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Income Taxes | 12 Months Ended
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May 31, 2016
Income Taxes [Abstract] |
Income Taxes | NOTE 1 2: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
|  |  | 2016 |  | 2015 |  | 2014
Current provision |  |  |  |  |  |  |  |
| Domestic: |  |  |  |  |  |  |  |
|  | Federal | $ | 513 |  | $ | 795 |  | $ | 624
|  | State and local |  | 72 |  |  | 102 |  |  | 56
| Foreign |  | 200 |  |  | 214 |  |  | 194
|  |  |  | 785 |  |  | 1,111 |  |  | 874
Deferred provision (benefit) |  |  |  |  |  |  |  |
| Domestic: |  |  |  |  |  |  |  |
|  | Federal |  | 155 |  |  | (474) |  |  | 360
|  | State and local |  | (18) |  |  | (47) |  |  | 82
| Foreign |  | (2) |  |  | (13) |  |  | 18
|  |  |  | 135 |  |  | (534) |  |  | 460
|  |  | $ | 920 |  | $ | 577 |  | $ | 1,334
Pre-tax earnings of foreign operations for 2016, 2015 and 2014 were $905 million, $773 million and $412 million, respectively. These amounts represent only a portion of total results associated with international shipments and do not represent our international results of operations. A reconciliation of total income tax expense and the amount computed by applying the statutory federal income tax rate (35%) to income before taxes for the years ended May 31 is as follows (in millions):
|  |  | 2016 |  | 2015 |  | 2014 |
Taxes computed at federal statutory rate | $ | 959 |  | $ | 569 |  | $ | 1,280 |
Increases (decreases) in income tax from: |  |  |  |  |  |  |  |  |
| State and local income taxes, |  |  |  |  |  |  |  |  |
|  | net of federal benefit |  | 33 |  |  | 36 |  |  | 90 |
| Foreign operations |  | (50) |  |  | (43) |  |  | (38) |
| Internal restructuring |  | (76) |  |  | - |  |  | - |
| TNT Express acquisition costs |  | 40 |  |  | - |  |  | - |
| Other, net |  | 14 |  |  | 15 |  |  | 2 |
| $ | 920 |  | $ | 577 |  | $ | 1,334 |
Effective Tax Rate |  | 33.6% |  |  | 35.5% |  |  | 36.5% |
Our 2016 tax rate was favorably impacted by $76 million from an internal corporate restructuring done in anticipation of the integration of the foreign operations of FedEx Express and TNT Express. As part of this restructuring, our Canadian subsidiary made distributions to our U.S. operations which resulted in the recognition of U.S. foreign tax credits in excess of the U.S. taxes incurred from the distributions. This favorable impact was partially offset by a $40 million tax expense attributable to non-deductible expenses incurred as part of the TNT Express acquisition. The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
|  | 2016 |  | 2015
|  | Deferred Tax Assets |  | Deferred Tax Liabilities |  | Deferred Tax Assets |  | Deferred Tax Liabilities
Property, equipment, |  |  |  |  |  |  |  |  |  |  |
| leases and intangibles | $ | 129 |  | $ | 4,767 |  | $ | 93 |  | $ | 3,872
Employee benefits |  | 2,453 |  |  | - |  |  | 2,029 |  |  | 13
Self-insurance accruals |  | 681 |  |  | - |  |  | 607 |  |  | -
Other |  | 528 |  |  | 343 |  |  | 477 |  |  | 414
Net operating loss/credit |  |  |  |  |  |  |  |  |  |  |
| carryforwards |  | 925 |  |  | - |  |  | 326 |  |  | -
Valuation allowances |  | (738) |  |  | - |  |  | (224) |  |  | -
|  | $ | 3,978 |  | $ | 5,110 |  | $ | 3,308 |  | $ | 4,299
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
|  | 2016 |  | 2015 |  |  |  |
| Noncurrent deferred tax assets(1) | $ | 435 |  | $ | 219 |  |  |  |
| Noncurrent deferred tax liabilities |  | (1,567) |  |  | (1,210) |  |  |  |
|  | $ | (1,132) |  | $ | (991) |  |  |  |
(1) | Noncurrent deferred tax assets are included in the line item "Other Assets" in our consolidated balance sheets.
The table above has been re vised to reflect the new a ccounting s tandard discussed in Note 2 which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet. We have approximately $3.0 b illion of net operating loss carryovers in various foreign jurisdictions and $581 million of state operating loss carryovers. The valuation allowances primarily represent amounts reserved for operating loss and tax credit carryforwards, which expire over varying periods starting in 201 7. The change in the valuation allowance is primarily due to the increase in net operating losses as a result of the acquisition of TNT Express. As a result of this and other factors, we believe that a substantial portion of these deferred tax assets may not be realized. We establish valuation allowances if it is more likely than not that deferred income tax asset s will not be realized. In making this determination, we consider all available positive and negative evidence and make certain assumptions. We consider, among other things, our future projections of sustained profitability, deferred income tax liabilities, the overall business environment, our historical financial results and potential current and future tax planning strategies. If we were to identify and implement tax planning strategies to recover these deferred tax assets or generate sufficient income of the appropriate character in these jurisdictions in the future, it could lead to the reversal of these valuation allowances and a reduction of income tax expense. 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. Permanently reinvested earnings of our foreign subsidia ries amounted to $1.6 billion at the end of 2016 and $1.9 b illion at the end of 2015. Our permanently reinvested earnings were reduced in 2016 due to an internal corporate restructuring done to facilitate the integration of FedEx Express and TNT Express. We have not recognized deferred taxes for U.S. federal incom e tax purposes on those earnings. In 2016, our permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries provided an approximate $48 million benefit to our provision for income taxes. Were the earnings to be distributed, in the form of dividends or otherwise, these earnings c ould be subject to U.S. federal income tax and non-U.S. withholding taxes. Unrecognized f oreign tax credits potentially c ould be available to reduce a portion of any U.S. tax liability. D etermination of the amount of unrecognized deferred U.S. inco me tax liability is not practicable d ue to uncertainties related to the timing and source of any potential distribution of such funds, along with other important factors such as the amount of associated foreign tax credits. C ash in offshore jurisdictions associated with our permanent reinvestment strategy totaled $522 million at the end of 2016 and $4 7 8 million at the end of 2015. In 201 6, approximately 80% of our total enterprise-wide income was earned in U.S. companies of FedEx that are taxable in the United States. As a U.S. airline, our FedEx Express unit is required by Federal Aviation Administration and other rules to conduct its air operations, domestic and international, through a U.S. company. However, w e serve more than 220 countries and territories around the world, and are required to establish legal entities in many of them. Most of our entities in those countries are operating entities, engaged in picking up and delivering packages and performing other transportation services. W e are c ontinu ally expand ing our global network to meet our customers' needs, which requires increasing investment outside the U.S. We typically use cash generated overseas to fund these investments and have a foreign holding company which manages our investments in seve ral foreign operating companies. We are subject to taxation in the U.S. and various U.S. state, lo cal and foreign jurisdictions. During 2016, the I nternal R evenue S ervice completed the audit of our 2012 and 2013 tax returns without any significant adjustments. 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. The expected impact of any changes would not be material to our consolidated financial statements. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
|  | 2016 |  | 2015 |  | 2014
Balance at beginning of year | $ | 36 |  | $ | 38 |  | $ | 47
| Increases for tax positions taken in the current year |  | 3 |  |  | 1 |  |  | 1
| Increases for tax positions taken in prior years |  | 3 |  |  | 6 |  |  | 3
| Increase for business acquisition |  | 25 |  |  | - |  |  | -
| Decreases for tax positions taken in prior years |  | (5) |  |  | (2) |  |  | (3)
| Settlements |  | (4) |  |  | (2) |  |  | (6)
| Decreases from lapse of statute of limitations |  | (7) |  |  | - |  |  | (3)
| Changes due to currency translation |  | (2) |  |  | (5) |  |  | (1)
Balance at end of year | $ | 49 |  | $ | 36 |  | $ | 38
Our liabilities recorded for uncertain tax positions include $45 million at May 31, 2016 and $3 1 mil lion at May 31, 2015 associated with positions that if favorably resolved would provide a benefit to our effective tax rate. 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 $11 million on May 31, 2016 and $19 million on May 31, 2015. Total interest and penalties included in our consolidated statements of income are immaterial. It is difficult to predict the ultimate outcome or the timing of resolution for tax positions. Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local, federal and foreign tax jurisdictions, or from the resolution of various proceedings between U.S. and foreign tax authorities. Our liability for uncertain tax positions includes no matters that are individually or collectively material to us. 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, but an estimate of the range of the reasonably possible changes cannot be made. However, we do not expect that the resolution of any of our uncertain tax positions will have a material effect on us.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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