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FedEx Corp. (FDX)

Analysis of Goodwill and Intangible Assets

Advanced level

Accounting Policy on Goodwill and Intangible Assets

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 FedEx’s acquisitions, such as the expected benefits from synergies of the combination and the existing workforce of the acquired business. Goodwill is reviewed at least annually for impairment. In the evaluation of goodwill impairment, FedEx performs a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, FedEx proceeds to test goodwill for impairment, including comparing the fair value of the reporting unit to its carrying value (including attributable goodwill). Fair value for FedEx’s reporting units 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, FedEx performs the annual impairment testing in the fourth quarter.

INTANGIBLE ASSETS

Intangible assets primarily include customer relationships, technology assets and trademarks acquired in business combinations. Intangible assets are amortized over periods ranging from 3 to 15 years, either on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized.

Source: 10-K (filing date: 2019-07-16).

Goodwill and Intangible Asset Disclosure

FedEx Corp., balance sheet: goodwill and intangible assets

US$ in millions

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May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Goodwill 6,884  6,973  7,154  6,747  3,810  2,790 
Customer relationships 685  676  656  912  338  — 
Technology 66  68  54  123  34  — 
Trademarks and other 137  141  136  202  60  57 
Other intangible assets, gross carrying amount 888  885  846  1,237  432  57 
Accumulated amortization (472) (405) (317) (229) (225) — 
Other intangible assets, net book value 416  480  529  1,008  207  57 
Goodwill and other intangible assets 7,300  7,453  7,683  7,755  4,017  2,847 

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

Item Description The company
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. FedEx Corp.’s goodwill decreased from 2017 to 2018 and from 2018 to 2019.
Other intangible assets, net book value Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. FedEx Corp.’s other intangible assets, net book value decreased from 2017 to 2018 and from 2018 to 2019.
Goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. FedEx Corp.’s goodwill and other intangible assets decreased from 2017 to 2018 and from 2018 to 2019.

Adjustments to Financial Statements: Removal of Goodwill

FedEx Corp., adjustments to financial statements

US$ in millions

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May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Adjustment to Total Assets
Total assets (as reported) 54,403  52,330  48,552  46,064  37,069  33,070 
Less: Goodwill 6,884  6,973  7,154  6,747  3,810  2,790 
Total assets (adjusted) 47,519  45,357  41,398  39,317  33,259  30,280 
Adjustment to Common Stockholders’ Investment
Common stockholders’ investment (as reported) 17,757  19,416  16,073  13,784  14,993  15,277 
Less: Goodwill 6,884  6,973  7,154  6,747  3,810  2,790 
Common stockholders’ investment (adjusted) 10,873  12,443  8,919  7,037  11,183  12,487 
Adjustment to Net Income
Net income (as reported) 540  4,572  2,997  1,820  1,050  2,097 
Add: Goodwill impairment charges —  374  —  —  —  — 
Net income (adjusted) 540  4,946  2,997  1,820  1,050  2,097 

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

FedEx Corp., Financial Data: Reported vs. Adjusted

Adjusted Financial Ratios: Removal of Goodwill (Summary)

FedEx Corp., adjusted financial ratios

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May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
Net Profit Margin
Reported net profit margin 0.77% 6.99% 4.97% 3.61% 2.21% 4.60%
Adjusted net profit margin 0.77% 7.56% 4.97% 3.61% 2.21% 4.60%
Total Asset Turnover
Reported total asset turnover 1.28 1.25 1.24 1.09 1.28 1.38
Adjusted total asset turnover 1.47 1.44 1.46 1.28 1.43 1.50
Financial Leverage
Reported financial leverage 3.06 2.70 3.02 3.34 2.47 2.16
Adjusted financial leverage 4.37 3.65 4.64 5.59 2.97 2.42
Return on Equity (ROE)
Reported ROE 3.04% 23.55% 18.65% 13.20% 7.00% 13.73%
Adjusted ROE 4.97% 39.75% 33.60% 25.86% 9.39% 16.79%
Return on Assets (ROA)
Reported ROA 0.99% 8.74% 6.17% 3.95% 2.83% 6.34%
Adjusted ROA 1.14% 10.90% 7.24% 4.63% 3.16% 6.93%

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

Financial ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. FedEx Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. FedEx Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 FedEx Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. FedEx Corp.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. FedEx Corp.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

FedEx Corp., Financial Ratios: Reported vs. Adjusted

Adjusted Net Profit Margin

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May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income 540  4,572  2,997  1,820  1,050  2,097 
Revenues 69,693  65,450  60,319  50,365  47,453  45,567 
Profitability Ratio
Net profit margin1 0.77% 6.99% 4.97% 3.61% 2.21% 4.60%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income 540  4,946  2,997  1,820  1,050  2,097 
Revenues 69,693  65,450  60,319  50,365  47,453  45,567 
Profitability Ratio
Adjusted net profit margin2 0.77% 7.56% 4.97% 3.61% 2.21% 4.60%

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

2019 Calculations

1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × 540 ÷ 69,693 = 0.77%

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × 540 ÷ 69,693 = 0.77%

Profitability ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by revenue. FedEx Corp.’s adjusted net profit margin ratio improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Revenues 69,693  65,450  60,319  50,365  47,453  45,567 
Total assets 54,403  52,330  48,552  46,064  37,069  33,070 
Activity Ratio
Total asset turnover1 1.28 1.25 1.24 1.09 1.28 1.38
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Revenues 69,693  65,450  60,319  50,365  47,453  45,567 
Adjusted total assets 47,519  45,357  41,398  39,317  33,259  30,280 
Activity Ratio
Adjusted total asset turnover2 1.47 1.44 1.46 1.28 1.43 1.50

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

2019 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= 69,693 ÷ 54,403 = 1.28

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= 69,693 ÷ 47,519 = 1.47

Activity ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. FedEx Corp.’s adjusted total asset turnover ratio deteriorated from 2017 to 2018 but then improved from 2018 to 2019 exceeding 2017 level.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Total assets 54,403  52,330  48,552  46,064  37,069  33,070 
Common stockholders’ investment 17,757  19,416  16,073  13,784  14,993  15,277 
Solvency Ratio
Financial leverage1 3.06 2.70 3.02 3.34 2.47 2.16
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted total assets 47,519  45,357  41,398  39,317  33,259  30,280 
Adjusted common stockholders’ investment 10,873  12,443  8,919  7,037  11,183  12,487 
Solvency Ratio
Adjusted financial leverage2 4.37 3.65 4.64 5.59 2.97 2.42

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

2019 Calculations

1 Financial leverage = Total assets ÷ Common stockholders’ investment
= 54,403 ÷ 17,757 = 3.06

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common stockholders’ investment
= 47,519 ÷ 10,873 = 4.37

Solvency ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.		 FedEx Corp.’s adjusted financial leverage ratio decreased from 2017 to 2018 but then increased from 2018 to 2019 not reaching 2017 level.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income 540  4,572  2,997  1,820  1,050  2,097 
Common stockholders’ investment 17,757  19,416  16,073  13,784  14,993  15,277 
Profitability Ratio
ROE1 3.04% 23.55% 18.65% 13.20% 7.00% 13.73%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income 540  4,946  2,997  1,820  1,050  2,097 
Adjusted common stockholders’ investment 10,873  12,443  8,919  7,037  11,183  12,487 
Profitability Ratio
Adjusted ROE2 4.97% 39.75% 33.60% 25.86% 9.39% 16.79%

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

2019 Calculations

1 ROE = 100 × Net income ÷ Common stockholders’ investment
= 100 × 540 ÷ 17,757 = 3.04%

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted common stockholders’ investment
= 100 × 540 ÷ 10,873 = 4.97%

Profitability ratio Description The company
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders’ equity. FedEx Corp.’s adjusted ROE improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
May 31, 2019 May 31, 2018 May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014
As Reported
Selected Financial Data (US$ in millions)
Net income 540  4,572  2,997  1,820  1,050  2,097 
Total assets 54,403  52,330  48,552  46,064  37,069  33,070 
Profitability Ratio
ROA1 0.99% 8.74% 6.17% 3.95% 2.83% 6.34%
Adjusted for Goodwill
Selected Financial Data (US$ in millions)
Adjusted net income 540  4,946  2,997  1,820  1,050  2,097 
Adjusted total assets 47,519  45,357  41,398  39,317  33,259  30,280 
Profitability Ratio
Adjusted ROA2 1.14% 10.90% 7.24% 4.63% 3.16% 6.93%

Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).

2019 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × 540 ÷ 54,403 = 0.99%

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × 540 ÷ 47,519 = 1.14%

Profitability ratio Description The company
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. FedEx Corp.’s adjusted ROA improved from 2017 to 2018 but then deteriorated significantly from 2018 to 2019.