FEDEX CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended May 31, 2011.
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
.
Commission file number 1-15829
FEDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization) |
62-1721435
(I.R.S. Employer Identification No.) |
|
|
942 South Shady Grove Road, Memphis, Tennessee
(Address of Principal Executive Offices) |
38120
(ZIP Code) |
Registrant’s telephone number, including area code: (
901) 818-7500
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Name of each exchange on which registered | |
| Common Stock, par value $0.10 per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
þ
No
o
Indicate by check mark if the Registrant is not required to file reports pursuant to Rule 13
or Section 15(d) of the Exchange Act.
Yes
o
No
þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
o
Indicate by check mark whether the Registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Date File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
þ
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o |
Non-accelerated filer
o
(Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
o
No
þ
The aggregate market value of the common stock held by non-affiliates of the Registrant,
computed by reference to the closing price as of the last business day of the Registrant’s most
recently completed second fiscal quarter, November 30, 2010, was approximately $26.8 billion. The
Registrant has no non-voting stock.
As of July 11, 2011, 317,027,077 shares of the Registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement to be delivered to stockholders in
connection with the 2011 annual meeting of stockholders to be held on September 26, 2011 are
incorporated by reference in response to Part III of this Report.
TABLE OF CONTENTS
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PART I
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PART III
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FINANCIAL SECTION
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EXHIBITS
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| Exhibit 10.26 | ||||||||
| Exhibit 10.56 | ||||||||
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| Exhibit 31.1 | ||||||||
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| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
| EX-101 INSTANCE DOCUMENT | ||||||||
| EX-101 SCHEMA DOCUMENT | ||||||||
| EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
| EX-101 LABELS LINKBASE DOCUMENT | ||||||||
| EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
| EX-101 DEFINITION LINKBASE DOCUMENT | ||||||||
2
Table of Contents
| ITEM 1. | BUSINESS |
Overview
FedEx Corporation (“FedEx”) provides a broad portfolio of transportation, e-commerce and business
services through companies competing collectively, operating independently and managed
collaboratively, under the respected FedEx brand. These companies are included in four business
segments:
| • | FedEx Express : Federal Express Corporation (“FedEx Express”) is the world’s largest express transportation company, offering time-certain delivery within one to three business days and serving markets that comprise more than 90% of the world’s gross domestic product. The FedEx Express segment also includes FedEx Trade Networks, Inc., which provides international trade services, specializing in customs brokerage and global ocean and air freight forwarding, and FedEx SupplyChain Systems, Inc., which offers a range of supply chain solutions. |
| • | FedEx Ground : FedEx Ground Package System, Inc. (“FedEx Ground”) is a leading provider of small-package ground delivery services. FedEx Ground provides low-cost, day-certain service to every business address in the United States and Canada, as well as residential delivery to nearly 100% of U.S. residences through its FedEx Home Delivery service. The FedEx Ground segment also includes FedEx SmartPost, Inc., which specializes in the consolidation and delivery of high volumes of low-weight, less time-sensitive business-to-consumer packages using the U.S. Postal Service or Canada Post Corporation for final delivery to any residential address or PO Box in the United States and Canada. |
| • | FedEx Freight : FedEx Freight, Inc. (“FedEx Freight”) is a leading U.S. provider of less-than-truckload (“LTL”) freight services, offering: FedEx Freight Priority, when speed is critical to meet supply chain needs; and FedEx Freight Economy, for less time-sensitive shipping at a lower cost. The FedEx Freight segment also offers freight delivery service throughout Canada and Mexico and includes FedEx Custom Critical, Inc., North America’s largest time-specific, critical shipment carrier. |
| • | FedEx Services : FedEx Corporate Services, Inc. (“FedEx Services”) provides our other companies with sales, marketing and information technology support. The FedEx Services segment also includes FedEx TechConnect, Inc., which is responsible for customer service, billings and collections for our U.S. customers and offers technical support services, and FedEx Office and Print Services, Inc. (“FedEx Office”), which provides an array of document and business services and retail access to FedEx Express and FedEx Ground services. |
For financial information concerning our reportable business segments, refer to the accompanying
financial section, which includes management’s discussion and analysis of results of operations and
financial condition and our consolidated financial statements.
Our Web site is located at
fedex.com
. Detailed information about our services, e-commerce tools
and solutions, and citizenship efforts can be found on our Web site. In addition, we make our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all
amendments to such reports available, free of charge, through our Web site, as soon as reasonably
practicable after they are filed with or furnished to the SEC. These and other SEC filings are
available through the Investor Relations page of our Web site, the address of which is
http://www.fedex.com/us/investorrelations
. The
information on our Web site, however, is not incorporated by reference in, and does not form part
of, this Annual Report on Form 10-K.
3
Table of Contents
Except as otherwise specified, any reference to a year indicates our fiscal year ended May 31 of
the year referenced.
Strategy
FedEx was incorporated in Delaware on October 2, 1997 to serve as the parent holding company of our
operating companies. Through our holding company, we provide strategic direction to, and
coordination of, the FedEx portfolio of companies. We intend to continue leveraging and extending
the FedEx brand and providing our customers with convenient, seamless access to our entire
portfolio of integrated services.
We believe that sales and marketing activities, as well as the information systems that support the
extensive automation of our delivery services, are functions that are best coordinated across
operating companies. Through the use of advanced information systems that connect the FedEx
companies, we make it convenient for customers to use the full range of FedEx services. We believe
that seamless information integration is critical to obtain business synergies from multiple
operating units. For example, our Web site,
fedex.com
, provides a single point of contact for our
customers to access FedEx Express, FedEx Ground and FedEx Freight shipment tracking, customer
service and invoicing information, as well as FedEx Office services. Similarly, by making one call
to FedEx Expedited Freight Services, our customers can quickly and easily evaluate surface and air
freight shipping options available from FedEx Express, FedEx Freight and FedEx Custom Critical in
order to select the service best meeting their needs. Through this one point of contact, customers
can select from a broad range of freight services, based on their pickup and delivery requirements,
time sensitivity and the characteristics of the products being shipped.
We manage our business as a portfolio — in the long-term best interest of the enterprise, not a
particular operating company. As a result, we base decisions on capital investment, expansion of
delivery, information technology and retail networks, and service additions or enhancements on
achieving the highest overall long-term return on capital for our business as a whole. For each
FedEx company, we focus on making appropriate investments in the technology and assets necessary to
optimize our long-term earnings performance and cash flow. As an example of our commitment to
managing collaboratively, all our management incentive compensation programs across the enterprise
are tied to the performance of FedEx as a whole.
While we have increased our emphasis on competing collectively and managing collaboratively, we
continue to believe that operating independent networks, each focused on its own respective
markets, results in optimal service quality, reliability and profitability from each business unit.
Each FedEx company focuses exclusively on the market sectors in which it has the most expertise.
Each company’s operations, cost structure and culture are designed to serve the unique customer
needs of a particular market segment.
Our “compete collectively, operate independently, manage collaboratively” strategy also provides
flexibility in sizing our various operating companies to align with varying macro-economic
conditions and customer demand for the market segments in which they operate. For example, to
accommodate recent and anticipated international growth at FedEx Express, we are adding flights,
purchasing aircraft and improving services to and from Asia, Europe and Latin America based on the
long-term growth prospects of these regions. We have agreed, subject to certain conditions, to
purchase a total of 45 Boeing 777 Freighter (“B777F”) aircraft, a new high-capacity, long-range
airplane, 12 of which have
already been delivered. We also hold options to purchase an additional 13 B777F aircraft. The
B777F enables us to fly between major world markets with lower operating costs, more shipments and
in less time than before, allowing later cut-off times for customers in these markets to drop off
their shipments. In addition, we continue to expand network capacity at our growing FedEx Ground
segment.
4
Table of Contents
The following four trends have driven world commerce and shaped the global marketplace, and we
believe they will continue to do so over the long term:
| • | Globalization: As the world’s economy has become more fully integrated, companies are sourcing and selling globally. With customers in more than 220 countries and territories, we facilitate this supply chain through our global reach, delivery services and information capabilities. |
| • | Supply Chain Acceleration: As global trade has grown, it has also become more fast-paced, and companies of all sizes now depend on the delivery of just-in-time inventory to help them compete. We have taken advantage of the move toward faster, more efficient supply chains by helping customers obtain near real-time information to manage inventory in motion, thereby reducing overhead and obsolescence and speeding time-to-market. |
| • | Increase in High-Tech and High-Value-Added Businesses: High-tech and high-value-added goods have increased as a percentage of total economic output, and our various operating companies offer a unique menu of services to fit virtually all shipping needs of high-tech and high-value-added industries. |
| • | Growth of E-Commerce: E-commerce acts as a catalyst for the other three trends and is a vital growth engine for businesses, as the Internet is increasingly being used to purchase goods and services. Through our global transportation and technology networks, we contribute to and benefit from the growth of e-commerce. |
These trends have produced an unprecedented expansion of customer access — to goods, services and
information. Through our global transportation, information technology and retail networks, we
help to make this access possible. We continue to position our companies to facilitate and
capitalize on this access and move toward stronger long-term growth, productivity and
profitability. To this end, we are investing in long-term strategic projects focused on expanding
our global networks to accommodate future volume growth and increase customer convenience, such as
investments in B777F aircraft. We also continue to broaden and more effectively bundle our
portfolio of services in response to the needs and desires of our customers. For example, in 2011,
we:
| • | Continued to reduce transit times within FedEx Ground’s growing and highly profitable network. |
| • | Made a strategic acquisition in India and have one pending in Mexico, which will give us more robust domestic transportation and added capabilities in these important global markets. |
| • | Added more daily scheduled transpacific and transatlantic flights, providing needed capacity between Asia, Europe and the United States. |
| • | Expanded and enhanced FedEx First Overnight service (which offers next-business-day delivery as early as 8:00 a.m. depending on destination ZIP Code) and introduced FedEx First Overnight Freight (which offers early-morning delivery of critical air freight shipments) and FedEx 2Day A.M. service (which provides a 10:30 a.m. delivery commitment time for shipments with two-day delivery). |
5
Table of Contents
| • | Continued to execute our aggressive plan to expand the global freight forwarding presence of FedEx Trade Networks — by opening additional facilities (over three dozen new freight forwarding offices have already been opened) and establishing new alliances throughout the world. |
| • | Introduced an innovative end-to-end service for the shipping of temperature-sensitive healthcare products, such as pharmaceuticals, around the world. |
| • | Expanded FedEx Freight’s LTL freight service offerings, launching a new unified LTL network and offering customers the choice of two levels of reliable service from a single company: FedEx Freight Priority, the fast-transit choice for time-sensitive freight delivery; and FedEx Freight Economy, the economical choice for less time-sensitive freight delivery. |
Reputation and Responsibility
By competing collectively under the FedEx brand, our operating companies benefit from one of the
world’s most recognized brands. FedEx is one of the most trusted and respected companies in the
world, and the FedEx brand name is a powerful sales and marketing tool. Among the many reputation
awards we received during 2011, FedEx ranked 8
th
in
FORTUNE
magazine’s “World’s Most
Admired Companies” list — the tenth consecutive year we have been ranked in the top 20 on the
list.
FedEx is well recognized as a leader, not only in the transportation industry and technological
innovation, but also in global citizenship. We understand that a sustainable global business is
tied to our global citizenship, and we are committed to connecting the world responsibly and
resourcefully. Our latest published update to our inaugural global citizenship report is available
at
http://csr.fedex.com
. These reports describe how we think about our responsibilities in the
area of global citizenship and include important goals and metrics that demonstrate our commitment
to fulfilling these responsibilities.
Our People
Along with a strong reputation among customers and the general public, FedEx is widely acknowledged
as a great place to work. It is our people — our greatest asset — that give us our strong
reputation. In addition to superior physical and information networks, FedEx has an exemplary
human network, with more than 290,000 team members who are “absolutely, positively” focused on
safety, the highest ethical and professional standards, and the needs of their customers and
communities. Through our internal Purple Promise and Humanitarian Award programs, we recognize and
reward employees who enhance customer service and promote human welfare. For additional
information on our people-first philosophy and workplace initiatives, see
http://csr.fedex.com
.
Our Community
FedEx is committed to actively supporting the communities we serve worldwide through the strategic
investment of our people, resources and network. We provide financial contributions, in-kind
charitable shipping services and volunteer efforts by our team members to help a variety of
non-profit organizations achieve their goals and make a measurable impact on the world. We have
three core focus areas: disaster preparedness, relief and recovery (American Red Cross, Salvation
Army and Direct Relief Worldwide); child pedestrian safety (Safe Kids Worldwide); and environmental
sustainability (EMBARQ and National Fish & Wildlife Foundation). We support minority access to
higher education by funding scholarships, are a major sponsor of the National Civil Rights Museum
and also support Teach for America, Junior Achievement and St. Jude Children’s Research Hospital.
Additionally, we believe that the United Way of America offers one of the most effective and
efficient ways of meeting community needs and have
supported the annual United Way fundraising campaign since 1975. For additional information on our
community involvement and disaster relief efforts, see
http://csr.fedex.com
.
6
Table of Contents
The Environment
In furtherance of our commitment to protecting the environment, we have set long-term goals to
reduce aircraft emissions by 20 percent by 2020 on an emissions per available-ton-mile basis,
increase FedEx Express vehicle efficiency by 20 percent by 2020, and expand on-site renewable
energy generation and procurement of renewable energy credits. To meet our future
operational needs, as discussed above, we are adding to our aircraft
fleet the more fuel-efficient B777F and retiring and replacing older Boeing 727s
with more fuel-efficient and quieter Boeing 757s. The use of newer and more fuel efficient
aircraft is reducing our greenhouse gas emissions and airport noise and increasing our jet fuel
efficiency. Our hybrid electric delivery fleet has logged more than nine million miles of revenue
service. Our solar power generation systems represent another step we are taking toward
progressive environmental stewardship and resource sustainability. In December 2010, the FedEx Express facility in Las
Vegas, Nevada became our first FedEx facility to receive certification by Leadership in Energy and Environmental
Design
(LEED
®
), the U.S. Green Building Council’s system
for rating the environmental performance of buildings,
and since then, our FedEx Express World Headquarters in Memphis and our enterprise data center in Colorado Springs, Colorado
have received the same certification. FedEx Express has made LEED certification the standard for newly built U.S. facilities.
We also continue to evaluate
the environmental impacts of our packaging and copy and print services, and minimize waste
generation through efforts that include recycling, pollution prevention and the use of copy paper
with recycled content, among other environmentally-responsible available choices. For additional
information on the ways we are minimizing our impact on the environment, see
http://csr.fedex.com
.
Governance
FedEx has an independent Board of Directors committed to the highest quality corporate governance.
During the past few years, we added a number of highly qualified, independent directors to the
Board. The Board has taken significant steps to enhance its accountability to stockholders in
recent years. For example, in 2011, the Board determined to submit to stockholders a proposal to
amend FedEx’s certificate of incorporation in order to allow holders of 20 percent or more of FedEx’s common
stock the right to call special meetings of stockholders, subject to certain customary conditions.
Stockholders will vote on the proposed special meeting right at the 2011 annual meeting of
stockholders, which will be held on September 26, 2011, and a full description of the proposal will
be contained in FedEx’s definitive proxy statement for the meeting.
Our Board of Directors periodically reviews all aspects of our governance policies and practices,
including our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, in light
of best practices and makes whatever changes are necessary to further our longstanding commitment
to the highest standards of corporate governance. The Guidelines and the Code, which applies to
all of our directors, officers and employees, including our principal executive officer and senior
financial officers, are available in the corporate governance section of the Investor Relations
page of our Web site at
http://www.fedex.com/us/investorrelations
. We will post in the corporate
governance section of the Investor Relations page of our Web site information regarding any
amendment to, or waiver from, the provisions of the Code to the extent such disclosure is required.
7
Table of Contents
Business Segments
The following describes in more detail the operations of each of our reportable segments:
FedEx Express Segment
FedEx Express
Overview
FedEx Express invented express distribution in 1973 and remains the industry leader, providing
rapid, reliable, time-definite delivery of packages and freight to more than 220 countries and
territories through one integrated global network. FedEx Express offers time-definite delivery
within one to three business days, serving markets that generate more than 90% of the world’s gross
domestic product through door-to-door, customs-cleared service, with a money-back guarantee. FedEx
Express’s unmatched air route authorities and extensive transportation infrastructure, combined
with leading-edge information technologies, make it the world’s largest express transportation
company. FedEx Express employs approximately 143,000 employees and has approximately 57,000
drop-off locations (including FedEx Office centers), 688 aircraft and approximately 50,000 vehicles
and trailers in its integrated global network.
Services
FedEx Express offers a wide range of shipping services for delivery of packages and freight.
Overnight and deferred package services are backed by money-back guarantees and extend to nearly
the entire United States population. FedEx Express offers three U.S. overnight package delivery
services: FedEx First Overnight, FedEx Priority Overnight and FedEx Standard Overnight. FedEx
SameDay service is available for urgent shipments up to 70 pounds to virtually any U.S.
destination. FedEx Express also offers U.S. express overnight and deferred freight services backed
by money-back guarantees to handle the needs of the time-definite freight market.
International express and deferred package delivery with a money-back guarantee is available to
more than 220 countries and territories, with a variety of time-definite services to meet distinct
customer needs. FedEx Express also offers domestic pickup-and-delivery services within certain
non-U.S. countries, including the United Kingdom, Canada, China, India and Mexico. In addition,
FedEx Express offers comprehensive international express and deferred freight services, backed by a
money-back guarantee, real-time tracking and advanced customs clearance.
For information regarding FedEx Express e-shipping tools and solutions, see “FedEx Services —
Technology.”
International Expansion
We recently made strategic moves in India and Mexico:
| • | In February 2011, we acquired the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. |
| • | On December 15, 2010, we entered into an agreement to acquire Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, which we expect to complete in the first quarter of 2012. |
8
Table of Contents
These acquisitions will give us more robust domestic transportation networks and added capabilities in
these important global markets, and are expected to provide important contributions to our
long-term growth, productivity and profitability.
We are focused on the long-term expansion of our international presence, especially in key markets
such as China, India, Europe and Latin America. We began serving mainland China in 1984, and since
that time, we have expanded our service to cover more than 400 cities across the country. Within
the past few years, we have taken several important actions that bolster our presence there. As an
example, in 2009, we began operations at our new Asia-Pacific hub at the Guangzhou Baiyun
International Airport in southern China. The new hub assumed and expanded the activities of our
previous hub in Subic Bay, Philippines and better serves our global customers doing
business in and with the China and Asia-Pacific markets.
To facilitate the use of our growing international network, we offer a full range of international
trade consulting services and a variety of online tools that enable customers to more easily
determine and comply with international shipping requirements.
U.S. Postal Service Agreement
Under an agreement with the U.S. Postal Service that runs through September 2013, FedEx Express
provides domestic air transportation services to the U.S. Postal Service, including for its
First-Class, Priority and Express Mail. FedEx Express also has approximately 5,000 drop boxes at
U.S. Post Offices in approximately 340 metropolitan areas and provides transportation and delivery
for the U.S. Postal Service’s international delivery service called Global Express Guaranteed
(GXG).
Pricing
FedEx Express periodically publishes list prices in its Service Guides for the majority of its
services. In general, U.S. shipping rates are based on the service selected, destination zone,
weight, size, any ancillary service charge and whether the shipment was picked up by a FedEx
Express courier or dropped off by the customer at a FedEx Express, FedEx Office or FedEx Authorized
ShipCenter location. International rates are based on the type of service provided and vary with
size, weight, destination and, whenever applicable, whether the shipment was picked up by a FedEx
Express courier or dropped off by the customer at a FedEx Express, FedEx Office or FedEx Authorized
ShipCenter location. FedEx Express offers its customers discounts generally based on actual or
potential average daily revenue produced.
FedEx Express has an indexed fuel surcharge for U.S. domestic and U.S. outbound shipments and for
shipments originating internationally, where legally and contractually possible. The surcharge
percentage is subject to monthly adjustment based on a rounded average of a certain spot price for
jet fuel. For example, the fuel surcharge for June 2011 was based on the average spot price for
jet fuel published for April 2011. Changes to the FedEx Express fuel surcharge, when calculated
according to the average spot price for jet fuel and FedEx Express trigger points, are applied
effective from the first Monday of the month. These trigger points may change from time to time,
but information on the fuel surcharge for each month is available at
fedex.com
approximately two
weeks before the surcharge is applicable. The weighted average U.S. domestic and U.S. outbound
fuel surcharge as a percentage of the base rates for the past three years was: 2011 — 10%; 2010 —
6%; and 2009 — 17%. These percentages include certain fuel surcharge reductions that are
associated with our annual base rate increases.
9
Table of Contents
Operations
FedEx Express’s primary sorting facility, located in Memphis, serves as the center of the company’s
multiple hub-and-spoke system. A second national hub facility is located in Indianapolis. In
addition to these national hubs, FedEx Express operates regional hubs in Newark, Oakland, Fort
Worth and Greensboro and major metropolitan sorting facilities in Los Angeles and Chicago.
Facilities in Anchorage, Paris, Guangzhou and Cologne/Bonn serve as
sorting facilities for express package and
freight traffic moving to and from Asia, Europe and North America. Additional major sorting and
freight handling facilities are located at Narita Airport in Tokyo, Stansted Airport outside
London, and Pearson Airport in Toronto. The facilities
in Guangzhou, Paris and Cologne/Bonn are also designed to serve as regional hubs for their respective market
areas. A facility in Miami — the Miami Gateway Hub — serves our South Florida, Latin American
and Caribbean markets.
Throughout its worldwide network, FedEx Express operates city stations and employs a staff of
customer service agents, cargo handlers and couriers who pick up and deliver shipments in the
station’s service area. In some international areas, independent agents (Global Service
Participants) have been selected to complete deliveries and to pick up packages. For more
information about our sorting and handling facilities, see Part I, Item 2 of this Annual Report on
Form 10-K under the caption “FedEx Express Segment.”
FedEx Office offers retail access to FedEx Express shipping services at all of its U.S. locations.
FedEx Express also has alliances with certain other retailers to provide in-store drop-off sites.
Our unmanned FedEx Drop Boxes provide customers the opportunity to drop off packages in office
buildings, shopping centers, corporate or industrial parks and outside some U.S. Post Offices.
Fuel Supplies and Costs
During 2011, FedEx Express purchased jet fuel from various suppliers under contracts that vary in
length and which provide for specific amounts of fuel to be delivered. The fuel represented by
these contracts is purchased at market prices. Because of our indexed fuel surcharge, we do not
have any jet fuel hedging contracts. See “FedEx Express — Pricing.”
The following table sets forth FedEx Express’s costs for jet fuel and its percentage of
consolidated revenues for the last five fiscal years:
| Total Cost | Percentage of Consolidated | |||||||
| Fiscal Year | (in millions) | Revenues | ||||||
|
2011
|
$ | 3,178 | 8.1 | % | ||||
|
2010
|
2,342 | 6.7 | ||||||
|
2009
|
2,932 | 8.3 | ||||||
|
2008
|
3,396 | 8.9 | ||||||
|
2007
|
2,639 | 7.5 | ||||||
Approximately 11% of FedEx Express’s requirement for vehicle fuel is purchased in bulk. The
remainder of FedEx Express’s requirement is satisfied by retail purchases with various discounts.
Competition
As described in Item 1A of this Annual Report on Form 10-K (“Risk Factors”), the express package
and freight markets are both highly competitive and sensitive to price and service, especially in
periods of
little or no macro-economic growth. The ability to compete effectively depends upon price,
frequency, capacity and speed of scheduled service, ability to track packages, extent of geographic
coverage, reliability and innovative service offerings.
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Competitors within the United States include other package delivery concerns, principally United
Parcel Service, Inc. (“UPS”), passenger airlines offering express package services, regional
express delivery concerns, air freight forwarders and the U.S. Postal Service. FedEx Express’s
principal international competitors are DHL, UPS, TNT, other foreign postal authorities, freight
forwarders, passenger airlines and all-cargo airlines. Many of FedEx Express’s international
competitors are government-owned, -controlled or
-subsidized
carriers, which may have greater
resources, lower costs, less profit sensitivity and more favorable operating conditions than FedEx
Express.
Employees
David J. Bronczek is the President and Chief Executive Officer of FedEx Express, which is
headquartered in Memphis, Tennessee. As of May 31, 2011, FedEx Express employed approximately
95,000 permanent full-time and 48,000 permanent part-time employees, of which approximately 15% are
employed in the Memphis area. FedEx Express’s international employees in the aggregate represent
approximately 27% of all employees.
The pilots of FedEx Express, who constitute a small percentage of our total employees, are
represented by the Air Line Pilots Association, International (“ALPA”), and are employed under a
collective bargaining agreement. During the fourth quarter of 2011, the pilots ratified a new
labor contract that includes safety initiatives, increases in hourly pay rates and travel per diem
rates, and provisions for opening a European crew base. The new contract is scheduled to become
amendable in March 2013 unless the union exercises its option to shorten the contract, in which
case the agreement would be amendable in March 2012 and a portion of the hourly pay increases would
be canceled.
Attempts by other labor organizations to organize certain other groups of employees occur from time
to time. Although these organizing attempts have not resulted in any certification of a U.S.
domestic collective bargaining representative (other than ALPA), we cannot predict the outcome of
these labor activities or their effect, if any, on FedEx Express or its employees. Certain of FedEx
Express’s non-U.S. employees are unionized. FedEx Express believes its relationship with all of its employees is excellent.
FedEx Trade Networks
FedEx Trade Networks provides international trade services, specializing in customs brokerage and
global ocean and air freight forwarding. During 2011, FedEx Trade Networks continued to execute an
aggressive plan to expand its global freight forwarding presence — by opening additional
facilities (over three dozen new freight forwarding offices have already been opened) and
establishing new alliances throughout the world. FedEx Trade Networks provides customs clearance
services for FedEx Express at its major U.S. hub facilities. Value-added services include Global
Trade Data, an information tool that allows customers to track and manage imports. FedEx Trade
Networks provides international trade advisory services, including assistance with the
Customs-Trade Partnership Against Terrorism (C-TPAT) program, and through its WorldTariff
subsidiary, FedEx Trade Networks publishes customs duty and tax information for over 100 customs
areas worldwide. FedEx Trade Networks has approximately 4,000 employees and 132 offices in 106
service locations throughout North America and in Asia, Europe, the Middle East and Latin America.
FedEx Trade Networks maintains a network of air and ocean freight-forwarding service providers and
strategic alliances to provide services in certain countries in which it does not have owned
offices.
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FedEx SupplyChain Systems
FedEx SupplyChain is an integrated logistics provider offering a range of supply chain solutions
that leverage FedEx information technology and transportation networks around the world. The
company offers services that include critical inventory logistics, transportation management and
temperature-controlled transportation through a network of owned and managed resources — all
tightly integrated via advanced information technology systems.
FedEx Ground Segment
FedEx Ground
Overview
By leveraging the FedEx brand, maintaining a low cost structure and efficiently using information
technology and advanced automation systems, FedEx Ground continues to enhance its competitive
position as a leading provider of business and residential money-back guaranteed ground package
delivery services. FedEx Ground serves customers in the North American small-package market,
focusing on business and residential delivery of packages weighing up to 150 pounds. Ground
service is provided to 100% of the continental United States population and overnight service of up
to 400 miles to nearly 100% of the continental United States population. Service is also provided
to nearly 100% of the Canadian population. In addition, FedEx Ground offers service to Alaska and
Hawaii through a ground and air network operation coordinated with other transportation providers.
FedEx Ground continues to improve the speed, reach and service capabilities of its network, by
reducing transit time for many of its lanes and introducing or expanding overnight ground service
in many metropolitan areas. For example, during the most recent two-year period, FedEx Ground has
reduced the transit times of over 8,000 of its lanes. FedEx Ground’s ongoing network expansion
program is substantially increasing the company’s daily pickup capacity through the addition of
new hubs featuring the latest automated sorting technology, the expansion of existing hubs, and the
expansion or relocation of other existing facilities.
The company offers FedEx Home Delivery, which reaches nearly 100% of U.S. residences. FedEx Home
Delivery is dedicated to meeting the delivery needs of residential customers and
provides routine Saturday and evening delivery and premium options such as day-specific,
appointment and signature delivery. FedEx Home Delivery brings unmatched services to residential
shippers and their customers and is the first residential ground package delivery service to have
offered a money-back guarantee.
Pricing
FedEx Ground periodically publishes list prices for the majority of its services in its Service
Guide. In general, U.S. shipping rates are based on the service selected, destination zone,
weight, size, any ancillary service charge and whether the shipment was picked up by a FedEx Ground
contractor or dropped off by the customer at a FedEx Office center or FedEx Authorized ShipCenter.
FedEx Ground has an indexed fuel surcharge, which is subject to a monthly adjustment. The
surcharge percentage is based on a rounded average of the national U.S. on-highway average price
for a gallon of diesel fuel as published monthly by the U.S. Department of Energy. For example,
the fuel surcharge for June 2011 was based on the average diesel fuel price published for April
2011. Changes to the FedEx Ground fuel surcharge, when calculated according to the rounded index
average and FedEx Ground
trigger points, are applied effective from the first Monday of the month. These trigger points may
change from time to time, but information on the fuel surcharge for each month is available at
fedex.com
approximately two weeks before the surcharge is applicable.
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Operations
FedEx Ground operates a multiple hub-and-spoke sorting and distribution system consisting of 520
facilities, including 32 hubs, in the U.S. and Canada. FedEx Ground conducts its operations
primarily with approximately 28,100 owner-operated vehicles and 32,600 company-owned trailers. To
provide FedEx Home Delivery service, FedEx Ground leverages its existing pickup operation and hub
and linehaul network. FedEx Home Delivery’s operations are often co-located with existing FedEx
Ground facilities to achieve further cost efficiencies.
Advanced automated sorting technology is used to streamline the handling of millions of packages
daily. Using overhead laser and six-sided camera-based bar code scan technology, hub conveyors
electronically guide packages to their appropriate destination chute, where they are loaded for
transport to their respective destination terminals for local delivery. Software systems and
Internet-based applications are also deployed to offer customers new ways to connect internal
package data with external delivery information. FedEx Ground provides shipment tracing and
proof-of-delivery signature functionality through the FedEx Web site,
fedex.com
. For additional
information regarding FedEx Ground e-shipping tools and solutions, see “FedEx Services —
Technology.”
FedEx Office offers retail access to FedEx Ground shipping services at all of its U.S. locations.
FedEx Ground is also available as a service option at many FedEx Authorized ShipCenters in the U.S.
As of May 31, 2011, FedEx Ground had approximately 48,000 employees. In addition, FedEx Ground
relies on owner-operators to conduct its linehaul and pickup-and-delivery operations, as the use of
independent contractors is well suited to the needs of the ground delivery business and its
customers. David F. Rebholz is the President and Chief Executive Officer of FedEx Ground. FedEx
Ground is headquartered in Pittsburgh, Pennsylvania, and its primary competitors are UPS and the
U.S. Postal Service.
Evolution of Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax
audits or other administrative challenges) where the classification of its independent contractors
is at issue, a number of recent judicial decisions have supported the company’s classification of
them and the company believes its relationship with its contractors is generally excellent. For a
description of these proceedings, see Item 1A of this Annual Report on Form 10-K (“Risk Factors”)
and Note 17 of the accompanying consolidated financial statements.
FedEx Ground has made changes to its relationships with contractors that, among other things,
provide incentives for improved service and enhanced regulatory and other compliance by the
contractors. For example, FedEx Ground has implemented or is implementing its Independent Service
Provider (“ISP”) model in a number of states. The ISP model requires pickup-and-delivery
contractors based in those states to, among other things: (i) assume responsibility for the
pickup-and-delivery operations of an entire geographic service area that includes multiple routes,
and (ii) negotiate independent agreements with FedEx Ground, rather than agree to a standard
contract.
As of May 31, 2011, FedEx Ground has transitioned to the ISP model in Maryland,
New Hampshire, Rhode Island and Vermont, and plans to complete transition to the ISP model in
Connecticut, Delaware, Illinois, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Montana, North Dakota, South
Dakota and Tennessee during 2012. Based upon the success of this model, FedEx Ground may possibly
transition to it in other states as well.
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In addition, because of state-specific legal and regulatory issues, FedEx Ground only contracts
with contractors that (i) are organized as corporations registered and in good standing under
applicable state law, and (ii) ensure that their personnel who provide services under an operating
agreement with FedEx Ground are treated as their employees. FedEx Ground also has an ongoing nationwide
program to incentivize contractors who choose to grow their businesses by adding routes.
During May 2011, approximately 80% of FedEx Ground’s package volume was delivered by multiple route owner-operators or
independent service providers.
FedEx SmartPost
FedEx SmartPost (a subsidiary of FedEx Ground) is a leading national small-parcel consolidator,
which specializes in the consolidation and delivery of high volumes of low-weight, less
time-sensitive business-to-consumer packages, using the U.S. Postal Service for final delivery to
residences. The company picks up shipments from customers (including e-tailers and catalog
companies), provides sorting and linehaul services and then delivers the packages to a U.S. Postal
Service facility for final delivery by a postal carrier. Through its network of 25 distribution
hubs and approximately 5,500 employees, FedEx SmartPost provides delivery to all residential
addresses in the U.S., including PO Boxes and military destinations. FedEx SmartPost also provides
service into Canada for U.S. shippers by using the residential delivery capabilities of Canada
Post Corporation. This service (known as FedEx SmartPost International) is available to all
residential addresses, including PO Boxes, in Canada and includes around-the-clock shipment
tracking status updates via
fedex.com
.
FedEx Freight Segment
FedEx Freight
FedEx Freight is a leading U.S. provider of LTL freight services, offering FedEx Freight Priority,
when speed is critical to meet supply chain needs, and FedEx Freight Economy, for less
time-sensitive shipping at a lower cost, through one LTL company. Through a comprehensive network
of service centers and advanced information systems, FedEx Freight provides service to virtually
all U.S. ZIP Codes (including Alaska and Hawaii) with industry-leading transit times. FedEx
Freight Priority service is supported by a no-fee money-back guarantee on eligible shipments.
Internationally, FedEx Freight Canada offers freight delivery service throughout Canada, and FedEx
Freight serves Mexico, Puerto Rico, Central and South America, the Caribbean, Europe and Asia via
alliances and purchased transportation.
FedEx Freight offers choice, simplicity and reliability to meet the needs of LTL shippers. Through
its many service offerings, FedEx Freight can match customers’ time-critical needs with reduced
transit times or after-hours pickup or delivery. FedEx Freight’s fully integrated Web site and
other e-tools, including a bill of lading generator and e-mail delivery notification, make freight
shipping easier and bring customers closer to their own account information. The FedEx Freight
Advance Notice service feature available on Priority shipments uses the company’s innovative
technology systems to proactively notify FedEx Freight customers via the Internet, e-mail or fax
when a shipment may be delayed beyond its estimated delivery date, providing customers with greater
visibility and control of their LTL freight shipments. Additionally, the FedEx Freight A.M.
service offers freight delivery by 10:30 a.m. backed by a money-back guarantee. FedEx Freight has
an indexed fuel surcharge, which is subject to weekly adjustment based on a rounded average of the
national U.S. on-highway average price for a gallon of diesel fuel.
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As of May 31, 2011, FedEx Freight was operating approximately 58,000 vehicles and trailers from a
network of 366 service centers, and the FedEx Freight segment had approximately 33,000 employees.
William J. Logue is the President and Chief Executive Officer of FedEx Freight’s parent company,
FedEx Freight Corporation, which is based in Memphis, Tennessee. FedEx Freight’s primary
competitors are YRC Worldwide Inc. (which includes YRC Regional Transportation and YRC National
Transportation), Con-way Freight (a subsidiary of Con-way Inc.), UPS Freight, Old Dominion Freight
Line, Inc. and ABF Freight System, Inc.
FedEx Custom Critical
FedEx Custom Critical provides a range of expedited, time-specific freight-shipping services
throughout the United States, Canada and Mexico. Among its services are Surface Expedite, for
exclusive-use and network-based transport of critical shipments and expedited LTL shipments; Air
Expedite, which offers an array of air solutions to meet customers’ critical delivery times; and
White Glove Services, for shipments that require extra care in handling, temperature control or
specialized security. In addition, its subsidiary FedEx Truckload Brokerage provides freight
brokerage solutions within the United States and into and out of Canada and Mexico. Service is
available 24 hours a day, 365 days a year, including weekends and holidays at no extra cost. FedEx
Custom Critical continuously monitors shipments through an integrated proprietary shipment-control
system, including two-way satellite communications on exclusive-use shipments. Through the
company’s Shipping Toolkit, customers can quote, ship, track and map shipments; view and print out
copies of a shipment’s bill of lading, proof of delivery and invoice; and manage their online
accounts. FedEx Custom Critical utilizes approximately 1,400 vehicles, operated by independent
contractors and their drivers, which are dispatched out of approximately 150 geographically-based
staging areas.
FedEx Services Segment
FedEx Services
FedEx Services provides our other companies with sales, marketing, information technology, customer
service and certain other back-office support. Through FedEx Services and its subsidiary FedEx
TechConnect, we provide a convenient single point of access for many customer support functions,
enabling us to more effectively sell the entire portfolio of transportation services and to help
ensure a consistent and outstanding experience for our customers.
T. Michael Glenn is the President and Chief Executive Officer of FedEx Services, which is based in
Memphis, Tennessee. As of May 31, 2011, the FedEx Services segment had approximately 36,800
employees (including 19,300 at FedEx Office).
Technology
FedEx is a world leader in technology, and FedEx founder Frederick W. Smith’s vision that “the
information about a package is as important as the delivery of the package itself” remains at the
core of our comprehensive technology strategy.
Our technology strategy is driven by our desire for customer satisfaction. We strive to build
technology solutions that will solve our customers’ business problems with simplicity, convenience,
speed and reliability. The focal point of our strategy is our award-winning Web site, together
with our customer integrated solutions.
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The
fedex.com
Web site was launched over fifteen years ago, and during that time, customers have
shipped and tracked billions of packages at
fedex.com
. The
fedex.com
Web site is widely recognized
for its speed, ease of use and customer-focused features. At
fedex.com
, our customers ship
packages, determine international documentation requirements, track package status, pay invoices
and access FedEx Office services. The advanced tracking capability within My FedEx provides
customers with a consolidated view of inbound, outbound and third-party shipments. FedEx Desktop
provides customers the benefit of working offline and having real-time shipment updates sent
directly to their computer desktop.
FedEx Mobile is a suite of services available on most Web-enabled mobile devices, such as the
BlackBerry, and includes enhanced support for Apple products, such as the iPhone, iPod Touch and
iPad. FedEx Mobile allows customers to track the status of packages, create shipping labels, get
account-specific rate quotes and access drop-off location data for FedEx shipments. FedEx also
uses wireless data collection devices to scan bar codes on shipments, thereby enhancing and
accelerating the package information available to our customers.
We design our e-commerce tools and solutions to be easily integrated into our customers’
applications, as well as into third-party software being developed by leading e-procurement,
systems integration and enterprise resource planning companies. Our FedEx Ship Manager suite of
solutions offers a wide range of options to help our customers manage their shipping and associated
processes.
Marketing
The FedEx brand name is a symbol for high-quality service, reliability and speed. FedEx is one of
the most widely recognized brands in the world. Special emphasis is placed on promoting and
protecting the FedEx brand, one of our most important assets. In addition to traditional print and
broadcast advertising, we promote the FedEx brand through corporate sponsorships and special
events. For example, FedEx sponsors:
| • | The National Football League (NFL), as its “Official Delivery Service Sponsor” |
| • | FedExField, home of the NFL’s Washington Redskins |
| • | The #11 Joe Gibbs Racing Toyota Camry driven by Denny Hamlin in the NASCAR Sprint Cup Series |
| • | PGA TOUR and the Champions Tour golf organizations, as the “Official Shipping Company,” and FedExCup, a season-long points competition for PGA TOUR players |
| • | The FedEx St. Jude Classic, a PGA TOUR event that raises millions of dollars for St. Jude Children’s Research Hospital |
| • | FedExForum, home of the NBA’s Memphis Grizzlies |
| • | ATP World Tour men’s professional tennis circuit and French Open tennis tournament |
Information Security
FedEx Services has a team of highly qualified professionals dedicated to securing information about
our customers’ shipments and protecting our customers’ privacy, and we strive to provide a safe,
secure online environment for our customers. We are committed to compliance with applicable
information security laws, regulations and industry standards — including, for example, the
Payment Card Industry Data Security Standard, a set of comprehensive requirements for enhancing
payment account data security developed by the Payment Card Industry Security Standards Council.
For a description of risks related to information security, see Item 1A of this Annual Report on
Form 10-K (“Risk Factors”).
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Global ISO 9001 Certification
FedEx Services provides our customers with a high level of service quality, as evidenced by our ISO
9001 certification for our global express and ground operations. ISO 9001 registration is required
by thousands of customers around the world. FedEx’s global certification, encompassing the
processes of FedEx Express, FedEx Ground and FedEx Services, enhances our single-point-of-access
strategy and solidifies our reputation as the quality leader in the transportation industry. ISO
9001 is currently the most rigorous international standard for Quality Management and Assurance.
ISO standards were developed by the International Organization for Standardization in Geneva,
Switzerland to promote and facilitate international trade. More than 150 countries, including
European Union members, the United States and Japan, recognize ISO standards.
FedEx Office
FedEx Office’s network of digitally-connected locations offers access to copying and digital
printing through retail and Web-based platforms, signs and graphics, professional finishing,
computer rentals, and the full range of FedEx day-definite ground shipping and time-definite global
express shipping services.
FedEx Office offers the full range of FedEx Express and FedEx Ground services at virtually all U.S.
locations. In addition, FedEx Office offers packing services, and packing supplies and boxes are included in its retail product
assortment. By allowing customers to have unpackaged items professionally packed by specially
trained FedEx Office team members and then shipped using any of the full range of FedEx
day-definite ground shipping and time-definite global express shipping services, FedEx Office
provides a complete “pack-and-ship” solution.
As of May 31, 2011, FedEx Office operated approximately 1,950 locations, including 130 locations in
seven foreign countries, as well as 30 commercial production centers. FedEx Office is
headquartered in Dallas, Texas.
Trademarks
The “FedEx” trademark, service mark and trade name is essential to our worldwide business. FedEx,
FedEx Express, FedEx Ground, FedEx Freight, FedEx Office, FedEx Services, FedEx SupplyChain
Systems, FedEx TechConnect, FedEx Trade Networks, FedEx SmartPost and FedEx Custom Critical, among
others, are trademarks, service marks and trade names of Federal Express Corporation for which
registrations, or applications for registration, are on file. We have authorized, through
licensing arrangements, the use of certain of our trademarks, service marks and trade names by our
contractors and Global Service Participants to support our business. In addition, we license the
use of certain of our trademarks, service marks and trade names on promotional items for the
primary purpose of enhancing brand awareness.
Regulation
Air
. Under the Federal Aviation Act of 1958, as amended, both the U.S. Department of
Transportation (“DOT”) and the Federal Aviation Administration (“FAA”) exercise regulatory
authority over FedEx Express.
The FAA’s regulatory authority relates primarily to operational aspects of air transportation,
including aircraft standards and maintenance, as well as personnel and ground facilities, which may
from time to time affect the ability of FedEx Express to operate its aircraft in the most efficient
manner. FedEx Express holds an air carrier certificate granted by the FAA pursuant to Part 119 of
the federal aviation
regulations. This certificate is of unlimited duration and remains in effect so long as FedEx
Express maintains its standards of safety and meets the operational requirements of the
regulations.
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In September 2010, the FAA proposed rules that would significantly reduce the maximum number of
hours on duty and increase the minimum amount of rest time for the pilots of FedEx Express, and
thus require us to hire additional pilots and modify certain of our aircraft. It is reasonably
possible that these rules, if enacted as currently drafted, or other future flight safety
requirements could impose material costs on us.
The DOT’s authority relates primarily to economic aspects of air transportation. The DOT’s
jurisdiction extends to aviation route authority and to other regulatory matters, including the
transfer of route authority between carriers. FedEx Express holds various certificates issued by
the DOT, authorizing FedEx Express to engage in U.S. and international air transportation of
property and mail on a worldwide basis.
Under the Aviation and Transportation Security Act of 2001, as amended, the Transportation Security
Administration (“TSA”), an agency within the Department of Homeland Security, has responsibility
for aviation security. The TSA has issued to us a Full All-Cargo Aircraft Operator Standard
Security Plan, which contains many new and enhanced security requirements. These requirements are
not static, but will change periodically as the result of regulatory and legislative requirements,
and to respond to evolving threats. Until these requirements are adopted, we cannot determine the
effect that these new rules will have on our cost structure or our operating results. It is
reasonably possible, however, that these rules or other future security requirements could impose
material costs on us.
FedEx Express participates in the Civil Reserve Air Fleet (“CRAF”) program. Under this program,
the U.S. Department of Defense may requisition for military use certain of FedEx Express’s
wide-bodied aircraft in the event of a declared need, including a national emergency. FedEx
Express is compensated for the operation of any aircraft requisitioned under the CRAF program at
standard contract rates established each year in the normal course of awarding contracts. Through
its participation in the CRAF program, FedEx Express is entitled to bid on peacetime military cargo
charter business. FedEx Express, together with a consortium of other carriers, currently contracts
with the U.S. Government for such charter flights.
Ground
. The ground transportation performed by FedEx Express is integral to its air transportation
services. The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated
the authority of states to regulate the rates, routes or services of intermodal all-cargo air
carriers and most motor carriers. States may now only exercise jurisdiction over safety and
insurance. FedEx Express is registered in those states that require registration.
The operations of FedEx Ground, FedEx Freight and FedEx Custom Critical in interstate commerce are
currently regulated by the DOT and the Federal Motor Carrier Safety Administration, which retain
limited oversight authority over motor carriers. Federal legislation preempts regulation by the
states of rates and service in intrastate freight transportation.
Like other interstate motor carriers, our operations, including those at FedEx Express, are subject
to certain DOT safety requirements governing interstate operations. In addition, vehicle weight
and dimensions remain subject to both federal and state regulations.
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International
. FedEx Express’s international authority permits it to carry cargo and mail from
points in its U.S. route system to numerous points throughout the world. The DOT regulates
international routes and practices and is authorized to investigate and take action against
discriminatory treatment of United
States air carriers abroad. The right of a United States carrier to serve foreign points is
subject to the DOT’s approval and generally requires a bilateral agreement between the United
States and the foreign government. The carrier must then be granted the permission of such foreign
government to provide specific flights and services. The regulatory environment for global
aviation rights may from time to time impair the ability of FedEx Express to operate its air
network in the most efficient manner. Additionally, global air cargo carriers, such as FedEx
Express, are subject to current and potential additional aviation security regulation by foreign
governments.
Our operations outside of the United States, such as FedEx Express’s growing international domestic
operations, are also subject to current and potential regulations that restrict, and sometimes
prohibit, our ability to compete in parts of the transportation and logistics market. As an
example, the Chinese government has adopted postal regulations that
exclude foreign-owned
companies such as FedEx from competing in the mainland China domestic document delivery market.
Communication
. Because of the extensive use of radio and other communication facilities in its
aircraft and ground transportation operations, FedEx Express is subject to the Federal
Communications Commission Act of 1934, as amended. Additionally, the Federal Communications
Commission regulates and licenses FedEx Express’s activities pertaining to satellite
communications.
Environmental
. Pursuant to the Federal Aviation Act, the FAA, with the assistance of the U.S.
Environmental Protection Agency, is authorized to establish standards governing aircraft noise.
FedEx Express’s aircraft fleet is in compliance with current noise standards of the federal
aviation regulations. In addition to federal regulation of aircraft noise, certain airport
operators have local noise regulations, which limit aircraft operations by type of aircraft and
time of day. These regulations have had a restrictive effect on FedEx Express’s aircraft
operations in some of the localities where they apply but do not have a material effect on any of
FedEx Express’s significant markets. Congress’s passage of the Airport Noise and Capacity Act of
1990 established a National Noise Policy, which enabled FedEx Express to plan for noise reduction
and better respond to local noise constraints. FedEx Express’s international operations are also
subject to noise regulations in certain of the countries in which it operates.
Concern over climate change, including the impact of global warming, has led to significant U.S.
and international legislative and regulatory efforts to limit greenhouse gas emissions, including
our aircraft and diesel engine emissions. For example, during 2009, the European Commission
approved the extension of the European Union Emissions Trading Scheme (“ETS”) for GHG emissions, to
the airline industry. Under this decision, all FedEx Express flights to and from any airport in
any member state of the European Union will be covered by the ETS requirements beginning in 2012,
and each year we will be required to submit emission allowances in an amount equal to the carbon
dioxide emissions from such flights. For a description of such efforts and their
potential effect on our cost structure and operating results, see Item 1A of this Annual Report on
Form 10-K (“Risk Factors”).
We are subject to federal, state and local environmental laws and regulations relating to, among
other things, contingency planning for spills of petroleum products, the disposal of waste oil and
the disposal of toners and other products used in FedEx Office’s copy machines. Additionally, we
are subject to numerous regulations dealing with underground fuel storage tanks, hazardous waste
handling, vehicle and equipment emissions and noise and the discharge of effluents from our
properties and equipment. We have environmental management programs to ensure compliance with
these regulations.
Customs.
Our activities, including customs brokerage and freight forwarding, are subject to
regulation by the Bureau of Customs and Border Protection and the TSA within the Department of
Homeland Security (customs brokerage and security issues), the U.S. Federal Maritime Commission
(ocean freight
forwarding) and the DOT (air freight forwarding). Our offshore operations are subject to similar
regulation by the regulatory authorities of foreign jurisdictions.
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Labor.
All U.S. employees at FedEx Express are covered by the Railway Labor Act of 1926, as
amended (the “RLA”), while labor relations within the United States at our other companies are
governed by the National Labor Relations Act of 1935, as amended (the “NLRA”). Under the RLA,
groups that wish to unionize must do so across nationwide classes of employees. The RLA also
requires mandatory government-led mediation of contract disputes supervised by the National
Mediation Board before a union can strike or an employer can replace employees or impose contract
terms. This part of the RLA helps minimize the risk of strikes that would shut down large portions
of the economy. Under the NLRA, employees can unionize in small localized groups, and
government-led mediation is not a required step in the negotiation process.
The RLA was originally passed to govern railroad and express carrier labor negotiations. As
transportation systems evolved, the law expanded to cover airlines, which are the dominant national
transportation systems of today. As an air express carrier with an integrated air/ground network,
FedEx Express and its employees have been covered by the RLA since the founding of the company in
1971. The purpose of the RLA is to offer employees a process by which to unionize (if they choose)
and engage in collective bargaining while also protecting global commerce from damaging work
stoppages and delays. Specifically, the RLA ensures that an entire transportation system, such as
at FedEx Express, cannot be shut down by the actions of a local segment of the network.
The U.S. Congress has, in the past, considered adopting changes in labor laws that would make it
easier for unions to organize units of our employees. For example, there is always a possibility
that Congress could remove most FedEx Express employees from the jurisdiction of the RLA, thereby
exposing the FedEx Express network to sporadic labor disputes and the risk that small groups of
employees could disrupt the entire air/ground network. In addition, federal and state governmental
agencies have and may continue to take actions that could make it easier for our employees to
organize under the RLA or NLRA. For a description of these potential labor law changes, see Item
1A of this Annual Report on Form 10-K (“Risk Factors”).
| ITEM 1A. | RISK FACTORS |
We present information about our risk factors on pages 71 through 76 of this Annual
Report on Form 10-K.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES |
FedEx Express Segment
FedEx Express’s principal owned and leased properties include its aircraft, vehicles, national,
regional and metropolitan sorting facilities, administration buildings, FedEx Drop Boxes and data
processing and telecommunications equipment.
20
Table of Contents
Aircraft and Vehicles
As of May 31, 2011, FedEx Express’s aircraft fleet consisted of the following:
| Maximum Operational | ||||||||||||||||
| Revenue Payload | ||||||||||||||||
| Description | Owned | Leased | Total | (Pounds per Aircraft) (1) | ||||||||||||
|
|
||||||||||||||||
|
Boeing B777F
|
12 | 0 | 12 | 178,000 | ||||||||||||
|
Boeing MD11
|
38 | 26 | 64 | (2) | 164,200 | |||||||||||
|
Boeing MD10-30
|
10 | 7 | 17 | 114,200 | ||||||||||||
|
Boeing MD10-10
|
58 | 0 | 58 | 108,700 | ||||||||||||
|
Airbus A300-600
|
35 | 36 | 71 | 85,600 | ||||||||||||
|
Airbus A310-200/300
|
50 | 3 | 53 | 61,900 | ||||||||||||
|
Boeing B757-200
|
58 | 0 | 58 | (3) | 45,800 | |||||||||||
|
Boeing B727-200
|
65 | 2 | 67 | 38,200 | ||||||||||||
|
ATR 72-202/212
|
21 | 0 | 21 | (4) | 14,660 | |||||||||||
|
ATR 42-300/320
|
26 | 0 | 26 | 10,880 | ||||||||||||
|
Cessna 208B
|
241 | 0 | 241 | 2,500 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total
|
614 | 74 | 688 | |||||||||||||
|
|
||||||||||||||||
| (1) | Maximum operational revenue payload is the lesser of the net volume-limited payload and the net maximum structural payload. | |
| (2) | Includes 4 aircraft not currently in operation and awaiting completion of modification. | |
| (3) | Includes 21 aircraft not currently in operation and awaiting completion of modification. | |
| (4) | Includes 5 aircraft not currently in operation and awaiting completion of modification. |
| • | The B777Fs are two-engine, wide-bodied cargo aircraft that have a longer range and larger capacity than any other aircraft we operate. |
| • | The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger capacity than MD10s. |
| • | The MD10s are three-engine, wide-bodied aircraft that have received an Advanced Common Flightdeck (ACF) modification, which includes a conversion to a two-pilot cockpit, as well as upgrades of electrical and other systems. |
| • | The A300s and A310s are two-engine, wide-bodied aircraft that have a longer range and more capacity than B757s and B727s. |
| • | The B757s are two-engine, narrow-bodied aircraft configured for cargo service. |
| • | The B727s are three-engine, narrow-bodied aircraft configured for cargo service. |
| • | The ATR and Cessna 208 turbo-prop aircraft are leased to independent operators to support FedEx Express operations in areas where demand does not justify use of a larger aircraft. |
An inventory of spare engines and parts is maintained for each aircraft type.
In addition, FedEx Express leases smaller aircraft, which feed
packages to and from airports primarily outside the U.S. served by FedEx Express’s larger jet
aircraft. The lease agreements generally call for the owner-lessor to provide the aircraft, flight
crews, insurance and maintenance, as well as fuel and other supplies required to operate the
aircraft. The lease agreements are for terms not exceeding one year and are generally cancelable
upon 30 days’ notice.
21
Table of Contents
At May 31, 2011, FedEx Express operated approximately 50,000 ground transport vehicles, including
pickup and delivery vans, larger trucks called container transport vehicles and over-the-road
tractors and trailers.
Aircraft Purchase Commitments
The following table is a summary of the number and type of aircraft we were committed to purchase
as of May 31, 2011, with the year of expected delivery:
| B757 | B777F (1) | Total | ||||||||||
|
|
||||||||||||
|
2012
|
16 | 7 | 23 | |||||||||
|
2013
|
4 | 6 | 10 | |||||||||
|
2014
|
— | 7 | 7 | |||||||||
|
2015
|
— | 3 | 3 | |||||||||
|
2016
|
— | 3 | 3 | |||||||||
|
Thereafter
|
— | 7 | 7 | |||||||||
|
|
||||||||||||
|
Total
|
20 | 33 | 53 | |||||||||
|
|
||||||||||||
| (1) | Our obligation to purchase 15 of these aircraft is conditioned upon there being no event that causes FedEx Express or its employees to not be covered by the RLA. |
As of May 31, 2011, deposits and progress payments of $604 million had been made toward
aircraft purchases and other planned aircraft-related transactions. Also see Note 16 of the
accompanying consolidated financial statements for more information about our purchase commitments.
22
Table of Contents
Sorting and Handling Facilities
At May 31, 2011, FedEx Express operated the following major sorting and handling facilities:
| Sorting | Lease | |||||||||||||||
| Square | Capacity | Expiration | ||||||||||||||
| Location | Acres | Feet | (per hour) (1) | Lessor | Year | |||||||||||
|
|
||||||||||||||||
|
National
|
||||||||||||||||
|
Memphis, Tennessee
|
518 | 3,450,000 | 475,000 | Memphis-Shelby County Airport Authority | 2036 | |||||||||||
|
|
||||||||||||||||
|
Indianapolis, Indiana
|
335 | 2,509,000 | 215,000 | Indianapolis Airport Authority | 2017/2028 (5) | |||||||||||
|
|
||||||||||||||||
|
Regional
|
||||||||||||||||
|
Fort Worth, Texas
|
168 | 948,000 | 76,000 | Fort Worth Alliance Airport Authority | 2021 | |||||||||||
|
|
||||||||||||||||
|
Newark, New Jersey
|
70 | 595,000 | 156,000 | Port Authority of New York and New Jersey | 2030 | |||||||||||
|
|
||||||||||||||||
|
Oakland, California
|
75 | 320,000 | 54,000 | City of Oakland | 2031 | |||||||||||
|
|
||||||||||||||||
|
Greensboro, N. Carolina
|
165 | 593,000 | 29,000 | Piedmont Triad Airport Authority | 2031 | |||||||||||
|
|
||||||||||||||||
|
Metropolitan
|
||||||||||||||||
|
Chicago, Illinois
|
51 | 419,000 | 52,000 | City of Chicago | 2028 | |||||||||||
|
|
||||||||||||||||
|
Los Angeles, California
|
34 | 305,000 | 57,000 | City of Los Angeles | 2021/2025 (6) | |||||||||||
|
|
||||||||||||||||
|
International
|
||||||||||||||||
|
Anchorage, Alaska
(2)
|
64 | 332,000 | 24,000 | Alaska Department of Transportation and Public Facilities | 2023 | |||||||||||
|
|
||||||||||||||||
|
Paris, France
(3)
|
87 | 861,000 | 63,000 | Aeroports de Paris | 2029 | |||||||||||
|
|
||||||||||||||||
|
Cologne, Germany
(3)
|
7 | 325,000 | 20,000 | Cologne Bonn Airport | 2040 | |||||||||||
|
|
||||||||||||||||
|
Guangzhou, China
(4)
|
155 | 882,000 | 61,000 | Guangdong Airport Management Corp. | 2029 | |||||||||||
| (1) | Documents and packages. | |
| (2) | Handles international express package and freight shipments to and from Asia, Europe and North America. | |
| (3) | Handles intra-Europe express package and freight shipments, as well as international express package and freight shipments to and from Europe. | |
| (4) | Handles intra-Asia express package and freight shipments, as well as international express package and freight shipments to and from Asia. | |
| (5) | Property is held under two separate leases — lease for original hub expires in 2017, and lease for additional buildings expires in 2028. | |
| (6) | Property is held under two separate leases — lease for sorting and handling facility expires in 2021, and lease for ramp expansion expires in 2025. |
23
Table of Contents
FedEx Express’s primary sorting facility, which serves as the center of its multiple
hub-and-spoke system, is located at the Memphis International Airport. FedEx Express’s facilities
at the Memphis International Airport also include aircraft hangars, aircraft ramp areas, vehicle
parking areas, flight training and fuel facilities, administrative offices and warehouse space.
FedEx Express leases these facilities from the Memphis-Shelby County Airport Authority (the
“Authority”). The lease obligates FedEx Express to maintain and insure the leased property and to
pay all related taxes, assessments and other charges. The lease is subordinate to, and FedEx
Express’s rights thereunder could be affected by, any future lease or agreement between the
Authority and the U.S. Government.
FedEx Express has additional international sorting-and-handling facilities located at Narita
Airport in Tokyo, Stansted Airport outside London, and Pearson Airport in Toronto. FedEx Express
also has a substantial presence at airports in Hong Kong, Taiwan,
Dubai and Miami.
Administrative and Other Properties and Facilities
The World Headquarters of FedEx Express is located in southeastern Shelby County, Tennessee. The
headquarters campus comprises nine separate buildings with approximately 1.3 million square feet of
space. FedEx Express also leases 39 facilities in the Memphis area for administrative offices and
warehouses.
FedEx Express owns or leases approximately 670 facilities for city station operations in the United
States. In addition, approximately 400 city stations are owned or leased throughout FedEx
Express’s international network. The majority of these leases are for terms of five to ten years.
City stations serve as a sorting and distribution center for a particular city or region. We
believe that suitable alternative facilities are available in each locale on satisfactory terms, if
necessary.
As of May 31, 2011, FedEx Express had approximately 45,000 Drop Boxes, including 5,000 Drop Boxes
outside U.S. Post Offices. As of May 31, 2011, FedEx Express also had approximately 13,000 FedEx
Authorized ShipCenters and other types of staffed drop-off locations, such as FedEx Office centers.
Internationally, FedEx Express had approximately 4,500 drop-off locations.
FedEx Ground Segment
FedEx Ground’s corporate offices are located in the Pittsburgh, Pennsylvania, area in an
approximately 500,000 square-foot building owned by FedEx Ground. As of May 31, 2011, FedEx Ground
had approximately 32,600 company-owned trailers and owned or leased 520 facilities, including 32
hubs. In addition, approximately 28,100 owner-operated vehicles support FedEx Ground’s business.
Of the 520 facilities that support FedEx Home Delivery, 229 are co-located with existing FedEx
Ground facilities. Leased facilities generally have terms of five years or less. The 32 hub
facilities are strategically located to cover the geographic area served by FedEx Ground. The hub
facilities average approximately 325,000 square feet and range in size from 54,000 to 715,000
square feet.
FedEx Freight Segment
FedEx Freight’s corporate headquarters are located in Memphis, Tennessee, and administrative
offices for the FedEx Freight business are in Harrison, Arkansas. As of May 31, 2011, FedEx
Freight operated approximately 58,000 vehicles and trailers and 366 service centers, which are
strategically located to provide service to virtually all U.S. ZIP Codes. These facilities range
in size from 850 to 221,300 square feet of office and dock space. FedEx Custom Critical’s
headquarters are located in Green, Ohio.
24
Table of Contents
FedEx Services Segment
FedEx Services’ corporate headquarters are located in Memphis, Tennessee. FedEx Services and FedEx
Express lease state-of-the-art technology centers in Collierville, Tennessee, Irving, Texas,
Colorado Springs, Colorado, and Orlando, Florida. These facilities house personnel responsible for
strategic software development and other functions that support FedEx’s technology and e-commerce
solutions. FedEx Office’s corporate headquarters are located in Dallas, Texas in leased
facilities. As of May 31, 2011, FedEx Office operated approximately 1,950 locations, including 130
locations in seven foreign countries, as well as 30 commercial production centers. Substantially
all FedEx Office centers are leased, generally for terms of five to ten years with varying renewal
options. FedEx Office centers are generally located in strip malls, office buildings or
stand-alone structures and average approximately 4,000 square feet in size. We have a multi-year
agreement with OfficeMax to offer U.S. domestic FedEx Express and FedEx Ground shipping services at
all U.S. OfficeMax retail locations (over 900 locations).
| ITEM 3. | LEGAL PROCEEDINGS |
FedEx and its subsidiaries are subject to legal proceedings and claims that arise in the ordinary
course of their business. For a description of material pending legal proceedings, see Note 17 of
the accompanying consolidated financial statements.
As described below, we have received requests for information from various governmental agencies
over the past five years related to possible anti-competitive behavior in several package and
freight transportation segments. We do not believe that we have engaged in any anti-competitive
activities, and we are cooperating with these investigations.
In June 2006, we received a grand jury subpoena for the production of documents in connection with
a criminal investigation by the Antitrust Division of the U.S. Department of Justice (“DOJ”) into
possible anti-competitive behavior in the air freight transportation industry. In July 2007, we
received a notice from the Australian Competition and Consumer Commission (“ACCC”) requesting
certain information and documents in connection with the ACCC’s investigation into possible
anti-competitive behavior relating to air cargo transportation services in Australia. In December
2007, we received a grand jury subpoena for the production of documents in connection with a
criminal investigation by the DOJ into possible anti-competitive behavior in the international
freight forwarding industry. In March 2008, we received an additional subpoena from the DOJ
relating to its investigation of the international freight forwarding industry.
In February 2011, we received a demand for the production of information and documents in
connection with a civil investigation by the DOJ into the policies and practices of FedEx and UPS
for dealing with third-party consultants who work with shipping customers to negotiate lower rates.
Related antitrust litigation with one of these third party consultants was dismissed in early June
2011, but the court granted the plaintiff permission to file an amended complaint, which FedEx
received in late June 2011.
25
Table of Contents
| ITEM 4. | RESERVED |
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of FedEx is as follows (included herein pursuant to
Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K):
| Name and Office | Age | Positions and Offices Held and Business Experience | ||||
|
|
||||||
|
Frederick W. Smith
Chairman, President and Chief Executive Officer |
66 | Chairman, President and Chief Executive Officer of FedEx since January 1998; Chairman of FedEx Express since 1975; Chairman, President and Chief Executive Officer of FedEx Express from April 1983 to January 1998; Chief Executive Officer of FedEx Express from 1977 to January 1998; and President of FedEx Express from June 1971 to February 1975. | ||||
|
|
||||||
|
David J. Bronczek
President and Chief Executive Officer, FedEx Express |
57 | President and Chief Executive Officer of FedEx Express since January 2000; Executive Vice President and Chief Operating Officer of FedEx Express from January 1998 to January 2000; Senior Vice President — Europe, Middle East and Africa of FedEx Express from June 1995 to January 1998; Senior Vice President — Europe, Africa and Mediterranean of FedEx Express from June 1993 to June 1995; Vice President — Canadian Operations of FedEx Express from February 1987 to March 1993; and several sales and operations managerial positions at FedEx Express from 1976 to 1987. Mr. Bronczek serves as a director of International Paper Company, an uncoated paper and packaging company. | ||||
|
|
||||||
|
Robert B. Carter
Executive Vice President — FedEx Information Services and Chief Information Officer |
52 | Executive Vice President — FedEx Information Services and Chief Information Officer of FedEx since January 2007; Executive Vice President and Chief Information Officer of FedEx from June 2000 to January 2007; Corporate Vice President and Chief Technology Officer of FedEx from February 1998 to June 2000; Vice President — Corporate Systems Development of FedEx Express from September 1993 to February 1998; Managing Director — Systems Development of FedEx Express from April 1993 to September 1993. Mr. Carter serves as a director of Saks Incorporated, a retailer operating luxury, specialty and traditional department stores, and as a director of First Horizon National Corporation, a financial services holding company. | ||||
26
Table of Contents
| Name and Office | Age | Positions and Offices Held and Business Experience | ||||
|
|
||||||
|
T. Michael Glenn
Executive Vice President — Market Development and Corporate Communications |
55 | Executive Vice President — Market Development and Corporate Communications of FedEx since January 1998; Senior Vice President — Marketing, Customer Service and Corporate Communications of FedEx Express from June 1994 to January 1998; Senior Vice President — Marketing and Corporate Communications of FedEx Express from December 1993 to June 1994; Senior Vice President — Worldwide Marketing Catalog Services and Corporate Communications of FedEx Express from June 1993 to December 1993; Senior Vice President — Catalog and Remail Services of FedEx Express from September 1992 to June 1993; Vice President — Marketing of FedEx Express from August 1985 to September 1992; and various management positions in sales and marketing and senior sales specialist of FedEx Express from 1981 to 1985. Mr. Glenn serves as a director of Pentair, Inc., a diversified industrial manufacturing company operating in water and technical products business segments, and as a director of Renasant Corporation, a financial services holding company. | ||||
|
|
||||||
|
Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer |
57 | Executive Vice President and Chief Financial Officer of FedEx since January 1998; Executive Vice President and Chief Financial Officer of FedEx Express from February 1996 to January 1998; Senior Vice President and Chief Financial Officer of FedEx Express from December 1991 to February 1996; Vice President and Treasurer of FedEx Express from August 1987 to December 1991; and various management positions in finance and a senior financial analyst of FedEx Express from 1980 to 1987. Mr. Graf serves as a director of Mid-America Apartment Communities Inc., a real estate investment trust that focuses on acquiring, constructing, developing, owning and operating apartment communities, and as a director of NIKE, Inc., a designer and marketer of athletic footwear, apparel, equipment and accessories for sports and fitness activities. | ||||
|
|
||||||
|
William J. Logue
President and Chief Executive Officer, FedEx Freight Corporation |
53 | President and Chief Executive Officer of FedEx Freight Corporation (parent of FedEx Freight) since March 2010; President of FedEx Freight Corporation from December 2009 to February 2010; Executive Vice President and Chief Operating Officer — U.S. of FedEx Express from March 2008 to November 2009; Executive Vice President — U.S. Operations and System Support of FedEx Express from September 2006 to March 2008; Senior Vice President — U.S. Operations of FedEx Express from August 2004 to September 2006; Senior Vice President — Air-Ground and Freight Services of FedEx Express from 1999 to August 2004; Vice President — National Hub Operations, Memphis Hub of FedEx Express from 1995 to 1999; and various operations management positions with FedEx Express from 1989 to 1995. | ||||
27
Table of Contents
| Name and Office | Age | Positions and Offices Held and Business Experience | ||||
|
|
||||||
|
David F. Rebholz
President and Chief Executive Officer, FedEx Ground |
58 | President and Chief Executive Officer of FedEx Ground since January 2007; President of FedEx Ground from September 2006 to January 2007; Executive Vice President — Operations & Systems Support of FedEx Express from December 1999 to September 2006; Senior Vice President — U.S. of FedEx Express from January 1997 to November 1999; Senior Vice President —Sales & Customer Service of FedEx Express from June 1993 to December 1996; Vice President — Regional Operations of FedEx Express from October 1991 to June 1993; Vice President — Customer Service of FedEx Express from December 1988 to October 1991; and various other positions with FedEx Express from 1976 to 1988. | ||||
|
|
||||||
|
Christine P. Richards
Executive Vice President, General Counsel and Secretary |
56 | Executive Vice President, General Counsel and Secretary of FedEx since June 2005; Corporate Vice President — Customer and Business Transactions of FedEx from March 2001 to June 2005; Senior Vice President and General Counsel of FedEx Services from March 2000 to June 2005; Staff Vice President — Customer and Business Transactions of FedEx from November 1999 to March 2001; Vice President — Customer and Business Transactions of FedEx Express from 1998 to November 1999; and various legal positions with FedEx Express from 1984 to 1998. | ||||
Executive officers are elected by, and serve at the discretion of, the Board of Directors. There
is no arrangement or understanding between any executive officer and any person, other than a
director or executive officer of FedEx or of any of its subsidiaries acting in his or her official
capacity, pursuant to which any executive officer was selected. There are no family relationships
between any executive officer and any other executive officer or director of FedEx or of any of its
subsidiaries.
28
Table of Contents
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
FedEx’s common stock is listed on the New York Stock Exchange under the symbol “FDX.” As of July
11, 2011, there were 14,370 holders of record of our common stock. The following table sets
forth, for the periods indicated, the high and low sale prices, as reported on the NYSE, and the
cash dividends paid per share of common stock.
| Sale Prices | ||||||||||||
| High | Low | Dividend | ||||||||||
|
Fiscal Year Ended May 31, 2011
|
||||||||||||
|
Fourth Quarter
|
$ | 96.89 | $ | 85.03 | $ | 0.12 | ||||||
|
Third Quarter
|
98.52 | 87.54 | 0.12 | |||||||||
|
Second Quarter
|
93.03 | 79.04 | 0.12 | |||||||||
|
First Quarter
|
87.74 | 69.78 | 0.12 | |||||||||
|
|
||||||||||||
|
Fiscal Year Ended May 31, 2010
|
||||||||||||
|
Fourth Quarter
|
$ | 97.75 | $ | 78.29 | $ | 0.11 | ||||||
|
Third Quarter
|
92.59 | 75.17 | 0.11 | |||||||||
|
Second Quarter
|
85.43 | 68.06 | 0.11 | |||||||||
|
First Quarter
|
70.27 | 49.76 | 0.11 | |||||||||
FedEx also paid a cash dividend on July 1, 2011 ($0.13 per share). We expect to continue to pay
regular quarterly cash dividends, though each subsequent quarterly dividend is subject to review
and approval by our Board of Directors. We evaluate the dividend payment amount on an annual basis
at the end of each fiscal year. There are no material restrictions on our ability to declare
dividends, nor are there any material restrictions on the ability of our subsidiaries to transfer
funds to us in the form of cash dividends, loans or advances. FedEx did not repurchase any of its
common stock during the fourth quarter of 2011.
| ITEM 6. | SELECTED FINANCIAL DATA |
Selected financial data as of and for the five years ended May 31, 2011 is presented on page 127 of
this Annual Report on Form 10-K.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
Management’s discussion and analysis of results of operations and financial condition is presented
on pages 36 through 76 of this Annual Report on Form 10-K.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Quantitative and qualitative information about market risk is presented on page 126 of this Annual
Report on Form 10-K.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst
& Young LLP dated July 12, 2011 thereon, are presented on pages 79 through 125 of this Annual
Report on Form 10-K.
29
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Management’s Evaluation of Disclosure Controls and Procedures
The management of FedEx, with the participation of our principal executive and financial officers,
has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the
information required to be disclosed in our filings under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, including ensuring that such information is
accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding
required disclosure. Based on such evaluation, our principal executive and financial officers have
concluded that such disclosure controls and procedures were effective as of May 31, 2011 (the end
of the period covered by this Annual Report on Form 10-K).
Assessment of Internal Control Over Financial Reporting
Management’s report on our internal control over financial reporting is presented on page 77 of
this Annual Report on Form 10-K. The report of Ernst & Young LLP with respect to our internal
control over financial reporting is presented on page 78 of this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
During our fiscal quarter ended May 31, 2011, no change occurred in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Information regarding members of the Board of Directors, compliance with Section 16(a) of the
Securities Exchange Act of 1934, as amended, FedEx’s Code of Business Conduct and Ethics and
certain other aspects of FedEx’s corporate governance (such as the procedures by which FedEx’s
stockholders may recommend nominees to the Board of Directors and information about the Audit
Committee, including its members and our “audit committee financial expert”) will be presented in
FedEx’s definitive proxy statement for its 2011 annual meeting of stockholders, which will be held
on September 26, 2011, and is incorporated herein by reference. Information regarding executive
officers of FedEx is included above in Part I of this Annual Report on Form 10-K under the caption
“Executive Officers of the Registrant” pursuant to Instruction 3 to Item 401(b) of Regulation S-K
and General Instruction G(3) of Form 10-K. Information regarding FedEx’s Code of Business Conduct
and Ethics is included above in
Part I, Item 1 of this Annual Report on Form 10-K under the caption “Reputation and Responsibility
— Governance.”
30
Table of Contents
| ITEM 11. | EXECUTIVE COMPENSATION |
Information regarding director and executive compensation will be presented in FedEx’s definitive
proxy statement for its 2011 annual meeting of stockholders, which will be held on September 26,
2011, and is incorporated herein by reference.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information regarding security ownership of certain beneficial owners and management and related
stockholder matters, as well as equity compensation plan information, will be presented in FedEx’s
definitive proxy statement for its 2011 annual meeting of stockholders, which will be held on
September 26, 2011, and is incorporated herein by reference.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding certain relationships and transactions with related persons (including
FedEx’s policies and procedures for the review and preapproval of related person transactions) and
director independence will be presented in FedEx’s definitive proxy statement for its 2011 annual
meeting of stockholders, which will be held on September 26, 2011, and is incorporated herein by
reference.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information regarding the fees for services provided by Ernst & Young LLP during 2011 and 2010 and
the Audit Committee’s administration of the engagement of Ernst & Young LLP, including the
Committee’s preapproval policies and procedures (such as FedEx’s Policy on Engagement of
Independent Auditor), will be presented in FedEx’s definitive proxy statement for its 2011 annual
meeting of stockholders, which will be held on September 26, 2011, and is incorporated herein by
reference.
| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a)(1) and (2) Financial Statements; Financial Statement Schedules
FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst
& Young LLP dated July 12, 2011 thereon, are listed on pages 34 through 35 and presented on pages
79 through 125 of this Annual Report on Form 10-K. FedEx’s “Schedule II — Valuation and
Qualifying Accounts,” together with the report of Ernst & Young LLP dated July 12, 2011 thereon, is
presented on pages 128 through 129 of this Annual Report on Form 10-K. All other financial
statement schedules have been omitted because they are not applicable or the required information
is included in FedEx’s consolidated financial statements or the notes thereto.
(a)(3) Exhibits
See the Exhibit Index on pages E-1 through E-8 for a list of the exhibits being filed or furnished
with or incorporated by reference into this Annual Report on Form 10-K.
31
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
FEDEX CORPORATION
|
||||
| Dated: July 12, 2011 | By: | /s/ FREDERICK W. SMITH | ||
| Frederick W. Smith | ||||
|
Chairman, President and
Chief Executive Officer |
||||
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has
been signed below by the following persons on behalf of the Registrant in the capacities and on the
dates indicated.
| Signature | Capacity | Date | ||
|
|
||||
|
/s/ FREDERICK W. SMITH
|
Chairman, President and Chief Executive Officer and Director (Principal Executive Officer) | July 12, 2011 | ||
|
|
||||
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/s/ ALAN B. GRAF, JR.
|
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) |
July 12, 2011 | ||
|
|
||||
|
/s/ JOHN L. MERINO
|
Corporate Vice President and Principal Accounting Officer (Principal Accounting Officer) | July 12, 2011 | ||
|
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||||
|
/s/ JAMES L. BARKSDALE *
|
Director | July 12, 2011 | ||
|
|
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|
/s/ JOHN A. EDWARDSON *
|
Director | July 12, 2011 | ||
|
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||||
|
/s/ J. R. HYDE, III *
|
Director | July 12, 2011 | ||
|
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||||
|
/s/ SHIRLEY ANN JACKSON *
|
Director | July 12, 2011 | ||
|
|
||||
|
/s/ STEVEN R. LORANGER *
|
Director | July 12, 2011 |
32
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| Signature | Capacity | Date | ||
|
|
||||
|
/s/ GARY W. LOVEMAN *
|
Director | July 12, 2011 | ||
|
|
||||
|
/s/ SUSAN C. SCHWAB *
|
Director | July 12, 2011 | ||
|
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||||
|
/s/ JOSHUA I. SMITH *
|
Director | July 12, 2011 | ||
|
|
||||
|
/s/ DAVID P. STEINER *
|
Director | July 12, 2011 | ||
|
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||||
|
/s/ PAUL S. WALSH *
|
Director | July 12, 2011 |
|
*By:
|
/s/ JOHN L. MERINO
|
July 12, 2011 | ||
|
|
Attorney-in-Fact |
33
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FINANCIAL SECTION TABLE OF CONTENTS
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Management’s
Discussion and Analysis of Results of Operations and Financial
Condition
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34
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Consolidated Financial Statements
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Other Financial Information
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35
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW OF FINANCIAL SECTION
The financial section of the FedEx Corporation (“FedEx”) Annual Report on Form 10-K (“Annual
Report”) consists of the following Management’s Discussion and Analysis of Results of Operations
and Financial Condition (“MD&A”), the Consolidated Financial Statements and the notes to the
Consolidated Financial Statements, and Other Financial Information, all of which include
information about our significant accounting policies, practices and the transactions that underlie
our financial results. The following MD&A describes the principal factors affecting the results of
operations, liquidity, capital resources, contractual cash obligations and the critical accounting
estimates of FedEx. The discussion in the financial section should be read in conjunction with the
other sections of this Annual Report, particularly “Item 1: Business” and our detailed discussion
of risk factors included in this MD&A.
ORGANIZATION OF INFORMATION
Our MD&A is composed of three major sections: Results of Operations, Financial Condition and
Critical Accounting Estimates. These sections include the following information:
| • | Results of Operations includes an overview of our consolidated 2011 results compared to 2010, and 2010 results compared to 2009. This section also includes a discussion of key actions and events that impacted our results, as well as our outlook for 2012. |
| • | The overview is followed by a financial summary and analysis (including a discussion of both historical operating results and our outlook for 2012) for each of our reportable transportation segments. |
| • | Our financial condition is reviewed through an analysis of key elements of our liquidity, capital resources and contractual cash obligations, including a discussion of our cash flows and our financial commitments. |
| • | We conclude with a discussion of the critical accounting estimates that we believe are important to understanding certain of the material judgments and assumptions incorporated in our reported financial results. |
DESCRIPTION OF BUSINESS
We provide a broad portfolio of transportation, e-commerce and business services through companies
competing collectively, operating independently and managed collaboratively, under the respected
FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”),
the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx
Ground”), a leading provider of small-package ground delivery services; and FedEx Freight, Inc.
(“FedEx Freight”), a leading U.S. provider of less-than-truckload (“LTL”) freight services. These
companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx
Services”), form the core of our reportable segments. Our FedEx Services segment provides sales,
marketing and information technology support to our transportation segments. In addition, the
FedEx Services segment provides customers with retail access to FedEx Express and FedEx Ground
shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”) and provides
customer service, technical support and billing and collection services through FedEx TechConnect,
Inc. (“FedEx TechConnect”). See “Reportable Segments” for further discussion and refer to “Item
1: Business” for a more detailed description of each of our operating companies.
36
Table of Contents
The key indicators necessary to understand our operating results include:
| • | the overall customer demand for our various services; |
| • | the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight; |
| • | the mix of services purchased by our customers; |
| • | the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per hundredweight for LTL freight shipments); |
| • | our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and |
| • | the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. |
The majority of our operating expenses are directly impacted by revenue and volume levels.
Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent
with the change in revenues and volumes. Therefore, the discussion of operating expense captions
focuses on the key drivers and trends impacting expenses other than changes in revenues and volume.
Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2011 or
ended May 31 of the year referenced and comparisons are to the prior year. References to our
transportation segments include, collectively, our FedEx Express, FedEx Ground and FedEx Freight
segments.
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions, except per share
amounts) for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2011 (1) | 2010 | 2009 (2) | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Revenues
|
$ | 39,304 | $ | 34,734 | $ | 35,497 | 13 | (2 | ) | |||||||||||
|
Operating income
|
2,378 | 1,998 | 747 | 19 | 167 | |||||||||||||||
|
Operating margin
|
6.1 | % | 5.8 | % | 2.1 | % | 30 | bp | 370 | bp | ||||||||||
|
Net income
|
$ | 1,452 | $ | 1,184 | $ | 98 | 23 | NM | ||||||||||||
|
|
||||||||||||||||||||
|
Diluted earnings per share
|
$ | 4.57 | $ | 3.76 | $ | 0.31 | 22 | NM | ||||||||||||
|
|
||||||||||||||||||||
| (1) | Operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011, and a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx Express. | |
| (2) | Operating expenses include charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), primarily for impairment charges associated with goodwill and aircraft (described below). |
37
Table of Contents
The following table shows changes in revenues and operating income by reportable segment for 2011
compared to 2010, and 2010 compared to 2009 (dollars in millions):
| Revenues | Operating Income | |||||||||||||||||||||||||||||||
| Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||||||||||||
| 2011/ | 2010/ | 2011/ | 2010/ | 2011/ | 2010/ | 2011/ | 2010/ | |||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
FedEx Express segment
(1)
|
$ | 3,026 | $ | (809 | ) | 14 | (4 | ) | $ | 101 | $ | 333 | 9 | 42 | ||||||||||||||||||
|
FedEx Ground segment
|
1,046 | 392 | 14 | 6 | 301 | 217 | 29 | 27 | ||||||||||||||||||||||||
|
FedEx Freight segment
(2)
|
590 | (94 | ) | 14 | (2 | ) | (22 | ) | (109 | ) | (14 | ) | (248 | ) | ||||||||||||||||||
|
FedEx Services segment
(3)
|
(86 | ) | (207 | ) | (5 | ) | (10 | ) | — | 810 | — | 100 | ||||||||||||||||||||
|
Other and eliminations
|
(6 | ) | (45 | ) | NM | NM | — | — | — | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
$ | 4,570 | $ | (763 | ) | 13 | (2 | ) | $ | 380 | $ | 1,251 | 19 | 167 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
| (1) | FedEx Express segment 2011 operating expenses include a $66 million legal reserve associated with the ATA Airlines lawsuit, and 2009 operating expenses include a charge of $260 million, primarily for aircraft-related asset impairments. | |
| (2) | FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011, and 2009 operating expenses include a charge of $100 million, primarily for impairment charges associated with goodwill related to the FedEx National LTL acquisition. | |
| (3) | FedEx Services segment 2009 operating expenses include a charge of $810 million for impairment charges associated with goodwill related to the FedEx Office acquisition. |
Overview
Our results for 2011 reflect the momentum of improved global economic conditions and strong demand
for our services, which drove yield growth and volume increases across all our transportation
segments during 2011, particularly in FedEx International Priority (“IP”) package shipments at
FedEx Express. Our FedEx Ground segment continued its exceptional performance, increasing volume,
yield and operating margins. The FedEx Freight segment returned to profitability in the fourth
quarter of 2011 primarily due to higher LTL yield. All of our transportation segments benefited
from our yield management initiatives in 2011. Despite the strength in our businesses and
significantly improved results, we incurred increased retirement plans and medical costs, higher
aircraft maintenance expenses, higher costs associated with the restoration of compensation
programs curtailed during the recession and one-time costs associated with the combination of our
LTL operations (described below) during 2011.
The combination of our FedEx Freight and FedEx National LTL operations was completed on January 30,
2011. Our combined LTL network will increase efficiencies, reduce operational costs and provide
customers both Priority and Economy LTL freight services across all lengths of haul from one
integrated company. The combination resulted in the following incremental costs and charges which
were incurred primarily in the second and third quarters of 2011 (in millions):
| 2011 | ||||
|
Severance
|
$ | 40 | ||
|
Lease terminations
|
20 | |||
|
Asset impairments
|
29 | |||
|
|
||||
|
Impairment and other charges
|
89 | |||
|
|
||||
|
Other program costs
|
44 | |||
|
|
||||
|
Total program costs
|
$ | 133 | ||
|
|
||||
38
Table of Contents
Other program costs include $15 million in 2011 of accelerated depreciation expense due to a change
in the estimated useful life of certain assets impacted by the combination of these operations and
other incremental costs directly associated with the program. The net cash effect of the program
was immaterial, as cash proceeds from asset sales of $88 million offset severance and other cash
outlays for the program.
In 2010, our results reflected the impact of the global recession, which negatively impacted
volumes and yields, principally in the first half of the fiscal year. As the global and U.S.
economies began to emerge from recession in the second half of 2010, we experienced significant
volume growth across all of our transportation segments. Our FedEx Ground segment continued to
grow throughout the recession, as customers opted for lower-priced ground transportation services
and we continued to gain market share. Despite higher shipment volumes in 2010, our FedEx Freight
segment had a difficult year, resulting in an operating loss caused
by the highly competitive pricing environment in the LTL
market due to excess industry capacity.
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected volume trends
(in thousands) for the years ended May 31:
| (1) | Package statistics do not include the operations of FedEx SmartPost. |
39
Table of Contents
The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected yield trends
for the years ended May 31:
| (1) | Package statistics do not include the operations of FedEx SmartPost. |
Revenue
Revenues increased 13% during 2011 due to yield increases and volume growth across all our
transportation segments. Yields improved due to higher fuel surcharges and increased base rates
under our yield improvement programs, including our dimensional pricing changes for package
shipments effective January 1, 2011. At FedEx Express, revenues increased 14% in 2011 led by IP
volume growth in Asia, as well as domestic and IP package yield increases. At the FedEx Ground
segment, revenues increased 14% in 2011 due to continued volume growth driven by market share gains
and yield growth at both FedEx Ground and FedEx SmartPost. At FedEx Freight, yield increases due
to our yield management programs and higher LTL fuel surcharges, and higher average daily LTL
volumes led to a 14% increase in revenues in 2011.
Revenues decreased 2% during 2010 primarily due to yield decreases at FedEx Express and FedEx
Freight as a result of lower fuel surcharges and a continued competitive pricing environment for
our services. Increased volumes at all of our transportation segments due to improved economic
conditions in the second half of the fiscal year partially offset the yield decreases in 2010. At
FedEx Express, IP package volume increased 10%, led by volume growth in Asia. IP freight and U.S.
domestic package volume growth also contributed to the revenue increase in 2010. At the FedEx
Ground segment, market share gains resulted in a 3% increase in volumes at FedEx Ground and a 48%
increase in volumes at FedEx SmartPost during 2010. At FedEx Freight, discounted pricing drove an
increase in average daily LTL freight shipments, but also resulted in significant yield declines
during 2010.
40
Table of Contents
Impairment and Other Charges
In 2011, we incurred impairment and other charges of $89 million related to the combination of our
LTL operations at FedEx Freight (see “Overview” above for additional information). In 2010, we
recorded a charge of $18 million for the impairment of goodwill related to the FedEx National LTL
acquisition, eliminating the remaining goodwill attributable to this reporting unit. Our operating
results for 2009 included charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted
share) recorded during the fourth quarter, primarily for the impairment of goodwill related
to the FedEx Office and FedEx National LTL acquisitions and certain aircraft-related assets at
FedEx Express. The key factor contributing to the goodwill impairment was a decline in FedEx
Office’s and FedEx National LTL’s actual and forecasted financial performance as a result of weak
economic
conditions. The FedEx National LTL 2010 and 2009 goodwill impairment charges were included in the results of
the FedEx Freight segment. The FedEx Office 2009 goodwill impairment charge was included in the
results of the FedEx Services segment and was not allocated to our transportation segments, as the
charge was unrelated to the core performance of those businesses.
The majority of our property and equipment impairment charges during 2009 resulted from our
decision to permanently remove from service certain aircraft, along with certain excess aircraft
engines, at FedEx Express. This decision was the result of efforts to optimize our express network
in light of excess aircraft capacity due to weak economic conditions and the delivery of newer,
more fuel-efficient aircraft.
Operating Income
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a
percent of revenue for the years ended May 31:
| 2011 | 2010 | 2009 | ||||||||||
|
Operating expenses:
|
||||||||||||
|
Salaries and employee benefits
|
$ | 15,276 | $ | 14,027 | $ | 13,767 | ||||||
|
Purchased transportation
|
5,674 | 4,728 | 4,534 | |||||||||
|
Rentals and landing fees
|
2,462 | 2,359 | 2,429 | |||||||||
|
Depreciation and amortization
|
1,973 | 1,958 | 1,975 | |||||||||
|
Fuel
|
4,151 | 3,106 | 3,811 | |||||||||
|
Maintenance and repairs
|
1,979 | 1,715 | 1,898 | |||||||||
|
Impairment and other charges
|
89 | (1) | 18 | 1,204 | (2) | |||||||
|
Other
|
5,322 | (3) | 4,825 | 5,132 | ||||||||
|
|
||||||||||||
|
Total operating expenses
|
$ | 36,926 | $ | 32,736 | $ | 34,750 | ||||||
|
|
||||||||||||
| (1) | Represents charges associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011. | |
| (2) | Includes charges of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share), primarily for impairment charges associated with goodwill and aircraft (described above). | |
| (3) | Includes a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx Express. |
41
Table of Contents
| Percent of Revenue | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Operating expenses:
|
||||||||||||
|
Salaries and employee benefits
|
38.9 | % | 40.4 | % | 38.8 | % | ||||||
|
Purchased transportation
|
14.4 | 13.6 | 12.8 | |||||||||
|
Rentals and landing fees
|
6.3 | 6.8 | 6.8 | |||||||||
|
Depreciation and amortization
|
5.0 | 5.6 | 5.6 | |||||||||
|
Fuel
|
10.6 | 8.9 | 10.7 | |||||||||
|
Maintenance and repairs
|
5.0 | 4.9 | 5.3 | |||||||||
|
Impairment and other charges
|
0.2 | 0.1 | 3.4 | |||||||||
|
Other
|
13.5 | 13.9 | 14.5 | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
93.9 | 94.2 | 97.9 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating margin
|
6.1 | % | 5.8 | % | 2.1 | % | ||||||
|
|
||||||||||||
In 2011, operating income increased 19% primarily due to yield and volume increases across all our
transportation segments. Higher compensation and benefits, including retirement plans and medical
costs, and increased maintenance and repairs expenses had a negative impact on our performance for
2011. Costs related to the combination of our FedEx Freight and FedEx National LTL operations also
negatively impacted our 2011 results by $133 million. Unusually severe weather in
the second half of 2011 caused widespread disruptions to our networks, which led to lost revenues
and drove higher purchased transportation, salaries and wages and other operational costs.
Additionally, a $66 million reserve associated with an adverse jury decision in the ATA Airlines
lawsuit against FedEx Express was recognized in 2011.
Salaries and employee benefits increased 9% in 2011 due to the reinstatement of merit salary
increases, increases in pension and medical costs and the reinstatement of full 401(k)
company-matching contributions effective January 1, 2011. Purchased transportation increased 20%
in 2011 due to volume growth, higher fuel surcharges and higher rates paid to our independent
contractors at FedEx Ground, as well as costs associated with the expansion of our freight
forwarding business at FedEx Trade Networks. Maintenance and repairs expense increased 15% in 2011
primarily due to an increase in maintenance events, as a result of timing, and higher utilization
of our fleet driven by increased volumes. Other operating expense increased 10% primarily due to
volume- and weather-related expenses.
The following graph for our transportation segments shows our average cost of jet and vehicle fuel
per gallon for the years ended May 31:
42
Table of Contents
Fuel expense increased 34% during 2011 primarily due to increases in the average price per gallon
of fuel and fuel consumption driven by volume increases. Based on a static analysis of the net
impact of year-over-year changes in fuel prices compared to year-over-year changes in fuel
surcharges, fuel had a positive impact on operating income in 2011, predominantly at FedEx Express.
Our analysis considers the estimated impact of the reduction in fuel surcharges included in the
base rates charged for FedEx Express and FedEx Ground services. However, this analysis does not
consider the negative effects that fuel surcharge levels may have on our business, including
reduced demand and shifts by our customers to lower-yielding services. While fluctuations in fuel
surcharge rates can be significant from period to period, fuel surcharges represent one of the many
individual components of our pricing structure that impact our overall revenue and yield.
Additional components include the mix of services sold, the base price and extra service charges we
obtain for these services and the level of pricing discounts offered. In order to provide
information about the impact of fuel surcharges on the trends in revenue and yield growth, we have
included the comparative fuel surcharge rates in effect for 2011, 2010 and 2009 in the accompanying
discussions of each of our transportation segments.
Operating income and operating margin increased in 2010 primarily as a result of the inclusion in
2009 of the impairment and other charges described above. Volume increases at our package
businesses, particularly in higher-margin IP package and freight services at FedEx Express, also
benefited our 2010 results. Additionally, we benefited in 2010 from several actions implemented in
2009 to lower our cost structure, including reducing base salaries, optimizing our networks by
adjusting routes and equipment types, permanently and temporarily idling certain equipment and
consolidating facilities; however, these benefits were partially offset by increased costs in 2010
associated with our variable incentive compensation programs. An operating loss at the FedEx
Freight segment due to continued weakness in the LTL freight market constrained the earnings
increase.
Maintenance and repairs expense decreased 10% in 2010 primarily due to the timing of maintenance
events. Other operating expense decreased 6% in 2010 due to actions to control spending and the
inclusion in the prior year of higher self-insurance reserve requirements at FedEx Ground.
Purchased transportation costs increased 4% in 2010 due to increased utilization of third-party
transportation providers associated primarily with our LTL freight service as a result of higher
shipment volumes.
Fuel expense decreased 18% during 2010 primarily due to decreases in the average price per gallon
of fuel and fuel consumption, as we lowered flight hours and improved route efficiencies. Based on
a static analysis of the net impact of year-over-year changes in fuel prices compared to
year-over-year changes in fuel surcharges, fuel had a significant negative impact to operating
income in 2010.
Other Income and Expense
Interest expense increased $7 million during 2011 primarily due to a decrease in capitalized
interest related to the timing of construction projects and progress payments on aircraft
purchases. Interest expense decreased $6 million during 2010 due to increased capitalized interest
primarily related to progress payments on aircraft purchases. Interest income decreased $18
million during 2010 primarily due to lower interest rates and invested balances. Other expense
increased $22 million during 2010 primarily due to higher amortization of financing fees and
foreign currency losses.
Income Taxes
Our effective tax rate was 35.9% in 2011, 37.5% in 2010 and 85.6% in 2009. Our 2011 rate was lower
than our 2010 rate primarily due to increased permanently reinvested foreign earnings and a lower
state tax rate driven principally by favorable audit and legislative developments. In 2011, our
permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries
provided a 1.3% benefit to our effective tax rate. Our total permanently reinvested foreign
earnings were $640 million at the end of 2011 and $325 million
at the end of 2010. Our 2009 rate was significantly impacted by
goodwill impairment charges that were not deductible for income tax purposes.
43
Table of Contents
Our current federal income tax expenses in 2011, 2010, and 2009 were significantly reduced by
accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small
Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those acts, designed to stimulate new business investment in the
U.S., accelerated our depreciation deductions for new qualifying investments, such as our new
Boeing 777 Freighter (“B777F”) aircraft. These are timing benefits only, in that the depreciation
would have otherwise been recognized in later years.
The components of the provision for federal income taxes for the years ended May 31 were as follows
(in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
Current
|
$ | 79 | $ | 36 | $ | (35 | ) | |||||
|
Deferred
|
485 | 408 | 327 | |||||||||
|
|
||||||||||||
|
Total Federal Provision
|
$ | 564 | $ | 444 | $ | 292 | ||||||
|
|
||||||||||||
For 2012, we expect our effective tax rate to be in the range of 36.0% to 38.0%. The actual rate,
however, will depend on a number of factors, including the amount and source of operating income.
Additional information on income taxes, including our effective tax rate reconciliation and
liabilities for uncertain tax positions, can be found in Note 11 of the accompanying consolidated
financial statements.
Business Acquisitions
On February 22, 2011, FedEx Express completed the acquisition of the Indian logistics, distribution
and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. for $96
million in cash. The financial results of the acquired businesses are included in the FedEx
Express segment from the date of acquisition and were not material to our results of operations or
financial condition. Substantially all of the purchase price was allocated to goodwill.
On
December 15, 2010, FedEx entered into an agreement to acquire
Servicios Nacionales Mupa, S.A. de
C.V. (MultiPack), a Mexican domestic express package delivery company. This acquisition will be
funded with cash from operations and is expected to be completed
during the first quarter of 2012, subject to customary
closing conditions. The financial results of the acquired company will be included in the FedEx
Express segment from the date of acquisition and will be immaterial to our 2012 results.
These acquisitions will give us more robust domestic transportation networks and added capabilities in
these important global markets.
Outlook
We expect moderate growth in the global economy, combined with ongoing yield improvement actions, to
drive a significant improvement in earnings in 2012. Results at FedEx Express, driven by international services, are expected to be the primary driver
of earnings growth during 2012. In addition, we expect our FedEx Freight segment to be profitable throughout 2012 and anticipate our FedEx Ground segment to continue to grow significantly. However, our outlook is dependent on
continued strengthening in global economic conditions, particularly in industrial production, the
pace of which is uncertain due to several factors, including the impact of higher fuel prices on
demand. We expect growth in international trade to substantially outpace growth in the U.S. domestic
economy, and our unmatched global network is uniquely positioned to service customer needs in this
sector. While cost headwinds in pension plans and maintenance and repairs are expected to abate,
we expect higher incentive compensation expense as a result of higher earnings and higher expenses
related to the full restoration of the company-matching contributions on our 401(k) programs.
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Our capital expenditures for 2012 are expected to be approximately $4.2 billion, an increase over
2011, driven primarily by replacement vehicles and equipment to support international growth at
FedEx Express. Our strategic investments in our more fuel efficient B777F and Boeing 757 (“B757”)
aircraft will continue in 2012. We are committed to investing in critical long-term strategic
projects focused on enhancing and broadening our service offerings to position us for stronger
growth as global economic conditions continue to improve. For additional details on key 2012
capital projects, refer to the “Liquidity Outlook” section of this MD&A.
Our outlook is dependent upon a stable pricing environment for fuel, as volatility in fuel prices
impacts our fuel surcharge levels, fuel expense and demand for our services. Historically, our
fuel surcharges have largely offset incremental fuel costs; however, volatility in fuel costs may
impact earnings because adjustments to our fuel surcharges lag changes in actual fuel prices paid.
Therefore, the trailing impact of adjustments to our fuel surcharges can significantly affect our
earnings either positively or negatively in the short-term.
As described in Note 17 of the accompanying consolidated financial statements and the “Independent
Contractor Matters” section of our FedEx Ground segment MD&A, we are involved in a number of
lawsuits and other proceedings that challenge the status of FedEx Ground’s owner-operators as
independent contractors. FedEx Ground anticipates continuing changes to its relationships with its
contractors. The nature, timing and amount of any changes are dependent on the outcome of numerous
future events. We cannot reasonably estimate the potential impact of any such changes or a
meaningful range of potential outcomes, although they could be material. However, we do not
believe that any such changes will impair our ability to operate and profitably grow our FedEx
Ground business.
See “Risk Factors” for a discussion of these and other potential risks and uncertainties that could
materially affect our future performance.
Seasonality of Business
Our businesses are cyclical in nature, as seasonal fluctuations affect volumes, revenues and
earnings. Historically, the U.S. express package business experiences an increase in volumes in
late November and December. International business, particularly in the Asia-to-U.S. market, peaks
in October and November in advance of the U.S. holiday sales season. Our first and third fiscal
quarters, because they are summer vacation and post winter-holiday seasons, have historically
experienced lower volumes relative to other periods. Normally, the fall is the busiest shipping
period for FedEx Ground, while late December, June and July are the slowest periods. For FedEx
Freight, the spring and fall are the busiest periods and the latter part of December, January and
February are the slowest periods. For FedEx Office, the summer months are normally the slowest
periods. Shipment levels, operating costs and earnings for each of our companies can also be
adversely affected by inclement weather, particularly the impact of severe winter weather in our
third fiscal quarter.
NEW ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. New accounting guidance that has impacted our
financial statements can be found in Note 2 of the accompanying consolidated financial statements.
In June 2011, the Financial Accounting Standards Board issued new guidance to make the presentation
of items within other comprehensive income (“OCI”) more prominent. The new standard will require
companies to present items of net income, items of OCI and total comprehensive income in one
continuous statement or two separate consecutive statements, and companies will no longer be allowed to
present items of OCI in the statement of stockholders’ equity. Reclassification adjustments
between OCI and net income will be presented separately on the face of the financial statements.
This new standard is effective for our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but not yet effective that
is relevant to the readers of our financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a significant impact on our financial
reporting.
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REPORTABLE SEGMENTS
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with
FedEx Services, form the core of our reportable segments. Our reportable segments include the
following businesses:
|
FedEx Express Segment
|
FedEx Express (express transportation) | |
|
|
FedEx Trade Networks (global trade services) | |
|
|
FedEx SupplyChain Systems (logistics services) | |
|
|
||
|
FedEx Ground Segment
|
FedEx Ground (small-package ground delivery) | |
|
|
FedEx SmartPost (small-parcel consolidator) | |
|
|
||
|
FedEx Freight Segment
|
FedEx Freight (LTL freight transportation) | |
|
|
FedEx Custom Critical (time-critical transportation) | |
|
|
||
|
FedEx Services Segment
|
FedEx Services (sales, marketing and information technology functions) | |
|
|
FedEx TechConnect (customer service, technical support, billings and collections) | |
|
|
FedEx Office (document and business services and package acceptance) |
Effective January 30, 2011, our FedEx Freight and FedEx National LTL businesses were merged into a
single operation. FedEx Freight now offers two standard services: FedEx Freight Priority, a
faster transit service with a price premium; and FedEx Freight Economy, an economical service.
FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FedEx TechConnect, which is responsible for customer service, technical support,
billings and collections for U.S. customers of our major business units; and FedEx Office, which
provides an array of document and business services and retail access to our customers for our
package transportation businesses. Effective September 1, 2009, FedEx SupplyChain Systems,
formerly included in the FedEx Services reporting segment, was realigned to become part of the
FedEx Express reporting segment. Prior year amounts have not been reclassified to conform to the
current year segment presentation because these reclassifications are immaterial.
The FedEx Services segment provides direct and indirect support to our transportation businesses,
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating our transportation
businesses in the results of those segments. Within the FedEx Services segment allocation, the net
operating results of FedEx Office are allocated to FedEx Express and FedEx Ground. The allocations
of net operating costs are based on metrics such as relative revenues or estimated services
provided. We believe these allocations approximate the net cost of providing these functions. We
review and evaluate the performance of our transportation segments based on operating income
(inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is
evaluated based on the impact of its total allocated net operating costs on our transportation
segments.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial
summaries of our transportation segments reflects the allocations from the FedEx Services segment
to the respective transportation segments. The “Intercompany charges” caption also includes
charges and credits for administrative services provided between operating companies and certain
other costs such as corporate management fees related to services received for general corporate
oversight, including executive officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.
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Table of Contents
Effective August 1, 2009, approximately 3,600 employees (predominantly from the FedEx Freight
segment) were transferred to entities within the FedEx Services segment. This internal
reorganization further centralized most customer support functions, such as sales, customer service
and information technology, into our shared services organizations. While the reorganization had
no impact on the net operating results of any of our transportation segments, the net intercompany
charges to our FedEx Freight segment increased significantly with corresponding decreases to other
expense captions, such as salaries and employee benefits. The impact of this internal
reorganization to the expense captions in our other segments was immaterial.
OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in our consolidated results and are not separately identified
in the following segment information, because the amounts are not material.
47
Table of Contents
FEDEX EXPRESS SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Package:
|
||||||||||||||||||||
|
U.S. overnight box
|
$ | 6,128 | $ | 5,602 | $ | 6,074 | 9 | (8 | ) | |||||||||||
|
U.S. overnight envelope
|
1,736 | 1,640 | 1,855 | 6 | (12 | ) | ||||||||||||||
|
U.S. deferred
|
2,805 | 2,589 | 2,789 | 8 | (7 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total U.S. domestic package revenue
|
10,669 | 9,831 | 10,718 | 9 | (8 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
International priority
|
8,228 | 7,087 | 6,978 | 16 | 2 | |||||||||||||||
|
International domestic
(1)
|
653 | 578 | 565 | 13 | 2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total package revenue
|
19,550 | 17,496 | 18,261 | 12 | (4 | ) | ||||||||||||||
|
Freight:
|
||||||||||||||||||||
|
U.S.
|
2,188 | 1,980 | 2,165 | 11 | (9 | ) | ||||||||||||||
|
International priority
|
1,722 | 1,303 | 1,104 | 32 | 18 | |||||||||||||||
|
International airfreight
|
283 | 251 | 369 | 13 | (32 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total freight revenue
|
4,193 | 3,534 | 3,638 | 19 | (3 | ) | ||||||||||||||
|
Other
(2)
|
838 | 525 | 465 | 60 | 13 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total revenues
|
24,581 | 21,555 | 22,364 | 14 | (4 | ) | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
9,183 | 8,402 | 8,217 | 9 | 2 | |||||||||||||||
|
Purchased transportation
|
1,573 | 1,177 | 1,112 | 34 | 6 | |||||||||||||||
|
Rentals and landing fees
|
1,672 | 1,577 | 1,613 | 6 | (2 | ) | ||||||||||||||
|
Depreciation and amortization
|
1,059 | 1,016 | 961 | 4 | 6 | |||||||||||||||
|
Fuel
|
3,553 | 2,651 | 3,281 | 34 | (19 | ) | ||||||||||||||
|
Maintenance and repairs
|
1,353 | 1,131 | 1,351 | 20 | (16 | ) | ||||||||||||||
|
Impairment and other charges
|
— | — | 260 | (3) | — | NM | ||||||||||||||
|
Intercompany charges
|
2,043 | 1,940 | 2,103 | 5 | (8 | ) | ||||||||||||||
|
Other
|
2,917 | (4) | 2,534 | 2,672 | 15 | (5 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
23,353 | 20,428 | 21,570 | 14 | (5 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
$ | 1,228 | $ | 1,127 | $ | 794 | 9 | 42 | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
5.0 | % | 5.2 | % | 3.6 | % | (20 | )bp | 160 | bp | ||||||||||
| (1) | International domestic revenues include our international intra-country domestic express operations. | |
| (2) | Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010, FedEx SupplyChain Systems. | |
| (3) | Represents charges associated with aircraft-related asset impairments and other charges primarily associated with aircraft-related lease and contract termination costs and employee severance. | |
| (4) | Includes a $66 million legal reserve associated with the ATA Airlines lawsuit. |
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Table of Contents
| Percent of Revenue | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Operating expenses:
|
||||||||||||
|
Salaries and employee benefits
|
37.4 | % | 39.0 | % | 36.7 | % | ||||||
|
Purchased transportation
|
6.4 | 5.5 | 5.0 | |||||||||
|
Rentals and landing fees
|
6.8 | 7.3 | 7.2 | |||||||||
|
Depreciation and amortization
|
4.3 | 4.7 | 4.3 | |||||||||
|
Fuel
|
14.4 | 12.3 | 14.7 | |||||||||
|
Maintenance and repairs
|
5.5 | 5.2 | 6.0 | |||||||||
|
Impairment and other charges
|
— | — | 1.2 | (1) | ||||||||
|
Intercompany charges
|
8.3 | 9.0 | 9.4 | |||||||||
|
Other
|
11.9 | (2) | 11.8 | 11.9 | ||||||||
|
|
||||||||||||
|
Total operating expenses
|
95.0 | 94.8 | 96.4 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating margin
|
5.0 | % | 5.2 | % | 3.6 | % | ||||||
|
|
||||||||||||
| (1) | Includes a charge of $260 million related to aircraft-related asset impairments and other charges primarily associated with aircraft-related lease and contract termination costs and employee severance. | |
| (2) | Includes a $66 million legal reserve associated with the ATA Airlines lawsuit. |
The following table compares selected statistics (in thousands, except yield amounts) for the years
ended May 31:
| Percent Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Package Statistics
(1)
|
||||||||||||||||||||
|
Average daily package volume (ADV):
|
||||||||||||||||||||
|
U.S. overnight box
|
1,184 | 1,157 | 1,127 | 2 | 3 | |||||||||||||||
|
U.S. overnight envelope
|
627 | 614 | 627 | 2 | (2 | ) | ||||||||||||||
|
U.S. deferred
|
873 | 867 | 849 | 1 | 2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total U.S. domestic ADV
|
2,684 | 2,638 | 2,603 | 2 | 1 | |||||||||||||||
|
|
||||||||||||||||||||
|
International priority
|
575 | 523 | 475 | 10 | 10 | |||||||||||||||
|
International domestic
(2)
|
348 | 318 | 298 | 9 | 7 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total ADV
|
3,607 | 3,479 | 3,376 | 4 | 3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Revenue per package (yield):
|
||||||||||||||||||||
|
U.S. overnight box
|
$ | 20.29 | $ | 19.00 | $ | 21.21 | 7 | (10 | ) | |||||||||||
|
U.S. overnight envelope
|
10.86 | 10.47 | 11.65 | 4 | (10 | ) | ||||||||||||||
|
U.S. deferred
|
12.60 | 11.70 | 12.94 | 8 | (10 | ) | ||||||||||||||
|
U.S. domestic composite
|
15.59 | 14.61 | 16.21 | 7 | (10 | ) | ||||||||||||||
|
International priority
|
56.08 | 53.10 | 57.81 | 6 | (8 | ) | ||||||||||||||
|
International domestic
(2)
|
7.38 | 7.14 | 7.50 | 3 | (5 | ) | ||||||||||||||
|
Composite package yield
|
21.25 | 19.72 | 21.30 | 8 | (7 | ) | ||||||||||||||
|
Freight Statistics
(1)
|
||||||||||||||||||||
|
Average daily freight pounds:
|
||||||||||||||||||||
|
U.S.
|
7,340 | 7,141 | 7,287 | 3 | (2 | ) | ||||||||||||||
|
International priority
|
3,184 | 2,544 | 1,959 | 25 | 30 | |||||||||||||||
|
International airfreight
|
1,235 | 1,222 | 1,475 | 1 | (17 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total average daily freight pounds
|
11,759 | 10,907 | 10,721 | 8 | 2 | |||||||||||||||
|
|
||||||||||||||||||||
|
Revenue per pound (yield):
|
||||||||||||||||||||
|
U.S.
|
$ | 1.17 | $ | 1.09 | $ | 1.17 | 7 | (7 | ) | |||||||||||
|
International priority
|
2.12 | 2.01 | 2.22 | 5 | (9 | ) | ||||||||||||||
|
International airfreight
|
0.90 | 0.81 | 0.99 | 11 | (18 | ) | ||||||||||||||
|
Composite freight yield
|
1.40 | 1.27 | 1.34 | 10 | (5 | ) | ||||||||||||||
| (1) | Package and freight statistics include only the operations of FedEx Express. | |
| (2) | International domestic statistics include our international intra-country domestic express operations. |
49
Table of Contents
FedEx Express Segment Revenues
FedEx Express segment revenues increased 14% in 2011 driven by higher yield and volumes. In 2011,
IP package volume increased 10% led by volume growth from Asia,
Europe and the U.S. FedEx Express U.S. domestic package yields increased 7% due to higher fuel surcharges, rate increases and
increased package weights. IP package yields increased 6% due to higher fuel surcharges, increased
package weights and favorable exchange rates. IP freight pounds increased 25% led by volume
growth in Europe.
FedEx Express segment revenues decreased 4% in 2010 due to lower yields primarily driven by a
decrease in fuel surcharges. Yield decreases during 2010 were partially offset by increased IP
package volume, particularly from Asia, IP freight volume and U.S. domestic package volume due to
improved global economic conditions. Lower fuel surcharges were the primary driver of decreased
composite package and freight yield in 2010. U.S. domestic package yield also decreased during
2010 due to lower rates and lower package weights. In addition to lower fuel surcharges, IP
package yield decreased during 2010 due to lower rates, partially offset by higher package weights
and favorable exchange rates.
Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S.
domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for
the years ended May 31:
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
U.S. Domestic and Outbound Fuel
Surcharge:
|
||||||||||||
|
Low
|
7.00 | % | 1.00 | % | — | % | ||||||
|
High
|
15.50 | 8.50 | 34.50 | |||||||||
|
Weighted-average
|
9.77 | 6.20 | 17.45 | |||||||||
|
|
||||||||||||
|
International Fuel Surcharges:
|
||||||||||||
|
Low
|
7.00 | 1.00 | — | |||||||||
|
High
|
21.00 | 13.50 | 34.50 | |||||||||
|
Weighted-average
|
12.36 | 9.47 | 16.75 | |||||||||
In January 2011, we implemented a 5.9% average list price increase on FedEx Express U.S. domestic
and U.S. outbound express package and freight shipments and made various changes to other
surcharges, while we lowered our fuel surcharge index by two percentage points. In January 2010,
we implemented a 5.9% average list price increase on FedEx Express U.S. domestic and U.S. outbound
express package and freight shipments and made various changes to other surcharges, while we
lowered our fuel surcharge index by two percentage points.
FedEx Express Segment Operating Income
FedEx Express segment operating income increased in 2011 due to yield and volume growth,
particularly in our higher-margin IP package services, although operating margin was down slightly.
Higher revenues in 2011 were partially offset by higher retirement plans and medical expenses,
increased aircraft maintenance costs, the reinstatement of certain employee compensation programs,
and the negative impact of severe weather during the second half of the year. Results in 2011 were
also negatively impacted by a $66 million legal reserve associated with the ATA Airlines lawsuit
(see Note 17 of the accompanying consolidated financial statements).
Salaries and benefits increased 9% in 2011 due to volume-related increases in labor hours, the
reinstatement of several employee compensation programs including merit salary increases, higher
pension and medical costs, and full 401(k) company-matching contributions. Purchased
transportation costs increased 34% in 2011 due to costs associated with the expansion of our
freight forwarding business at FedEx Trade Networks and IP package and freight volume growth. Other operating expenses increased 15% due to volume-related
expenses and the ATA Airlines legal reserve. Maintenance and
repairs expense increased 20% in 2011 primarily due to an increase in aircraft maintenance expenses
as a result of timing of maintenance events and higher utilization of our fleet driven by increased
volumes.
50
Table of Contents
Fuel costs increased 34% in 2011 due to increases in the average price per gallon of fuel and fuel
consumption driven by volume increases. Based on a static analysis of the net impact of
year-over-year changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel
had a positive impact in 2011. This analysis considers the estimated impact of the reduction in
fuel surcharges included in the base rates charged for FedEx Express services.
FedEx Express segment operating income and operating margin increased during 2010 due to volume
growth, particularly in higher-margin IP package and freight
services. Reductions in
network operating costs driven by lower flight hours and improved route efficiencies, as well as
other actions to control spending, positively impacted our results for 2010. Our 2010
year-over-year results were also positively impacted by a $260 million charge in 2009 for
aircraft-related asset impairments and other charges primarily associated with aircraft-related
lease and contract termination costs and employee severance.
Maintenance and repairs expense decreased 16% in 2010 primarily due to the timing of maintenance
events, as lower aircraft utilization as a result of weak economic conditions, particularly in the
first half of 2010, lengthened maintenance cycles. Purchased transportation costs increased 6% in
2010 primarily due to higher air transportation volume and costs in our freight forwarding business at FedEx Trade
Networks. Depreciation expense increased 6% in 2010 primarily due to the addition of 21 aircraft
placed into service during the year. Intercompany charges decreased 8% in 2010 primarily due to
lower allocated information technology costs and lower net operating costs at FedEx Office.
Fuel costs decreased 19% in 2010 due to decreases in the average price per gallon of fuel and fuel
consumption. Based on a static analysis of the net impact of year-over-year changes in fuel prices
compared to year-over-year changes in fuel surcharges, fuel had a significant negative impact to
operating income in 2010. This analysis considers the estimated impact of the reduction in fuel
surcharges included in the base rates charged for FedEx Express services.
FedEx Express Segment Outlook
In 2012, we expect revenue growth at FedEx Express to be driven by continued growth in our
international services as international economic conditions are expected to improve at a faster
rate than in the U.S. We also anticipate improvement in both domestic and international yields
through ongoing yield management initiatives.
FedEx Express segment operating income and operating margin are expected to increase in 2012,
driven by continued growth in international package and freight services, and productivity
enhancements such as improving on-road productivity, sort efficiency and efficiencies in our
aircraft maintenance processes. We anticipate that increases in merit pay, higher incentive
compensation and increased depreciation will dampen our earnings growth in 2012.
Capital expenditures at FedEx Express are expected to increase in 2012 driven by replacement
vehicle and equipment purchases. In 2012, capital expenditures will also include continued
investments for the new B777F and B757 aircraft. These aircraft capital expenditures are necessary
to achieve significant long-term operating savings and to support projected long-term international
volume growth.
51
Table of Contents
FEDEX GROUND SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) and selected package
statistics (in thousands, except yield amounts) for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
FedEx Ground
|
$ | 7,855 | $ | 6,958 | $ | 6,670 | 13 | 4 | ||||||||||||
|
FedEx SmartPost
|
630 | 481 | 377 | 31 | 28 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total revenues
|
8,485 | 7,439 | 7,047 | 14 | 6 | |||||||||||||||
|
|
||||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
1,282 | 1,158 | 1,102 | 11 | 5 | |||||||||||||||
|
Purchased transportation
|
3,431 | 2,966 | 2,918 | 16 | 2 | |||||||||||||||
|
Rentals
|
263 | 244 | 222 | 8 | 10 | |||||||||||||||
|
Depreciation and amortization
|
337 | 334 | 337 | 1 | (1 | ) | ||||||||||||||
|
Fuel
|
12 | 8 | 9 | 50 | (11 | ) | ||||||||||||||
|
Maintenance and repairs
|
169 | 166 | 147 | 2 | 13 | |||||||||||||||
|
Intercompany charges
|
897 | 795 | 710 | 13 | 12 | |||||||||||||||
|
Other
|
769 | 744 | 795 | 3 | (6 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
7,160 | 6,415 | 6,240 | 12 | 3 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
$ | 1,325 | $ | 1,024 | $ | 807 | 29 | 27 | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
15.6 | % | 13.8 | % | 11.5 | % | 180 | bp | 230 | bp | ||||||||||
|
|
||||||||||||||||||||
|
Average
daily package volume:
|
||||||||||||||||||||
|
FedEx Ground
|
3,746 | 3,523 | 3,404 | 6 | 3 | |||||||||||||||
|
FedEx SmartPost
|
1,432 | 1,222 | 827 | 17 | 48 | |||||||||||||||
|
|
||||||||||||||||||||
|
Revenue per
package (yield):
|
||||||||||||||||||||
|
FedEx Ground
|
$ | 8.17 | $ | 7.73 | $ | 7.70 | 6 | — | ||||||||||||
|
FedEx SmartPost
|
$ | 1.72 | $ | 1.56 | $ | 1.81 | 10 | (14 | ) | |||||||||||
| Percent of Revenue | ||||||||||||||||||||
| 2011 | 2010 | 2009 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
15.1 | % | 15.5 | % | 15.6 | % | ||||||||||||||
|
Purchased transportation
|
40.4 | 39.9 | 41.4 | |||||||||||||||||
|
Rentals
|
3.1 | 3.3 | 3.1 | |||||||||||||||||
|
Depreciation and amortization
|
4.0 | 4.5 | 4.8 | |||||||||||||||||
|
Fuel
|
0.1 | 0.1 | 0.1 | |||||||||||||||||
|
Maintenance and repairs
|
2.0 | 2.2 | 2.1 | |||||||||||||||||
|
Intercompany charges
|
10.6 | 10.7 | 10.1 | |||||||||||||||||
|
Other
|
9.1 | 10.0 | 11.3 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
84.4 | 86.2 | 88.5 | |||||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
15.6 | % | 13.8 | % | 11.5 | % | ||||||||||||||
|
|
||||||||||||||||||||
52
Table of Contents
FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 14% during 2011 due to volume and yield increases at both
FedEx Ground and FedEx SmartPost.
FedEx Ground average daily package volume increased 6% during 2011 due to continued growth in our
commercial business and our FedEx Home Delivery service. The 6% yield improvement at FedEx Ground
during
2011 was primarily due to rate increases, higher fuel surcharges and higher extra service revenue,
particularly in residential surcharges.
FedEx SmartPost average daily volume grew 17% during 2011 primarily as a result of growth in
e-commerce business, gains in market share and the introduction of new service offerings. Yields
increased 10% during 2011 primarily due to growth in higher yielding services, improved fuel
surcharges and lower postage costs as a result of increased deliveries to United States Postal
Service (“USPS”) final destination facilities.
FedEx Ground segment revenues increased 6% during 2010 due to volume growth at both FedEx Ground
and FedEx SmartPost, partially offset by declines in yield at FedEx SmartPost. FedEx Ground
average daily package volume increased 3% during 2010 due to growth in our commercial business and
our FedEx Home Delivery service. The slight yield improvement at FedEx Ground during 2010 was
primarily due to higher base rates and increased extra service revenue, but was mostly offset by
higher customer discounts and lower fuel surcharges. FedEx SmartPost volumes grew 48% during 2010
primarily as a result of market share gains, while yields decreased 14% during 2010 due to changes
in customer and service mix.
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway
average price for a gallon of diesel fuel, as published by the Department of Energy. Our fuel
surcharge ranged as follows for the years ended May 31:
| 2011 | 2010 | 2009 | ||||||||||
|
Low
|
5.50 | % | 2.75 | % | 2.25 | % | ||||||
|
High
|
8.50 | 5.50 | 10.50 | |||||||||
|
Weighted-average
|
6.20 | 4.23 | 6.61 | |||||||||
In January 2011, we implemented a 4.9% list price increase for FedEx Ground and FedEx Home Delivery
services. The full average rate increase of 5.9% was partially offset by adjusting the fuel price
threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage point.
Additional changes were made to other FedEx Ground surcharges and FedEx SmartPost rates. In
January 2010, we implemented a 4.9% average list price increase and made various changes to other
surcharges, including modifying the fuel surcharge table, on FedEx Ground shipments.
FedEx Ground Segment Operating Income
During 2011, FedEx Ground segment operating income increased 29% and operating margin increased 180
basis points due to improved yield and higher volume resulting from market share growth. We have
realized a higher retention of our annual rate increase this year as more customers recognize the
competitive advantage that we maintain across many shipping lanes in the U.S. We have also
improved our customers’ experience by dramatically reducing our package loss and damage claims
while maintaining exceptional service levels. Purchased transportation costs increased 16% in 2011
primarily due to volume growth, higher fuel costs and higher rates paid to our independent
contractors. Salaries and employee benefits expense increased 11% in 2011 due primarily to
increased staffing at FedEx Ground and FedEx SmartPost to support volume growth and higher pension
and medical costs. Intercompany charges increased in 2011 primarily due to higher allocated
information technology costs.
FedEx Ground segment operating income and operating margin increased during 2010 due to higher
package volume, lower self-insurance expenses and improved productivity. Improved performance at
FedEx SmartPost also contributed to the operating income and operating margin increase. The
increase in salaries and employee benefits expense during 2010 was primarily due to accruals for
our variable incentive compensation programs, increased staffing at FedEx SmartPost to support
volume growth and increased healthcare costs. Purchased transportation costs increased 2% during
2010 primarily as a result of higher package volume. Rent expense increased during 2010 primarily
due to higher spending on facilities associated with our multi-year network expansion plan.
Intercompany charges increased 12% in 2010 primarily due to higher allocated information
technology costs (formerly direct charges). Other operating expense decreased during 2010 due to
higher self-insurance reserve requirements in 2009.
53
Table of Contents
Evolution of Independent Contractor Model
Although FedEx Ground is involved in numerous lawsuits and other proceedings (such as state tax
audits or other administrative challenges) where the classification of its independent contractors
is at issue, a number of recent judicial decisions support our classification and we believe our relationship with the contractors is generally excellent. For a
description of these proceedings, see “Risk Factors”
and Note 17 of the accompanying consolidated financial statements.
FedEx Ground has made changes to its relationships with contractors that, among other things,
provide incentives for improved service and enhanced regulatory and other compliance by the
contractors. For example, FedEx Ground has implemented or is implementing its Independent Service
Provider (“ISP”) model in a number of states. The ISP model requires pickup-and-delivery
contractors based in those states to, among other things: (i) assume responsibility for the
pickup-and-delivery operations of an entire geographic service area that includes multiple routes,
and (ii) negotiate independent agreements with FedEx Ground, rather than agree to a standard
contract.
As of May 31, 2011, FedEx Ground
has transitioned to the ISP model in Maryland, New
Hampshire, Rhode Island and Vermont, and plans to complete transition to the ISP model in
Connecticut, Delaware, Illinois, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Missouri, Montana, North
Dakota, South Dakota and Tennessee during 2012. Based upon the success of this model, FedEx Ground
may possibly transition to it in other states as well.
In addition, because of state-specific legal and regulatory issues, FedEx Ground only contracts
with contractors that (i) are organized as corporations registered and in good standing under
applicable state law, and (ii) ensure that their personnel who provide services under an operating
agreement with FedEx Ground are treated as their employees. FedEx Ground also has an ongoing nationwide
program to incentivize contractors who choose to grow their businesses by adding routes.
During May 2011, approximately 80% of FedEx Ground’s package volume was delivered by multiple route owner-operators or independent service providers.
FedEx Ground Segment Outlook
In 2012, we expect the FedEx Ground segment revenue growth will be led by continued improvement in
commercial, FedEx Home Delivery and FedEx SmartPost volumes, resulting in additional market share
gains. FedEx SmartPost is expected to continue to strengthen its market position by continuing to
leverage the FedEx Ground network to enter the optimal USPS entry point. Yields for FedEx Ground
are expected to improve in 2012 as a result of yield management initiatives and growth in our
higher yielding FedEx Home Delivery service.
We expect the FedEx Ground segment to provide strong operating income growth in 2012 due to
efficiency improvements such as an automated operational planning system and improved transit time
across numerous shipping lanes. However, we expect to incur higher purchased transportation costs
due to higher rates paid to our independent contractors and higher variable incentive compensation
in 2012.
We are committed to investing in the FedEx Ground network because of the anticipated growth
opportunities within this market. Capital spending is expected to increase in 2012, with the
majority of our spending resulting from our continued network expansion and productivity-enhancing
technologies.
We will continue to vigorously defend various attacks against our independent contractor model and
incur ongoing legal costs as a part of this process. While we believe that FedEx Ground’s
owner-operators are properly classified as independent contractors, it is reasonably possible that
we could incur a material loss in connection with one or more of these matters or be required to
make material changes to our contractor model. However, we
do not believe that any such changes will impair our ability to operate and profitably grow our
FedEx Ground business.
54
Table of Contents
FEDEX FREIGHT SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating loss and operating margin (dollars in millions) and selected statistics for the
years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 (3) | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Revenues
|
$ | 4,911 | $ | 4,321 | $ | 4,415 | 14 | (2 | ) | |||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
2,303 | 2,128 | 2,247 | 8 | (5 | ) | ||||||||||||||
|
Purchased transportation
|
779 | 690 | 540 | 13 | 28 | |||||||||||||||
|
Rentals
|
122 | 116 | 139 | 5 | (17 | ) | ||||||||||||||
|
Depreciation and amortization
|
205 | 198 | 224 | 4 | (12 | ) | ||||||||||||||
|
Fuel
|
585 | 445 | 520 | 31 | (14 | ) | ||||||||||||||
|
Maintenance and repairs
|
182 | 148 | 153 | 23 | (3 | ) | ||||||||||||||
|
Impairment and other charges
(1)
|
89 | 18 | 100 | 394 | (82 | ) | ||||||||||||||
|
Intercompany charges
(2)
|
427 | 351 | 109 | 22 | 222 | |||||||||||||||
|
Other
|
394 | 380 | 427 | 4 | (11 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
5,086 | 4,474 | 4,459 | 14 | — | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating loss
|
$ | (175 | ) | $ | (153 | ) | $ | (44 | ) | (14 | ) | (248 | ) | |||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
(3.6 | )% | (3.5 | )% | (1.0 | )% | (10 | )bp | (250 | )bp | ||||||||||
|
|
||||||||||||||||||||
|
Average daily LTL shipments (in thousands)
|
86.0 | 82.3 | 74.4 | 4 | 11 | |||||||||||||||
|
Weight per LTL shipment (lbs)
|
1,144 | 1,134 | 1,126 | 1 | 1 | |||||||||||||||
|
LTL yield (revenue per hundredweight)
|
$ | 18.24 | $ | 17.07 | $ | 19.07 | 7 | (10 | ) | |||||||||||
| (1) | Includes severance, impairment and other charges associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011. In 2010 and 2009, this charge represents impairment charges associated with goodwill related to the FedEx National LTL acquisition. The charge in 2009 also includes other charges primarily associated with employee severance. | |
| (2) | Certain functions were transferred from the FedEx Freight segment to FedEx Services and FedEx TechConnect effective August 1, 2009. For 2011 and 2010, the costs associated with these functions, previously a direct charge, were allocated to the FedEx Freight segment through intercompany allocations. | |
| (3) | Includes Caribbean Transportation Services, which was merged into FedEx Express effective June 1, 2009. |
55
Table of Contents
| Percent of Revenue | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Operating expenses:
|
||||||||||||
|
Salaries and employee benefits
|
46.9 | % | 49.2 | % | 50.9 | % | ||||||
|
Purchased transportation
|
15.9 | 16.0 | 12.2 | |||||||||
|
Rentals
|
2.5 | 2.7 | 3.1 | |||||||||
|
Depreciation and amortization
|
4.2 | 4.6 | 5.0 | |||||||||
|
Fuel
|
11.9 | 10.3 | 11.8 | |||||||||
|
Maintenance and repairs
|
3.7 | 3.4 | 3.5 | |||||||||
|
Impairment and other charges
(1)
|
1.8 | 0.4 | 2.3 | |||||||||
|
Intercompany charges
(2)
|
8.7 | 8.1 | 2.5 | |||||||||
|
Other
|
8.0 | 8.8 | 9.7 | |||||||||
|
|
||||||||||||
|
Total operating expenses
|
103.6 | 103.5 | 101.0 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Operating margin
|
(3.6 | )% | (3.5 | )% | (1.0) | % | ||||||
|
|
||||||||||||
| (1) | Includes severance, impairment and other charges associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011. In 2010 and 2009, this charge represents impairment charges associated with goodwill related to the FedEx National LTL acquisition. The charge in 2009 also includes other charges primarily associated with employee severance. | |
| (2) | Certain functions were transferred from the FedEx Freight segment to FedEx Services and FedEx TechConnect effective August 1, 2009. For 2011 and 2010, the costs associated with these functions, previously a direct charge, were allocated to the FedEx Freight segment through intercompany allocations. |
FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 14% in 2011 due to higher LTL yield and average daily LTL
shipments. LTL yields increased 7% during 2011 due to our yield management programs, which began
during the fourth quarter of 2010 and continued throughout 2011, and higher fuel surcharges. Under
these programs, LTL yields have increased sequentially in each of the past four quarters, while
average daily LTL shipments fell during the second half of 2011. For the full year, average daily
LTL shipments increased 4% in 2011 primarily due to volume increases during the first half of 2011
resulting from the impact of discounted pricing in contracts signed during 2010.
In 2010, FedEx Freight segment revenues decreased primarily due to lower LTL yield and the merger
of Caribbean Transportation Services into FedEx Express effective June 1, 2009, mostly offset by
higher average daily LTL shipments. LTL yield decreased 10% during 2010 due to the highly
competitive LTL freight market, resulting from excess capacity and lower fuel surcharges.
Discounted pricing drove an increase in average daily LTL shipments of 11% during 2010.
The indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average
price for a gallon of diesel fuel, as published by the Department of Energy. The indexed LTL fuel
surcharge ranged as follows for the years ended May 31:
| 2011 | 2010 | 2009 | ||||||||||
|
Low
|
15.10 | % | 10.80 | % | 8.30 | % | ||||||
|
High
|
20.70 | 16.10 | 23.90 | |||||||||
|
Weighted-average
|
17.00 | 14.00 | 15.70 | |||||||||
In November 2010, we implemented a 6.9% general rate increase for FedEx Freight shipments. In
February 2010, we implemented 5.9% general rate increases for FedEx Freight and FedEx National LTL
shipments.
56
Table of Contents
FedEx Freight Segment Operating Loss
The FedEx Freight segment operating loss in 2011 included costs associated with the combination of
our FedEx Freight and FedEx National LTL operations and the significant impact from severe weather
in the second half of the year. We incurred costs associated with the combination of $133 million
in 2011, including $89 million recorded in the “Impairment and other charges” caption of the
consolidated income statement (see “Overview” above for additional information).
Salaries and employee benefits increased 8% in 2011 primarily due to volume-related increases in
labor, wage increases, higher healthcare and pension costs, and the reinstatement of full 401(k)
company-matching contributions. Purchased transportation costs increased 13% in 2011 due to higher
shipment volumes and higher rates. Fuel costs increased 31% in 2011 due to a higher average price
per gallon of diesel fuel and increased fuel consumption as a result of higher shipment volumes.
Based on a static analysis of the net impact of year-over-year changes in fuel prices compared to
year-over-year changes in fuel surcharges, fuel had a slightly favorable impact to operating income
in 2011. Maintenance and repairs expense increased 23% in 2011 due to higher volumes and the aging
of our fleet. Also, higher intercompany charges in 2011 reflect the transfer of sales and customer
service employees from the FedEx Freight segment entities in the
first quarter of 2010 (described below).
A weak pricing environment, which led to aggressive discounting for our LTL freight services,
resulted in an operating loss in 2010 at the FedEx Freight segment. The actions implemented in
2009 to lower our cost structure were more than offset by the negative impacts of lower LTL yields
and higher volume-related costs, as significantly higher shipment levels required increased
purchased transportation and other expenses during 2010. In addition, we recorded a charge of $18
million for the impairment of the remaining goodwill related to the FedEx National LTL acquisition.
Intercompany charges increased in 2010 due to expenses associated with the functions of
approximately 2,700 FedEx Freight segment employees that were transferred to FedEx Services and
FedEx TechConnect in the first quarter of 2010. The costs of these functions were previously a
direct charge. Purchased transportation costs increased 28% in 2010 due to increased utilization
of third-party transportation providers, which were required to support higher shipment volumes.
Fuel costs decreased 14% during 2010 due to a lower average price per gallon of diesel fuel,
partially offset by increased fuel consumption as a result of higher shipment volumes. Based on a
static analysis of the net impact of year-over-year changes in fuel prices compared to
year-over-year changes in fuel surcharges, fuel had a negative impact to operating income in 2010.
Rent expense decreased 17% and other operating expense decreased 11% in 2010 due to the merger of
Caribbean Transportation Services into FedEx Express effective June 1, 2009. Depreciation and
amortization expense decreased 12% in 2010 due to the impact of the transfer of employees from the
FedEx Freight segment to FedEx Services and FedEx TechConnect during the first quarter of 2010.
FedEx Freight Segment Outlook
In 2012, we expect revenue growth at the FedEx Freight segment to be driven by continued growth in
our Priority and Economy service lines as customers increase their utilization of our new
integrated LTL network. We expect yield improvement across all service and customer segments due
to our unique value proposition and yield management initiatives.
We expect the FedEx Freight segment to be profitable throughout 2012 due to continued yield
management initiatives and the successful integration of our operations and optimization of our LTL
network. In addition, we will continue to improve productivity and efficiency across our
integrated network through technology investments focused on network and equipment planning and
customer automation. These investments will further enhance our already outstanding customer
service levels.
Capital expenditures are expected to increase significantly in 2012 with the majority of our
spending for replacement of vehicles and freight handling equipment.
57
Table of Contents
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $2.3 billion at May 31, 2011, compared to $2.0 billion at May 31,
2010. The following table provides a summary of our cash flows for the periods ended May 31 (in
millions):
| 2011 | 2010 | 2009 | ||||||||||
|
Operating activities:
|
||||||||||||
|
Net income
|
$ | 1,452 | $ | 1,184 | $ | 98 | ||||||
|
Noncash
impairment and other charges
|
29 | 18 | 1,103 | |||||||||
|
Other noncash charges and credits
|
2,892 | 2,514 | 2,554 | |||||||||
|
Changes in assets and liabilities
|
(332 | ) | (578 | ) | (1,002 | ) | ||||||
|
|
||||||||||||
|
Cash provided by operating activities
|
4,041 | 3,138 | 2,753 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Investing activities:
|
||||||||||||
|
Capital expenditures
|
(3,434 | ) | (2,816 | ) | (2,459 | ) | ||||||
|
Business acquisition, net of cash acquired
|
(96 | ) | — | — | ||||||||
|
Proceeds from asset dispositions and other
|
111 | 35 | 76 | |||||||||
|
|
||||||||||||
|
Cash used in investing activities
|
(3,419 | ) | (2,781 | ) | (2,383 | ) | ||||||
|
|
||||||||||||
|
Financing activities:
|
||||||||||||
|
Proceeds from debt issuance
|
— | — | 1,000 | |||||||||
|
Principal payments on debt
|
(262 | ) | (653 | ) | (501 | ) | ||||||
|
Dividends paid
|
(151 | ) | (138 | ) | (137 | ) | ||||||
|
Other
|
126 | 99 | 38 | |||||||||
|
|
||||||||||||
|
Cash (used in) provided by financing activities
|
(287 | ) | (692 | ) | 400 | |||||||
|
|
||||||||||||
|
Effect of exchange rate changes on cash
|
41 | (5 | ) | (17 | ) | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
$ | 376 | $ | (340 | ) | $ | 753 | |||||
|
|
||||||||||||
Cash Provided by Operating Activities.
Cash flows from operating activities increased $903 million
in 2011 primarily due to increased earnings in 2011 and lower pension contributions. Cash flows
from operating activities increased $385 million in 2010 primarily due to the receipt of income tax
refunds of $279 million and increased income. We made contributions of $480 million to our
tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”) during 2011, including $121
million in voluntary contributions and contributions of $848 million to our U.S. Pension Plans
during 2010, including $495 million in voluntary contributions. We made contributions of $1.1
billion to our U.S. Pension Plans during 2009.
Cash Used in Investing Activities
. Capital expenditures were 22% higher in 2011 and 15% higher in
2010 largely due to increased spending at FedEx Express. See “Capital Resources” for a discussion
of capital expenditures during 2011 and 2010.
Financing Activities
. We have a shelf registration statement filed with the
Securities and Exchange Commission (“SEC”) that allows us to
sell, in one or more future offerings, any combination of our unsecured debt securities and common
stock. During 2011, we repaid our $250 million 7.25% unsecured notes that matured on February 15,
2011. During 2010, we repaid our $500 million 5.50% notes that matured on August 15, 2009 using
cash from operations and a portion of the proceeds of our January 2009 $1 billion senior unsecured
debt offering. During 2011, we made principal payments in the amount of $12 million related to
capital lease obligations. During 2010, we made principal payments in the amount of $153 million
related to capital lease obligations.
58
Table of Contents
A $1 billion revolving credit facility is available to finance our operations and other cash flow
needs and to provide support for the issuance of commercial paper. This five-year credit agreement
was entered into on April 26, 2011, and replaced the $1 billion three-year credit agreement dated
July 22, 2009. The agreement contains a financial covenant, which requires us to maintain a
leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus
six times our last four fiscal quarters’ rentals and landing fees) to capital (adjusted debt plus
total common stockholders’ investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.5 at May 31, 2011. Under this financial covenant, our additional
borrowing capacity is capped, although this covenant continues to provide us with ample liquidity,
if needed. We are in compliance with this and all other restrictive covenants of our revolving
credit agreement and do not expect the covenants to affect our operations, including our liquidity
or borrowing capacity. As of May 31, 2011, no commercial paper was outstanding and the entire $1
billion under the revolving credit facility was available for future borrowings.
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft,
vehicles, technology, facilities, and package-handling and sort equipment. The amount and timing of
capital additions depend on various factors, including pre-existing contractual commitments,
anticipated volume growth, domestic and international economic conditions, new or enhanced
services, geographical expansion of services, availability of satisfactory financing and actions of
regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the
years ended May 31 (in millions):
| Percent Change | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011/2010 | 2010/2009 | ||||||||||||||||
|
Aircraft and related equipment
|
$ | 1,988 | $ | 1,537 | $ | 925 | 29 | 66 | ||||||||||||
|
Facilities and sort equipment
|
555 | 630 | 742 | (12 | ) | (15 | ) | |||||||||||||
|
Vehicles
|
282 | 220 | 319 | 28 | (31 | ) | ||||||||||||||
|
Information and technology investments
|
455 | 289 | 298 | 57 | (3 | ) | ||||||||||||||
|
Other equipment
|
154 | 140 | 175 | 10 | (20 | ) | ||||||||||||||
|
|
||||||||||||||||||||
|
Total capital expenditures
|
$ | 3,434 | $ | 2,816 | $ | 2,459 | 22 | 15 | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
FedEx Express segment
|
2,467 | 1,864 | 1,348 | 32 | 38 | |||||||||||||||
|
FedEx Ground segment
|
426 | 400 | 636 | 7 | (37 | ) | ||||||||||||||
|
FedEx Freight segment
|
153 | 212 | 240 | (28 | ) | (12 | ) | |||||||||||||
|
FedEx Services segment
|
387 | 340 | 235 | 14 | 45 | |||||||||||||||
|
Other
|
1 | — | — | — | — | |||||||||||||||
|
|
||||||||||||||||||||
|
Total capital expenditures
|
$ | 3,434 | $ | 2,816 | $ | 2,459 | 22 | 15 | ||||||||||||
|
|
||||||||||||||||||||
Capital expenditures during 2011 were higher than the prior-year period primarily due to increased
spending at FedEx Express for aircraft and aircraft-related equipment and at FedEx Services for information
technology investments. Aircraft and aircraft-related equipment purchases at FedEx Express during 2011
included the delivery of six new B777Fs and 22 B757s. Capital expenditures during 2010 were higher than the prior year primarily due
to increased spending at FedEx Express for aircraft and aircraft-related equipment. Aircraft and
aircraft-related equipment purchases at FedEx Express during 2010 included six new B777Fs and 12
B757s. FedEx Services capital expenditures increased in 2010 due to information technology
facility expansions and projects. Capital spending at FedEx Ground decreased in 2010 due to decreased
spending for facilities and sort equipment and vehicles.
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LIQUIDITY OUTLOOK
We believe that our existing cash and cash equivalents, cash flow from operations, and available
financing sources will be adequate to meet our liquidity needs, including working capital, capital
expenditure requirements
and debt payment obligations. Our cash and cash equivalents balance at May 31, 2011 includes $300
million of cash in offshore jurisdictions associated with our permanent reinvestment strategy. We
do not believe that the indefinite reinvestment of these funds offshore impairs our ability to meet
our domestic debt or working capital obligations. Although we expect higher capital expenditures
in 2012, we anticipate that our cash flow from operations will be sufficient to fund these
expenditures. Historically, we have been successful in obtaining unsecured financing, from both
domestic and international sources, although the marketplace for such investment capital can become
restricted depending on a variety of economic factors.
Our capital expenditures are expected to be $4.2 billion in 2012 and will include spending for
aircraft and aircraft-related equipment at FedEx Express, network expansion at FedEx Ground and revenue
equipment at the FedEx Freight segment. We expect approximately 59% of capital expenditures in
2012 will be designated for growth initiatives and 41% dedicated to maintaining our existing
operations. Our capital expenditures are expected to increase in 2012 due to spending for vehicle
equipment and on-going investments in aircraft programs. Our expected capital expenditures for
2012 include $2.0 billion in investments for delivery of aircraft as well as progress payments
toward future aircraft deliveries at FedEx Express, including B757s and the B777F which are
significantly more fuel-efficient per unit than the aircraft type previously utilized. Our B757
aircraft are replacing our Boeing 727 aircraft, and we expect to be completely transitioned out of
this aircraft type by 2016. We will benefit from the tax expensing and accelerated depreciation provisions
of the Tax Relief Act of 2010 on qualifying capital investments we make in 2012.
We have agreed to purchase a total of 45 B777F aircraft (12 of which were in service at May 31,
2011, and an additional seven to be delivered in 2012). Our obligation to purchase 15 of these
aircraft is conditioned upon there being no event that causes FedEx Express or its employees not to
be covered by the Railway Labor Act of 1926, as amended. These aircraft-related capital
expenditures are necessary to achieve significant long-term operating savings and to support
projected long-term international volume growth. Our ability to delay the timing of these
aircraft-related expenditures is limited without incurring significant costs to modify existing
purchase agreements.
For 2012, we anticipate making required contributions to our U.S.
Pension Plans totaling approximately $500 million. Our U.S. Pension Plans have ample funds to meet
expected benefit payments. In 2012, we have scheduled principal and
interest payments of $25 million on capital
leases.
Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB and commercial paper
rating of A-2 and a ratings outlook of “stable.” During the third quarter of 2010, Moody’s
Investors Service reaffirmed our senior unsecured debt credit rating of Baa2 and commercial paper
rating of P-2 and raised our ratings outlook to “stable.” If our credit ratings drop, our interest
expense may increase. If our commercial paper ratings drop below current levels, we may have
difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop
below investment grade, our access to financing may become limited.
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CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
The following table sets forth a summary of our contractual cash obligations as of May 31, 2011.
Certain of these contractual obligations are reflected in our balance sheet, while others are
disclosed as future obligations under accounting principles generally accepted in the United
States. Except for the current portion of long-term debt and capital lease obligations, this table
does not include amounts already recorded in our balance sheet as current liabilities at May 31,
2011. Accordingly, this table is not meant to represent a forecast of our total cash expenditures
for any of the periods presented.
| Payments Due by Fiscal Year (Undiscounted) | ||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | Thereafter | Total | ||||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||||||||||
|
Operating leases
|
$ | 1,794 | $ | 1,654 | $ | 1,465 | $ | 1,354 | $ | 1,192 | $ | 6,533 | $ | 13,992 | ||||||||||||||
|
Non-capital purchase obligations and other
|
209 | 97 | 35 | 24 | 11 | 132 | 508 | |||||||||||||||||||||
|
Interest on long-term debt
|
126 | 98 | 97 | 78 | 78 | 1,659 | 2,136 | |||||||||||||||||||||
|
Quarterly contributions to our
U.S. Pension Plans
|
500 | — | — | — | — | — | 500 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investing activities:
|
||||||||||||||||||||||||||||
|
Aircraft and aircraft-related capital commitments
|
1,480 | 1,086 | 781 | 569 | 584 | 1,470 | 5,970 | |||||||||||||||||||||
|
Other capital purchase obligations
|
210 | 8 | 8 | 6 | — | — | 232 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Financing activities:
|
||||||||||||||||||||||||||||
|
Debt
|
— | 300 | 250 | — | — | 989 | 1,539 | |||||||||||||||||||||
|
Capital lease obligations
|
25 | 119 | 2 | 2 | 2 | 13 | 163 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 4,344 | $ | 3,362 | $ | 2,638 | $ | 2,033 | $ | 1,867 | $ | 10,796 | $ | 25,040 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
We have certain contingent liabilities that are not accrued in our balance sheet in accordance with
accounting principles generally accepted in the United States. These contingent liabilities are
not included in the table above.
We have other long-term liabilities reflected in our balance sheet, including deferred income
taxes, qualified and nonqualified pension and postretirement healthcare plan liabilities and other
self-insurance accruals. The payment obligations associated with these liabilities are not
reflected in the table above due to the absence of scheduled maturities. Therefore, the timing of
these payments cannot be determined, except for amounts estimated to be payable within 12 months,
which are included in current liabilities. Included in the table above are anticipated quarterly
contributions to our U.S. Pension Plans totaling approximately $500 million for 2012 that begin in
the first quarter.
Open purchase orders that are cancelable are not considered unconditional purchase obligations for
financial reporting purposes and are not included in the table above. Such purchase orders often
represent authorizations to purchase rather than binding agreements. See Note 16 of the
accompanying consolidated financial statements for more information.
Operating Activities
In accordance with accounting principles generally accepted in the United States, future
contractual payments under our operating leases (totaling $14.0 billion on an undiscounted basis)
are not recorded in our balance sheet. Credit rating agencies routinely use information concerning
minimum lease payments required for our operating leases to calculate our debt capacity. The
amounts reflected in the table above for operating leases represent future minimum lease payments
under noncancelable operating leases (principally aircraft and facilities) with an initial or
remaining term in excess of one year at May 31, 2011. In the past, we financed a significant
portion of our aircraft needs (and certain other equipment needs) using operating leases (a type of
“off-balance sheet financing”). At the time that the decision to lease was made, we determined
that these operating leases would provide economic benefits favorable to ownership with respect to
market values, liquidity or after-tax cash flows.
The amounts reflected for purchase obligations represent noncancelable agreements to purchase goods
or services that are not capital-related. Such contracts include those for printing and
advertising and promotions contracts.
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Included in the table above within the caption entitled “Non-capital purchase obligations and
other” is our
estimate of the current portion of the liability ($1 million) for uncertain tax positions. We
cannot reasonably estimate the timing of the long-term payments or the amount by which the
liability will increase or decrease over time; therefore, the long-term portion of the liability
($68 million) is excluded from the table. See Note 11 of the accompanying consolidated financial
statements for further information.
The amounts reflected in the table above for interest on long-term debt represent future interest
payments due on our long-term debt, all of which are fixed rate.
Investing Activities
The amounts reflected in the table above for capital purchase obligations represent noncancelable
agreements to purchase capital-related equipment. Such contracts include those for certain
purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other equipment. Commitments to purchase aircraft in passenger configuration do not include the
attendant costs to modify these aircraft for cargo transport unless we have entered into
noncancelable commitments to modify such aircraft.
Financing Activities
We have certain financial instruments representing potential commitments, not reflected in the
table above, that were incurred in the normal course of business to support our operations,
including surety bonds and standby letters of credit. These instruments are required under certain
U.S. self-insurance programs and are also used in the normal course of international operations.
The underlying liabilities insured by these instruments are reflected in our balance sheets, where
applicable. Therefore, no additional liability is reflected for the surety bonds and letters of
credit themselves.
The amounts reflected in the table above for long-term debt represent future scheduled payments on
our long-term debt. We currently have no scheduled debt payments in 2012.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires management to make significant judgments and estimates to develop
amounts reflected and disclosed in the financial statements. In many cases, there are alternative
policies or estimation techniques that could be used. We maintain a thorough process to review the
application of our accounting policies and to evaluate the appropriateness of the many estimates
that are required to prepare the financial statements of a complex, global corporation. However,
even under optimal circumstances, estimates routinely require adjustment based on changing
circumstances and new or better information.
The estimates discussed below include the financial statement elements that are either the most
judgmental or involve the selection or application of alternative accounting policies and are
material to our financial statements. Management has discussed the development and selection of
these critical accounting estimates with the Audit Committee of our Board of Directors and with our
independent registered public accounting firm.
RETIREMENT PLANS
OVERVIEW
. We sponsor programs that provide retirement benefits to most of our employees. These
programs include defined benefit pension plans, defined contribution plans and postretirement
healthcare plans.
Pension benefits for most employees are accrued under a cash balance formula we call the Portable
Pension Account. Under the Portable Pension Account, the retirement benefit is expressed as a
dollar amount in a notional account that grows with annual credits based on pay, age and years of
credited service, and interest on the notional account balance. The
Portable Pension Account benefit is payable as a lump sum or an annuity at retirement at the election of the
employee. The plan interest credit rate varies from year to year based on a U.S. Treasury index.
Prior to 2009, certain employees earned benefits using a traditional pension formula
(based on average earnings and years of service); however, benefits under this formula were capped
on May 31, 2008.
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The current rules for pension accounting are complex and can produce
tremendous volatility in our results, financial condition and liquidity. Our pension expense is
primarily a function of the value of our plan assets and the discount rate used to measure our
pension liabilities at a single point in time at the end of our fiscal year (the measurement date).
Both of these factors are significantly influenced by the stock and bond markets, which in recent
years have experienced substantial volatility.
In addition to expense volatility, we are required to record year-end adjustments to our balance
sheet on an annual basis for the net funded status of our pension and postretirement healthcare
plans. These adjustments have fluctuated significantly over the past several years and like our
pension expense, are a result of the discount rate and value of our plan assets at the measurement
date. The funded status of our plans also impacts our liquidity, as current funding laws require
increasingly aggressive funding levels for our pension plans. However, the cash funding rules
operate under a completely different set of assumptions and standards than those used for financial
reporting purposes, so our actual cash funding requirements can differ materially from our reported
funded status.
Our retirement plans cost is included in the “Salaries and Employee Benefits” caption in our
consolidated income statements. A summary of our retirement plans costs over the past three years
is as follows (in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
U.S. domestic and international pension plans
|
$ | 543 | $ | 308 | $ | 177 | ||||||
|
U.S. domestic and international defined contribution
plans
|
257 | 136 | 237 | |||||||||
|
Postretirement healthcare plans
|
60 | 42 | 57 | |||||||||
|
|
||||||||||||
|
|
$ | 860 | $ | 486 | $ | 471 | ||||||
|
|
||||||||||||
Total retirement plans cost for 2011 increased $374 million due to a significantly lower discount
rate used to measure our benefit obligations at our May 31, 2010 measurement date. Additionally,
we incurred higher expenses for our 401(k) plans due to the partial reinstatement of the
company-matching contributions on January 1, 2010, and the full restoration of company-matching
contributions on January 1, 2011 (previously suspended in February 2009). Total retirement plans
cost increased $15 million in 2010, primarily due to the negative impact of market conditions on
our pension plan assets at our May 31, 2009 measurement date, mostly offset by lower expenses for
our 401(k) plans due to the temporary suspension of the company-matching contributions.
Retirement plans cost is expected to increase in 2012 due to the full restoration of
company-matching contributions on our 401(k) plans noted above. However, our pension costs in 2012
are expected to remain flat, as the benefit of significant investment returns on our pension plan
assets will offset the negative impact of a lower discount rate.
PENSION COST.
The accounting for pension and postretirement healthcare plans includes numerous
assumptions, such as: discount rates; expected long-term investment returns on plan assets; future
salary increases; employee turnover; mortality; and retirement ages. These assumptions most
significantly impact our U.S. Pension Plans. The components of pension cost for all
pension plans are as follows (in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
Service cost
|
$ | 521 | $ | 417 | $ | 499 | ||||||
|
Interest cost
|
900 | 823 | 798 | |||||||||
|
Expected return on plan assets
|
(1,062 | ) | (955 | ) | (1,059 | ) | ||||||
|
Recognized actuarial losses (gains) and
other
|
184 | 23 | (61 | ) | ||||||||
|
|
||||||||||||
|
Net periodic benefit cost
|
$ | 543 | $ | 308 | $ | 177 | ||||||
|
|
||||||||||||
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Following is a discussion of the key estimates we consider in determining our pension cost:
DISCOUNT RATE
. This is the interest rate used to discount the estimated future benefit payments
that have been accrued to date (the projected benefit obligation, or “PBO”) to their net present
value and to determine the succeeding year’s pension expense. The discount rate is determined each
year at the plan measurement date. A decrease in the discount rate increases pension expense. The
discount rate affects the PBO and pension expense based on the measurement dates, as described
below.
| Measurement | Discount | Amounts Determined by Measurement Date and | ||||||
| Date (1) | Rate | Discount Rate | ||||||
| 5/31/2011 | 5.76 | % |
2011 PBO and 2012 expense
|
|||||
| 5/31/2010 | 6.37 |
2010 PBO and 2011 expense
|
||||||
| 5/31/2009 | 7.68 |
2009 PBO and 2010 expense
|
||||||
| 6/01/2008 | 7.15 |
2009 expense
|
||||||
| 2/29/2008 | 6.96 |
2008 PBO
|
||||||
| (1) | Accounting rules required us to change our measurement date to May 31, beginning in 2009. |
We determine the discount rate 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 designed
to match our expected benefit payments in future years. In developing this theoretical portfolio,
we select bonds that match cash flows to benefit payments, limit our concentration by industry and
issuer, and apply screening criteria to ensure bonds with a call feature have a low probability of
being called. To the extent scheduled bond proceeds exceed the estimated benefit payments in a
given period, the calculation assumes those excess proceeds are reinvested at one-year forward
rates.
The decrease in the discount rate at May 31, 2011 was driven by conditions in the market for
high-grade corporate bonds, where yields have continued to decrease from May 31, 2010. The
discount rate assumption is highly sensitive, as the following table illustrates for our largest
tax-qualified U.S. domestic pension plan:
| Sensitivity (in millions) | ||||||||
| Effect on 2012 | Effect on 2011 | |||||||
| Pension | Pension | |||||||
| Expense | Expense | |||||||
|
One-basis-point change in discount rate
|
$ | 1.9 | $ | 1.7 | ||||
At our May 31, 2011 measurement date, a 50-basis-point increase in the discount rate would have
decreased our 2011 PBO by approximately $1.1 billion and a 50-basis-point decrease in the discount
rate would have increased our 2011 PBO by approximately $1.2 billion. From 2009 to 2011, the
discount rate used to value our liabilities has declined by nearly 200 basis points, which
increased the valuation of our liabilities by over $4 billion.
PLAN ASSETS.
The estimated average rate of return on plan assets is a long-term, forward-looking
assumption that also materially affects our pension cost. It is required to be the expected future
long-term rate of earnings on plan assets. Our pension plan assets are invested primarily in
listed securities, and our pension plans hold only a minimal investment in FedEx common stock that
is entirely at the discretion of third-party pension fund investment managers. As part of our
strategy to manage future pension costs and net funded status volatility, we have transitioned to a
liability-driven investment strategy with a greater concentration of fixed-income securities to
better align plan assets with liabilities. We review the expected long-term rate of return on an
annual basis and revise it as appropriate.
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Establishing the expected future rate of investment return on our pension assets is a judgmental
matter. Management considers the following factors in determining this assumption:
| • | the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets; |
| • | the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can reasonably expect those investment classes to earn over time; and |
| • | the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could expect if investments were made strictly in indexed funds. |
The following table summarizes our current asset allocation strategy (dollars in millions):
| Plan Assets at Measurement Date | ||||||||||||||||||||||||
| 2011 | 2010 | |||||||||||||||||||||||
| Asset Class | Actual | Actual % | Target % | Actual | Actual % | Target % | ||||||||||||||||||
|
Domestic equities
|
$ | 5,761 | 37 | % | 33 | % | $ | 4,569 | 35 | % | 33 | % | ||||||||||||
|
International equities
|
2,013 | 13 | 12 | 1,502 | 12 | 12 | ||||||||||||||||||
|
Private equities
|
403 | 3 | 5 | 399 | 3 | 5 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total equities
|
8,177 | 53 | 50 | 6,470 | 50 | 50 | ||||||||||||||||||
|
Fixed-income securities
|
6,995 | 45 | 49 | 6,205 | 47 | 49 | ||||||||||||||||||
|
Cash and other
|
346 | 2 | 1 | 380 | 3 | 1 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 15,518 | 100 | % | 100 | % | $ | 13,055 | 100 | % | 100 | % | ||||||||||||
|
|
||||||||||||||||||||||||
We have assumed an 8.0% compound geometric long-term rate of return on our U.S. Pension
Plan assets for 2012, 2011 and 2010, as described in Note 12 of the accompanying consolidated
financial statements. A one-basis-point change in our expected return on plan assets impacts our
pension expense by $1.5 million.
The actual historical return on our U.S. Pension Plan assets, calculated on a compound geometric
basis, was approximately 7.8%, net of investment manager fees, for the 15-year period ended May 31,
2011 and 7.9%, net of investment manager fees, for the 15-year period ended May 31, 2010.
Pension expense is also affected by the accounting policy used to determine the value of plan
assets at the measurement date. We use a calculated-value method to determine the value of plan
assets, which helps mitigate short-term volatility in market performance (both increases and
decreases) by amortizing certain actuarial gains or losses over a period no longer than four years.
Another method used in practice applies the market value of plan assets at the measurement date.
For purposes of valuing plan assets for determining 2012 pension expense, we used the
calculated-value method, as our actual returns on plan assets significantly exceeded our
assumptions. However, as previously indicated, our pension costs in 2012 are expected to remain
flat. The calculated-value method resulted in the same value as the market value in 2011. The
calculated-value method significantly mitigated the impact of asset value declines in the
determination of our 2010 pension expense, reducing our 2010 expense by approximately $135 million.
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FUNDED STATUS.
Following is information concerning the funded status of our pension plans as of May
31 (in millions):
| 2011 | 2010 | |||||||
|
Funded Status of Plans:
|
||||||||
|
Projected benefit obligation (PBO)
|
$ | 17,372 | $ | 14,484 | ||||
|
Fair value of plan assets
|
15,841 | 13,295 | ||||||
|
|
||||||||
|
Funded status of the plans
|
$ | (1,531 | ) | $ | (1,189 | ) | ||
|
|
||||||||
|
|
||||||||
|
Components of Funded Status by Plans:
|
||||||||
|
U.S. qualified plans
|
$ | (927 | ) | $ | (580 | ) | ||
|
U.S. nonqualified plans
|
(339 | ) | (348 | ) | ||||
|
International plans
|
(265 | ) | (261 | ) | ||||
|
|
||||||||
|
Net funded status
|
$ | (1,531 | ) | $ | (1,189 | ) | ||
|
|
||||||||
|
|
||||||||
|
Components of Amounts Included in Balance Sheets:
|
||||||||
|
Current pension and other benefit obligations
|
(33 | ) | (30 | ) | ||||
|
Noncurrent pension and other benefit obligations
|
(1,498 | ) | (1,159 | ) | ||||
|
|
||||||||
|
Net amount recognized
|
$ | (1,531 | ) | $ | (1,189 | ) | ||
|
|
||||||||
|
|
||||||||
|
Cash Amounts:
|
||||||||
|
Cash contributions during the year
|
$ | 557 | $ | 900 | ||||
|
Benefit payments during the year
|
$ | 468 | $ | 391 | ||||
The amounts recognized in the balance sheet reflect a snapshot of the state of our long-term
pension liabilities at the plan measurement date and the effect of year-end accounting on plan
assets. At May 31, 2011, we recorded a decrease to equity through OCI of $350 million (net of tax)
to reflect unrealized actuarial losses during 2011 related to a decline in the discount
rate. Those losses are subject to amortization over future years and may be reflected in future
income statements unless they are recovered. At May 31, 2010, we recorded a decrease to equity
through OCI of $1.0 billion (net of tax) attributable to our pension plans.
The funding requirements for our U.S. Pension Plans are governed by the
Pension Protection Act of 2006, which has aggressive funding requirements in order to avoid benefit
payment restrictions that become effective if the funded status determined under Internal Revenue Service rules falls
below 80% at the beginning of a plan year. All of our U.S. Pension Plans have
funded status levels in excess of 80% and our plans remain adequately funded to provide benefits to
our employees as they come due. Additionally, current benefit payments are nominal compared to our
total plan assets (benefit payments for our U.S. Pension Plans for 2011 were approximately
$411 million or 3% of plan assets).
During 2011, we made $480 million in contributions to our U.S. Pension Plans, including $121
million in voluntary contributions. Over the past several years, we have made voluntary
contributions to our U.S. Pension Plans in excess of the minimum required contributions. Amounts
contributed in excess of the minimum required result in a credit balance for funding purposes that
can be used to meet minimum contribution requirements in future years. For 2012, we anticipate
making required contributions to our U.S. Pension Plans totaling approximately $500 million.
Cumulative unrecognized actuarial losses were $5.4 billion through May 31, 2011, compared to $5.2
billion through May 31, 2010. These unrecognized losses reflect changes in the discount rates and
differences between expected and actual asset returns, which are being amortized over future
periods. These unrecognized losses may be recovered in future periods through actuarial gains.
However, unless they are below a corridor amount, these unrecognized actuarial losses are required
to be amortized and recognized in future periods. Our pension expense includes amortization of these actuarial losses of $276 million in
2011, $125 million in 2010 and $44 million in 2009.
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SELF-INSURANCE ACCRUALS
We are self-insured up to certain limits for costs associated with workers’ compensation claims,
vehicle accidents and general business liabilities, and benefits paid under employee healthcare and
long-term disability programs. Our reserves are established for estimates of loss on reported
claims, including incurred-but-not-reported claims. At May 31, 2011 and 2010, there were $1.6
billion of self-insurance accruals reflected in our balance sheet. Approximately 40% of these
accruals were classified as current liabilities.
Our self-insurance accruals are primarily based on the actuarially estimated, undiscounted cost of
claims to provide us with estimates of future claim costs based on claims incurred as of the
balance sheet date. These estimates include consideration of factors such as severity of claims,
frequency of claims and future healthcare costs. Cost trends on material accruals are updated each
quarter. We self-insure up to certain limits that vary by operating company and type of risk.
Periodically, we evaluate the level of insurance coverage and adjust insurance levels based on risk
tolerance and premium expense. Historically, it has been infrequent that incurred claims exceeded
our self-insured limits. Other acceptable methods of accounting for these accruals include
measurement of claims outstanding and projected payments based on historical development factors.
We believe the use of actuarial methods to account for these liabilities provides a consistent and
effective way to measure these highly judgmental accruals. However, the use of any estimation
technique in this area is inherently sensitive given the magnitude of claims involved and the
length of time until the ultimate cost is known. We believe our recorded obligations for these
expenses are consistently measured on a conservative basis. Nevertheless, changes in healthcare
costs, accident frequency and severity, insurance retention levels and other factors can materially
affect the estimates for these liabilities.
LONG-LIVED ASSETS
PROPERTY AND EQUIPMENT
. Our key businesses are capital intensive, with approximately 57% of our
total assets invested in our transportation and information systems infrastructures. We capitalize
only those costs that meet the definition of capital assets under accounting standards.
Accordingly, repair and maintenance costs that do not extend the useful life of an asset or are not
part of the cost of acquiring the asset are expensed as incurred.
The depreciation or amortization of our capital assets over their estimated useful lives, and the
determination of any salvage values, requires management to make judgments about future events.
Because we utilize many of our capital assets over relatively long periods (the majority of
aircraft costs are depreciated over 15 to 18 years), we periodically evaluate whether adjustments
to our estimated service lives or salvage values are necessary to ensure these estimates properly
match the economic use of the asset. This evaluation may result in changes in the estimated lives
and residual values used to depreciate our aircraft and other equipment. For our aircraft, we
typically assign no residual value due to the utilization of these assets in cargo configuration,
which results in little to no value at the end of their useful life. These estimates affect the
amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the
disposal of the asset. Changes in the estimated lives of assets will result in an increase or
decrease in the amount of depreciation recognized in future periods and could have a material
impact on our results of operations. Historically, gains and losses on operating equipment have
not been material (typically aggregating less than $10 million annually). However, such amounts
may differ materially in the future due to changes in business levels, technological obsolescence,
accident frequency, regulatory changes and other factors beyond our control.
Because of the lengthy lead times for aircraft manufacture and modifications, we must anticipate
volume levels and plan our fleet requirements years in advance, and make commitments for aircraft
based on those projections. Furthermore, the timing and availability of certain used aircraft
types (particularly those with better fuel efficiency) may create limited opportunities to acquire
these aircraft at favorable prices in advance of our capacity needs. These activities create risks
that asset capacity may exceed demand and that an impairment of our assets
may occur. Aircraft purchases (primarily aircraft in passenger configuration) that have not been
placed in service totaled $173 million at May 31, 2011 and $101 million at May 31, 2010. We plan
to modify these assets in the future and place them into operations.
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The accounting test for whether an asset held for use is impaired involves first comparing the
carrying value of the asset with its estimated future undiscounted cash flows. If the cash flows
do not exceed the carrying value, the asset must be adjusted to its current fair value. We operate
integrated transportation networks and, accordingly, cash flows for most of our operating assets
are assessed at a network level, not at an individual asset level for our analysis of impairment.
Further, decisions about capital investments are evaluated based on the impact to the overall
network rather than the return on an individual asset. We make decisions to remove certain
long-lived assets from service based on projections of reduced capacity needs or lower operating
costs of newer aircraft types, and those decisions may result in an impairment charge. Assets held
for disposal must be adjusted to their estimated fair values less costs to sell when the decision
is made to dispose of the asset and certain other criteria are met. The fair value determinations
for such aircraft may require management estimates, as there may not be active markets for some of
these aircraft. Such estimates are subject to revision from period to period.
There were no material property and equipment impairment charges recognized in 2011 (see “Overview”
for additional information on certain asset impairments in our FedEx Freight segment in 2011) or
2010. However, during 2009, we recorded $202 million in property and equipment impairment charges.
These charges were primarily related to our decision to permanently remove from service certain
aircraft, along with certain excess aircraft engines, at FedEx Express.
LEASES
. We utilize operating leases to finance certain of our aircraft, facilities and equipment.
Such arrangements typically shift the risk of loss on the residual value of the assets at the end
of the lease period to the lessor. As disclosed in “Contractual
Cash Obligations” and Note 7 of
the accompanying consolidated financial statements, at May 31, 2011 we had approximately $14
billion (on an undiscounted basis) of future commitments for payments under operating leases. The
weighted-average remaining lease term of all operating leases outstanding at May 31, 2011 was
approximately six years. The future commitments for operating leases are not reflected as a
liability in our balance sheet under current U.S. accounting rules.
Under a proposed revision to the accounting standards for leases, we would be required to record an
asset and a liability for our outstanding operating leases similar to the current accounting for
capital leases. Notably, the amount we record in the future would be the net present value of our
future lease commitments at the date of adoption. This proposed guidance has not been issued and
has been subjected to numerous revisions since the proposal was issued. Accordingly, we cannot
make any judgments about the specific impact of the new proposed standard to us. However, our
existing financing agreements and the rating agencies that evaluate our credit worthiness already
take our operating leases into account.
The determination of whether a lease is accounted for as a capital lease or an operating lease
requires management to make estimates primarily about the fair value of the asset and its estimated
economic useful life. In addition, our evaluation includes ensuring we properly account for
build-to-suit lease arrangements and making judgments about whether various forms of lessee
involvement during the construction period make the lessee an agent for the owner-lessor or, in
substance, the owner of the asset during the construction period. We believe we have well-defined
and controlled processes for making these evaluations, including obtaining third-party appraisals
for material transactions to assist us in making these evaluations.
GOODWILL
.
We have $2.3 billion of recorded goodwill from our acquisitions,
representing the excess of cost over the fair value of the net assets we have 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 entity.
Our annual evaluation of goodwill impairment requires management judgment and the use of estimates
and assumptions to determine the fair value of our reporting units. Fair value is estimated using
standard valuation methodologies (principally the income or market approach) incorporating market
participant considerations and
management’s assumptions on revenue growth rates, operating margins, discount rates and expected
capital expenditures. Estimates used by management can significantly affect the outcome of the
impairment test. Changes in forecasted operating results and other assumptions could materially
affect these estimates. We perform our annual impairment tests in the fourth quarter unless
circumstances indicate the need to accelerate the timing of the test.
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Our businesses with significant recorded goodwill include our FedEx Express, FedEx Freight and
FedEx Office reporting units. We evaluated these reporting units during the fourth quarter of
2011. The estimated fair value of each of these reporting units exceeded their carrying values in
2011, and we do not believe that any of these reporting units are at risk as of May 31, 2011.
However, as noted below, we have recorded goodwill impairment charges associated with our FedEx
Office reporting unit in recent years. While the performance of this business has improved, the
realization of the value of the remaining attributable goodwill ($362 million) is dependent upon
execution of our growth strategies and initiatives in the future.
Goodwill Impairment Charges — 2010
In connection with our annual impairment testing of goodwill conducted in the fourth quarter of
2010, we recorded a charge of $18 million for impairment of the value of the remaining goodwill at
our FedEx National LTL reporting unit. The impairment charge resulted
from the significant negative impact of the U.S. recession on the LTL industry, which resulted in
volume and yield declines and operating losses. In connection with the combination of our LTL networks in
2011, this unit was merged into the FedEx Freight reporting unit.
Goodwill Impairment Charges — 2009
FEDEX OFFICE.
During 2009, in response to the lower revenues and continued operating losses at
FedEx Office resulting from the U.S. recession, the company initiated an internal reorganization
designed to improve revenue-generating capabilities and reduce costs including headcount
reductions, the termination of operations in some international locations and substantially
curtailing future network expansion. Despite these actions, operating losses and weak economic
conditions significantly impacted our FedEx Office reporting unit.
In connection with our annual impairment testing in 2009, we concluded that the recorded goodwill
was impaired and recorded an impairment charge of $810 million during the fourth quarter of 2009.
The goodwill impairment charge is included in 2009 operating expenses in the accompanying
consolidated statements of income. This charge was included in the results of the FedEx Services
segment and was not allocated to our transportation segments, as the charge was unrelated to the
core performance of those businesses.
FEDEX NATIONAL LTL.
In 2009, we recorded a goodwill impairment charge of $90 million at our FedEx
National LTL unit. This charge was a result of reduced revenues and increased operating losses due
to the negative impact of the U.S. recession.
CONTINGENCIES
We are subject to various loss contingencies, including tax proceedings and litigation, in
connection with our operations. Contingent liabilities are difficult to measure, as their
measurement is subject to multiple factors that are not easily predicted or projected. Further,
additional complexity in measuring these liabilities arises due to the various jurisdictions in
which these matters occur, which makes our ability to predict their outcome highly uncertain.
Moreover, different accounting rules must be employed to account for these items based on the
nature of the contingency. Accordingly, significant management judgment is required to assess
these matters and to make determinations about the measurement of a liability, if any. Our
material pending loss contingencies are described in Note 17 of the
accompanying consolidated financial
statements. In the opinion of management, the aggregate liability, if any, of individual matters
or groups of matters not specifically described in Note 17 is not expected to be material to our
financial position, results of operations or cash flows. The following describes our methods and
associated processes for evaluating these matters.
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TAX CONTINGENCIES
. We are subject to income and operating tax rules of the U.S., its states and
municipalities, and of the foreign jurisdictions in which we operate. Significant judgment is
required in determining income tax provisions, as well as deferred tax asset and liability balances
and related deferred tax valuation allowances, if necessary, due to the complexity of these rules
and their interaction with one another. We account for income taxes by recording both current
taxes payable and deferred tax assets and liabilities. Our provision for income taxes is based on
domestic and international statutory income tax rates in the jurisdictions in which we operate,
applied to taxable income, reduced by applicable tax credits.
Tax contingencies arise from uncertainty in the application of tax rules throughout the many
jurisdictions in which we operate and are impacted by several factors, including tax audits,
appeals, litigation, changes in tax laws and other rules and their interpretations, and changes in
our business. We regularly assess the potential impact of these factors for the current and prior
years to determine the adequacy of our tax provisions. We continually evaluate the likelihood and
amount of potential adjustments and adjust our tax positions, including the current and deferred
tax liabilities, in the period in which the facts that give rise to a revision become known. In
addition, management considers the advice of third parties in making conclusions regarding tax
consequences.
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 remaining portion of our income tax liabilities and accrued interest
and penalties are presented as noncurrent liabilities. These noncurrent income tax liabilities are
recorded in the caption “Other liabilities” in the
accompanying consolidated balance sheets.
We account for operating taxes based on multi-state, local and foreign taxing jurisdiction rules in
those areas in which we operate. Provisions for operating taxes are estimated based upon these
rules, asset acquisitions and disposals, historical spend and other variables. These provisions
are consistently evaluated for reasonableness against compliance and risk factors.
We measure and record operating tax contingency accruals in accordance with accounting guidance for
contingencies. As discussed below, this guidance requires an accrual of estimated loss from a
contingency, such as a tax or other legal proceeding or claim, when it is probable that a loss will
be incurred and the amount of the loss can be reasonably estimated.
OTHER CONTINGENCIES
. Because of the complex environment in which we operate, we are subject to
other legal proceedings and claims, including those relating to general commercial matters,
employment-related claims and FedEx Ground’s owner-operators. Accounting guidance for
contingencies requires an accrual of estimated loss from a contingency, such as a tax or other
legal proceeding or claim, when it is probable (i.e., the future event or events are likely to
occur) that a loss will be incurred and the amount of the loss can be reasonably estimated. This
guidance also requires disclosure of a loss contingency matter when, in management’s judgment, a
material loss is reasonably possible or probable.
During the preparation of our financial statements, we evaluate our contingencies to determine
whether it is probable, reasonably possible or remote that a liability has been incurred. A loss
is recognized for all
contingencies deemed probable and estimable, regardless of amount. For unresolved contingencies
with potentially material exposure that are deemed reasonably possible, we evaluate whether a
potential loss or range of loss can be reasonably estimated.
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Our evaluation of these matters is the result of a comprehensive process designed to ensure that
accounting recognition of a loss or disclosure of these contingencies is made in a timely manner
and involves our legal and accounting personnel, as well as external counsel where applicable. The
process includes regular communications during each quarter and scheduled meetings shortly before
the completion of our financial statements to evaluate any new legal proceedings and the status of
any existing matters.
In determining whether a loss should be accrued or a loss contingency disclosed, we evaluate, among
other factors:
| • | the current status of each matter within the scope and context of the entire lawsuit (i.e., the lengthy and complex nature of class-action matters); | ||
| • | the procedural status of each lawsuit; | ||
| • | any opportunities to dispose of the lawsuit on its merits before trial (i.e., motion to dismiss or for summary judgment); | ||
| • | the amount of time remaining before the trial date; | ||
| • | the status of discovery; | ||
| • | the status of settlement, arbitration or mediation proceedings, and; | ||
| • | our judgment regarding the likelihood of success prior to or at trial. |
In reaching our conclusions with respect to accrual of a loss or loss contingency disclosure, we
take a holistic view of each matter based on these factors and the information available prior to
the issuance of our financial statements. Uncertainty with respect to an individual factor or
combination of these factors may impact our decisions related to accrual or disclosure of a loss
contingency, including a conclusion that we are unable to establish an estimate of possible loss or
a meaningful range of possible loss. We update our disclosures to reflect our most current
understanding of the contingencies at the time we issue our financial statements. However, events
may arise that were not anticipated and the outcome of a contingency may result in a loss to us
that differs materially from our previously estimated liability or range of possible loss.
Despite the inherent complexity in the accounting and disclosure of contingencies, we believe that
our processes are robust and thorough and provide a consistent framework for management in
evaluating the potential outcome of contingencies for proper accounting recognition and disclosure.
RISK FACTORS
Our financial and operating results are subject to many risks and uncertainties, as described
below.
We are directly affected by the state of the economy.
While macro-economic risks apply to most
companies, we are particularly vulnerable. The transportation industry is highly cyclical and
especially susceptible to trends in economic activity, such as the recent global recession. Our
primary business is to transport goods, so our business levels are directly tied to the purchase
and production of goods — key macro-economic measurements. When individuals and companies purchase
and produce fewer goods, we transport fewer goods. In addition, we have a relatively high
fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels.
Moreover, as we grow our international business, we are increasingly affected by the health of the
global economy. As a result, the recent global recession had a disproportionately negative impact
on us and our recent financial results.
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Our businesses depend on our strong reputation and the value of the FedEx brand.
The FedEx brand
name symbolizes high-quality service, reliability and speed. FedEx is one of the most widely
recognized, trusted and respected brands in the world, and the FedEx brand is one of our most
important and valuable assets. In addition,
we have a strong reputation among customers and the general public for high standards of social and
environmental responsibility and corporate governance and ethics. The FedEx brand name and our
corporate reputation are powerful sales and marketing tools, and we devote significant resources to
promoting and protecting them. Adverse publicity (whether or not justified) relating to activities
by our employees, contractors or agents, such as noncompliance with anti-corruption laws, could
tarnish our reputation and reduce the value of our brand. Damage to our reputation and loss of
brand equity could reduce demand for our services and thus have an adverse effect on our financial
condition, liquidity and results of operations, as well as require additional resources to rebuild
our reputation and restore the value of our brand.
We rely heavily on information and technology to operate our transportation and business networks,
and any disruption to our technology infrastructure or the Internet could harm our operations and
our reputation among customers.
Our ability to attract and retain customers and to compete
effectively depends in part upon the sophistication and reliability of our technology network,
including our ability to provide features of service that are important to our customers. External
and internal risks, such as malware, insecure coding, “Acts of God,” attempts to penetrate our
networks, data leakage and human error, pose a direct threat to our products, services and data.
Any disruption to the Internet or our complex, global technology infrastructure, including those
impacting our computer systems and customer Web sites, could adversely impact our customer service,
volumes, and revenues and result in increased costs. These types of adverse impacts could also
occur in the event the confidentiality, integrity, or availability of company and customer
information was compromised due to a data loss by FedEx or a trusted third party. While we have
invested and continue to invest in technology security initiatives, information technology risk management and disaster
recovery plans, these measures cannot fully insulate us from technology disruptions or data loss
and the resulting adverse effect on our operations and financial results.
Our transportation businesses may be impacted by the price and availability of fuel.
We must
purchase large quantities of fuel to operate our aircraft and vehicles, and the price and
availability of fuel can be unpredictable and beyond our control. To date, we have been mostly
successful in mitigating over time the expense impact of higher fuel costs through our indexed fuel
surcharges, as the amount of the surcharges is closely linked to the market prices for fuel. If we
are unable to maintain or increase our fuel surcharges because of competitive pricing pressures or
some other reason, fuel costs could adversely impact our operating results. Even if we are able to
offset the cost of fuel with our surcharges, high fuel surcharges could move our customers,
especially in the U.S. domestic market, away from our higher-yielding express services to our
lower-yielding ground services or even reduce customer demand for our services altogether. In
addition, disruptions in the supply of fuel could have a negative impact on our ability to operate
our transportation networks.
Our businesses are capital intensive, and we must make capital expenditures based upon projected
volume levels.
We make significant investments in aircraft, vehicles, technology, package handling
facilities, sort equipment, copy equipment and other assets to support our transportation and
business networks. We also make significant investments to rebrand, integrate and grow the
companies that we acquire. The amount and timing of capital investments depend on various factors,
including our anticipated volume growth. For example, we must make commitments to purchase or
modify aircraft years before the aircraft are actually needed. We must predict volume levels and
fleet requirements and make commitments for aircraft based on those projections. Missing our
projections could result in too much or too little capacity relative to our shipping volumes.
Overcapacity could lead to asset dispositions or write-downs and undercapacity could negatively
impact service levels.
We face intense competition.
The transportation and business services markets are both highly
competitive and sensitive to price and service, especially in periods of little or no
macro-economic growth. Some of our competitors have more financial resources than we do, or they
are controlled or subsidized by foreign governments, which enables them to raise capital more
easily. We believe we compete effectively with these companies — for example, by providing more
reliable service at compensatory prices. However, an irrational pricing environment can limit our
ability not only to maintain or increase our prices (including our fuel surcharges in response to
rising fuel costs), but also to maintain or grow our market share. In addition, maintaining a
broad portfolio of services is important to keeping and attracting customers. While we believe we
compete effectively through our current service offerings, if our competitors offer a broader range
of services or more effectively bundle their services, it could impede our ability to maintain or
grow our market share.
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Labor organizations attempt to organize groups of our employees from time to time, and potential
changes in labor laws could make it easier for them to do so.
If we are unable to continue to
maintain good relationships with our employees and prevent labor organizations from organizing
groups of our employees, our operating costs could significantly increase and our operational
flexibility could be significantly reduced. Despite continual organizing attempts by labor unions,
other than the pilots of FedEx Express, all of our U.S. employees have thus far chosen not to
unionize. The U.S. Congress has, in the past, considered adopting
changes in labor laws, however,
that would make it easier for unions to organize small units of our employees. For example, there
is always a possibility that Congress could remove most FedEx Express employees from the purview of
the Railway Labor Act of 1926, as amended (the “RLA”). For additional discussion of the RLA, see
Part I, Item 1 of this Annual Report under the caption “Regulation.” Such legislation
could expose our customers to the type of service disruptions that the RLA was designed to prevent
— local work stoppages in key areas that interrupt the timely flow of shipments of time-sensitive,
high-value goods throughout our global network. Such disruptions could threaten our ability to
provide competitively priced shipping options and ready access to global markets. There is also
the possibility that Congress could pass other labor legislation that could adversely affect our
companies, such as FedEx Ground and FedEx Freight, whose employees are governed by the National
Labor Relations Act of 1935, as amended (the “NLRA”). In addition, federal and state governmental
agencies, such as the National Labor Relations Board, have and may continue to take actions that
could make it easier for our employees to organize under the RLA or NLRA. Finally, changes to
federal or state laws governing employee classification could impact the status of FedEx Ground’s
owner-operators as independent contractors.
If we do not effectively operate, integrate, leverage and grow acquired businesses, our financial
results and reputation may suffer.
Our strategy for long-term growth, productivity and
profitability depends in part on our ability to make prudent strategic acquisitions and to realize
the benefits we expect when we make those acquisitions. In furtherance of this strategy, we
recently made strategic moves in India and Mexico. While we expect our past and future
acquisitions to enhance our value proposition to customers and improve our long-term profitability,
there can be no assurance that we will realize our expectations within the time frame we have
established, if at all, or that we can continue to support the value we allocate to these acquired
businesses, including their goodwill or other intangible assets.
FedEx Ground relies on owner-operators to conduct its linehaul and pickup-and-delivery operations,
and the status of these owner-operators as independent contractors, rather than employees, is being
challenged.
FedEx Ground’s use of independent contractors is well suited to the needs of the
ground delivery business and its customers, as evidenced by the strong growth of this business
segment. We are involved in numerous lawsuits and state tax and other administrative proceedings
that claim that the company’s owner-operators or their drivers should be treated as our employees,
rather than independent contractors. We incur certain costs, including legal fees, in defending
the status of FedEx Ground’s owner-operators as independent contractors. We believe that FedEx
Ground’s owner-operators are properly classified as independent contractors and that FedEx Ground
is not an employer of the drivers of the company’s independent contractors. However, adverse
determinations in these matters could, among other things, entitle certain of our contractors and
their drivers to the reimbursement of certain expenses and to the benefit of wage-and-hour laws and
result in employment and withholding tax and benefit liability for FedEx Ground, and could result
in changes to the independent contractor status of FedEx Ground’s owner-operators. If FedEx Ground
is compelled to convert its independent contractors to employees, labor organizations could more
easily organize these individuals, our operating costs could increase materially and we could incur
significant capital outlays.
Increased security or pilot safety requirements could impose substantial costs on us.
As a result
of concerns about global terrorism and homeland security, governments around the world are adopting
or are considering adopting stricter security requirements that will increase operating costs and
potentially slow service for businesses, including those in the transportation industry. For
example, the U.S. Transportation Security Administration has issued to us a Full All-Cargo Aircraft
Operator Standard Security Plan, which contains many new and enhanced security requirements. These
requirements are not static, but will change periodically as the result of regulatory and
legislative requirements, and to respond to evolving threats. The Federal Aviation Administration,
in September 2010, proposed rules that would significantly reduce the maximum number of hours on
duty and increase the minimum amount of rest time for our pilots, and thus require us to hire
additional pilots
and modify certain of our aircraft. Until these requirements are adopted, we cannot determine the
effect that these new rules will have on our cost structure or our operating results. It is
reasonably possible, however, that these rules or other future security or flight safety
requirements could impose material costs on us.
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The regulatory environment for global aviation or other transportation rights may impact our
operations.
Our extensive air network is critical to our success. Our right to serve foreign
points is subject to the approval of the Department of Transportation and generally requires a
bilateral agreement between the United States and foreign governments. In addition, we must obtain
the permission of foreign governments to provide specific flights and services. Our operations
outside of the United States, such as FedEx Express’s growing international domestic operations,
are also subject to current and potential regulations that restrict, and sometimes prohibit, our
ability to compete in parts of the transportation and logistics market. As an example, the Chinese
government has adopted postal regulations that exclude foreign-owned companies such as FedEx
from competing in the mainland China domestic document delivery market. Regulatory actions
affecting global aviation or transportation rights or a failure to obtain or maintain aviation or
other transportation rights in important international markets could impair our ability to operate
our networks.
We may be affected by global climate change or by legal, regulatory or market responses to such
change.
Concern over climate change, including the impact of global warming, has led to
significant U.S. and international legislative and regulatory efforts to limit greenhouse gas
(“GHG”) emissions. For example, during 2009, the European Commission approved the extension of the
European Union Emissions Trading Scheme (“ETS”) for GHG emissions, to the airline industry. Under
this decision, all FedEx Express flights to and from any airport in any member state of the
European Union will be covered by the ETS requirements beginning in 2012, and each year we will be
required to submit emission allowances in an amount equal to the carbon dioxide emissions from such
flights. In addition, the U.S. Congress has, in the past, considered bills that would regulate GHG
emissions, and some form of federal climate change legislation is possible in the future.
Increased regulation regarding GHG emissions, especially aircraft or diesel engine emissions, could
impose substantial costs on us, especially at FedEx Express. These costs include an increase in
the cost of the fuel and other energy we purchase and capital costs associated with updating or
replacing our aircraft or vehicles prematurely. Until the timing, scope and extent of such
regulation becomes known, we cannot predict its effect on our cost structure or our operating
results. It is reasonably possible, however, that it could impose material costs on us. Moreover,
even without such regulation, increased awareness and any adverse publicity in the global
marketplace about the GHGs emitted by companies in the airline and transportation industries could
harm our reputation and reduce customer demand for our services, especially our air express
services. Finally, given the broad and global scope of our operations and our susceptibility to
global macro-economic trends, we are particularly vulnerable to the physical risks of climate
change that could affect all of humankind, such as shifts in world ecosystems.
A localized disaster in a key geography could adversely impact our business.
While we operate
several integrated networks with assets distributed throughout the world, there are concentrations
of key assets within our networks that are exposed to localized risks from natural or manmade
disasters such as tornados, floods, earthquakes or terrorist attacks. The loss of a key location
such as our Memphis super hub or one of our information technology centers could cause a
significant disruption to our operations and cause us to incur significant costs to relocate or
reestablish these functions. Moreover, resulting economic dislocations, including supply chain and
fuel disruptions, could adversely impact demand for our services.
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We are also subject to other risks and uncertainties that affect many other businesses, including:
| • | increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
| • | the increasing costs of compliance with federal and state governmental agency mandates and defending against inappropriate or unjustified enforcement or other actions by such agencies; |
| • | the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
| • | any impacts on our businesses resulting from new domestic or international government laws and regulation; |
| • | changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian dollar, British pound and Japanese yen, which can affect our sales levels and foreign currency sales prices; |
| • | market acceptance of our new service and growth initiatives; |
| • | any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour, discrimination and retaliation claims, and any other legal proceedings; |
| • | the outcome of future negotiations to reach new collective bargaining agreements — including with the union that represents the pilots of FedEx Express (the current pilot contract is scheduled to become amendable in March 2013 unless the union exercises its option to shorten the contract, in which case the agreement would be amendable in March 2012); |
| • | the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information technology redundancy and complexity throughout the organization; |
| • | widespread outbreak of an illness or any other communicable disease, or any other public health crisis; and |
| • | availability of financing on terms acceptable to us and our ability to maintain our current credit ratings, especially given the capital intensity of our operations. |
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FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in “Outlook
(including segment outlooks),” “Liquidity,” “Capital Resources,” “Liquidity Outlook,” “Contractual
Cash Obligations” and “Critical Accounting Estimates,” and the “Retirement Plans” and
“Contingencies” notes to the consolidated financial statements, are “forward-looking” statements
within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our
financial condition, results of operations, cash flows, plans, objectives, future performance and
business. Forward-looking statements include those preceded by, followed by or that include the
words “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “plans,”
“estimates,” “targets,” “projects,” “intends” or similar expressions. These forward-looking
statements involve risks and uncertainties. Actual results may differ materially from those
contemplated (expressed or implied) by such forward-looking statements, because of, among other
things, the risk factors identified above and the other risks and uncertainties you can find in our
press releases and other SEC filings.
As a result of these and other factors, no assurance can be given as to our future results and
achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances and those future events or circumstances may not occur. You should
not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation,
and we expressly disclaim any obligation, to update or alter any forward-looking statements,
whether as a result of new information, future events or otherwise.
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MANAGEMENT’S REPORT ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act
of 1934, as amended). Our internal control over financial reporting includes, among other things,
defined policies and procedures for conducting and governing our business, sophisticated
information systems for processing transactions and a properly staffed, professional internal audit
department. Mechanisms are in place to monitor the effectiveness of our internal control over
financial reporting and actions are taken to correct all identified deficiencies. Our procedures
for financial reporting include the active involvement of senior management, our Audit Committee
and our staff of highly qualified financial and legal professionals.
Management, with the participation of our principal executive and financial officers, assessed our
internal control over financial reporting as of May 31, 2011, the end of our fiscal year.
Management based its assessment on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Based on this assessment, management has concluded that our internal control over financial
reporting was effective as of May 31, 2011.
The effectiveness of our internal control over financial reporting as of May 31, 2011, has been
audited by Ernst & Young LLP, the independent registered public accounting firm who also audited
the Company’s consolidated financial statements included in this Annual Report on Form 10-K. Ernst
& Young LLP’s report on the Company’s internal control over financial reporting is included in this
Annual Report on Form 10-K.
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
FedEx Corporation
We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2011,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). FedEx Corporation’s
management is responsible for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting included in
the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, FedEx Corporation maintained, in all material respects, effective internal control
over financial reporting as of May 31, 2011, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of FedEx Corporation as of May 31, 2011 and
2010, and the related consolidated statements of income, changes in stockholders’ investment and
comprehensive income, and cash flows for each of the three years in the period ended May 31, 2011
of FedEx Corporation and our report dated July 12, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 12, 2011
July 12, 2011
78
Table of Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
FedEx Corporation
We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31,
2011 and 2010, and the related consolidated statements of income, changes in stockholders’
investment and comprehensive income, and cash flows for each of the three years in the period ended
May 31, 2011. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of FedEx Corporation at May 31, 2011 and 2010, and
the consolidated results of its operations and its cash flows for each of the three years in the
period ended May 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), FedEx Corporation’s internal control over financial reporting as of May 31,
2011, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 12, 2011
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 12, 2011
July 12, 2011
79
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FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
| May 31, | ||||||||
| 2011 | 2010 | |||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 2,328 | $ | 1,952 | ||||
|
Receivables, less allowances of $182 and $166
|
4,581 | 4,163 | ||||||
|
Spare parts, supplies and fuel, less
allowances of $169 and $170
|
437 | 389 | ||||||
|
Deferred income taxes
|
610 | 529 | ||||||
|
Prepaid expenses and other
|
329 | 251 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current assets
|
8,285 | 7,284 | ||||||
|
|
||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
||||||||
|
|
||||||||
|
Aircraft and related equipment
|
13,146 | 11,640 | ||||||
|
Package handling and ground support equipment
|
5,591 | 5,193 | ||||||
|
Computer and electronic equipment
|
4,408 | 4,218 | ||||||
|
Vehicles
|
3,294 | 3,170 | ||||||
|
Facilities and other
|
7,247 | 7,081 | ||||||
|
|
||||||||
|
|
33,686 | 31,302 | ||||||
|
Less accumulated depreciation and amortization
|
18,143 | 16,917 | ||||||
|
|
||||||||
|
|
||||||||
|
Net property and equipment
|
15,543 | 14,385 | ||||||
|
|
||||||||
|
OTHER LONG-TERM ASSETS
|
||||||||
|
Goodwill
|
2,326 | 2,200 | ||||||
|
Other assets
|
1,231 | 1,033 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term assets
|
3,557 | 3,233 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 27,385 | $ | 24,902 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
| May 31, | ||||||||
| 2011 | 2010 | |||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Current portion of long-term debt
|
$ | 18 | $ | 262 | ||||
|
Accrued salaries and employee benefits
|
1,268 | 1,146 | ||||||
|
Accounts payable
|
1,702 | 1,522 | ||||||
|
Accrued expenses
|
1,894 | 1,715 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current liabilities
|
4,882 | 4,645 | ||||||
|
|
||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,667 | 1,668 | ||||||
|
|
||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||
|
Deferred income taxes
|
1,336 | 891 | ||||||
|
Pension, postretirement healthcare
and other benefit obligations
|
2,124 | 1,705 | ||||||
|
Self-insurance accruals
|
977 | 960 | ||||||
|
Deferred lease obligations
|
779 | 804 | ||||||
|
Deferred gains, principally related to
aircraft transactions
|
246 | 267 | ||||||
|
Other liabilities
|
154 | 151 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term liabilities
|
5,616 | 4,778 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES
|
||||||||
|
|
||||||||
|
COMMON STOCKHOLDERS’ INVESTMENT
|
||||||||
|
Common stock, $0.10 par value; 800 million shares
authorized; 317 million shares issued as of May 31, 2011
and 314 million shares issued as of May 31, 2010
|
32 | 31 | ||||||
|
Additional paid-in capital
|
2,484 | 2,261 | ||||||
|
Retained earnings
|
15,266 | 13,966 | ||||||
|
Accumulated other comprehensive loss
|
(2,550 | ) | (2,440 | ) | ||||
|
Treasury stock, at cost
|
(12 | ) | (7 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total common stockholders’ investment
|
15,220 | 13,811 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 27,385 | $ | 24,902 | ||||
|
|
||||||||
The accompanying notes are an integral part of these consolidated financial statements.
81
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FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| Years ended May 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
REVENUES
|
$ | 39,304 | $ | 34,734 | $ | 35,497 | ||||||
|
|
||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||
|
Salaries and employee benefits
|
15,276 | 14,027 | 13,767 | |||||||||
|
Purchased transportation
|
5,674 | 4,728 | 4,534 | |||||||||
|
Rentals and landing fees
|
2,462 | 2,359 | 2,429 | |||||||||
|
Depreciation and amortization
|
1,973 | 1,958 | 1,975 | |||||||||
|
Fuel
|
4,151 | 3,106 | 3,811 | |||||||||
|
Maintenance and repairs
|
1,979 | 1,715 | 1,898 | |||||||||
|
Impairment and other charges
|
89 | 18 | 1,204 | |||||||||
|
Other
|
5,322 | 4,825 | 5,132 | |||||||||
|
|
||||||||||||
|
|
36,926 | 32,736 | 34,750 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
OPERATING INCOME
|
2,378 | 1,998 | 747 | |||||||||
|
|
||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||
|
Interest expense
|
(86 | ) | (79 | ) | (85 | ) | ||||||
|
Interest income
|
9 | 8 | 26 | |||||||||
|
Other, net
|
(36 | ) | (33 | ) | (11 | ) | ||||||
|
|
||||||||||||
|
|
(113 | ) | (104 | ) | (70 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
INCOME BEFORE INCOME TAXES
|
2,265 | 1,894 | 677 | |||||||||
|
|
||||||||||||
|
PROVISION FOR INCOME TAXES
|
813 | 710 | 579 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
NET INCOME
|
$ | 1,452 | $ | 1,184 | $ | 98 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
BASIC EARNINGS PER COMMON SHARE
|
$ | 4.61 | $ | 3.78 | $ | 0.31 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
DILUTED EARNINGS PER COMMON SHARE
|
$ | 4.57 | $ | 3.76 | $ | 0.31 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
| Years ended May 31, | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
OPERATING ACTIVITIES
|
||||||||||||
|
Net income
|
$ | 1,452 | $ | 1,184 | $ | 98 | ||||||
|
Adjustments to reconcile net income to cash
provided by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
1,973 | 1,958 | 1,975 | |||||||||
|
Provision for uncollectible accounts
|
152 | 124 | 181 | |||||||||
|
Deferred income taxes and other noncash items
|
669 | 331 | 299 | |||||||||
|
Impairment and other charges
|
29 | 18 | 1,103 | |||||||||
|
Stock-based compensation
|
98 | 101 | 99 | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Receivables
|
(400 | ) | (906 | ) | 762 | |||||||
|
Other assets
|
(114 | ) | 276 | (196 | ) | |||||||
|
Pension assets and liabilities, net
|
(169 | ) | (611 | ) | (913 | ) | ||||||
|
Accounts payable and other liabilities
|
370 | 710 | (628 | ) | ||||||||
|
Other, net
|
(19 | ) | (47 | ) | (27 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash provided by operating activities
|
4,041 | 3,138 | 2,753 | |||||||||
|
|
||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||
|
Capital expenditures
|
(3,434 | ) | (2,816 | ) | (2,459 | ) | ||||||
|
Business acquisition, net of cash acquired
|
(96 | ) | — | — | ||||||||
|
Proceeds from asset dispositions and other
|
111 | 35 | 76 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash used in investing activities
|
(3,419 | ) | (2,781 | ) | (2,383 | ) | ||||||
|
|
||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||
|
Principal payments on debt
|
(262 | ) | (653 | ) | (501 | ) | ||||||
|
Proceeds from debt issuance
|
— | — | 1,000 | |||||||||
|
Proceeds from stock issuances
|
108 | 94 | 41 | |||||||||
|
Excess tax benefit on the exercise of stock options
|
23 | 25 | 4 | |||||||||
|
Dividends paid
|
(151 | ) | (138 | ) | (137 | ) | ||||||
|
Other, net
|
(5 | ) | (20 | ) | (7 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash (used in) provided by financing activities
|
(287 | ) | (692 | ) | 400 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Effect of exchange rate changes on cash
|
41 | (5 | ) | (17 | ) | |||||||
|
|
||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
376 | (340 | ) | 753 | ||||||||
|
Cash and cash equivalents at beginning of period
|
1,952 | 2,292 | 1,539 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 2,328 | $ | 1,952 | $ | 2,292 | ||||||
|
|
||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
83
Table of Contents
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
INVESTMENT AND COMPREHENSIVE INCOME
INVESTMENT AND COMPREHENSIVE INCOME
(IN MILLIONS, EXCEPT SHARE DATA)
| Accumulated | ||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||
| Common | Paid-in | Retained | Comprehensive | Treasury | ||||||||||||||||||||
| Stock | Capital | Earnings | Income (Loss) | Stock | Total | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at May 31, 2008
|
$ | 31 | $ | 1,922 | $ | 13,002 | $ | (425 | ) | $ | (4 | ) | $ | 14,526 | ||||||||||
|
Adjustment to opening balances for
retirement plans measurement date
transition, net of tax benefit of $26 and
expense of $220, respectively
|
— | — | (44 | ) | 369 | — | 325 | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at June 1, 2008
|
31 | 1,922 | 12,958 | (56 | ) | (4 | ) | 14,851 | ||||||||||||||||
|
Net income
|
— | — | 98 | — | — | 98 | ||||||||||||||||||
|
Foreign currency translation adjustment,
net of tax of $28
|
— | — | — | (112 | ) | — | (112 | ) | ||||||||||||||||
|
Retirement plans adjustments,
net of tax of $718
|
— | — | — | (1,205 | ) | — | (1,205 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total comprehensive loss
|
(1,219 | ) | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Cash dividends declared ($0.44 per share)
|
— | — | (137 | ) | — | — | (137 | ) | ||||||||||||||||
|
Employee incentive plans and other
(995,271 shares issued)
|
— | 131 | — | — | — | 131 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at May 31, 2009
|
31 | 2,053 | 12,919 | (1,373 | ) | (4 | ) | 13,626 | ||||||||||||||||
|
Net income
|
— | — | 1,184 | — | — | 1,184 | ||||||||||||||||||
|
Foreign currency translation adjustment,
net of tax of $2
|
— | — | — | (25 | ) | — | (25 | ) | ||||||||||||||||
|
Retirement plans adjustments,
net of tax of $617
|
— | — | — | (1,042 | ) | — | (1,042 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total comprehensive income
|
117 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Purchase of treasury stock
|
— | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||
|
Cash dividends declared ($0.44 per share)
|
— | — | (137 | ) | — | — | (137 | ) | ||||||||||||||||
|
Employee incentive plans and other
(2,375,753 shares issued)
|
— | 208 | — | — | — | 208 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at May 31, 2010
|
31 | 2,261 | 13,966 | (2,440 | ) | (7 | ) | 13,811 | ||||||||||||||||
|
Net income
|
— | — | 1,452 | — | — | 1,452 | ||||||||||||||||||
|
Foreign currency translation adjustment,
net of tax of $27
|
— | — | — | 125 | — | 125 | ||||||||||||||||||
|
Retirement plans adjustments,
net of tax of $141
|
— | — | — | (235 | ) | — | (235 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total comprehensive income
|
1,342 | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Purchase of treasury stock
|
— | — | — | — | (5 | ) | (5 | ) | ||||||||||||||||
|
Cash dividends declared ($0.48 per share)
|
— | — | (152 | ) | — | — | (152 | ) | ||||||||||||||||
|
Employee incentive plans and other
(2,229,051 shares issued)
|
1 | 223 | — | — | — | 224 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Balance at May 31, 2011
|
$ | 32 | $ | 2,484 | $ | 15,266 | $ | (2,550 | ) | $ | (12 | ) | $ | 15,220 | ||||||||||
|
|
||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
84
Table of Contents
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS.
FedEx Corporation (“FedEx”) provides a broad portfolio of transportation,
e-commerce and business services through companies competing collectively, operating independently
and managed collaboratively, under the respected FedEx brand. Our primary operating companies are
Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company;
FedEx Ground Package System, Inc. (“FedEx Ground”), a leading provider of small-package ground
delivery services; and FedEx Freight, Inc. (“FedEx Freight”), a leading U.S. provider of
less-than-truckload (“LTL”) freight services. These companies represent our major service lines
and, along with FedEx Corporate Services, Inc. (“FedEx Services”), form the core of our reportable
segments. Our FedEx Services segment provides sales, marketing and information technology support
to our transportation segments. In addition, the FedEx Services segment provides customers with
retail access to FedEx Express and FedEx Ground shipping services through FedEx Office and Print
Services, Inc. (“FedEx Office”) and provides customer service, technical support and billing and
collection services through FedEx TechConnect, Inc. (“FedEx TechConnect”).
FISCAL YEARS
. Except as otherwise specified, references to years indicate our fiscal year ended
May 31, 2011 or ended May 31 of the year referenced.
PRINCIPLES OF CONSOLIDATION
. The consolidated financial statements include the accounts of FedEx
and its subsidiaries, substantially all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
. We recognize revenue upon delivery of shipments for our transportation
businesses and upon completion of services for our business services, logistics and trade services
businesses. Certain of our transportation services are provided with the use of independent
contractors. FedEx is the principal to the transaction in most instances and in those cases
revenue from these transactions is recognized on a gross basis. Costs associated with independent
contractor settlements are recognized as incurred and included in the caption “Purchased
transportation” in the accompanying consolidated statements of income. 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.
Our contract logistics, global trade services and certain transportation businesses, such as FedEx
SmartPost, engage in some transactions wherein they act as agents. Revenue from these transactions
is recorded on a net basis. Net revenue includes billings to customers less third-party charges,
including transportation or handling costs, fees, commissions, and taxes and duties.
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.
CREDIT RISK.
We routinely grant credit to many of our customers for transportation and business
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 $375 million in 2011, $374 million in
2010 and $379 million in 2009.
85
Table of Contents
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 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. Additionally, allowances for
obsolescence are provided for spare parts currently identified as excess or obsolete. These
allowances are based on management estimates, which are subject to change. Supplies and fuel are
reported at weighted average cost.
PROPERTY AND EQUIPMENT
. Expenditures for major additions, improvements, flight equipment
modifications and certain equipment overhaul costs 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. Maintenance
and repairs are charged to expense as incurred. 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. 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 | 2011 | 2010 | ||||||||
|
Wide-body aircraft and related equipment
|
15 to 30 years | $ | 6,536 | $ | 5,897 | |||||
|
Narrow-body and feeder aircraft and related equipment
|
5 to 18 years | 1,517 | 1,049 | |||||||
|
Package handling and ground support equipment
|
3 to 30 years | 1,985 | 1,895 | |||||||
|
Vehicles
|
3 to 15 years | 1,076 | 1,095 | |||||||
|
Computer and electronic equipment
|
2 to 10 years | 776 | 649 | |||||||
|
Facilities and other
|
2 to 40 years | 3,653 | 3,800 | |||||||
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 18 years. We periodically
evaluate the estimated service lives and residual values used to depreciate our property and
equipment. This evaluation may result in changes in the estimated lives and residual values. Such
changes did not materially affect depreciation expense in any period presented. Depreciation
expense, excluding gains and losses on sales of property and equipment used in operations, was $1.9
billion in 2011 and 2010, and $1.8 billion in 2009. 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, construction of certain facilities, and development of
certain software 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 construction. Capitalized interest was $71
million in 2011, $80 million in 2010 and $71 million in 2009.
IMPAIRMENT OF LONG-LIVED ASSETS.
Long-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.
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We operate integrated transportation networks, and accordingly, cash flows for most of our
operating assets are assessed at a network level, not at an individual asset level, for our
analysis of impairment. In 2011, we incurred asset impairment charges of $29 million related to
the combination of our LTL operations at FedEx Freight (see “FedEx Freight Network Combination”
below for additional information).
There were no material property and equipment impairment charges recognized in 2010. During 2009,
we recorded $202 million in property and equipment impairment charges. These charges were
primarily related to our decision to permanently remove from service certain aircraft, along with
certain excess aircraft engines, at FedEx Express.
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 entity. Goodwill is reviewed at least annually for
impairment by comparing the fair value of each reporting unit with its carrying value (including
attributable goodwill). Fair value for our 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, we perform our annual impairment testing in the fourth quarter.
INTANGIBLE ASSETS.
Intangible assets include customer relationships, technology assets and
contract-based intangibles acquired in business combinations. Intangible assets are amortized over
periods ranging from 3 to 12 years, either on a straight-line basis or an accelerated basis
depending upon the pattern in which the economic benefits are realized.
PENSION AND POSTRETIREMENT HEALTHCARE PLANS
. Our defined benefit plans are measured using
actuarial techniques that reflect management’s assumptions for discount rate, expected long-term
investment returns on plan assets, salary increases, expected retirement, mortality, employee
turnover and future increases in healthcare costs. We determine 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. A calculated-value method is employed for
purposes of determining the expected return on the plan asset component of net periodic pension
cost for our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”).
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 in other comprehensive
income (“OCI”) of unrecognized gains or losses and prior service costs or credits. Additionally,
the guidance requires the measurement date for plan assets and liabilities to coincide with the
plan sponsor’s year end.
At May 31, 2011, we recorded a decrease to equity through OCI of $350 million (net of tax) based
primarily on year-end adjustments related to increases in our projected benefit obligation due to a
decrease in the discount rate used to measure the liability at May 31, 2011. At May 31, 2010, we
recorded a decrease to equity through OCI of $1.0 billion (net of tax) based primarily on year-end
adjustments related to increases in our projected benefit obligation due to a decrease in the
discount rate used to measure the liability at May 31, 2010.
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.
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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 remaining portion of our income tax liabilities and accrued interest
and penalties are presented as noncurrent liabilities because payment of cash is not anticipated
within one year of the balance sheet date. These noncurrent income tax liabilities are recorded in
the caption “Other liabilities” in the accompanying consolidated balance sheets.
SELF-INSURANCE ACCRUALS
. We are self-insured for workers’ compensation claims, vehicle accidents
and general liabilities, benefits paid under employee healthcare programs and long-term disability
benefits. Accruals are primarily based on the actuarially estimated, undiscounted 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 operating company and 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 at FedEx Express and copier usage at FedEx
Office. 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 common stockholders’
investment. 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. Cumulative net foreign currency translation gains in accumulated other
comprehensive income were $156 million at May 31, 2011, $30 million at May 31, 2010 and $56 million
at May 31, 2009.
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EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS
. The pilots of Federal Express Corporation
(“FedEx Express”), which represent a small number of FedEx
Express’s total employees, are employed
under a collective bargaining agreement. During the fourth quarter of 2011, the pilots ratified a
new labor contract that includes safety initiatives, increases in hourly pay rates and travel per diem rates,
and provisions for opening a European crew base. The new contract is scheduled to become amendable
in March 2013 unless the union exercises its option to shorten the contract, in which case the
agreement would be amendable in March 2012 and a portion of the hourly pay increases would be
canceled. In addition to our pilots at FedEx Express, certain of FedEx Express’s non-U.S. employees are unionized.
STOCK-BASED COMPENSATION
. 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 awards using a fair value method.
DIVIDENDS DECLARED PER COMMON SHARE
. On June 6, 2011, our Board of Directors declared a quarterly
dividend of $0.13 per share of common stock. The dividend was paid on July 1, 2011 to stockholders
of record as of the close of business on June 17, 2011. Each quarterly dividend payment is subject
to review and approval by our Board of Directors, and we evaluate our dividend payment amount on an
annual basis at the end of each fiscal year.
FEDEX FREIGHT NETWORK COMBINATION.
The previously announced combination of our FedEx Freight and
FedEx National LTL operations was completed on January 30, 2011. Our combined LTL network will
increase efficiencies, reduce operational costs and provide customers both Priority and Economy LTL
freight services across all lengths of haul from one integrated company. These actions resulted in
the following incremental costs, including an impairment charge
recorded during 2011. Charges for the
year ended May 31, 2011 include the following (in millions):
| 2011 | ||||
|
Severance
|
$ | 40 | ||
|
Lease terminations
|
20 | |||
|
Asset impairments
|
29 | |||
|
|
||||
|
Impairment and other charges
|
89 | |||
|
|
||||
|
Other program costs
|
44 | |||
|
|
||||
|
Total program costs
|
$ | 133 | ||
|
|
||||
Other program costs include $15 million of accelerated depreciation expense due to a change in the
estimated useful life of certain assets impacted by the combination of these operations and other
incremental costs directly associated with the program. Substantially
all of the severance accruals were paid during the fourth quarter of 2011 and the remaining
severance accruals will be paid during the first quarter of 2012. We have received $88 million
related to asset sales, which offset the total cash outlays for the program. The estimates
recorded at May 31, 2011 are not subject to any material risk of change.
USE OF ESTIMATES
. 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; accounts receivable allowances; obsolescence of spare parts; contingent
liabilities; loss contingencies, such as litigation and other claims; and impairment assessments on
long-lived assets (including goodwill).
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NOTE 2: RECENT ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. We believe the following new accounting guidance is relevant to the readers of our financial statements.
On June 1, 2008, we adopted the authoritative guidance issued by the Financial Accounting Standards
Board (“FASB”) on fair value measurements, which provides a common definition of fair value,
establishes a uniform framework for measuring fair value and requires expanded disclosures about
fair value measurements. On June 1, 2009, we implemented the previously deferred provisions of
this guidance for nonfinancial assets and liabilities recorded at fair value, as required. The
adoption of this new guidance had no impact on our financial statements.
On June 1, 2009, we adopted the authoritative guidance issued by FASB on employers’ disclosures
about postretirement benefit plan assets. This guidance provides objectives that an employer
should consider when providing detailed disclosures about assets of a defined benefit pension or
other postretirement plan, including disclosures about investment policies and strategies,
categories of plan assets, significant concentrations of risk and the inputs and valuation
techniques used to measure the fair value of plan assets. See Note 12 for related disclosures.
On June 1, 2009, we adopted the authoritative guidance issued by FASB related to interim
disclosures about the fair value of financial instruments. This guidance requires disclosures
about the fair value of financial instruments for interim reporting periods in addition to annual
reporting periods.
In June 2011, the FASB issued new guidance to make the presentation of items within
OCI more prominent. The new standard will require companies to present
items of net income, items of OCI and total comprehensive income in one continuous statement or two
separate consecutive statements, and companies will no longer be allowed to present items of OCI in the
statement of stockholders’ equity. Reclassification adjustments between OCI and net income will be
presented separately on the face of the financial statements. This new standard is effective for
our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but not yet effective that is
relevant to the readers of our financial statements. However, there are numerous new proposals
under development which, if and when enacted, may have a significant impact on our financial
reporting.
NOTE 3: BUSINESS COMBINATIONS
On February 22, 2011, FedEx Express completed the acquisition of the Indian logistics,
distribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt.
Ltd. for $96 million in cash. The financial results of the acquired businesses are included in
the FedEx Express segment from the date of acquisition and were not material to our results of
operations or financial condition. Substantially all of the purchase price was allocated to
goodwill.
On
December 15, 2010, FedEx entered into an agreement to acquire
Servicios Nacionales Mupa, S.A.
de C.V. (MultiPack), a Mexican domestic express package delivery company. This acquisition will
be funded with cash from operations and is expected to be completed
during the first quarter of 2012, subject to
customary closing conditions. The financial results of the acquired company will be included in
the FedEx Express segment from the date of acquisition and will be immaterial to our 2012
results.
These acquisitions will give us more robust domestic transportation networks and added
capabilities in these important global markets.
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NOTE 4: GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL.
The carrying amount of goodwill attributable to each reportable operating segment and
changes therein are as follows (in millions):
| FedEx Express | FedEx Ground | FedEx Freight | FedEx Services | |||||||||||||||||
| Segment | Segment | Segment | Segment | Total | ||||||||||||||||
|
|
||||||||||||||||||||
|
Goodwill at May 31, 2009
|
$ | 1,090 | $ | 90 | $ | 802 | $ | 1,539 | $ | 3,521 | ||||||||||
|
Accumulated impairment charges
|
— | — | (115 | ) | (1,177 | ) | (1,292 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
Balance as of May 31, 2009
|
1,090 | 90 | 687 | 362 | 2,229 | |||||||||||||||
|
|
||||||||||||||||||||
|
Impairment charge
|
— | — | (18 | ) | — | (18 | ) | |||||||||||||
|
Purchase adjustments and other
(1)
|
(11 | ) | — | — | — | (11 | ) | |||||||||||||
|
Transfer between segments
(2)
|
66 | — | (66 | ) | — | — | ||||||||||||||
|
|
||||||||||||||||||||
|
Balance as of May 31, 2010
|
1,145 | 90 | 603 | 362 | 2,200 | |||||||||||||||
|
|
||||||||||||||||||||
|
Goodwill acquired
(3)
|
89 | — | — | — | 89 | |||||||||||||||
|
Purchase adjustments and other
(1)
|
38 | — | (1 | ) | — | 37 | ||||||||||||||
|
|
||||||||||||||||||||
|
Balance as of May 31, 2011
|
$ | 1,272 | $ | 90 | $ | 602 | $ | 362 | $ | 2,326 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Accumulated goodwill impairment
charges as of May 31, 2011
|
$ | — | $ | — | $ | (133 | ) | $ | (1,177 | ) | $ | (1,310 | ) | |||||||
|
|
||||||||||||||||||||
| (1) | Primarily currency translation adjustments. | |
| (2) | Transfer of goodwill related to the merger of Caribbean Transportation Services into FedEx Express effective June 1, 2009. | |
| (3) | Goodwill acquired in 2011 relates to the acquisition of the Indian logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. See Note 3 for related disclosures. |
Our reporting units with significant recorded goodwill include our FedEx Express, FedEx Freight and
FedEx Office reporting units. We evaluated these reporting units during the fourth quarter of
2011. The estimated fair value of each of these reporting units exceeded their carrying values in
2011, and we do not believe that any of these reporting units are at risk as of May 31, 2011.
Goodwill Impairment Charges — 2010
In connection with our annual impairment testing of goodwill conducted in the fourth quarter of
2010, we recorded a charge of $18 million for impairment of the value of the remaining goodwill at
our FedEx National LTL reporting unit. In connection with the combination of our LTL networks in
2011, this unit was merged into the FedEx Freight reporting unit. The impairment charge resulted
from the significant negative impact of the U.S. recession on the LTL industry, which resulted in
volume and yield declines and operating losses.
Goodwill Impairment Charges — 2009
FEDEX OFFICE.
During 2009, in response to the lower revenues and continued operating losses at
FedEx Office resulting from the U.S. recession, the company initiated an internal reorganization
designed to improve revenue-generating capabilities and reduce costs including headcount
reductions, the termination of operations in some international locations and substantially
curtailing future network expansion. Despite these actions, operating losses and weak economic
conditions significantly impacted our FedEx Office reporting unit.
In connection with our annual impairment testing in 2009, we concluded that the recorded goodwill
was impaired and recorded an impairment charge of $810 million during the fourth quarter of 2009.
The goodwill impairment charge is included in 2009 operating expenses in the accompanying
consolidated statements of income. This
charge was included in the results of the FedEx Services segment and was not allocated to our
transportation segments, as the charge was unrelated to the core performance of those businesses.
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FEDEX NATIONAL LTL.
In 2009, we recorded a goodwill impairment charge of $90 million at our FedEx
National LTL unit. This charge was a result of reduced revenues and increased operating losses due
to the negative impact of the U.S. recession.
OTHER INTANGIBLE ASSETS.
The net book value of our intangible assets was $38 million in 2011 and
$69 million in 2010. Amortization expense for intangible assets was $32 million in 2011, $51
million in 2010 and $73 million in 2009. Estimated amortization expense is expected to be
immaterial in 2012.
NOTE 5: SELECTED CURRENT LIABILITIES
The components of selected current liability captions were as follows (in millions):
| May 31, | ||||||||
| 2011 | 2010 | |||||||
|
|
||||||||
|
Accrued Salaries and Employee Benefits
|
||||||||
|
Salaries
|
$ | 256 | $ | 230 | ||||
|
Employee benefits, including
variable compensation
|
468 | 386 | ||||||
|
Compensated absences
|
544 | 530 | ||||||
|
|
||||||||
|
|
$ | 1,268 | $ | 1,146 | ||||
|
|
||||||||
|
|
||||||||
|
Accrued Expenses
|
||||||||
|
Self-insurance accruals
|
$ | 696 | $ | 675 | ||||
|
Taxes other than income taxes
|
357 | 347 | ||||||
|
Other
|
841 | 693 | ||||||
|
|
||||||||
|
|
$ | 1,894 | $ | 1,715 | ||||
|
|
||||||||
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NOTE 6: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
The components of long-term debt (net of discounts), along with maturity dates for the years
subsequent to May 31, 2011, are as follows (in millions):
| May 31, | ||||||||
| 2011 | 2010 | |||||||
|
Senior unsecured debt
|
||||||||
|
Interest rate of 7.25%, due in 2011
|
$ | — | $ | 250 | ||||
|
Interest rate of 9.65%, due in 2013
|
300 | 300 | ||||||
|
Interest rate of 7.38%, due in 2014
|
250 | 250 | ||||||
|
Interest rate of 8.00%, due in 2019
|
750 | 750 | ||||||
|
Interest rate of 7.60%, due in 2098
|
239 | 239 | ||||||
|
|
||||||||
|
|
1,539 | 1,789 | ||||||
|
Capital lease obligations
|
146 | 141 | ||||||
|
|
||||||||
|
|
||||||||
|
|
1,685 | 1,930 | ||||||
|
Less current portion
|
18 | 262 | ||||||
|
|
||||||||
|
|
$ | 1,667 | $ | 1,668 | ||||
|
|
||||||||
Interest on our fixed-rate notes is paid semi-annually. Long-term debt, exclusive of capital
leases, had carrying values of $1.5 billion compared with estimated fair values of $1.9 billion at
May 31, 2011, and $1.8 billion compared with estimated fair values of $2.1 billion at May 31, 2010.
The estimated fair values were determined based on quoted market prices or on the current rates
offered for debt with similar terms and maturities.
We have a shelf registration statement filed with the Securities and Exchange Commission that
allows us to sell, in one or more future offerings, any combination of our unsecured debt
securities and common stock.
During 2011, we repaid our $250 million 7.25% unsecured notes that matured on February 15, 2011.
During 2010, we repaid our $500 million 5.50% notes that matured on August 15, 2009 using cash from
operations and a portion of the proceeds of our January 2009 $1 billion senior unsecured debt
offering. During 2011, we made principal payments in the amount of $12 million related to capital
lease obligations. During 2010, we made principal payments in the amount of $153 million related
to capital lease obligations.
A $1 billion revolving credit facility is available to finance our operations and other cash flow
needs and to provide support for the issuance of commercial paper. This five-year credit agreement
was entered into on April 26, 2011, and replaced the $1 billion three-year credit agreement dated
July 22, 2009. The agreement contains a financial covenant, which requires us to maintain a
leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus
six times our last four fiscal quarters’ rentals and landing fees) to capital (adjusted debt plus
total common stockholders’ investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.5 at May 31, 2011. Under this financial covenant, our additional
borrowing capacity is capped, although this covenant continues to provide us with ample liquidity,
if needed. We are in compliance with this and all other restrictive covenants of our revolving
credit agreement and do not expect the covenants to affect our operations, including our liquidity
or borrowing capacity. As of May 31, 2011, no commercial paper was outstanding and the entire $1
billion under the revolving credit facility was available for future borrowings.
We issue other financial instruments in the normal course of business to support our operations,
including letters of credit and surety bonds. We had a total of $619 million in letters of credit
outstanding at May 31, 2011, with $93 million unused under our primary $500 million letter of
credit facility, and $460 million in outstanding surety bonds placed by third-party insurance
providers. These instruments are required under certain U.S. self-insurance programs and are also
used in the normal course of international operations. The underlying liabilities insured by
these instruments are reflected in our balance sheets, where applicable. Therefore, no additional
liability is reflected for the letters of credit and surety bonds themselves.
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Our capital lease obligations include leases for aircraft and facilities. Our facility leases
include leases that guarantee the repayment of certain special facility revenue bonds that have
been issued by municipalities primarily to finance the acquisition and construction of various
airport facilities and equipment. These bonds require interest payments at least annually, with
principal payments due at the end of the related lease agreement.
NOTE 7: LEASES
We utilize certain aircraft, land, facilities, retail locations and equipment under capital and
operating leases that expire at various dates through 2046. We leased 11% of our total aircraft
fleet under capital or operating leases as of May 31, 2011 as compared to 12% as of May 31, 2010.
A portion of our supplemental aircraft are leased by us under agreements that provide for
cancellation upon 30 days’ notice. Our leased facilities include national, regional and
metropolitan sorting facilities, retail facilities and administrative buildings.
The components of property and equipment recorded under capital leases were as follows (in
millions):
| May 31, | ||||||||
| 2011 | 2010 | |||||||
|
|
||||||||
|
Aircraft
|
$ | 8 | $ | 15 | ||||
|
Package handling and ground support
equipment
|
165 | 165 | ||||||
|
Vehicles
|
17 | 17 | ||||||
|
Other, principally facilities
|
145 | 146 | ||||||
|
|
||||||||
|
|
335 | 343 | ||||||
|
|
||||||||
|
Less accumulated amortization
|
307 | 312 | ||||||
|
|
||||||||
|
|
$ | 28 | $ | 31 | ||||
|
|
||||||||
Rent expense under operating leases for the years ended May 31 was as follows (in
millions):
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
Minimum rentals
|
$ | 2,025 | $ | 2,001 | $ | 2,047 | ||||||
|
Contingent rentals
(1)
|
193 | 152 | 181 | |||||||||
|
|
||||||||||||
|
|
$ | 2,218 | $ | 2,153 | $ | 2,228 | ||||||
|
|
||||||||||||
| (1) | Contingent rentals are based on equipment usage. |
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A summary of future minimum lease payments under capital leases and noncancelable operating leases
with an initial or remaining term in excess of one year at May 31, 2011 is as follows (in
millions):
| Operating Leases | ||||||||||||||||
| Aircraft | Total | |||||||||||||||
| Capital | and Related | Facilities | Operating | |||||||||||||
| Leases | Equipment | and Other | Leases | |||||||||||||
|
|
||||||||||||||||
|
2012
|
$ | 25 | $ | 494 | $ | 1,300 | $ | 1,794 | ||||||||
|
2013
|
119 | 499 | 1,155 | 1,654 | ||||||||||||
|
2014
|
2 | 473 | 992 | 1,465 | ||||||||||||
|
2015
|
2 | 455 | 899 | 1,354 | ||||||||||||
|
2016
|
2 | 458 | 734 | 1,192 | ||||||||||||
|
Thereafter
|
13 | 1,545 | 4,988 | 6,533 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
163 | $ | 3,924 | $ | 10,068 | $ | 13,992 | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Less amount representing interest
|
17 | |||||||||||||||
|
|
||||||||||||||||
|
Present value of net minimum lease
payments
|
$ | 146 | ||||||||||||||
|
|
||||||||||||||||
The weighted-average remaining lease term of all operating leases outstanding at May 31, 2011 was
approximately six years. While certain of our lease agreements contain covenants governing the use
of the leased assets or require us to maintain certain levels of insurance, none of our lease
agreements include material financial covenants or limitations.
FedEx Express makes payments under certain leveraged operating leases that are sufficient to pay
principal and interest on certain pass-through certificates. The pass-through certificates are not
direct obligations of, or guaranteed by, FedEx or FedEx Express.
We are the lessee in a series of operating leases covering a portion of our leased aircraft. The
lessors are trusts established specifically to purchase, finance and lease aircraft to us. These
leasing entities meet the criteria for variable interest entities. We are not the primary
beneficiary of the leasing entities, as the lease terms are consistent with market terms at the
inception of the lease and do not include a residual value guarantee, fixed-price purchase option
or similar feature that obligates us to absorb decreases in value or entitles us to participate in
increases in the value of the aircraft. As such, we are not required to consolidate the entity as
the primary beneficiary. Our maximum exposure under these leases is included in the summary of
future minimum lease payments shown above.
NOTE 8: PREFERRED STOCK
Our Certificate of Incorporation authorizes the Board of Directors, at its discretion, to issue up
to 4,000,000 shares of preferred stock. The stock is issuable in series, which may vary as to
certain rights and preferences, and has no par value. As of May 31, 2011, none of these shares had
been issued.
NOTE 9: STOCK-BASED COMPENSATION
Our total stock-based compensation expense for the years ended May 31 was as follows (in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
Stock-based compensation expense
|
$ | 98 | $ | 101 | $ | 99 | ||||||
95
Table of Contents
We have two types of equity-based compensation: stock options and restricted stock.
STOCK OPTIONS
. Under the provisions of our incentive stock plans, key employees and non-employee
directors may be granted options to purchase shares of our common stock at a price not less than
its fair market value on the date of grant. Vesting requirements are determined at the discretion
of the Compensation Committee of our Board of Directors. Option-vesting periods range from one to
four years, with 83% of our options vesting ratably over four years. Compensation expense
associated with these awards is recognized on a straight-line basis over the requisite service
period of the award.
RESTRICTED STOCK.
Under the terms of our incentive stock plans, restricted shares of our common
stock are awarded to key employees. All restrictions on the shares expire ratably over a four-year
period. Shares are valued at the market price on the date of award. The terms of our restricted
stock provide for continued vesting subsequent to the employee’s retirement. Compensation expense
associated with these awards is recognized on a straight-line basis over the shorter of the
remaining service or vesting period.
VALUATION AND ASSUMPTIONS
. We use the Black-Scholes option pricing model to calculate the fair
value of stock options. The value of restricted stock awards is based on the stock price of the
award on the grant date. We record stock-based compensation expense in the “Salaries and employee
benefits” caption in the accompanying consolidated statements of income.
The key assumptions for the Black-Scholes valuation method include the expected life of the option,
stock price volatility, a risk-free interest rate, and dividend yield. Many of these assumptions
are judgmental and highly sensitive. Following is a table of the weighted-average Black-Scholes
value of our stock option grants, the intrinsic value of options exercised (in millions), and the
key weighted-average assumptions used in the valuation calculations for the options granted during
the years ended May 31, and then a discussion of our methodology for developing each of the
assumptions used in the valuation model:
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
Weighted-average Black-Scholes value
|
$ | 28.12 | $ | 20.47 | $ | 23.66 | ||||||
|
Intrinsic value of options exercised
|
$ | 80 | $ | 77 | $ | 7 | ||||||
|
Black-Scholes Assumptions:
|
||||||||||||
|
Expected lives
|
5.9 years | 5.7 years | 5.5 years | |||||||||
|
Expected volatility
|
34 | % | 32 | % | 23 | % | ||||||
|
Risk-free interest rate
|
2.36 | % | 3.24 | % | 3.28 | % | ||||||
|
Dividend yield
|
0.558 | % | 0.742 | % | 0.492 | % | ||||||
Expected Lives.
This is the period of time over which the options granted are expected to remain
outstanding. Options granted have a maximum term of 10 years. We examine actual stock option
exercises to determine the expected life of the options. An increase in the expected term will
increase compensation expense.
Expected Volatility.
Actual changes in the market value of our stock are used to calculate the
volatility assumption. We calculate daily market value changes from the date of grant over a past
period equal to the expected life of the options to determine volatility. An increase in the
expected volatility will increase compensation expense.
Risk-Free Interest Rate.
This is the U.S. Treasury Strip rate posted at the date of grant having a
term equal to the expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.
Dividend Yield.
This is the annual rate of dividends per share over the exercise price of the
option. An increase in the dividend yield will decrease compensation expense.
96
Table of Contents
The following table summarizes information about stock option activity for the year ended May 31,
2011:
| Stock Options | ||||||||||||||||
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Shares | Price | Term | (in millions) (1) | |||||||||||||
|
Outstanding at June 1, 2010
|
20,238,056 | $ | 78.32 | |||||||||||||
|
|
||||||||||||||||
|
Granted
|
2,474,603 | 81.86 | ||||||||||||||
|
Exercised
|
(2,043,050 | ) | 53.13 | |||||||||||||
|
Forfeited
|
(506,446 | ) | 104.38 | |||||||||||||
|
|
||||||||||||||||
|
Outstanding at May 31, 2011
|
20,163,163 | $ | 81.20 | 5.7 years | $ | 327 | ||||||||||
|
|
||||||||||||||||
|
Exercisable
|
12,968,690 | $ | 84.74 | 4.3 years | $ | 181 | ||||||||||
|
|
||||||||||||||||
|
Expected to vest
|
6,618,915 | $ | 74.83 | 8.2 years | $ | 135 | ||||||||||
|
|
||||||||||||||||
|
Available for future grants
|
11,928,567 | |||||||||||||||
|
|
||||||||||||||||
| (1) | Only presented for options with market value at May 31, 2011 in excess of the exercise price of the option. |
The options granted during the year ended May 31, 2011 are primarily related to our principal
annual stock option grant in June 2010.
The following table summarizes information about vested and unvested restricted stock for the year
ended May 31, 2011:
| Restricted Stock | ||||||||
| Weighted- | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value | |||||||
|
Unvested at June 1, 2010
|
637,296 | $ | 74.02 | |||||
|
|
||||||||
|
Granted
|
235,998 | 78.74 | ||||||
|
Vested
|
(234,716 | ) | 81.11 | |||||
|
Forfeited
|
(12,198 | ) | 70.91 | |||||
|
|
||||||||
|
Unvested at May 31, 2011
|
626,380 | $ | 73.20 | |||||
|
|
||||||||
During the year ended May 31, 2010, there were 391,786 shares of restricted stock granted with a
weighted-average fair value of $57.07. During the year ended May 31, 2009, there were 197,180
shares of restricted stock granted with a weighted-average fair value of $90.57.
97
Table of Contents
The following table summarizes information about stock option vesting during the years ended May
31:
| Stock Options | ||||||||
| Vested during | Fair value | |||||||
| the year | (in millions) | |||||||
|
2009
|
2,414,815 | $ | 64 | |||||
|
2010
|
2,296,211 | 63 | ||||||
|
2011
|
2,721,602 | 67 | ||||||
As of May 31, 2011, there was $132 million of total unrecognized compensation cost, net of
estimated forfeitures, related to unvested share-based compensation arrangements. This
compensation expense is expected to be recognized on a straight-line basis over the remaining
weighted-average vesting period of approximately two years.
Total shares outstanding or available for grant related to equity compensation at May 31, 2011
represented 10% of the total outstanding common and equity compensation shares and equity
compensation shares available for grant.
NOTE 10: COMPUTATION OF EARNINGS PER SHARE
The calculation of basic and diluted earnings per common share for the years ended May 31 was as
follows (in millions, except per share amounts):
| 2011 | 2010 | 2009 | ||||||||||
|
Basic earnings per common share:
|
||||||||||||
|
Net earnings allocable to common shares
(1)
|
$ | 1,449 | $ | 1,182 | $ | 97 | ||||||
|
Weighted-average common shares
|
315 | 312 | 311 | |||||||||
|
|
||||||||||||
|
Basic earnings per common share
|
$ | 4.61 | $ | 3.78 | $ | 0.31 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings per common share:
|
||||||||||||
|
Net earnings allocable to common shares
(1)
|
$ | 1,449 | $ | 1,182 | $ | 97 | ||||||
|
|
||||||||||||
|
Weighted-average common shares
|
315 | 312 | 311 | |||||||||
|
Dilutive effect of share-based awards
|
2 | 2 | 1 | |||||||||
|
|
||||||||||||
|
Weighted-average diluted shares
|
317 | 314 | 312 | |||||||||
|
Diluted earnings per common share
|
$ | 4.57 | $ | 3.76 | $ | 0.31 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Anti-dilutive options excluded from diluted
earnings per common share
|
9.3 | 11.5 | 12.6 | |||||||||
|
|
||||||||||||
| (1) | Net earnings available to participating securities were immaterial in all periods presented. |
98
Table of Contents
NOTE 11: INCOME TAXES
The components of the provision for income taxes for the years ended May 31 were as follows (in
millions):
| 2011 | 2010 | 2009 | ||||||||||
|
Current provision (benefit)
|
||||||||||||
|
Domestic:
|
||||||||||||
|
Federal
|
$ | 79 | $ | 36 | $ | (35 | ) | |||||
|
State and local
|
48 | 54 | 18 | |||||||||
|
Foreign
|
198 | 207 | 214 | |||||||||
|
|
||||||||||||
|
|
325 | 297 | 197 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
Deferred provision (benefit)
|
||||||||||||
|
Domestic:
|
||||||||||||
|
Federal
|
485 | 408 | 327 | |||||||||
|
State and local
|
12 | 15 | 48 | |||||||||
|
Foreign
|
(9 | ) | (10 | ) | 7 | |||||||
|
|
||||||||||||
|
|
488 | 413 | 382 | |||||||||
|
|
||||||||||||
|
|
$ | 813 | $ | 710 | $ | 579 | ||||||
|
|
||||||||||||
Our current federal income tax expenses in 2011, 2010, and 2009 were significantly reduced by
accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small
Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the
Economic Stimulus Act of 2008. Those acts, designed to stimulate new business investment in the
U.S., accelerated our depreciation deductions for new qualifying investments, such as our new
Boeing 777 freighter (“B777F”) aircraft. These are timing benefits only, in that the depreciation would have
otherwise been recognized in later years.
Pre-tax earnings of foreign operations for 2011, 2010 and 2009 were $472 million, $555 million and
$106 million, respectively, which represent only a portion of total results associated with
international shipments.
A reconciliation of the statutory federal income tax rate to the effective income tax rate for the
years ended May 31 was as follows:
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
Statutory U.S. income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Increase resulting from:
|
||||||||||||
|
Goodwill impairment
|
— | — | 48.0 | |||||||||
|
State and local income taxes,
net of federal benefit
|
1.7 | 2.4 | 1.9 | |||||||||
|
Other, net
|
(0.8 | ) | 0.1 | 0.7 | ||||||||
|
|
||||||||||||
|
Effective tax rate
|
35.9 | % | 37.5 | % | 85.6 | % | ||||||
|
|
||||||||||||
Our 2011 rate was lower than our 2010 rate primarily due to increased permanently reinvested
foreign earnings and a lower state tax rate driven principally by favorable audit and legislative
developments. Our 2009 rate was significantly impacted by goodwill impairment charges that are not
deductible for income tax purposes.
99
Table of Contents
The significant components of deferred tax assets and liabilities as of May 31 were as follows (in
millions):
| 2011 | 2010 | |||||||||||||||
| Deferred Tax | Deferred Tax | Deferred Tax | Deferred Tax | |||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
|
Property, equipment,
leases and intangibles
|
$ | 274 | $ | 2,675 | $ | 377 | $ | 2,157 | ||||||||
|
Employee benefits
|
1,016 | 34 | 783 | 36 | ||||||||||||
|
Self-insurance accruals
|
519 | — | 416 | — | ||||||||||||
|
Other
|
422 | 269 | 490 | 238 | ||||||||||||
|
Net operating loss/credit
carryforwards
|
172 | — | 142 | — | ||||||||||||
|
Valuation allowances
|
(151 | ) | — | (139 | ) | — | ||||||||||
|
|
||||||||||||||||
|
|
$ | 2,252 | $ | 2,978 | $ | 2,069 | $ | 2,431 | ||||||||
|
|
||||||||||||||||
The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows
(in millions):
| 2011 | 2010 | |||||||
|
|
||||||||
|
Current deferred tax asset
|
$ | 610 | $ | 529 | ||||
|
Noncurrent deferred tax liability
|
(1,336 | ) | (891 | ) | ||||
|
|
||||||||
|
|
$ | (726 | ) | $ | (362 | ) | ||
|
|
||||||||
We have $484 million of net operating loss carryovers in various foreign jurisdictions and $524
million of state operating loss carryovers. The valuation allowances primarily represent amounts
reserved for operating loss and tax credit carryforwards, which expire over varying periods
starting in 2012. As a result of this and other factors, we believe that a substantial portion of
these deferred tax assets may not be realized.
Unremitted earnings of our foreign subsidiaries amounted to $640 million at the end of 2011 and $325 million
at the end of 2010. We have not recognized deferred taxes for U.S. federal income tax purposes on the
unremitted earnings of our foreign subsidiaries that are permanently reinvested. In 2011, our
permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries
provided a 1.3% benefit to our effective tax rate. Were the earnings to be distributed, in the
form of dividends or otherwise, these unremitted earnings would be subject to U.S. federal income
tax and non-U.S. withholding taxes. Unrecognized foreign tax credits potentially would be
available to reduce a portion of the U.S. tax liability. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable due to uncertainties related to
the timing and source of any potential distribution of such funds, along with other important
factors such as the amount of associated foreign tax credits. As of May 31, 2011, we had $300
million of cash in offshore jurisdictions associated with our permanent reinvestment strategy.
We file income tax returns in the U.S., various U.S. state and local jurisdictions, and various
foreign jurisdictions. The Internal Revenue Service is currently auditing our consolidated
U.S. income tax returns for the 2007 through 2009 tax years. We are no longer subject to U.S.
federal income tax examination for years through 2006 except for specific U.S. federal income tax
positions that are in various stages of appeal and/or litigation. No resolution date can be
reasonably estimated at this time for these appeals and litigation, but their resolution is not
expected to have a material effect on our consolidated financial statements. We are also subject
to ongoing audits in state, local and foreign tax jurisdictions throughout the world.
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Table of Contents
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
millions):
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
Balance at beginning of year
|
$ | 82 | $ | 72 | $ | 88 | ||||||
|
Increases for tax positions taken in the current year
|
2 | 3 | 7 | |||||||||
|
Increases for tax positions taken in prior years
|
6 | 14 | 10 | |||||||||
|
Decreases for tax positions taken in prior years
|
(10 | ) | (4 | ) | (30 | ) | ||||||
|
Settlements
|
(11 | ) | (3 | ) | (3 | ) | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Balance at end of year
|
$ | 69 | $ | 82 | $ | 72 | ||||||
|
|
||||||||||||
Our liabilities recorded for uncertain tax positions include $56 million at May 31, 2011 and $67
million at May 31, 2010 associated with positions that if favorably resolved would provide a
benefit to our effective tax rate. 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 balance of accrued interest and penalties was $18 million on May 31, 2011 and $20 million on
May 31, 2010. Total interest and penalties included in our
consolidated statements of income are
immaterial. Included in the 2011 and 2010 balances are $9 million of tax positions for which the
ultimate deductibility or income inclusion is certain but for which there may be uncertainty about
the timing of such deductibility or income inclusion.
It is difficult to predict the ultimate outcome or the timing of resolution for tax positions.
Changes may result from the conclusion of ongoing audits, appeals or litigation in state, local,
federal and foreign tax jurisdictions, or from the resolution of various proceedings between the
U.S. and foreign tax authorities. Our liability for uncertain tax positions includes no matters
that are individually or collectively material to us. It is reasonably possible that the amount of
the benefit with respect to certain of our unrecognized tax positions will increase or decrease
within the next 12 months, but an estimate of the range of the reasonably possible changes cannot
be made. However, we do not expect that the resolution of any of our uncertain tax positions will
be material.
NOTE 12: RETIREMENT PLANS
We sponsor programs that provide retirement benefits to most of our employees. These programs
include defined benefit pension plans, defined contribution plans and postretirement healthcare
plans. The accounting for pension and postretirement healthcare plans includes numerous
assumptions, such as: discount rates; expected long-term investment returns on plan assets; future
salary increases; employee turnover; mortality; and retirement ages. These assumptions most
significantly impact our U.S. Pension Plans.
The accounting guidance related to postretirement benefits requires recognition in the balance
sheet of the funded status of defined benefit pension and other postretirement benefit plans, and
the recognition in accumulated other comprehensive income (“AOCI”) of unrecognized gains or losses
and prior service costs or credits. The funded status is measured as the difference between the
fair value of the plan’s assets and the projected benefit obligation (“PBO”) of the plan. At May
31, 2011, we recorded a decrease to equity of $350 million (net of tax) attributable to our plans.
At May 31, 2010, we recorded a decrease to equity of $1 billion (net of tax) to reflect unrealized
actuarial losses during 2010.
A summary of our retirement plans costs over the past three years is as follows (in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
U.S. domestic and international pension plans
|
$ | 543 | $ | 308 | $ | 177 | ||||||
|
U.S. domestic and international defined contribution plans
|
257 | 136 | 237 | |||||||||
|
Postretirement healthcare plans
|
60 | 42 | 57 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
|
$ | 860 | $ | 486 | $ | 471 | ||||||
|
|
||||||||||||
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Table of Contents
PENSION PLANS
. Our largest pension plan covers certain U.S. employees age 21 and over, with at
least one year of service. Pension benefits for most employees are accrued under a cash balance
formula we call the Portable Pension Account. Under the Portable Pension Account, the retirement
benefit is expressed as a dollar amount in a notional account that grows with annual credits based
on pay, age and years of credited service, and interest on the
notional account balance. The Portable Pension Account benefit is payable as a lump sum or an annuity at retirement at
the election of the employee. The plan interest credit rate varies from year to year based on a
U.S. Treasury index. Prior to 2009, certain employees earned benefits using a traditional pension
formula (based on average earnings and years of service); however, benefits under this formula were
capped on May 31, 2008. We also sponsor or participate in nonqualified benefit plans covering
certain of our U.S. employee groups and other pension plans covering certain of our international
employees. The international defined benefit pension plans provide benefits primarily based on
final earnings and years of service and are funded in compliance with local laws and practices.
POSTRETIREMENT HEALTHCARE PLANS
. Certain of our subsidiaries offer medical, dental and vision
coverage to eligible U.S. retirees and their eligible dependents. U.S. employees covered by the
principal plan become eligible for these benefits at age 55 and older, if they have permanent,
continuous service of at least 10 years after attainment of age 45 if hired prior to January 1,
1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988.
Postretirement healthcare benefits are capped at 150% of the 1993 per capita projected employer
cost, which has been reached and, therefore, these benefits are not subject to additional future
inflation.
PENSION PLAN ASSUMPTIONS.
Our pension cost is materially affected by the discount rate used to
measure pension obligations, the level of plan assets available to fund those obligations and the
expected long-term rate of return on plan assets.
We use a measurement date of May 31 for our pension and postretirement healthcare plans.
Management reviews the assumptions used to measure pension costs on an annual basis. Economic and
market conditions at the measurement date impact these assumptions from year to year and it is
reasonably possible that material changes in pension cost may be experienced in the future.
Actuarial gains or losses are generated for changes in assumptions and to the extent that actual
results differ from those assumed. These actuarial gains and losses are amortized over the
remaining average service lives of our active employees if they exceed a corridor amount in the
aggregate. Additional information about our pension plans can be found in the Critical Accounting
Estimates section of Management’s Discussion and Analysis of
Results of
Operations and Financial Condition (“MD&A”) in this Annual Report
on Form 10-K (“Annual Report”).
Weighted-average actuarial assumptions for our primary U.S. retirement plans, which represent substantially all of our PBO and
accumulated postretirement benefit obligation (“APBO”), are as follows:
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Discount rate used to determine benefit obligation
|
5.76 | % | 6.37 | % | 7.68 | % | 5.67 | % | 6.11 | % | 7.27 | % | ||||||||||||
|
Discount rate used to determine net periodic benefit cost
|
6.37 | 7.68 | 7.15 | 6.11 | 7.27 | 7.13 | ||||||||||||||||||
|
Rate of increase in future compensation levels
used to determine benefit obligation
|
4.58 | 4.63 | 4.42 | — | — | — | ||||||||||||||||||
|
Rate of increase in future compensation levels
used to determine net periodic benefit cost
|
4.63 | 4.42 | 4.49 | — | — | — | ||||||||||||||||||
|
Expected long-term rate of return on assets
|
8.00 | 8.00 | 8.50 | — | — | — | ||||||||||||||||||
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Table of Contents
The estimated average rate of return on plan assets is a long-term, forward-looking assumption that
also materially affects our pension cost. It is required to be the expected future long-term rate of
earnings on plan assets. Establishing the expected future rate of investment return on our pension
assets is a judgmental matter. We review the expected long-term rate of return on an annual basis
and revise it as appropriate. Management considers the following factors in determining this
assumption:
| • | the duration of our pension plan liabilities, which drives the investment strategy we can employ with our pension plan assets; |
| • | the types of investment classes in which we invest our pension plan assets and the expected compound geometric return we can reasonably expect those investment classes to earn over time; and |
| • | the investment returns we can reasonably expect our investment management program to achieve in excess of the returns we could expect if investments were made strictly in indexed funds. |
Our estimated long-term rate of return on plan assets remains at 8% for 2012, consistent with our
expected rate of return in 2011 and 2010. For the 15-year period ended May 31, 2011, our actual
returns were 7.8%.
Pension expense is also affected by the accounting policy used to determine the value of plan
assets at the measurement date. We use a calculated-value method to determine the value of plan
assets, which helps mitigate short-term volatility in market performance (both increases and
decreases) by amortizing certain actuarial gains or losses over a period no longer than four years.
Another method used in practice applies the market value of plan assets at the measurement date.
For purposes of valuing plan assets for determining 2012 pension expense, we used the
calculated-value method, as our actual returns on plan assets significantly exceeded our
assumptions. However, as previously indicated, our pension costs in 2012 are expected to remain
flat. The calculated-value method resulted in the same value as the market value in 2011. The
calculated-value method significantly mitigated the impact of asset value declines in the
determination of our 2010 pension expense, reducing our 2010 expense by approximately $135 million.
The investment strategy for pension plan assets is to utilize a diversified mix of global public
and private equity portfolios, together with fixed-income portfolios, to earn a long-term
investment return that meets our pension plan obligations. Our pension plan assets are invested
primarily in listed securities, and our pension plans hold only a minimal investment in FedEx
common stock that is entirely at the discretion of third-party pension fund investment managers.
Our largest holding classes are U.S. Large Cap Equities, which is indexed to an S&P 500 fund, and
Corporate and U.S. Government Fixed Income Securities. Accordingly, we do not have any significant
concentrations of risk. Active management strategies are utilized within the plan in an effort to
realize investment returns in excess of market indices. As part of our strategy to manage future
pension costs and net funded status volatility, we have transitioned to a liability-driven
investment strategy with a greater concentration of fixed-income securities to better align plan
assets with liabilities. Our investment strategy also includes the limited use of derivative
financial instruments on a discretionary basis to improve investment returns and manage exposure to
market risk. In all cases, our investment managers are prohibited from using derivatives for
speculative purposes and are not permitted to use derivatives to leverage a portfolio.
103
Table of Contents
Following is a description of the valuation methodologies used for investments measured at fair
value:
| • | Cash and cash equivalents . These Level 1 investments include cash, cash equivalents and foreign currency valued using exchange rates. The Level 2 investments include commingled funds valued using the net asset value. |
| • | Domestic and international equities . These Level 1 investments are valued at the closing price or last trade reported on the major market on which the individual securities are traded. The Level 2 investments are commingled funds valued using the net asset value. |
| • | Private equity . The valuation of these Level 3 investments requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the long-term nature of such assets. Investments are valued based upon recommendations of our investment managers incorporating factors such as contributions and distributions, market transactions, market comparables and performance multiples. |
| • | Fixed income . We determine the fair value of these Level 2 corporate bonds, U.S. government securities and other fixed income securities by using bid evaluation pricing models or quoted prices of securities with similar characteristics. |
104
Table of Contents
The fair values of investments by level and asset category and the weighted-average asset
allocations for our domestic pension plans at the measurement date are presented in the following
table (in millions):
| Plan Assets at Measurement Date | ||||||||||||||||||||||||
| 2011 | ||||||||||||||||||||||||
| Quoted Prices in | Other Observable | Unobservable | ||||||||||||||||||||||
| Active Markets | Inputs | Inputs | ||||||||||||||||||||||
| Asset Class | Fair Value | Actual % | Target % | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
|
Cash and cash equivalents
|
$ | 409 | 3 | % | 1 | % | $ | 107 | $ | 302 | ||||||||||||||
|
Domestic equities
|
||||||||||||||||||||||||
|
U.S. large cap equity
|
4,280 | 27 | 24 | 26 | 4,254 | |||||||||||||||||||
|
U.S. SMID cap equity
|
1,481 | 10 | 9 | 1,481 | ||||||||||||||||||||
|
International equities
|
2,013 | 13 | 12 | 1,702 | 311 | |||||||||||||||||||
|
Private equities
|
403 | 3 | 5 | $ | 403 | |||||||||||||||||||
|
Fixed income securities
|
49 | |||||||||||||||||||||||
|
Corporate
|
3,794 | 24 | 3,794 | |||||||||||||||||||||
|
U.S. government
|
3,135 | 20 | 3,135 | |||||||||||||||||||||
|
Mortgage backed and other
|
66 | — | 66 | |||||||||||||||||||||
|
Other
|
(63 | ) | — | — | (59 | ) | (4 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 15,518 | 100 | % | 100 | % | $ | 3,257 | $ | 11,858 | $ | 403 | ||||||||||||
|
|
||||||||||||||||||||||||
| 2010 | ||||||||||||||||||||||||
| Quoted Prices in | Other Observable | Unobservable | ||||||||||||||||||||||
| Active Markets | Inputs | Inputs | ||||||||||||||||||||||
| Asset Class | Fair Value | Actual % | Target % | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
|
Cash and cash equivalents
|
$ | 427 | 3 | % | 1 | % | $ | 145 | $ | 282 | ||||||||||||||
|
Domestic equities
|
||||||||||||||||||||||||
|
U.S. large cap equity
|
3,374 | 26 | 24 | 3,374 | ||||||||||||||||||||
|
U.S. SMID cap equity
|
1,195 | 9 | 9 | 1,195 | ||||||||||||||||||||
|
International equities
|
1,502 | 12 | 12 | 1,262 | 240 | |||||||||||||||||||
|
Private equities
|
399 | 3 | 5 | $ | 399 | |||||||||||||||||||
|
Fixed income securities
|
49 | |||||||||||||||||||||||
|
Corporate
|
3,546 | 27 | 3,546 | |||||||||||||||||||||
|
U.S. government
|
2,537 | 19 | 2,537 | |||||||||||||||||||||
|
Mortgage backed and other
|
122 | 1 | 122 | |||||||||||||||||||||
|
Other
|
(47 | ) | — | — | (46 | ) | (1 | ) | ||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
$ | 13,055 | 100 | % | 100 | % | $ | 2,556 | $ | 10,100 | $ | 399 | ||||||||||||
|
|
||||||||||||||||||||||||
105
Table of Contents
The change in fair value of Level 3 assets that use significant unobservable inputs is shown in the
table below (in millions):
|
Beginning balance May 31, 2009
|
$ | 341 | ||
|
Actual return on plan assets:
|
||||
|
Assets held at May 31, 2010
|
38 | |||
|
Assets sold during the year
|
24 | |||
|
Purchases, sales and settlements
|
(4 | ) | ||
|
|
||||
|
|
||||
|
Balance at May 31, 2010
|
399 | |||
|
Actual return on plan assets:
|
||||
|
Assets held at May 31, 2011
|
27 | |||
|
Assets sold during the year
|
36 | |||
|
Purchases, sales and settlements
|
(59 | ) | ||
|
|
||||
|
|
||||
|
Ending balance May 31, 2011
|
$ | 403 | ||
|
|
||||
106
Table of Contents
The following table provides a reconciliation of the changes in the pension and postretirement
healthcare plans’ benefit obligations and fair value of assets over the two-year period ended May
31, 2011 and a statement of the funded status as of May 31, 2011 and 2010 (in millions):
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
|
|
||||||||||||||||
|
Accumulated Benefit Obligation (“ABO”)
|
$ | 16,806 | $ | 14,041 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Changes in Projected Benefit Obligation (“PBO”) and
Accumulated Postretirement Benefit Obligation (“APBO”)
|
||||||||||||||||
|
PBO/APBO at the beginning of year
|
$ | 14,484 | $ | 11,050 | $ | 565 | $ | 433 | ||||||||
|
Service cost
|
521 | 417 | 31 | 24 | ||||||||||||
|
Interest cost
|
900 | 823 | 34 | 30 | ||||||||||||
|
Actuarial loss
|
1,875 | 2,607 | 44 | 102 | ||||||||||||
|
Benefits paid
|
(468 | ) | (391 | ) | (48 | ) | (45 | ) | ||||||||
|
Other
|
60 | (22 | ) | 22 | 21 | |||||||||||
|
|
||||||||||||||||
|
PBO/APBO at the end of year
|
$ | 17,372 | $ | 14,484 | $ | 648 | $ | 565 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Change in Plan Assets
|
||||||||||||||||
|
Fair value of plan assets at the beginning of year
|
$ | 13,295 | $ | 10,812 | $ | — | $ | — | ||||||||
|
Actual return on plan assets
|
2,425 | 1,994 | — | — | ||||||||||||
|
Company contributions
|
557 | 900 | 26 | 24 | ||||||||||||
|
Benefits paid
|
(468 | ) | (391 | ) | (48 | ) | (45 | ) | ||||||||
|
Other
|
32 | (20 | ) | 22 | 21 | |||||||||||
|
|
||||||||||||||||
|
Fair value of plan assets at the end of year
|
$ | 15,841 | $ | 13,295 | $ | — | $ | — | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Funded Status of the Plans
|
$ | (1,531 | ) | $ | (1,189 | ) | $ | (648 | ) | $ | (565 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Amount Recognized in the Balance Sheet at May 31:
|
||||||||||||||||
|
Current pension, postretirement healthcare and other
benefit obligations
|
$ | (33 | ) | $ | (30 | ) | $ | (31 | ) | $ | (28 | ) | ||||
|
Noncurrent pension, postretirement healthcare and other
benefit obligations
|
(1,498 | ) | (1,159 | ) | (617 | ) | (537 | ) | ||||||||
|
|
||||||||||||||||
|
Net amount recognized
|
$ | (1,531 | ) | $ | (1,189 | ) | $ | (648 | ) | $ | (565 | ) | ||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost:
|
||||||||||||||||
|
Net actuarial loss (gain)
|
$ | 5,386 | $ | 5,157 | $ | (85 | ) | $ | (134 | ) | ||||||
|
Prior service (credit) cost and other
|
(993 | ) | (1,106 | ) | 2 | 2 | ||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 4,393 | $ | 4,051 | $ | (83 | ) | $ | (132 | ) | ||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Amounts Recognized in AOCI and not yet reflected in
Net Periodic Benefit Cost expected to be amortized in
next year’s Net Periodic Benefit Cost:
|
||||||||||||||||
|
Net actuarial loss (gain)
|
$ | 307 | $ | 284 | $ | (1 | ) | $ | (5 | ) | ||||||
|
Prior
service credit and other
|
(112 | ) | (113 | ) | — | — | ||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 195 | $ | 171 | $ | (1 | ) | $ | (5 | ) | ||||||
|
|
||||||||||||||||
107
Table of Contents
Our pension plans included the following components at May 31, 2011 and 2010 (in millions):
| Fair Value of | ||||||||||||||||
| ABO | PBO | Plan Assets | Funded Status | |||||||||||||
|
2011
|
||||||||||||||||
|
Qualified
|
$ | 16,024 | $ | 16,445 | $ | 15,518 | $ | (927 | ) | |||||||
|
Nonqualified
|
335 | 339 | — | (339 | ) | |||||||||||
|
International Plans
|
447 | 588 | 323 | (265 | ) | |||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 16,806 | $ | 17,372 | $ | 15,841 | $ | (1,531 | ) | |||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
2010
|
||||||||||||||||
|
Qualified
|
$ | 13,311 | $ | 13,635 | $ | 13,055 | $ | (580 | ) | |||||||
|
Nonqualified
|
346 | 348 | — | (348 | ) | |||||||||||
|
International Plans
|
384 | 501 | 240 | (261 | ) | |||||||||||
|
|
||||||||||||||||
|
Total
|
$ | 14,041 | $ | 14,484 | $ | 13,295 | $ | (1,189 | ) | |||||||
|
|
||||||||||||||||
The table above provides the ABO, PBO, fair value of plan assets and funded status of our pension
plans on an aggregated basis. The following table presents our plans on a disaggregated basis to
show those plans (as a group) whose assets did not exceed their liabilities. These plans are
comprised of our unfunded nonqualified plans, certain international plans and our U.S. Pension Plans.
At May 31, 2011 and 2010, the fair value of plan assets for pension plans with a PBO or ABO in
excess of plan assets were as follows (in millions):
| PBO Exceeds the Fair Value | ||||||||
| of Plan Assets | ||||||||
| 2011 | 2010 | |||||||
|
Pension Benefits
|
||||||||
|
Fair value of plan assets
|
$ | 15,815 | $ | 13,295 | ||||
|
PBO
|
(17,346 | ) | (14,484 | ) | ||||
|
|
||||||||
|
Net funded status
|
$ | (1,531 | ) | $ | (1,189 | ) | ||
|
|
||||||||
| ABO Exceeds the Fair Value | ||||||||
| of Plan Assets | ||||||||
| 2011 | 2010 | |||||||
|
Pension Benefits
|
||||||||
|
ABO
(1)
|
$ | (16,530 | ) | $ | (14,014 | ) | ||
|
|
||||||||
|
Fair value of plan assets
|
15,538 | 13,263 | ||||||
|
PBO
|
(17,014 | ) | (14,441 | ) | ||||
|
|
||||||||
|
Net funded status
|
$ | (1,476 | ) | $ | (1,178 | ) | ||
|
|
||||||||
| (1) | ABO not used in determination of funded status. |
108
Table of Contents
Contributions to our U.S. Pension Plans for the years ended May 31 were as follows (in millions):
| 2011 | 2010 | |||||||
|
|
||||||||
|
Required
|
$ | 359 | $ | 353 | ||||
|
Voluntary
|
121 | 495 | ||||||
|
|
||||||||
|
|
$ | 480 | $ | 848 | ||||
|
|
||||||||
Net periodic benefit cost for the three years ended May 31 were as follows (in millions):
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Service cost
|
$ | 521 | $ | 417 | $ | 499 | $ | 31 | $ | 24 | $ | 31 | ||||||||||||
|
Interest cost
|
900 | 823 | 798 | 34 | 30 | 33 | ||||||||||||||||||
|
Expected return on plan assets
|
(1,062 | ) | (955 | ) | (1,059 | ) | — | — | — | |||||||||||||||
|
Recognized actuarial losses (gains) and other
|
184 | 23 | (61 | ) | (5 | ) | (12 | ) | (7 | ) | ||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Net periodic benefit cost
|
$ | 543 | $ | 308 | $ | 177 | $ | 60 | $ | 42 | $ | 57 | ||||||||||||
|
|
||||||||||||||||||||||||
The increase in pension costs from 2010 to 2011 was due to a significantly lower discount rate used
to measure our benefit obligations at our May 31, 2010 measurement date.
Amounts recognized in OCI for all plans were as follows (in millions):
| 2011 | 2010 | |||||||||||||||||||||||||||||||
| Postretirement Healthcare | Postretirement Healthcare | |||||||||||||||||||||||||||||||
| Pension Plans | Plans | Pension Plans | Plans | |||||||||||||||||||||||||||||
| Gross | Net of Tax | Gross | Net of Tax | Gross | Net of Tax | Gross | Net of Tax | |||||||||||||||||||||||||
| Amount | Amount | Amount | Amount | Amount | Amount | Amount | Amount | |||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Net loss and other
arising during period
|
$ | 511 | $ | 321 | $ | 44 | $ | 26 | $ | 1,562 | $ | 986 | $ | 102 | $ | 59 | ||||||||||||||||
|
Loss from settlements
and curtailments
|
(13 | ) | (8 | ) | — | — | — | — | — | — | ||||||||||||||||||||||
|
Amortizations:
|
||||||||||||||||||||||||||||||||
|
Prior services credit
|
113 | 71 | — | — | 113 | 99 | — | — | ||||||||||||||||||||||||
|
Actuarial (losses) gains
and other
|
(284 | ) | (178 | ) | 5 | 3 | (130 | ) | (114 | ) | 12 | 12 | ||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
Total recognized in OCI
|
$ | 327 | $ | 206 | $ | 49 | $ | 29 | $ | 1,545 | $ | 971 | $ | 114 | $ | 71 | ||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Benefit payments, which reflect expected future service, are expected to be paid as follows for the years ending May 31 (millions):
| Postretirement | ||||||||
| Pension Plans | Healthcare Plans | |||||||
|
2012
|
$ | 562 | $ | 31 | ||||
|
2013
|
633 | 31 | ||||||
|
2014
|
694 | 33 | ||||||
|
2015
|
754 | 35 | ||||||
|
2016
|
843 | 37 | ||||||
|
2017-2021
|
5,667 | 225 | ||||||
109
Table of Contents
These estimates are based on assumptions about future events. Actual benefit payments may vary
significantly from these estimates.
Future medical benefit claims costs are estimated to increase at an annual rate of 8.3% during
2012, decreasing to an annual growth rate of 4.5% in 2029 and thereafter. Future dental benefit
costs are estimated to increase at an annual rate of 7.0% during 2012, decreasing to an annual
growth rate of 4.5% in 2029 and thereafter. A 1% change in these annual trend rates would not have
a significant impact on the APBO at May 31, 2011 or 2011 benefit expense because the level of these
benefits is capped.
NOTE 13: BUSINESS SEGMENT INFORMATION
FedEx Express, FedEx Ground and FedEx Freight represent our major service lines and, along with
FedEx Services, form the core of our reportable segments. Our reportable segments include the
following businesses:
|
FedEx Express Segment
|
FedEx Express (express transportation) | |
|
|
FedEx Trade Networks (global trade services) | |
|
|
FedEx SupplyChain Systems (logistics services) | |
|
|
||
|
FedEx Ground Segment
|
FedEx Ground (small-package ground delivery) | |
|
|
FedEx SmartPost (small-parcel consolidator) | |
|
|
||
|
FedEx Freight Segment
|
FedEx Freight (LTL freight transportation) | |
|
|
FedEx Custom Critical (time-critical transportation) | |
|
|
||
|
FedEx Services Segment
|
FedEx Services (sales, marketing and information technology functions) | |
|
|
FedEx TechConnect (customer service, technical support, billings and collections) | |
|
|
FedEx Office (document and business services and package acceptance) |
Effective January 30, 2011, our FedEx Freight and FedEx National LTL businesses were merged into a
single operation. FedEx Freight now offers two standard services: FedEx Freight Priority, a
faster transit service with a price premium; and FedEx Freight Economy, an economical service.
FedEx Services Segment
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FedEx TechConnect, which is responsible for customer service, technical support,
billings and collections for U.S. customers of our major business units; and FedEx Office, which
provides an array of document and business services and retail access to our customers for our
package transportation businesses. Effective September 1, 2009, FedEx SupplyChain Systems,
formerly included in the FedEx Services reporting segment, was realigned to become part of the
FedEx Express reporting segment. Prior year amounts have not been reclassified to conform to the
current year segment presentation because these reclassifications are immaterial.
110
Table of Contents
The FedEx Services segment provides direct and indirect support to our transportation businesses,
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office)
to reflect the full cost of operating our transportation businesses in the results of those
segments. Within the FedEx Services segment allocation, the net operating results of FedEx Office
are allocated to FedEx Express and FedEx Ground. The allocations of net operating costs are based
on metrics such as relative revenues or estimated services provided. We believe these allocations
approximate the net cost of providing these functions. We review and evaluate the performance of
our transportation segments based on operating income (inclusive of FedEx Services segment
allocations). For the FedEx Services segment, performance is evaluated based on the impact of its
total allocated net operating costs on our transportation segments.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial
summaries of our transportation segments in MD&A reflects the allocations from the FedEx Services segment to the
respective transportation segments. The “Intercompany charges” caption also includes charges and
credits for administrative services provided between operating companies and certain other costs
such as corporate management fees related to services received for general corporate oversight,
including executive officers and certain legal and finance functions. We believe these allocations
approximate the net cost of providing these functions.
Effective August 1, 2009, approximately 3,600 employees (predominantly from the FedEx Freight
segment) were transferred to entities within the FedEx Services segment. This internal
reorganization further centralized most customer support functions, such as sales, customer service
and information technology, into our shared services organizations. While the reorganization had
no impact on the net operating results of any of our transportation segments, the net intercompany
charges to our FedEx Freight segment increased significantly with corresponding decreases to other
expense captions, such as salaries and employee benefits. The impact of this internal
reorganization to the expense captions in our other segments was immaterial.
Other Intersegment Transactions
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in our consolidated results and are not separately identified
in the following segment information, as the amounts are not material.
111
Table of Contents
The following table provides a reconciliation of reportable segment revenues, depreciation and
amortization, operating income (loss) and segment assets to consolidated financial statement totals
for the years ended or as of May 31 (in millions):
| FedEx | FedEx | FedEx | FedEx | |||||||||||||||||||||
| Express | Ground | Freight | Services | Other and | Consolidated | |||||||||||||||||||
| Segment (1) | Segment | Segment (2) | Segment (3) | Eliminations | Total | |||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Revenues
|
||||||||||||||||||||||||
|
2011
|
$ | 24,581 | $ | 8,485 | $ | 4,911 | $ | 1,684 | $ | (357 | ) | $ | 39,304 | |||||||||||
|
2010
|
21,555 | 7,439 | 4,321 | 1,770 | (351 | ) | 34,734 | |||||||||||||||||
|
2009
|
22,364 | 7,047 | 4,415 | 1,977 | (306 | ) | 35,497 | |||||||||||||||||
|
Depreciation and amortization
|
||||||||||||||||||||||||
|
2011
|
$ | 1,059 | $ | 337 | $ | 205 | $ | 371 | $ | 1 | $ | 1,973 | ||||||||||||
|
2010
|
1,016 | 334 | 198 | 408 | 2 | 1,958 | ||||||||||||||||||
|
2009
|
961 | 337 | 224 | 451 | 2 | 1,975 | ||||||||||||||||||
|
Operating income (loss)
|
||||||||||||||||||||||||
|
2011
|
$ | 1,228 | $ | 1,325 | $ | (175 | ) | $ | — | $ | — | $ | 2,378 | |||||||||||
|
2010
|
1,127 | 1,024 | (153 | ) | — | — | 1,998 | |||||||||||||||||
|
2009
|
794 | 807 | (44 | ) | (810 | ) | — | 747 | ||||||||||||||||
|
Segment assets
(4)
|
||||||||||||||||||||||||
|
2011
|
$ | 16,463 | $ | 5,048 | $ | 2,664 | $ | 4,278 | $ | (1,068 | ) | $ | 27,385 | |||||||||||
|
2010
|
14,819 | 4,118 | 2,786 | 4,079 | (900 | ) | 24,902 | |||||||||||||||||
|
2009
|
13,483 | 3,291 | 3,044 | 3,240 | 1,186 | 24,244 | ||||||||||||||||||
| (1) | FedEx Express segment 2011 operating expenses include a $66 million legal reserve associated with the ATA Airlines lawsuit, and 2009 operating expenses include a charge of $260 million primarily for aircraft-related asset impairments. | |
| (2) | FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011, and 2009 operating expenses include a charge of $100 million primarily for impairment charges associated with goodwill related to the FedEx National LTL acquisition. | |
| (3) | FedEx Services segment 2009 operating expenses include a charge of $810 million for impairment of goodwill related to the Kinko’s (now known as FedEx Office) acquisition. The normal, ongoing net operating costs of the FedEx Services segment are allocated back to the transportation segments. | |
| (4) | Segment assets include intercompany receivables. |
The following table provides a reconciliation of reportable segment capital expenditures to consolidated totals for the years ended May 31 (in millions):
| FedEx | FedEx | FedEx | FedEx | |||||||||||||||||||||
| Express | Ground | Freight | Services | Consolidated | ||||||||||||||||||||
| Segment | Segment | Segment | Segment | Other | Total | |||||||||||||||||||
|
2011
|
$ | 2,467 | $ | 426 | $ | 153 | $ | 387 | $ | 1 | $ | 3,434 | ||||||||||||
|
2010
|
1,864 | 400 | 212 | 340 | — | 2,816 | ||||||||||||||||||
|
2009
|
1,348 | 636 | 240 | 235 | — | 2,459 | ||||||||||||||||||
112
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The following table presents revenue by service type and geographic information for the years ended or as of May 31 (in millions):
| 2011 | 2010 | 2009 | ||||||||||
|
|
||||||||||||
|
REVENUE BY SERVICE TYPE
|
||||||||||||
|
|
||||||||||||
|
FedEx Express segment:
|
||||||||||||
|
Package:
|
||||||||||||
|
U.S. overnight box
|
$ | 6,128 | $ | 5,602 | $ | 6,074 | ||||||
|
U.S. overnight envelope
|
1,736 | 1,640 | 1,855 | |||||||||
|
U.S. deferred
|
2,805 | 2,589 | 2,789 | |||||||||
|
|
||||||||||||
|
Total domestic package revenue
|
10,669 | 9,831 | 10,718 | |||||||||
|
International Priority (IP)
|
8,228 | 7,087 | 6,978 | |||||||||
|
International domestic
(1)
|
653 | 578 | 565 | |||||||||
|
|
||||||||||||
|
Total package revenue
|
19,550 | 17,496 | 18,261 | |||||||||
|
|
||||||||||||
|
Freight:
|
||||||||||||
|
U.S.
|
2,188 | 1,980 | 2,165 | |||||||||
|
International priority
|
1,722 | 1,303 | 1,104 | |||||||||
|
International airfreight
|
283 | 251 | 369 | |||||||||
|
|
||||||||||||
|
Total freight revenue
|
4,193 | 3,534 | 3,638 | |||||||||
|
|
||||||||||||
|
Other
(2)
|
838 | 525 | 465 | |||||||||
|
|
||||||||||||
|
Total FedEx Express segment
|
24,581 | 21,555 | 22,364 | |||||||||
|
|
||||||||||||
|
FedEx Ground segment
|
8,485 | 7,439 | 7,047 | |||||||||
|
FedEx Freight segment
|
4,911 | 4,321 | 4,415 | |||||||||
|
FedEx Services segment
|
1,684 | 1,770 | 1,977 | |||||||||
|
Other and eliminations
|
(357 | ) | (351 | ) | (306 | ) | ||||||
|
|
||||||||||||
|
|
$ | 39,304 | $ | 34,734 | $ | 35,497 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
GEOGRAPHICAL INFORMATION
(3)
|
||||||||||||
|
|
||||||||||||
|
Revenues:
|
||||||||||||
|
U.S.
|
$ | 27,461 | $ | 24,852 | $ | 25,819 | ||||||
|
International:
|
||||||||||||
|
FedEx Express segment
|
11,437 | 9,547 | 9,363 | |||||||||
|
FedEx Ground segment
|
177 | 140 | 124 | |||||||||
|
FedEx Freight segment
|
84 | 60 | 39 | |||||||||
|
FedEx Services segment
|
145 | 135 | 152 | |||||||||
|
|
||||||||||||
|
Total international revenue
|
11,843 | 9,882 | 9,678 | |||||||||
|
|
||||||||||||
|
|
||||||||||||
|
|
$ | 39,304 | $ | 34,734 | $ | 35,497 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Noncurrent assets:
|
||||||||||||
|
U.S.
|
$ | 17,235 | $ | 16,089 | $ | 15,615 | ||||||
|
International
|
1,865 | 1,529 | 1,513 | |||||||||
|
|
||||||||||||
|
|
$ | 19,100 | $ | 17,618 | $ | 17,128 | ||||||
|
|
||||||||||||
| (1) | International domestic revenues include our international intra-country domestic express operations. | |
| (2) | Other revenues includes FedEx Trade Networks and, beginning in the second quarter of 2010, FedEx SupplyChain Systems. | |
| (3) | International revenue includes shipments that either originate in or are destined to locations outside the United States. Noncurrent assets include property and equipment, goodwill and other long-term assets. Our flight equipment registered in the U.S. is included as U.S. assets; however, many of our aircraft operate internationally. |
113
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NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in
millions):
| 2011 | 2010 | 2009 | ||||||||||
|
Cash payments for:
|
||||||||||||
|
Interest (net of capitalized interest)
|
$ | 93 | $ | 88 | $ | 61 | ||||||
|
|
||||||||||||
|
|
||||||||||||
|
Income taxes
|
$ | 493 | $ | 322 | $ | 517 | ||||||
|
Income tax refunds received
|
(106 | ) | (279 | ) | (8 | ) | ||||||
|
|
||||||||||||
|
Cash tax payments, net
|
$ | 387 | $ | 43 | $ | 509 | ||||||
|
|
||||||||||||
NOTE 15: GUARANTEES AND INDEMNIFICATIONS
In conjunction with certain transactions, primarily the lease, sale or purchase of operating assets
or services in the ordinary course of business, we may provide routine guarantees or
indemnifications (e.g., environmental, fuel, tax and software infringement), the terms of which
range in duration, and often they are not limited and have no specified maximum obligation. As a
result, the overall maximum potential amount of the obligation under such guarantees and
indemnifications cannot be reasonably estimated. Historically, we have not been required to make
significant payments under our guarantee or indemnification obligations and no amounts have been
recognized in our financial statements for the underlying fair value of these obligations.
Special facility revenue bonds have been issued by certain municipalities primarily to finance the
acquisition and construction of various airport facilities and equipment. These facilities were
leased to us and are accounted for as either capital leases or operating leases. FedEx Express has
unconditionally guaranteed $667 million in principal of these bonds (with total future principal
and interest payments of approximately $886 million as of May 31, 2011) through these leases. Of
the $667 million bond principal guaranteed, $116 million was included in capital lease obligations
in our balance sheet at May 31, 2011. The remaining $551 million has been accounted for as
operating leases.
NOTE 16: COMMITMENTS
Annual purchase commitments under various contracts as of May 31, 2011 were as follows (in
millions):
| Aircraft and | Facilities | |||||||||||
| Aircraft Related | and Other (1) | Total | ||||||||||
|
|
||||||||||||
|
2012
|
$ | 1,480 | $ | 918 | $ | 2,398 | ||||||
|
2013
|
1,086 | 105 | 1,191 | |||||||||
|
2014
|
781 | 43 | 824 | |||||||||
|
2015
|
569 | 30 | 599 | |||||||||
|
2016
|
584 | 11 | 595 | |||||||||
|
Thereafter
|
1,470 | 132 | 1,602 | |||||||||
| (1) | Primarily vehicles, facilities, advertising and promotions contracts. |
The amounts reflected in the table above for purchase commitments represent noncancelable
agreements to purchase goods or services. Our obligation to purchase
15 of these B777F aircraft is conditioned upon there being no event that causes FedEx Express or
its employees not to be covered by the Railway Labor Act of 1926, as amended. Commitments to
purchase aircraft in passenger configuration do not include the attendant costs to modify these
aircraft for cargo transport unless we have entered into noncancelable
commitments to modify such aircraft. Open purchase orders that are cancelable are not considered
unconditional purchase obligations for financial reporting purposes and are not included in the
table above.
114
Table of Contents
We had $604 million in deposits and progress payments as of May 31, 2011 (an increase of $167
million from May 31, 2010) on aircraft purchases and other planned aircraft-related transactions.
These deposits are classified in the “Other assets” caption of our consolidated balance sheets. In
addition to our commitment to purchase B777Fs, our aircraft purchase commitments include the Boeing
757 (“B757”) in passenger configuration, which will require additional costs to modify for cargo
transport. Aircraft and aircraft-related contracts are subject to price escalations. The following
table is a summary of the number and type of aircraft we are committed to purchase as of May 31,
2011, with the year of expected delivery:
| B757 | B777F | Total | ||||||||||
|
|
||||||||||||
|
2012
|
16 | 7 | 23 | |||||||||
|
2013
|
4 | 6 | 10 | |||||||||
|
2014
|
— | 7 | 7 | |||||||||
|
2015
|
— | 3 | 3 | |||||||||
|
2016
|
— | 3 | 3 | |||||||||
|
Thereafter
|
— | 7 | 7 | |||||||||
|
|
||||||||||||
|
Total
|
20 | 33 | 53 | |||||||||
|
|
||||||||||||
NOTE 17: CONTINGENCIES
Wage-and-Hour.
We are a defendant in a number of lawsuits containing various class-action
allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work “off the clock,” were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages,
injunctive relief, or both. The following describes the wage-and-hour matters that have been
certified as class actions.
In September 2008, in
Tidd v. Adecco USA, Kelly Services and FedEx Ground
, a Massachusetts federal
court conditionally certified a class limited to individuals who were employed by two temporary
employment agencies and who worked as temporary pickup-and-delivery drivers for FedEx Ground in
the New England region within the past three years. Potential claimants must voluntarily “opt in”
to the lawsuit in order to be considered part of the class. In addition, in the same opinion, the
court granted summary judgment in favor of FedEx Ground with respect to the plaintiffs’ claims for
unpaid overtime wages. The court has since granted judgment in favor of the other two defendants
with respect to the overtime claims. Accordingly, the conditionally certified class of plaintiffs
was limited to a claim of failure to pay minimum wage due under the federal Fair Labor Standards
Act. During the fourth quarter of fiscal 2011, FedEx Ground reached an agreement to settle this
action for an immaterial amount.
In September 2009, in
Taylor v. FedEx Freight
, a California state court granted class
certification, certifying a class of all current and former drivers employed by FedEx Freight in
California who performed linehaul services since June 2003. The plaintiffs alleged, among other
things, that they were forced to work “off the clock” and were not provided with required rest or
meal breaks. We entered into a tentative settlement agreement with the plaintiffs in June 2011 for
an immaterial amount, and the court’s hearing to approve the settlement is anticipated to occur
during the first half of fiscal 2012.
In April 2009, in
Bibo v. FedEx Express
, a California federal court granted class certification,
certifying several subclasses of FedEx Express couriers in California from April 14, 2006 (the date
of the settlement of the
Foster
class action) to the present. The plaintiffs allege that FedEx
Express violated California wage-and-hour laws after the date of the
Foster
settlement. In
particular, the plaintiffs allege, among other things, that they were forced to work “off the
clock” and were not provided with required meal breaks or split-shift premiums. The U.S. Court of
Appeals for the Ninth Circuit has refused to accept a discretionary appeal of the class
certification order at this
time. In April 2011, the court granted our motion for partial summary judgment regarding the
proper method for calculating a split-shift premium, effectively eliminating the certified subclass
for split-shift premiums. Although the claims for alleged off-the-clock work and missed meal
periods are still pending, we do not believe that a material loss is reasonably possible with
respect to these remaining claims. We have denied any liability and intend to vigorously defend
ourselves in this matter.
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Table of Contents
Independent Contractor — Lawsuits and State Administrative Proceedings.
FedEx Ground is involved
in numerous class-action lawsuits (including 30 that have been certified as class actions),
individual lawsuits and state tax and other administrative proceedings that claim that the
company’s owner-operators should be treated as employees, rather than independent contractors.
Most of the class-action lawsuits were consolidated for administration of the pre-trial proceedings
by a single federal court, the U.S. District Court for the Northern District of Indiana. The
multidistrict litigation court granted class certification in 28 cases and denied it in 14 cases.
On December 13, 2010, the court entered an opinion and order addressing all outstanding motions for
summary judgment on the status of the owner-operators (
i.e.,
independent contractor vs. employee).
In sum, the court has now ruled on our summary judgment motions and entered judgment in favor of
FedEx Ground on all claims in 20 of the 28 multidistrict litigation cases that had been certified
as class actions, finding that the owner-operators in those cases were contractors as a matter of
the law of the following states: Alabama, Arizona, Georgia, Indiana, Kansas (the court previously
dismissed without prejudice the nationwide class claim under the Employee Retirement Income
Security Act of 1974 based on the plaintiffs’ failure to exhaust administrative remedies),
Louisiana, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode
Island, South Carolina, Tennessee, Texas, Utah, West Virginia and Wisconsin. The plaintiffs filed
notices of appeal in all of these 20 cases.
In the other eight certified class actions in the multidistrict litigation, the court ruled in
favor of FedEx Ground on some of the claims and against FedEx Ground on at least one claim in three
of the cases (filed in Kentucky, Nevada and New Hampshire) and then remanded all eight cases back
to district court in the following states for resolution of the remaining claims: Arkansas,
California, Florida, Kentucky, Nevada, New Hampshire and Oregon (two certified classes). In
January 2011, we asked the court to issue final judgments in these eight cases, and the court
denied our motion. In July 2011, we filed a petition for mandamus to the Seventh Circuit asking the
appeals court to require these cases to be returned to the multidistrict litigation court for issuance
of a final judgment so that all appeals of the December 2010 summary judgment rulings would be heard
by the Seventh Circuit.
In January 2008, one of the contractor-model lawsuits that is not part of the multidistrict
litigation,
Anfinson v. FedEx Ground
, was certified as a class action by a Washington state court.
The plaintiffs in
Anfinson
represent a class of single-route, pickup-and-delivery owner-operators
in Washington from December 21, 2001 through December 31, 2005 and allege that the class members
should be reimbursed as employees for their uniform expenses and should receive overtime pay. In
March 2009, a jury trial in the
Anfinson
case was held, and the jury returned a verdict in favor of
FedEx Ground, finding that all 320 class members were independent contractors, not employees. The
plaintiffs appealed the verdict. In December 2010, the Washington Court of Appeals reversed and
remanded for further proceedings, including a new trial. We filed a motion to reconsider, and this
motion was denied. In March 2011, we filed a discretionary appeal with the Washington Supreme
Court.
In August 2010, another one of the contractor-model lawsuits that is not part of the multidistrict
litigation,
Rascon v. FedEx Ground
, was certified as a class action by a Colorado state court. The
plaintiff in
Rascon
represents a class of single-route, pickup-and-delivery owner-operators in
Colorado who drove vehicles weighing less than 10,001 pounds at any time from August 27, 2005
through the present. The lawsuit seeks unpaid overtime compensation, and related penalties and
attorneys’ fees and costs, under Colorado law. Our applications for appeal challenging this class
certification decision have been rejected.
Other contractor-model cases that are not or are no longer part of the multidistrict litigation are
in varying stages of litigation.
116
Table of Contents
With respect to the state administrative proceedings relating to the classification of FedEx
Ground’s owner-operators as independent contractors, during the second quarter of 2011, the
attorneys general in New York and Kentucky each filed lawsuits against FedEx Ground challenging the
validity of the contractor model.
While the granting of summary judgment in favor of FedEx Ground by the multidistrict litigation
court in 20 of the 28 cases that had been certified as class actions remains subject to appeal, we
believe that it significantly improves the likelihood that our independent contractor model will be
upheld. Adverse determinations in the remaining matters related to FedEx Ground’s independent
contractors, however, could, among other things, entitle certain of our contractors and their
drivers to the reimbursement of certain expenses and to the benefit of wage-and-hour laws and
result in employment and withholding tax and benefit liability for FedEx Ground, and could result
in changes to the independent contractor status of FedEx Ground’s owner-operators in certain
jurisdictions. We believe that FedEx Ground’s owner-operators are properly classified as
independent contractors and that FedEx Ground is not an employer of the drivers of the company’s
independent contractors.
While it is reasonably possible that potential loss in some of these
lawsuits or such changes to the independent contractor status of FedEx Ground’s owner-operators
could be material, we cannot yet determine the amount or reasonable range of potential loss. A
number of factors contribute to this. The number of plaintiffs in these lawsuits continues to
change, with some being dismissed and others being added and, as to new plaintiffs, no discovery
has been conducted. In addition, the parties have not yet conducted any discovery into damages,
which could vary considerably from plaintiff to plaintiff. Further, the range of potential loss
could be impacted considerably by future rulings on the merits of certain claims and FedEx Ground’s
various defenses, and on evidentiary issues. In any event, we do not believe that a material loss
is probable in these matters.
ATA Airlines.
In October 2010, a jury returned a verdict in favor of ATA Airlines in its lawsuit
against FedEx Express and awarded damages of $66 million, and in January 2011, the court awarded
ATA pre-judgment interest of $5 million. The suit was filed in Indiana federal court and alleged
that we had breached a contract by not including ATA on our 2009 Civil Reserve Air Fleet (CRAF)/Air
Mobility Command (AMC) team, which provides cargo and passenger service to the U.S. military.
While we do not agree with the verdict or the amount of damages awarded and have appealed the
matter to the U.S. Court of Appeals for the Seventh Circuit, accounting standards required an
accrual of a $66 million loss in the second quarter of 2011. We did not accrue the $5 million of
interest as a loss because we have additional arguments on appeal that lead us to believe that loss
of that amount is not probable.
California
Paystub Class Action
. A federal court in California ruled in April 2011 that paystubs
for certain FedEx Express employees in California did not meet that state’s requirements to reflect
pay period begin date, total overtime hours worked and the correct overtime wage rate. The ruling
came in a class action lawsuit filed by a former courier seeking damages on behalf of herself and
all other FedEx Express employees in California that allegedly received noncompliant paychecks.
The court certified the class in June 2011. The court has ruled that FedEx Express is liable to
the State of California, and there will be a ruling as to whether FedEx Express is liable to class
members who can prove they were injured by the paystub deficiencies. The judge has not yet decided
on the amount, if any, of liability to the State of California or to the class, but has wide
discretion. A material loss in this matter is reasonably possible but not estimable because both
the number of class members and the amount, if any, to which some class members may be entitled is
uncertain, and in ruling the judge may consider some or all of the following: whether employees
suffered injury; whether remedial action was undertaken; whether there was knowledge of any
violation; whether any violation was intentional; and whether any award would be unjust under the
circumstances.
Other.
FedEx and its subsidiaries are subject to other legal proceedings that arise in the
ordinary course of their business. In the opinion of management, the aggregate liability, if any,
with respect to these other actions will not have a material adverse effect on our financial
position, results of operations or cash flows.
NOTE 18: RELATED PARTY TRANSACTIONS
Our Chairman, President and Chief Executive Officer, Frederick W. Smith, currently holds an
approximate 10% ownership interest in the National Football League Washington Redskins professional
football team (“Redskins”) and is a member of its board of directors. FedEx has a multi-year
naming rights agreement with the Redskins granting us certain marketing rights, including the right
to name the Redskins’ stadium “FedExField.”
117
Table of Contents
NOTE 19: SUMMARY OF QUARTERLY OPERATING RESULTS
(UNAUDITED)
| First | Second | Third | Fourth | |||||||||||||
| (in millions, except per share amounts) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
|
|
||||||||||||||||
|
2011
|
||||||||||||||||
|
Revenues
|
$ | 9,457 | $ | 9,632 | $ | 9,663 | $ | 10,552 | ||||||||
|
Operating income
|
628 | 469 | 393 | 888 | ||||||||||||
|
Net income
|
380 | 283 | 231 | 558 | ||||||||||||
|
Basic earnings per common share
(1)
|
1.21 | 0.90 | 0.73 | 1.76 | ||||||||||||
|
Diluted earnings per common share
|
1.20 | 0.89 | 0.73 | 1.75 | ||||||||||||
|
|
||||||||||||||||
|
2010
|
||||||||||||||||
|
Revenues
|
$ | 8,009 | $ | 8,596 | $ | 8,701 | $ | 9,428 | ||||||||
|
Operating income
|
315 | 571 | 416 | 696 | ||||||||||||
|
Net income
|
181 | 345 | 239 | 419 | ||||||||||||
|
Basic earnings per common share
|
0.58 | 1.10 | 0.76 | 1.34 | ||||||||||||
|
Diluted earnings per common share
(1)
|
0.58 | 1.10 | 0.76 | 1.33 | ||||||||||||
| (1) | The sum of the quarterly earnings per share may not equal annual amounts due to differences in the weighted-average number of shares outstanding during the respective period. |
118
Table of Contents
NOTE 20: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
We are required to present condensed consolidating financial information in order for the
subsidiary guarantors (other than FedEx Express) of our public debt to continue to be exempt from
reporting under the Securities Exchange Act of 1934, as amended.
The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1 billion of our debt. The
guarantees are full and unconditional and joint and several. Our guarantor subsidiaries were not
determined using geographic, service line or other similar criteria, and as a result, the
“Guarantor Subsidiaries” and “Non-guarantor Subsidiaries” columns each include portions of our domestic and international
operations. Accordingly, this basis of presentation is not intended to present our financial
condition, results of operations or cash flows for any purpose other than to comply with the
specific requirements for subsidiary guarantor reporting.
119
Table of Contents
Condensed consolidating financial statements for our guarantor subsidiaries and non-guarantor
subsidiaries are presented in the following tables (in millions):
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2011
May 31, 2011
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,589 | $ | 279 | $ | 546 | $ | (86 | ) | $ | 2,328 | |||||||||
|
Receivables, less allowances
|
— | 3,696 | 912 | (27 | ) | 4,581 | ||||||||||||||
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances
|
77 | 645 | 44 | — | 766 | |||||||||||||||
|
Deferred income taxes
|
— | 598 | 12 | — | 610 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
1,666 | 5,218 | 1,514 | (113 | ) | 8,285 | ||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
24 | 31,916 | 1,746 | — | 33,686 | |||||||||||||||
|
Less accumulated depreciation and amortization
|
18 | 17,071 | 1,054 | — | 18,143 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net property and equipment
|
6 | 14,845 | 692 | — | 15,543 | |||||||||||||||
|
|
||||||||||||||||||||
|
INTERCOMPANY RECEIVABLE
|
— | — | 1,317 | (1,317 | ) | — | ||||||||||||||
|
GOODWILL
|
— | 1,564 | 762 | — | 2,326 | |||||||||||||||
|
INVESTMENT IN SUBSIDIARIES
|
15,404 | 2,705 | — | (18,109 | ) | — | ||||||||||||||
|
OTHER ASSETS
|
1,652 | 1,039 | 63 | (1,523 | ) | 1,231 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 18,728 | $ | 25,371 | $ | 4,348 | $ | (21,062 | ) | $ | 27,385 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Current portion of long-term debt
|
$ | — | $ | 18 | $ | — | $ | — | $ | 18 | ||||||||||
|
Accrued salaries and employee benefits
|
50 | 1,071 | 147 | — | 1,268 | |||||||||||||||
|
Accounts payable
|
— | 1,385 | 430 | (113 | ) | 1,702 | ||||||||||||||
|
Accrued expenses
|
198 | 1,563 | 133 | — | 1,894 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
248 | 4,037 | 710 | (113 | ) | 4,882 | ||||||||||||||
|
|
||||||||||||||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,000 | 667 | — | — | 1,667 | |||||||||||||||
|
INTERCOMPANY PAYABLE
|
1,095 | 222 | — | (1,317 | ) | — | ||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||||||||||||||
|
Deferred income taxes
|
— | 2,842 | 17 | (1,523 | ) | 1,336 | ||||||||||||||
|
Other liabilities
|
1,165 | 3,001 | 114 | — | 4,280 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other long-term liabilities
|
1,165 | 5,843 | 131 | (1,523 | ) | 5,616 | ||||||||||||||
|
|
||||||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT
|
15,220 | 14,602 | 3,507 | (18,109 | ) | 15,220 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 18,728 | $ | 25,371 | $ | 4,348 | $ | (21,062 | ) | $ | 27,385 | |||||||||
|
|
||||||||||||||||||||
120
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2010
May 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,310 | $ | 258 | $ | 443 | $ | (59 | ) | $ | 1,952 | |||||||||
|
Receivables, less allowances
|
1 | 3,425 | 782 | (45 | ) | 4,163 | ||||||||||||||
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances
|
5 | 581 | 54 | — | 640 | |||||||||||||||
|
Deferred income taxes
|
— | 492 | 37 | — | 529 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
1,316 | 4,756 | 1,316 | (104 | ) | 7,284 | ||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
23 | 29,193 | 2,086 | — | 31,302 | |||||||||||||||
|
Less accumulated depreciation and amortization
|
18 | 15,801 | 1,098 | — | 16,917 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net property and equipment
|
5 | 13,392 | 988 | — | 14,385 | |||||||||||||||
|
|
||||||||||||||||||||
|
INTERCOMPANY RECEIVABLE
|
— | — | 1,132 | (1,132 | ) | — | ||||||||||||||
|
GOODWILL
|
— | 1,551 | 649 | — | 2,200 | |||||||||||||||
|
INVESTMENT IN SUBSIDIARIES
|
13,850 | 2,619 | — | (16,469 | ) | — | ||||||||||||||
|
OTHER ASSETS
|
1,527 | 801 | 99 | (1,394 | ) | 1,033 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,698 | $ | 23,119 | $ | 4,184 | $ | (19,099 | ) | $ | 24,902 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Current portion of long-term debt
|
$ | 250 | $ | 12 | $ | — | $ | — | $ | 262 | ||||||||||
|
Accrued salaries and employee benefits
|
36 | 955 | 155 | — | 1,146 | |||||||||||||||
|
Accounts payable
|
8 | 1,196 | 422 | (104 | ) | 1,522 | ||||||||||||||
|
Accrued expenses
|
47 | 1,488 | 180 | — | 1,715 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
341 | 3,651 | 757 | (104 | ) | 4,645 | ||||||||||||||
|
|
||||||||||||||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,000 | 668 | — | — | 1,668 | |||||||||||||||
|
INTERCOMPANY PAYABLE
|
702 | 430 | — | (1,132 | ) | — | ||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||||||||||||||
|
Deferred income taxes
|
— | 2,253 | 32 | (1,394 | ) | 891 | ||||||||||||||
|
Other liabilities
|
844 | 2,921 | 122 | — | 3,887 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other long-term liabilities
|
844 | 5,174 | 154 | (1,394 | ) | 4,778 | ||||||||||||||
|
|
||||||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT
|
13,811 | 13,196 | 3,273 | (16,469 | ) | 13,811 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,698 | $ | 23,119 | $ | 4,184 | $ | (19,099 | ) | $ | 24,902 | |||||||||
|
|
||||||||||||||||||||
121
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2011
Year Ended May 31, 2011
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 33,124 | $ | 6,498 | $ | (318 | ) | $ | 39,304 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
109 | 13,206 | 1,961 | — | 15,276 | |||||||||||||||
|
Purchased transportation
|
— | 4,034 | 1,745 | (105 | ) | 5,674 | ||||||||||||||
|
Rentals and landing fees
|
4 | 2,209 | 253 | (4 | ) | 2,462 | ||||||||||||||
|
Depreciation and amortization
|
1 | 1,784 | 188 | — | 1,973 | |||||||||||||||
|
Fuel
|
— | 4,003 | 148 | — | 4,151 | |||||||||||||||
|
Maintenance and repairs
|
1 | 1,862 | 116 | — | 1,979 | |||||||||||||||
|
Impairment and other charges
|
— | 28 | 61 | — | 89 | |||||||||||||||
|
Intercompany charges, net
|
(222 | ) | (317 | ) | 539 | — | — | |||||||||||||
|
Other
|
107 | 4,392 | 1,032 | (209 | ) | 5,322 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 31,201 | 6,043 | (318 | ) | 36,926 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 1,923 | 455 | — | 2,378 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
1,452 | 200 | — | (1,652 | ) | — | ||||||||||||||
|
Interest, net
|
(88 | ) | 13 | (2 | ) | — | (77 | ) | ||||||||||||
|
Intercompany charges, net
|
104 | (135 | ) | 31 | — | — | ||||||||||||||
|
Other, net
|
(16 | ) | (14 | ) | (6 | ) | — | (36 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
1,452 | 1,987 | 478 | (1,652 | ) | 2,265 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 677 | 136 | — | 813 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 1,452 | $ | 1,310 | $ | 342 | $ | (1,652 | ) | $ | 1,452 | |||||||||
|
|
||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2010
Year Ended May 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 29,360 | $ | 5,700 | $ | (326 | ) | $ | 34,734 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
91 | 12,026 | 1,910 | — | 14,027 | |||||||||||||||
|
Purchased transportation
|
— | 3,424 | 1,392 | (88 | ) | 4,728 | ||||||||||||||
|
Rentals and landing fees
|
4 | 2,118 | 240 | (3 | ) | 2,359 | ||||||||||||||
|
Depreciation and amortization
|
1 | 1,751 | 206 | — | 1,958 | |||||||||||||||
|
Fuel
|
— | 2,946 | 160 | — | 3,106 | |||||||||||||||
|
Maintenance and repairs
|
1 | 1,589 | 125 | — | 1,715 | |||||||||||||||
|
Impairment and other charges
|
— | — | 18 | — | 18 | |||||||||||||||
|
Intercompany charges, net
|
(202 | ) | (109 | ) | 311 | — | — | |||||||||||||
|
Other
|
105 | 3,950 | 1,005 | (235 | ) | 4,825 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 27,695 | 5,367 | (326 | ) | 32,736 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 1,665 | 333 | — | 1,998 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
1,184 | 161 | — | (1,345 | ) | — | ||||||||||||||
|
Interest, net
|
(100 | ) | 41 | (12 | ) | — | (71 | ) | ||||||||||||
|
Intercompany charges, net
|
114 | (147 | ) | 33 | — | — | ||||||||||||||
|
Other, net
|
(14 | ) | (18 | ) | (1 | ) | — | (33 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
1,184 | 1,702 | 353 | (1,345 | ) | 1,894 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 625 | 85 | — | 710 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 1,184 | $ | 1,077 | $ | 268 | $ | (1,345 | ) | $ | 1,184 | |||||||||
|
|
||||||||||||||||||||
122
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Year Ended May 31, 2009
Year Ended May 31, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 29,923 | $ | 5,851 | $ | (277 | ) | $ | 35,497 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
82 | 11,483 | 2,202 | — | 13,767 | |||||||||||||||
|
Purchased transportation
|
— | 3,362 | 1,211 | (39 | ) | 4,534 | ||||||||||||||
|
Rentals and landing fees
|
4 | 2,134 | 296 | (5 | ) | 2,429 | ||||||||||||||
|
Depreciation and amortization
|
2 | 1,706 | 267 | — | 1,975 | |||||||||||||||
|
Fuel
|
— | 3,554 | 257 | — | 3,811 | |||||||||||||||
|
Maintenance and repairs
|
1 | 1,755 | 142 | — | 1,898 | |||||||||||||||
|
Impairment and other charges
|
— | 1,098 | 106 | — | 1,204 | |||||||||||||||
|
Intercompany charges, net
|
(193 | ) | 81 | 112 | — | — | ||||||||||||||
|
Other
|
104 | 4,198 | 1,063 | (233 | ) | 5,132 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 29,371 | 5,656 | (277 | ) | 34,750 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 552 | 195 | — | 747 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
98 | 103 | — | (201 | ) | — | ||||||||||||||
|
Interest, net
|
(73 | ) | 28 | (14 | ) | — | (59 | ) | ||||||||||||
|
Intercompany charges, net
|
90 | (118 | ) | 28 | — | — | ||||||||||||||
|
Other, net
|
(17 | ) | (3 | ) | 9 | — | (11 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
98 | 562 | 218 | (201 | ) | 677 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 514 | 65 | — | 579 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 98 | $ | 48 | $ | 153 | $ | (201 | ) | $ | 98 | |||||||||
|
|
||||||||||||||||||||
123
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2011
Year Ended May 31, 2011
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | 25 | $ | 3,978 | $ | 65 | $ | (27 | ) | $ | 4,041 | |||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
(1 | ) | (3,263 | ) | (170 | ) | — | (3,434 | ) | |||||||||||
|
Business
acquisition, net of cash acquired
|
— | (96 | ) | — | — | (96 | ) | |||||||||||||
|
Proceeds from asset dispositions and other
|
— | 110 | 1 | — | 111 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
(1 | ) | (3,249 | ) | (169 | ) | — | (3,419 | ) | |||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
530 | (994 | ) | 464 | — | — | ||||||||||||||
|
Payment on loan between subsidiaries
|
— | 235 | (235 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 61 | (61 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
(250 | ) | (12 | ) | — | — | (262 | ) | ||||||||||||
|
Proceeds from stock issuances
|
108 | — | — | — | 108 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
23 | — | — | — | 23 | |||||||||||||||
|
Dividends paid
|
(151 | ) | — | — | — | (151 | ) | |||||||||||||
|
Other, net
|
(5 | ) | (9 | ) | 9 | — | (5 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
255 | (719 | ) | 177 | — | (287 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | 11 | 30 | — | 41 | |||||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
279 | 21 | 103 | (27 | ) | 376 | ||||||||||||||
|
Cash and cash equivalents at beginning of period
|
1,310 | 258 | 443 | (59 | ) | 1,952 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,589 | $ | 279 | $ | 546 | $ | (86 | ) | $ | 2,328 | |||||||||
|
|
||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2010
Year Ended May 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | (450 | ) | $ | 2,942 | $ | 653 | $ | (7 | ) | $ | 3,138 | ||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
— | (2,661 | ) | (155 | ) | — | (2,816 | ) | ||||||||||||
|
Proceeds from asset dispositions and other
|
— | 38 | (3 | ) | — | 35 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
— | (2,623 | ) | (158 | ) | — | (2,781 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
531 | (397 | ) | (134 | ) | — | — | |||||||||||||
|
Payment on loan between subsidiaries
|
— | 72 | (72 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 158 | (158 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
(500 | ) | (153 | ) | — | — | (653 | ) | ||||||||||||
|
Proceeds from stock issuances
|
94 | — | — | — | 94 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
25 | — | — | — | 25 | |||||||||||||||
|
Dividends paid
|
(138 | ) | — | — | — | (138 | ) | |||||||||||||
|
Other, net
|
(20 | ) | (5 | ) | 5 | — | (20 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN FINANCING ACTIVITIES
|
(8 | ) | (325 | ) | (359 | ) | — | (692 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | (8 | ) | 3 | — | (5 | ) | |||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(458 | ) | (14 | ) | 139 | (7 | ) | (340 | ) | |||||||||||
|
Cash and cash equivalents at beginning of period
|
1,768 | 272 | 304 | (52 | ) | 2,292 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,310 | $ | 258 | $ | 443 | $ | (59 | ) | $ | 1,952 | |||||||||
|
|
||||||||||||||||||||
124
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2009
Year Ended May 31, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | (924 | ) | $ | 3,156 | $ | 573 | $ | (52 | ) | $ | 2,753 | ||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
— | (2,248 | ) | (211 | ) | — | (2,459 | ) | ||||||||||||
|
Proceeds from asset dispositions and other
|
— | 69 | 7 | — | 76 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
— | (2,179 | ) | (204 | ) | — | (2,383 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
1,173 | (1,066 | ) | (107 | ) | — | — | |||||||||||||
|
Payment on loan from Parent
|
17 | — | (17 | ) | — | — | ||||||||||||||
|
Payment on loan between subsidiaries
|
— | 36 | (36 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 165 | (165 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
(500 | ) | — | (1 | ) | — | (501 | ) | ||||||||||||
|
Proceeds from debt issuance
|
1,000 | — | — | — | 1,000 | |||||||||||||||
|
Proceeds from stock issuances
|
41 | — | — | — | 41 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
4 | — | — | — | 4 | |||||||||||||||
|
Dividends paid
|
(137 | ) | — | — | — | (137 | ) | |||||||||||||
|
Other, net
|
(7 | ) | — | — | — | (7 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
|
1,591 | (865 | ) | (326 | ) | — | 400 | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | (6 | ) | (11 | ) | — | (17 | ) | ||||||||||||
|
Net increase (decrease) in cash and cash equivalents
|
667 | 106 | 32 | (52 | ) | 753 | ||||||||||||||
|
Cash and cash equivalents at beginning of period
|
1,101 | 166 | 272 | — | 1,539 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,768 | $ | 272 | $ | 304 | $ | (52 | ) | $ | 2,292 | |||||||||
|
|
||||||||||||||||||||
125
Table of Contents
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES.
While we currently have market risk sensitive instruments related to interest
rates, we have no significant exposure to changing interest rates on our long-term debt because the
interest rates are fixed on all of our long-term debt. As disclosed in Note 6 to the accompanying
consolidated financial statements, we had outstanding fixed-rate, long-term debt (exclusive of
capital leases) with estimated fair values of $1.9 billion at May 31, 2011 and $2.1 billion at May
31, 2010. Market risk for fixed-rate, long-term debt is estimated as the potential decrease in
fair value resulting from a hypothetical 10% increase in interest rates and amounts to $36 million
as of May 31, 2011 and $41 million as of May 31, 2010. The underlying fair values of our long-term
debt were estimated based on quoted market prices or on the current rates offered for debt with
similar terms and maturities.
We have interest rate risk with respect to our pension and postretirement benefit obligations.
Changes in interest rates impact our liabilities associated with these benefit plans as well as the
amount of pension and postretirement benefit expense recognized. Declines in the value of plan
assets could diminish the funded status of our pension plans and potentially increase our
requirement to make contributions to the plans. Substantial investment losses on plan assets will
also increase pension and postretirement benefit expense in the years following the losses.
FOREIGN CURRENCY.
While we are a global provider of transportation, e-commerce and business
services, the substantial majority of our transactions are denominated in U.S. dollars. The
principal foreign currency exchange rate risks to which we are exposed are in the euro, Chinese
yuan, Canadian dollar, British pound and Japanese yen. Historically, our exposure to foreign
currency fluctuations is more significant with respect to our revenues than our expenses, as a
significant portion of our expenses are denominated in U.S. dollars, such as aircraft and fuel
expenses. During 2011 and 2010, operating income was positively impacted due to foreign currency
fluctuations. However, favorable foreign currency fluctuations also may have had an offsetting
impact on the price we obtained or the demand for our services, which is not quantifiable. At May
31, 2011, the result of a uniform 10% strengthening in the value of the dollar relative to the
currencies in which our transactions are denominated would result in a decrease in operating income
of $38 million for 2012. This theoretical calculation assumes that each exchange rate would change
in the same direction relative to the U.S. dollar. This calculation is not indicative of our
actual experience in foreign currency transactions. In addition to the direct effects of changes
in exchange rates, fluctuations in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors’ services become more or less attractive. The sensitivity
analysis of the effects of changes in foreign currency exchange rates does not factor in a
potential change in sales levels or local currency prices.
COMMODITY.
While we have market risk for changes in the price of jet and vehicle fuel, this risk
is largely mitigated by our fuel surcharges because our fuel surcharges are closely linked to
market prices for fuel. Therefore, a hypothetical 10% change in the price of fuel would not be
expected to materially affect our earnings.
However, our fuel surcharges have a timing lag (approximately six to eight weeks for FedEx Express
and FedEx Ground) before they are adjusted for changes in fuel prices. Our fuel surcharge index
also allows fuel prices to fluctuate approximately 2% for FedEx Express and approximately 4% for
FedEx Ground before an adjustment to the fuel surcharge occurs. Accordingly, our operating income
in a specific period may be significantly affected should the spot price of fuel suddenly change by
a substantial amount or change by amounts that do not result in an adjustment in our fuel
surcharges.
OTHER.
We do not purchase or hold any derivative financial instruments for trading purposes.
126
Table of Contents
SELECTED FINANCIAL DATA
The following table sets forth (in millions, except per share amounts and other operating data)
certain selected consolidated financial and operating data for FedEx as of and for the five years
ended May 31, 2011. This information should be read in conjunction with the Consolidated Financial
Statements, MD&A and other financial data appearing elsewhere in this Annual Report.
| 2011 (1) | 2010 | 2009 (2) | 2008 (3) | 2007 (4) | ||||||||||||||||
|
Operating Results
|
||||||||||||||||||||
|
Revenues
|
$ | 39,304 | $ | 34,734 | $ | 35,497 | $ | 37,953 | $ | 35,214 | ||||||||||
|
Operating income
|
2,378 | 1,998 | 747 | 2,075 | 3,276 | |||||||||||||||
|
Income before income taxes
|
2,265 | 1,894 | 677 | 2,016 | 3,215 | |||||||||||||||
|
Net income
|
1,452 | 1,184 | 98 | 1,125 | 2,016 | |||||||||||||||
|
|
||||||||||||||||||||
|
Per Share Data
|
||||||||||||||||||||
|
Earnings per share:
|
||||||||||||||||||||
|
Basic
|
$ | 4.61 | $ | 3.78 | $ | 0.31 | $ | 3.64 | $ | 6.57 | ||||||||||
|
Diluted
|
$ | 4.57 | $ | 3.76 | $ | 0.31 | $ | 3.60 | $ | 6.48 | ||||||||||
|
|
||||||||||||||||||||
|
Average shares of common stock outstanding
|
315 | 312 | 311 | 309 | 307 | |||||||||||||||
|
Average common and common equivalent
shares outstanding
|
317 | 314 | 312 | 312 | 311 | |||||||||||||||
|
Cash dividends declared
|
$ | 0.48 | $ | 0.44 | $ | 0.44 | $ | 0.30 | $ | 0.37 | ||||||||||
|
|
||||||||||||||||||||
|
Financial Position
|
||||||||||||||||||||
|
Property and equipment, net
|
$ | 15,543 | $ | 14,385 | $ | 13,417 | $ | 13,478 | $ | 12,636 | ||||||||||
|
Total assets
|
27,385 | 24,902 | 24,244 | 25,633 | 24,000 | |||||||||||||||
|
Long-term debt, less current portion
|
1,667 | 1,668 | 1,930 | 1,506 | 2,007 | |||||||||||||||
|
Common stockholders’ investment
|
15,220 | 13,811 | 13,626 | 14,526 | 12,656 | |||||||||||||||
|
|
||||||||||||||||||||
|
Other Operating Data
|
||||||||||||||||||||
|
FedEx Express aircraft fleet
|
688 | 667 | 654 | 677 | 669 | |||||||||||||||
|
Average full-time equivalent employees
and contractors
|
255,573 | 245,109 | 247,908 | 254,142 | 241,903 | |||||||||||||||
| (1) | Results for 2011 include charges of approximately $199 million ($104 million, net of tax and applicable variable incentive compensation impacts, or $0.33 per diluted share) for the combination of our FedEx Freight and FedEx National LTL operations and a reserve associated with a legal matter at FedEx Express. See Notes 1 and 17 to the accompanying consolidated financial statements. | |
| (2) | Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily for impairment charges associated with goodwill and aircraft. See Note 4 to the accompanying consolidated financial statements. Additionally, common stockholders’ investment includes an other comprehensive income charge of $1.2 billion, net of tax, for the funded status of our retirement plans at May 31, 2009. | |
| (3) | Results for 2008 include a charge of $891 million ($696 million, net of tax, or $2.23 per diluted share) recorded during the fourth quarter, predominantly for impairment charges associated with intangible assets from the FedEx Office acquisition. See Note 4 to the accompanying consolidated financial statements. Additionally, results for 2008 and 2007 include several 2007 acquisitions. | |
| (4) | Results for 2007 include a charge of $143 million at FedEx Express associated with upfront compensation and benefits under our labor contract with our pilots. |
127
Table of Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
FedEx Corporation
We have audited the consolidated financial statements of FedEx Corporation as of May 31, 2011 and
2010, and for each of the three years in the period ended May 31, 2011, and have issued our report
thereon dated July 12, 2011 (included elsewhere in this Annual Report on Form 10-K). Our audits
also included the financial statement schedule listed in Item 15(a) in this Annual Report on Form
10-K. This schedule is the responsibility of the Company’s management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 12, 2011
July 12, 2011
128
Table of Contents
SCHEDULE II
FEDEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 2011, 2010, AND 2009
(IN MILLIONS)
| ADDITIONS | ||||||||||||||||||||
| BALANCE | CHARGED | BALANCE | ||||||||||||||||||
| AT | CHARGED | TO | AT | |||||||||||||||||
| BEGINNING | TO | OTHER | END OF | |||||||||||||||||
| DESCRIPTION | OF YEAR | EXPENSES | ACCOUNTS | DEDUCTIONS | YEAR | |||||||||||||||
|
|
||||||||||||||||||||
|
Accounts Receivable Reserves:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Allowance for Doubtful Accounts
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
2011
|
$ | 93 | $ | 152 | $ | — | $ | 148 | (a) | $ | 97 | |||||||||
|
|
||||||||||||||||||||
|
2010
|
114 | 124 | — | 145 | (a) | 93 | ||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
88 | 181 | — | 155 | (a) | 114 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Allowance for Revenue Adjustments
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
2011
|
$ | 73 | $ | — | $ | 532 | (b) | $ | 520 | (c) | $ | 85 | ||||||||
|
|
||||||||||||||||||||
|
2010
|
82 | — | 430 | (b) | 439 | (c) | 73 | |||||||||||||
|
|
||||||||||||||||||||
|
2009
|
70 | — | 466 | (b) | 454 | (c) | 82 | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Inventory Valuation Allowance:
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
2011
|
$ | 170 | $ | 13 | $ | — | $ | 14 | $ | 169 | ||||||||||
|
|
||||||||||||||||||||
|
2010
|
175 | 12 | — | 17 | 170 | |||||||||||||||
|
|
||||||||||||||||||||
|
2009
|
163 | 15 | — | 3 | 175 | |||||||||||||||
|
|
||||||||||||||||||||
| (a) | Uncollectible accounts written off, net of recoveries. | |
| (b) | Principally charged against revenue. | |
| (c) | Service failures, rebills and other. |
129
Table of Contents
FEDEX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
| Year Ended May 31, | ||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
|
|
||||||||||||||||||||
|
Earnings:
|
||||||||||||||||||||
|
Income before income taxes
|
$ | 2,265 | $ | 1,894 | $ | 677 | $ | 2,016 | $ | 3,215 | ||||||||||
|
Add back:
|
||||||||||||||||||||
|
Interest expense, net of capitalized
interest
|
86 | 79 | 85 | 98 | 136 | |||||||||||||||
|
Amortization of debt issuance costs
|
16 | 14 | 5 | 5 | 6 | |||||||||||||||
|
Portion of rent expense representative
of interest factor
|
852 | 806 | 795 | 784 | 766 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Earnings as adjusted
|
$ | 3,219 | $ | 2,793 | $ | 1,562 | $ | 2,903 | $ | 4,123 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Fixed Charges:
|
||||||||||||||||||||
|
Interest expense, net of capitalized
interest
|
$ | 86 | $ | 79 | $ | 85 | $ | 98 | $ | 136 | ||||||||||
|
Capitalized interest
|
71 | 80 | 71 | 50 | 34 | |||||||||||||||
|
Amortization of debt issuance costs
|
16 | 14 | 5 | 5 | 6 | |||||||||||||||
|
Portion of rent expense representative
of interest factor
|
852 | 806 | 795 | 784 | 766 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 1,025 | $ | 979 | $ | 956 | $ | 937 | $ | 942 | ||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Ratio of Earnings to Fixed Charges
|
3.1 | 2.9 | 1.6 | 3.1 | 4.4 | |||||||||||||||
|
|
||||||||||||||||||||
130
Table of Contents
EXHIBIT INDEX
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
|
Certificate of Incorporation and Bylaws
|
||||
|
|
||||
| 3.1 |
Second Amended and Restated Certificate of Incorporation of FedEx. (Filed as
Exhibit 3.1 to FedEx’s FY07 First Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
| 3.2 |
Amended and Restated Bylaws of FedEx. (Filed as Exhibit 3.1 to FedEx’s
Current Report on Form 8-K dated March 14, 2011 and filed March 15, 2011, and
incorporated herein by reference.)
|
|||
|
|
||||
|
Facility Lease Agreements
|
||||
|
|
||||
| 10.1 |
Composite Lease Agreement dated May 21, 2007 (but effective as of January 1,
2007) between the Memphis-Shelby County Airport Authority (the “Authority”)
and FedEx Express. (Filed as Exhibit 10.1 to FedEx’s FY07 Annual Report on
Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.2 |
First Amendment dated December 29, 2009 (but effective as of September 1,
2008) to the Composite Lease Agreement dated May 21, 2007 (but effective as of
January 1, 2007) between the Authority and FedEx Express. (Filed as Exhibit
10.1 to FedEx’s FY10 Third Quarter Report on Form 10-Q, and incorporated
herein by reference.)
|
|||
|
|
||||
| 10.3 |
Second Amendment dated March 30, 2010 (but effective as of June 1, 2009) and
Third Amendment dated April 27, 2010 (but effective as of July 1, 2009), each
amending the Composite Lease Agreement dated May 21, 2007 (but effective as of
January 1, 2007) between the Authority and FedEx Express. (Filed as Exhibit
10.3 to FedEx’s FY10 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.4 |
Special Facility Lease Agreement dated as of August 1, 1979 between the
Authority and FedEx Express. (Filed as Exhibit 10.15 to FedEx Express’s FY90
Annual Report on Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.5 |
First Special Facility Supplemental Lease Agreement dated as of May 1, 1982
between the Authority and FedEx Express. (Filed as Exhibit 10.25 to FedEx
Express’s FY93 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.6 |
Second Special Facility Supplemental Lease Agreement dated as of November 1,
1982 between the Authority and FedEx Express. (Filed as Exhibit 10.26 to
FedEx Express’s FY93 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.7 |
Third Special Facility Supplemental Lease Agreement dated as of December 1,
1984 between the Authority and FedEx Express. (Filed as Exhibit 10.25 to
FedEx Express’s FY95 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.8 |
Fourth Special Facility Supplemental Lease Agreement dated as of July 1, 1992
between the Authority and FedEx Express. (Filed as Exhibit 10.20 to FedEx
Express’s FY92 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
E-1
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.9 |
Fifth Special Facility Supplemental Lease Agreement dated as of July 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.35 to FedEx
Express’s FY97 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.10 |
Sixth Special Facility Supplemental Lease Agreement dated as of December 1,
2001 between the Authority and FedEx Express. (Filed as Exhibit 10.28 to
FedEx’s FY02 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.11 |
Seventh Special Facility Supplemental Lease Agreement dated as of June 1, 2002
between the Authority and FedEx Express. (Filed as Exhibit 10.3 to FedEx’s
FY03 First Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.12 |
Special Facility Lease Agreement dated as of July 1, 1993 between the
Authority and FedEx Express. (Filed as Exhibit 10.29 to FedEx Express’s FY93
Annual Report on Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.13 |
Special Facility Ground Lease Agreement dated as of July 1, 1993 between the
Authority and FedEx Express. (Filed as Exhibit 10.30 to FedEx Express’s FY93
Annual Report on Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.14 |
First Amendment dated December 29, 2009 (but effective as of September 1,
2008) to the Special Facility Ground Lease Agreement dated as of July 1, 1993
between the Authority and FedEx Express. (Filed as Exhibit 10.2 to FedEx’s
FY10 Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
|
Aircraft-Related Agreement
|
||||
|
|
||||
| 10.15 |
Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between
The Boeing Company and FedEx Express. Confidential treatment has been granted
for confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1
to FedEx’s FY07 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.16 |
Supplemental Agreement No. 1 dated as of June 16, 2008 to the Boeing 777
Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing
Company and FedEx Express. (Filed as Exhibit 10.13 to FedEx’s FY08 Annual
Report on Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.17 |
Supplemental Agreement No. 2 dated as of July 14, 2008 to the Boeing 777
Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing
Company and FedEx Express. (Filed as Exhibit 10.3 to FedEx’s FY09 Second
Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.18 |
Supplemental Agreement No. 3 dated as of December 15, 2008 (and related side
letters) to the Boeing 777 Freighter Purchase Agreement dated as of November
7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.4 to FedEx’s FY09 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
E-2
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.19 |
Supplemental Agreement No. 4 dated as of January 9, 2009 (and related side
letters) to the Boeing 777 Freighter Purchase Agreement dated as of November
7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.1 to FedEx’s FY09 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
| 10.20 |
Side letters dated May 29, 2009 and May 19, 2009, amending the Boeing 777
Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing
Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.17 to FedEx’s FY09 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.21 |
Supplemental Agreement No. 5 dated as of January 11, 2010 to the Boeing 777
Freighter Purchase Agreement dated as of November 7, 2006 between The Boeing
Company and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.3 to FedEx’s FY10 Third Quarter Report on Form 10-Q, and incorporated
herein by reference.)
|
|||
|
|
||||
| 10.22 |
Supplemental Agreement No. 6 dated as of March 17, 2010, Supplemental
Agreement No. 7 dated as of March 17, 2010, and Supplemental Agreement No. 8
(and related side letters) dated as of April 30, 2010, each amending the
Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between
The Boeing Company and FedEx Express. Confidential treatment has been granted
for confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.22 to FedEx’s FY10 Annual Report on Form 10-K, and incorporated herein by
reference).
|
|||
|
|
||||
| 10.23 |
Supplemental Agreement No. 9 dated as of June 18, 2010, Supplemental Agreement
No. 10 dated as of June 18, 2010, Supplemental Agreement No. 11 (and related
side letter) dated as of August 19, 2010, and Supplemental Agreement No. 13
(and related side letter) dated as of August 27, 2010, each amending the
Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006 between
The Boeing Company and FedEx Express. Confidential treatment has been granted
for confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1
to FedEx’s FY11 First Quarter Report on Form 10-Q, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.24 |
Supplemental Agreement No. 12 (and related side letter) dated as of September
3, 2010, Supplemental Agreement No. 14 (and related side letter) dated as of
October 25, 2010, and Supplemental Agreement No. 15 (and related side letter)
dated as of October 29, 2010, each amending the Boeing 777 Freighter Purchase
Agreement dated as of November 7, 2006 between The Boeing Company and FedEx
Express. Confidential treatment has been granted for confidential commercial
and financial information, pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx’s FY11
Second Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
E-3
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.25 |
Supplemental Agreement No. 16 (and related side letters) dated as of January
31, 2011, and Supplemental Agreement No. 17 dated as of February 14, 2011,
each amending the Boeing 777 Freighter Purchase Agreement dated as of November
7, 2006 between The Boeing Company and FedEx Express. Confidential treatment
has been granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(Filed as Exhibit 10.1 to FedEx’s FY11 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
| *10.26 |
Supplemental Agreement No. 18 (and related side letter) dated as of March 30,
2011 to the Boeing 777 Freighter Purchase Agreement dated as of November 7,
2006 between The Boeing Company and FedEx Express. Confidential treatment has
been requested for confidential commercial and financial information, pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
|
|||
|
|
||||
|
U.S. Postal Service Agreement
|
||||
|
|
||||
| 10.27 |
Transportation Agreement dated July 31, 2006 between the United States Postal
Service and FedEx Express. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.2
to FedEx’s FY07 First Quarter Report on Form 10-Q, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.28 |
Amendment dated November 30, 2006 to the Transportation Agreement dated July
31, 2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx’s FY07 Second
Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.29 |
Letter Agreement dated March 8, 2007 and Letter Agreement dated May 14, 2007,
each amending the Transportation Agreement dated July 31, 2006
between the United States Postal Service and FedEx Express. Confidential
treatment has been granted for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934,
as amended. (Filed as Exhibit 10.15 to FedEx’s FY07 Annual Report on Form
10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.30 |
Amendment dated June 20, 2007 and Amendment dated July 31, 2007, each amending
the Transportation Agreement dated July 31, 2006 between the
United States Postal Service and FedEx Express. Confidential treatment has
been granted for confidential commercial and financial information, pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed
as Exhibit 10.1 to FedEx’s FY08 First Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
| 10.31 |
Amendment dated December 4, 2007 to the Transportation Agreement dated July
31, 2006 between the United States Postal Service and FedEx
Express. Confidential treatment has been granted for confidential commercial
and financial information, pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx’s FY08
Third Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.32 |
Letter Agreement dated October 23, 2008 and Amendment dated October 23, 2008,
each amending the Transportation Agreement dated July 31, 2006 between the
United States Postal Service and FedEx Express. Confidential treatment has
been granted for confidential commercial and financial information, pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed
as Exhibit 10.1 to FedEx’s FY09 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
E-4
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.33 |
Letter Agreement dated March 4, 2009, amending the Transportation Agreement
dated July 31, 2006 between the United States Postal Service and FedEx
Express. (Filed as Exhibit 10.24 to FedEx’s FY09 Annual Report on Form 10-K,
and incorporated herein by reference.)
|
|||
|
|
||||
| 10.34 |
Letter Agreement dated September 29, 2009, amending the Transportation
Agreement dated July 31, 2006 between the United States Postal Service and
FedEx Express. Confidential treatment has been granted for confidential
commercial and financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to
FedEx’s FY10 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.35 |
Amendment dated December 8, 2009 to the Transportation Agreement dated July
31, 2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx’s FY10 Third Quarter
Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.36 |
Letter Agreement dated August 30, 2010, amending the Transportation Agreement
dated July 31, 2006 between the United States Postal Service and FedEx
Express. Confidential treatment has been granted for confidential commercial
and financial information, pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended. (Filed as Exhibit 10.2 to FedEx’s FY11
First Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.37 |
Amendment dated November 22, 2010 to the Transportation Agreement dated July
31, 2006 between the United States Postal Service and FedEx Express.
Confidential treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx’s FY11 Second
Quarter Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
|
Financing Agreement
|
||||
|
|
||||
| 10.38 |
Five-Year Credit Agreement dated as of April 26, 2011, among FedEx, JPMorgan
Chase Bank, N.A., individually and as administrative agent, and certain
lenders. (Filed as Exhibit 99.1 to FedEx’s Current Report on Form 8-K dated
April 26, 2011 and filed April 29, 2011, and incorporated herein by
reference.)
FedEx is not filing any other instruments evidencing any indebtedness because the total amount of securities authorized under any single such instrument does not exceed 10% of the total assets of FedEx and its subsidiaries on a consolidated basis. Copies of such instruments will be furnished to the Securities and Exchange Commission upon request. |
|||
|
|
||||
|
Management Contracts/Compensatory Plans or Arrangements
|
||||
|
|
||||
| 10.39 |
1993 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1993
Stock Incentive Plan, as amended. (The 1993 Stock Incentive Plan was filed as
Exhibit A to FedEx Express’s FY93 Definitive Proxy Statement, Commission File
No. 1-7806, and is incorporated herein by reference, and the form of stock
option agreement was filed as Exhibit 10.61 to FedEx Express’s FY94 Annual
Report on Form 10-K, and is incorporated herein by reference.)
|
|||
|
|
||||
| 10.40 |
Amendment to 1993 Stock Incentive Plan. (Filed as Exhibit 10.63 to FedEx
Express’s FY94 Annual Report on Form 10-K, and incorporated herein by
reference.)
|
|||
E-5
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.41 |
1995 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1995
Stock Incentive Plan. (The 1995 Stock Incentive Plan was filed as Exhibit A
to FedEx Express’s FY95 Definitive Proxy Statement, and is incorporated herein
by reference, and the form of stock option agreement was filed as Exhibit 99.2
to FedEx Express’s Registration Statement No. 333-03443 on
Form S-8,
and is
incorporated herein by reference.)
|
|||
|
|
||||
| 10.42 |
Amendment to 1993 and 1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to
FedEx Express’s FY97 Annual Report on
Form 10-K,
and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.43 |
1997 Stock Incentive Plan, as amended, and Form of Stock Option Agreement
pursuant to 1997 Stock Incentive Plan. (The 1997 Stock Incentive Plan was
filed as Exhibit 4.3 to FedEx’s Registration Statement on
Form S-8,
Registration No. 333-71065, and is incorporated herein by reference, and the
form of stock option agreement was filed as Exhibit 4.4 to FedEx’s
Registration Statement No. 333-71065 on
Form S-8,
and is incorporated herein
by reference.)
|
|||
|
|
||||
| 10.44 |
Amendment to 1997 Stock Incentive Plan. (Filed as Exhibit A to FedEx’s FY98
Definitive Proxy Statement, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.45 |
1999 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1999
Stock Incentive Plan. (The 1999 Stock Incentive Plan was filed as Exhibit 4.3
to FedEx’s Registration Statement No. 333-34934 on
Form S-8,
and is
incorporated herein by reference, and the form of stock option agreement was
filed as Exhibit 4.4 to FedEx’s Registration Statement No. 333-34934 on
Form
S-8,
and is incorporated herein by reference.)
|
|||
|
|
||||
| 10.46 |
2002 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 2002
Stock Incentive Plan. (The 2002 Stock Incentive Plan was filed as Exhibit 4.3
to FedEx’s Registration Statement No. 333-100572 on
Form S-8,
and is
incorporated herein by reference, and the form of stock option agreement was
filed as Exhibit 4.4 to FedEx’s Registration Statement No. 333-100572 on
Form
S-8,
and is incorporated herein by reference.)
|
|||
|
|
||||
| 10.47 |
2001 Restricted Stock Plan and Form of Restricted Stock Agreement pursuant to
2001 Restricted Stock Plan. (Filed as Exhibit 10.60 to FedEx’s FY01 Annual
Report on
Form 10-K,
and incorporated herein by reference.)
|
|||
|
|
||||
| 10.48 |
Amendment to 2001 Restricted Stock Plan. (Filed as Exhibit 10.67 to FedEx’s
FY02 Annual Report on
Form 10-K,
and incorporated herein by reference.)
|
|||
|
|
||||
| 10.49 |
Amendment to 1995, 1997, 1999 and 2002 Stock Incentive Plans and 2001
Restricted Stock Plan. (Filed as Exhibit 10.3 to FedEx’s FY04 Second Quarter
Report on Form 10-Q, and incorporated herein by reference.)
|
|||
E-6
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.50 |
FedEx Corporation Incentive Stock Plan, as amended; Amendment to FedEx
Corporation Incentive Stock Plan, as amended, and 1997, 1999 and 2002 Stock
Incentive Plans; Form of Terms and Conditions of stock option grant pursuant
to FedEx Corporation Incentive Stock Plan, as amended; and Form of Restricted
Stock Agreement pursuant to FedEx Corporation Incentive Stock Plan, as
amended. (The FedEx Corporation Incentive Stock Plan, as amended, was filed
as Exhibit 4.1 to FedEx’s Registration Statement No. 333-156333 on
Form S-8,
and is incorporated herein by reference; the Amendment to FedEx
Corporation Incentive Stock Plan, as amended, and 1997, 1999 and 2002 Stock
Incentive Plans was filed as Exhibit 4.2 to FedEx’s Registration
Statement No. 333-156333 on
Form S-8,
and is incorporated herein by reference;
the Form of Terms and Conditions of stock option grant pursuant to FedEx
Corporation Incentive Stock Plan, as amended, was filed as Exhibit 4.3 to
FedEx’s Registration Statement No. 333-156333 on
Form S-8,
and is
incorporated herein by reference; and the Form of Restricted Stock Agreement
pursuant to FedEx Corporation Incentive Stock Plan, as amended, was filed as
Exhibit 4.4 to FedEx’s Registration Statement No. 333-156333 on
Form S-8,
and is incorporated herein by reference.)
|
|||
|
|
||||
| 10.51 |
FedEx Corporation Incentive Stock Plan 2005 Inland Revenue Approved Sub-Plan
for the United Kingdom and Form of Share Option Agreement pursuant to the
FedEx Corporation Incentive Stock Plan 2005 Inland Revenue Approved Sub-Plan
for the United Kingdom. (The United Kingdom Sub-Plan was filed as Exhibit 4.2
to FedEx’s Registration Statement No. 333-130619 on Form S-8, and
is incorporated herein by reference, and the form of share option agreement
pursuant to the UK Sub-Plan was filed as Exhibit 4.3 to FedEx’s
Registration Statement No. 333-130619 on Form S-8, and is incorporated herein
by reference.)
|
|||
|
|
||||
| 10.52 |
Amendments to 1993, 1995, 1997, 1999 and 2002 Stock Incentive Plans, as
amended, 2001 Restricted Stock Plan, as amended, and FedEx Corporation
Incentive Stock Plan, as amended. (Filed as Exhibit 10.48 to FedEx’s FY10
Annual Report on Form 10-K, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.53 |
Amendments to 1993, 1995, 1997, 1999 and 2002 Stock Incentive Plans, 2001
Restricted Stock Plan and FedEx Corporation Incentive Stock Plan. (Filed as
Exhibit 10.2 to FedEx’s FY11 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
| 10.54 |
FedEx Corporation 2010 Omnibus Stock Incentive Plan; Form of Terms and
Conditions of stock option grant pursuant to FedEx Corporation 2010 Omnibus
Stock Incentive Plan; and Form of Terms and Conditions of restricted stock
grant pursuant to FedEx Corporation 2010 Omnibus Stock Incentive Plan. (The
FedEx Corporation 2010 Omnibus Stock Incentive Plan was filed as Exhibit 4.3
to FedEx’s Registration Statement No. 333-171232 on Form S-8, and
is incorporated herein by reference; the Form of Terms and Conditions of stock
option grant pursuant to FedEx Corporation 2010 Omnibus Stock Incentive Plan
was filed as Exhibit 4.4 to FedEx’s Registration Statement No.
333-171232 on Form S-8, and is incorporated herein by reference; and the Form
of Terms and Conditions of restricted stock grant pursuant to FedEx
Corporation 2010 Omnibus Stock Incentive Plan was filed as Exhibit 4.5 to
FedEx’s Registration Statement No. 333-171232 on Form S-8, and is
incorporated herein by reference.)
|
|||
|
|
||||
| 10.55 |
Amended and Restated FedEx Corporation Retirement Parity Pension Plan. (Filed
as Exhibit 10.35 to FedEx’s FY08 Annual Report on Form 10-K, and incorporated
herein by reference.)
|
|||
|
|
||||
| *10.56 |
FedEx Express Supplemental Long Term Disability Plan and Amendment to the Plan.
|
|||
|
|
||||
| *10.57 |
Compensation Arrangements with Named Executive Officers.
|
|||
E-7
Table of Contents
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.58 |
Compensation Arrangements with Outside Directors. (Filed as Exhibit 10.1 to
FedEx’s FY11 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)
|
|||
|
|
||||
| 10.59 |
FedEx’s Amended and Restated Retirement Plan for Outside Directors. (Filed as Exhibit 10.2 to FedEx’s FY09 Second Quarter
Report on Form 10-Q, and incorporated herein by reference.)
|
|||
|
|
||||
| 10.60 |
Form of revised Management Retention Agreement, dated March 18, 2010,
entered into between FedEx and each of
Frederick W. Smith, David J. Bronczek, Robert B. Carter, T. Michael Glenn, Alan B. Graf, Jr., William J. Logue, David F.
Rebholz and Christine P. Richards. (Filed as Exhibit 10.5 to FedEx’s FY10 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.)
|
|||
|
|
||||
|
Other Exhibits
|
||||
|
|
||||
| *12 |
Statement re Computation of Ratio of Earnings to Fixed Charges (presented on page 130 of this Annual Report on Form 10-K).
|
|||
|
|
||||
| *21 |
Subsidiaries of Registrant.
|
|||
|
|
||||
| *23 |
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
|
|||
|
|
||||
| *24 |
Powers of Attorney.
|
|||
|
|
||||
| *31.1 |
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| *31.2 |
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act
of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| *32.1 |
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| *32.2 |
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| *101.1 |
Interactive Data Files.
|
|||
| * | Filed herewith. |
E-8
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. ReservedPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Results Of Operations and Financial ConditionItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesNote 1: Description Of Business and Summary Of Significant Accounting PoliciesNote 2: Recent Accounting GuidanceNote 3: Business CombinationsNote 4: Goodwill and Other Intangible AssetsNote 5: Selected Current LiabilitiesNote 6: Long-term Debt and Other Financing ArrangementsNote 7: LeasesNote 8: Preferred StockNote 9: Stock-based CompensationNote 10: Computation Of Earnings Per ShareNote 11: Income TaxesNote 12: Retirement PlansNote 13: Business Segment InformationNote 14: Supplemental Cash Flow InformationNote 15: Guarantees and IndemnificationsNote 16: CommitmentsNote 17: ContingenciesNote 18: Related Party TransactionsNote 19: Summary Of Quarterly Operating Results (unaudited)Note 20: Condensed Consolidating Financial Statements