| Description of Business and Summary of Significant Accounting Policies | NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. Federal Express Corporation (“FedEx Express”) is the world's largest express transportation company and a wholly owned subsidiary of FedEx Corporation (“FedEx”). FISCAL YEARS . Except as otherwise specified, references to years indicate our f iscal year ended May 31, 2015 or ended May 31 of the year referenced. PRINCIPLES OF CONSOLIDATION . The consolidated financial statements include the accounts of FedEx Express 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 . Revenue is recognized upon delivery of shipments. For shipments in transit, revenue is recorded based on the percentage of service completed at the balance sheet date. Estimates for future billing adjustments to revenue and accounts receivable are recognized at the time of shipment for money-back service guarantees and billing corrections. Delivery costs are accrued as incurred. 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. ACCOUNTS RECEIVABLE ARRANGEMENT . We maintain an accounts receivable arrangement with FedEx TechConnect , Inc. (“FedEx TechConnect ”), a subsidiary of FedEx Corporate Services, Inc. (“FedEx Services”). FedEx Services is a wholly owned subsidiary of FedEx. Under this arrangement, FedEx TechConnect records and collects receivables associated with our domestic package delivery functions, while we continue to recognize revenue for the transportation services provided . Our net receivables recorded by FedEx TechConnect totaled $ 1 . 7 billion at May 31, 2015 and May 31, 2014 . See N ote 1 6 for further discussion of this arrangement . CREDIT RISK . We routinely grant credit to many of our customers for transportation 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 factors on the composition of accounts receivable. 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 $ 77 million in 2015 , $ 85 million in 2014 and $ 10 9 million in 2013. In addition, FedEx Services performs marketing functions for us and the related charges are allocated to us and are reflected on the line item “Intercompany charges” on the consolidated statements of income. We believe the total amounts allocated approximate the costs of providing such services. 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 our 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, which became effective June 1, 2014, result ed 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. 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. Reclassifications have been made to the 2014 consolidated financial statements to conform to the current year's presentation. The consolidated balance sheet for 2014 reflects the reclassification of $ 70 million of facilities and other that were previously presented in computer and electronic equipment. The reclassification has no impact on the net book value of property and equipment, total assets, or depreciation expense. 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 2015 2014 Wide-body aircraft and related equipment 15 to 30 years $ 7,548 $ 7,223 Narrow-body and feeder aircraft and related equipment 5 to 18 years 2,943 2,639 Package handling and ground support equipment 5 to 30 years 711 723 Vehicles 3 to 12 years 846 913 Computer and electronic equipment 2 to 10 years 144 196 Facilities and other 2 to 30 years 1,702 1,786 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 deprecia te our property and equipment. In May 2015, we adjust ed the depreciable lives of 23 aircraft and 57 engines. These changes will not have a material impact on near-term depreciation expense . In May 2013, we made the decision to accelerate the retirement of 76 aircraft and related engines to aid in our fleet modernization and improve our global network . In May 2012, we shortened the depreciable lives for 54 aircraft and related engines to accelerate the retirement of these aircraft, resulting in a depreciation expense increase of $69 million in 2013. As a result of these accelerated retirements, we had an additional $74 million in year-over-year depreciation expense in 2014. Depreciation expense, excluding gains and losses on sales of property and equipment used in operations, was $ 1.4 b illion in 2015 , $1 . 5 b illion in 2014 and $ 1. 3 b illion in 2013 . 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 and construction of certain facilities 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 con s truction . Capitalized interest was $ 28 million in 2015 , $ 25 million in 2014 and $ 43 million in 2013 . IMPAIRMENT OF LONG-LIVED ASSETS. Lo ng-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 an integrated transportation network, 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, 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; or changes to planned service expansion activities. At May 31, 201 5 , we had one aircraft temporarily idled. Th is aircraft ha s been idled for approximately two month s and is expected to return to revenue service. In May 2015, we made the decision to retire from service seven Boeing MD11 aircraft and 12 related engines, four Airbus A310-300 aircraft and three related engines, three Airbus A300-600 aircraft and three related engines and one Boeing MD10-10 aircraft and three related engines and related parts, and adjusted the retirement schedule of an additional 23 aircraft and 57 engines. As a consequence of this decision, impairment and related charges of $276 million, of which $246 million was noncash, were recorded in the fourth quarter. The decision to permanently retire these aircraft and engines aligns with our plans to rationalize capacity and modernize our aircraft fleet to more effectively serve our customers. In 2013, we retired from service two Airbus A310-200 aircraft and four related engines, three Airbus A310-300 aircraft and two related engines and five Boeing MD10-10 aircraft and 15 related engines. As a consequence of this decision, a noncash impairment charge of $100 million was recorded in 2013. All of these aircraft were temporarily idled and not in revenue service. 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 benefit 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 our company is less than its carrying amount. If the qualitative assessment is not conclusive , we proceed to a two-step process to test goodwill for impairment including comparing the fair value with its carrying value (including attributable goodwill). Fair value 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, and at May 31, 2015 we do not believe that our goodwill is at risk. PENSION AND POSTRETIREMENT HEALTHCARE PLANS. Our defined 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 determ ine the discount rate (which is required to be the rate at which the projected benefit obligation 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. Our expected rate of return is a judgmental matter which is reviewed on an annual basis and revised as appropriate. A majority of our employees are covered by the FedEx Corporation Employees' Pension Plan, which is sponsored by our parent, FedEx. Additionally, we also sponsor or participate in nonqualified benefit plans covering certain employee groups and other pension plans covering certain of our international groups. 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 defined benefit pension and other postretirement benefit plans, and the recognition of unrecognized gains or losses and prior service costs or credits. During the fourth quarter of 2015 , we changed our method of accounting for our defined benefit pension and postretirement healthcare plans. Under our new method of accounting, we will immediately recognize changes in the fair value of plan assets and actuarial gains or losses in our operating results annually in the fourth quarter each year. Further, we voluntarily changed our method for determining the expected return on plan assets (“EROA”) , which is used in the calculation of pension and other postretirement expense for funded postretirement benefit plans for interim periods. We now use the fair value of plan assets to calculate the EROA . The new methods of accounting are collectively referred to as “mark-to-market” or MTM accounting. Historically, we recognized actuarial gains and losses, subject to a corridor, as a component of other comprehensive income and amortized these gains and losses as a component of pension and postretirement healthcare expenses over the average future service period of the covered employees. Previously, we used a calculated value method to determine the value of plan assets and amortized changes in the fair value of plan assets over a period no longer than four years. We believe the immediate recognition of actuarial gains and losses under MTM accounting is a preferable method of accounting as it aligns the recognition of changes in the fair value of plan assets and liabilities in the income statement with the fair value accounting principles that are used to measure the net funded status of the plans in our balance sheet. MTM accounting also eliminates the impact on future periods of the amortization of the increasingly material amount of accumulated actuarial losses resulting from persistently low interest rates and changes in demographic assumptions. The adoption of MTM accounting is a voluntary change in accounting principle that is required to be adopted retrospectively. Therefore all periods presented have been recast to conform to the current year presentation reflecting the retirement plan accounting changes as discussed further in Note 10. The cumulative effect of the change on retained earnings as of June 1, 2012, was a pre-tax reduction of $140 million, with an offset to accumulated other comprehensive income (OCI) and therefore no net impact to owner ' s equity. The impact of all adjustments made to the financial statements presented is summarized below (amounts in millions): 2014 2013 Previously Effect of Previously Effect of Reported Adjusted Change Reported Adjusted Change Consolidated Statements of Income Operating expenses Salaries and employee benefits $ 9,600 $ 9,340 $ (260) $ 9,730 $ 9,363 $ (367) Retirement plans MTM adjustment - 16 16 - (814) (814) Intercompany charges 2,000 1,989 (11) 2,344 2,325 (19) Operating Income 1,143 1,398 255 554 1,754 1,200 Income Before Income Taxes 1,059 1,314 255 508 1,708 1,200 Provision for Income Taxes 355 453 98 178 644 466 Net Income 704 861 157 330 1,064 734 Consolidated Statements of Comprehensive Income Net Income 704 861 157 330 1,064 734 Amortization of prior service credit and other, net of tax (6) - 6 (2) 10 12 Comprehensive Income 675 838 163 364 1,110 746 Consolidated Balance Sheets Due from parent company and other FedEx subsidiaries 502 505 3 430 432 2 Due to other FedEx subsidiaries 910 1,265 355 1,064 1,685 621 Deferred Income Taxes 3,196 1,935 (1,261) 2,833 1,468 (1,365) Retained Earnings 8,944 9,695 751 8,246 8,840 594 Accumulated other comprehensive income (loss) (65) 93 158 (36) 116 152 Consolidated Statements of Cash Flows Operating Activities Net Income 704 861 157 330 1,064 734 Deferred income taxes and other noncash items 246 84 (162) 128 227 99 Retirement plans MTM adjustment - 16 16 - (814) (814) Accounts payable and other liabilities (129) (140) (11) 845 826 (19) 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. 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 long-term 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 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 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. 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. 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 accumulated other comprehensive income within owner's equity. 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. Our pilots, which represent a small number of our total employees, are employed under a collective bargaining agreement. The contract became amendable in March 2013, and the parties are currently in negotiations. In October 2014, we formally requested assistance from the National Mediation Board (“NMB”) to mediate the negotiations and the NMB has been actively mediating the talks since that time. The NMB is the U.S. governmental agency that oversees labor agreements for entities covered by the Railwa y Labor Act of 1926, as amended . The conduct of mediated negotiations has no impact on our operations. In addition to our pilots, certain non-U.S. employees are unionized. STOCK-BASED COMPENSATION. We participate in the stock-based compensation plans of our parent, FedEx. We recognize compensation expense for stock-based awards under the provisions of the accounting guidance related to share-based payments . This guidance requires recognition of compensation expense for stock-based awa rds using a fair value method. FedEx uses the Black-Scholes pricing model to calculate the fair value of stock options. Our total share-ba sed compensation expense was $ 44 million in 2015 , $3 9 million in 2014 and $3 6 million in 2013 . BUSINESS REALIGNMENT COSTS . During 2013, FedEx announced profit improvement programs primarily through initiatives at FedEx Express and FedEx Services and completed a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. Costs of the benefits provided under the voluntary program were recognized as special termination benefits in the period that eligible employees accepted their offers. Payments under this program were made at the time of departure. The v oluntary buyout program included voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay. Eligible employees vacate d positions in phases during 2013 and 2014 . We incurred costs of $401 million during 2013 associated with our business realignment activities, both directly and through intercompany allocations primarily from FedEx Services. These costs related primarily to severance for employees who accepted voluntary buyouts in the third and fourth quarters of 2013. The direct costs of the buyout program are included in the caption “Business realignment, impairment and other charges” while the allocated costs are included in the caption “Intercompany charges” in our consolidated statements of income. Also included in those captions are other external costs directly attributable to our business realignment activities, such as professional fees. USE OF ESTIMATE S . 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; and impairment assessments on long-lived assets (including goodwill) . |
