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Income Taxes | 12 Months Ended
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May 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | NOTE 12: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Current provision |  |  |  |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  | $ | (540 | ) |  | $ | 269 |  |  | $ | 513 |
State and local |  |  | 43 |  |  |  | 88 |  |  |  | 72 |
Foreign |  |  | 461 |  |  |  | 285 |  |  |  | 200 |
|  |  | (36 | ) |  |  | 642 |  |  |  | 785 |
Deferred provision (benefit) |  |  |  |  |  |  |  |  |  |  |  |
Domestic: |  |  |  |  |  |  |  |  |  |  |  |
Federal |  |  | 271 |  |  |  | 989 |  |  |  | 155 |
State and local |  |  | 125 |  |  |  | 59 |  |  |  | (18 | )
Foreign |  |  | (579 | ) |  |  | (108 | ) |  |  | (2 | )
|  |  | (183 | ) |  |  | 940 |  |  |  | 135 |
|  | $ | (219 | ) |  | $ | 1,582 |  |  | $ | 920 |
Pre-tax earnings of foreign operations for 2018, 2017 and 2016 were $958 million, $919 million and $905 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 (29.2% in 2018 and 35% in 2017 and 2016) to income before taxes for the years ended May 31 is as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Taxes computed at federal statutory rate |  | $ | 1,271 |  |  | $ | 1,603 |  |  | $ | 959 |
Increases (decreases) in income tax from: |  |  |  |  |  |  |  |  |  |  |  |
Goodwill impairment charge |  | 109 |  |  |  | — |  |  |  | — |
State and local income taxes, net of federal benefit |  |  | 119 |  |  |  | 99 |  |  |  | 33 |
Foreign operations |  |  | 43 |  |  |  | (19 | ) |  |  | (50 | )
Corporate structuring transactions (1) |  |  | (255 | ) |  |  | (68 | ) |  |  | (76 | )
Tax Cuts and Jobs Act (2) |  |  | (1,357 | ) |  |  | — |  |  |  | — |
Foreign tax credits from distributions |  |  | (225 | ) |  |  | — |  |  |  | — |
Uncertain tax positions |  |  | 86 |  |  |  | — |  |  |  | — |
TNT Express integration and acquisition costs |  |  | 20 |  |  |  | 25 |  |  |  | 40 |
Other, net (3) |  |  | (30 | ) |  |  | (58 | ) |  |  | 14 |
|  | $ | (219 | ) |  | $ | 1,582 |  |  | $ | 920 |
Effective Tax Rate |  |  | (5.0 | )% |  |  | 34.6 | % |  |  | 33.6 | %
(1) | The 2018 and 2017 net benefits consist of foreign deferred tax benefits of $434 million and $94 million, respectively, which were partially offset by U.S. deferred tax expenses of $179 million and $26 million, respectively.
(2) | Primary components are a $1.15 billion benefit from the remeasurement of our net U.S. deferred tax liability and a $204 million one-time benefit from a contribution to our U.S. Pensions Plans in February 2018.
(3) | Includes benefits from share-based payments of $60 million and $55 million in 2018 and 2017, respectively.
Our 2018 tax rate was favorably impacted by the enactment of the TCJA during the third quarter. In accordance with SAB 118, we have recorded a provisional benefit of $1.15 billion related to the remeasurement of our net U.S. deferred tax liability and an immaterial provisional benefit from the one-time transition tax on previously deferred foreign earnings. In addition, we recognized a benefit of $265 million related to a lower statutory income tax rate on 2018 earnings and a one-time benefit of $204 million from a $1.5 billion contribution to our U.S. Pension Plans in February 2018. Our 2018 tax rate also included a net benefit of $255 million from a tax basis step-up attributable to corporate structuring transactions as part of the ongoing integration of FedEx Express and TNT Express. We also recorded a benefit of $225 million from foreign tax credits generated by distributions to the U.S. from our foreign operations. Our 2017 tax rate was favorably impacted by $62 million as a result of the implementation of new U.S. foreign currency tax regulations. The TCJA makes broad and complex changes to the U.S. tax code that affected 2018 in multiple ways, including but not limited to: (1) reducing our U.S. federal income tax rate from 35% to 29.2% (as discussed below); (2) providing for additional first-year depreciation by allowing full expensing of qualified property placed into service after September 27, 2017; and (3) requiring us to calculate a one-time U.S. tax liability on those earnings which have not previously been repatriated to the U.S. (the transition tax). SAB 118 was issued to address the application of U.S. generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to finalize the calculations for certain income tax effects of the TCJA. In accordance with SAB 118, we have made reasonable estimates and recorded provisional amounts as described below. Under the transitional provisions of SAB 118, we have a one-year measurement period to complete the accounting for the initial tax effects of the TCJA. We are still in the process of completing that accounting. The TCJA reduced the corporate tax rate from 35% to 21%, effective January 1, 2018. U.S. tax law stipulates that our 2018 earnings are subject to a blended tax rate of 29.2%, which is based on the prorated number of days in the fiscal year before and after the effective date. As a result, we have remeasured certain deferred tax assets and deferred tax liabilities accordingly and recorded a provisional net tax benefit of $1.15 billion. The transition tax is based on our total accumulated post-1986 foreign earnings and profits, the majority of which was previously considered to be indefinitely reinvested and, accordingly, no U.S. federal and state income taxes were provided. We recorded a provisional immaterial U.S. tax benefit from foreign tax credits exceeding the one-time transition tax liability and an immaterial provisional amount for state income taxes. Because of the complexities of the TCJA, we are still finalizing our analysis of the transition tax liability calculation. No additional income taxes have been provided for any additional outside basis differences inherent in these entities beyond those basis differences triggered by the transition tax, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of the unrecognized deferred tax liability related to any additional outside basis differences in these entities (e.g., stock basis differences attributable to acquisitions or other permanent differences) is not practicable. We will complete our analysis of the impact of the TCJA on our outside basis differences in subsidiaries and respective indefinite reinvestment assertions during the measurement period and make additional disclosures, if necessary. With respect to the new TCJA provision on global intangible low-tax income, which will apply to us starting in 2019, we have not made an accounting policy election on the deferred tax treatment. Consequently, we have not made an accrual for the deferred tax aspects of this provision. Our accounting for the income tax effects of the TCJA will be completed during the measurement period allowed under SAB 118, and we will record any necessary adjustments in the period such adjustments are identified. While we were able to make a reasonable estimate of the impact of the income tax effects of the new law, it may be affected by, among other items, further analysis of certain aspects of the TCJA, subsequent guidance issued by the U.S. government, and changes to estimates made to calculate our existing temporary differences. The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
|  | 2018 |  |  | 2017 |
|  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |  |  | Deferred Tax Assets |  |  | Deferred Tax Liabilities |
Property, equipment, leases and intangibles |  | $ | 752 |  |  | $ | 3,663 |  |  | $ | 124 |  |  | $ | 4,993 |
Employee benefits |  |  | 595 |  |  |  | 31 |  |  |  | 1,951 |  |  |  | — |
Self-insurance accruals |  |  | 494 |  |  |  | — |  |  |  | 745 |  |  |  | — |
Other |  |  | 416 |  |  |  | 602 |  |  |  | 692 |  |  |  | 660 |
Net operating loss/credit carryforwards |  |  | 1,146 |  |  |  | — |  |  |  | 1,069 |  |  |  | — |
Valuation allowances |  |  | (711 | ) |  |  | — |  |  |  | (738 | ) |  |  | — |
|  | $ | 2,692 |  |  | $ | 4,296 |  |  | $ | 3,843 |  |  | $ | 5,653 |
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
|  | 2018 |  |  | 2017 |
Noncurrent deferred tax assets(1) |  | $ | 1,263 |  |  | $ | 675 |
Noncurrent deferred tax liabilities |  |  | (2,867 | ) |  |  | (2,485 | )
|  | $ | (1,604 | ) |  | $ | (1,810 | )
(1) | Noncurrent deferred tax assets are included in the line item “Other Assets” in our consolidated balance sheets.
We have approximately $3.6 billion of net operating loss carryovers in various foreign jurisdictions and $770 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 2019. 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 sheet. See Note 1 above 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. The Internal Revenue Service is currently auditing our 2014 and 2015 tax returns. 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):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Balance at beginning of year |  | $ | 67 |  |  | $ | 49 |  |  | $ | 36 |
Increases for tax positions taken in the current year |  |  | 3 |  |  |  | — |  |  |  | 3 |
Increases for tax positions taken in prior years |  |  | 103 |  |  |  | 8 |  |  |  | 3 |
Increase for business acquisition |  |  | — |  |  |  | 17 |  |  |  | 25 |
Decreases for tax positions taken in prior years |  |  | (10 | ) |  |  | (1 | ) |  |  | (5 | )
Settlements |  |  | (2 | ) |  |  | (4 | ) |  |  | (4 | )
Decreases from lapse of statute of limitations |  |  | — |  |  |  | (2 | ) |  |  | (7 | )
Changes due to currency translation |  |  | — |  |  |  | — |  |  |  | (2 | )
Balance at end of year |  | $ | 161 |  |  | $ | 67 |  |  | $ | 49 |
Our liabilities recorded for uncertain tax positions include $142 million at May 31, 2018 and $63 million at May 31, 2017 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 $35 million on May 31, 2018 and $11 million on May 31, 2017. 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 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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