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Income Tax Accounting Policy

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.

FedEx recognizes 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 FedEx 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 FedEx must determine the probability of various possible outcomes. FedEx reevaluates 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.

FedEx classifies 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 FedEx's income tax liabilities and accrued interest and penalties are recorded in the caption "Other liabilities" in the accompanying consolidated balance sheets.

Source: FedEx Corp., Annual Report

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Income Tax Expense (Benefit)

FedEx Corp., income tax expense (benefit), continuing operations

USD $ in millions

 
12 months ended May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
Federal
State and local
Domestic
Foreign
Current provision
Federal
State and local
Domestic
Foreign
Deferred provision (benefit)
Provision for income taxes

Source: Based on data from FedEx Corp. Annual Reports

Item Description The company
Current provision The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. FedEx Corp.'s current provision declined from 2015 to 2016 and from 2016 to 2017.
Deferred provision (benefit) The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. FedEx Corp.'s deferred provision (benefit) increased from 2015 to 2016 and from 2016 to 2017.
Provision for income taxes The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. FedEx Corp.'s provision for income taxes increased from 2015 to 2016 and from 2016 to 2017.

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Effective Income Tax Rate (EITR)

FedEx Corp., effective income tax rate (EITR) reconciliation

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
Statutory federal income tax rate % % % % % %
Effective tax rate % % % % % %

Source: Based on data from FedEx Corp. Annual Reports

Item Description The company
Effective tax rate A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. FedEx Corp.'s effective tax rate declined from 2015 to 2016 but then increased from 2016 to 2017 not reaching 2015 level.

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Components of Deferred Tax Assets and Liabilities

FedEx Corp., components of deferred tax assets and liabilities

USD $ in millions

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
Property, equipment, leases and intangibles
Employee benefits
Self-insurance accruals
Other
Net operating loss/credit carryforwards
Deferred tax assets, gross
Valuation allowances
Deferred tax assets
Property, equipment, leases and intangibles
Employee benefits
Other
Deferred tax liabilities
Net deferred tax assets (liabilities)

Source: Based on data from FedEx Corp. Annual Reports

Item Description The company
Deferred tax assets, gross The sum of the tax effects as of the balance sheet date of the amounts of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws (before the valuation allowance, if any, to reduce such sum amount to net realizable value). Includes any tax benefit realized in deferred tax assets for significant impacts of tax planning strategies. FedEx Corp.'s deferred tax assets, gross increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Deferred tax assets The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. FedEx Corp.'s deferred tax assets increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Net deferred tax assets (liabilities) For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. FedEx Corp.'s net deferred tax assets (liabilities) declined from 2015 to 2016 and from 2016 to 2017.

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Deferred Tax Assets and Liabilities, Classification

FedEx Corp., deferred tax assets and liabilities, classification

USD $ in millions

 

Source: Based on data from FedEx Corp. Annual Reports

Item Description The company
Current deferred tax assets The current portion of the aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. An unrecognized tax benefit that is directly related to a position taken in a tax year that results in a net operating loss carryforward should be presented as a reduction of the related deferred tax asset.
Noncurrent deferred tax assets (included in Other assets) The noncurrent portion as of the balance sheet date of the aggregate carrying amount of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; after the valuation allowance, if any, to reduce such amount to net realizable value. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. FedEx Corp.'s noncurrent deferred tax assets (included in Other assets) increased from 2015 to 2016 and from 2016 to 2017.
Noncurrent deferred tax liabilities Represents the noncurrent portion of deferred tax liabilities, which result from applying the applicable tax rate to net taxable temporary differences pertaining to each jurisdiction to which the entity is obligated to pay income tax. A noncurrent taxable temporary difference is a difference between the tax basis and the carrying amount of a noncurrent asset or liability in the financial statements prepared in accordance with generally accepted accounting principles. In a classified statement of financial position, an enterprise shall separate deferred tax liabilities and assets into a current amount and a noncurrent amount. Deferred tax liabilities and assets shall be classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carryforwards, shall be classified according to the expected reversal date of the temporary difference. FedEx Corp.'s noncurrent deferred tax liabilities declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level.

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Analyst Adjustments: Removal of Deferred Taxes

FedEx Corp., adjustments to financial data

USD $ in millions

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
Adjustment to Current Assets
Current assets (as reported)
Less: Current deferred tax assets, net
Current assets (adjusted)
Adjustment to Total Assets
Total assets (as reported)
Less: Current deferred tax assets, net
Less: Noncurrent deferred tax assets, net
Total assets (adjusted)
Adjustment to Total Liabilities
Total liabilities (as reported)
Less: Noncurrent deferred tax liabilities, net
Total liabilities (adjusted)
Adjustment to Common Stockholders' Investment
Common stockholders' investment (as reported)
Less: Net deferred tax assets (liabilities)
Common stockholders' investment (adjusted)
Adjustment to Net Income
Net income (as reported)
Add: Deferred income tax expense (benefit)
Net income (adjusted)

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Adjusted Ratios: Removal of Deferred Taxes (Summary)

FedEx Corp., adjusted ratios

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
Current Ratio
Reported current ratio
Adjusted current ratio
Net Profit Margin
Reported net profit margin % % % % % %
Adjusted net profit margin % % % % % %
Total Asset Turnover
Reported total asset turnover
Adjusted total asset turnover
Financial Leverage
Reported financial leverage
Adjusted financial leverage
Return on Equity (ROE)
Reported ROE % % % % % %
Adjusted ROE % % % % % %
Return on Assets (ROA)
Reported ROA % % % % % %
Adjusted ROA % % % % % %
Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. FedEx Corp.'s adjusted current ratio deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. FedEx Corp.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. FedEx Corp.'s adjusted total asset turnover deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 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 increased from 2015 to 2016 but then slightly declined from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as adjusted net income divided by adjusted shareholders' equity. FedEx Corp.'s adjusted ROE improved from 2015 to 2016 and from 2016 to 2017.
Adjusted ROA A profitability ratio calculated as adjusted net income divided by adjusted total assets. FedEx Corp.'s adjusted ROA improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Current Ratio

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Current assets (USD $ in millions)
Current liabilities (USD $ in millions)
Current ratio1
Adjusted for Deferred Taxes
Adjusted current assets (USD $ in millions)
Adjusted current ratio2

2017 Calculations

1 Current ratio = Current assets ÷ Current liabilities
= ÷ =

2 Adjusted current ratio = Adjusted current assets ÷ Current liabilities
= ÷ =

Ratio Description The company
Adjusted current ratio A liquidity ratio calculated as adjusted current assets divided by adjusted current liabilities. FedEx Corp.'s adjusted current ratio deteriorated from 2015 to 2016 but then slightly improved from 2016 to 2017.

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Adjusted Net Profit Margin

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Net income (USD $ in millions)
Revenues (USD $ in millions)
Net profit margin1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted net profit margin2 % % % % % %

2017 Calculations

1 Net profit margin = 100 × Net income ÷ Revenues
= 100 × ÷ = %

2 Adjusted net profit margin = 100 × Adjusted net income ÷ Revenues
= 100 × ÷ = %

Ratio Description The company
Adjusted net profit margin An indicator of profitability, calculated as adjusted net income divided by total revenue. FedEx Corp.'s adjusted net profit margin improved from 2015 to 2016 and from 2016 to 2017.

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Adjusted Total Asset Turnover

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Revenues (USD $ in millions)
Total assets (USD $ in millions)
Total asset turnover1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)
Adjusted total asset turnover2

2017 Calculations

1 Total asset turnover = Revenues ÷ Total assets
= ÷ =

2 Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= ÷ =

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 deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level.

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Adjusted Financial Leverage

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Total assets (USD $ in millions)
Common stockholders' investment (USD $ in millions)
Financial leverage1
Adjusted for Deferred Taxes
Adjusted total assets (USD $ in millions)
Adjusted common stockholders' investment (USD $ in millions)
Adjusted financial leverage2

2017 Calculations

1 Financial leverage = Total assets ÷ Common stockholders' investment
= ÷ =

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted common stockholders' investment
= ÷ =

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 increased from 2015 to 2016 but then slightly declined from 2016 to 2017.

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Adjusted Return on Equity (ROE)

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Net income (USD $ in millions)
Common stockholders' investment (USD $ in millions)
ROE1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted common stockholders' investment (USD $ in millions)
Adjusted ROE2 % % % % % %

2017 Calculations

1 ROE = 100 × Net income ÷ Common stockholders' investment
= 100 × ÷ = %

2 Adjusted ROE = 100 × Adjusted net income ÷ Adjusted common stockholders' investment
= 100 × ÷ = %

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 2015 to 2016 and from 2016 to 2017.

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Adjusted Return on Assets (ROA)

 
May 31, 2017 May 31, 2016 May 31, 2015 May 31, 2014 May 31, 2013 May 31, 2012
As Reported
Net income (USD $ in millions)
Total assets (USD $ in millions)
ROA1 % % % % % %
Adjusted for Deferred Taxes
Adjusted net income (USD $ in millions)
Adjusted total assets (USD $ in millions)
Adjusted ROA2 % % % % % %

2017 Calculations

1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %

2 Adjusted ROA = 100 × Adjusted net income ÷ Adjusted total assets
= 100 × ÷ = %

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 2015 to 2016 and from 2016 to 2017.

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