.Analysis of Property, Plant and Equipment
Difficulty: Advanced
Property, Plant and Equipment Accounting Policy
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 result 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 FedEx pays 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. FedEx capitalizes 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 and historically have been nominal.
For financial reporting purposes, FedEx records 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.
The depreciable lives of FedEx's property and equipment are as follows:
| Range | |
| Wide-body aircraft and related equipment | 15 to 30 years |
| Narrow-body and feeder aircraft and related equipment | 5 to 18 years |
| Package handling and ground support equipment | 3 to 30 years |
| Information technology | 2 to 10 years |
| Vehicles | 3 to 15 years |
| Facilities and other | 2 to 40 years |
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. FedEx periodically evaluates the estimated service lives and residual values used to depreciate the property and equipment. In May 2015, FedEx adjusted the depreciable lives of 23 aircraft and 57 engines.
Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations, was $2.9 billion in 2017 and $2.6 billion in 2016 and 2015. Depreciation and amortization expense includes amortization of assets under capital lease.
Source: FedEx Corp., Annual Report
Property, Plant and Equipment Disclosure
FedEx Corp., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Aircraft and related equipment | ||||||
| | Package handling and ground support equipment | ||||||
| | Information technology | ||||||
| | Vehicles | ||||||
| | Facilities and other | ||||||
| | Property and equipment, at cost | ||||||
| | Accumulated depreciation and amortization | ||||||
| | Net property and equipment |
Source: Based on data from FedEx Corp. Annual Reports
| Item | Description | The company |
|---|---|---|
| Property and equipment, at cost | Carrying amount at the balance sheet date for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items. Amount does not include depreciation. | FedEx Corp.'s property and equipment, at cost increased from 2015 to 2016 and from 2016 to 2017. |
| Net property and equipment | Tangible assets that are held by an entity for use in the production or supply of goods and services, for rental to others, or for administrative purposes and that are expected to provide economic benefit for more than one year; net of accumulated depreciation. Examples include land, buildings, and production equipment. | FedEx Corp.'s net property and equipment increased from 2015 to 2016 and from 2016 to 2017. |
Property, Plant and Equipment Ratios (Summary)
FedEx Corp., Property, Plant and Equipment Ratios
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| | Average age | % | % | % | % | % | % |
| | Estimated total useful life (years) | ||||||
| | Estimated age, time elapsed since purchase (years) | ||||||
| | Estimated remaining life (years) |
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | FedEx Corp.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | FedEx Corp.'s estimated total useful life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | FedEx Corp.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level. |
| Estimated remaining life | FedEx Corp.'s estimated remaining life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Average Age
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Accumulated depreciation and amortization | ||||||
| | Property and equipment, at cost | ||||||
| Ratio | |||||||
| | Average age1 | % | % | % | % | % | % |
2017 Calculations
1 Average age = 100 × Accumulated depreciation and amortization ÷ Property and equipment, at cost
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Average age | As long as straight-line depreciation is used, this is an accurate estimate of asset age as a percentage of depreciable life. The relative age is a useful measure of whether the company's fixed asset base is old or new. Newer assets are likely to be more efficient. | FedEx Corp.'s average age of depreciable property, plant and equipment improved from 2015 to 2016 but then slightly deteriorated from 2016 to 2017. |
Estimated Total Useful Life
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Property and equipment, at cost | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Estimated total useful life (years)1 | ||||||
2017 Calculations
1 Estimated total useful life (years) = Property and equipment, at cost ÷ Depreciation expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated total useful life | Over longer time periods, this ratio is a useful measure of company's depreciation policy and can be used for comparisons with competitors. | FedEx Corp.'s estimated total useful life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
Estimated Age, Time Elapsed Since Purchase
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Accumulated depreciation and amortization | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Time elapsed since purchase (years)1 | ||||||
2017 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation and amortization ÷ Depreciation expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated time elapsed since purchase | The approximate age in years of a company's fixed assets. Useful for comparison purposes. | FedEx Corp.'s estimated time elapsed since purchase of depreciable property, plant and equipment deteriorated from 2015 to 2016 but then improved from 2016 to 2017 not reaching 2015 level. |
Estimated Remaining Life
| May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | May 31, 2012 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (USD $ in millions) | |||||||
| | Net property and equipment | ||||||
| | Depreciation expense | ||||||
| Ratio | |||||||
| | Estimated remaining life (years)1 | ||||||
2017 Calculations
1 Estimated remaining life (years) = Net property and equipment ÷ Depreciation expense
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | FedEx Corp.'s estimated remaining life of depreciable property, plant and equipment increased from 2015 to 2016 but then slightly declined from 2016 to 2017. |
