriate.

The accounting guidance related to employers’ accounting for defined benefit pension and other postretirement plans requires recognition in the balance sheet of the funded status of these plans. We use “mark-to-market” or MTM accounting and immediately recognize changes in the fair value of plan assets and actuarial gains or losses in our results annually in the fourth quarter each year. The annual MTM adjustment is recognized at the corporate level and does not impact segment results. The remaining components of pension and postretirement healthcare expense, primarily service and interest costs and the EROA, are recorded on a quarterly basis.

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 and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates to make this determination and, thus, there is a risk that these estimates will have to be revised as new information is received. To the extent we do not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is established. We believe we will generate sufficient future taxable income to realize the tax benefits related to the remaining net deferred tax assets in our consolidated balance sheets that are not subject to valuation allowances.

We 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 and general business liabilities, and benefits paid under employee healthcare and disability programs. Accruals are primarily based on the actuarially estimated cost of claims, which includes incurred-but-not-reported claims. Current workers’ compensation claims, vehicle and general liability, employee healthcare claims and long-term disability are included in accrued expenses. We self-insure up to certain limits that vary by operating company and type of risk. Periodically, we evaluate the level of insurance coverage and adjust insurance levels based on risk tolerance and premium expense.

LEASES. We lease certain aircraft, facilities, equipment and vehicles and trailers under capital and operating leases. The commencement date of all leases is the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the property. In addition to minimum rental payments, certain leases provide for contingent rentals based on equipment usage, principally related to aircraft leases at FedEx Express. Rent expense associated with contingent rentals is recorded as incurred. Certain of our leases contain fluctuating or escalating payments and rent holiday periods. The related rent expense is recorded on a straight-line basis over the lease term. The cumulative excess of rent payments over rent expense is accounted for as a deferred lease asset and recorded in “Other assets” in the accompanying consolidated balance sheets. The cumulative excess of rent expense over rent payments is accounted for as a deferred lease obligation. Leasehold improvements associated with assets utilized under capital or operating leases are amortized over the shorter of the asset’s useful life or the lease term.

DEFERRED GAINS. Gains on the sale and leaseback of aircraft and other property and equipment are deferred and amortized ratably over the life of the lease as a reduction of rent expense. Substantially all of these deferred gains are related to aircraft transactions.

DERIVATIVE FINANCIAL INSTRUMENTS. Our risk management strategy includes the select use of derivative instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. In accordance with our risk management policies, we do not hold or issue derivative instruments for trading or speculative purposes. All derivative instruments are recognized in the financial statements at fair value, regardless of the purpose or intent for holding them.

When we become a party to a derivative instrument and intend to apply hedge accounting, we formally document the hedge relationship and the risk management objective for undertaking the hedge, which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge.

If a derivative is designated as a cash flow or net investment hedge, changes in its fair value are considered to be effective and are recorded in accumulated other comprehensive income (“AOCI”) until the hedged item is recorded in income. Any portion of a change in the fair value of a derivative that is considered to be ineffective, along with the change in fair value of any derivatives not designated in a hedging relationship, is immediately recognized in the income statement. We do not have any derivatives designated as a cash flow or net investment hedge for any period presented. Accordingly, additional disclosures about these types of financial instruments are excluded from this report.

For derivative instruments designated as hedges, we assess, both at hedge inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. In addition, when we determine that a derivative is not highly effective as a hedge, hedge accounting is discontinued. When a hedging instrument expires or is sold, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gains or losses existing in AOCI at that time remain there until the forecasted transaction is ultimately recognized in the income statement. When a forecasted transaction is no longer expected to occur, the cumulative gains or losses that were reported in AOCI are immediately recognized in the income statement. The financial statement impact of derivative transactions was immaterial for each period presented. Accordingly, additional disclosures have been excluded from this report.

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 AOCI within common stockholders’ investment. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local currency are included in the caption “Other, net” in the accompanying consolidated statements of income and were immaterial for each period presented.

EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of FedEx Express, who are a small number of its total employees, are employed under a collective bargaining agreement that took effect on November 2, 2015. The collective bargaining agreement is scheduled to become amendable in November 2021. Other than the pilots at FedEx Express and drivers at one FedEx Freight facility, our U.S. employees have thus far chosen not to unionize (we acquired FedEx Supply Chain Distribution System, Inc. (“FedEx Supply Chain”) in 2015, which already had a small number of employees that are members of unions). Additionally, certain of FedEx Express’s non-U.S. employees are unionized, and a union has been certified to represent owner-drivers at a FedEx Freight Canada, Corp. facility.

STOCK-BASED COMPENSATION. The accounting guidance related to share-based payments requires recognition of compensation expense for stock-based awards using a fair value method. We use the Black-Scholes option pricing model to calculate the fair value of stock options. The value of restricted stock awards is based on the stock price of the award on the grant date. We record stock-based compensation expense in the “Salaries and employee benefits” caption in the accompanying consolidated statements of income. We issue new shares or treasury shares from stock repurchases to cover employee stock option exercises and restricted stock grants.

TREASURY SHARES. In January 2016, our Board of Directors authorized a stock repurchase program of up to 25 million shares. During 2019, we repurchased 6.6 million shares of FedEx common stock at an average price of $222.94 per share for a total of $1.5 billion. As of May 31, 2019, 5.1 million shares remained under the stock repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.

In 2018, we repurchased 4.3 million shares of FedEx common stock at an average price of $237.45 per share for a total of $1.0 billion. In 2017, we repurchased 3.0 million shares of FedEx common stock at an average price of $172.13 per share for a total of $509 million. 

DIVIDENDS DECLARED PER COMMON SHARE. On June 10, 2019, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend was paid on July 8, 2019 to stockholders of record as of the close of business on June 24, 2019. 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 at the end of each fiscal year. 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.

BUSINESS REALIGNMENT COSTS. In December 2018, we announced cost-reduction programs primarily through initiatives at FedEx Services and FedEx Express in response to current business and economic conditions that included the following:

 

A U.S.-based voluntary employee buyout program for eligible employees;

 

Limited hiring in staff functions; and

 

Reductions in discretionary spending.

During 2019, we conducted a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The U.S.-based voluntary employee buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance payment calculated based on four weeks of gross base salary for every year of continuous service up to a maximum payment of two years of pay. This program was completed in the fourth quarter of 2019, and approximately 1,500 employees have left or will be leaving during 2020. Costs of the benefits provided under the U.S.-based voluntary employee buyout program were recognized as special termination benefits in the period that eligible employees accepted their offers.

We incurred costs of $320 million ($243 million, net of tax, or $0.91 per diluted share) during 2019 associated with our business realignment activities. These costs related primarily to severance for employees who accepted voluntary buyouts in the third and fourth quarters of 2019. Payments are made at the time of departure. Approximately $220 million was paid under this program during 2019. The cost of the U.S.-based voluntary employee buyout program is included in the caption “Business realignment costs” in our consolidated statements of income. Also included in that caption are other incremental, external costs directly attributable to our business realignment activities, such as professional fees.

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 revenues 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); and purchase price allocations.

v3.19.2
Recent Accounting Guidance
12 Months Ended
May 31, 2019
New Accounting Pronouncements And Changes In Accounting Principles [Abstract]  
Recent Accounting Guidance

NOTE 2: RECENT ACCOUNTING GUIDANCE

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

Recently Adopted Accounting Standards

In 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board issued a new accounting standard that supersedes virtually all existing revenue recognition guidance under GAAP. The fundamental principles of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and the amount of revenue recognized reflects the consideration that a company expects to receive for the goods and services provided. The new guidance establishes a five-step approach for the recognition of revenue. We adopted this standard as of June 1, 2018 (fiscal 2019) using the modified retrospective method of adoption as permitted by the standard. The new guidance did not have an impact on our revenue recognition policies, practices or systems; therefore, there was no cumulative-effect adjustment to retained earnings as of June 1, 2018.

In March 2017, the FASB issued an Accounting Standards Update (ASU 2017-07) that changes how employers that sponsor defined benefit pension or other postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires entities to report the service cost component in the same line item or items as other compensation costs. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component outside of income from operations. This standard impacts our operating income but has no impact on our net income or earnings per share. We adopted this standard effective June 1, 2018 (fiscal 2019) and applied these changes retrospectively. As such, prior year financial results are recast to conform to these new rules.

The following table presents our results under our historical method of accounting and as adjusted to reflect our adoption of ASU 2017-07 (in millions):

 

 

May 31, 2018

 

 

May 31, 2017

 

 

 

Reported

 

 

Effect of Adoption of ASU 2017-07

 

 

As Adjusted

 

 

Reported

 

 

Effect of Adoption of ASU 2017-07

 

 

As Adjusted

 

Revenue

 

$

65,450

 

 

$

 

 

$

65,450

 

 

$

60,319

 

 

$

 

 

$

60,319

 

Operating income

 

 

4,870

 

 

 

(598

)

 

 

4,272

 

 

 

5,037

 

 

 

(471

)

 

 

4,566

 

Other income (expense), net

 

 

(517

)

 

 

598

 

 

 

81

 

 

 

(458

)

 

 

471

 

 

 

13

 

Net income

 

 

4,572

 

 

 

 

 

 

4,572

 

 

 

2,997

 

 

 

 

 

 

2,997

 

In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-14) that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. This new guidance had a minimal impact on our financial reporting. We adopted these new rules in the fourth quarter of 2019 and applied them retrospectively.

New Accounting Standards and Accounting Standards Not Yet Adopted

In 2016, the FASB issued a new lease accounting standard which requires lessees to put most leases on their balance sheets but recognize the expenses in their income statements in a manner similar to current practice. The new standard states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-of-use asset for the right to use the underlying asset for the lease term. Expenses related to leases determined to be operating leases will be recognized on a straight-line basis, while those determined to be financing leases will be recognized following a front-loaded expense profile in which interest and amortization are presented separately in the income statement. The new standard will also require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements as well as additional information about the amounts recorded in the financial statements.

We are adopting the new leasing standard using a modified retrospective transition method as of the beginning of the period of adoption; therefore, we will not adjust the comparative periods presented but will record a cumulative effect adjustment to retained earnings effective as of June 1, 2019. We will elect the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption and to not separate lease and non-lease components for certain classes of assets. We will make an accounting policy election not to recognize leases with an initial term of 12 months or less on the consolidated balance sheets.

Based on our lease portfolio, we anticipate recognizing a lease liability and related right-of-use asset on our balance sheet of approximately $14 billion, with an immaterial impact on our income statement compared to the current lease accounting model. In addition, we expect to de-recognize existing deferred gains on sale leasebacks of aircraft of approximately $56 million as a cumulative-effect adjustment to retained earnings effective as of June 1, 2019. The majority of our existing lease arrangements are classified as operating leases, which will continue to be classified as operating under the new standard. In connection with the adoption of these new rules, we implemented changes to our policies, processes, information systems and internal controls to ensure we meet the standard’s reporting and disclosure requirements.

In June 2016, the FASB issued an Accounting Standards Update (ASU 2016-13) that changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. These changes will be effective June 1, 2020 (fiscal 2021). We are assessing the impact of this new standard on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued an Accounting Standards Update (ASU 2018-02) that will permit companies to reclassify the income tax effect of the Tax Cuts and Jobs Act (“TCJA”) on items within AOCI to retained earnings. We are adopting this standard as of June 1, 2019 (fiscal 2020) and are electing to reclassify these tax effects, which are immaterial to our financial statements.

In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-15) that reduces the complexity for accounting for costs of implementing a cloud computing service arrangement and aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. These changes will be effective June 1, 2020 (fiscal 2021). We are assessing the impact of this new standard on our consolidated financial statements and related disclosures.

v3.19.2
Business Combinations
12 Months Ended
May 31, 2019
Business Combinations [Abstract]  
Business Combinations

NOTE 3: BUSINESS COMBINATIONS

On May 1, 2019, we acquired the international express division of FC (Flying Cargo) Express Ltd. (“Flying Cargo”) for $67 million in cash from operations. The majority of the purchase price was allocated to goodwill. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition and were not material to our results of operations. Therefore, pro forma financial information has not been provided.

On October 1, 2018, we acquired the controlling interest in an existing joint venture with Swiss Post, which operates a Swiss-wide transport system with connections to TNT Express’s global network. The controlling interest was acquired through the noncash contribution of a complementary Swiss business into the venture, resulting in the recognition of an immaterial gain. The majority of the purchase price was allocated to goodwill and other intangibles. The financial results of this acquired business are included in the FedEx Express segment from the date of acquisition and were not material to our results of operations. Therefore, pro forma financial information has not been provided. 

On March 23, 2018, we acquired P2P Mailing Limited (“P2P”), a leading provider of worldwide, low-cost e-commerce transportation solutions, for £92 million ($135 million) in cash from operations. The majority of the purchase price was allocated to goodwill. The financial results of this acquired business are included in the FedEx Logistics operating segment from the date of acquisition and were not material to our results of operations. Therefore, pro forma financial information has not been provided.

On October 13, 2017, we acquired Northwest Research, Inc. (“Northwest Research”), a leader in inventory research and management, for $50 million in cash from operations. The majority of the purchase price was allocated to property and equipment. The financial results of this acquired business are included in the FedEx Services segment from the date of acquisition and were not material to our results of operations. Therefore, pro forma financial information has not been provided.

v3.19.2
Goodwill and Other Intangible Assets
12 Months Ended
May 31, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill And Other Intangible Assets

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

 

 

FedEx Services

Segment

 

 

Corporate, Other and Eliminations

 

 

Total

 

Goodwill at May 31, 2017

 

$

4,953

 

 

$

827

 

 

$

764

 

 

$

1,525

 

 

$

395

 

 

$

8,464

 

Accumulated impairment charges

 

 

 

 

 

 

 

 

(133

)

 

 

(1,177

)

 

 

 

 

 

(1,310

)

Balance as of May 31, 2017

 

 

4,953

 

 

 

827

 

 

 

631

 

 

 

348

 

 

 

395

 

 

 

7,154

 

Goodwill acquired(1)

 

 

76

 

 

 

14

 

 

 

3

 

 

 

 

 

 

32

 

 

 

125

 

Purchase adjustments and other(2)

 

 

71

 

 

 

(1

)

 

 

 

 

 

 

 

 

(2

)

 

 

68

 

Impairment charges(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(374

)

 

 

(374

)

Balance as of May 31, 2018

 

 

5,100

 

 

 

840

 

 

 

634

 

 

 

348

 

 

 

51

 

 

 

6,973

 

Goodwill acquired(4)

 

 

126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

126

 

Purchase adjustments and other(2)

 

 

(210

)

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

(215

)

Balance as of May 31, 2019

 

$

5,016

 

 

$

840

 

 

$

634

 

 

$

348

 

 

$

46

 

 

$

6,884

 

Accumulated goodwill impairment charges

   as of May 31, 2019

 

$

 

 

$

 

 

$

(133

)

 

$

(1,177

)

 

$

(374

)

 

$

(1,684

)

 

 

(1)

Goodwill acquired relates to the acquisitions of Northwest Research and P2P. See Note 3 for more information.

 

(2)

Primarily purchase price allocation-related adjustments, currency translation adjustments and acquired goodwill related to immaterial acquisitions.

 

(3)

Impairment charges related to the goodwill impairment of FedEx Supply Chain described below.

 

(4)

Goodwill acquired relates to the acquisitions of Flying Cargo and the controlling interest in an existing joint venture with Swiss Post. See Note 3 for more information.

Our reporting units with significant recorded goodwill include FedEx Express, FedEx Ground, FedEx Freight and FedEx Office (reported in the FedEx Services segment). We evaluated these reporting units during the fourth quarter of 2019. The estimated fair value of each of these reporting units exceeded their carrying values in 2019, and we do not believe that any of these reporting units were impaired as of May 31, 2019.

In 2018, we incurred a goodwill impairment charge of $374 million related to FedEx Supply Chain, eliminating substantially all of the goodwill attributable to this reporting unit. In our evaluation of the goodwill of this reporting unit, we compared the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value was estimated using standard valuation methodologies (principally the income and market approach) incorporating market participant considerations and management’s assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. The key factors contributing to the goodwill impairment were underperformance of the FedEx Supply Chain business during 2018, including base business erosion, and the failure to attain the level of operating synergies and revenue and profit growth anticipated at the time of the acquisition. Based on these factors, our outlook for the business and industry changed in the fourth quarter of 2018. No other impairments of goodwill were recognized during 2019, 2018 or 2017.

OTHER INTANGIBLE ASSETS. The summary of our intangible assets and related accumulated amortization at May 31, 2019 and 2018 is as follows (in millions):

 

 

 

2019

 

 

2018

 

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Book

Value

 

Customer relationships

 

$

685

 

 

$

(293

)

 

$

392

 

 

$

676

 

 

$

(250

)

 

$

426

 

Technology

 

 

66

 

 

 

(51

)

 

 

15

 

 

 

68

 

 

 

(39

)

 

 

29

 

Trademarks and other

 

 

137

 

 

 

(128

)

 

 

9

 

 

 

141

 

 

 

(116

)

 

 

25

 

Total

 

$

888

 

 

$

(472

)

 

$

416

 

 

$

885

 

 

$

(405

)

 

$

480

 

 

Amortization expense for intangible assets was $82 million in 2019, $87 million in 2018 and $91 million in 2017.

Expected amortization expense for the next five years is as follows (in millions):

 

2020

$

64

 

2021

 

52

 

2022

 

45

 

2023

 

43

 

2024

 

42

 

 

v3.19.2
Selected Current Liabilities
12 Months Ended
May 31, 2019
Accounts Payable And Accrued Liabilities Fair Value Disclosure [Abstract]  
Selected Current Liabilities

NOTE 5: SELECTED CURRENT LIABILITIES

The components of selected current liability captions at May 31 were as follows (in millions):

 

 

 

2019

 

 

2018

 

Accrued Salaries and Employee Benefits

 

 

 

 

 

 

 

 

Salaries

 

$

425

 

 

$

498

 

Employee benefits, including variable compensation

 

 

552

 

 

 

933

 

Compensated absences

 

 

764

 

 

 

746

 

 

 

$

1,741

 

 

$

2,177

 

Accrued Expenses

 

 

 

 

 

 

 

 

Self-insurance accruals

 

$

1,104

 

 

$

957

 

Taxes other than income taxes

 

 

304

 

 

 

334

 

Other

 

 

1,870

 

 

 

1,840

 

 

 

$

3,278

 

 

$

3,131

 

 

v3.19.2
Long-Term Debt and Other Financing Arrangements
12 Months Ended
May 31, 2019
Debt And Capital Lease Obligations [Abstract]  
Long-term Debt and Other Financing Arrangements

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, 2019, are as follows (in millions):

 

 

 

 

 

 

 

 

 

May 31,

 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

 

Interest Rate%

 

 

Maturity

 

 

 

 

 

 

 

 

Senior unsecured debt:

 

 

8.00

 

 

2019

 

$

 

 

$

750

 

 

 

 

2.30

 

 

2020

 

 

400

 

 

 

399

 

 

 

 

3.40

 

 

2022

 

 

497

 

 

 

 

 

 

2.625-2.70

 

 

2023

 

 

747

 

 

 

746

 

 

 

 

4.00

 

 

2024

 

 

746

 

 

 

746

 

 

 

 

3.20

 

 

2025

 

 

696

 

 

 

695

 

 

 

 

3.25

 

 

2026

 

 

745

 

 

 

744

 

 

 

 

3.30

 

 

2027

 

 

446

 

 

 

445

 

 

 

 

3.40

 

 

2028

 

 

495

 

 

 

495

 

 

 

 

4.20

 

 

2029

 

 

396

 

 

 

 

 

 

 

4.90

 

 

2034

 

 

495

 

 

 

495

 

 

 

 

3.90

 

 

2035

 

 

494

 

 

 

493

 

 

 

3.875-4.10

 

 

2043

 

 

984

 

 

 

983

 

 

 

 

5.10

 

 

2044

 

 

742

 

 

 

742

 

 

 

 

4.10

 

 

2045

 

 

641

 

 

 

640

 

 

 

4.55-4.75

 

 

2046

 

 

2,460

 

 

 

2,459

 

 

 

 

4.40

 

 

2047

 

 

735

 

 

 

735

 

 

 

 

4.05

 

 

2048

 

 

986

 

 

 

986

 

 

 

 

4.95

 

 

2049

 

 

835

 

 

 

 

 

 

 

4.50

 

 

2065

 

 

246

 

 

 

246

 

 

 

 

7.60

 

 

2098

 

 

237

 

 

 

237

 

Euro senior unsecured debt:

 

floating-rate

 

 

2019

 

 

 

 

 

582

 

 

 

 

0.50

 

 

2020

 

 

559

 

 

 

581

 

 

 

 

0.70

 

 

2022

 

 

713

 

 

 

 

 

 

 

1.00

 

 

2023

 

 

836

 

 

 

869

 

 

 

 

1.625

 

 

2027

 

 

1,387

 

 

 

1,442

 

Total senior unsecured debt

 

 

 

 

 

 

 

 

17,518

 

 

 

16,510

 

Other debt

 

 

 

 

 

 

 

 

1

 

 

 

4

 

Capital lease obligations

 

 

 

 

 

 

 

 

62

 

 

 

71

 

 

 

 

 

 

 

 

 

 

17,581

 

 

 

16,585

 

Less current portion

 

 

 

 

 

 

 

 

964

 

 

 

1,342

 

 

 

 

 

 

 

 

 

$

16,617

 

 

$

15,243

 

 

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, 2019. Long-term debt, including current maturities and exclusive of capital leases, had estimated fair values of $17.8 billion at May 31, 2019 and $16.6 billion at May 31, 2018. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.

We have a shelf registration statement filed with the Securities and Exchange Commission (“SEC”) that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock.

During January 2019, we issued $1.2 billion of senior unsecured debt under our current shelf registration statement, comprised of €640 million of 0.7% fixed-rate notes due in May 2022 and $500 million of 3.4% fixed-rate notes due in January 2022. We used the net proceeds to pay the €500 million aggregate principal amount of floating-rate notes that matured on April 11, 2019, and for general corporate purposes.

During October 2018, we issued $1.25 billion of senior unsecured debt under our current shelf registration statement, comprised of $400 million of 4.20% fixed-rate notes due in October 2028 and $850 million of 4.95% fixed-rate notes due in October 2048. We used the net proceeds to redeem the $750 million aggregate principal amount of 8.00% notes due January 15, 2019, and for general corporate purposes.

During the fourth quarter of 2019, we replaced our $2.0 billion five-year revolving credit facility with a $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and a $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and, together with the Five-Year Credit Agreement, the “New Credit Agreements”). The Five-Year Credit Agreement expires in March 2024 and includes a $250 million letter of credit sublimit. The 364-Day Credit Agreement expires in March 2020. The New Credit Agreements are available to finance our operations and other cash flow needs. The New Credit Agreements contain a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans MTM adjustments and noncash asset impairment charges) before interest, taxes, depreciation and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the end of the applicable quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was 2.25 to 1.0 at May 31, 2019. We believe this covenant is the only significant restrictive covenant in our New Credit Agreements. Our New Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with the financial covenant and all other covenants in our 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 our New Credit Agreements, our access to financing could become limited. We had a total of $53 million in letters of credit outstanding at May 31, 2019, with $197 million of the letter of credit sublimit unused under our revolving credit facility.

As of May 31, 2019, no commercial paper was outstanding.

v3.19.2
Leases
12 Months Ended
May 31, 2019
Leases [Abstract]  
Leases

NOTE 7: LEASES

We utilize certain aircraft, land, facilities, retail locations and equipment under capital and operating leases that expire at various dates through 2051. We leased 6% of our total aircraft fleet under operating leases as of May 31, 2019 and 7% as of May 31, 2018. 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.

Rent expense under operating leases for the years ended May 31 was as follows (in millions):

 

 

 

2019

 

 

2018

 

 

2017

 

Minimum rentals

 

$

2,875

 

 

$

2,913

 

 

$

2,814

 

Contingent rentals(1)

 

 

222

 

 

 

194

 

 

 

178

 

 

 

$

3,097

 

 

$

3,107

 

 

$

2,992

 

(1)

Contingent rentals are based on equipment usage.

A summary of future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2019 is as follows (in millions):