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General | 6 Months Ended
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Nov. 30, 2018
General [Abstract] |
General | (1) General SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. These interim financial statements of FedEx Corporation (“FedEx”) have been prepared in accordance with accounting principles generally accepted in the United States and Securities and Exchange Commission (“SEC”) instructions for interim financial information, and should be read in conjunction with our Annual Report on Form 10-K for the year ended May 31, 2018 (“Annual Report”). Accordingly, significant accounting policies and other disclosures normally provided have been omitted since such items are disclosed in our Annual Report. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly our financial position as of November 30, 2018, and the results of our operations for the three- and six-month periods ended November 30, 2018 and 2017 and cash flows for the six-month periods ended November 30, 2018 and 2017. Operating results for the three- and six-month periods ended November 30, 2018 are not necessarily indicative of the results that may be expected for the year ending May 31, 2019. Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2019 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. RECLASSIFICATIONS. Certain reclassifications have been made to the prior years’ condensed consolidated financial statements to conform to the current year presentation. REVENUE RECOGNITION. Satisfaction of Performance Obligation We recognize revenue upon delivery of shipments for our transportation businesses and upon completion of services for our business services, logistics and trade services businesses. Transportation services are provided with the use of employees and independent businesses that contract with FedEx. 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 are recognized as incurred and included in the caption “Purchased transportation” in the accompanying unaudited condensed consolidated statements of income. For shipments in transit, revenue is recorded based on the percentage of service completed at the balance sheet date which results in our recognizing revenue 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 vast majority of our contracts include only one performance obligation, which is short in duration and spans only a few days. 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 stand-alone selling prices of the promised goods or services underlying each performance obligation. We frequently sell standard transportation services with observable stand-alone sales prices. In these instances, the observable stand-alone sales are used to determine the stand-alone selling price. We sell customized customer-specific solutions, such as logistics, through which we provide the service of integrating a complex set of tasks and components into a single capability (even if that single capability results in the delivery of multiple units). Therefore, the entire contract is accounted for as one performance obligation. In these cases, we typically use the expected cost plus a margin approach to estimate the stand-alone selling price of each performance obligation. Variable Consideration It is common for our contracts to contain customer incentives, guaranteed service refunds or other provisions that can either increase or decrease the transaction price. These variable amounts are generally awarded based upon certain incentive achievements or performance metrics. We estimate variable consideration as the most likely amount to which we expect to be entitled. Estimates for adjustments to revenue and accounts receivable are recognized at the time of shipment for certain customer initiatives, money-back service guarantees and billing corrections based on our assessment of historical, current and forecasted information available. Delivery costs are accrued as incurred. Contract Modification Contracts are often modified to account for changes in the rates we charge our customers or to add additional distinct services. We consider contract modifications to exist when the modification either creates new enforceable rights and obligations or alters the existing arrangement. Contract modifications that add distinct goods or services are treated as separate contracts. Contract modifications that do not add distinct goods or services typically change the price of existing services. These contract modifications are accounted for prospectively as the remaining performance obligations are executed. 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 $600 million and $542 million at November 30, 2018 and May 31, 2018, respectively. Contract assets net of deferred unearned revenue were $423 million and $363 million at November 30, 2018 and May 31, 2018, respectively. Contract assets are included within current assets in the accompanying unaudited condensed consolidated balance sheets. Contract liabilities related to advance payments from customers were $9 million and $13 million at November 30, 2018 and May 31, 2018, respectively. Contract liabilities are included within current liabilities in the accompanying unaudited condensed consolidated balance sheets. Our contract logistics, global trade services and certain transportation businesses engage in some 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. 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 The following table provides revenue by service type (dollars in millions) for the periods ended November 30. This presentation is consistent with how we organize our segments internally for making operating decisions and measuring performance.
|  | Three Months Ended |  |  | Six Months Ended |
|  | November 30, |  |  | November 30, |
|  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017 |
REVENUE BY SERVICE TYPE |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
FedEx Express segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Package: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. overnight box |  | $ | 1,948 |  |  | $ | 1,787 |  |  | $ | 3,834 |  |  | $ | 3,537 |
U.S. overnight envelope |  |  | 444 |  |  |  | 432 |  |  |  | 912 |  |  |  | 882 |
U.S. deferred |  |  | 1,060 |  |  |  | 922 |  |  |  | 2,012 |  |  |  | 1,800 |
Total U.S. domestic package revenue |  |  | 3,452 |  |  |  | 3,141 |  |  |  | 6,758 |  |  |  | 6,219 |
International priority |  |  | 1,896 |  |  |  | 1,865 |  |  |  | 3,770 |  |  |  | 3,628 |
International economy |  |  | 885 |  |  |  | 815 |  |  |  | 1,735 |  |  |  | 1,585 |
Total international export package revenue |  |  | 2,781 |  |  |  | 2,680 |  |  |  | 5,505 |  |  |  | 5,213 |
International domestic(1) |  |  | 1,203 |  |  |  | 1,228 |  |  |  | 2,334 |  |  |  | 2,284 |
Total package revenue |  |  | 7,436 |  |  |  | 7,049 |  |  |  | 14,597 |  |  |  | 13,716 |
Freight: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. |  |  | 792 |  |  |  | 688 |  |  |  | 1,522 |  |  |  | 1,301 |
International priority |  |  | 564 |  |  |  | 541 |  |  |  | 1,097 |  |  |  | 995 |
International economy |  |  | 554 |  |  |  | 481 |  |  |  | 1,073 |  |  |  | 862 |
International airfreight |  |  | 83 |  |  |  | 100 |  |  |  | 168 |  |  |  | 183 |
Total freight revenue |  |  | 1,993 |  |  |  | 1,810 |  |  |  | 3,860 |  |  |  | 3,341 |
Other |  |  | 175 |  |  |  | 217 |  |  |  | 369 |  |  |  | 419 |
Total FedEx Express segment |  |  | 9,604 |  |  |  | 9,076 |  |  |  | 18,826 |  |  |  | 17,476 |
FedEx Ground segment |  |  | 5,142 |  |  |  | 4,525 |  |  |  | 9,941 |  |  |  | 8,770 |
FedEx Freight segment |  |  | 1,918 |  |  |  | 1,673 |  |  |  | 3,877 |  |  |  | 3,337 |
FedEx Services segment |  |  | 429 |  |  |  | 416 |  |  |  | 846 |  |  |  | 816 |
FedEx Trade Networks operating segment |  |  | 966 |  |  |  | 834 |  |  |  | 1,850 |  |  |  | 1,633 |
Eliminations |  |  | (235 | ) |  |  | (211 | ) |  |  | (464 | ) |  |  | (422 | )
|  | $ | 17,824 |  |  | $ | 16,313 |  |  | $ | 34,876 |  |  | $ | 31,610 |
| (1) | International domestic revenues relate to our intra-country operations.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS. The pilots of Federal Express Corporation (“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, Inc. facility, our U.S. employees have thus far chosen not to unionize (we acquired FedEx Supply Chain Distribution System, Inc. (“FedEx Supply Chain,” formerly GENCO Distribution System, Inc.) in 2015, which already had a small number of employees who are members of unions). Additionally, certain of FedEx Express’s non-U.S. employees are unionized. STOCK-BASED COMPENSATION. We have two types of equity-based compensation: stock options and restricted stock. The key terms of the stock option and restricted stock awards granted under our incentive stock plans and all financial disclosures about these programs are set forth in our Annual Report. Our stock-based compensation expense was $40 million for the three-month period ended November 30, 2018 and $108 million for the six-month period ended November 30, 2018. Our stock-based compensation expense was $41 million for the three-month period ended November 30, 2017 and $103 million for the six-month period ended November 30, 2017. Due to its immateriality, additional disclosures related to stock-based compensation have been excluded from this quarterly report. 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 December 2017, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 to provide guidance to registrants in accounting for income taxes under the Tax Cuts and Jobs Act (“TCJA”). 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 made reasonable estimates and recorded provisional amounts for the TCJA during 2018. 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. During the second quarter of 2019, we revised the provisional benefit associated with the remeasurement of our net U.S. deferred tax liability due to the corporate tax rate reduction under the TCJA. As a result, we recognized $4 million of tax expense resulting in a decrease to the $1.15 billion provisional benefit recorded in 2018. No other change to the provisional amounts recorded at May 31, 2018 has been recorded. We will continue to adjust provisional amounts for the impacts of the TCJA as more information and further guidance becomes available during the measurement period, which ends December 22, 2018. 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 generally accepted accounting principles in the United States. 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 upon adoption. 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):
|  | Three Months Ended November 30, 2017 |  |  | Six Months Ended November 30, 2017 |
|  | Reported |  |  | Effect of Adoption of ASU 2017-07 |  |  | As Adjusted |  |  | Reported |  |  | Effect of Adoption of ASU 2017-07 |  |  | As Adjusted |
Revenue |  | $ | 16,313 |  |  | $ | — |  |  | $ | 16,313 |  |  | $ | 31,610 |  |  | $ | — |  |  | $ | 31,610 |
Operating Income |  |  | 1,262 |  |  |  | (147 | ) |  |  | 1,115 |  |  |  | 2,379 |  |  |  | (293 | ) |  |  | 2,086 |
Other Income (Expense), net |  |  | (123 | ) |  |  | 147 |  |  |  | 24 |  |  |  | (258 | ) |  |  | 293 |  |  |  | 35 |
Net Income |  |  | 775 |  |  |  | — |  |  |  | 775 |  |  |  | 1,371 |  |  |  | — |  |  |  | 1,371 |
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. Based on our lease portfolio, we currently anticipate recognizing a lease liability and related right-of-use asset on our balance sheet of approximately $13 billion, with an immaterial impact on our income statement compared to the current lease accounting model. However, the ultimate impact of the standard will depend on our lease portfolio as of the adoption date. We are currently accumulating all of the necessary information required to properly account for the leases under the new standard. Additionally, we are implementing an enterprise-wide lease management system to assist in the accounting and are evaluating additional changes to our processes and internal controls to ensure we meet the standard’s reporting and disclosure requirements. These changes will be effective June 1, 2019 (fiscal 2020). In February 2018, the FASB issued an Accounting Standards Update that will permit companies to reclassify the income tax effect of the TCJA on items within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings. These changes will be effective June 1, 2019 (fiscal 2020). We are continuing to assess the impact of this new standard on our consolidated financial statements and related disclosures. 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. We expect this new guidance will have minimal impact on our financial reporting. These changes will be effective June 1, 2020 (fiscal 2021) and will be applied retrospectively. We plan to early adopt in the fourth quarter of fiscal 2019. 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. TREASURY SHARES. In January 2016, our Board of Directors authorized a share repurchase program of up to 25 million shares. 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. During the second quarter of 2019, we repurchased 2.8 million shares of FedEx common stock at an average price of $228.35 per share for a total of $646 million. During the first half of 2019, we purchased 5.4 million shares of FedEx common stock at an average price of $233.44 per share for a total of $1.3 billion. As of November 30, 2018, 6.3 million shares remained under the current share repurchase authorization. DIVIDENDS DECLARED PER COMMON SHARE. On November 16, 2018, our Board of Directors declared a quarterly dividend of $0.65 per share of common stock. The dividend will be paid on January 2, 2019 to stockholders of record as of the close of business on December 10, 2018. 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.

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