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FedEx Corp. (FDX)
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 and net book value of FedEx’s property and equipment are as follows (dollars in millions):
| 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 equipmen | 3 to 30 years |
| Information technology | 2 to 10 years |
| Vehicle | 3 to 15 years |
| Facilities and othe | 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.
Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations, was $3.1 billion in 2018, $2.9 billion in 2017 and $2.6 billion in 2016. Depreciation and amortization expense includes amortization of assets under capital lease.
Source: 10-K (filing date: 2018-07-16).
Property, Plant and Equipment Disclosure
FedEx Corp., Statement of Financial Position, Property, Plant and Equipment
USD $ in millions
| May 31, 2018 | May 31, 2017 | May 31, 2016 | May 31, 2015 | May 31, 2014 | May 31, 2013 | ||||||||
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| Facilities and other | |
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| Property and equipment, at cost | |
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| Accumulated depreciation and amortization | |
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| Net property and equipment | |
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Based on: 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), 10-K (filing date: 2013-07-15).
| Item | Description | The company |
|---|---|---|
| Property and equipment, at cost | Amount before accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | FedEx Corp.’s property and equipment, at cost increased from 2016 to 2017 and from 2017 to 2018. |
| Net property and equipment | Amount after accumulated depreciation, depletion and amortization of physical assets used in the normal conduct of business to produce goods and services and not intended for resale. Examples include, but are not limited to, land, buildings, machinery and equipment, office equipment, and furniture and fixtures. | FedEx Corp.’s net property and equipment increased from 2016 to 2017 and from 2017 to 2018. |
Property, Plant and Equipment Ratios (Summary)
FedEx Corp., Property, Plant and Equipment Ratios
Based on: 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), 10-K (filing date: 2013-07-15).
| 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 deteriorated from 2016 to 2017 and from 2017 to 2018. |
| 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 declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
| 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 improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level. |
| Estimated remaining life | FedEx Corp.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |
Average Age
Based on: 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), 10-K (filing date: 2013-07-15).
2018 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 deteriorated from 2016 to 2017 and from 2017 to 2018. |
Estimated Total Useful Life
Based on: 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), 10-K (filing date: 2013-07-15).
2018 Calculations
1 Estimated total useful life (years) = Property and equipment, at cost ÷ Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations
= ÷ =
| 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 declined from 2016 to 2017 but then increased from 2017 to 2018 not reaching 2016 level. |
Estimated Age, Time Elapsed since Purchase
Based on: 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), 10-K (filing date: 2013-07-15).
2018 Calculations
1 Time elapsed since purchase (years) = Accumulated depreciation and amortization ÷ Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations
= ÷ =
| 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 improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level. |
Estimated Remaining Life
Based on: 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), 10-K (filing date: 2013-07-15).
2018 Calculations
1 Estimated remaining life (years) = Net property and equipment ÷ Depreciation and amortization expense, excluding gains and losses on sales of property and equipment used in operations
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Estimated remaining life | FedEx Corp.’s estimated remaining life of depreciable property, plant and equipment declined from 2016 to 2017 but then slightly increased from 2017 to 2018. |