Leases

3 Months Ended

Aug. 31, 2019

(7) Leases

As of August 31, 2019, FedEx has entered into additional leases which have not yet commenced and are therefore not part of the right-of-use asset and liability. These leases are generally for build-to-suit facilities and have undiscounted future payments of approximately $872 million and will commence when FedEx gains beneficial access to the leased asset. Commencement dates are expected to be from fiscal 2020 to fiscal 2022.

The following table is a summary of the components of net lease cost for the three months ended August 31 (in millions):

	2019
Operating lease cost⁽¹⁾	$	674
Finance lease cost:
Amortization of right-of-use assets		3
Interest on lease liabilities		1
Total finance lease cost		4
Short-term lease cost		35
Variable lease cost⁽¹⁾		267
Net lease cost	$	980

⁽¹⁾ Expenses are primarily accounted for in the “Rentals and landing fees” line item. Additional amounts related to embedded leases are accounted for in the “Purchased transportation,” “Fuel” and “Other” line items in the unaudited condensed consolidated statements of income.

Supplemental cash flow information related to leases for the three months ended August 31 is as follows (in millions):

	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows paid for operating leases	$	635
Operating cash flows paid for interest portion of finance leases		1
Financing cash flows paid for principal portion of finance leases		27
Right-of-use assets obtained in exchange for new operating lease liabilities	$	235
Right-of-use assets obtained in exchange for new finance lease liabilities	$	76

Supplemental balance sheet information related to leases as of August 31 is as follows (in millions, except lease term and discount rate):

	2019
Operating leases:
Operating lease right-of-use assets	$	13,819

Current portion of operating lease liabilities		1,896
Operating lease liabilities		12,137
Total operating lease liabilities	$	14,033

Finance leases:
Net property and equipment	$	124

Current portion of long-term debt		35
Long-term debt, less current portion		94
Total finance lease liabilities	$	129

Weighted-average remaining lease term
Operating leases		10.2
Finance leases		10.3

Weighted-average discount rate
Operating leases		3.28	%
Finance leases		4.10	%

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

	Aircraft and Related Equipment			Facilities and Other			Total Operating Leases			Finance Leases			Total Leases
2020 (remainder)	$	234		$	1,523		$	1,757		$	37		$	1,794
2021		207			2,039			2,246			14			2,260
2022		190			1,824			2,014			14			2,028
2023		154			1,633			1,787			12			1,799
2024		58			1,432			1,490			11			1,501
Thereafter		85			7,453			7,538			78			7,616
Total lease payments		928			15,904			16,832			166			16,998
Less imputed interest		(61	)		(2,738	)		(2,799	)		(37	)		(2,836	)
Present value of lease liability	$	867		$	13,166		$	14,033		$	129		$	14,162

While certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material financial covenants or limitations.

As previously disclosed in our Annual Report and under the previous lease accounting standard, future minimum lease payments under noncancelable operating leases with an initial or remaining term in excess of one year at May 31, 2019 would have been as follows (in millions):

	Operating Leases
	Aircraft and Related Equipment		Facilities and Other		Total Operating Leases
2020	$	288	$	2,209	$	2,497
2021		230		2,033		2,263
2022		212		1,816		2,028
2023		154		1,625		1,779
2024		58		1,428		1,486
Thereafter		85		7,977		8,062
Total	$	1,027	$	17,088	$	18,115