At the same 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 and highly successful FedEx Ground segment.
The following four trends have driven world commerce and shaped the global marketplace, and despite the uncertainty of the current economic environment, 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: |
| • | 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 and modernizing our global networks to accommodate future volume growth and increase customer convenience, such as investments in B777F and B767F 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, since the beginning of 2013, we:
Continued to reduce transit times and provide a better pickup experience within FedEx Ground’s growing and highly profitable network.
Made strategic acquisitions in 2010, we:
Continued to more parts of the world.
5Introduced enhancements to the FedEx Deep Frozen Shipping Solution that offer more options and broader access to the end-to-end service that helps customers move temperature-sensitive samples and specimens around the world using an innovative liquid nitrogen dry vapor technology that maintains a temperature below -150 degrees Celsius for up to 10 days.
Continued to utilize FedEx Freight’s expertise in technology and operational excellence under the unified LTL network to provide a powerful value proposition to customers.
Business Realignment
During 2013, we saw a more challenging business environment — particularly for consumersFedEx Express, as ongoing shifts from priority to return merchandise backdeferred shipping services significantly impacted profitability. In response to retailers usingthese trends, in addition to the U.S. Postal Service for package pickup.
More specifically, multiple initiatives primarily across FedEx Express and FedEx Ground shippingServices are reducing our overall cost structure. For example, we completed a voluntary program offering cash buyouts to eligible U.S.-based employees in certain staff functions, and approximately 3,600 employees either have left or will be leaving voluntarily by the end of 2014. We are also streamlining support functions and eliminating redundant systems and processes. At the same time, in addition to modernizing our air fleet, we are transforming our U.S. domestic express network by closing and realigning regional and district facilities, reorganizing pickup and delivery operations while maintaining our outstanding service levels, improving flight and crew scheduling, refining aircraft maintenance processes and improving fuel efficiency of our vehicle fleet. Internationally, we are working to improve the quality of our international revenue as customers continue to make more economical choices in a low-growth global economy by moving the line-haul of certain slower-moving shipments to third-party transportation providers and better leveraging capacity within the FedEx Express international network through, for example, the reduction of flights to and from Asia. The international acquisitions discussed above will also help drive significant increases in international domestic revenues. Lastly, we are improving revenue quality by adding value for our customers with innovative and market-leading solutions, expanding our small and medium-size customer base and adding services at all U.S. OfficeMax retail locations (over 900 locations). These additional staffed drop-off locations complement our existing retail network, including ourfor vertical industries such as healthcare and aerospace. Our way forward is clear, as we continue to make FedEx Office centers, and further expand customer access to our services.
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 2010,2013, FedEx ranked 1310th inFORTUNEmagazine’s “World’s Most Admired Companies” list — the ninth12th consecutive year we have been ranked in the top 20 on the list. In addition,Additionally, FedEx continued to rank highestrecently ranked 12th on the Reputation Institute’s “U.S Reputation Pulse” list, which measures the corporate reputations of the largest U.S. companies based on consumers’ trust, esteem, admiration and good feeling about a company. Lastly, in customer satisfactiona 2012 survey of U.S. consumers conducted by the Reputation Institute and the Boston College Center for Corporate Citizenship, FedEx placed 7th on the Corporate Social Responsibility Index (CSRI) 50 — a list of the most socially responsible companies in the University of Michigan Business School National Quality Research Center’sAmerican Customer Satisfaction Indexin the express delivery category.
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. During 2010, weOur latest published an update to our inaugural global citizenship report (availableis available athttp://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. In 2010,2012, FedEx Express was named as one of the top five global companies to work for by The Great Place to Work® Institute in its inaugural ranking of the World’s Best Multinational Workplaces. FedEx Express made this ranking’s top 10 list again in 2013. In order to even be considered for this honor, a company must appear on at least five national Great Place to Work lists and have at least 5,000 employees worldwide. Additionally, in 2013, we were listed among FORTUNE’s “100 Best Companies to Work for in America” — a list that we have made in 12 of the past 13 years — andBlack Enterprisemagazine’s “40 Best Companies for Diversity” —Diversity,” a list that we have made every year since its inception.for eight consecutive years. Most recently, FedEx was named among FORTUNE magazine’s 2013 “100 Best Companies to Work For” in the United States, a list we have made 11 of the past 14 years. 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 280,000300,000 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, seehttp://csr.fedex.com.
Our Community
FedEx is committed to causes that help improveactively supporting the communities where we live and work worldwide. We leverage our infrastructure,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 philanthropic resourcesteam members to help these communitiesa variety of non-profit organizations achieve their goals. As an example, we believe thatgoals and make a measurable impact on the United Way of America offers one of the most effectiveworld. We have three core focus areas: disaster preparedness, relief and efficient ways of meeting community needs and have supported the annual United Way fundraising campaign since 1975. In addition to corporate philanthropy and employee volunteerism, we maintain relationships with charitable organizations that enable us to have a strategic impact in key areas, including disaster reliefrecovery (American Red Cross, The Salvation Army, Direct Relief and Heart to Heart International),; pedestrian and road safety (Safe Kids Worldwide), education (TeachWorldwide and United Nations Decade of Action for AmericaRoad Safety); and Junior Achievement)environmental sustainability (Arbour Day Foundation, EMBARQ, National Fish & Wildlife Foundation and diversity.The Nature Conservancy). We support minority access to higher education by funding scholarships, and are a major sponsor of the National Civil Rights Museum.Museum and also support Teach for America, Junior Achievement and ORBIS International. Additionally, FedEx supports
communities throughout the United States with an annual United Way employee giving campaign. In the aftermath of Superstorm Sandy, FedEx stepped in and assisted in delivering almost 4 million pounds of relief aid on behalf of agencies such as the American Red Cross, Heart to Heart International, Direct Relief and The Salvation Army. For additional information on our community involvement and disaster relief efforts, seehttp://csr.fedex.com.
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In furtherance of our commitment to protecting the environment, we have setrecently updated one of our long-term goals to increase FedEx Express vehicle fuel efficiency to reflect the significant progress we have made over the last several years — we have already reached more than 22 percent cumulative improvement in fuel economy since 2005. Our goal is to now increase FedEx Express vehicle fuel efficiency by 30 percent by 2020. We continue with our goal to reduce aircraft emissions by 2030 percent by 2020 on an emissions per available-ton-mile basis, increase FedEx Express vehicle efficiency bya goal that we increased from 20 percent in 2012. We have also established a goal of obtaining 30 percent of our jet fuel from alternative fuels by 2020, andthe year 2030.
We will continue to expand on-site renewable energy generation and procurement of renewable energy credits.where feasible. To meet our future international operational needs, as discussed above, we have selected and are beginning to addadding more fuel-efficient aircraft to our aircraft fleet the more fuel-efficient B777F. In addition, we are retiring and replacing older Boeing 727s with more fuel-efficient and quieter Boeing 757s.fleet. The use of newer and more fuel efficientfuel-efficient aircraft is reducing our greenhouse gas emissions and airport noise and increasing our jet fuel efficiency. Our hybrid electric delivery fleet ishas grown to 360 low-emission hybrid-electric vehicles and 165 zero-emission electric vehicles. Additionally, we recently purchased 1,900 lightweight, composite-body Reach vehicles from Utilimaster to join our 400 Reach vehicles already in service, making our FedEx Express lightweight, composite-body vehicle fleet the largest in our industry and has loggedthe industry. The Reach van is 35% more fuel efficient than five million miles of revenue service.traditional vehicles in the FedEx Express fleet. Our solar power generation systems represent another step we are taking toward progressive environmental stewardship and resource sustainability. We operate nine solar facilities around the world, including the newest roof top solar-electric system at FedEx Express’s distribution hub in Newark, New Jersey, with 8,684 solar modules covering 3.5 acres across three buildings on the roof of the Newark hub. In addition, nine FedEx facilities in the United States, including our FedEx Express facility in Las Vegas, Nevada, our FedEx Express World Headquarters in Memphis and our enterprise data center in Colorado Springs, Colorado, have received certification by Leadership in Energy and Environmental Design (LEED®), the U.S. Green Building Council’s system for rating the environmental performance of buildings. 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 a high recycled content.content, among other environmentally-responsible available choices. For additional information on the ways we are minimizing our impact on the environment, seehttp://csr.fedex.com.
Governance
FedEx has an independent Board of Directors committed to the highest quality corporate governance. WithinDuring the past fewtwo years, we have added a number of highly qualified, independent directors to the Board including: Stevenin R. Loranger,Brad Martin, the former CEO of ITT Corporation; Gary W. Loveman,Saks Incorporated, and Joshua Cooper Ramo, Vice Chairman of Kissinger Associates, Inc. The Board has taken significant steps to enhance its accountability to stockholders in recent years. For example, in September 2011, stockholders approved our proposal to amend FedEx’s certificate of incorporation in order to allow holders of 20 percent or more of FedEx’s common stock the CEOright to call special meetings of Harrah’s Entertainment; Ambassador Susan C. Schwab, former U.S. Trade Representative; and David P. Steiner,stockholders. Additionally, in June 2012, the CEO of Waste Management. Board adopted a lead independent director corporate governance structure.
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 athttp://www.fedex.com/us/investorrelationsinvestors.fedex.com. We will post in the corporate governanceCorporate 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.
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 40 years ago 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-certaina wide range of U.S. domestic and international shipping services for delivery within one to three business days, servingof package and freight, connecting 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 141,000160,700 employees and has approximately 59,00052,400 drop-off locations (including FedEx Office centers), 664647 aircraft and approximately 49,00054,100 vehicles and trailers in its integrated global network.
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FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight. Overnight and deferred package services are backed by money-back guarantees and extend to virtuallynearly the entire United StatesU.S. 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 global 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 International Priority package services provide time-definite delivery within one, two or three business days worldwide. FedEx International Economy package services
provide time-definite delivery within five business days worldwide. FedEx International First, which provides a time-definite, customs cleared, door-to-door express service with a pre-defined delivery commitment of as early as 8:00 a.m. in the United States, 9:00 a.m. in Europe, and 10:00 a.m. in Asia, Canada and Latin America, was expanded in 2013 and now covers 19 destination countries. FedEx Express also offers domestic pickup-and-delivery services within certain non-U.S. countries, including the United Kingdom, Canada, China, India, Mexico, Brazil, France and Poland. 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.
In April 2013, we launched FedEx Delivery Manager, which allows our U.S. residential customers to customize home deliveries to fit their schedule by providing a range of options to schedule dates, locations and times of delivery. By signing up atwww.fedex.com, customers can receive notification of FedEx Express packages en route to their homes, and can choose various delivery options.
For information regarding FedEx Express e-shipping tools and solutions, see “FedEx Services — Technology.”
International Expansion
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 recently made strategic moves in Europe and Latin America. In 2013, we acquired:
the Polish domestic express package delivery company Opek Sp. z o.o.;
the French express transportation company TATEX; and
the Brazilian transportation and logistics company Rapidão Cometa Logística e Transporte S.A.
These acquisitions, along with our 2012 acquisition of the Mexican domestic express package delivery company Servicios Nacionales Mupa, S.A. de C.V. (Multipack), give us more robust transportation networks within these countries and added capabilities in these important international markets, continue our strategic European and Latin American growth plans and are expected to provide important contributions to our long-term growth, productivity and profitability. Additionally, in 2013, we opened 48 new stations across Europe pursuant to our organic growth strategy. In June 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa, including South Africa.
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 increase our presence therecountry and, bolster our leadership in the global air cargo industry:
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. In 2010, we began offering a new technology solution, named FedEx Electronic Trade Documents, to automate and simplify the preparation and submission of customs documentation.
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Under an agreement with the U.S. Postal ServiceUSPS that runs through September 2013, FedEx Express provides domestic air transportation services to the U.S. Postal Service,USPS, including for its First-Class, Priority and Express Mail. In April 2013, FedEx Express entered into a new seven-year transportation agreement with the USPS for the provision of domestic air transportation services to the USPS for Priority and Express Mail. The new agreement begins on October 1, 2013 and runs through September 2020. 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’sUSPS’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 customer charged the shipment was picked up byto a FedEx Express courier or dropped off by the customer at a FedEx Express, FedEx Office or FedEx Authorized ShipCenter location.account. International rates are based on the type of service provided and vary with size, weight, destination and, whenever applicable, whether the customer charged the shipment was picked up byto a FedEx Express courier or dropped off by the customer at a FedEx Express, FedEx Office or FedEx Authorized ShipCenter location.account. 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 20102013 was based on the average spot price for jet fuel published for April 2010.2013. 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 atfedex.comapproximately 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: 20102013 — 6%12%; 20092012 — 17%14%; and 20082011 — 17%10%. These percentages reflectinclude certain fuel surcharge reductions that are associated with our annual base rate increases.
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 GuangzhouCologne/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 ParisCologne/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.”
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Fuel Supplies and Costs
During 2010,2013, FedEx Express purchased jet fuel from various suppliers under contracts that vary in length and which provide for specificestimated 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 | ||||||
| 2010 | $ | 2,342 | 6.7 | % | ||||
| 2009 | 2,932 | 8.3 | ||||||
| 2008 | 3,396 | 8.9 | ||||||
| 2007 | 2,639 | 7.5 | ||||||
| 2006 | 2,497 | 7.7 | ||||||
Fiscal Year | Total Jet Fuel Cost (in millions) | Percentage of Consolidated Revenues | ||||||
2013 | $ | 3,683 | 8.3 | % | ||||
2012 | 3,867 | 9.1 | ||||||
2011 | 3,178 | 8.1 | ||||||
2010 | 2,342 | 6.7 | ||||||
2009 | 2,932 | 8.3 | ||||||
Most of FedEx Express’s requirement for vehicle fuel is purchased in bulk. The remainder of FedEx Express’s requirement isneeds are 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 capacityspeed of scheduled service, ability to track packages, extent of geographic coverage, reliability and innovative service offerings.
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, airfreightair freight forwarders and the U.S. Postal Service.USPS. 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, 2010,2013, FedEx Express employed approximately 93,000112,000 permanent full-time and 48,00048,700 permanent part-time employees, of which approximately 16%14% are employed in the Memphis area. FedEx Express’s international employees in the aggregate represent approximately 27%37% of all employees. FedEx Express believes its relationship with its employees is excellent.
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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.
FedEx Trade Networks
FedEx Trade Networks provides international trade services, specializing in customs brokerage and global ocean and air freight forwarding. During 2010,Since the beginning of 2013, FedEx Trade Networks initiatedcontinued to execute an aggressive plan to expand its global freight forwarding presence — by opening additional facilities (over two dozen new140 freight forwarding offices have already been opened)are now open), including in Glasgow, Scotland, Bangkok, Thailand, Rio de Janeiro, Brazil, Guadalajara and Monterrey, Mexico, and Dublin, Ireland, 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 100approximately 180 customs areas worldwide. In 2013, FedEx Trade Networks completed its mission to enable ACE (Automated Commercial Environment) entry summary filing at all U.S. ports of entry — ACE is U.S. Customs and Border Protection’s new automation system, and by getting on board early, FedEx Trade Networks has developed its expertise and improved its system capabilities for the new regulatory environment. FedEx Trade Networks has approximately 3,5004,570 employees and 120146 offices in 95123 service locations throughout North America and in Asia, Europe, the Middle East, Latin America and Latin America. Other offices are maintained through dedicated agents.
FedEx SupplyChain Systems
FedEx SupplyChain Systems (formerly known as FedEx Global Supply Chain Services and formerly included in the FedEx Services segment) was reorganized as part of the FedEx Express segment. The company offersis an integrated logistics provider offering a range of supply chain solutions includingthat leverage FedEx information technology and transportation networks around the world. The company offers services that include critical inventory logistics, transportation management fulfillment and fleet services. The company focuses ontemperature-controlled transportation through a network of owned and managed resources — all tightly integrated via advanced information technology-sensitive businesstechnology systems. FedEx SupplyChain also now offers expanded visibility and control features, as well as new stocking locations to meet the needs of itssupport worldwide FedEx Critical Inventory Logistics customers and to drive transportation business to other FedEx operating companies.
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-guaranteedmoney-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 StatesU.S. population and overnight service of up to 400 miles to nearly 100% of the continental United StatesU.S. 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.
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The company offers our FedEx Home Delivery service, which reaches nearly 100% of U.S. residences. FedEx Home Delivery is dedicated exclusively 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.
In April 2013, we launched FedEx Delivery Manager, which allows our U.S. residential customers to customize home deliveries to fit their schedule by providing a range of options to schedule dates, locations and times of delivery. By signing up atwww.fedex.com, customers can receive notification of FedEx Ground packages en route to their homes, and can choose various delivery options.
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 customer charged the shipment was picked up byto 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 20102013 was based on the average diesel fuel price published for April 2010.2013. 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 atfedex.comapproximately two weeks before the surcharge is applicable.
Operations
FedEx Ground operates a multiple hub-and-spoke sorting and distribution system consisting of 520528 facilities, including 3233 hubs, in the U.S.United States and Canada. FedEx Ground conducts its operations primarily with approximately 26,30035,640 owner-operated vehicles and 30,400approximately 38,100 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.”
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As of May 31, 2010,2013, FedEx Ground had approximately 44,900 employees and 12,100 independent contractors. 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.
Independent Contractor Model
Although FedEx Ground believes its relationship with its independent contractors is generally excellent, the company is involved in numerous lawsuits and other proceedings (such as state tax audits or other administrative challenges) where the classification of theits independent contractors is at issue.issue, a number of recent judicial decisions support the company’s classification, 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 1618 of the accompanying consolidated financial statements.
FedEx Ground has made changes to its relationships with contractorsthe small businesses it contracts with that, among other things, provide incentives for improved service and enhanced regulatory and other compliance by the contractors. For example:
In addition, because of state-specific legal and regulatory issues, FedEx Ground is requiring its contractors toonly contracts with businesses that (i) beare organized as corporations registered and in good standing under applicable state law, and (ii) treatensure that their personnel who provide services under theiran operating agreement with FedEx Ground are treated as their employees. While many contractors already satisfy these requirements, other contractors will be required to meet these requirements prior to renewal of their contract, and special incentives are being offered to those who adopt the change and meet the requirements by the end of February 2011.
Ground’s package volume was delivered by business owners operating multiple routes.
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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 ServiceUSPS 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 ServiceUSPS facility for final delivery by a postal carrier. Through its network of 2526 distribution hubs and approximately 4,5007,430 employees, FedEx SmartPost provides delivery Monday through Saturday to all residential addresses in the U.S.,United States, including PO Boxes and military destinations. FedEx SmartPost also provides service into Canada for U.S. shippers by usingFor more information about our relationship with the residential delivery capabilitiesUSPS, see Item 1A of the 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 viafedex.comthis Annual Report on Form 10-K (“Risk Factors”).
FedEx Freight Segment
FedEx Freight Corporation
FedEx Freight Corporation providesis a full rangeleading North American provider of LTL freight services, through itsoffering choice, simplicity and reliability to meet the needs of LTL shippers — FedEx Freight (fast-transit LTL freight services), FedEx National LTL (economical LTL freight services)Priority, when speed is critical to meet supply chain needs, and FedEx Freight Canada businesses, and is knownEconomy, when time can be traded for its exceptional service, reliability and on-time performance.
Through its many service offerings, FedEx Freight can match customers’ time-critical needs with reducedindustry leading transit times or after-hours pickup or delivery.times. With the expansion of FedEx Freight’s fully integrated Web siteelectronic solutions, LTL shippers have the convenience of a single shipping and other e-tools, including a bill of lading generatortracking solution for FedEx Freight, FedEx Express and e-mail delivery notification,FedEx Ground. These solutions make freight shipping easier and bringprovide customers closereasy access to their own account information. The FedEx Freight Advance Notice service feature available on FedEx Freight 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. TheCustomers can also process cross-border LTL shipments to and from Canada and Mexico through FedEx Ship Manager Software, FedEx Ship Manager Server and FedEx Web Services. Additionally, FedEx Freight A.M. service offers freight delivery by 10:30 a.m. within and between the United States and Canada, backed by a money-back guarantee. FedEx Freight and FedEx National LTL havehas 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.
As of May 31, 2010,2013, FedEx Freight Corporation was operating approximately 60,00059,000 vehicles and trailers from a network of 492370 service centers, and the FedEx Freight segment had approximately 34,00033,700 employees. William J. Logue is the President and Chief Executive Officer of FedEx Freight, Corporation, which is based in Memphis, Tennessee. FedEx Freight’s primary multiregional LTL freight competitors are Con-WayYRC Worldwide Inc. (which includes YRC Regional Transportation and YRC Freight), Con-way Freight a(a subsidiary of Con-way Inc.), YRC Regional Transportation, a division of YRC WorldwideUPS Freight, Old Dominion Freight Line, Inc., and UPS Freight. FedEx National LTL’s primary LTL freight competitors are YRC National Transportation, a division of YRC Worldwide Inc., and ABF Freight System, Inc.
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FedEx Custom Critical provides a range of expedited, time-specific freight-shipping services throughout the United States, Canada and Mexico. Among its divisionsservices 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; andsecurity. In addition, its subsidiary FedEx Truckload Brokerage which 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.year. 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. In 2013, FedEx Custom Critical launched a new service called ShipmentWatch, an offering through which FedEx Custom Critical manages SenseAware® devices to track customers’ shipments — by programming the device to the customer’s requirements prior to the shipment, sending the device to the shipper and then proactively monitoring the shipment from pickup to delivery. FedEx Custom Critical utilizes approximately 1,4001,350 vehicles, operated by owner-operatorsindependent contractors and their drivers, which are dispatched out of approximately 150140 geographically-based staging areas.
FedEx Services Segment
FedEx Services
FedEx Services provides our other companies with sales, marketing, information technology, andcommunications, customer service and certain other back-office support. Through FedEx Services and its subsidiary FedEx Customer Information Services, Inc.,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, 2010,2013, the FedEx Services segment had approximately 37,10033,300 employees (including 18,700approximately 15,500 at FedEx Office).
Customer 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.
Thefedex.comWeb site was launched over fifteennearly 20 years ago, and during that time, customers have shipped and tracked billions of packages atfedex.com. Thefedex.comWeb site is widely recognized for its speed, ease of use and customer-focused features. Atfedex.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 Tracking provides customers with a consolidated view of inbound and 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 Android™ smartphones, and includes enhanced support for Apple products, such as the iPhone®, iPod Touchtouch® and iPad.iPad® mobile digital devices. The FedEx Mobile website has expanded to more than 220 countries and territories and 25 languages. FedEx Mobile allows customers to track the status of packages, create shipping labels, get account-specific rate quotes and access drop-off location datainformation. FedEx Office has its own iPhone® app that allows customers to print directly from their smartphones to any FedEx Office location in the United States or have the order delivered right to their door, while also allowing customers to get account-specific pricing, track print orders or packages, or find the nearest FedEx Office location. FedEx Office self-serve printers give customers even more flexibility by allowing direct USB access to print documents, as well as the ability to retrieve documents submitted via Google Cloud Print, HP ePrint, Breezy and Canon Forms & Print Services for FedEx shipments.Salesforce with a secure retrieval code. FedEx also uses wireless data collection devices to scan bar codes on shipments, thereby enhancing and accelerating the package information available to our customers.
FedEx innovation continued in 2013 with the following enhancements:
FedEx Delivery Manager, which allows our U.S. residential customers to customize home deliveries to fit their schedule by providing a range of options to schedule dates, locations and times of delivery.
| • | The FedEx Ship to Friends app that allows people who use Facebook® to prepare and pay for a U.S. domestic shipment without leaving Facebook®. |
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FSM@fedex.com Integration Manager, which is a web-based tool for business owners who manage multiple stores online, working seamlessly with e-commerce platforms such as eBay, Amazon, Etsy, Google Checkout and Yahoo to allow business owners to organize, review and process their shipments from multiple stores in one place.
Marketing
The FedEx brand name is a symbol for high-qualitysymbolic of outstanding service, reliability and speed. FedEx is one of the most widely recognized brands in the world. Special emphasisEmphasis is placed on promoting and protecting the FedEx brand, one of our most important assets. As a result, FedEx is one of the most widely recognized brands in the world. In addition to traditionaltelevision, print and broadcastdigital 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”
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.
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 global 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.
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In addition, FedEx Office offers packing services, at virtually all U.S. Office and Print Centers, and packing supplies and boxes are included in FedEx Office’sits 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.
Almost all FedEx Office locations provide local pick-up and delivery service — an offering whereby a FedEx courier picks up a customer’s job at the customer’s location and then returns the finished product to the customer — with options and service areas varying by location. Additionally, through cloud printing with FedEx Office Print Online, customers can upload files from some of the most popular cloud Web sites including Box, Dropbox and Google Drive™ and then select from a variety of printing options, and can choose to pick up their completed order at FedEx Office locations nationwide or have the order delivered right to their door. Customers also have the ability to access these same cloud files through a USB drive or mobile device at self-serve copiers in FedEx Office locations, giving them seamless access to their files across our online and retail channels. Lastly, we now offer our FedEx SameDay City service in select U.S. ZIP codes, which allows customers to get their packages across town in the same day with local delivery by FedEx Office uniformed employees.
As of May 31, 2010,2013, FedEx Office operated approximately 1,9501,800 locations, including 13530 locations in sevenfour foreign countries, as well as 30 commercial20 closed 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 Customer Information Services, FedEx National LTL,TechConnect, FedEx Trade Networks, FedEx SmartPost and FedEx Custom Critical, among others, are trademarks, service marks and trade names of Federal Express Corporation, or the respective companies, for which registrations, or applications for registration, are on file.file, as applicable. 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.
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 our pilots, and thus require us to hire additional pilots and modify certain of our aircraft. When the FAA issued final regulations in December 2011, all-cargo carriers, including FedEx Express, were exempt from these new pilot fatigue requirements, and instead required to continue complying with previously enacted flight and duty time rules. In December 2012, the FAA reaffirmed the exclusion of us from the new rule. It is reasonably possible, however, that future security or 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. In July 2007, theThe TSA issuedcontinues to usrequire FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contained many newcontains evolving and enhancedstrict security requirements. These requirements are not static, but will change periodically as the result of regulatory and legislative requirements, imposing additional security costs and to respond to evolving threats. Until these requirements are adopted, we cannot determine the effect that these new rules will have oncreating a level of uncertainty for our cost structure or our operating results.operations. It is reasonably possible however, that these rules or other future security requirements could impose material costs on us.
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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 FedEx National LTL 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.
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. TheIn addition, 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 within foreign countries,outside of the United States, such as FedEx Express’s growing international domestic operations, are also subject to current and potential regulations, including certain postal regulations and licensing requirements, that restrict, make difficult and sometimes prohibit, ourthe ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic transportation and logistics market. As an example, in 2009, the Chinese government adopted postal regulation that excludes foreign-invested 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.
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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, 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 are now covered by the ETS requirements, and each year we are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. Because the European Union ETS is being contested by many countries on a number of fronts, and the effective date for parts of the ETS has been delayed until next year, the future impact on us is unclear. 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, the shipment of dangerous goods, 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 (airfreight(air freight forwarding). Our offshore operations are subject to similar regulation by the regulatory authorities of foreign jurisdictions.
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 most of 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 national (now global)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 is consideringhas, in the past, considered adopting changes in labor laws 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 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”).
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During 2013, a Dubai-based package consolidator tendered approximately 32,000 shipments to FedEx Express for handling, including 16 separate shipments for delivery to branches of Mir Business Bank in Russia and branches of Bank Melli in Azerbaijan, Iraq and Germany. Both banks are identified on the list of Specially Designated Nationals maintained by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”). Each of these shipments contained only documents. The aggregate revenue for these shipments was $212. There was no profit associated with these shipments.
This consolidator also tendered six separate shipments to FedEx Express for delivery to Iranian embassies and a consulate in Germany, Malaysia, Australia, Thailand and Argentina. These shipments contained documents, books, magazines, CDs, toys, nuts and/or candy. The aggregate revenue for these shipments was $218. There was no profit associated with these shipments.
FedEx Express’s handling of these shipments was inadvertent and not in accordance with our internal policies and procedures. Promptly upon learning of these shipments, FedEx Express canceled its agreements with the consolidator described above and certain other Dubai-based package consolidators and discontinued certain services in Dubai. We have implemented enhanced controls, procedures and other measures in connection with our international trade compliance programs that are designed to prevent these activities from recurring.
Our investigation into past shipments tendered by Dubai-based consolidators is ongoing. We have made initial voluntary disclosures to OFAC and will supplement these disclosures as our investigation is completed. We intend to fully cooperate with OFAC regarding these matters.
We present information about our risk factors on pages 7176 through 7581 of this Annual Report on Form 10-K.
None.
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.
Aircraft and Vehicles
As of May 31, 2010,2013, FedEx Express’s aircraft fleet consisted of the following:
| Maximum Operational | ||||||||||||||||
| Revenue Payload | ||||||||||||||||
| Description | Owned | Leased | Total | (Pounds per Aircraft)(1) | ||||||||||||
| Boeing B777F | 6 | 0 | 6 | (2) | 178,000 | |||||||||||
| Boeing MD11 | 33 | 26 | 59 | 164,200 | ||||||||||||
Boeing MD10-30(3) | 10 | 5 | 15 | 114,200 | ||||||||||||
| Boeing DC10-30 | 0 | 2 | 2 | (4) | 114,200 | |||||||||||
Boeing MD10-10(3) | 58 | 0 | 58 | 108,700 | ||||||||||||
| Airbus A300-600 | 35 | 36 | 71 | 85,600 | ||||||||||||
| Airbus A310-200/300 | 43 | 6 | 49 | 61,900 | ||||||||||||
| Boeing B757-200 | 36 | 0 | 36 | (5) | 45,800 | |||||||||||
| Boeing B727-200 | 75 | 2 | 77 | 38,200 | ||||||||||||
| ATR 72-202/212 | 13 | 0 | 13 | 14,660 | ||||||||||||
| ATR 42-300/320 | 26 | 0 | 26 | 10,880 | ||||||||||||
| Cessna 208B | 242 | 0 | 242 | 2,500 | ||||||||||||
| Cessna 208A | 10 | 0 | 10 | 1,900 | ||||||||||||
| Total | 587 | 77 | 664 | |||||||||||||
Description | Owned | Leased | Total | Maximum Gross Structural Payload (Pounds per Aircraft) (1) | ||||||||||||
Boeing B777F | 23 | 0 | 23 | 233,300 | ||||||||||||
Boeing MD11 | 38 | 26 | 64 | 192,600 | ||||||||||||
Boeing MD10-30 | 13 | 4 | 17 | 175,900 | ||||||||||||
Boeing MD10-10 | 47 | 0 | 47 | 137,500 | ||||||||||||
Airbus A300-600 | 35 | 36 | 71 | 106,600 | ||||||||||||
Airbus A310-200/300 | 30 | 0 | 30 | 83,170 | ||||||||||||
Boeing B757-200 | 89 | 0 | 89 | (2) | 63,000 | |||||||||||
Boeing B727-200 | 14 | 0 | 14 | 59,300 | ||||||||||||
ATR 72-202/212 | 21 | 0 | 21 | 17,970 | ||||||||||||
ATR 42-300/320 | 26 | 0 | 26 | 12,070 | ||||||||||||
Cessna 208B | 245 | 0 | 245 | 2,830 | ||||||||||||
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Total | 581 | 66 | 647 | |||||||||||||
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The MD11s are three-engine, wide-bodied aircraft that have a longer range and larger capacity than DC10s or MD10s.
The MD10s are three-engine, wide-bodied DC10 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 B727 fleet was retired in June 2013.
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 “wet leases” 46leases smaller piston-engineaircraft to operators, and turbo-propthese operators use the aircraft which feedto move FedEx packages to and from airports primarily outside the U.S. served by FedEx Express’s larger jet aircraft. The wet lease agreements generally call for the owner-lessorlessee to provide the aircraft, flight crews, insurance and maintenance, as well as fuel and other supplies required to operate the aircraft.aircraft, and FedEx Express’s wetExpress reimburses the lessee for these items. The lease agreements are for terms not exceeding one year and are generally cancelable upon 30 days’ notice.
At May 31, 2010,2013, FedEx Express operated approximately 49,00054,100 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, 2010,2013, with the year of expected delivery:
| B757 | B777F(1) | ATR 72 | Total | |||||||||||||
| 2011 | 16 | 4 | 8 | 28 | ||||||||||||
| 2012 | 8 | 5 | — | 13 | ||||||||||||
| 2013 | — | 5 | — | 5 | ||||||||||||
| 2014 | — | 3 | — | 3 | ||||||||||||
| 2015 | — | 3 | — | 3 | ||||||||||||
| Thereafter | — | 10 | — | 10 | ||||||||||||
| Total | 24 | 30 | 8 | 62 | ||||||||||||
| B757 | B767F(1) | B777F(2) | Total | |||||||||||||
2014 | 13 | 4 | 2 | 19 | ||||||||||||
2015 | — | 12 | — | 12 | ||||||||||||
2016 | — | 10 | 2 | 12 | ||||||||||||
2017 | — | 10 | — | 10 | ||||||||||||
2018 | — | 10 | 2 | 12 | ||||||||||||
Thereafter | — | 4 | 14 | 18 | ||||||||||||
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Total | 13 | 50 | 20 | 83 | ||||||||||||
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| (1) | As of May 31, 2013, our obligation to purchase |
| (2) | As of May 31, |
As of May 31, 2010,2013, deposits and progress payments of $437$414 million had been made toward aircraft purchases and other planned aircraft-related transactions. Also see Note 1517 of the accompanying consolidated financial statements for more information about our purchase commitments.
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At May 31, 2010,2013, 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 | 465,000 | Memphis-Shelby County Airport Authority | 2036 | |||||||||||||
| �� | ||||||||||||||||||
| Indianapolis, Indiana | 335 | 2,509,000 | 212,000 | Indianapolis Airport Authority | 2028 | |||||||||||||
Regional | ||||||||||||||||||
| Fort Worth, Texas | 168 | 948,000 | 76,000 | Fort Worth Alliance Airport Authority | 2021 | |||||||||||||
| Newark, New Jersey | 70 | 595,000 | 154,000 | Port Authority of New York and New Jersey | 2011 | |||||||||||||
| 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 | Month-to-month/2025(5) | |||||||||||||
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 | |||||||||||||
Guangzhou, China(4) | 155 | 882,000 | 61,000 | Guangdong Airport Management Corp. | 2029 | |||||||||||||
Location | Acres | Square Feet | Sorting Capacity (per hour) (1) | Lessor | Lease Expiration Year | |||||||||||||
National | ||||||||||||||||||
Memphis, Tennessee | 784 | 3,514,000 | 475,000 | Memphis-Shelby County Airport Authority | 2036 | |||||||||||||
Indianapolis, Indiana | 316 | 2,509,000 | 214,000 | 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 | 66 | 597,000 | 23,000 | City of Chicago | 2018/2028 | (6) | ||||||||||||
Los Angeles, California | 34 | 305,300 | 57,000 | City of Los Angeles | 2021/2025 | (7) | ||||||||||||
International | ||||||||||||||||||
Anchorage, Alaska(2) | 64 | 332,000 | 25,000 | Alaska Department of Transportation and Public Facilities | 2023 | |||||||||||||
Paris, France(3) | 111 | 1,238,000 | 63,000 | Aeroports de Paris | 2029 | |||||||||||||
Cologne, Germany(3) | 7 | 325,000 | 20,000 | Cologne Bonn Airport | 2040 | |||||||||||||
Guangzhou, China(4) | 155 | 882,000 | 64,000 | 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. |
Property is held under two separate leases — lease for original hub expires in 2018, and lease for new facility expires in 2028. |
| (7) | Property is held under two separate leases — lease for sorting and handling facility |
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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; Frankfurt;Kong, Taiwan, Dubai and Miami. FedEx Express is constructing a state-of-the-art, solar-electric sorting-and-handling facility in Germany at the Cologne/Bonn airport and intends to relocate the Frankfurt operations there, beginning later this calendar year.
Administrative and Other Properties and Facilities
The World Headquarters of FedEx Express is located in southeastern Shelby County, Tennessee. TheFedEx Express owns its headquarters campus, which comprises nine separate buildings with approximately 1.3 million square feet of space. FedEx Express also leases 3439 facilities in the Memphis area for administrative offices and warehouses.
FedEx Express owns or leases approximately 700645 facilities for city station operations in the United States. In addition, approximately 400560 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, 2010,2013, FedEx Express had approximately 46,00038,500 Drop Boxes, including 5,000 Drop Boxes outside U.S. Post Offices. As of May 31, 2010,Boxes. FedEx Express also hadhas approximately 13,00012,900 FedEx Authorized ShipCenters and other types of staffed drop-off locations, such as FedEx Office centers. Internationally, FedEx Express had approximately 4,0004,850 drop-off locations.
FedEx Ground Segment
FedEx Ground’s corporate offices and information and data centers are located in the Pittsburgh, Pennsylvania, area in an approximately 500,000 square-foot building owned by FedEx Ground. As of May 31, 2010,2013, FedEx Ground had approximately 30,40038,100 company-owned trailers and owned or leased 520528 facilities, including 3233 hubs. In addition, approximately 26,30035,640 owner-operated vehicles support FedEx Ground’s business. Of the 320331 facilities that support FedEx Home Delivery, 225243 are co-located with existing FedEx Ground facilities. Leased facilities generally have terms of five years or less. The 3233 hub facilities are strategically located to cover the geographic area served by FedEx Ground. The hub facilities average approximately 325,000357,000 square feet and range in size from 54,000 to 715,000 square feet.
FedEx Freight Segment
FedEx Freight Corporation’sFreight’s corporate headquarters are located in Memphis, Tennessee. AdministrativeTennessee, with some administrative offices for the FedEx Freight business are in Harrison, Arkansas, and for the FedEx National LTL business are in Lakeland, Florida.Arkansas. As of May 31, 2010,2013, FedEx Freight Corporation operated approximately 60,00059,000 vehicles and trailers and 492370 service centers, which are strategically located to provide service to virtually all U.S. ZIP Codes.throughout North America. These facilities range in size from 850 to 221,300220,000 square feet of office and dock space. FedEx Custom Critical’s headquarters are located in Green, Ohio.
23
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, 2010,2013, FedEx Office operated approximately 1,9501,800 locations, including 13530 locations in sevenfour foreign countries, as well as 30 commercial20 closed 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(more than 940 locations).
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 1618 of the accompanying consolidated financial statements.
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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 | 68 | 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 | 59 | 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. | ||||||
Name and Office | Age | Positions and Offices Held and Business Experience | ||||
Robert B. Carter Executive Vice President — FedEx Information Services and Chief Information Officer | 54 | 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. | ||||
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T. Michael Glenn Executive Vice President — Market Development and Corporate Communications | 57 | 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 | ||||||
Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer | 59 | 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. | ||||||
Name and Office | Age | Positions and Offices Held and Business Experience | ||||
William J. Logue President and Chief Executive Officer, FedEx Freight Corporation | 55 | 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. | ||||
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Henry J. Maier President and Chief Executive Officer, FedEx Ground | 59 | President and Chief Executive Officer of FedEx Ground since | ||||||
Christine P. Richards Executive Vice President, General Counsel and Secretary | 58 | 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.
27
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 12, 2010,2013, there were 14,92613,151 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, 2010 | ||||||||||||
| First Quarter | $ | 70.27 | $ | 49.76 | $ | 0.11 | ||||||
| Second Quarter | 85.43 | 68.06 | 0.11 | |||||||||
| Third Quarter | 92.59 | 75.17 | 0.11 | |||||||||
| Fourth Quarter | 97.75 | 78.29 | 0.11 | |||||||||
| Fiscal Year Ended May 31, 2009 | ||||||||||||
| First Quarter | $ | 93.69 | $ | 71.33 | $ | 0.11 | ||||||
| Second Quarter | 96.65 | 53.90 | 0.11 | |||||||||
| Third Quarter | 76.94 | 42.37 | 0.11 | |||||||||
| Fourth Quarter | 62.16 | 34.02 | 0.11 | |||||||||
| Sale Prices | Dividend | |||||||||||
| High | Low | |||||||||||
Fiscal Year Ended May 31, 2013 | ||||||||||||
Fourth Quarter | $ | 109.66 | $ | 90.61 | $ | 0.14 | ||||||
Third Quarter | 107.50 | 87.99 | 0.14 | |||||||||
Second Quarter | 94.26 | 83.92 | 0.14 | |||||||||
First Quarter | 93.17 | 83.80 | 0.14 | |||||||||
Fiscal Year Ended May 31, 2012 | ||||||||||||
Fourth Quarter | $ | 96.89 | $ | 84.86 | $ | 0.13 | ||||||
Third Quarter | 97.19 | 76.95 | 0.13 | |||||||||
Second Quarter | 85.75 | 64.07 | 0.13 | |||||||||
First Quarter | 98.66 | 72.16 | 0.13 | |||||||||
FedEx also paid a cash dividend on July 1, 20102013 ($0.120.15 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.
| Maximum | ||||||||||||||||
| Total Number of | Number of | |||||||||||||||
| Shares Purchased | Shares That May | |||||||||||||||
| as Part of | Yet Be Purchased | |||||||||||||||
| Publicly | Under the | |||||||||||||||
| Total Number of | Average Price | Announced | Programs | |||||||||||||
| Period | Shares Purchased | Paid per Share | Programs | (in millions) | ||||||||||||
| Mar. 1-31, 2010 | 42,000 | $ | 90.16 | 42,000 | 5.708 | |||||||||||
| Apr. 1-30, 2010 | — | — | — | 5.708 | ||||||||||||
| May 1-31, 2010 | — | — | — | 5.708 | ||||||||||||
Total | 42,000 | $ | 90.16 | 42,000 | — | |||||||||||
2013.
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Selected financial data as of and for the five years ended May 31, 20102013 is presented on page 124133 of this Annual Report on Form 10-K.
Management’s discussion and analysis of results of operations and financial condition is presented on pages 3639 through 7581 of this Annual Report on Form 10-K.
Quantitative and qualitative information about market risk is presented on page 123132 of this Annual Report on Form 10-K.
FedEx’s consolidated financial statements, together with the notes thereto and the report of Ernst & Young LLP dated July 15, 20102013 thereon, are presented on pages 7884 through 122131 of this Annual Report on Form 10-K.
None.
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, 20102013 (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 7682 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 7783 of this Annual Report on Form 10-K.
29
During our fiscal quarter ended May 31, 2010,2013, 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.
None.
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 20102013 annual meeting of stockholders, which will be held on September 27, 2010,23, 2013, 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.”
Information regarding director and executive compensation will be presented in FedEx’s definitive proxy statement for its 20102013 annual meeting of stockholders, which will be held on September 27, 2010,23, 2013, 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 20102013 annual meeting of stockholders, which will be held on September 27, 2010,23, 2013, and is incorporated herein by reference.
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 20102013 annual meeting of stockholders, which will be held on September 27, 2010,23, 2013, and is incorporated herein by reference.
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Information regarding the fees for services provided by Ernst & Young LLP during 20102013 and 20092012 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 20102013 annual meeting of stockholders, which will be held on September 27, 2010,23, 2013, and is incorporated herein by reference.
(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 15, 20102013 thereon, are listed on pages 3437 through 3538 and presented on pages 7884 through 122131 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 15, 20102013 thereon, is presented on pages 125134 through 126135 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-7E-10 for a list of the exhibits being filed or furnished with or incorporated by reference into this Annual Report on Form 10-K.
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SIGNATURES
| FEDEX CORPORATION | ||||||
| Dated: July 15, | 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 15, | ||||
Frederick W. Smith | ||||||
/s/ ALAN B. GRAF, JR. | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | July 15, | ||||
Alan B. Graf, Jr. | ||||||
/s/ JOHN L. MERINO | Corporate Vice President and Principal Accounting Officer (Principal Accounting Officer) | July 15, | ||||
John L. Merino | ||||||
/s/ JAMES L. BARKSDALE * | Director | July 15, 2013 | ||||
James L. Barksdale | ||||||
/s/ JOHN A. EDWARDSON * | Director | July 15, 2013 | ||||
John A. Edwardson | ||||||
/s/ SHIRLEY ANN JACKSON * | Director | July 15, 2013 | ||||
Shirley Ann Jackson | ||||||
/s/ STEVEN R. LORANGER * | Director | July 15, 2013 | ||||
Steven R. Loranger | ||||||
Signature | Capacity | Date | ||
/s/ GARY W. LOVEMAN * | Director | July 15, 2013 | ||
Gary W. Loveman | ||||
/s/ R. BRAD MARTIN * | Director | July 15, 2013 | ||
R. Brad Martin | ||||
/s/ JOSHUA COOPER RAMO * | Director | July 15, 2013 | ||
Joshua Cooper Ramo | ||||
/s/ SUSAN C. SCHWAB * | Director | July 15, 2013 | ||
Susan C. Schwab | ||||
/s/ JOSHUA I. SMITH * | Director | July 15, 2013 | ||
Joshua I. Smith | ||||
/s/ DAVID P. STEINER * | Director | July 15, 2013 | ||
David P. Steiner | ||||
/s/ PAUL S. WALSH * | Director | July 15, 2013 | ||
Paul S. Walsh | ||||
*By: /s/ JOHN L. MERINO John L. Merino Attorney-in-Fact | July 15, 2013 | |||
FINANCIAL SECTION TABLE OF CONTENTS
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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 comprisedcomposed of three major sections: Results of Operations, Financial Condition and Critical Accounting Estimates. These sections include the following information:
Results of Operationsoperations includes an overview of our consolidated 20102013 results compared to 2009,2012, and 20092012 results compared to 2008.2011. This section also includes a discussion of key actions and events that impacted our results, as well as our outlook for 2011.2014.
The overview is followed by a financial summary and analysis (including a discussion of both historical operating results and our outlook for 2011)2014) 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 flow statementsflows and our financial commitments.
Critical accounting estimates discusses those financial statement elements that we believe are important to understanding certain of the material judgments and assumptions incorporated in our reported financial results.
We conclude with a discussion of risks and uncertainties that may impact our financial and operating 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 North American provider of small-package ground delivery services; and the FedEx Freight, LTL Group, which comprises the Inc. (“FedEx Freight and FedEx National LTL businesses of FedEx Freight Corporation,Freight”), a leading U.S.North American 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, information technology, communications and customer serviceback-office 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.
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the overall customer demand for our various services;services based on macro-economic factors and the global economy;
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, 20102013 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.
CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2010 | 2009(1) | 2008(2) | 2010/2009 | 2009/2008 | ||||||||||||||||
| Revenues | $ | 34,734 | $ | 35,497 | $ | 37,953 | (2 | ) | (6 | ) | ||||||||||
| Operating income | 1,998 | 747 | 2,075 | 167 | (64 | ) | ||||||||||||||
| Operating margin | 5.8 | % | 2.1 | % | 5.5 | % | 370 | bp | (340 | )bp | ||||||||||
| Net income | $ | 1,184 | $ | 98 | $ | 1,125 | NM | (91 | ) | |||||||||||
| Diluted earnings per share | $ | 3.76 | $ | 0.31 | $ | 3.60 | NM | (91 | ) | |||||||||||
| Percent Change | ||||||||||||||||||||
| 2013(1) | 2012(2) | 2011(3) | 2013/2012 | 2012/2011 | ||||||||||||||||
Revenues | $ | 44,287 | $ | 42,680 | $ | 39,304 | 4 | 9 | ||||||||||||
Operating income | 2,551 | 3,186 | 2,378 | (20 | ) | 34 | ||||||||||||||
Operating margin | 5.8 | % | 7.5 | % | 6.1 | % | (17 | 0)bp | 14 | 0bp | ||||||||||
Net income | $ | 1,561 | $ | 2,032 | $ | 1,452 | (23 | ) | 40 | |||||||||||
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Diluted earnings per share | $ | 4.91 | $ | 6.41 | $ | 4.57 | (23 | ) | 40 | |||||||||||
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| (1) | Operating expenses include |
| (2) | Operating expenses include |
| (3) | 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 at FedEx Express. |
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| Revenues | Operating Income | |||||||||||||||||||||||||||||||
| Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||||||||||||
| 2010/ | 2009/ | 2010/ | 2009/ | 2010/ | 2009/ | 2010/ | 2009/ | |||||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||||
FedEx Express segment(1) | $ | (809 | ) | $ | (2,057 | ) | (4 | ) | (8 | ) | $ | 333 | $ | (1,107 | ) | 42 | (58 | ) | ||||||||||||||
| FedEx Ground segment | 392 | 296 | 6 | 4 | 217 | 71 | 27 | 10 | ||||||||||||||||||||||||
FedEx Freight segment(2) | (94 | ) | (519 | ) | (2 | ) | (11 | ) | (109 | ) | (373 | ) | �� | (248 | ) | (113 | ) | |||||||||||||||
FedEx Services segment(3) | (207 | ) | (161 | ) | (10 | ) | (8 | ) | 810 | 81 | 100 | 9 | ||||||||||||||||||||
| Other and eliminations | (45 | ) | (15 | ) | NM | NM | — | — | — | — | ||||||||||||||||||||||
| $ | (763 | ) | $ | (2,456 | ) | (2 | ) | (6 | ) | $ | 1,251 | $ | (1,328 | ) | 167 | (64 | ) | |||||||||||||||
| Revenues | Operating Income | |||||||||||||||||||||||||||||||
| Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||||||||||||
| 2013/ 2012 | 2012/ 2011 | 2013/ 2012 | 2012/ 2011 | 2013/ 2012 | 2012/ 2011 | 2013/ 2012 | 2012/ 2011 | |||||||||||||||||||||||||
FedEx Express segment(1) | $ | 656 | $ | 1,934 | 2 | 8 | $ | (705 | ) | $ | 32 | (56 | ) | 3 | ||||||||||||||||||
FedEx Ground segment(2) | 1,005 | 1,088 | 10 | 13 | 24 | 439 | 1 | 33 | ||||||||||||||||||||||||
FedEx Freight segment(3) | 119 | 371 | 2 | 8 | 46 | 337 | 28 | 193 | ||||||||||||||||||||||||
FedEx Services segment | (91 | ) | (13 | ) | (5 | ) | (1 | ) | — | — | — | — | ||||||||||||||||||||
Other and eliminations | (82 | ) | (4 | ) | NM | NM | — | — | — | — | ||||||||||||||||||||||
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| $ | 1,607 | $ | 3,376 | 4 | 9 | $ | (635 | ) | $ | 808 | (20 | ) | 34 | |||||||||||||||||||
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| (1) | FedEx Express segment | |
| (2) | FedEx Ground segment 2013 operating expenses include $105 million of allocated business realignment costs. |
| (3) | FedEx Freight segment 2013 operating expenses include $50 million of direct and allocated business realignment costs. Additionally, FedEx Freight segment 2011 operating expenses include $133 million in costs associated with | |
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Overview
Our results for 20102013 reflect the continueda significant impact of the global recession,certain charges (described below), which negatively impacted volumesour earnings by $1.31 per diluted share. Beyond these factors, our results for 2013 benefited from the strong performance of FedEx Ground, which continued to grow market share, and yields principallyongoing profit improvement at FedEx Freight. However, a decline in profitability was experienced at our FedEx Express segment resulting from ongoing shifts in demand from our priority international services to economy international services which could not be fully offset by network cost and capacity reductions in 2013.
Our 2013 results include business realignment costs of $560 million, primarily related to our voluntary cash buyout program (see “Business Realignment, Impairment and Other Charges” for additional information). Furthermore, in May 2013, we made the first halfdecision to retire from service 10 aircraft and related engines, which resulted in a noncash asset impairment charge of the fiscal year. A gradual improvement$100 million.
In addition, actions in economic conditions during the third quarter and a strong fourth quarter performance, particularly in international shipping volumes2012 at FedEx Express allowed usrelated to end 2010 with positive momentum. Although revenues declined,fleet modernization resulted in the accelerated retirement of certain aircraft which negatively impacted our earnings improved in 20102013 results by $69 million due to additional depreciation recorded for the inclusion in 2009shortened lives of a $1.2 billion charge related to goodwillthe aircraft.
Our 2012 revenues, operating income and other asset impairments. Asoperating margins reflected the global and U.S. economies began to emerge from recession in the second half of 2010, we experienced significant volume growth across allexceptional performance 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, ourimproved profitability at FedEx Freight segment had a difficult year resulting in anand increased yields across all our operating loss, as the pricing environment in the LTL market remained highly competitive due to excess industry capacity.
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The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group show selected volume trends (in thousands) for the years ended May 31:
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| (1) | International domestic average daily package volume includes our international intra-country express operations, including acquisitions in India (February 2011), Mexico (July 2011), Poland (June 2012), France (July 2012) and Brazil (July 2012). |
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Revenue
Revenues decreased 2% during 2010increased 4% in 2013 primarily due to yield decreasesdriven by increases in international domestic revenue at FedEx Express and thevolume growth at FedEx Ground. At FedEx Ground, revenues increased 10% in 2013 primarily due to volume growth from market share gains. At FedEx Express, revenues increased 2% due to increases in international domestic revenues from recent acquisitions and growth in our freight-forwarding business at FedEx Trade Networks. Base revenue growth at FedEx Express in 2013 was constrained by global economic conditions as shifts in demand from our priority international services to our economy international services and lower rates resulted in declines in international export package yields. At FedEx Freight, LTL Grouprevenues increased 2% as a result of lower fuel surchargeshigher yield and a continued competitive pricing environmentaverage daily LTL shipments.
During 2012, revenues increased 9% due to yield growth across all our transportation segments. At FedEx Express, revenues increased 8% in 2012 led by higher U.S. domestic and international export package yields. However, U.S. domestic package and international export package volumes declined due to weakening global economic conditions. Revenues increased 13% during 2012 at our FedEx Ground segment due to higher yields and strong demand for all our major services. At FedEx Express, our weighted-average U.S. domestic and outbound fuel surcharge was 6.20% in 2010 versus 17.45% in 2009. Increased volumes at all of our transportation segmentsFreight, revenues increased 8% during 2012 due to improved economic conditions in the second half of the fiscal year partially offset thehigher LTL yield decreases in 2010. At FedEx Express, International Priority (“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 the FedEx Freight LTL Group, discounted pricing drove an increase in average daily LTL freight shipments, but also resulted in significant yield declines during 2010.
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The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended May 31:
| 2010 | 2009 | 2008 | ||||||||||
| Operating expenses: | ||||||||||||
| Salaries and employee benefits | $ | 14,027 | $ | 13,767 | $ | 14,202 | ||||||
| Purchased transportation | 4,728 | 4,534 | 4,634 | |||||||||
| Rentals and landing fees | 2,359 | 2,429 | 2,441 | |||||||||
| Depreciation and amortization | 1,958 | 1,975 | 1,946 | |||||||||
| Fuel | 3,106 | 3,811 | 4,409 | |||||||||
| Maintenance and repairs | 1,715 | 1,898 | 2,068 | |||||||||
| Impairment and other charges | 18 | 1,204 | (1) | 882 | (2) | |||||||
| Other | 4,825 | 5,132 | 5,296 | |||||||||
| Total operating expenses | $ | 32,736 | $ | 34,750 | $ | 35,878 | ||||||
| 2013 | 2012 | 2011 | ||||||||||
Operating expenses: | ||||||||||||
Salaries and employee benefits | $ | 16,570 | $ | 16,099 | $ | 15,276 | ||||||
Purchased transportation | 7,272 | 6,335 | 5,674 | |||||||||
Rentals and landing fees | 2,521 | 2,487 | 2,462 | |||||||||
Depreciation and amortization | 2,386 | 2,113 | 1,973 | |||||||||
Fuel | 4,746 | 4,956 | 4,151 | |||||||||
Maintenance and repairs | 1,909 | 1,980 | 1,979 | |||||||||
Business realignment, impairment and other charges | 660 | (1) | 134 | (2) | 89 | (3) | ||||||
Other (4) | 5,672 | 5,390 | 5,322 | |||||||||
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Total operating expenses | $ | 41,736 | $ | 39,494 | $ | 36,926 | ||||||
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| Percent of Revenue | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
Operating expenses: | ||||||||||||
Salaries and employee benefits | 37.4 | % | 37.7 | % | 38.9 | % | ||||||
Purchased transportation | 16.4 | 14.9 | 14.4 | |||||||||
Rentals and landing fees | 5.7 | 5.8 | 6.3 | |||||||||
Depreciation and amortization | 5.4 | 5.0 | 5.0 | |||||||||
Fuel | 10.7 | 11.6 | 10.6 | |||||||||
Maintenance and repairs | 4.3 | 4.6 | 5.0 | |||||||||
Business realignment, impairment and other charges | 1.5 | (1) | 0.3 | (2) | 0.2 | (3) | ||||||
Other (4) | 12.8 | 12.6 | 13.5 | |||||||||
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Total operating expenses | 94.2 | 92.5 | 93.9 | |||||||||
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Operating margin | 5.8 | % | 7.5 | % | 6.1 | % | ||||||
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| (1) | Includes predominantly severance costs associated with our voluntary buyout program and charges resulting from the decision to retire 10 aircraft and related engines at FedEx Express. |
| (2) | Represents charges resulting from the decision to retire 24 aircraft and related |
| (3) | Represents charges associated with | |
| Percent of Revenue(1) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Operating expenses: | ||||||||||||
| Salaries and employee benefits | 40.4 | % | 38.8 | % | 37.4 | % | ||||||
| Purchased transportation | 13.6 | 12.8 | 12.2 | |||||||||
| Rentals and landing fees | 6.8 | 6.8 | 6.4 | |||||||||
| Depreciation and amortization | 5.6 | 5.6 | 5.1 | |||||||||
| Fuel | 8.9 | 10.7 | 11.6 | |||||||||
| Maintenance and repairs | 4.9 | 5.3 | 5.5 | |||||||||
| Impairment and other charges | 0.1 | 3.4 | 2.3 | |||||||||
| Other | 13.9 | 14.5 | 14.0 | |||||||||
| Total operating expenses | 94.2 | 97.9 | 94.5 | |||||||||
| Operating margin | 5.8 | % | 2.1 | % | 5.5 | % | ||||||
| (4) | Includes the |
Our 2013 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 continued to benefit 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 partially offset the earnings increase.
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Purchased transportation increased 15% in 20102013 due to actions to control spendingvolume growth at FedEx Ground, recent international business acquisitions and the inclusion in the prior yearexpansion of higher self-insurance reserve requirementsour freight forwarding business at FedEx Ground. Purchased transportation costsTrade Networks. Salaries and benefits increased 4%3% in 20102013 primarily due to increases in pension and group health insurance costs, partially offset by lower incentive compensation accruals. Other expenses increased utilization5% in 2013 primarily due to the impact of third-party transportation providers associated primarily with our LTL freight service asbusiness acquisitions and the reversal in 2012 of a result of higher shipment volumes.
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The following graph for our transportation segments shows our average cost of jet and vehicle fuel per gallon for the years ended May 31:
Fuel expense decreased 18%4% during 20102013 primarily due to decreaseslower jet fuel prices and lower aircraft fuel usage. Our fuel surcharges, which are more fully described in the average“Quantitative and Qualitative Disclosures About Market Risk” section of this MD&A, have a timing lag and are designed to pass through the price per gallon of fuel and fuel consumption, as we lowered flight hours and improved route efficiencies. In 2010, fuel prices rose during the beginning of the first quarter and slowly increased, with significantly less volatility than in 2009. The changenot included in our fuel surcharges for FedEx Express and FedEx Ground lagged the price increase by approximately sixbase shipping rates to eight weeks. Accordingly, basedour customers. Based on a static analysis of the net impact to operating income of year-over-year changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel had a significant negative impact toon operating income in 2010. In contrast, we experienced significant fuel price and fuel surcharge volatility in 2009, when fuel prices peaked at their historical highs before beginning to rapidly decrease, which resulted in a significant benefit to operating income in 2009.
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 trendstrend in revenue and yield growth, we have included the comparative fuel surcharge rates in effect for 2010, 20092013, 2012 and 20082011 in the accompanying discussions of each of our transportation segments.
In 2012, operating income increased 34% and operating margin declinedincreased 140 basis points driven by higher yields across all our transportation segments due to higher fuel surcharges and our yield management programs. Our results also significantly benefited in 2009, as weak economic conditions drove decreases2012 from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. FedEx Ground segment operating income increased $439 million in volumes at FedEx Express2012 driven by higher yields and thestrong demand for all our major services. At our FedEx Freight LTL Group and contributed to a more competitive pricing environment that pressured yields. The impairment and other charges described above also negatively impactedsegment, operating income increased $337 million due to higher LTL yield and marginefficiencies gained from the combination of our LTL operations in 2009. Operating income2011.
Salaries and marginbenefits increased 5% in 2009 were also negatively impacted by reduced base copy revenues and expenses associated with organizational changes at FedEx Office. Cost-reduction initiatives partially mitigated the negative impact of these factors.
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Fuel expense increased 19% during 2008, as fuel prices significantly increased. This volatility in fuel prices and fuel surcharges resulted in a net benefit2012 primarily due to income in 2009, basedprice increases. Based on a static analysis of the impact to operating income of year-over-year changes in fuel prices compared to year-over-year changes in fuel surcharges.
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Other Income and Expense
Interest expense increased $30 million in 2013 primarily due to a reduction in capitalized interest and increased interest expense from 2013 debt issuances. Other expense increased in 2013 driven by foreign currency translation due to global currency volatility. Interest expense decreased $6$34 million during 2010in 2012 due to increaseddebt maturities, an increase in capitalized interest primarily related to the timing of progress payments on aircraft purchases. Interest income decreased $18 million during 2010 primarily due topurchases and 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. Interest expense decreased during 2009 due to increased capitalized interest, partially offset by interest costs on higher debt balances. Interest income decreased during 2009 primarily due to lower interest rates.
Income Taxes
Our effective tax rate was 37.5%36.4% in 2010, 85.6%2013, 35.3% in 20092012 and 44.2%35.9% in 2008.2011. Our 20092012 rate was favorably impacted by the conclusion of the Internal Revenue Service (“IRS”) audit of our 2007-2009 consolidated income tax returns. Our permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries provided a 1.2% benefit to our 2013 effective tax rate. Our total permanently reinvested foreign earnings were $1.3 billion at the end of 2013 and 2008 rates$1.0 billion at the end of 2012.
Our current federal income tax expenses in 2013, 2012 and 2011 were significantly impactedreduced by goodwill impairment chargesaccelerated depreciation deductions we claimed under provisions of the American Taxpayer Relief Act of 2013 and the Tax Relief and the Small Business Jobs Acts of 2010. Those Acts, designed to stimulate new business investment in the U.S., accelerated our depreciation deductions for qualifying investments, such as our Boeing 777 Freighter (“B777F”) aircraft. These were timing benefits only, in that are not deductibledepreciation accelerated into an earlier year is foregone in later years. Our 2013 current provision for federal income tax purposes. taxes was, therefore, higher than in 2012 and 2011.
The components of the provision for federal income taxes for the years ended May 31 were as follows (in millions):
| 2013 | 2012 | 2011 | ||||||||||
Current | $ | 512 | $ | (120 | ) | $ | 79 | |||||
Deferred | 175 | 947 | 485 | |||||||||
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Total Federal Provision | $ | 687 | $ | 827 | $ | 564 | ||||||
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For 2011,2014, we expect our effective tax rate to be between 37.0%36.5% and 38.0%37.0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income. We also expect our current federal income tax expense will increase in 2014 due to lower accelerated depreciation benefits than in prior years.
Additional information on income taxes, including our effective tax rate reconciliation, and liabilities for uncertain tax positions and our global tax profile can be found in Note 1012 of the accompanying consolidated financial statements.
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Business Acquisitions
During 2013, we expanded the international service offerings of FedEx Express by completing the following business acquisitions:
Rapidão Cometa Logística e Transporte S.A., a Brazilian transportation and logistics company, for $398 million in cash from operations on July 4, 2012
TATEX, a French express transportation company, for $55 million in cash from operations on July 3, 2012
Opek Sp. z o.o., a Polish domestic express package delivery company, for $54 million in cash from operations on June 13, 2012
These acquisitions give us more robust transportation networks within these countries and added capabilities in these important international markets. See Note 3 of the accompanying consolidated financial statements for further discussion of these acquisitions.
In 2012, we completed our acquisition of Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from operations on July 25, 2011. In 2011, we 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 from operations on February 22, 2011.
The financial results of these acquired businesses are included in the FedEx Express segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations and therefore, pro forma financial information has not been presented. Substantially all of the purchase price in each of these acquisitions was allocated to goodwill, which was entirely attributed to our FedEx Express reporting unit.
On June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. The acquisition will be funded with cash from operations and is expected to be completed in the second half of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in the FedEx Express segment from the date of acquisition and will be immaterial to our 2014 results.
Business Realignment, Impairment and Other Charges
During 2013, we announced profit improvement programs primarily through initiatives at FedEx Express and FedEx Services that include the following:
Cost reductions in selling, general and administrative functions through headcount reductions, streamlining of processes and elimination of less essential work, as well as deriving greater value from strategic sourcing
Modernization of our aircraft fleet, transformation of the U.S. domestic operations and international profit improvements at FedEx Express
Improved efficiencies and lower costs of information technology at FedEx Services
During 2013, we conducted a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The voluntary buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay. This program was completed in the fourth quarter and approximately 3,600 employees have left or will be voluntarily leaving the company by the end of 2014. Eligible employees are scheduled to vacate positions in phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Of the total population leaving the
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company, approximately 40% of the employees vacated positions on May 31, 2013. An additional 35% will depart throughout 2014 and approximately 25% of this population will remain until May 31, 2014. Costs of the benefits provided under the voluntary program were recognized as special termination benefits in the period that eligible employees accepted their offers.
We incurred costs of $560 million ($353 million, net of tax, or $1.11 per diluted share) during 2013 associated with our business realignment activities. These costs related primarily to severance for employees who accepted voluntary buyouts in the third and fourth quarters of 2013. Payments will be made at the time of departure. Approximately $180 million was paid under this program during 2013. The cost of the buyout program is included in the caption “Business realignment, impairment and other charges” in our consolidated statements of income. Also included in that caption are other external costs directly attributable to our business realignment activities, such as professional fees.
In addition, actions in 2012 at FedEx Express related to fleet modernization resulted in accelerated depreciation of $69 million in 2013 included in the caption “Depreciation and amortization” in our consolidated statements of income as we shortened the lives of certain aircraft.
In May 2013, we made the decision to retire from service two Airbus A310-200 aircraft and four related engines, three Airbus A310-300 aircraft and two related engines, and five Boeing MD10-10 aircraft and 15 related engines. As a consequence of this decision, a noncash impairment charge of $100 million ($63 million, net of tax, or $0.20 per diluted share) was recorded in the fourth quarter. The decision to retire these aircraft, which were temporarily idled and not in revenue service, aligns with the plans of FedEx Express to modernize its aircraft fleet and improve its global network.
In May 2012, we retired from service 24 aircraft and related engines, the majority of which were temporarily idled and not in revenue service. As a consequence of this decision, a noncash impairment charge of $134 million ($84 million, net of tax, or $0.26 per diluted share) was recorded in the fourth quarter of 2012.
See the “Long-lived Assets” section of our “Critical Accounting Estimates” for a discussion of our accounting for aircraft retirement decisions.
Outlook
We expect stronger demand for our services in 2011 and continued growth inanticipate revenue and earnings asgrowth in 2014 driven by the continued strong performance of our FedEx Ground and FedEx Freight businesses and improving performance at FedEx Express. Our expected results for 2014 will be constrained by moderate growth in the global economic conditions continueeconomy and continued challenges from the demand shift trend from our priority international services to improve. We believeour economy international services. In response to these trends, we will be evaluating additional capacity reductions and other actions in 2014. During 2014 we will incur incremental costs to transform our information technology operations at FedEx Services in connection with our profit improvement programs, which will increase the improving economy will result in a more stable pricing environment, enhancing our abilitycosts allocated to execute our strategy to improve yields across our transportation segments. These yield management initiatives, combinedIn May 2013, in conjunction with continued growth in volumes, are anticipated to improve our margins in 2011. However, we expect our earnings growth in 2011 to be constrained by a significant increase in pensionthe retirement of aircraft, FedEx Express shortened the depreciable lives of 76 aircraft and retiree medical expenses ($260 million) primarily asrelated engines. As a result of a significantlythis decision and the 2012 decision to shorten the depreciable lives of 54 aircraft, we expect to incur additional year-over-year accelerated depreciation expense of $74 million in 2014. However, lower discount rate atpension expense in 2014 will positively impact our May 31, 2010 measurement date. operating results.
In addition we anticipate that volume-related increases in aircraft maintenance expenses, the reinstatement of employee compensation programs and higher healthcare expense due to continued inflationprofit improvements in the costbase businesses at FedEx Ground and FedEx Freight, our profit improvement programs announced in 2013 are targeting annual profitability improvement of medical services$1.6 billion at FedEx Express by the end of 2016 (from the full year 2013 base business). Collectively, these initiatives are expected to increase margins, improve cash flows and increase our competitiveness. However, the amount of benefit ultimately realized will dampenvary depending upon future customer demand, particularly for priority international services. We expect to begin realizing a portion of the benefits of these programs in 2014; however, the majority of the benefits, including those from our earnings growth in 2011. Our expectations for continued improvement in our results in 2011 are based on a continued recovery in global economic conditions, the sustainability of which is difficult to predict,voluntary severance program, will not occur until 2015 and fuel prices remaining at current forecasted levels.
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Our capital expenditures for 20112014 are expected to beincrease to approximately $3.2$4.0 billion as wefor additional aircraft deliveries in 2014 to support our fleet modernization program and continued expansion of the FedEx Ground network. We will continue to make strategicevaluate our investments in Boeing 777 Freighter (“B777F”) and Boeing 757 (“B757”) aircraft, which are substantially more fuel-efficient per unit than the aircraft type they are replacing. We are committed to investing in critical long-term strategic projects focusedto ensure our capital expenditures generate high returns on enhancinginvestments and broadeningare balanced with our service offerings to position usoutlook for stronger growth as global economic conditions continue to improve.conditions. For additional details on key 20112014 capital projects, refer to the Liquidity Outlook section“Capital Resources” and “Liquidity Outlook” sections of this MD&A.
Our outlook is dependent upon a competitivestable pricing environment exacerbated by continuing volatilefor fuel, as volatility in fuel prices which impactimpacts our fuel surcharge levels.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.
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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 seasonalcyclical in nature. Seasonalnature, 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 the FedEx Freight, LTL Group, the spring and fall are the busiest periods and the latter part of December January andthrough February areis the slowest periods.period. 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 rules and disclosure requirements can significantly impact our reported results and the comparability of our financial statements. New accounting
On June 1, 2012, we adopted the authoritative guidance that has impacted our financial statements can be found in Note 2issued by the Financial Accounting Standards Board (“FASB”) on the presentation of comprehensive income. The new guidance requires companies to report components of comprehensive income by including comprehensive income on the face of the accompanyingincome statement or in a separate statement of comprehensive income. We have adopted this guidance by including a separate statement of comprehensive income (loss) for the three years ending May 31, 2013 and by including expanded accumulated other comprehensive income disclosure requirements in the notes to our consolidated financial statements. In addition, on June 1, 2012, we adopted the FASB’s amendments to the fair value measurements and disclosure requirements, which expanded existing disclosure requirements regarding the fair value of our long-term debt.
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In February 2013, the FASB issued new guidance requiring additional information about reclassification adjustments out of comprehensive income, including changes in comprehensive income balances by component and significant items reclassified out of comprehensive income. This new standard is effective for our fiscal year ending May 31, 2014 and will have no impact on our financial condition or results of operations.
In May 2013, the FASB issued a revised exposure draft outlining proposed changes to the accounting for leases. Under the revised exposure draft, the recognition, measurement and presentation of expenses and cash flows arising from a lease would depend primarily on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. A right-of-use asset and a liability to make lease payments will be recognized on the balance sheet for all leases (except short-term leases). The enactment of this proposal will have a significant impact on our accounting and financial reporting. The FASB has not yet proposed an effective date of this proposal.
We believe that there is no other new accounting guidance was adopted but not yet effectiveor issued during 2013 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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FedEx Express, FedEx Ground and the FedEx Freight LTL Group 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 | ||
| (air and ocean freight forwarding and customs brokerage) FedEx SupplyChain Systems (logistics services) | ||
| FedEx Ground Segment | ||
FedEx Ground (small-package ground delivery) | ||
FedEx SmartPost (small-parcel consolidator) | ||
| FedEx Freight Segment | ||
FedEx Freight | ||
FedEx Custom Critical (time-critical transportation) | ||
| FedEx Services Segment | ||
FedEx Services (sales, marketing, | ||
FedEx TechConnect (customer service, technical support, billings and collections) FedEx Office (document and business services and package acceptance) | ||
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 pursueobtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, and information technology, communications and back-office support to our other companies; FCIS,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, as the financial results are materially comparable.
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The FedEx Services segment provides direct and indirect support to our transportation businesses, and accordingly 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, which are an immaterial component of our allocations, 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 theits total allocated net operating costs of the FedEx Services segment on our transportation segments. 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. The $810 million 2009 impairment charge for the FedEx Office goodwill and the $891 million 2008 charge predominantly associated with impairment of the Kinko’s trade name and goodwill were not allocated to the FedEx Express or FedEx Ground segments, as the charges were unrelated to the core performance of those businesses.
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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 theour consolidated results and are not separately identified in the following segment information, asbecause the amounts are not material.
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FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority services, which provide time-definite delivery within one, two or three business days worldwide, and deferred or economy services, which provide time-definite delivery within five business days worldwide. 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 | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010/2009 | 2009/2008 | ||||||||||||||||
| Revenues: | ||||||||||||||||||||
| Package: | ||||||||||||||||||||
| U.S. overnight box | $ | 5,602 | $ | 6,074 | $ | 6,578 | (8 | ) | (8 | ) | ||||||||||
| U.S. overnight envelope | 1,640 | 1,855 | 2,012 | (12 | ) | (8 | ) | |||||||||||||
| U.S. deferred | 2,589 | 2,789 | 2,995 | (7 | ) | (7 | ) | |||||||||||||
| Total U.S. domestic package revenue | 9,831 | 10,718 | 11,585 | (8 | ) | (7 | ) | |||||||||||||
| International priority | 7,087 | 6,978 | 7,666 | 2 | (9 | ) | ||||||||||||||
International domestic (1) | 578 | 565 | 663 | 2 | (15 | ) | ||||||||||||||
| Total package revenue | 17,496 | 18,261 | 19,914 | (4 | ) | (8 | ) | |||||||||||||
| Freight: | ||||||||||||||||||||
| U.S. | 1,980 | 2,165 | 2,398 | (9 | ) | (10 | ) | |||||||||||||
| International priority | 1,303 | 1,104 | 1,243 | 18 | (11 | ) | ||||||||||||||
| International airfreight | 251 | 369 | 406 | (32 | ) | (9 | ) | |||||||||||||
| Total freight revenue | 3,534 | 3,638 | 4,047 | (3 | ) | (10 | ) | |||||||||||||
Other (2) | 525 | 465 | 460 | 13 | 1 | |||||||||||||||
| Total revenues | 21,555 | 22,364 | 24,421 | (4 | ) | (8 | ) | |||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Salaries and employee benefits | 8,402 | 8,217 | 8,451 | 2 | (3 | ) | ||||||||||||||
| Purchased transportation | 1,177 | 1,112 | 1,208 | 6 | (8 | ) | ||||||||||||||
| Rentals and landing fees | 1,577 | 1,613 | 1,673 | (2 | ) | (4 | ) | |||||||||||||
| Depreciation and amortization | 1,016 | 961 | 944 | 6 | 2 | |||||||||||||||
| Fuel | 2,651 | 3,281 | 3,785 | (19 | ) | (13 | ) | |||||||||||||
| Maintenance and repairs | 1,131 | 1,351 | 1,512 | (16 | ) | (11 | ) | |||||||||||||
| Impairment and other charges | — | 260 | (3) | — | NM | NM | ||||||||||||||
| Intercompany charges | 1,940 | 2,103 | 2,134 | (8 | ) | (1 | ) | |||||||||||||
| Other | 2,534 | 2,672 | 2,813 | (5 | ) | (5 | ) | |||||||||||||
| Total operating expenses | 20,428 | 21,570 | 22,520 | (5 | ) | (4 | ) | |||||||||||||
| Operating income | $ | 1,127 | $ | 794 | $ | 1,901 | 42 | (58 | ) | |||||||||||
| Operating margin | 5.2 | % | 3.6 | % | 7.8 | % | 160 | bp | (420 | )bp | ||||||||||
| Percent Change | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013/2012 | 2012/2011 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Package: | ||||||||||||||||||||
U.S. overnight box | $ | 6,513 | $ | 6,546 | $ | 6,128 | (1 | ) | 7 | |||||||||||
U.S. overnight envelope | 1,705 | 1,747 | 1,736 | (2 | ) | 1 | ||||||||||||||
U.S. deferred | 3,020 | 3,001 | 2,805 | 1 | 7 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total U.S. domestic package revenue | 11,238 | 11,294 | 10,669 | — | 6 | |||||||||||||||
International priority | 6,586 | 6,849 | 6,760 | (4 | ) | 1 | ||||||||||||||
International economy | 2,046 | 1,859 | 1,468 | 10 | 27 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total international export package revenue | 8,632 | 8,708 | 8,228 | (1 | ) | 6 | ||||||||||||||
International domestic (1) | 1,398 | 853 | 653 | 64 | 31 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total package revenue | 21,268 | 20,855 | 19,550 | 2 | 7 | |||||||||||||||
Freight: | ||||||||||||||||||||
U.S. | 2,562 | 2,498 | 2,188 | 3 | 14 | |||||||||||||||
International priority | 1,678 | 1,827 | 1,722 | (8 | ) | 6 | ||||||||||||||
International airfreight | 276 | 307 | 283 | (10 | ) | 8 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total freight revenue | 4,516 | 4,632 | 4,193 | (3 | ) | 10 | ||||||||||||||
Other (2) | 1,387 | 1,028 | 838 | 35 | 23 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total revenues | 27,171 | 26,515 | 24,581 | 2 | 8 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Salaries and employee benefits | 10,045 | 9,657 | 9,183 | 4 | 5 | |||||||||||||||
Purchased transportation | 2,331 | 1,828 | 1,573 | 28 | 16 | |||||||||||||||
Rentals and landing fees | 1,684 | 1,680 | 1,672 | — | — | |||||||||||||||
Depreciation and amortization | 1,350 | 1,169 | 1,059 | 15 | 10 | |||||||||||||||
Fuel | 4,130 | 4,304 | 3,553 | (4 | ) | 21 | ||||||||||||||
Maintenance and repairs | 1,244 | 1,332 | 1,353 | (7 | ) | (2 | ) | |||||||||||||
Business realignment, impairment and other charges (3) | 243 | 134 | — | NM | NM | |||||||||||||||
Intercompany charges (4) | 2,379 | 2,193 | 2,043 | 8 | 7 | |||||||||||||||
Other (5) | 3,210 | 2,958 | 2,917 | 9 | 1 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total operating expenses | 26,616 | 25,255 | 23,353 | 5 | 8 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Operating income | $ | 555 | $ | 1,260 | $ | 1,228 | (56 | ) | 3 | |||||||||||
|
|
|
|
|
| |||||||||||||||
Operating margin (6) | 2.0 | % | 4.8 | % | 5.0 | % | (280 | )bp | (20 | )bp | ||||||||||
-53-
| Percent of Revenue | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
Operating expenses: | ||||||||||||
Salaries and employee benefits | 37.0 | % | 36.4 | % | 37.4 | % | ||||||
Purchased transportation | 8.6 | 6.9 | 6.4 | |||||||||
Rentals and landing fees | 6.2 | 6.3 | 6.8 | |||||||||
Depreciation and amortization | 5.0 | 4.4 | 4.3 | |||||||||
Fuel | 15.2 | 16.2 | 14.4 | |||||||||
Maintenance and repairs | 4.6 | 5.0 | 5.5 | |||||||||
Business realignment, impairment and other charges (3) | 0.9 | 0.5 | — | |||||||||
Intercompany charges (4) | 8.7 | 8.3 | 8.3 | |||||||||
Other (5) | 11.8 | 11.2 | 11.9 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 98.0 | 95.2 | 95.0 | |||||||||
|
| �� |
|
|
|
| ||||||
Operating margin (6) | 2.0 | % | 4.8 | % | 5.0 | % | ||||||
|
|
|
|
|
| |||||||
| (1) | International domestic revenues include our international |
| (2) | Includes FedEx Trade Networks and | |
-48-
| Percent of Revenue(1) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Operating expenses: | ||||||||||||
| Salaries and employee benefits | 39.0 | % | 36.7 | % | 34.6 | % | ||||||
| Purchased transportation | 5.5 | 5.0 | 4.9 | |||||||||
| Rentals and landing fees | 7.3 | 7.2 | 6.9 | |||||||||
| Depreciation and amortization | 4.7 | 4.3 | 3.9 | |||||||||
| Fuel | 12.3 | 14.7 | 15.5 | |||||||||
| Maintenance and repairs | 5.2 | 6.0 | 6.2 | |||||||||
| Impairment and other charges | — | 1.2 | (2) | — | ||||||||
| Intercompany charges | 9.0 | 9.4 | 8.7 | |||||||||
| Other | 11.8 | 11.9 | 11.5 | |||||||||
| Total operating expenses | 94.8 | 96.4 | 92.2 | |||||||||
| Operating margin | 5.2 | % | 3.6 | % | 7.8 | % | ||||||
| (3) | ||
2013 includes $143 million of | ||
| (4) | Includes allocations of $262 million in 2013 for business realignment costs. |
| (5) | Includes the 2012 reversal of a $66 million legal reserve that was initially recorded in 2011. |
| (6) | The direct and indirect charges described in notes (3) and (4) above reduced 2013 operating margin by 190 basis points. The charges and credit described in notes (3) and (5) above reduced 2012 operating margin by 20 basis points. |
-54-
The following table compares selected statistics (in thousands, except yield amounts) for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010/2009 | 2009/2008 | ||||||||||||||||
Package Statistics(1) | ||||||||||||||||||||
| Average daily package volume (ADV): | ||||||||||||||||||||
| U.S. overnight box | 1,157 | 1,127 | 1,151 | 3 | (2 | ) | ||||||||||||||
| U.S. overnight envelope | 614 | 627 | 677 | (2 | ) | (7 | ) | |||||||||||||
| U.S. deferred | 867 | 849 | 895 | 2 | (5 | ) | ||||||||||||||
| Total U.S. domestic ADV | 2,638 | 2,603 | 2,723 | 1 | (4 | ) | ||||||||||||||
| International priority | 523 | 475 | 517 | 10 | (8 | ) | ||||||||||||||
International domestic(2) | 318 | 298 | 296 | 7 | 1 | |||||||||||||||
| Total ADV | 3,479 | 3,376 | 3,536 | 3 | (5 | ) | ||||||||||||||
| Revenue per package (yield): | ||||||||||||||||||||
| U.S. overnight box | $ | 19.00 | $ | 21.21 | $ | 22.40 | (10 | ) | (5 | ) | ||||||||||
| U.S. overnight envelope | 10.47 | 11.65 | 11.66 | (10 | ) | — | ||||||||||||||
| U.S. deferred | 11.70 | 12.94 | 13.12 | (10 | ) | (1 | ) | |||||||||||||
| U.S. domestic composite | 14.61 | 16.21 | 16.68 | (10 | ) | (3 | ) | |||||||||||||
| International priority | 53.10 | 57.81 | 58.11 | (8 | ) | (1 | ) | |||||||||||||
International domestic(2) | 7.14 | 7.50 | 8.80 | (5 | ) | (15 | ) | |||||||||||||
| Composite package yield | 19.72 | 21.30 | 22.08 | (7 | ) | (4 | ) | |||||||||||||
Freight Statistics(1) | ||||||||||||||||||||
| Average daily freight pounds: | ||||||||||||||||||||
| U.S. | 7,141 | 7,287 | 8,648 | (2 | ) | (16 | ) | |||||||||||||
| International priority | 2,544 | 1,959 | 2,220 | 30 | (12 | ) | ||||||||||||||
| International airfreight | 1,222 | 1,475 | 1,817 | (17 | ) | (19 | ) | |||||||||||||
| Total average daily freight pounds | 10,907 | 10,721 | 12,685 | 2 | (15 | ) | ||||||||||||||
| Revenue per pound (yield): | ||||||||||||||||||||
| U.S. | $ | 1.09 | $ | 1.17 | $ | 1.09 | (7 | ) | 7 | |||||||||||
| International priority | 2.01 | 2.22 | 2.20 | (9 | ) | 1 | ||||||||||||||
| International airfreight | 0.81 | 0.99 | 0.88 | (18 | ) | 13 | ||||||||||||||
| Composite freight yield | 1.27 | 1.34 | 1.25 | (5 | ) | 7 | ||||||||||||||
| Percent Change | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013/2012 | 2012/2011 | ||||||||||||||||
Package Statistics (1) | ||||||||||||||||||||
Average daily package volume (ADV): | ||||||||||||||||||||
U.S. overnight box | 1,134 | 1,146 | 1,184 | (1 | ) | (3 | ) | |||||||||||||
U.S. overnight envelope | 574 | 586 | 627 | (2 | ) | (7 | ) | |||||||||||||
U.S. deferred | 835 | 845 | 873 | (1 | ) | (3 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total U.S. domestic ADV | 2,543 | 2,577 | 2,684 | (1 | ) | (4 | ) | |||||||||||||
International priority | 421 | 421 | 459 | — | (8 | ) | ||||||||||||||
International economy | 155 | 138 | 116 | 12 | 19 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total international export ADV | 576 | 559 | 575 | 3 | (3 | ) | ||||||||||||||
International domestic (2) | 785 | 495 | 348 | 59 | 42 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total ADV | 3,904 | 3,631 | 3,607 | 8 | 1 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Revenue per package (yield): | ||||||||||||||||||||
U.S. overnight box | $ | 22.52 | $ | 22.31 | $ | 20.29 | 1 | 10 | ||||||||||||
U.S. overnight envelope | 11.66 | 11.65 | 10.86 | — | 7 | |||||||||||||||
U.S. deferred | 14.18 | 13.87 | 12.60 | 2 | 10 | |||||||||||||||
U.S. domestic composite | 17.33 | 17.12 | 15.59 | 1 | 10 | |||||||||||||||
International priority | 61.28 | 63.47 | 57.68 | (3 | ) | 10 | ||||||||||||||
International economy | 51.77 | 52.77 | 49.76 | (2 | ) | 6 | ||||||||||||||
International export composite | 58.72 | 60.83 | 56.08 | (3 | ) | 8 | ||||||||||||||
International domestic (2) | 6.99 | 6.74 | 7.38 | 4 | (9 | ) | ||||||||||||||
Composite package yield | 21.36 | 22.44 | 21.25 | (5 | ) | 6 | ||||||||||||||
Freight Statistics (1) | ||||||||||||||||||||
Average daily freight pounds: | ||||||||||||||||||||
U.S. | 7,612 | 7,487 | 7,340 | 2 | 2 | |||||||||||||||
International priority | 3,048 | 3,303 | 3,184 | (8 | ) | 4 | ||||||||||||||
International airfreight | 1,066 | 1,171 | 1,235 | (9 | ) | (5 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Total average daily freight pounds | 11,726 | 11,961 | 11,759 | (2 | ) | 2 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Revenue per pound (yield): | ||||||||||||||||||||
U.S. | $ | 1.32 | $ | 1.30 | $ | 1.17 | 2 | 11 | ||||||||||||
International priority | 2.16 | 2.16 | 2.12 | — | 2 | |||||||||||||||
International airfreight | 1.01 | 1.02 | 0.90 | (1 | ) | 13 | ||||||||||||||
Composite freight yield | 1.51 | 1.51 | 1.40 | — | 8 | |||||||||||||||
| (1) | Package and freight statistics include only the operations of FedEx Express. |
| (2) | International domestic statistics include our international |
-49-
FedEx Express segment revenues decreased 4%increased 2% in 20102013 primarily due to the impact of new business acquisitions and growth in our freight-forwarding business at FedEx Trade Networks. Core revenue growth was constrained by global economic conditions as revenue growth from higher international export volume was offset by decreased yields due to shifts in demand from our priority international services to our economy international services, as well as lower yields primarilyrates. In 2013, international domestic revenues increased 64% due to recent acquisitions in Brazil, France and Poland. International export revenues were down in 2013 as revenue per package decreased 3% due to the demand shift to our lower-yielding economy services and lower rates, while volume increased 3% driven by aour economy services. 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.
-55-
FedEx Express segment revenues decreasedincreased 8% in 20092012 primarily due to a decreasean increase in volumes in virtually all services as a result of the significant deterioration in global economic conditions and lower yields driven by unfavorable exchange rates, lower package weights and a more competitive pricing environment. IP volume declined in every major region of the world. During 2009, volume gains resulting from DHL’s exit from the U.S. domestic market were not enough toand international export package yields, partially offset the negative impact of weak global economic conditions.
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:
| 2010 | 2009 | 2008 | ||||||||||
| U.S. Domestic and Outbound Fuel Surcharge: | ||||||||||||
| Low | 1.00 | % | — | % | 13.50 | % | ||||||
| High | 8.50 | 34.50 | 25.00 | |||||||||
| Weighted-average | 6.20 | 17.45 | 17.06 | |||||||||
| International Fuel Surcharges: | ||||||||||||
| Low | 1.00 | — | 12.00 | |||||||||
| High | 13.50 | 34.50 | 25.00 | |||||||||
| Weighted-average | 9.47 | 16.75 | 16.11 | |||||||||
| 2013 | 2012 | 2011 | ||||||||||
U.S. Domestic and Outbound Fuel Surcharge: | ||||||||||||
Low | 10.00 | % | 11.50 | % | 7.00 | % | ||||||
High | 14.50 | 16.50 | 15.50 | |||||||||
Weighted-average | 11.84 | 14.23 | 9.77 | |||||||||
International Fuel Surcharges: | ||||||||||||
Low | 12.00 | 13.50 | 7.00 | |||||||||
High | 20.50 | 23.00 | 21.00 | |||||||||
Weighted-average | 17.02 | 17.45 | 12.36 | |||||||||
In both January 2010,2013 and 2012, we implemented a 5.9% average list price increase onfor FedEx Express U.S. domestic, U.S. export and U.S. outbound express package and freight shipments and made various changes to other surcharges,import services, while we lowered our fuel surcharge index by two percentage points. Furthermore, in connection with these changes, the structure of the FedEx Express fuel surcharge table was modified. In January 2009, we implemented a 6.9% 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 results were negatively impacted by $405 million of costs associated with our business realignment program, both directly and through intercompany allocations. Additionally, results for 2013 were negatively impacted by a $100 million impairment charge as a result of the decision to retire 10 aircraft and related engines from service. FedEx Express incurred $69 million in year-over-year incremental depreciation costs in 2013 due to the decision in 2012 to accelerate the retirement of certain aircraft. Operating income and operating margin increased during 2010also decreased in 2013 due to volume growth, particularlythe demand shift toward lower-yielding international services. Operating comparisons were also impacted by an aircraft impairment charge in higher-margin IP package2012 and a legal reserve accrual reversal as discussed below.
Purchased transportation costs increased 28% in 2013 due to recent business acquisitions and costs associated with the expansion of our freight services. Continued reductionsforwarding business at FedEx Trade Networks. Salaries and benefits increased 4% in network2013 due to recent acquisitions and higher pension costs, partially offset by lower incentive compensation accruals. Other operating expenses increased 9% due to the impact of recent business acquisitions and the negative year-over-year comparison of the legal reserve accrual reversal in 2012. Depreciation and amortization expense increased 15% in 2013 as a result of aircraft recently placed into service and accelerated depreciation due to the shortened life of certain aircraft.
FedEx Express aircraft maintenance and repairs costs are largely driven by lower flight hoursaircraft utilization and improved route efficiencies, as well as other actionsrequired periodic maintenance events. When newer aircraft are introduced into our operating fleet, less maintenance costs are incurred. As a part of our fleet modernization program, FedEx Express has retired older, less efficient aircraft prior to control spending, positively impacted our results for 2010. Our 2010 year-over-year results were also positively impacted byrequired periodic maintenance events and has introduced newly manufactured aircraft into the fleet. As a $260 million chargeresult, a decrease in 2009 related to aircraft-related asset impairmentsmaintenance and other charges primarily associated with aircraft-related leaserepairs costs was experienced in 2013 and contract termination costs and employee severance.
2012.
-50-
-56-
FedEx Express segment operating income increased 3% in 20102012 primarily due to the benefit from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust and U.S. domestic and international export package yield improvements. Results of maintenance events, as lower aircraft utilizationthe FedEx Express segment reflect the impact of two one-time items in 2012. FedEx Express segment results for 2012 were negatively impacted by $134 million as a result of weak economic conditions, particularlythe decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines as well as six Boeing MD10-10 aircraft and 17 related engines to better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes. The 2012 operating results at the FedEx Express segment were favorably impacted by the reversal of a legal reserve of $66 million that was initially recorded in 2011. FedEx Express segment results also benefited from a milder winter compared to the first halfnegative impact of 2010, lengthened maintenance cycles.unusually severe winter weather in 2011.
Salaries and employee benefits increased 5% in 2012 due to higher incentive compensation accruals and the full reinstatement of 401(k) company-matching contributions effective January 1, 2011. Purchased transportation costs increased 6%16% in 2010 primarily2012 due to higher air volume and costs inassociated with the expansion of our freight forwarding business at FedEx Trade Networks. Depreciation expenseNetworks, business acquisitions in India and Mexico and higher utilization of third-party transportation providers, primarily in Europe. Intercompany charges increased 6%7% in 2010 primarily2012 due to the addition of 21 aircraft placed into service during the year. Intercompany charges decreased 8%higher allocated variable incentive compensation expenses.
Fuel costs increased 21% in 2010 primarily2012 due to lower allocated information technology costs and lower net operating costs at FedEx Office.
FedEx Express Segment Outlook
We expect revenue growthrevenues and earnings to increase at FedEx Express during 2014 due to slight growth in 2011 to be driven byour international package and freight volumes as global economic conditionsinternational domestic services. In addition, we expect operating income to improve through ongoing execution of our profit improvement programs including improving yields, adjusting network capacity and reducing structural costs. However, the demand shift from our priority international services to our economy international services will continue to improve. Revenue growth in 2011 will also be driven by continued expansion of our international economy services, as well as improved yields primarily due to higher fuel surcharges.
Capital expenditures at FedEx Express are expected to increase in 2011,2014 driven by incremental investmentsan increase in aircraft investment. We will continue to modernize our aircraft fleet at FedEx Express during 2014 by adding newer aircraft that are more reliable, fuel-efficient and technologically advanced, and retiring older, less-efficient aircraft. Due to the accelerated retirement of certain aircraft and related engines to aid in modernizing our fleet and improving our global network, we expect an additional $74 million in year-over-year depreciation expense in 2014.
In April 2013, FedEx Express was selected as the sole awardee of the recent U.S. Postal Service air cargo solicitation, representing the majority of the United States Postal Service’s (“USPS”) air linehaul traffic. This new seven year agreement begins on October 1, 2013. The agreement provides reduced rates for the new B777F aircraft. These aircraft capital expenditures are necessary to achieve significant long-term operating savingsUSPS versus the prior FedEx Express agreement and to support projected long-term international volume growth.
-51-
FedEx Ground service offerings include day-certain service delivery to businesses in the U.S. and Canada and to nearly 100% of U.S. residences. FedEx SmartPost consolidates high-volume, low-weight, less time-sensitive business-to-consumer packages and utilizes the USPS for final delivery. 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 | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010/2009 | 2009/2008 | ||||||||||||||||
| Revenues | $ | 7,439 | $ | 7,047 | $ | 6,751 | 6 | 4 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Salaries and employee benefits | 1,158 | 1,102 | 1,073 | 5 | 3 | |||||||||||||||
| Purchased transportation | 2,966 | 2,918 | 2,878 | 2 | 1 | |||||||||||||||
| Rentals | 244 | 222 | 189 | 10 | 17 | |||||||||||||||
| Depreciation and amortization | 334 | 337 | 305 | (1 | ) | 10 | ||||||||||||||
| Fuel | 8 | 9 | 14 | (11 | ) | (36 | ) | |||||||||||||
| Maintenance and repairs | 166 | 147 | 145 | 13 | 1 | |||||||||||||||
| Intercompany charges | 795 | 710 | 658 | 12 | 8 | |||||||||||||||
| Other | 744 | 795 | 753 | (6 | ) | 6 | ||||||||||||||
| Total operating expenses | 6,415 | 6,240 | 6,015 | 3 | 4 | |||||||||||||||
| Operating income | $ | 1,024 | $ | 807 | $ | 736 | 27 | 10 | ||||||||||||
| Operating margin | 13.8 | % | 11.5 | % | 10.9 | % | 230 | bp | 60 | bp | ||||||||||
| Average daily package volume | ||||||||||||||||||||
| FedEx Ground | 3,523 | 3,404 | 3,365 | 3 | 1 | |||||||||||||||
| FedEx SmartPost | 1,222 | 827 | 618 | 48 | 34 | |||||||||||||||
| Revenue per package (yield) | ||||||||||||||||||||
| FedEx Ground | $ | 7.73 | $ | 7.70 | $ | 7.48 | — | 3 | ||||||||||||
| FedEx SmartPost | $ | 1.56 | $ | 1.81 | $ | 2.09 | (14 | ) | (13 | ) | ||||||||||
| 2010 | 2009 | 2008 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Salaries and employee benefits | 15.5 | % | 15.6 | % | 15.9 | % | ||||||||||||||
| Purchased transportation | 39.9 | 41.4 | 42.6 | |||||||||||||||||
| Rentals | 3.3 | 3.1 | 2.8 | |||||||||||||||||
| Depreciation and amortization | 4.5 | 4.8 | 4.5 | |||||||||||||||||
| Fuel | 0.1 | 0.1 | 0.2 | |||||||||||||||||
| Maintenance and repairs | 2.2 | 2.1 | 2.1 | |||||||||||||||||
| Intercompany charges | 10.7 | 10.1 | 9.8 | |||||||||||||||||
| Other | 10.0 | 11.3 | 11.2 | |||||||||||||||||
| Total operating expenses | 86.2 | 88.5 | 89.1 | |||||||||||||||||
| Operating margin | 13.8 | % | 11.5 | % | 10.9 | % | ||||||||||||||
| Percent Change | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013/2012 | 2012/2011 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
FedEx Ground | $ | 9,652 | $ | 8,791 | $ | 7,855 | 10 | 12 | ||||||||||||
FedEx SmartPost | 926 | 782 | 630 | 18 | 24 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total revenues | 10,578 | 9,573 | 8,485 | 10 | 13 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Salaries and employee benefits | 1,586 | 1,451 | 1,282 | 9 | 13 | |||||||||||||||
Purchased transportation | 4,191 | 3,762 | 3,431 | 11 | 10 | |||||||||||||||
Rentals | 331 | 284 | 263 | 17 | 8 | |||||||||||||||
Depreciation and amortization | 434 | 389 | 337 | 12 | 15 | |||||||||||||||
Fuel | 17 | 14 | 12 | 21 | 17 | |||||||||||||||
Maintenance and repairs | 190 | 176 | 169 | 8 | 4 | |||||||||||||||
Intercompany charges(1) | 1,148 | 978 | 897 | 17 | 9 | |||||||||||||||
Other | 893 | 755 | 769 | 18 | (2 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total operating expenses | 8,790 | 7,809 | 7,160 | 13 | 9 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Operating income | $ | 1,788 | $ | 1,764 | $ | 1,325 | 1 | 33 | ||||||||||||
|
|
|
|
|
| |||||||||||||||
Operating margin(1) | 16.9 | % | 18.4 | % | 15.6 | % | (150 | )bp | 280 | bp | ||||||||||
Average daily package volume: | ||||||||||||||||||||
FedEx Ground | 4,222 | 3,907 | 3,746 | 8 | 4 | |||||||||||||||
FedEx SmartPost | 2,058 | 1,692 | 1,432 | 22 | 18 | |||||||||||||||
Revenue per package (yield): | ||||||||||||||||||||
FedEx Ground | $ | 8.94 | $ | 8.77 | $ | 8.17 | 2 | 7 | ||||||||||||
FedEx SmartPost | $ | 1.77 | $ | 1.81 | $ | 1.72 | (2 | ) | 5 | |||||||||||
| Percent of Revenue | ||||||||||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Salaries and employee benefits | 15.0 | % | 15.2 | % | 15.1 | % | ||||||||||||||
Purchased transportation | 39.6 | 39.3 | 40.4 | |||||||||||||||||
Rentals | 3.1 | 3.0 | 3.1 | |||||||||||||||||
Depreciation and amortization | 4.1 | 4.1 | 4.0 | |||||||||||||||||
Fuel | 0.2 | 0.1 | 0.1 | |||||||||||||||||
Maintenance and repairs | 1.8 | 1.8 | 2.0 | |||||||||||||||||
Intercompany charges(1) | 10.9 | 10.2 | 10.6 | |||||||||||||||||
Other | 8.4 | 7.9 | 9.1 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total operating expenses | 83.1 | 81.6 | 84.4 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Operating margin(1) | 16.9 | % | 18.4 | % | 15.6 | % | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
| (1) | Includes allocations of $105 million in 2013 for business realignment costs which reduced operating margin by 100 basis points. |
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FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 6%10% during 20102013 due to volume increases at both FedEx Ground and FedEx SmartPost, as well as yield growth at FedEx Ground.
FedEx Ground average daily package volume increased 8% during 2013 due to market share gains from continued growth in our FedEx Home Delivery service and increases in our commercial business. FedEx Ground yield increased 2% in 2013 primarily due to increased rates and higher residential surcharge revenue, partially offset by lower fuel surcharges and package weights.
FedEx SmartPost average daily volume grew 22% during 2013 primarily as a result of growth in e-commerce. Yields at FedEx SmartPost decreased 2% during 2013 primarily due to higher postage costs, partially offset by increased rates. FedEx SmartPost yield represents the amount charged to customers net of postage paid to the USPS.
During 2012, FedEx Ground segment revenues increased 13% due to yield and volume growth at both FedEx Ground and FedEx SmartPost, partially offset by declines in yieldSmartPost.
FedEx Ground yields increased 7% during 2012 primarily due to rate increases, higher fuel surcharges and higher extra service revenue. Average daily package volume increased 4% at FedEx SmartPost.
At FedEx Ground during 2010 wasSmartPost, yields increased 5% in 2012 primarily due to higher base ratesfuel surcharges and increased extra service revenue, but was mostlyrates, partially offset by higher customer discounts and lower fuel surcharges.
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The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average pricesprice 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:
| 2010 | 2009 | 2008 | ||||||||||
| Low | 2.75 | % | 2.25 | % | 4.50 | % | ||||||
| High | 5.50 | 10.50 | 7.75 | |||||||||
| Weighted-average | 4.23 | 6.61 | 5.47 | |||||||||
| 2013 | 2012 | 2011 | ||||||||||
Low | 6.50 | % | 7.50 | % | 5.50 | % | ||||||
High | 8.50 | 9.50 | 8.50 | |||||||||
Weighted-average | 7.60 | 8.46 | 6.20 | |||||||||
In January 2010, we2013 and 2012, FedEx Ground and FedEx Home Delivery implemented a 4.9% average list price increase. The full average rate increase and made various changes to other surcharges, including modifyingof 5.9% was partially offset by adjusting the fuel price threshold at which the fuel surcharge table, onbegins, reducing the fuel surcharge by one percentage point. FedEx Ground shipments. In January 2009, we implemented a 5.9% average list price increase and made various changes to other surcharges on FedEx Ground shipments.
FedEx Ground Segment Operating Income
FedEx Ground segment operating income increased 1% during 2013 primarily due to volume growth and higher yields. However, operating margin decreased as the benefit of higher volume and revenue per package was more than offset by intercompany charges of $105 million associated with the business realignment program and a favorable self-insurance true-up in the prior year. Purchased transportation costs increased during 201011% in 2013 primarily as a result of volume growth and higher rates paid to our independent contractors. Other operating expenses increased 18% primarily due to a favorable self-insurance true-up in the prior year and higher packagelegal expenses in the current year. Salaries and employee benefits expense increased 9% in 2013 primarily due to increased staffing to support volume lower self-insurance expenses and improved productivity. Improved performance at FedEx SmartPost also contributed to the operating income and operating margin increase. In 2010, growth.
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FedEx Ground segment operating income exceeded $1 billion on an annualincreased 33% and operating margin increased 280 basis forpoints during 2012 primarily due to higher yields and volume growth. FedEx Ground has continued to shorten transit times throughout 2012 by accelerating various lanes throughout the first time.
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Although FedEx Ground believes its relationship with independent contractors is generally excellent, the company 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 at issue.generally excellent. For a description of these proceedings, see “Risk Factors” and Note 1618 of the accompanying consolidated financial statements.
For additional information on the 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 Segment Outlook
FedEx Ground segment revenues and operating income are expected to have continued revenue growthcontinue to grow in 2011,2014, led by increases in commercial, FedEx Home Delivery and FedEx SmartPost volumesvolume growth across all our major services due to market share gains. Yields for all services at FedEx Ground are expectedWe also anticipate yield growth in 2014 through yield management programs. We will continue to improve in 2011 as a result of increases in list prices.
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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.
FedEx Freight service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenues, operating expenses, operating expenses as a percent of revenue, operating income (loss)/income and operating margin (dollars in millions) and selected statistics for the years ended May 31:
| Percent Change | ||||||||||||||||||||
| 2010 | 2009(2) | 2008(2) | 2010/2009 | 2009/2008 | ||||||||||||||||
| Revenues | $ | 4,321 | $ | 4,415 | $ | 4,934 | (2 | ) | (11 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||||||
| Salaries and employee benefits | 2,128 | 2,247 | 2,381 | (5 | ) | (6 | ) | |||||||||||||
| Purchased transportation | 690 | 540 | 582 | 28 | (7 | ) | ||||||||||||||
| Rentals | 116 | 139 | 119 | (17 | ) | 17 | ||||||||||||||
| Depreciation and amortization | 198 | 224 | 227 | (12 | ) | (1 | ) | |||||||||||||
| Fuel | 445 | 520 | 608 | (14 | ) | (14 | ) | |||||||||||||
| Maintenance and repairs | 148 | 153 | 175 | (3 | ) | (13 | ) | |||||||||||||
Impairment and other charges(3) | 18 | 100 | — | (82 | ) | NM | ||||||||||||||
Intercompany charges(1) | 351 | 109 | 81 | 222 | 35 | |||||||||||||||
| Other | 380 | 427 | 432 | (11 | ) | (1 | ) | |||||||||||||
| Total operating expenses | 4,474 | 4,459 | 4,605 | — | (3 | ) | ||||||||||||||
| Operating (loss)/income | $ | (153 | ) | $ | (44 | ) | $ | 329 | (248 | ) | (113 | ) | ||||||||
| Operating margin | (3.5 | )% | (1.0 | )% | 6.7 | % | (250 | )bp | (770 | )bp | ||||||||||
| Average daily LTL shipments (in thousands) | 82.3 | 74.4 | 79.7 | 11 | (7 | ) | ||||||||||||||
| Weight per LTL shipment (lbs) | 1,134 | 1,126 | 1,136 | 1 | (1 | ) | ||||||||||||||
| LTL yield (revenue per hundredweight) | $ | 17.07 | $ | 19.07 | $ | 19.65 | (10 | ) | (3 | ) | ||||||||||
| Percent Change | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013/2012 | 2012/2011 | ||||||||||||||||
Revenues | $ | 5,401 | $ | 5,282 | $ | 4,911 | 2 | 8 | ||||||||||||
Operating expenses: | ||||||||||||||||||||
Salaries and employee benefits | 2,342 | 2,316 | 2,303 | 1 | 1 | |||||||||||||||
Purchased transportation | 865 | 851 | 779 | 2 | 9 | |||||||||||||||
Rentals | 118 | 114 | 122 | 4 | (7 | ) | ||||||||||||||
Depreciation and amortization | 217 | 185 | 205 | 17 | (10 | ) | ||||||||||||||
Fuel | 598 | 636 | 585 | (6 | ) | 9 | ||||||||||||||
Maintenance and repairs | 191 | 192 | 182 | (1 | ) | 5 | ||||||||||||||
Business realignment, impairment and other charges (1) | 3 | — | 89 | NM | NM | |||||||||||||||
Intercompany charges (2) | 484 | 433 | 427 | 12 | 1 | |||||||||||||||
Other | 375 | 393 | 394 | (5 | ) | — | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total operating expenses | 5,193 | 5,120 | 5,086 | 1 | 1 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Operating income (loss) | $ | 208 | $ | 162 | $ | (175 | ) | 28 | 193 | |||||||||||
|
|
|
|
|
| |||||||||||||||
Operating margin (3) | 3.9 | % | 3.1 | % | (3.6 | )% | 80 | bp | 670 | bp | ||||||||||
Average daily LTL shipments (in thousands) (4) | ||||||||||||||||||||
Priority | 59.3 | 60.4 | (2 | ) | ||||||||||||||||
Economy | 26.4 | 24.5 | 8 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Total average daily LTL shipments | 85.7 | 84.9 | 86.0 | 1 | (1 | ) | ||||||||||||||
|
|
|
| |||||||||||||||||
Weight per LTL shipment (lbs) (4) | ||||||||||||||||||||
Priority | 1,237 | 1,202 | 3 | |||||||||||||||||
Economy | 990 | 1,045 | (5 | ) | ||||||||||||||||
Composite weight per LTL shipment | 1,161 | 1,156 | 1,144 | — | 1 | |||||||||||||||
LTL yield (revenue per hundredweight) (4) | ||||||||||||||||||||
Priority | $ | 17.80 | $ | 18.02 | (1 | ) | ||||||||||||||
Economy | 25.90 | 23.96 | 8 | |||||||||||||||||
Composite LTL yield | $ | 19.94 | $ | 19.57 | $ | 18.24 | 2 | 7 | ||||||||||||
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| Percent of Revenue | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
Operating expenses: | ||||||||||||
Salaries and employee benefits | 43.4 | % | 43.9 | % | 46.9 | % | ||||||
Purchased transportation | 16.0 | 16.1 | 15.9 | |||||||||
Rentals | 2.2 | 2.2 | 2.5 | |||||||||
Depreciation and amortization | 4.0 | 3.5 | 4.2 | |||||||||
Fuel | 11.1 | 12.0 | 11.9 | |||||||||
Maintenance and repairs | 3.5 | 3.6 | 3.7 | |||||||||
Business realignment, impairment and other charges (1) | — | — | 1.8 | |||||||||
Intercompany charges (2) | 9.0 | 8.2 | 8.7 | |||||||||
Other | 6.9 | 7.4 | 8.0 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 96.1 | 96.9 | 103.6 | |||||||||
|
|
|
|
|
| |||||||
Operating margin (3) | 3.9 | % | 3.1 | % | (3.6 | )% | ||||||
|
|
|
|
|
| |||||||
| (1) | 2013 includes severance costs associated with | |
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| Percent of Revenue(1) | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| Operating expenses: | ||||||||||||
| Salaries and employee benefits | 49.2 | % | 50.9 | % | 48.3 | % | ||||||
| Purchased transportation | 16.0 | 12.2 | 11.8 | |||||||||
| Rentals | 2.7 | 3.1 | 2.4 | |||||||||
| Depreciation and amortization | 4.6 | 5.0 | 4.6 | |||||||||
| Fuel | 10.3 | 11.8 | 12.3 | |||||||||
| Maintenance and repairs | 3.4 | 3.5 | 3.5 | |||||||||
Impairment and other charges(2) | 0.4 | 2.3 | — | |||||||||
Intercompany charges(3) | 8.1 | 2.5 | 1.6 | |||||||||
| Other | 8.8 | 9.7 | 8.8 | |||||||||
| Total operating expenses | 103.5 | 101.0 | 93.3 | |||||||||
| Operating margin | (3.5 | )% | (1.0 | )% | 6.7 | % | ||||||
| (2) | Includes allocations of $47 million in |
| (3) | The direct and indirect charges disclosed in notes (1) and (2) above reduced 2013 operating margin by 90 basis points. |
| (4) | FedEx Freight |
FedEx Freight Segment Revenues
FedEx Freight segment revenues decreasedincreased 2% during 2010in 2013 due to lowerhigher 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 2010increased 2% in 2013 due to improvements in FedEx Freight Economy yield resulting from higher rates and lower weight per LTL shipment. Average daily LTL shipments increased 1% in 2013 driven by our FedEx Freight Economy services offering, partially offset by transitional challenges encountered by some customers in the second half of 2013 while migrating FedEx Freight functionality to the FedEx enterprise automated platform.
Revenue per hundredweight is a continuing highly competitivecommonly-used indicator of pricing trends, but this metric can be influenced by many other factors, such as changes in fuel surcharges, weight per shipment, length of haul and the mix of freight. Generally, LTL freight market, resulting from excess capacityis rated using a standard class system for the LTL industry and classes are assigned based on transportation characteristics including density, risk and handling. Under the class system, low-value freight that is easy to handle, unlikely to damage and dense will receive lower fuel surcharges. Discounted pricing drove an increaseclass ratings (and lower yields) than expensive, light, bulky freight which is highly susceptible to damage (and produces higher yields). As a result, changes in revenue per hundredweight do not necessarily indicate actual changes in underlying base rates.
During 2012, FedEx Freight revenues increased 8% due to increased LTL yield and weight per LTL shipment, partially offset by lower average daily LTL shipments of 11%shipments. LTL yield increased 7% during 2010.
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The indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average pricesprice 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:
| 2010 | 2009 | 2008 | ||||||||||
| Low | 10.80 | % | 8.30 | % | 14.50 | % | ||||||
| High | 16.10 | 23.90 | 23.70 | |||||||||
| Weighted-average | 14.00 | 15.70 | 17.70 | |||||||||
| 2013 | 2012 | 2011 | ||||||||||
Low | 21.80 | % | 19.80 | % | 15.10 | % | ||||||
High | 24.40 | 24.30 | 20.70 | |||||||||
Weighted-average | 23.38 | 22.90 | 17.00 | |||||||||
On June 10, 2013, FedEx Freight announced it will increase U.S. and certain other shipping rates by an average of 4.5% effective on July 1, 2013. In July 2012, FedEx NationalFreight implemented a rate increase of 6.9% for LTL shipments. In January 2009, we implemented 5.7% general rate increases forJune 2011, FedEx Freight and FedEx National LTL shipments.
increased the fuel surcharge rate to a maximum of 3.6 percentage points above previous levels.
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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. Year-over-year comparisons in 2010 were affected by a $90 million goodwill impairment charge in 2009 related to the FedEx National LTL acquisition and a $10 million charge in 2009 primarily related to employee severance.
Depreciation and amortization expense increased 17% due to continued investment in direct charges, primarily salariesreplacement transportation equipment. Salaries and employee benefits. These transfers had no net impactbenefits increased 1% in 2013 primarily due to operating income, although they significantly increased our intercompany allocations.
Fuel costs decreased 14% during 20106% in 2013 due to a lower average price per gallonincreased utilization of dieselrail and fuel partially offset by increased fuel consumption as a result of higher shipment volumes.efficiency improvements. 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 negativeminimal impact toon 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 from2013.
In 2012, the FedEx Freight segment to FedEx Services and FCIS during the first quarter of 2010.
Purchased transportation costs increased 9% in 2012 due to higher rates and the increased utilization of rail, partially offset by a chargelower cost per mile due to our ability to optimize mode of $10 million primarily related to employee severance.
operations.
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We expect modest revenue growth at the FedEx Freight segment will focus on several strategicin 2014 driven by yield and volume initiatives from our differentiated LTL services.
FedEx Freight operating income and operating margin are expected to improveincrease in 2014 driven by improvements in yields and volume, as well as continued improvement in productivity and yields.efficiency across our integrated network. We expect volume growth to moderate later in 2011 as we continue to enhance our pricing discipline in an improving economy. This pricing discipline, which will come through a combination of general rate increases and renewal of terms with contractual customers, is expected to improve yields in 2011. Even with these expected improvements in yield, excess industry capacity is likely to remain and will continue to negatively impact our short-term operating performance. We expect productivityuse investments in technology, focused on network and equipment planning and customer automation, to improve as our LTL networks stabilize and we continue to evaluate our networksfurther enhance customer service levels throughout 2014.
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Capital expenditures in light of the pricing environment and the competitive landscape, and will make changes where appropriate to improve our long-term profitability.
Cash and cash equivalents totaled $2.0$4.9 billion at May 31, 2010,2013, compared to $2.3$2.8 billion at May 31, 2009.2012. The following table provides a summary of our cash flows for the yearsperiods ended May 31 (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| Operating activities: | ||||||||||||
| Net income | $ | 1,184 | $ | 98 | $ | 1,125 | ||||||
| Noncash impairment charges | 18 | 1,103 | 882 | |||||||||
| Other noncash charges and credits | 2,514 | 2,554 | 2,305 | |||||||||
| Changes in assets and liabilities | (578 | ) | (1,002 | ) | (847 | ) | ||||||
| Cash provided by operating activities | 3,138 | 2,753 | 3,465 | |||||||||
| Investing activities: | ||||||||||||
| Capital expenditures | (2,816 | ) | (2,459 | ) | (2,947 | ) | ||||||
| Proceeds from asset dispositions and other | 35 | 76 | 50 | |||||||||
| Cash used in investing activities | (2,781 | ) | (2,383 | ) | (2,897 | ) | ||||||
| Financing activities: | ||||||||||||
| Proceeds from debt issuance | — | 1,000 | — | |||||||||
| Principal payments on debt | (653 | ) | (501 | ) | (639 | ) | ||||||
| Dividends paid | (138 | ) | (137 | ) | (124 | ) | ||||||
| Other | 99 | 38 | 146 | |||||||||
| Cash (used in) provided by financing activities | (692 | ) | 400 | (617 | ) | |||||||
| Effect of exchange rate changes on cash | (5 | ) | (17 | ) | 19 | |||||||
| Net (decrease) increase in cash and cash equivalents | $ | (340 | ) | $ | 753 | $ | (30 | ) | ||||
| 2013 | 2012 | 2011 | ||||||||||
Operating activities: | ||||||||||||
Net income | $ | 1,561 | $ | 2,032 | $ | 1,452 | ||||||
Business realignment, impairment and other charges | 479 | 134 | 29 | |||||||||
Other noncash charges and credits | 3,183 | 3,504 | 2,892 | |||||||||
Changes in assets and liabilities | (535 | ) | (835 | ) | (332 | ) | ||||||
|
|
|
|
|
| |||||||
Cash provided by operating activities | 4,688 | 4,835 | 4,041 | |||||||||
|
|
|
|
|
| |||||||
Investing activities: | ||||||||||||
Capital expenditures | (3,375 | ) | (4,007 | ) | (3,434 | ) | ||||||
Business acquisitions, net of cash acquired | (483 | ) | (116 | ) | (96 | ) | ||||||
Proceeds from asset dispositions and other | 55 | 74 | 111 | |||||||||
|
|
|
|
|
| |||||||
Cash used in investing activities | (3,803 | ) | (4,049 | ) | (3,419 | ) | ||||||
|
|
|
|
|
| |||||||
Financing activities: | ||||||||||||
Purchase of treasury stock | (246 | ) | (197 | ) | — | |||||||
Principal payments on debt | (417 | ) | (29 | ) | (262 | ) | ||||||
Proceeds from debt issuance | 1,739 | — | — | |||||||||
Dividends paid | (177 | ) | (164 | ) | (151 | ) | ||||||
Other | 285 | 146 | 126 | |||||||||
|
|
|
|
|
| |||||||
Cash provided by (used in) financing activities | 1,184 | (244 | ) | (287 | ) | |||||||
Effect of exchange rate changes on cash | 5 | (27 | ) | 41 | ||||||||
|
|
|
|
|
| |||||||
Net increase in cash and cash equivalents | $ | 2,074 | $ | 515 | $ | 376 | ||||||
|
|
|
|
|
| |||||||
Cash Provided by Operating Activities.Cash flows from operating activities increased $385decreased $147 million in 20102013 primarily due to the receipt of incomedecreased earnings and higher tax, refunds of $279 millionvariable compensation and increased income.voluntary buyout payments, partially offset by a decrease in pension contributions. Cash flows from operating activities decreased $712increased $794 million in 20092012 primarily due to reduced income and a $600increased earnings, partially offset by higher pension contributions. We made contributions of $560 million increase in contributions to our tax-qualified U.S. domestic pension plans (“U.S. RetirementPension Plans”), partially offset by a $307 million reduction in income tax payments. We made tax-deductible during 2013 and contributions of $848$722 million to our U.S. RetirementPension Plans during 2010, including $495 million in voluntary contributions.2012. We made tax-deductible voluntary contributions of $1.1 billion$480 million to our U.S. RetirementPension Plans during 2009 and $479 million during 2008.
Cash Used in Investing Activities. Capital expenditures during 2010 were 15% higher largely due to increased spending at FedEx Express. Capital expenditures during 2009 were 17%16% lower in 2013 largely due to decreased spending at FedEx Express and 17% higher in 2012 primarily due to increased spending at FedEx Services.Express and FedEx Freight. See “Capital Resources” for a discussion of capital expenditures during 20102013 and 2009.
2012.
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During 2013, we made principal payments of $116 million related to capital lease obligations and repaid our $300 million 9.65% unsecured notes that matured in June 2012 using cash from operations.
During 2013, we repurchased 2.7 million shares of FedEx common stock at an average price of $91 per share for a total of $246 million. In March 2013, our Board of Directors authorized the repurchase of up to 10 million shares of common stock. It is expected that the additional share authorization will primarily be utilized to offset the effects of equity compensation dilution over the next several years. As of May 31, 2013, 10,188,000 shares remained under existing share repurchase authorizations. During 2012, we repurchased 2.8 million FedEx common shares at an average price of $70 per share for a total of $197 million.
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 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 | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013/2012 | 2012/2011 | ||||||||||||||||
Aircraft and related equipment | $ | 1,190 | $ | 1,875 | $ | 1,988 | (37 | ) | (6 | ) | ||||||||||
Facilities and sort equipment | 727 | 638 | 555 | 14 | 15 | |||||||||||||||
Vehicles | 734 | 723 | 282 | 2 | 156 | |||||||||||||||
Information and technology investments | 452 | 541 | 455 | (16 | ) | 19 | ||||||||||||||
Other equipment | 272 | 230 | 154 | 18 | 49 | |||||||||||||||
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Total capital expenditures | $ | 3,375 | $ | 4,007 | $ | 3,434 | (16 | ) | 17 | |||||||||||
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FedEx Express segment | $ | 2,067 | $ | 2,689 | $ | 2,467 | (23 | ) | 9 | |||||||||||
FedEx Ground segment | 555 | 536 | 426 | 4 | 26 | |||||||||||||||
FedEx Freight segment | 326 | 340 | 153 | (4 | ) | 122 | ||||||||||||||
FedEx Services segment | 424 | 437 | 387 | (3 | ) | 13 | ||||||||||||||
Other | 3 | 5 | 1 | NM | NM | |||||||||||||||
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Total capital expenditures | $ | 3,375 | $ | 4,007 | $ | 3,434 | (16 | ) | 17 | |||||||||||
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Capital expenditures during 2013 were lower than the prior year primarily due to decreased spending for aircraft and related equipment at FedEx Express. Aircraft and aircraft-related equipment purchases at FedEx Express during 2013 included the delivery of 16 Boeing 757s (“B757”) to be modified for cargo transport and four B777Fs. Capital expenditures during 2012 were higher than the prior year primarily due to increased spending for vehicles at FedEx Express, FedEx Freight and FedEx Ground, although spending for aircraft and related equipment at FedEx Express decreased. Aircraft and aircraft-related equipment purchases at FedEx Express during 2012 included delivery of seven B777Fs and 15 B757s.
We believe that our cash and cash equivalents, which totaled $4.9 billion in 2013, 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, 2013 includes $420 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.
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We have a shelf registration statement filed with the SECSecurities 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 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 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. The revolvingIn March 2013, we entered into an amendment to our credit agreement expires in July 2012.to, among other things, extend its maturity date from April 26, 2016 to March 1, 2018. 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 1.0.70%. Our leverage ratio of adjusted debt to capital was 0.551% at May 31, 2010. Under this financial2013. We believe the leverage ratio covenant is our additional borrowing capacity is capped, although thisonly significant restrictive covenant continues to provide us with ample liquidity, if needed.in our revolving credit agreement. Our revolving credit agreement contains other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with thisthe leverage ratio covenant 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.expected funding needs. As of May 31, 2010,2013, no commercial paper was outstanding, and the entire $1 billion under the revolving credit facility was available for future borrowings.
| Percent Change | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010/2009 | 2009/2008 | ||||||||||||||||
| Aircraft and related equipment | $ | 1,537 | $ | 925 | $ | 998 | 66 | (7 | ) | |||||||||||
| Facilities and sort equipment | 630 | 742 | 900 | (15 | ) | (18 | ) | |||||||||||||
| Vehicles | 220 | 319 | 404 | (31 | ) | (21 | ) | |||||||||||||
| Information and technology investments | 289 | 298 | 366 | (3 | ) | (19 | ) | |||||||||||||
| Other equipment | 140 | 175 | 279 | (20 | ) | (37 | ) | |||||||||||||
| Total capital expenditures | $ | 2,816 | $ | 2,459 | $ | 2,947 | 15 | (17 | ) | |||||||||||
| FedEx Express segment | 1,864 | 1,348 | 1,716 | 38 | (21 | ) | ||||||||||||||
| FedEx Ground segment | 400 | 636 | 509 | (37 | ) | 25 | ||||||||||||||
| FedEx Freight segment | 212 | 240 | 266 | (12 | ) | (10 | ) | |||||||||||||
| FedEx Services segment | 340 | 235 | 455 | 45 | (48 | ) | ||||||||||||||
| Other | — | — | 1 | — | NM | |||||||||||||||
| Total capital expenditures | $ | 2,816 | $ | 2,459 | $ | 2,947 | 15 | (17 | ) | |||||||||||
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Our capital expenditures are expected to be $4.0 billion in 2014. We anticipate that our cash flow from operations will be sufficient to fund our increased capital expenditures in 2014, which will include spending for aircraft and aircraft-related equipment at FedEx Express, sort facility expansion, primarily at FedEx Ground, and vehicle replacement at all our transportation segments. We expect approximately 50% of capital expenditures in 2014 will be designated for growth initiatives, predominantly at FedEx Ground and 50% dedicated to maintaining our existing operations. Our expected capital expenditures for 2014 include $1.4 billion in investments for delivery of aircraft, as well as progress payments toward future aircraft deliveries at FedEx Express. For 2014, we anticipate making required contributions totaling approximately $650 million to our U.S. Pension Plans. Our U.S. Pension Plans have ample funds to meet expected benefit payments.
We have several aircraft modernization programs underway which are supported by the purchase of B777F, Boeing 767-300 Freighter (“B767F”) and B757 aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements. During 2013, FedEx Express entered into an agreement to purchase 14 additional B757 aircraft, the delivery of which began in 2013 and will continue through 2014. The agreement provides the option to purchase up to 16 additional B757 aircraft, subject to the satisfaction of certain conditions. In 2011, we have scheduled debt paymentsaddition, FedEx Express entered into agreements to purchase an additional 23 B767F aircraft, the delivery of $270 million, which includes $250 millionwill occur between 2014 and 2019. The delivery of principal payments on unsecured notes maturing in February 2011two firm B777F aircraft orders were also deferred from 2015 to 2016.
Effective as of June 14, 2013, FedEx Express entered into a supplemental agreement to purchase 13 of the 16 B757 option aircraft noted above. Delivery of the aircraft will occur during 2014 and principal and interest payments on capital leases.
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The following table sets forth a summary of our contractual cash obligations as of May 31, 2010.2013. 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, 2010. 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) | ||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
| Operating activities: | ||||||||||||||||||||||||||||
| Operating leases | $ | 1,776 | $ | 1,589 | $ | 1,425 | $ | 1,259 | $ | 1,172 | $ | 6,550 | $ | 13,771 | ||||||||||||||
| Non-capital purchase obligations and other | 226 | 165 | 66 | 14 | 12 | 113 | 596 | |||||||||||||||||||||
| Interest on long-term debt | 144 | 126 | 98 | 97 | 78 | 1,737 | 2,280 | |||||||||||||||||||||
| Quarterly contributions to our U.S. Retirement Plans | 500 | — | — | — | — | — | 500 | |||||||||||||||||||||
| Investing activities: | ||||||||||||||||||||||||||||
Aircraft and aircraft-related capital commitments(1) | 928 | 849 | 641 | 480 | 493 | 1,431 | 4,822 | |||||||||||||||||||||
| Other capital purchase obligations | 46 | 1 | — | — | — | — | 47 | |||||||||||||||||||||
| Financing activities: | ||||||||||||||||||||||||||||
| Debt | 250 | — | 300 | 250 | — | 989 | 1,789 | |||||||||||||||||||||
| Capital lease obligations | 20 | 8 | 119 | 2 | 1 | 14 | 164 | |||||||||||||||||||||
| Total | $ | 3,890 | $ | 2,738 | $ | 2,649 | $ | 2,102 | $ | 1,756 | $ | 10,834 | $ | 23,969 | ||||||||||||||
| Payments Due by Fiscal Year (Undiscounted) (in millions) | ||||||||||||||||||||||||||||
| 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||
Operating activities: | ||||||||||||||||||||||||||||
Operating leases | $ | 1,936 | $ | 1,834 | $ | 1,636 | $ | 1,689 | $ | 1,230 | $ | 6,650 | $ | 14,975 | ||||||||||||||
Non-capital purchase obligations and other | 285 | 183 | 123 | 101 | 44 | 109 | 845 | |||||||||||||||||||||
Interest on long-term debt | 157 | 138 | 138 | 138 | 138 | 2,582 | 3,291 | |||||||||||||||||||||
Contributions to our U.S. Pension Plans | 650 | — | — | — | — | — | 650 | |||||||||||||||||||||
Investing activities: | ||||||||||||||||||||||||||||
Aircraft and aircraft-related capital commitments | 968 | 1,054 | 1,140 | 959 | 1,382 | 4,492 | 9,995 | |||||||||||||||||||||
Other capital purchase obligations | 249 | 1 | — | — | — | — | 250 | |||||||||||||||||||||
Financing activities: | ||||||||||||||||||||||||||||
Debt | 250 | — | — | — | — | 2,740 | 2,990 | |||||||||||||||||||||
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Total | $ | 4,495 | $ | 3,210 | $ | 3,037 | $ | 2,887 | $ | 2,794 | $ | 16,573 | $ | 32,996 | ||||||||||||||
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Open purchase orders that are cancelable are not considered unconditional purchase obligations for amounts estimated to be payable within 12 months, whichfinancial reporting purposes and are not included in current liabilities. Included in the table above are anticipated quarterly contributionsabove. Such purchase orders often represent authorizations to our U.S. Retirement Plans totaling approximately $500 millionpurchase rather than binding agreements. See Note 17 of the accompanying consolidated financial statements for 2011 that begin in the first quarter.
Operating Activities
In accordance with accounting principles generally accepted in the United States, future contractual payments under our operating leases (totaling $15 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, 2010.2013. Under the proposed new lease accounting rules, the majority of these leases will be required to be recognized on the balance sheet as a liability with an offsetting right-to-use asset. 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.capital-related. Such contracts include those for printing and advertising and promotions contracts. 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 15 of the accompanying consolidated financial statements for more information.
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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 contracts.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. 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 15 of the accompanying consolidated financial statements for more information.
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.credit and surety bonds. These instruments are generally 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 and surety bonds themselves.
The amounts reflected in the table above for long-term debt represent future scheduled payments on our long-term debt. In 2011,2014, we have scheduled debt payments of $270 million, which includes $250 million of principal payments on our 7.25% unsecured notes maturing in February 2011, and principal and interest payments on capital leases.
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.
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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 began to beare accrued under a cash balance formula we call the Portable Pension Account. These changes did not affect the benefits of previously retired and terminated vested participants. In addition, these pension plans were modified to accelerate vesting from five years to three years for most participants.
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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 liabilityliabilities 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 mark-to-marketyear-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.
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):
| 2010 | 2009 | 2008 | ||||||||||
| U.S. domestic and international pension plans | $ | 308 | $ | 177 | $ | 323 | ||||||
| U.S. domestic and international defined contribution plans | 136 | 237 | 216 | |||||||||
| Postretirement healthcare plans | 42 | 57 | 77 | |||||||||
| $ | 486 | $ | 471 | $ | 616 | |||||||
| 2013 | 2012 | 2011 | ||||||||||||||
U.S. domestic and international pension plans | $ | 679 | $ | 524 | $ | 543 | ||||||||||
U.S. domestic and international defined contribution plans | 354 | 338 | 257 | |||||||||||||
U.S. domestic and international postretirement healthcare plans | 78 | 70 | 60 | |||||||||||||
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Total retirement plans cost increased $15$179 million in 2010, primarily due2013 driven by lower discount rates used to the negative impact of market conditions onmeasure our pension plan assetsbenefit obligations at our May 31, 20092012 measurement date, mostly offset by lowerdate. Total retirement plans cost increased $72 million in 2012 primarily due to higher expenses for our 401(k) plans due to the temporary suspensionfull restoration of the company-matching contributions. Thosecompany matching contributions were reinstated generally at 50% of their normal levels on January 1, 2010. Total retirement plans cost decreased $1452011.
Amounts recognized in our 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. Cumulative unrecognized actuarial losses were $7.0 billion through May 31, 2013, compared to $8.9 billion through May 31, 2012. 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 $506 million in 2009, primarily due to a higher discount rate.
2011.
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| 2010 | 2009 | 2008 | ||||||||||
| Service cost | $ | 417 | $ | 499 | $ | 518 | ||||||
| Interest cost | 823 | 798 | 720 | |||||||||
| Expected return on plan assets | (955 | ) | (1,059 | ) | (985 | ) | ||||||
| Recognized actuarial (gains) losses and other | 23 | (61 | ) | 70 | ||||||||
| Net periodic benefit cost | $ | 308 | $ | 177 | $ | 323 | ||||||
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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 Date | Discount Rate | ||||||
Amounts Determined by Measurement Date and Discount Rate | |||||||
5/31/2013 | 4.79% | 2013 PBO and 2014 expense | |||||
5/31/2012 | 4.44 | 2012 PBO and 2013 expense | |||||
5/31/2011 | 5.76 | 2011 PBO and 2012 expense | |||||
5/31/2010 | 6.37 | 2010 PBO and 2011 expense | |||||
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 that generally 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 discount rate assumption is highly sensitive, as the following table illustrates withfor our largest tax-qualified U.S. domestic pension plan:
| Sensitivity (in millions) | ||||||||
| Effect on 2011 | Effect on 2010 | |||||||
| Pension | Pension | |||||||
| Expense | Expense | |||||||
| One-basis-point change in discount rate | $ | 1.7 | $ | 1.5 | ||||
| Sensitivity (in millions) | ||||||||
| Effect on 2014 Pension Expense | Effect on 2013 Pension Expense | |||||||
One-basis-point change in discount rate | $ | 2.1 | $ | 2.3 | ||||
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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 listedpublicly tradeable 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.
Establishing the expected future rate of investment return on our pension assets is a judgmental matter.matter, which we review on an annual basis and revise 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.
| Plan Assets at Measurement Date | ||||||||||||||||||||||||
| 2010 | 2009 | |||||||||||||||||||||||
| Asset Class | Actual | Actual % | Target % | Actual | Actual % | Target % | ||||||||||||||||||
| Domestic equities | $ | 4,569 | 35 | % | 33 | % | $ | 4,029 | 38 | % | 33 | % | ||||||||||||
| International equities | 1,502 | 12 | 12 | 1,668 | 16 | 12 | ||||||||||||||||||
| Private equities | 399 | 3 | 5 | 341 | 3 | 5 | ||||||||||||||||||
| Total equities | 6,470 | 50 | 50 | 6,038 | 57 | 50 | ||||||||||||||||||
| Fixed-income securities | 6,205 | 47 | 49 | 3,456 | 33 | 49 | ||||||||||||||||||
| Cash and other | 380 | 3 | 1 | 1,112 | 10 | 1 | ||||||||||||||||||
| $ | 13,055 | 100 | % | 100 | % | $ | 10,606 | 100 | % | 100 | % | |||||||||||||
We have assumed an 8% compound geometric8.0% expected long-term rate of return on our U.S. domestic pensionPension Plan assets for 2013, 2012 and 2011. The actual returns during each of the last three fiscal years have exceeded that long-term assumption. The actual historical return on our U.S. Pension Plan assets, calculated on a compound geometric basis, was 6.9%, net of investment manager fees, for the 15-year period ended May 31, 2013 and 7.4%, net of investment manager fees, for the 15-year period ended May 31, 2012. For 2014, we plan to lower our expected return on plan assets assumption for 2011 long-term returns on plan assets to 7.75% as we continue to refine our asset
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and 2010 and 8.5% in 2009 and 2008, as described in Note 11liability management strategy. In lowering this assumption we considered our historical returns, our investment strategy for our plan assets, including the impacts of the accompanying consolidated financial statements.long duration of our plan liability and the relatively low annual draw on plan assets on that investment strategy. A one-basis-point change in our expected return on plan assets impacts our pension expense by $1.3$1.9 million.
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FUNDED STATUS.Following is information concerning the funded status of our pension plans as of May 31 (in millions):
| 2010 | 2009 | |||||||
Funded Status of Plans: | ||||||||
| Projected benefit obligation (PBO) | $ | 14,484 | $ | 11,050 | ||||
| Fair value of plan assets | 13,295 | 10,812 | ||||||
| Funded status of the plans | $ | (1,189 | ) | $ | (238 | ) | ||
Components of Funded Status by Plans: | ||||||||
| U.S. qualified plans | $ | (580 | ) | $ | 278 | |||
| U.S. nonqualified plans | (348 | ) | (318 | ) | ||||
| International plans | (261 | ) | (198 | ) | ||||
| Net funded status | $ | (1,189 | ) | $ | (238 | ) | ||
Components of Amounts Included in Balance Sheets: | ||||||||
| Noncurrent pension assets | $ | — | $ | 311 | ||||
| Current pension and other benefit obligations | (30 | ) | (31 | ) | ||||
| Noncurrent pension and other benefit obligations | (1,159 | ) | (518 | ) | ||||
| Net amount recognized | $ | (1,189 | ) | $ | (238 | ) | ||
Cash Amounts: | ||||||||
| Cash contributions during the year | $ | 900 | $ | 1,146 | ||||
| Benefit payments during the year | $ | 391 | $ | 351 | ||||
| 2013 | 2012 | |||||||
Funded Status of Plans: | ||||||||
Projected benefit obligation (PBO) | $ | 22,600 | $ | 22,187 | ||||
Fair value of plan assets | 19,433 | 17,334 | ||||||
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Funded status of the plans | $ | (3,167 | ) | $ | (4,853 | ) | ||
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Cash Amounts: | ||||||||
Cash contributions during the year | $ | 615 | $ | 780 | ||||
Benefit payments during the year | $ | 589 | $ | 502 | ||||
Our retirement plans costs are expected to decrease approximately $190 million in 2014 due to significant increases in the balance sheet reflect a snapshot of the statevalue of our long-term pension liabilitiesplan assets in 2013 and an increase in our discount rates at the plan measurement date and the effect of mark-to-market accounting on plan assets. Atour May 31, 2010, we recorded a decrease to equity through OCI of $1.0 billion (net of tax) to reflect unrealized actuarial losses during 2010. Those losses are subject to amortization over future years and may be reflected in future income statements unless they are recovered. At May 31, 2009, we recorded a decrease to equity through OCI of $1.2 billion (net of tax) attributable to our pension plans.
FUNDING.The funding requirements for our tax-qualified U.S. domestic pension plansPension 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 IRS rules falls below 80% at the beginning of a plan year. All of our qualified U.S. domestic pension plans hadPension 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 tax-qualified U.S. domestic pension plansPension Plans for 20102013 were approximately $355$572 million or 3% of plan assets).
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See Note 13 of the use of a portion ofaccompanying consolidated financial statements for further information about our credit balance.
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, 2010, there were $1.6 billion of self-insurance
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Self-insurance accruals reflected in our balance sheet ($1.5were $1.7 billion at May 31, 2009).2013, and $1.6 billion at May 31, 2012. Approximately 40%41% of these accruals were classified as current liabilities in 2010 and 2009.
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. For example, during 2009, FedEx Ground recorded $70 million in incremental self-insurance reserves for liability insurance based on adverse experience on bodily injury claims.
PROPERTY AND EQUIPMENT. Our key businesses are capital intensive, with approximately 58%55% 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. However, consistent with industry practice, we capitalize certain aircraft-related major maintenance costs on one of our aircraft fleet types and amortize these costs over their estimated service lives.
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 1830 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 disposals of operating equipment have not been material (typically aggregating less than $10 million annually).material. 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.
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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.
In the normal management of our aircraft fleet, we routinely idle aircraft and engines temporarily due to maintenance cycles and adjustments of our network capacity to match seasonality and overall customer demand levels. Temporarily idled assets are classified as available-for-use, and we continue to record depreciation expense associated with these assets. These temporarily idled assets are assessed for impairment on a quarterly basis. Factors which could cause impairment include, but are not limited to, adverse changes in our global economic outlook and the impact of our outlook on our current and projected volume levels, including lower capacity needs during our peak shipping seasons; the introduction of new fleet types or decisions to permanently retire an aircraft fleet from operations; or changes to planned service expansion activities. We currently have one aircraft temporarily idled. This aircraft has been idled for 15 months and is expected to return to revenue service.
In May 2013, we made the decision to retire from service two Airbus A310-200 aircraft and four related engines, three Airbus A310-300 aircraft and two related engines and five Boeing MD10-10 aircraft and 15 related engines, to align with the plans of FedEx Express to modernize its aircraft fleet and improve its global network. As a consequence of this decision, a noncash impairment charge of $100 million ($63 million, net of tax, or $0.20 per diluted share) was recorded in the fourth quarter. All of these aircraft were no material propertytemporarily idled and equipmentnot in revenue service.
In 2012, we incurred a noncash impairment charges recognized in 2010charge of $134 million ($84 million, net of tax, or 2008. However, during 2009, we recorded $202 million in property and equipment impairment charges. These charges were primarily$0.26 per diluted share). This charge related to our May 2012 decision to permanently remove from service certainretire 24 aircraft along with certain excessand 43 related engines to better align the U.S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes. The majority of these 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 6 to7 of the accompanying consolidated financial statements, at May 31, 20102013 we had approximately $14$15 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, 20102013 was approximately six years.
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.
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 goodwillour 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, most recently in May 2013. While we are not required to quantify the effects of the proposed rule changes until these rules are finalized, we believe that a majority of the operating lease
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obligations reflected in the contractual cash obligations table would be required to be reflected in our balance sheet were the proposed rules to be adopted. Furthermore, our existing financing agreements and the rating agencies that evaluate our creditworthiness already take our operating leases into account.
GOODWILL. As of May 31, 2013, we had $2.8 billion of recorded goodwill from our acquisitions, representing the excess of costthe purchase price 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.
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Our other reporting units with significant recorded goodwill include our FedEx Express, FedEx Freight (excluding FedEx National LTL) and FedEx Office (reported in the FedEx Services segment) reporting units. We evaluated these remaining reporting units during the fourth quarterquarters of 2010.2013 and 2012. The estimated fair value of each of these reporting units significantly exceeded their carrying values in 2010. Although we recorded goodwill impairment charges associated with our FedEx Office reporting unit in 20092013 and 2008, better-than-expected results in 2010, combined with an improved long-term outlook, drove an increase in the valuation of this reporting unit. As a result, no additional testing or impairment charges were necessary2012, and we do not believe that any of these reporting units arewere at risk.
FEDEX NATIONAL LTL GOODWILL. In 2009, we recorded a goodwill impairment charge of $90 million at our FedEx National LTL reporting unit. This charge was a result of reduced revenues and increased operating losses due to the negative impact of the U.S. recession. The forecast used in the valuation assumed operating losses would continue in the near-term due to the weak economic conditions and excess capacity in the industry which had a significant negative impact on the valuation of the FedEx National LTL reporting unit. Additional discussion of the key assumptions related to these charges is included in Note 3 to our consolidated financial statements.
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 16 to our18 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 1618 is not expected to be material to our financial position, results of operations or cash flows. The following describes our methodmethods and associated processes for evaluating these matters.
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Tax contingencies arise from uncertainty in the application of tax rules throughout the many jurisdictions in which we operate. These tax contingenciesoperate 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, among other things, in the various federal, state, local and foreign tax jurisdictions in which we operate.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.
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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 ourthe 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.
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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 occurring.
Our legal department maintains thorough processesevaluation of these matters is the result of a comprehensive process designed to identify, evaluate and monitor the status of litigation and other loss contingencies as they arise and develop. Management has regular, comprehensive litigation and contingency reviews, including updates from internal and external counsel, to assess the need forensure that accounting recognition of a loss or disclosure of these contingencies. 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.
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In determining whether a loss should be accrued or a loss contingency disclosed, we evaluate, among other factors, factors:
the degreecurrent status of probabilityeach matter within the scope and context of an unfavorable outcomethe 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 settlement and the ability to make a reasonable estimate of 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. EventsWe 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.
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.
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. 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, and as companies expand the number of distribution centers and move manufacturing closer to consumer markets, we transport goods shorter distances. In addition, we have a relatively high fixed-cost structure, which is difficult to quickly adjust to match shifting volume levels. Moreover, as we continue to grow our international business, we are increasingly affected by the health of the global economy and the typically more volatile economies of emerging markets. In 2013, slower than expected economic growth resulted in a continued customer preference for slower, less costly shipping services, which had a negative impact on our profitability.
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 customer service mishaps or noncompliance with anti-corruption laws, could tarnish our reputation and reduce the value of our brand. With the increase in the use of social media outlets such as YouTube and Twitter, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to defend against. 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.
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Our transportation businesses may beare 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 deferred or ground services or even reduce customer demand for our services altogether. These effects were evident in the first quarter of 2009, as fuel prices reached all-time highs. 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 expendituresdecisions 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, weWe 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. For example, during 2009, asin the fourth quarter of 2013, we made a result of excess aircraft capacity at FedEx Express, we permanently removeddecision to retire from service certain aircraft and certain excess aircraft engines from service and thus recorded a noncash impairment charge of $199$100 million.
We face intense competition, especially in the LTL freight industry.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, our competitors determine the charges for their services, and weak economic conditions have led to excess capacity and a very competitive pricing environment, especially in the LTL freight industry. As a result, the FedEx Freight segment experienced yield declines and operating losses during 2009 and 2010. Anan 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 keepinghigh volume package shippers could develop in-house ground delivery capabilities, which would in turn reduce our revenues and attracting customers.market share. While we believe we compete effectively through our current service offerings, if our current competitors or potential future competitors offer a broader range of services or more effectively bundle their services or our current customers become competitors, 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 units of our employees. For example, during 2008, 2009 and 2010, we recorded aggregate charges of $1.8 billion for impairmentthere is always a possibility that Congress could remove most FedEx Express employees from the purview of the valueRailway Labor Act of 1926, as amended (the “RLA”). For additional discussion of the Kinko’s trade nameRLA, see Part I, Item 1 of this Annual Report on Form 10-K 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 portions ofready access to global markets. There is also the goodwill recordedpossibility that Congress could pass other labor legislation that could adversely affect our companies, such as a result of the FedEx OfficeGround and FedEx Freight, whose employees are governed by the National LTL acquisitions. These charges were necessary, among other reasons, becauseLabor Relations Act of 1935, as amended (the “NLRA”). In addition, federal and state governmental agencies, such as the recentNational Labor Relations Board, have and forecasted financial performancemay 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 those companies did not meet our original expectationsFedEx Ground’s owner-operators as a result of weak economic conditions.
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 (including many that have been certified as class actions) 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 expect to 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 contractorsowner-operators 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. Changes to state laws governing the definition of independent contractors could impact the 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 requirements could impose substantial costsFailure to execute on us, especiallyour business realignment program will cause our future financial results to suffer.In 2013, we announced profit improvement programs primarily through initiatives at FedEx Express.Express and FedEx Services that include cost reductions, modernization of our aircraft fleet, transformation of the U.S. domestic operations and international profit improvements at FedEx Express, and improved efficiencies and lower costs of information technology at FedEx Services. To this end, during 2013, we conducted a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. Additionally, we announced in May 2013 our decision to retire from service 10 aircraft and related engines, as well as to shorten the depreciable lives of an additional 76 aircraft and related engines, in an effort to modernize our aircraft fleet and improve our global network. We will continue to work towards the plan of annual profitability improvement of $1.6 billion by the end of 2016, but if we are not able to reach this goal in the face of challenging economic conditions, our future financial results may suffer.
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The transportation infrastructure continues to be a target of terrorist activities. AsBecause transportation assets continue to be a resulttarget of concerns about global terrorism and homeland security,terrorist activities, 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, in July 2007, the U.S. Transportation Security Administration issuedcontinues to usrequire FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which contained many newcontains evolving and enhancedstrict security requirements. These requirements are not static, but will change periodically as the result of regulatory and legislative requirements, imposing additional security costs and to respond to evolving threats. Until these requirements are adopted, we cannot determine the effect that these new rules will have oncreating a level of uncertainty for our cost structure or our operating results. Itoperations. Thus, it is reasonably possible however, that these rules or other future security requirements could impose material costs on us.
The regulatory environment for global aviation or other transportation rights may impact our air 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, including certain postal regulations and licensing requirements, that restrict, make difficult and sometimes prohibit, the ability of foreign-owned companies such as FedEx Express to compete effectively in parts of the international domestic transportation and logistics 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 air network.
networks.
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We will soon be negotiatingA localized disaster in a new collective bargaining agreementkey geography could adversely impact our business.While we operate several integrated networks with assets distributed throughout the unionworld, there are concentrations of key assets within our networks that represents the pilotsare exposed to localized risks from natural or manmade disasters such as tornados, floods, earthquakes or terrorist attacks. The loss of FedEx Express.FedEx Express pilots are employed under a collective bargaining agreement that becomes amendable on October 31, 2010. In accordance with applicable labor law, we will continuekey location such as our Memphis super hub or one of our information technology centers could cause a significant disruption to operate under our current agreement while we negotiate with our pilots. We cannot predict the outcome of these negotiations. The terms of any new collective bargaining agreement could increase our operating costsoperations and adversely affect our ability to compete with other providers of express delivery services. On the other hand, if we are unable to reach agreement on a new collective bargaining agreement, we may be subject to a strike or work stoppages by our pilots, subject to the requirements of the RLA. These actions could have a negative impact on our ability to operate our express transportation network and ultimately cause us to lose customers.
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Our business may be adversely impacted by disruptions or modifications in service by the USPS.The USPS is a significant customer and vendor of FedEx, and thus, disruptions or modifications in services by the USPS as a consequence of the USPS’s current financial difficulties or any resulting structural changes to its operations, network, service offerings or pricing could have an adverse effect on our operations and financial results.
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, euro, Brazilian real, Canadian dollar and the 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 and discrimination and retaliation claims, and any other legal or governmental 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 became amendable in March 2013, and the parties are currently in negotiations);
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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Certain statements in this report, including (but not limited to) those contained in “Outlook“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.
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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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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, 2010,2013, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—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, 2010.
The effectiveness of our internal control over financial reporting as of May 31, 2010,2013, 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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PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited FedEx Corporation’s internal control over financial reporting as of May 31, 2010,2013, based on criteria established in Internal Control—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, 2010,2013, 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, 20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ investment, and comprehensive income, and cash flows for each of the three years in the period ended May 31, 20102013 of FedEx Corporation and our report dated July 15, 20102013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 15, 2010
-77-
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 20102013 and 2009,2012, and the related consolidated statements of income, comprehensive income (loss), changes in stockholders’ investment, and comprehensive income, and cash flows for each of the three years in the period ended May 31, 2010.2013. 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, 20102013 and 2009,2012, and the consolidated results of its operations and its cash flows for each of the three years in the period ended May 31, 2010,2013, 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, 2010,2013, based on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 15, 20102013 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
July 15, 2010
-78-
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,952 | $ | 2,292 | ||||
| Receivables, less allowances of $166 and $196 | 4,163 | 3,391 | ||||||
| Spare parts, supplies and fuel, less allowances of $170 and $175 | 389 | 367 | ||||||
| Deferred income taxes | 529 | 511 | ||||||
| Prepaid expenses and other | 251 | 555 | ||||||
| Total current assets | 7,284 | 7,116 | ||||||
| PROPERTY AND EQUIPMENT, AT COST | ||||||||
| Aircraft and related equipment | 11,640 | 10,118 | ||||||
| Package handling and ground support equipment | 5,193 | 4,960 | ||||||
| Computer and electronic equipment | 4,218 | 4,280 | ||||||
| Vehicles | 3,170 | 3,078 | ||||||
| Facilities and other | 7,081 | 6,824 | ||||||
| 31,302 | 29,260 | |||||||
| Less accumulated depreciation and amortization | 16,917 | 15,843 | ||||||
| Net property and equipment | 14,385 | 13,417 | ||||||
| OTHER LONG-TERM ASSETS | ||||||||
| Goodwill | 2,200 | 2,229 | ||||||
| Pension assets | — | 311 | ||||||
| Other assets | 1,033 | 1,171 | ||||||
| Total other long-term assets | 3,233 | 3,711 | ||||||
| $ | 24,902 | $ | 24,244 | |||||
| May 31, | ||||||||
| 2013 | 2012 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 4,917 | $ | 2,843 | ||||
Receivables, less allowances of $176 and $178 | 5,044 | 4,704 | ||||||
Spare parts, supplies and fuel, less allowances of $205 and $184 | 457 | 440 | ||||||
Deferred income taxes | 533 | 533 | ||||||
Prepaid expenses and other | 323 | 536 | ||||||
|
|
|
| |||||
Total current assets | 11,274 | 9,056 | ||||||
PROPERTY AND EQUIPMENT, AT COST | ||||||||
Aircraft and related equipment | 14,716 | 14,360 | ||||||
Package handling and ground support equipment | 6,452 | 5,912 | ||||||
Computer and electronic equipment | 4,958 | 4,646 | ||||||
Vehicles | 4,080 | 3,654 | ||||||
Facilities and other | 7,903 | 7,592 | ||||||
|
|
|
| |||||
| 38,109 | 36,164 | |||||||
Less accumulated depreciation and amortization | 19,625 | 18,916 | ||||||
|
|
|
| |||||
Net property and equipment | 18,484 | 17,248 | ||||||
OTHER LONG-TERM ASSETS | ||||||||
Goodwill | 2,755 | 2,387 | ||||||
Other assets | 1,054 | 1,212 | ||||||
|
|
|
| |||||
Total other long-term assets | 3,809 | 3,599 | ||||||
|
|
|
| |||||
| $ | 33,567 | $ | 29,903 | |||||
|
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|
| |||||
The accompanying notes are an integral part of these consolidated financial statements.
-79-
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Current portion of long-term debt | $ | 262 | $ | 653 | ||||
| Accrued salaries and employee benefits | 1,146 | 861 | ||||||
| Accounts payable | 1,522 | 1,372 | ||||||
| Accrued expenses | 1,715 | 1,638 | ||||||
| Total current liabilities | 4,645 | 4,524 | ||||||
| LONG-TERM DEBT, LESS CURRENT PORTION | 1,668 | 1,930 | ||||||
| OTHER LONG-TERM LIABILITIES | ||||||||
| Deferred income taxes | 891 | 1,071 | ||||||
| Pension, postretirement healthcare and other benefit obligations | 1,705 | 934 | ||||||
| Self-insurance accruals | 960 | 904 | ||||||
| Deferred lease obligations | 804 | 802 | ||||||
| Deferred gains, principally related to aircraft transactions | 267 | 289 | ||||||
| Other liabilities | 151 | 164 | ||||||
| Total other long-term liabilities | 4,778 | 4,164 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| COMMON STOCKHOLDERS’ INVESTMENT | ||||||||
| Common stock, $0.10 par value; 800 million shares authorized; 314 million shares issued as of May 31, 2010 and 312 million shares issued as of May 31, 2009 | 31 | 31 | ||||||
| Additional paid-in capital | 2,261 | 2,053 | ||||||
| Retained earnings | 13,966 | 12,919 | ||||||
| Accumulated other comprehensive loss | (2,440 | ) | (1,373 | ) | ||||
| Treasury stock, at cost | (7 | ) | (4 | ) | ||||
| Total common stockholders’ investment | 13,811 | 13,626 | ||||||
| $ | 24,902 | $ | 24,244 | |||||
| May 31, | ||||||||
| 2013 | 2012 | |||||||
LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||
CURRENT LIABILITIES | ||||||||
Current portion of long-term debt | $ | 251 | $ | 417 | ||||
Accrued salaries and employee benefits | 1,688 | 1,635 | ||||||
Accounts payable | 1,879 | 1,613 | ||||||
Accrued expenses | 1,932 | 1,709 | ||||||
|
|
|
| |||||
Total current liabilities | 5,750 | 5,374 | ||||||
LONG-TERM DEBT, LESS CURRENT PORTION | 2,739 | 1,250 | ||||||
OTHER LONG-TERM LIABILITIES | ||||||||
Deferred income taxes | 1,652 | 836 | ||||||
Pension, postretirement healthcare and other benefit obligations | 3,916 | 5,582 | ||||||
Self-insurance accruals | 987 | 963 | ||||||
Deferred lease obligations | 778 | 784 | ||||||
Deferred gains, principally related to aircraft transactions | 227 | 251 | ||||||
Other liabilities | 120 | 136 | ||||||
|
|
|
| |||||
Total other long-term liabilities | 7,680 | 8,552 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
COMMON STOCKHOLDERS’ INVESTMENT | ||||||||
Common stock, $0.10 par value; 800 million shares authorized; 318 million shares issued as of May 31, 2013 and 317 million shares issued as of May 31, 2012 | 32 | 32 | ||||||
Additional paid-in capital | 2,668 | 2,595 | ||||||
Retained earnings | 18,519 | 17,134 | ||||||
Accumulated other comprehensive loss | (3,820 | ) | (4,953 | ) | ||||
Treasury stock, at cost | (1 | ) | (81 | ) | ||||
|
|
|
| |||||
Total common stockholders’ investment | 17,398 | 14,727 | ||||||
|
|
|
| |||||
| $ | 33,567 | $ | 29,903 | |||||
|
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|
| |||||
The accompanying notes are an integral part of these consolidated financial statements.
-80-
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| Years ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| REVENUES | $ | 34,734 | $ | 35,497 | $ | 37,953 | ||||||
| OPERATING EXPENSES: | ||||||||||||
| Salaries and employee benefits | 14,027 | 13,767 | 14,202 | |||||||||
| Purchased transportation | 4,728 | 4,534 | 4,634 | |||||||||
| Rentals and landing fees | 2,359 | 2,429 | 2,441 | |||||||||
| Depreciation and amortization | 1,958 | 1,975 | 1,946 | |||||||||
| Fuel | 3,106 | 3,811 | 4,409 | |||||||||
| Maintenance and repairs | 1,715 | 1,898 | 2,068 | |||||||||
| Impairment and other charges | 18 | 1,204 | 882 | |||||||||
| Other | 4,825 | 5,132 | 5,296 | |||||||||
| 32,736 | 34,750 | 35,878 | ||||||||||
| OPERATING INCOME | 1,998 | 747 | 2,075 | |||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||
| Interest expense | (79 | ) | (85 | ) | (98 | ) | ||||||
| Interest income | 8 | 26 | 44 | |||||||||
| Other, net | (33 | ) | (11 | ) | (5 | ) | ||||||
| (104 | ) | (70 | ) | (59 | ) | |||||||
| INCOME BEFORE INCOME TAXES | 1,894 | 677 | 2,016 | |||||||||
| PROVISION FOR INCOME TAXES | 710 | 579 | 891 | |||||||||
| NET INCOME | $ | 1,184 | $ | 98 | $ | 1,125 | ||||||
| BASIC EARNINGS PER COMMON SHARE | $ | 3.78 | $ | 0.31 | $ | 3.64 | ||||||
| DILUTED EARNINGS PER COMMON SHARE | $ | 3.76 | $ | 0.31 | $ | 3.60 | ||||||
| Years ended May 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
REVENUES | $ | 44,287 | $ | 42,680 | $ | 39,304 | ||||||
OPERATING EXPENSES: | ||||||||||||
Salaries and employee benefits | 16,570 | 16,099 | 15,276 | |||||||||
Purchased transportation | 7,272 | 6,335 | 5,674 | |||||||||
Rentals and landing fees | 2,521 | 2,487 | 2,462 | |||||||||
Depreciation and amortization | 2,386 | 2,113 | 1,973 | |||||||||
Fuel | 4,746 | 4,956 | 4,151 | |||||||||
Maintenance and repairs | 1,909 | 1,980 | 1,979 | |||||||||
Business realignment, impairment and other charges | 660 | 134 | 89 | |||||||||
Other | 5,672 | 5,390 | 5,322 | |||||||||
|
|
|
|
|
| |||||||
| 41,736 | 39,494 | 36,926 | ||||||||||
|
|
|
|
|
| |||||||
OPERATING INCOME | 2,551 | 3,186 | 2,378 | |||||||||
OTHER INCOME (EXPENSE): | ||||||||||||
Interest expense | (82 | ) | (52 | ) | (86 | ) | ||||||
Interest income | 21 | 13 | 9 | |||||||||
Other, net | (35 | ) | (6 | ) | (36 | ) | ||||||
|
|
|
|
|
| |||||||
| (96 | ) | (45 | ) | (113 | ) | |||||||
|
|
|
|
|
| |||||||
INCOME BEFORE INCOME TAXES | 2,455 | 3,141 | 2,265 | |||||||||
PROVISION FOR INCOME TAXES | 894 | 1,109 | 813 | |||||||||
|
|
|
|
|
| |||||||
NET INCOME | $ | 1,561 | $ | 2,032 | $ | 1,452 | ||||||
|
|
|
|
|
| |||||||
BASIC EARNINGS PER COMMON SHARE | $ | 4.95 | $ | 6.44 | $ | 4.61 | ||||||
|
|
|
|
|
| |||||||
DILUTED EARNINGS PER COMMON SHARE | $ | 4.91 | $ | 6.41 | $ | 4.57 | ||||||
|
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|
|
|
| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
-81-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
| Years ended May 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| OPERATING ACTIVITIES | ||||||||||||
| Net income | $ | 1,184 | $ | 98 | $ | 1,125 | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 1,958 | 1,975 | 1,946 | |||||||||
| Provision for uncollectible accounts | 124 | 181 | 134 | |||||||||
| Deferred income taxes and other noncash items | 331 | 299 | 124 | |||||||||
| Noncash impairment charges | 18 | 1,103 | 882 | |||||||||
| Stock-based compensation | 101 | 99 | 101 | |||||||||
| Changes in assets and liabilities: | ||||||||||||
| Receivables | (906 | ) | 762 | (447 | ) | |||||||
| Other assets | 276 | (196 | ) | (237 | ) | |||||||
| Pension assets and liabilities, net | (611 | ) | (913 | ) | (273 | ) | ||||||
| Accounts payable and other liabilities | 710 | (628 | ) | 190 | ||||||||
| Other, net | (47 | ) | (27 | ) | (80 | ) | ||||||
| Cash provided by operating activities | 3,138 | 2,753 | 3,465 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||
| Capital expenditures | (2,816 | ) | (2,459 | ) | (2,947 | ) | ||||||
| Proceeds from asset dispositions and other | 35 | 76 | 50 | |||||||||
| Cash used in investing activities | (2,781 | ) | (2,383 | ) | (2,897 | ) | ||||||
| FINANCING ACTIVITIES | ||||||||||||
| Principal payments on debt | (653 | ) | (501 | ) | (639 | ) | ||||||
| Proceeds from debt issuance | — | 1,000 | — | |||||||||
| Proceeds from stock issuances | 94 | 41 | 108 | |||||||||
| Excess tax benefit on the exercise of stock options | 25 | 4 | 38 | |||||||||
| Dividends paid | (138 | ) | (137 | ) | (124 | ) | ||||||
| Other, net | (20 | ) | (7 | ) | — | |||||||
| Cash (used in) provided by financing activities | (692 | ) | 400 | (617 | ) | |||||||
| �� | ||||||||||||
| Effect of exchange rate changes on cash | (5 | ) | (17 | ) | 19 | |||||||
| Net (decrease) increase in cash and cash equivalents | (340 | ) | 753 | (30 | ) | |||||||
| Cash and cash equivalents at beginning of period | 2,292 | 1,539 | 1,569 | |||||||||
| Cash and cash equivalents at end of period | $ | 1,952 | $ | 2,292 | $ | 1,539 | ||||||
| Years Ended May 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
NET INCOME | $ | 1,561 | $ | 2,032 | $ | 1,452 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS): | ||||||||||||
Foreign currency translation adjustments, net of tax benefit of $12 and $26 in 2013 and 2012 and tax expense of $27 in 2011 | 41 | (95 | ) | 125 | ||||||||
Amortization of unrealized pension actuarial gains/losses and other, net of tax expense of $677 in 2013 and tax benefit of $1,369 and $141 in 2012 and 2011 | 1,092 | (2,308 | ) | (235 | ) | |||||||
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|
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| |||||||
| 1,133 | (2,403 | ) | (110 | ) | ||||||||
|
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| |||||||
COMPREHENSIVE INCOME (LOSS) | $ | 2,694 | $ | (371 | ) | $ | 1,342 | |||||
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| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
-82-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’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, 2007 | $ | 31 | $ | 1,689 | $ | 11,970 | $ | (1,030 | ) | $ | (4 | ) | $ | 12,656 | ||||||||||
| Net income | — | — | 1,125 | — | — | 1,125 | ||||||||||||||||||
| Foreign currency translation adjustment, net of tax of $15 | — | — | — | 99 | — | 99 | ||||||||||||||||||
| Retirement plans adjustments, net of tax of $296 | — | — | — | 506 | — | 506 | ||||||||||||||||||
| Total comprehensive income | 1,730 | |||||||||||||||||||||||
| Cash dividends declared ($0.30 per share) | — | — | (93 | ) | — | — | (93 | ) | ||||||||||||||||
| Employee incentive plans and other (2,556,318 shares issued) | — | 233 | — | — | — | 233 | ||||||||||||||||||
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 | ||||||||||
| Years ended May 31, | ||||||||||||
| 2013 | 2012 | 2011 | ||||||||||
OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 1,561 | $ | 2,032 | $ | 1,452 | ||||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 2,386 | 2,113 | 1,973 | |||||||||
Provision for uncollectible accounts | 167 | 160 | 152 | |||||||||
Deferred income taxes and other noncash items | 521 | 1,126 | 669 | |||||||||
Business realignment, impairment and other charges | 479 | 134 | 29 | |||||||||
Stock-based compensation | 109 | 105 | 98 | |||||||||
Changes in assets and liabilities: | ||||||||||||
Receivables | (451 | ) | (254 | ) | (400 | ) | ||||||
Other current assets | 257 | (231 | ) | (114 | ) | |||||||
Pension assets and liabilities, net | (335 | ) | (453 | ) | (169 | ) | ||||||
Accounts payable and other liabilities | 10 | 144 | 370 | |||||||||
Other, net | (16 | ) | (41 | ) | (19 | ) | ||||||
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| |||||||
Cash provided by operating activities | 4,688 | 4,835 | 4,041 | |||||||||
INVESTING ACTIVITIES | ||||||||||||
Capital expenditures | (3,375 | ) | (4,007 | ) | (3,434 | ) | ||||||
Business acquisitions, net of cash acquired | (483 | ) | (116 | ) | (96 | ) | ||||||
Proceeds from asset dispositions and other | 55 | 74 | 111 | |||||||||
|
|
|
|
|
| |||||||
Cash used in investing activities | (3,803 | ) | (4,049 | ) | (3,419 | ) | ||||||
FINANCING ACTIVITIES | ||||||||||||
Principal payments on debt | (417 | ) | (29 | ) | (262 | ) | ||||||
Proceeds from debt issuances | 1,739 | — | — | |||||||||
Proceeds from stock issuances | 280 | 128 | 108 | |||||||||
Excess tax benefit on the exercise of stock options | 23 | 18 | 23 | |||||||||
Dividends paid | (177 | ) | (164 | ) | (151 | ) | ||||||
Purchase of treasury stock | (246 | ) | (197 | ) | — | |||||||
Other, net | (18 | ) | — | (5 | ) | |||||||
|
|
|
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| |||||||
Cash provided by (used in) financing activities | 1,184 | (244 | ) | (287 | ) | |||||||
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|
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| |||||||
Effect of exchange rate changes on cash | 5 | (27 | ) | 41 | ||||||||
|
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| |||||||
Net increase in cash and cash equivalents | 2,074 | 515 | 376 | |||||||||
Cash and cash equivalents at beginning of period | 2,843 | 2,328 | 1,952 | |||||||||
|
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| |||||||
Cash and cash equivalents at end of period | $ | 4,917 | $ | 2,843 | $ | 2,328 | ||||||
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| |||||||
The accompanying notes are an integral part of these consolidated financial statements.
-83-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ INVESTMENT
(IN MILLIONS, EXCEPT SHARE DATA)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total | |||||||||||||||||||
Balance at May 31, 2010 | $ | 31 | $ | 2,261 | $ | 13,966 | $ | (2,440 | ) | $ | (7 | ) | $ | 13,811 | ||||||||||
Net income | — | — | 1,452 | — | — | 1,452 | ||||||||||||||||||
Other comprehensive loss, net of tax of $114 | — | — | — | (110 | ) | — | (110 | ) | ||||||||||||||||
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 | ||||||||||||||||||
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Balance at May 31, 2011 | 32 | 2,484 | 15,266 | (2,550 | ) | (12 | ) | 15,220 | ||||||||||||||||
Net income | — | — | 2,032 | — | — | 2,032 | ||||||||||||||||||
Other comprehensive loss, net of tax of $1,395 | — | — | — | (2,403 | ) | — | (2,403 | ) | ||||||||||||||||
Purchase of treasury stock | — | — | — | — | (197 | ) | (197 | ) | ||||||||||||||||
Cash dividends declared ($0.52 per share) | — | — | (164 | ) | — | — | (164 | ) | ||||||||||||||||
Employee incentive plans and other (2,359,659 shares issued) | — | 111 | — | — | 128 | 239 | ||||||||||||||||||
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Balance at May 31, 2012 | 32 | 2,595 | 17,134 | (4,953 | ) | (81 | ) | 14,727 | ||||||||||||||||
Net income | — | — | 1,561 | — | — | 1,561 | ||||||||||||||||||
Other comprehensive gain, net of tax of $665 | — | — | — | 1,133 | — | 1,133 | ||||||||||||||||||
Purchase of treasury stock | — | — | — | — | (246 | ) | (246 | ) | ||||||||||||||||
Cash dividends declared ($0.56 per share) | — | — | (176 | ) | — | — | (176 | ) | ||||||||||||||||
Employee incentive plans and other (4,172,976 shares issued) | — | 73 | — | — | 326 | 399 | ||||||||||||||||||
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Balance at May 31, 2013 | $ | 32 | $ | 2,668 | $ | 18,519 | $ | (3,820 | ) | $ | (1 | ) | $ | 17,398 | ||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
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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 North American provider of small-package ground delivery services; and the FedEx Freight, LTL Group, which comprises the Inc. (“FedEx Freight and FedEx National LTL businesses of FedEx Freight Corporation,Freight”), a leading U.S.North American 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, information technology, communications and customer serviceback-office 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, 20102013 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 transportationTransportation services are provided with the use of employees and independent contractors. FedEx is the principal to the transaction infor most instancesof these services 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.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADVERTISING.Advertising and promotion costs are expensed as incurred and are classified in other operating expenses. Advertising and promotion expenses were $374$424 million in 2010, $3792013, $421 million in 20092012 and $445$375 million in 2008.
2011.
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SPARE PARTS, SUPPLIES AND FUEL.Spare parts (principally aircraft related)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. SuppliesThe majority of our supplies and our fuel are reported at cost on a first-in, first-out basis.
PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements and 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. Expenditures for equipment overhaul costs of engines or airframes prior to their operational use are capitalized as part of the cost of such assets as they are costs required to ready the asset for its intended use. Maintenance and repairs are charged to expense as incurred, except for certain aircraft-related major maintenance costs on one of our aircraft fleet types, which are capitalized as incurred and amortized over their estimated service lives.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 | 2010 | 2009 | ||||||||
| Wide-body aircraft and related equipment | 15 to 30 years | $ | 5,897 | $ | 5,139 | |||||
| Narrow-body and feeder aircraft and related equipment | 5 to 18 years | 1,049 | 709 | |||||||
| Package handling and ground support equipment | 3 to 30 years | 1,895 | 1,928 | |||||||
| Computer and electronic equipment | 2 to 10 years | 649 | 782 | |||||||
| Vehicles | 2 to 15 years | 1,095 | 1,107 | |||||||
| Facilities and other | 2 to 40 years | 3,800 | 3,752 | |||||||
Range | Net Book Value at May 31, | |||||||||
| 2013 | 2012 | |||||||||
Wide-body aircraft and related equipment | 15 to 30 years | $ | 7,191 | $ | 7,161 | |||||
Narrow-body and feeder aircraft and related equipment | 5 to 18 years | 2,284 | 1,881 | |||||||
Package handling and ground support equipment | 3 to 30 years | 2,311 | 2,101 | |||||||
Vehicles | 3 to 15 years | 1,748 | 1,411 | |||||||
Computer and electronic equipment | 2 to 10 years | 993 | 930 | |||||||
Facilities and other | 2 to 40 years | 3,957 | 3,764 | |||||||
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 1830 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 changesvalues as it did not materially affectin 2013 and 2012 with certain aircraft. In May 2013, FedEx Express made the decision to accelerate the retirement of 76 aircraft and related engines to aid in our fleet modernization and improve our global network. In May 2012, we shortened the depreciable lives for 54 aircraft and related engines to accelerate the retirement of these aircraft, resulting in a depreciation expense increase of $69 million in 2013. As a result of these accelerated retirements, we expect an additional $74 million in year-over-year depreciation expense in any period presented. 2014.
Depreciation expense, excluding gains and losses on sales of property and equipment used in operations, was $2.3 billion in 2013, $2.1 billion in 2012 and $1.9 billion in 2010, $1.8 billion in 2009 and $1.8 billion in 2008.2011. Depreciation and amortization expense includes amortization of assets under capital lease.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 $80$45 million in 2010,2013, $85 million in 2012 and $71 million in 2009 and $50 million in 2008.
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.
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.
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In May 2012, we made the decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines, atas well as six Boeing MD10-10 aircraft and 17 related engines. As a consequence of this decision, a noncash impairment charge of $134 million ($84 million, net of tax, or $0.26 per diluted share) was recorded in the FedEx Express.
The combination of our FedEx Freight and FedEx National LTL operations was completed on January 30, 2011. These actions resulted in total program costs of $133 million recorded during 2011, which includes $89 million of impairment and other charges (recorded in the “Business realignment, impairment and other charges” caption on the consolidated income statements), and $44 million of other program costs (primarily recorded in the “Depreciation and amortization” caption on the consolidated income statements).
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. In our evaluation of goodwill impairment, bywe perform a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, we would proceed to a two-step process to test goodwill for impairment including comparing the fair value of each reporting unit with its carrying value (including
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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.
PENSION AND POSTRETIREMENT HEALTHCARE PLANSPLANS.. 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 generallyare 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 costvalues for our qualifiedtax-qualified U.S. domestic 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, 2010,2013, we recorded an increase to equity through OCI of $861 million (net of tax) based primarily on year-end adjustments related to an increase in the value of our plan assets and an increase in the discount rate used to measure the liabilities at May 31, 2013. At May 31, 2012, we recorded a decrease to equity through OCI of $1.0$2.4 billion (net of tax) based primarily on mark-to-marketyear-end adjustments related to increases in our projected benefit obligation due to a decrease in the discount rate used to measure the liabilityliabilities at May 31, 2010. At May 31, 2009, we recorded a decrease of $1.2 billion based primarily on mark-to-market adjustments related to unrealized losses in our pension plan assets during 2009.
INCOME TAXESTAXES.. 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 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 ourthe accompanying consolidated balance sheets.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SELF-INSURANCE ACCRUALSACCRUALS.. We are self-insured for costs associated with workers’ compensation claims, vehicle accidents and general business liabilities, and benefits paid under employee healthcare programs and long-term disability benefits.programs. 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.
LEASESLEASES.. 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 GAINSGAINS.. 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 TRANSLATIONTRANSLATION.. 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 $30 million at May 31, 2010, $56 million at May 31, 2009 and $167 million at May 31, 2008.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS.The pilots of FedEx Express, which represent a small number of FedEx ExpressExpress’s total employees, are employed under a collective bargaining agreement that will becomeagreement. The contract became amendable duringin March 2013, and the second quarter of 2011.parties are currently in negotiations. In accordance with applicable labor law, we will continueaddition to operate under our current agreement while we negotiate with our pilots. We cannot estimate the financial impact, if any, the results of these negotiations may have on our future results of operations.
pilots at FedEx Express, certain FedEx non-U.S. employees are unionized.
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TREASURY SHARES.During 2013, we repurchased 2.7 million shares of FedEx common stock at an average price of $91 per share for a total of $246 million. In March 2013, our Board of Directors authorized the repurchase of up to 10 million shares of common stock. It is expected that the additional share authorization will primarily be utilized to offset the effects of equity compensation dilution over the next several years. As of May 31, 2013, 10,188,000 shares remained under existing share repurchase authorizations.
DIVIDENDS DECLARED PER COMMON SHARESHARE.. On June 7, 2010,3, 2013, our Board of Directors declared a quarterly dividend of $0.12$0.15 per share of common stock. The dividend was paid on July 1, 20102013 to stockholders of record as of the close of business on June 17, 2010.2013. 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.
- 95 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BUSINESS REALIGNMENT COSTS. During 2013, we announced profit improvement programs including reducing our selling, general and administrative cost functions through a voluntary employee separation program.
During 2013, we conducted a program to offer voluntary cash buyouts to eligible U.S.-based employees in certain staff functions. The voluntary buyout program includes voluntary severance payments and funding to healthcare reimbursement accounts, with the voluntary severance calculated based on four weeks of gross base salary for every year of FedEx service up to a maximum payment of two years of pay. This program was completed in the fourth quarter and approximately 3,600 employees have left or will be voluntarily leaving the company by the end of 2014. Eligible employees are scheduled to vacate positions in phases to ensure a smooth transition in the impacted functions so that we maintain service levels to our customers. Of the total population leaving the company, approximately 40% of the employees vacated positions on May 31, 2013. An additional 35% will depart throughout 2014 and approximately 25% of this population will remain until May 31, 2014. Costs of the benefits provided under the voluntary program were recognized as special termination benefits in the period that eligible employees accepted their offers.
We incurred costs of $560 million ($353 million, net of tax, or $1.11 per diluted share) during 2013 associated with our business realignment activities. These costs related primarily to severance for employees who accepted voluntary buyouts in the third and fourth quarters of 2013. Payments will be made at the time of departure. Approximately $180 million was paid under this program during 2013. The cost of the buyout program is included in the caption “Business realignment, impairment and other charges” in our consolidated statements of income. Also included in that caption are other external costs directly attributable to our business realignment activities, such as professional fees.
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).
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, which has been adopted by us, is relevant to the readers of our financial statements.
On June 1, 2008,2012, we adopted the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) on the presentation of comprehensive income. The new guidance requires companies to report components of comprehensive income by including comprehensive income on the face of the income statement or in a separate statement of comprehensive income. We have adopted this guidance by including a separate statement of comprehensive income (loss) for the three years ending May 31, 2013 and by including expanded accumulated other comprehensive income disclosure requirements in the notes to our consolidated financial statements. In addition on June 1, 2012, we adopted the FASB’s amendments to the fair value measurements and disclosure requirements, which provides a common definition ofexpanded existing disclosure requirements regarding the fair value establishes a uniform framework for measuring fair value and requires expanded disclosures about fair value measurements. On June 1, 2009, we implementedof our long-term debt.
In February 2013, the previously deferred provisions of this guidance for nonfinancial assets and liabilities recorded at fair value, as required. The adoption of thisFASB issued new guidance hadrequiring additional information about reclassification adjustments out of comprehensive income, including changes in comprehensive income balances by component and significant items reclassified out of comprehensive income. This new standard is effective for our fiscal year ending May 31, 2014 and will have no impact on our financial statements.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In December 2007,May 2013, the FASB issued authoritative guidance on business combinations and the accounting and reporting for noncontrolling interests (previously referreda revised exposure draft outlining proposed changes to as minority interests). This guidance significantly changed the accounting for leases. Under the revised exposure draft, the recognition, measurement and reportingpresentation of business combination transactions, including noncontrolling interests. For example,expenses and cash flows arising from a lease would depend primarily on whether the acquiring entitylessee is now requiredexpected to recognizeconsume more than an insignificant portion of the full fair value of assets acquired and liabilities assumedeconomic benefits embedded in the transaction,underlying asset. A right-of-use asset and a liability to make lease payments will be recognized on the expensingbalance sheet for all leases (except short-term leases). The enactment of most transactionthis proposal will have a significant impact on our accounting and restructuring costsfinancial reporting. The FASB has not yet proposed an effective date of this proposal.
We believe that no other new accounting guidance was adopted or issued during 2013 that is now required. This guidance became effective for us beginning June 1, 2009relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and had no materialwhen enacted, may have a significant impact on our financial statements becausereporting.
NOTE 3: BUSINESS COMBINATIONS
During 2013, we haveexpanded the international service offerings of FedEx Express by completing the following business acquisitions:
Rapidão Cometa Logística e Transporte S.A., a Brazilian transportation and logistics company, for $398 million in cash from operations on July 4, 2012
TATEX, a French express transportation company, for $55 million in cash from operations on July 3, 2012
Opek Sp. z o.o., a Polish domestic express package delivery company, for $54 million in cash from operations on June 13, 2012
These acquisitions give us more robust transportation networks within these countries and added capabilities in these important international markets.
The financial results of these acquired businesses are included in the FedEx Express segment from the date of acquisition and were not had any significant business combinations since that date.
The estimated fair values of the 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. This guidance became effective for our 2010 Annual Report. See Note 11 for related disclosures.
Current assets | $ | 145 | ||
Property and equipment | 91 | |||
Goodwill | 351 | |||
Intangible assets | 60 | |||
Other non-current assets | 70 | |||
Current liabilities | (174 | ) | ||
Long-term liabilities | (36 | ) | ||
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Total purchase price | $ | 507 | ||
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The goodwill of financial instruments for interim reporting periods in addition$351 million is primarily attributable to annual reporting periods and became effective for us beginningexpected benefits from synergies of the combinations with the existing FedEx Express business and other acquired entities. The portion of the purchase price allocated to goodwill is not deductible for U.S. income tax purposes. The intangible assets acquired consist primarily of customer-related intangible assets, which will be amortized on an accelerated basis over their average estimated useful lives of nine years, with the majority of the amortization recognized during the first quarter of fiscal year 2010.
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FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On June 20, 2013, we signed agreements to acquire the businesses operated by our current service provider Supaswift (Pty) Ltd. in five countries in Southern Africa. The acquisition will be funded with cash from operations and is expected to be completed in the second half of 2014, subject to customary closing conditions. The financial results of the acquired businesses will be included in the FedEx Express segment from the date of acquisition and will be immaterial to our 2014 results.
In 2012, we completed our acquisition of Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from operations on July 25, 2011. In 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 from operations on February 22, 2011. The financial results of these acquired businesses are included in the FedEx Express segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations or financial condition and therefore, pro forma financial information has not been presented. Substantially all of the purchase price was allocated to goodwill, which was entirely attributed to our FedEx Express reporting unit.
NOTE 3:4: 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, 2008 | $ | 1,123 | $ | 90 | $ | 802 | $ | 1,542 | $ | 3,557 | �� | |||||||||
| Accumulated impairment charges | — | — | (25 | ) | (367 | ) | (392 | ) | ||||||||||||
Balance as of May 31, 2008 | 1,123 | 90 | 777 | 1,175 | 3,165 | |||||||||||||||
| Impairment charges | — | — | (90 | ) | (810 | ) | (900 | ) | ||||||||||||
Purchase adjustments and other(1) | (33 | ) | — | — | (3 | ) | (36 | ) | ||||||||||||
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 | ||||||||||
Accumulated goodwill impairment charges as of May 31, 2010 | $ | — | $ | — | $ | (133 | ) | $ | (1,177 | ) | $ | (1,310 | ) | |||||||
| FedEx Express Segment | FedEx Ground Segment | FedEx Freight Segment | FedEx Services Segment | Total | ||||||||||||||||
Goodwill at May 31, 2011 | $ | 1,272 | $ | 90 | $ | 735 | $ | 1,539 | $ | 3,636 | ||||||||||
Accumulated impairment charges | — | — | (133 | ) | (1,177 | ) | (1,310 | ) | ||||||||||||
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Balance as of May 31, 2011 | 1,272 | 90 | 602 | 362 | 2,326 | |||||||||||||||
Goodwill acquired(1) | 104 | — | — | — | 104 | |||||||||||||||
Purchase adjustments and other(2) | (32 | ) | — | — | (11 | ) | (43 | ) | ||||||||||||
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Balance as of May 31, 2012 | 1,344 | 90 | 602 | 351 | 2,387 | |||||||||||||||
Goodwill acquired(3) | 351 | — | — | — | 351 | |||||||||||||||
Purchase adjustments and other(2) | 20 | — | — | (3 | ) | 17 | ||||||||||||||
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Balance as of May 31, 2013 | $ | 1,715 | $ | 90 | $ | 602 | $ | 348 | $ | 2,755 | ||||||||||
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Accumulated goodwill impairment charges as of May 31, 2013 | $ | — | $ | — | $ | (133 | ) | $ | (1,177 | ) | $ | (1,310 | ) | |||||||
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| (1) | Goodwill acquired in 2012 relates to the acquisition of the Mexican domestic express package delivery company, Multipack. See Note 3 for related disclosures. |
| (2) | Primarily currency translation adjustments. |
Goodwill acquired in 2013 relates to the |
Our reporting units with significant recorded goodwill include our annual impairment testing of goodwill conductedFedEx Express, FedEx Freight and FedEx Office (reported 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 LTLServices segment) reporting unit. Beginning in 2009, the U.S. recession had a significant negative impact on the LTL industry, resulting in volume declines, yield pressures and operating losses. These difficult conditions continued in 2010 and the resulting excess capacity and competitive pricing environment had a significant negative impact on our FedEx National LTL reporting unit. Given these market conditions, our forecast for this business did not support the recoverability of the remaining goodwill attributable to our FedEx National LTL reporting unit.
-89-
May 31, 2013.
-90-
| May 31, 2010 | May 31, 2009 | |||||||||||||||||||||||
| Gross Carrying | Accumulated | Net Book | Gross Carrying | Accumulated | Net Book | |||||||||||||||||||
| Amount | Amortization | Value | Amount | Amortization | Value | |||||||||||||||||||
| Customer relationships | $ | 209 | $ | (160 | ) | $ | 49 | $ | 207 | $ | (133 | ) | $ | 74 | ||||||||||
| Trade name and other | 195 | (175 | ) | 20 | 205 | (161 | ) | 44 | ||||||||||||||||
| Total | $ | 404 | $ | (335 | ) | $ | 69 | $ | 412 | $ | (294 | ) | $ | 118 | ||||||||||
- 98 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4:5: SELECTED CURRENT LIABILITIES
The components of selected current liability captions were as follows (in millions):
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| Accrued Salaries and Employee Benefits | ||||||||
| Salaries | $ | 230 | $ | 201 | ||||
| Employee benefits, including variable compensation | 386 | 143 | ||||||
| Compensated absences | 530 | 517 | ||||||
| $ | 1,146 | $ | 861 | |||||
| Accrued Expenses | ||||||||
| Self-insurance accruals | $ | 675 | $ | 626 | ||||
| Taxes other than income taxes | 347 | 338 | ||||||
| Other | 693 | 674 | ||||||
| $ | 1,715 | $ | 1,638 | |||||
-91-
| May 31, | ||||||||
| 2013 | 2012 | |||||||
Accrued Salaries and Employee Benefits | ||||||||
Salaries | $ | 489 | $ | 280 | ||||
Employee benefits, including variable compensation | 615 | 803 | ||||||
Compensated absences | 584 | 552 | ||||||
|
|
|
| |||||
| $ | 1,688 | $ | 1,635 | |||||
|
|
|
| |||||
Accrued Expenses | ||||||||
Self-insurance accruals | $ | 796 | $ | 678 | ||||
Taxes other than income taxes | 368 | 386 | ||||||
Other | 768 | 645 | ||||||
|
|
|
| |||||
| $ | 1,932 | $ | 1,709 | |||||
|
|
|
| |||||
NOTE 5:6: 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, 2010,2013, are as follows (in millions):
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| Senior unsecured debt | ||||||||
| Interest rate of 5.50%, due in 2010 | $ | — | $ | 500 | ||||
| Interest rate of 7.25%, due in 2011 | 250 | 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 | ||||||
| 1,789 | 2,289 | |||||||
| Capital lease obligations | 141 | 294 | ||||||
| 1,930 | 2,583 | |||||||
| Less current portion | 262 | 653 | ||||||
| $ | 1,668 | $ | 1,930 | |||||
| May 31, | ||||||||||||
| 2013 | 2012 | |||||||||||
Senior unsecured debt: | ||||||||||||
| Interest Rate % | Maturity | |||||||||||
9.65 | 2013 | $ | — | $ | 300 | |||||||
7.38 | 2014 | 250 | 250 | |||||||||
8.00 | 2019 | 750 | 750 | |||||||||
2.625 | 2023 | 499 | — | |||||||||
2.70 | 2023 | 249 | — | |||||||||
3.875 | 2043 | 493 | — | |||||||||
4.10 | 2043 | 499 | — | |||||||||
7.60 | 2098 | 239 | 239 | |||||||||
|
|
|
| |||||||||
Total senior unsecured debt | 2,979 | 1,539 | ||||||||||
Capital lease obligations | 11 | 128 | ||||||||||
|
|
|
| |||||||||
| 2,990 | 1,667 | |||||||||||
Less current portion | 251 | 417 | ||||||||||
|
|
|
| |||||||||
| $ | 2,739 | $ | 1,250 | |||||||||
|
|
|
| |||||||||
Interest on our fixed-rate notes is paid semi-annually. Long-term debt, exclusive of capital leases, had carrying values of $1.8 billion compared with estimated fair values of $2.1$3.2 billion at May 31, 2010,2013 and $2.3 billion compared with estimated fair values of $2.4$2.0 billion at May 31, 2009.2012. The estimated fair values were determined based on quoted market prices or onand the current rates offered for debt with similar terms and maturities.
- 99 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
In January 2009,April 2013, we issued $750 million of senior unsecured debt under our current shelf registration statement, comprised of $250 million of 2.70% fixed-rate notes due in April 2023 and $500 million of 4.10% fixed-rate notes due in April 2043. We utilized the net proceeds for working capital and general corporate purposes. In July 2012, we issued $1 billion of senior unsecured debt under oura then current shelf registration statement, comprised of fixed-rate notes totaling $250$500 million due in January 2014 and $750 million due in January 2019. Theof 2.625% fixed-rate notes due in January 2014 bear interest at an annual rateAugust 2022 and $500 million of 7.375%, payable semi-annually, and the3.875% fixed-rate notes due in January 2019 bear interest at an annual rateAugust 2042. We utilized the net proceeds for working capital and general corporate purposes.
During 2013, we made principal payments of 8.00%, payable semi-annually. During 2010, we$116 million related to capital lease obligations and repaid our $500$300 million 5.50%9.65% unsecured notes that matured on August 15, 2009in June 2012 using cash from operations and a portion of the proceeds of our January 2009 $1 billion senior unsecured debt offering.
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. The revolvingOn March 1, 2013, we entered into an amendment to our credit agreement expires in July 2012.to, among other things, extend its maturity date from April 26, 2016 to March 1, 2018. 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 1.0.70%. Our leverage ratio of adjusted debt to capital was 0.551% at May 31, 2010.2013. We believe the leverage ratio covenant is our only significant restrictive covenant in our revolving credit agreement. Our revolving credit agreement contains other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We are in compliance with thisthe leverage ratio covenant 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.expected funding needs. As of May 31, 2010,2013, 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 standby letters of credit.credit and surety bonds. We had a total of $553$538 million in letters of credit outstanding at May 31, 2010,2013, with $94$128 million unused under our primary $500 million letter of credit facility.facility, and $539 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.
credit and surety bonds themselves.
-92-
| May 31, | ||||||||
| 2010 | 2009 | |||||||
| Aircraft | $ | 15 | $ | 50 | ||||
| Package handling and ground support equipment | 165 | 165 | ||||||
| Vehicles | 17 | 17 | ||||||
| Other, principally facilities | 146 | 147 | ||||||
| 343 | 379 | |||||||
| Less accumulated amortization | 312 | 300 | ||||||
| $ | 31 | $ | 79 | |||||
Rent expense under operating leases for the years ended May 31 was as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| Minimum rentals | $ | 2,001 | $ | 2,047 | $ | 1,990 | ||||||
Contingent rentals(1) | 152 | 181 | 228 | |||||||||
| $ | 2,153 | $ | 2,228 | $ | 2,218 | |||||||
| 2013 | 2012 | 2011 | ||||||||||
Minimum rentals | $ | 2,061 | $ | 2,018 | $ | 2,025 | ||||||
Contingent rentals(1) | 192 | 210 | 193 | |||||||||
|
|
|
|
|
| |||||||
| $ | 2,253 | $ | 2,228 | $ | 2,218 | |||||||
|
|
|
|
|
| |||||||
| (1) | Contingent rentals are based on equipment usage. |
-93-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 20102013 is as follows (in millions):
| Operating Leases | ||||||||||||||||
| Aircraft | Total | |||||||||||||||
| Capital | and Related | Facilities | Operating | |||||||||||||
| Leases | Equipment | and Other | Leases | |||||||||||||
| 2011 | $ | 20 | $ | 526 | $ | 1,250 | $ | 1,776 | ||||||||
| 2012 | 8 | 504 | 1,085 | 1,589 | ||||||||||||
| 2013 | 119 | 499 | 926 | 1,425 | ||||||||||||
| 2014 | 2 | 473 | 786 | 1,259 | ||||||||||||
| 2015 | 1 | 455 | 717 | 1,172 | ||||||||||||
| Thereafter | 14 | 2,003 | 4,547 | 6,550 | ||||||||||||
| Total | 164 | $ | 4,460 | $ | 9,311 | $ | 13,771 | |||||||||
| Less amount representing interest | 23 | |||||||||||||||
| Present value of net minimum lease payments | $ | 141 | ||||||||||||||
| Operating Leases | ||||||||||||
| Aircraft and Related Equipment | Facilities and Other | Total Operating Leases | ||||||||||
2014 | $ | 462 | $ | 1,474 | $ | 1,936 | ||||||
2015 | 448 | 1,386 | 1,834 | |||||||||
2016 | 453 | 1,183 | 1,636 | |||||||||
2017 | 391 | 1,298 | 1,689 | |||||||||
2018 | 326 | 904 | 1,230 | |||||||||
Thereafter | 824 | 5,826 | 6,650 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 2,904 | $ | 12,071 | $ | 14,975 | ||||||
|
|
|
|
|
| |||||||
Property and equipment recorded under capital leases and future minimum lease payments under capital leases were immaterial at May 31, 2013. The weighted-average remaining lease term of all operating leases outstanding at May 31, 20102013 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 7:8: 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, 2010,2013, none of these shares had been issued.
- 101 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9: ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table provides changes in accumulated other comprehensive income (loss), net of tax, reported in our financial statements (in millions):
| Foreign currency translation adjustment | Retirement plans adjustments | Accumulated other comprehensive income (loss) | ||||||||||
Balance at May 31, 2010 | $ | 31 | $ | (2,471 | ) | $ | (2,440 | ) | ||||
Other comprehensive gain (loss) | 125 | (235 | ) | (110 | ) | |||||||
|
|
|
|
|
| |||||||
Balance at May 31, 2011 | 156 | (2,706 | ) | (2,550 | ) | |||||||
Other comprehensive gain (loss) | (95 | ) | (2,308 | ) | (2,403 | ) | ||||||
|
|
|
|
|
| |||||||
Balance at May 31, 2012 | 61 | (5,014 | ) | (4,953 | ) | |||||||
Other comprehensive gain (loss) | 41 | 1,092 | 1,133 | |||||||||
|
|
|
|
|
| |||||||
Balance at May 31, 2013 | $ | 102 | $ | (3,922 | ) | $ | (3,820 | ) | ||||
|
|
|
|
|
| |||||||
NOTE 8:10: STOCK-BASED COMPENSATION
Our total stock-based compensation expense for the years ended May 31 was as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| Stock-based compensation expense | $ | 101 | $ | 99 | $ | 101 | ||||||
| 2013 | 2012 | 2011 | ||||||||||
Stock-based compensation expense | $ | 109 | $ | 105 | $ | 98 | ||||||
-94-
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. Options granted have a maximum term of 10 years. 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.
- 102 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
| 2010 | 2009 | 2008 | ||||||||||
| Weighted-average Black-Scholes value | $ | 20.47 | $ | 23.66 | $ | 29.88 | ||||||
| Intrinsic value of options exercised | $ | 77 | $ | 7 | $ | 126 | ||||||
| Black-Scholes Assumptions: | ||||||||||||
| Expected lives | 5.7 years | 5.5 years | 5 years | |||||||||
| Expected volatility | 32 | % | 23 | % | 19 | % | ||||||
| Risk-free interest rate | 3.24 | % | 3.28 | % | 4.76 | % | ||||||
| Dividend yield | 0.742 | % | 0.492 | % | 0.337 | % | ||||||
| 2013 | 2012 | 2011 | ||||||||||
Weighted-average Black-Scholes value | $ | 29.20 | $ | 29.92 | $ | 28.12 | ||||||
Intrinsic value of options exercised | $ | 107 | $ | 67 | $ | 80 | ||||||
Black-Scholes Assumptions: | ||||||||||||
Expected lives | 6.1 years | 6.0 years | 5.9 years | |||||||||
Expected volatility | 35 | % | 34 | % | 34 | % | ||||||
Risk-free interest rate | 0.94 | % | 1.79 | % | 2.36 | % | ||||||
Dividend yield | 0.609 | % | 0.563 | % | 0.558 | % | ||||||
The expected life represents an estimate of the period of time over which the options granted are expected to remain outstanding. Generally, options granted have a maximum term of 10 years. Weoutstanding, and we examine actual stock option exercises to determine the expected life of the options. An increase inOptions granted have a maximum term of 10 years. Expected volatilities are based on the expected term will increase compensation expense.
-95-
| Stock Options | ||||||||||||||||
| Weighted- | ||||||||||||||||
| Weighted- | Average | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic Value | ||||||||||||||
| Shares | Price | Term | (in millions)(1) | |||||||||||||
| Outstanding at June 1, 2009 | 17,643,089 | $ | 79.90 | |||||||||||||
| Granted | 5,017,361 | 60.53 | ||||||||||||||
| Exercised | (1,993,967 | ) | 47.08 | |||||||||||||
| Forfeited | (428,427 | ) | 101.95 | |||||||||||||
| Outstanding at May 31, 2010 | 20,238,056 | $ | 78.32 | 6.0 years | $ | 259 | ||||||||||
| Exercisable | 12,379,940 | $ | 80.06 | 4.4 years | $ | 143 | ||||||||||
| Expected to vest | 7,229,467 | $ | 75.58 | 8.5 years | $ | 107 | ||||||||||
| Available for future grants | 7,302,029 | |||||||||||||||
| Stock Options | ||||||||||||||||
| Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term | Aggregate Intrinsic Value (in millions)(1) | |||||||||||||
Outstanding at June 1, 2012 | 21,031,538 | $ | 84.39 | |||||||||||||
|
| |||||||||||||||
Granted | 2,547,290 | 88.08 | ||||||||||||||
Exercised | (3,979,359 | ) | 70.41 | |||||||||||||
Forfeited | (464,035 | ) | 91.44 | |||||||||||||
|
| |||||||||||||||
Outstanding at May 31, 2013 | 19,135,434 | $ | 87.62 | 5.5 years | $ | 229 | ||||||||||
|
|
|
| |||||||||||||
Exercisable | 12,447,517 | $ | 90.23 | 4.2 years | $ | 137 | ||||||||||
|
|
|
| |||||||||||||
Expected to vest | 6,288,642 | $ | 82.77 | 8.1 years | $ | 87 | ||||||||||
|
|
|
| |||||||||||||
Available for future grants | 6,482,410 | |||||||||||||||
|
| |||||||||||||||
| (1) | Only presented for options with market value at May 31, |
The options granted during the year ended May 31, 20102013 are primarily related to our principal annual stock option grant in June 2009.
- 103 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about vested and unvested restricted stock for the year ended May 31, 2010:
| Restricted Stock | ||||||||
| Weighted- | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Shares | Fair Value | |||||||
| Unvested at June 1, 2009 | 442,741 | $ | 100.40 | |||||
| Granted | 391,786 | 57.07 | ||||||
| Vested | (193,095 | ) | 100.07 | |||||
| Forfeited | (4,136 | ) | 76.58 | |||||
| Unvested at May 31, 2010 | 637,296 | $ | 74.02 | |||||
| Restricted Stock | ||||||||
| Shares | Weighted- Average Grant Date Fair Value | |||||||
Unvested at June 1, 2012 | 589,872 | $ | 76.79 | |||||
|
| |||||||
Granted | 220,391 | 85.45 | ||||||
Vested | (253,423 | ) | 75.46 | |||||
Forfeited | (27,506 | ) | 80.13 | |||||
|
| |||||||
Unvested at May 31, 2013 | 529,334 | $ | 80.86 | |||||
|
| |||||||
During the year ended May 31, 2009,2012, there were 197,180214,435 shares of restricted stock granted with a weighted-average fair value of $90.57.$88.95. During the year ended May 31, 2008,2011, there were 174,418235,998 shares of restricted stock granted with a weighted-average fair value of $114.40.
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) | |||||||
| 2008 | 2,694,602 | $ | 64 | |||||
| 2009 | 2,414,815 | 64 | ||||||
| 2010 | 2,296,211 | 63 | ||||||
| Stock Options | ||||||||
| Vested during the year | Fair value (in millions) | |||||||
2013 | 2,824,757 | $ | 81 | |||||
2012 | 2,807,809 | 70 | ||||||
2011 | 2,721,602 | 67 | ||||||
-96-
Total shares outstanding or available for grant related to equity compensation at May 31, 20102013 represented 8% of the total outstanding common and equity compensation shares and equity compensation shares available for grant.
- 104 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9:11: 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):
| 2010 | 2009 | 2008 | ||||||||||
Basic earnings per common share: | ||||||||||||
| Net earnings allocable to common shares | $ | 1,182 | $ | 97 | $ | 1,123 | ||||||
| Weighted-average common shares | 312 | 311 | 309 | |||||||||
Basic earnings per common share | $ | 3.78 | $ | 0.31 | $ | 3.64 | ||||||
Diluted earnings per common share: | ||||||||||||
| Net earnings allocable to common shares | $ | 1,182 | $ | 97 | $ | 1,123 | ||||||
| Weighted-average common shares | 312 | 311 | 309 | |||||||||
| Dilutive effect of share-based awards | 2 | 1 | 3 | |||||||||
| Weighted-average diluted shares | 314 | 312 | 312 | |||||||||
Diluted earnings per common share | $ | 3.76 | $ | 0.31 | $ | 3.60 | ||||||
| Anti-dilutive options excluded from diluted earnings per common share | 11.5 | 12.6 | 4.8 | |||||||||
| 2013 | 2012 | 2011 | ||||||||||
Basic earnings per common share: | ||||||||||||
Net earnings allocable to common shares(1) | $ | 1,558 | $ | 2,029 | $ | 1,449 | ||||||
Weighted-average common shares | 315 | 315 | 315 | |||||||||
|
|
|
|
|
| |||||||
Basic earnings per common share | $ | 4.95 | $ | 6.44 | $ | 4.61 | ||||||
|
|
|
|
|
| |||||||
Diluted earnings per common share: | ||||||||||||
Net earnings allocable to common shares(1) | $ | 1,558 | $ | 2,029 | $ | 1,449 | ||||||
|
|
|
|
|
| |||||||
Weighted-average common shares | 315 | 315 | 315 | |||||||||
Dilutive effect of share-based awards | 2 | 2 | 2 | |||||||||
|
|
|
|
|
| |||||||
Weighted-average diluted shares | 317 | 317 | 317 | |||||||||
Diluted earnings per common share | $ | 4.91 | $ | 6.41 | $ | 4.57 | ||||||
|
|
|
|
|
| |||||||
Anti-dilutive options excluded from diluted earnings per common share | 11.1 | 12.6 | 9.3 | |||||||||
|
|
|
|
|
| |||||||
| (1) | Net earnings available to participating securities were immaterial in all periods presented. |
NOTE 10:12: INCOME TAXES
The components of the provision for income taxes for the years ended May 31 were as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| Current provision (benefit) | ||||||||||||
| Domestic: | ||||||||||||
| Federal | $ | 36 | $ | (35 | ) | $ | 514 | |||||
| State and local | 54 | 18 | 74 | |||||||||
| Foreign | 207 | 214 | 242 | |||||||||
| 297 | 197 | 830 | ||||||||||
| Deferred provision (benefit) | ||||||||||||
| Domestic: | ||||||||||||
| Federal | 408 | 327 | 31 | |||||||||
| State and local | 15 | 48 | (2 | ) | ||||||||
| Foreign | (10 | ) | 7 | 32 | ||||||||
| 413 | 382 | 61 | ||||||||||
| $ | 710 | $ | 579 | $ | 891 | |||||||
| 2013 | 2012 | 2011 | ||||||||||
Current provision (benefit) | ||||||||||||
Domestic: | ||||||||||||
Federal | $ | 512 | $ | (120 | ) | $ | 79 | |||||
State and local | 86 | 80 | 48 | |||||||||
Foreign | 170 | 181 | 198 | |||||||||
|
|
|
|
|
| |||||||
| 768 | 141 | 325 | ||||||||||
|
|
|
|
|
| |||||||
Deferred provision (benefit) | ||||||||||||
Domestic: | ||||||||||||
Federal | 175 | 947 | 485 | |||||||||
State and local | (7 | ) | 21 | 12 | ||||||||
Foreign | (42 | ) | — | (9 | ) | |||||||
|
|
|
|
|
| |||||||
| 126 | 968 | 488 | ||||||||||
|
|
|
|
|
| |||||||
| $ | 894 | $ | 1,109 | $ | 813 | |||||||
|
|
|
|
|
| |||||||
Our current federal income tax expenses in 2013, 2012 and 2011 were significantly reduced by accelerated depreciation deductions we claimed under provisions of the American Taxpayer Relief Act of 2013 and the Tax Relief and the Small Business Jobs Acts of 2010. Those Acts, designed to stimulate new business investment in the U.S., accelerated our depreciation deductions for new qualifying investments, such as our Boeing 777 Freighter (“B777F”) aircraft. These were timing benefits only, in that depreciation accelerated into an earlier year is foregone in later years. Our 2013 current provision for federal income taxes was, therefore, higher than in 2012 and 2011.
- 105 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Pre-tax (loss) earnings of foreign operations for 2010, 20092013, 2012 and 20082011 were $555$(55) million, $106$358 million and $803$472 million, respectively, which representsrespectively. These amounts represent only a portion of total results associated with international shipments.
shipments and accordingly, do not represent our international or domestic results of operations.
-97-
| 2010 | 2009 | 2008 | ||||||||||
| Statutory U.S. income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
| Increase resulting from: | ||||||||||||
| Goodwill impairment | — | 48.0 | 6.8 | |||||||||
| State and local income taxes, net of federal benefit | 2.4 | 1.9 | 2.1 | |||||||||
| Other, net | 0.1 | 0.7 | 0.3 | |||||||||
| Effective tax rate | 37.5 | % | 85.6 | % | 44.2 | % | ||||||
| 2013 | 2012 | 2011 | ||||||||||
Statutory U.S. income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | ||||||
Increase (decrease) resulting from: | ||||||||||||
State and local income taxes, net of federal benefit | 2.1 | 2.1 | 1.7 | |||||||||
Other, net | (0.7 | ) | (1.8 | ) | (0.8 | ) | ||||||
|
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| |||||||
Effective tax rate | 36.4 | % | 35.3 | % | 35.9 | % | ||||||
|
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Our 2009 and 2008 effective tax rates were significantly2012 rate was favorably impacted by goodwill impairment charges related to the FedEx Office acquisition, which are not deductible forconclusion of the IRS audit of our 2007-2009 consolidated income tax purposes.
The significant components of deferred tax assets and liabilities as of May 31 were as follows (in millions):
| 2010 | 2009 | |||||||||||||||
| Deferred Tax | Deferred Tax | Deferred Tax | Deferred Tax | |||||||||||||
| Assets | Liabilities | Assets | Liabilities | |||||||||||||
| Property, equipment, leases and intangibles | $ | 377 | $ | 2,157 | $ | 406 | $ | 1,862 | ||||||||
| Employee benefits | 783 | 36 | 384 | 143 | ||||||||||||
| Self-insurance accruals | 416 | — | 392 | — | ||||||||||||
| Other | 490 | 238 | 491 | 222 | ||||||||||||
| Net operating loss/credit carryforwards | 142 | — | 131 | — | ||||||||||||
| Valuation allowances | (139 | ) | — | (137 | ) | — | ||||||||||
| $ | 2,069 | $ | 2,431 | $ | 1,667 | $ | 2,227 | |||||||||
| 2013 | 2012 | |||||||||||||||
| Deferred Tax Assets | Deferred Tax Liabilities | Deferred Tax Assets | Deferred Tax Liabilities | |||||||||||||
Property, equipment, leases and intangibles | $ | 157 | $ | 3,676 | $ | 248 | $ | 3,436 | ||||||||
Employee benefits | 1,771 | 11 | 2,300 | 11 | ||||||||||||
Self-insurance accruals | 533 | — | 495 | — | ||||||||||||
Other | 251 | 238 | 338 | 271 | ||||||||||||
Net operating loss/credit carryforwards | 298 | — | 179 | — | ||||||||||||
Valuation allowances | (204 | ) | — | (145 | ) | — | ||||||||||
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| |||||||||
| $ | 2,806 | $ | 3,925 | $ | 3,415 | $ | 3,718 | |||||||||
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The net deferred tax liabilities as of May 31 have been classified in the balance sheets as follows (in millions):
| 2010 | 2009 | |||||||
| Current deferred tax asset | $ | 529 | $ | 511 | ||||
| Noncurrent deferred tax liability | (891 | ) | (1,071 | ) | ||||
| $ | (362 | ) | $ | (560 | ) | |||
| 2013 | 2012 | |||||||
Current deferred tax asset | $ | 533 | $ | 533 | ||||
Noncurrent deferred tax liability | (1,652 | ) | (836 | ) | ||||
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| |||||
| $ | (1,119 | ) | $ | (303 | ) | |||
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We have $394$940 million of net operating loss carryovers in various foreign jurisdictions and $489$500 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 2011.2014. As a result of this and other factors, we believe that a substantial portion of these deferred tax assets may not be realized.
Permanently reinvested earnings of our foreign subsidiaries amounted to $325 million in 2010$1.3 billion at the end of 2013 and $191 million in 2009.$1 billion at the end of 2012. We have not recognized deferred taxes for U.S. federal income tax purposes on thethose earnings. In 2013, our permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries that are permanently reinvested. Upon distribution,provided a 1.2% benefit to our effective tax rate. Were the earnings to be distributed, in the form of dividends or otherwise, these unremitted earnings wouldcould be subject to U.S. federal income tax.tax and non-U.S. withholding taxes. Unrecognized foreign tax credits wouldpotentially could be available to reduce a portion of the any
- 106 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
U.S. tax liability. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable.
In 2013, more than 85% of our total enterprise-wide income was earned in U.S. companies of FedEx that are taxable in the United States. As a U.S. airline, our FedEx Express unit is required by Federal Aviation Administration and other rules to conduct its air operations, domestic and international, through a U.S. company. However, we serve more than 220 countries and territories around the world, and are required to establish legal entities in many of them. Most of our entities in those countries are operating entities, engaged in picking up and delivering packages and performing other transportation services. In the meantime, we are continually expanding our global network to meet our customers’ needs, which requires increasing investment outside the U.S. We typically use cash generated overseas to fund these investments and have a foreign holding company which manages our investments in several foreign operating companies, including new acquisitions made in 2013 in Poland, France and Brazil.
We are subject to taxation in the U.S. and various U.S. state, local and foreign jurisdictions. We are currently under examination by the IRS for the 2010 and 2011 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. The expected impact of any changes would not be material to our consolidated financial statements.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| 2013 | 2012 | 2011 | ||||||||||
Balance at beginning of year | $ | 51 | $ | 69 | $ | 82 | ||||||
Increases for tax positions taken in the current year | 1 | 2 | 2 | |||||||||
Increases for tax positions taken in prior years | 3 | 4 | 6 | |||||||||
Decreases for tax positions taken in prior years | (3 | ) | (35 | ) | (10 | ) | ||||||
Settlements | (9 | ) | (3 | ) | (11 | ) | ||||||
Increases due to acquisitions | 4 | 15 | — | |||||||||
Decrease from lapse of statute of limitations | (2 | ) | — | — | ||||||||
Changes due to currency translation | 2 | (1 | ) | — | ||||||||
|
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| |||||||
Balance at end of year | $ | 47 | $ | 51 | $ | 69 | ||||||
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-98-
| 2010 | 2009 | 2008 | ||||||||||
| Balance at beginning of year | $ | 72 | $ | 88 | $ | 72 | ||||||
| Increases for tax positions taken in the current year | 3 | 7 | 16 | |||||||||
| Increases for tax positions taken in prior years | 14 | 10 | 12 | |||||||||
| Decreases for tax positions taken in prior years | (4 | ) | (30 | ) | (9 | ) | ||||||
| Settlements | (3 | ) | (3 | ) | (3 | ) | ||||||
| Balance at end of year | $ | 82 | $ | 72 | $ | 88 | ||||||
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.
- 107 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11:13: 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. domestic pension plans.
Pension Plans.
-99-
A summary of our retirement plans costs over the past three years is as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| U.S. domestic and international pension plans | $ | 308 | $ | 177 | $ | 323 | ||||||
| U.S. domestic and international defined contribution plans | 136 | 237 | 216 | |||||||||
| Postretirement healthcare plans | 42 | 57 | 77 | |||||||||
| $ | 486 | $ | 471 | $ | 616 | |||||||
| 2013 | 2012 | 2011 | ||||||||||
U.S. domestic and international pension plans | $ | 679 | $ | 524 | $ | 543 | ||||||
U.S. domestic and international defined contribution plans | 354 | 338 | 257 | |||||||||
U.S. domestic and international postretirement healthcare plans | 78 | 70 | 60 | |||||||||
|
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| |||||||
| $ | 1,111 | $ | 932 | $ | 860 | |||||||
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Total retirement plans costs in 2013 were higher than 2012 due to the negative impact of a significantly lower discount rate at our May 31, 2012 measurement date. Total retirement plans cost increased in 2012 primarily due to higher expenses for our 401(k) plans due to the full restoration of company matching contributions on January 1, 2011.
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 and corporate bond rates. Prior to 2009, certain employees earned benefits using a traditional pension formula (based on average earnings and years of service). Benefits under this formula were capped on May 31, 2008 for most employees. 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.
-100-
- 108 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We use a measurement date of May 31 for our pension and postretirement healthcare plans. Prior to 2009, our measurement date was February 28 (February 29 in 2008). 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. Additional information about our pension plans can be found in the Critical Accounting Estimates section of Management’s Discussion and Analysis in this Annual Report.
Weighted-average actuarial assumptions for our primary U.S. Large Cap Equities, are indexed to an S&P 500 fund. 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 partretirement plans, which represent substantially all of our strategy to manage future pension costsPBO 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 managersaccumulated postretirement benefit obligation (“APBO”), are prohibited from using derivatives for speculative purposes and are not permitted to use derivatives to leverage a portfolio.
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||||||||||||
Discount rate used to determine benefit obligation | 4.79 | % | 4.44 | % | 5.76 | % | 4.91 | % | 4.55 | % | 5.67 | % | ||||||||||||
Discount rate used to determine net periodic benefit cost | 4.44 | 5.76 | 6.37 | 4.55 | 5.67 | 6.11 | ||||||||||||||||||
Rate of increase in future compensation levels used to determine benefit obligation | 4.54 | 4.62 | 4.58 | — | — | — | ||||||||||||||||||
Rate of increase in future compensation levels used to determine net periodic benefit cost | 4.62 | 4.58 | 4.63 | — | — | — | ||||||||||||||||||
Expected long-term rate of return on assets | 8.00 | 8.00 | 8.00 | — | — | — | ||||||||||||||||||
The estimated average rate of return on plan assets is a long-term, forward-looking assumption that materially affects our pension cost. It is required to be the expected future long-term rate of earnings on plan assets.assets and is a forward-looking assumption that materially affects our pension cost. 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 estimatedexpected long-term rate of return on plan assets remains at 8.0%was 8% for 2013, 2012 and 2011. Our actual return in each of the past three years exceeded that amount for our principal U.S. domestic pension plan. For the 15-year period ended May 31, 2010,2013, our actual returns were 7.9%6.9%.
For 2014, we plan to lower our expected return on plan assets assumption for long-term returns on plan assets to 7.75% as we continue to refine our asset and liability management strategy. In lowering this assumption we considered our historical returns, our investment strategy for our plan assets, including the impacts of the long duration of our plan liability and the relatively low annual draw on plan assets on that investment strategy.
-101-
- 109 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 publicly tradeable 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 the S&P 500 Index, Corporate Fixed Income Securities and 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 pension costs and funded status volatility, we have transitioned to a liability-driven investment strategy 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.
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 |
| • | 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. |
| • | 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. |
-102-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | ||||||||||||||||||||||||
| 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 | |||||||||||||
| 2009 | ||||||||||||||||||||||||
Asset Class | Fair Value | Actual % | Target % | |||||||||||||||||||||
| Cash and cash equivalents | $ | 1,022 | 10 | % | 1 | % | ||||||||||||||||||
| Domestic equities | ||||||||||||||||||||||||
| U.S. large cap equity | 2,908 | 27 | 24 | |||||||||||||||||||||
| U.S. SMID cap equity | 794 | 8 | 9 | |||||||||||||||||||||
| U.S. small cap equity | 327 | 3 | — | |||||||||||||||||||||
| International equities | 1,668 | 16 | 12 | |||||||||||||||||||||
| Private equities | 341 | 3 | 5 | |||||||||||||||||||||
| Fixed income securities | 49 | |||||||||||||||||||||||
| Corporate | 1,946 | 18 | ||||||||||||||||||||||
| U.S. government | 842 | 8 | ||||||||||||||||||||||
| Mortgage backed and other | 668 | 6 | ||||||||||||||||||||||
| Other | 90 | 1 | — | |||||||||||||||||||||
| $ | 10,606 | 100 | % | 100 | % | |||||||||||||||||||
| Plan Assets at Measurement Date | ||||||||||||||||||||||
| 2013 | ||||||||||||||||||||||
Asset Class | Fair Value | Actual % | Target Range % | Quoted Prices in Active Markets Level 1 | Other Observable Inputs Level 2 | Unobservable Inputs Level 3 | ||||||||||||||||
Cash and cash equivalents | $ | 456 | 2 | % | 0 - 5% | $ | 15 | $ | 441 | |||||||||||||
Equities | 35 - 55 | |||||||||||||||||||||
U.S. large cap equity | 5,264 | 28 | 37 | 5,227 | ||||||||||||||||||
U.S. SMID cap equity | 1,741 | 9 | 1,741 | |||||||||||||||||||
International equities | 2,271 | 12 | 1,904 | 367 | ||||||||||||||||||
Private equities | 332 | 2 | $ | 332 | ||||||||||||||||||
Fixed income securities | 45 - 65 | |||||||||||||||||||||
Corporate | 4,972 | 26 | 4,972 | |||||||||||||||||||
Government | 3,888 | 20 | 3,888 | |||||||||||||||||||
Mortgage backed and other | 200 | 1 | 200 | |||||||||||||||||||
Other | (77 | ) | — | (83 | ) | 6 | ||||||||||||||||
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| $ | 19,047 | 100 | % | $ | 3,614 | $ | 15,101 | $ | 332 | |||||||||||||
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| 2012 | ||||||||||||||||||||||
Asset Class | Fair Value | Actual % | Target Range % | Quoted Prices in Active Markets Level 1 | Other Observable Inputs Level 2 | Unobservable Inputs Level 3 | ||||||||||||||||
Cash and cash equivalents | $ | 618 | 4 | % | 0 - 3% | $ | 8 | $ | 610 | |||||||||||||
Equities | 45 - 55 | |||||||||||||||||||||
U.S. large cap equity | 4,248 | 25 | 9 | 4,239 | ||||||||||||||||||
U.S. SMID cap equity | 1,368 | 8 | 1,368 | |||||||||||||||||||
International equities | 1,657 | 10 | 1,395 | 262 | ||||||||||||||||||
Private equities | 402 | 2 | $ | 402 | ||||||||||||||||||
Fixed income securities | 45 - 55 | |||||||||||||||||||||
Corporate | 4,565 | 27 | 4,565 | |||||||||||||||||||
Government | 4,175 | 24 | 4,175 | |||||||||||||||||||
Mortgage backed and other | 59 | — | 59 | |||||||||||||||||||
Other | (79 | ) | — | (85 | ) | 6 | ||||||||||||||||
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| $ | 17,013 | 100 | % | $ | 2,695 | $ | 13,916 | $ | 402 | |||||||||||||
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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 | ) | ||
| Ending balance May 31, 2010 | $ | 399 | ||
| 2013 | 2012 | |||||||
Balance at beginning of year | $ | 402 | $ | 403 | ||||
Actual return on plan assets: | ||||||||
Assets held during current year | (29 | ) | 3 | |||||
Assets sold during the year | 55 | 38 | ||||||
Purchases, sales and settlements | (96 | ) | (42 | ) | ||||
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Balance at end of the year | $ | 332 | $ | 402 | ||||
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-103-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 20102013 and a statement of the funded status as of May 31, 20102013 and 20092012 (in millions):
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
Accumulated Benefit Obligation (“ABO”) | $ | 14,041 | $ | 10,745 | ||||||||||||
Changes in Projected Benefit Obligation (“PBO”) and Accumulated Postretirement Benefit Obligation (“APBO”) | ||||||||||||||||
| PBO/APBO at the beginning of year | $ | 11,050 | $ | 11,617 | $ | 433 | $ | 492 | ||||||||
| Adjustments due to change in measurement date | ||||||||||||||||
| Service cost plus interest cost during gap period | — | 309 | — | 16 | ||||||||||||
| Additional experience during gap period | — | (302 | ) | — | (19 | ) | ||||||||||
| Changes due to gap period cash flow | — | (83 | ) | — | (5 | ) | ||||||||||
| Service cost | 417 | 499 | 24 | 31 | ||||||||||||
| Interest cost | 823 | 798 | 30 | 33 | ||||||||||||
| Actuarial loss (gain) | 2,607 | (1,420 | ) | 102 | (94 | ) | ||||||||||
| Benefits paid | (391 | ) | (351 | ) | (45 | ) | (42 | ) | ||||||||
| Other | (22 | ) | (17 | ) | 21 | 21 | ||||||||||
| PBO/APBO at the end of year | $ | 14,484 | $ | 11,050 | $ | 565 | $ | 433 | ||||||||
Change in Plan Assets | ||||||||||||||||
| Fair value of plan assets at the beginning of year | $ | 10,812 | $ | 11,879 | $ | — | $ | — | ||||||||
| Adjustments due to change in measurement date | ||||||||||||||||
| Additional experience during gap period | — | 522 | — | — | ||||||||||||
| Changes due to gap period cash flow | — | (76 | ) | — | — | |||||||||||
| Actual return on plan assets | 1,994 | (2,306 | ) | — | — | |||||||||||
| Company contributions | 900 | 1,146 | 24 | 21 | ||||||||||||
| Benefits paid | (391 | ) | (351 | ) | (45 | ) | (42 | ) | ||||||||
| Other | (20 | ) | (2 | ) | 21 | 21 | ||||||||||
| Fair value of plan assets at the end of year | $ | 13,295 | $ | 10,812 | $ | — | $ | — | ||||||||
Funded Status of the Plans | $ | (1,189 | ) | $ | (238 | ) | $ | (565 | ) | $ | (433 | ) | ||||
Amount Recognized in the Balance Sheet at May 31: | ||||||||||||||||
| Noncurrent pension assets | $ | — | $ | 311 | $ | — | $ | — | ||||||||
| Current pension, postretirement healthcare and other benefit obligations | (30 | ) | (31 | ) | (28 | ) | (26 | ) | ||||||||
| Noncurrent pension, postretirement healthcare and other benefit obligations | (1,159 | ) | (518 | ) | (537 | ) | (407 | ) | ||||||||
| Net amount recognized | $ | (1,189 | ) | $ | (238 | ) | $ | (565 | ) | $ | (433 | ) | ||||
Amounts Recognized in AOCI and not yet reflected in Net Periodic Benefit Cost: | ||||||||||||||||
| Net actuarial loss (gain) | $ | 5,157 | $ | 3,731 | $ | (134 | ) | $ | (248 | ) | ||||||
| Prior service (credit) cost and other | (1,106 | ) | (1,220 | ) | 2 | 2 | ||||||||||
| Total | $ | 4,051 | $ | 2,511 | $ | (132 | ) | $ | (246 | ) | ||||||
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) | $ | 284 | $ | 130 | $ | (5 | ) | $ | (12 | ) | ||||||
| Prior service (credit) cost and other | (113 | ) | (113 | ) | — | — | ||||||||||
| Total | $ | 171 | $ | 17 | $ | (5 | ) | $ | (12 | ) | ||||||
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
Accumulated Benefit Obligation (“ABO”) | $ | 21,958 | $ | 21,556 | ||||||||||||
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|
|
| |||||||||||||
Changes in Projected Benefit Obligation (“PBO”) and Accumulated Postretirement Benefit Obligation (“APBO”) | ||||||||||||||||
PBO/APBO at the beginning of year | $ | 22,187 | $ | 17,372 | $ | 790 | $ | 648 | ||||||||
Service cost | 692 | 593 | 42 | 35 | ||||||||||||
Interest cost | 968 | 976 | 36 | 36 | ||||||||||||
Actuarial loss (gain) | (652 | ) | 3,789 | (17 | ) | 98 | ||||||||||
Benefits paid | (589 | ) | (502 | ) | (54 | ) | (51 | ) | ||||||||
Other | (6 | ) | (41 | ) | 31 | 24 | ||||||||||
|
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| |||||||||
PBO/APBO at the end of year | $ | 22,600 | $ | 22,187 | $ | 828 | $ | 790 | ||||||||
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|
| |||||||||
Change in Plan Assets | ||||||||||||||||
Fair value of plan assets at the beginning of year | $ | 17,334 | $ | 15,841 | $ | — | $ | — | ||||||||
Actual return on plan assets | 2,081 | 1,235 | — | — | ||||||||||||
Company contributions | 615 | 780 | 27 | 27 | ||||||||||||
Benefits paid | (589 | ) | (502 | ) | (54 | ) | (51 | ) | ||||||||
Other | (8 | ) | (20 | ) | 27 | 24 | ||||||||||
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| |||||||||
Fair value of plan assets at the end of year | $ | 19,433 | $ | 17,334 | $ | — | $ | — | ||||||||
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|
|
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| |||||||||
Funded Status of the Plans | $ | (3,167 | ) | $ | (4,853 | ) | $ | (828 | ) | $ | (790 | ) | ||||
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|
| |||||||||
Amount Recognized in the Balance Sheet at May 31: | ||||||||||||||||
Current pension, postretirement healthcare and other benefit obligations | $ | (48 | ) | $ | (35 | ) | $ | (39 | ) | $ | (33 | ) | ||||
Noncurrent pension, postretirement healthcare and other benefit obligations | (3,119 | ) | (4,818 | ) | (789 | ) | (757 | ) | ||||||||
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|
|
|
|
|
| |||||||||
Net amount recognized | $ | (3,167 | ) | $ | (4,853 | ) | $ | (828 | ) | $ | (790 | ) | ||||
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|
| |||||||||
Amounts Recognized in AOCI and not yet reflected in Net Periodic Benefit Cost: | ||||||||||||||||
Net actuarial loss (gain) | $ | 6,993 | $ | 8,866 | $ | (4 | ) | $ | 13 | |||||||
Prior service (credit) cost and other | (781 | ) | (897 | ) | 2 | 2 | ||||||||||
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| |||||||||
Total | $ | 6,212 | $ | 7,969 | $ | (2 | ) | $ | 15 | |||||||
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| |||||||||
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) | $ | 378 | $ | 516 | $ | — | $ | — | ||||||||
Prior service credit and other | (114 | ) | (114 | ) | — | — | ||||||||||
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| |||||||||
Total | $ | 264 | $ | 402 | $ | — | $ | — | ||||||||
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-104-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our pension plans included the following components at May 31, 20102013 and 20092012 (in millions):
| Fair Value of | ||||||||||||||||
| ABO | PBO | Plan Assets | Funded Status | |||||||||||||
| 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 | ) | |||||||
| 2009 | ||||||||||||||||
| Qualified | $ | 10,113 | $ | 10,328 | $ | 10,606 | $ | 278 | ||||||||
| Nonqualified | 317 | 318 | — | (318 | ) | |||||||||||
| International Plans | 315 | 404 | 206 | (198 | ) | |||||||||||
| Total | $ | 10,745 | $ | 11,050 | $ | 10,812 | $ | (238 | ) | |||||||
| PBO | Fair Value of Plan Assets | Funded Status | ||||||||||
2013 | ||||||||||||
Qualified | $ | 21,532 | $ | 19,047 | $ | (2,485 | ) | |||||
Nonqualified | 322 | — | (322 | ) | ||||||||
International Plans | 746 | 386 | (360 | ) | ||||||||
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| |||||||
Total | $ | 22,600 | $ | 19,433 | $ | (3,167 | ) | |||||
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| |||||||
2012 | ||||||||||||
Qualified | $ | 21,192 | $ | 17,013 | $ | (4,179 | ) | |||||
Nonqualified | 355 | — | (355 | ) | ||||||||
International Plans | 640 | 321 | (319 | ) | ||||||||
|
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|
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| |||||||
Total | $ | 22,187 | $ | 17,334 | $ | (4,853 | ) | |||||
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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. The increase inThese plans included in the table in 2010 was driven by the decrease inare comprised of our discount rate at our May 31, 2010 measurement date, which increased the number ofunfunded nonqualified plans, whose assets did not exceed their liability, includingcertain international plans and our U.S. domestic pension plans (“U.S. Retirement Plans”).Pension Plans. At May 31, 20102013 and 2009,2012, 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 | ||||||||
| 2010 | 2009 | |||||||
Pension Benefits | ||||||||
| Fair value of plan assets | $ | 13,295 | $ | 375 | ||||
| PBO | (14,484 | ) | (923 | ) | ||||
| Net funded status | $ | (1,189 | ) | $ | (548 | ) | ||
| ABO Exceeds the Fair Value | ||||||||
| of Plan Assets | ||||||||
| 2010 | 2009 | |||||||
Pension Benefits | ||||||||
ABO(1) | $ | (14,014 | ) | $ | (778 | ) | ||
| Fair value of plan assets | $ | 13,263 | $ | 325 | ||||
| PBO | (14,441 | ) | (869 | ) | ||||
| Net funded status | $ | (1,178 | ) | $ | (544 | ) | ||
| PBO Exceeds the Fair Value of Plan Assets | ||||||||
| 2013 | 2012 | |||||||
Pension Benefits | ||||||||
Fair value of plan assets | $ | 19,433 | $ | 17,334 | ||||
PBO | (22,600 | ) | (22,187 | ) | ||||
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| |||||
Net funded status | $ | (3,167 | ) | $ | (4,853 | ) | ||
|
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| |||||
| ABO Exceeds the Fair Value of Plan Assets | ||||||||
| 2013 | 2012 | |||||||
Pension Benefits | ||||||||
ABO(1) | $ | (21,930 | ) | $ | (21,555 | ) | ||
Fair value of plan assets | 19,404 | 17,333 | ||||||
PBO | (22,570 | ) | (22,185 | ) | ||||
|
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| |||||
Net funded status | $ | (3,166 | ) | $ | (4,852 | ) | ||
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| |||||
| (1) | ABO not used in determination of funded status. |
- 113 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Contributions to our U.S. RetirementPension Plans during 2010. During 2009, we made $1.1 billion in tax-deductible voluntary contributions to our U.S. Retirement Plans. Our U.S. Retirement Plans have ample funds to meet expected benefits. for the years ended May 31 were as follows (in millions):
| 2013 | 2012 | |||||||
Required | $ | 560 | $ | 496 | ||||
Voluntary | — | 226 | ||||||
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| $ | 560 | $ | 722 | |||||
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For 2011,2014, we anticipate making required contributions to our U.S. RetirementPension Plans totaling approximately $500 million, a reduction from 2010 due to the use of a portion of our credit balance.
$650 million.
-105-
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| Service cost | $ | 417 | $ | 499 | $ | 518 | $ | 24 | $ | 31 | $ | 35 | ||||||||||||
| Interest cost | 823 | 798 | 720 | 30 | 33 | 31 | ||||||||||||||||||
| Expected return on plan assets | (955 | ) | (1,059 | ) | (985 | ) | — | — | — | |||||||||||||||
| Recognized actuarial losses (gains) and other | 23 | (61 | ) | 70 | (12 | ) | (7 | ) | 11 | |||||||||||||||
| Net periodic benefit cost | $ | 308 | $ | 177 | $ | 323 | $ | 42 | $ | 57 | $ | 77 | ||||||||||||
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||||||||||||
Service cost | $ | 692 | $ | 593 | $ | 521 | $ | 42 | $ | 35 | $ | 31 | ||||||||||||
Interest cost | 968 | 976 | 900 | 36 | 36 | 34 | ||||||||||||||||||
Expected return on plan assets | (1,383 | ) | (1,240 | ) | (1,062 | ) | — | — | — | |||||||||||||||
Recognized actuarial losses (gains) and other | 402 | 195 | 184 | — | (1 | ) | (5 | ) | ||||||||||||||||
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Net periodic benefit cost | $ | 679 | $ | 524 | $ | 543 | $ | 78 | $ | 70 | $ | 60 | ||||||||||||
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Pension costs in pension costs from 2009 to 2010 was2013 were higher than 2012 due to the negative impact of market conditions on our pension plan assetsa significantly lower discount rate at our May 31, 20092012 measurement date. The reduction in pension costs from 2008 to 2009 was attributable to the significantly higher discount rate that was used to determine our 2009 expense.
Amounts recognized in OCI for all plans were as follows (in millions):
| 2010 | 2009 | |||||||||||||||||||||||||||||||
| 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 gain (loss) and other arising during period | $ | 1,562 | $ | 986 | $ | 102 | $ | 59 | $ | 1,944 | $ | 1,220 | $ | (94 | ) | $ | (61 | ) | ||||||||||||||
| Gain from settlements and curtailments | — | — | — | — | 2 | 1 | — | — | ||||||||||||||||||||||||
| Amortizations: | ||||||||||||||||||||||||||||||||
| Prior services credit | 113 | 99 | — | — | 113 | 71 | — | — | ||||||||||||||||||||||||
| Actuarial (losses) gains and other | (130 | ) | (114 | ) | 12 | 12 | (49 | ) | (30 | ) | 7 | 4 | ||||||||||||||||||||
| Total recognized in OCI | $ | 1,545 | $ | 971 | $ | 114 | $ | 71 | $ | 2,010 | $ | 1,262 | $ | (87 | ) | $ | (57 | ) | ||||||||||||||
| Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
Discount rate used to determine benefit obligation(1) | 6.37 | % | 7.68 | % | 6.96 | % | 6.11 | % | 7.27 | % | 6.81 | % | ||||||||||||
| Discount rate used to determine net periodic benefit cost | 7.68 | 7.15 | 6.01 | 7.27 | 7.13 | 6.08 | ||||||||||||||||||
Rate of increase in future compensation levels used to determine benefit obligation(2) | 4.63 | 4.42 | 4.51 | — | — | — | ||||||||||||||||||
Rate of increase in future compensation levels used to determine net periodic benefit cost(2) | 4.42 | 4.49 | 4.47 | — | — | — | ||||||||||||||||||
| Expected long-term rate of return on assets | 8.00 | 8.50 | 8.50 | — | — | — | ||||||||||||||||||
| 2013 | 2012 | |||||||||||||||||||||||||||||||
| Pension Plans | Postretirement Healthcare Plans | Pension Plans | Postretirement Healthcare Plans | |||||||||||||||||||||||||||||
| Gross Amount | Net of Tax Amount | Gross Amount | Net of Tax Amount | Gross Amount | Net of Tax Amount | Gross Amount | Net of Tax Amount | |||||||||||||||||||||||||
Net (gain) loss and other arising during period | $ | (1,350 | ) | $ | (840 | ) | $ | (17 | ) | $ | (21 | ) | $ | 3,777 | $ | 2,371 | $ | 97 | $ | 61 | ||||||||||||
Amortizations: | ||||||||||||||||||||||||||||||||
Prior services credit | 114 | 66 | — | — | 113 | 71 | — | — | ||||||||||||||||||||||||
Actuarial (losses) gains and other | (516 | ) | (297 | ) | — | — | (311 | ) | (195 | ) | 1 | — | ||||||||||||||||||||
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Total recognized in OCI | $ | (1,752 | ) | $ | (1,071 | ) | $ | (17 | ) | $ | (21 | ) | $ | 3,579 | $ | 2,247 | $ | 98 | $ | 61 | ||||||||||||
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-106-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | |||||||
| 2011 | $ | 475 | $ | 28 | ||||
| 2012 | 532 | 31 | ||||||
| 2013 | 596 | 32 | ||||||
| 2014 | 663 | 33 | ||||||
| 2015 | 732 | 35 | ||||||
| 2016-2020 | 4,988 | 209 | ||||||
| Pension Plans | Postretirement Healthcare Plans | |||||||
2014 | $ | 821 | $ | 39 | ||||
2015 | 956 | 42 | ||||||
2016 | 896 | 44 | ||||||
2017 | 961 | 45 | ||||||
2018 | 1,049 | 47 | ||||||
2019-2023 | 6,974 | 274 | ||||||
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 8.5%7.7% during 2011,2014, 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%6.9% during 2011,2014, 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, 20102013 or 20102013 benefit expense because the level of these benefits is capped.
NOTE 12:14: BUSINESS SEGMENT INFORMATION
FedEx Express, FedEx Ground and the FedEx Freight LTL Group 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 | |||
| FedEx SupplyChain Systems (logistics services) | |||
FedEx Ground Segment | FedEx Ground (small-package ground delivery) | ||
| FedEx SmartPost (small-parcel consolidator) | |||
FedEx Freight Segment | FedEx Freight | ||
| FedEx Custom Critical (time-critical transportation) | |||
| FedEx Services Segment | |||
FedEx Services (sales, marketing, | |||
FedEx TechConnect (customer service, technical support, billings and collections) | |||
FedEx Office (document and business services and package acceptance) | |||
-107-
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 pursueobtain synergies from the combination of these functions. For the international regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment in their natural expense line items. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, and information technology, communications and back-office support to our other companies; FCIS,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, as the financial results are materially comparable.
- 115 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The FedEx Services segment provides direct and indirect support to our transportation businesses, and accordingly 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, which are an immaterial component of our allocations, 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 theits total allocated net operating costs of the FedEx Services segment on our transportation segments. 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. The $810 million 2009 impairment charge for the FedEx Office goodwill and the $891 million 2008 charge predominantly associated with impairment of the Kinko’s trade name and goodwill were not allocated to the FedEx Express or FedEx Ground segments, as the charges were unrelated to the core performance of those businesses.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial summaries of our transportation segments in Management’s Discussion and Analysis of Operations and Financial Condition (“MD&A”)&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.
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 theour consolidated results and are not separately identified in the following segment information, asbecause the amounts are not material.
-108-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 | ||||||||||||||||||||||||
| 2010 | $ | 21,555 | $ | 7,439 | $ | 4,321 | $ | 1,770 | $ | (351 | ) | $ | 34,734 | |||||||||||
| 2009 | 22,364 | 7,047 | 4,415 | 1,977 | (306 | ) | 35,497 | |||||||||||||||||
| 2008 | 24,421 | 6,751 | 4,934 | 2,138 | (291 | ) | 37,953 | |||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||
| 2010 | $ | 1,016 | $ | 334 | $ | 198 | $ | 408 | $ | 2 | $ | 1,958 | ||||||||||||
| 2009 | 961 | 337 | 224 | 451 | 2 | 1,975 | ||||||||||||||||||
| 2008 | 944 | 305 | 227 | 469 | 1 | 1,946 | ||||||||||||||||||
| Operating income (loss) | ||||||||||||||||||||||||
| 2010 | $ | 1,127 | $ | 1,024 | $ | (153 | ) | $ | — | $ | — | $ | 1,998 | |||||||||||
| 2009 | 794 | 807 | (44 | ) | (810 | ) | — | 747 | ||||||||||||||||
| 2008 | 1,901 | 736 | 329 | (891 | ) | — | 2,075 | |||||||||||||||||
Segment assets(4) | ||||||||||||||||||||||||
| 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 | ||||||||||||||||||
| 2008 | 13,416 | 2,770 | 3,276 | 4,651 | 1,520 | 25,633 | ||||||||||||||||||
| FedEx Express Segment(1) | FedEx Ground Segment(2) | FedEx Freight Segment(3) | FedEx Services Segment | Other and Eliminations | Consolidated Total | |||||||||||||||||||
Revenues | ||||||||||||||||||||||||
2013 | $ | 27,171 | $ | 10,578 | $ | 5,401 | $ | 1,580 | $ | (443 | ) | $ | 44,287 | |||||||||||
2012 | 26,515 | 9,573 | 5,282 | 1,671 | (361 | ) | 42,680 | |||||||||||||||||
2011 | 24,581 | 8,485 | 4,911 | 1,684 | (357 | ) | 39,304 | |||||||||||||||||
Depreciation and amortization | ||||||||||||||||||||||||
2013 | $ | 1,350 | $ | 434 | $ | 217 | $ | 384 | $ | 1 | $ | 2,386 | ||||||||||||
2012 | 1,169 | 389 | 185 | 369 | 1 | 2,113 | ||||||||||||||||||
2011 | 1,059 | 337 | 205 | 371 | 1 | 1,973 | ||||||||||||||||||
Operating income (loss) | ||||||||||||||||||||||||
2013 | $ | 555 | $ | 1,788 | $ | 208 | $ | — | $ | — | $ | 2,551 | ||||||||||||
2012 | 1,260 | 1,764 | 162 | — | — | 3,186 | ||||||||||||||||||
2011 | 1,228 | 1,325 | (175 | ) | — | — | 2,378 | |||||||||||||||||
Segment assets(4) | ||||||||||||||||||||||||
2013 | $ | 18,935 | $ | 7,353 | $ | 2,953 | $ | 4,879 | $ | (553 | ) | $ | 33,567 | |||||||||||
2012 | 17,981 | 6,154 | 2,807 | 4,546 | (1,585 | ) | 29,903 | |||||||||||||||||
2011 | 16,463 | 5,048 | 2,664 | 4,278 | (1,068 | ) | 27,385 | |||||||||||||||||
| (1) | FedEx Express segment | |
| (2) | FedEx |
| (3) | FedEx Freight segment 2013 operating expenses include $50 million |
| (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 | |||||||||||||||||||
| 2010 | $ | 1,864 | $ | 400 | $ | 212 | $ | 340 | $ | — | $ | 2,816 | ||||||||||||
| 2009 | 1,348 | 636 | 240 | 235 | — | 2,459 | ||||||||||||||||||
| 2008 | 1,716 | 509 | 266 | 455 | 1 | 2,947 | ||||||||||||||||||
| FedEx Express Segment | FedEx Ground Segment | FedEx Freight Segment | FedEx Services Segment | Other | Consolidated Total | |||||||||||||||||||
2013 | $ | 2,067 | $ | 555 | $ | 326 | $ | 424 | $ | 3 | $ | 3,375 | ||||||||||||
2012 | 2,689 | 536 | 340 | 437 | 5 | 4,007 | ||||||||||||||||||
2011 | 2,467 | 426 | 153 | 387 | 1 | 3,434 | ||||||||||||||||||
-109-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents revenue by service type and geographic information for the years ended or as of May 31 (in millions):
| 2010 | 2009 | 2008 | ||||||||||
REVENUE BY SERVICE TYPE | ||||||||||||
| FedEx Express segment: | ||||||||||||
| Package: | ||||||||||||
| U.S. overnight box | $ | 5,602 | $ | 6,074 | $ | 6,578 | ||||||
| U.S. overnight envelope | 1,640 | 1,855 | 2,012 | |||||||||
| U.S. deferred | 2,589 | 2,789 | 2,995 | |||||||||
| Total domestic package revenue | 9,831 | 10,718 | 11,585 | |||||||||
| International Priority (IP) | 7,087 | 6,978 | 7,666 | |||||||||
International domestic(1) | 578 | 565 | 663 | |||||||||
| Total package revenue | 17,496 | 18,261 | 19,914 | |||||||||
| Freight: | ||||||||||||
| U.S. | 1,980 | 2,165 | 2,398 | |||||||||
| International priority freight | 1,303 | 1,104 | 1,243 | |||||||||
| International airfreight | 251 | 369 | 406 | |||||||||
| Total freight revenue | 3,534 | 3,638 | 4,047 | |||||||||
Other(2) | 525 | 465 | 460 | |||||||||
| Total FedEx Express segment | 21,555 | 22,364 | 24,421 | |||||||||
| FedEx Ground segment | 7,439 | 7,047 | 6,751 | |||||||||
| FedEx Freight segment | 4,321 | 4,415 | 4,934 | |||||||||
| FedEx Services segment | 1,770 | 1,977 | 2,138 | |||||||||
| Other and eliminations | (351 | ) | (306 | ) | (291 | ) | ||||||
| $ | 34,734 | $ | 35,497 | $ | 37,953 | |||||||
GEOGRAPHICAL INFORMATION(3) | ||||||||||||
| Revenues: | ||||||||||||
| U.S. | $ | 24,852 | $ | 25,819 | $ | 27,306 | ||||||
| International: | ||||||||||||
| FedEx Express segment | 9,547 | 9,363 | 10,298 | |||||||||
| FedEx Ground segment | 140 | 124 | 129 | |||||||||
| FedEx Freight segment | 60 | 39 | 36 | |||||||||
| FedEx Services segment | 135 | 152 | 184 | |||||||||
| Total international revenue | 9,882 | 9,678 | 10,647 | |||||||||
| $ | 34,734 | $ | 35,497 | $ | 37,953 | |||||||
| Noncurrent assets: | ||||||||||||
| U.S. | $ | 13,343 | $ | 13,560 | $ | 14,920 | ||||||
| International | 4,275 | 3,568 | 3,469 | |||||||||
| $ | 17,618 | $ | 17,128 | $ | 18,389 | |||||||
REVENUE BY SERVICE TYPE
| 2013 | 2012 | 2011 | ||||||||||
FedEx Express segment: | ||||||||||||
Package: | ||||||||||||
U.S. overnight box | $ | 6,513 | $ | 6,546 | $ | 6,128 | ||||||
U.S. overnight envelope | 1,705 | 1,747 | 1,736 | |||||||||
U.S. deferred | 3,020 | 3,001 | 2,805 | |||||||||
|
|
|
|
|
| |||||||
Total U.S. domestic package revenue | 11,238 | 11,294 | 10,669 | |||||||||
International priority | 6,586 | 6,849 | 6,760 | |||||||||
International economy | 2,046 | 1,859 | 1,468 | |||||||||
|
|
|
|
|
| |||||||
Total international export package revenue | 8,632 | 8,708 | 8,228 | |||||||||
|
|
|
|
|
| |||||||
International domestic(1) | 1,398 | 853 | 653 | |||||||||
|
|
|
|
|
| |||||||
Total package revenue | 21,268 | 20,855 | 19,550 | |||||||||
Freight: | ||||||||||||
U.S. | 2,562 | 2,498 | 2,188 | |||||||||
International priority | 1,678 | 1,827 | 1,722 | |||||||||
International airfreight | 276 | 307 | 283 | |||||||||
|
|
|
|
|
| |||||||
Total freight revenue | 4,516 | 4,632 | 4,193 | |||||||||
Other | 1,387 | 1,028 | 838 | |||||||||
|
|
|
|
|
| |||||||
Total FedEx Express segment | 27,171 | 26,515 | 24,581 | |||||||||
FedEx Ground segment: | ||||||||||||
FedEx Ground | 9,652 | 8,791 | 7,855 | |||||||||
FedEx SmartPost | 926 | 782 | 630 | |||||||||
|
|
|
|
|
| |||||||
Total FedEx Ground segment | 10,578 | 9,573 | 8,485 | |||||||||
FedEx Freight segment | 5,401 | 5,282 | 4,911 | |||||||||
FedEx Services segment | 1,580 | 1,671 | 1,684 | |||||||||
Other and eliminations(2) | (443 | ) | (361 | ) | (357 | ) | ||||||
|
|
|
|
|
| |||||||
| $ | 44,287 | $ | 42,680 | $ | 39,304 | |||||||
|
|
|
|
|
| |||||||
GEOGRAPHICAL INFORMATION(3) | ||||||||||||
Revenues: | ||||||||||||
U.S. | $ | 31,550 | $ | 29,837 | $ | 27,461 | ||||||
International: | ||||||||||||
FedEx Express segment | 12,357 | 12,370 | 11,437 | |||||||||
FedEx Ground segment | 234 | 216 | 177 | |||||||||
FedEx Freight segment | 112 | 101 | 84 | |||||||||
FedEx Services segment | 34 | 156 | 145 | |||||||||
|
|
|
|
|
| |||||||
Total international revenue | 12,737 | 12,843 | 11,843 | |||||||||
|
|
|
|
|
| |||||||
| $ | 44,287 | $ | 42,680 | $ | 39,304 | |||||||
|
|
|
|
|
| |||||||
Noncurrent assets: | ||||||||||||
U.S. | $ | 19,637 | $ | 18,874 | $ | 17,235 | ||||||
International | 2,656 | 1,973 | 1,865 | |||||||||
|
|
|
|
|
| |||||||
| $ | 22,293 | $ | 20,847 | $ | 19,100 | |||||||
|
|
|
|
|
| |||||||
| (1) | International domestic revenues include our international intra-country domestic express operations, |
| (2) | Includes FedEx Trade Networks and |
| (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. |
-110-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 13:15: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
| Cash payments for: | ||||||||||||
| Interest (net of capitalized interest) | $ | 88 | $ | 61 | $ | 105 | ||||||
| Income taxes | $ | 322 | $ | 517 | $ | 821 | ||||||
| Income tax refunds received | (279 | ) | (8 | ) | (5 | ) | ||||||
| Cash tax payments, net | $ | 43 | $ | 509 | $ | 816 | ||||||
| 2013 | 2012 | 2011 | ||||||||||
Cash payments for: | ||||||||||||
Interest (net of capitalized interest) | $ | 80 | $ | 52 | $ | 93 | ||||||
|
|
|
|
|
| |||||||
Income taxes | $ | 687 | $ | 403 | $ | 493 | ||||||
Income tax refunds received | (219 | ) | (146 | ) | (106 | ) | ||||||
|
|
|
|
|
| |||||||
Cash tax payments, net | $ | 468 | $ | 257 | $ | 387 | ||||||
|
|
|
|
|
| |||||||
NOTE 14:16: 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$551 million in principal of these bonds (with total future principal and interest payments of approximately $919$708 million as of May 31, 2010)2013) 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, 2010. The remaining $551 million has been accounted for as operating leases.
-111-
| Aircraft- | ||||||||||||||||
| Aircraft(1) | Related(2) | Other(3) | Total | |||||||||||||
| 2011 | $ | 824 | $ | 104 | $ | 771 | $ | 1,699 | ||||||||
| 2012 | 839 | 10 | 166 | 1,015 | ||||||||||||
| 2013 | 622 | 19 | 66 | 707 | ||||||||||||
| 2014 | 480 | — | 14 | 494 | ||||||||||||
| 2015 | 493 | — | 12 | 505 | ||||||||||||
| Thereafter | 1,431 | — | 113 | 1,544 | ||||||||||||
| Aircraft and Aircraft Related | Facilities and Other(1) | Total | ||||||||||
2014 | $ | 968 | $ | 1,183 | $ | 2,151 | ||||||
2015 | 1,054 | 184 | 1,238 | |||||||||
2016 | 1,140 | 123 | 1,263 | |||||||||
2017 | 959 | 101 | 1,060 | |||||||||
2018 | 1,382 | 44 | 1,426 | |||||||||
Thereafter | 4,492 | 109 | 4,601 | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 9,995 | $ | 1,744 | $ | 11,739 | ||||||
|
|
|
|
|
| |||||||
| (1) | Primarily vehicles, facilities, advertising contracts and in 2014, approximately $650 million of quarterly contributions to |
The amounts reflected in the table above for purchase commitments represent noncancelable agreements to purchase goods or services. As of May 31, 2013, our obligation to purchase four Boeing 767-300 Freighter (“B767F”) aircraft and nine B777F aircraft (Boeing 777 Freighters, or B777Fs) 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. Also, subsequent to May 31, 2010, we entered into an agreement replacing the previously disclosed non-binding letter of intent with another party to acquire two additional B777Fs and expect to take delivery of these aircraft in 2011. These aircraft are not included in the table above.
- 119 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have several aircraft modernization programs underway which are supported by the purchase of B777F, B767F and Boeing 757 (“B757”) aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements. During 2013, FedEx Express entered into an agreement to purchase 14 additional B757 aircraft, the delivery of which began in 2013 and will continue through 2014. The agreement provides the option to purchase up to 16 additional B757 aircraft, subject to the satisfaction of certain conditions. In addition, FedEx Express entered into agreements to purchase an additional 23 B767F aircraft, the delivery of which will occur between 2014 and 2019. The delivery of two firm B777F aircraft orders were also deferred from 2015 to 2016.
We had $437$414 million in deposits and progress payments as of May 31, 2010 (a decrease of $107 million from May 31, 2009)2013 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 and B767Fs, our aircraft purchase commitments include the Boeing 757 (“B757”)B757 aircraft 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 ofkey aircraft we are committed to purchase as of May 31, 2010,2013, with the year of expected delivery:
| B757 | B777F(1) | ATR 72 | Total | |||||||||||||
| 2011 | 16 | 4 | 8 | 28 | ||||||||||||
| 2012 | 8 | 5 | — | 13 | ||||||||||||
| 2013 | — | 5 | — | 5 | ||||||||||||
| 2014 | — | 3 | — | 3 | ||||||||||||
| 2015 | — | 3 | — | 3 | ||||||||||||
| Thereafter | — | 10 | — | 10 | ||||||||||||
| Total | 24 | 30 | 8 | 62 | ||||||||||||
| B757 | B767F | B777F | Total | |||||||||||||
2014 | 13 | 4 | 2 | 19 | ||||||||||||
2015 | — | 12 | — | 12 | ||||||||||||
2016 | — | 10 | 2 | 12 | ||||||||||||
2017 | — | 10 | — | 10 | ||||||||||||
2018 | — | 10 | 2 | 12 | ||||||||||||
Thereafter | — | 4 | 14 | 18 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 13 | 50 | 20 | 83 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
-112-
NOTE 18: CONTINGENCIES
Independent Contractor — Lawsuits and State Administrative Proceedings.FedEx Ground is involved in approximately 50numerous class-action lawsuits (including 2931 that arehave been certified as class actions), several individual lawsuits and approximately 40 state tax and other administrative proceedings that claim that the company’s owner-operators should be treated as employees, rather than independent contractors.
-113-
- 120 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The multidistrict litigation court remanded the other eight certified class actions thatback to the district courts where they were originally filed because its summary judgment ruling did not completely dispose of all of the claims in those lawsuits. Three of those cases are not partnow on appeal with the Court of Appeals for the Ninth Circuit. The other five remain pending in their respective district courts.
While the granting of summary judgment in favor of FedEx Ground by the multidistrict litigation are not as far along procedurally asAnfinsonand manycourt in 20 of the lawsuits are currently stayed pending further developments in28 cases that had been certified as class actions remains subject to appeal, we believe that it significantly improves the multidistrict litigation.
In addition, we are defending contractor-model cases that are not or are no longer part of the multidistrict litigation, three of which have been certified as class actions. These cases are in varying stages of litigation, and we do not expect to incur a material loss in any of these matters.
ATA Airlines.Other Matters.ATA Airlines has sued In August 2010, a third-party consultant who works with shipping customers to negotiate lower rates filed a lawsuit in federal district court in California against FedEx Expressand United Parcel Service, Inc. (“UPS”) alleging violations of U.S. antitrust law. This matter was dismissed in Indiana federalMay 2011, but the court alleging, among other things, that we breached a contract by not including ATA on our 2009 Civil Reserve Air Fleet (CRAF)/Air Mobility Command (AMC) team,granted the plaintiff permission to file an amended complaint, which provides cargo and passenger service to the U.S. military. After being advised that it would not be a part of the 2009 team, ATA ceased operations and filed for bankruptcy. ATA has alleged damages of $94 million, including lost profits and aircraft acquisition costs. We have denied any liability and contend that ATA has suffered no damages.FedEx received in June 2011. In April 2010,November 2011, the court granted our motion to dismiss this complaint, but again allowed the plaintiff to file an amended complaint. The plaintiff filed a new complaint in December 2011, and the matter remains pending before the court. In February 2011, shortly after the initial lawsuit was filed, we received a demand for partial judgmentthe production of information and documents in connection with a civil investigation by the U.S. Department of Justice (“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. In November 2012, the DOJ served a civil investigative demand on the third-party consultant seeking all pleadings, depositions and dismissed all of ATA’s claims except fordocuments produced in the breach of contract claim. In June 2010,lawsuit. We are cooperating with the court denied our motion for summary judgment on the breach of contract claim, so that claim is still pending. Trial is currently scheduled for August 2010, and we stillinvestigation, do not believe that we have engaged in any anti-competitive activities and will vigorously defend ourselves in any action that may result from the investigation. While the litigation proceedings and the DOJ investigation move forward, and the amount of loss, if any, is dependent on a number of factors that are not yet fully developed or resolved, we do not believe that a material loss is probable.
We have received requests for information from the DOJ in the Northern District of California in connection with a criminal investigation relating to the transportation of packages for online pharmacies that may have shipped pharmaceuticals in violation of federal law. We responded to grand jury subpoenas issued in June 2008 and August 2009 and to additional requests for information pursuant to those subpoenas, and we continue to respond and cooperate with the investigation. We believe that our employees have acted in good faith at all times. We do not believe that we have engaged in any illegal activities and will vigorously defend ourselves in any action that may result from the investigation. The DOJ may pursue a criminal indictment and, if we are convicted, remedies could include fines, penalties, financial forfeiture and compliance conditions. We cannot estimate the amount or range of loss, if any, as such analysis would depend on facts and law that are not yet fully developed or resolved.
- 121 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
-114-
NOTE 17:19: 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.”
NOTE 18:20: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
| First | Second | Third | Fourth | |||||||||||||
| (in millions, except per share amounts) | Quarter | Quarter | Quarter | Quarter | ||||||||||||
| 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(2) | 0.58 | 1.10 | 0.76 | 1.33 | ||||||||||||
2009(1) | ||||||||||||||||
| Revenues | $ | 9,970 | $ | 9,538 | $ | 8,137 | $ | 7,852 | ||||||||
| Operating income (loss) | 630 | 784 | 182 | (849 | ) | |||||||||||
| Net income (loss) | 384 | 493 | 97 | (876 | ) | |||||||||||
| Basic earnings (loss) per common share | 1.23 | 1.59 | 0.31 | (2.82 | ) | |||||||||||
Diluted earnings (loss) per common share(2) | 1.23 | 1.58 | 0.31 | (2.82 | ) | |||||||||||
(in millions, except per share amounts) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
2013(1) | ||||||||||||||||
Revenues | $ | 10,792 | $ | 11,107 | $ | 10,953 | $ | 11,435 | ||||||||
Operating income | 742 | 718 | 589 | 502 | ||||||||||||
Net income | 459 | 438 | 361 | 303 | ||||||||||||
Basic earnings per common share(2) | 1.46 | 1.39 | 1.14 | 0.96 | ||||||||||||
Diluted earnings per common share(2) | 1.45 | 1.39 | 1.13 | 0.95 | ||||||||||||
2012(3) | ||||||||||||||||
Revenues | $ | 10,521 | $ | 10,587 | $ | 10,564 | $ | 11,008 | ||||||||
Operating income | 737 | 780 | 813 | 856 | ||||||||||||
Net income | 464 | 497 | 521 | 550 | ||||||||||||
Basic earnings per common share(2) | 1.46 | 1.57 | 1.66 | 1.74 | ||||||||||||
Diluted earnings per common share(2) | 1.46 | 1.57 | 1.65 | 1.73 | ||||||||||||
| (1) | The fourth quarter of |
| (2) | The sum of the quarterly |
| (3) | The fourth quarter of 2012 includes an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express. The third quarter of 2012 includes the reversal of a $66 million legal reserve. |
-115-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19:21: 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.
The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1.2$2.75 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”“Guarantor Subsidiaries” and “Non-Guarantor”“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.
-116-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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, 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 | ||||||||||
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 3,892 | $ | 405 | $ | 717 | $ | (97 | ) | $ | 4,917 | |||||||||
Receivables, less allowances | — | 3,989 | 1,084 | (29 | ) | 5,044 | ||||||||||||||
Spare parts, supplies, fuel, prepaid expenses and other, less allowances | 45 | 681 | 54 | — | 780 | |||||||||||||||
Deferred income taxes | — | 518 | 15 | — | 533 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 3,937 | 5,593 | 1,870 | (126 | ) | 11,274 | ||||||||||||||
PROPERTY AND EQUIPMENT, AT COST | 27 | 35,915 | 2,167 | — | 38,109 | |||||||||||||||
Less accumulated depreciation and amortization | 21 | 18,469 | 1,135 | — | 19,625 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net property and equipment | 6 | 17,446 | 1,032 | — | 18,484 | |||||||||||||||
INTERCOMPANY RECEIVABLE | — | 439 | 1,203 | (1,642 | ) | — | ||||||||||||||
GOODWILL | — | 1,552 | 1,203 | — | 2,755 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES | 18,739 | 3,347 | — | (22,086 | ) | — | ||||||||||||||
OTHER ASSETS | 2,187 | 822 | 191 | (2,146 | ) | 1,054 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 24,869 | $ | 29,199 | $ | 5,499 | $ | (26,000 | ) | $ | 33,567 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS’ INVESTMENT CURRENT LIABILITIES | ||||||||||||||||||||
Current portion of long-term debt | $ | 250 | $ | 1 | $ | — | $ | — | $ | 251 | ||||||||||
Accrued salaries and employee benefits | 82 | 1,402 | 204 | — | 1,688 | |||||||||||||||
Accounts payable | 4 | 1,392 | 609 | (126 | ) | 1,879 | ||||||||||||||
Accrued expenses | 355 | 1,366 | 211 | — | 1,932 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 691 | 4,161 | 1,024 | (126 | ) | 5,750 | ||||||||||||||
LONG-TERM DEBT, LESS CURRENT PORTION | 2,489 | 250 | — | — | 2,739 | |||||||||||||||
INTERCOMPANY PAYABLE | 1,642 | — | — | (1,642 | ) | — | ||||||||||||||
OTHER LONG-TERM LIABILITIES | ||||||||||||||||||||
Deferred income taxes | — | 3,798 | — | (2,146 | ) | 1,652 | ||||||||||||||
Other liabilities | 2,649 | 3,133 | 246 | — | 6,028 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other long-term liabilities | 2,649 | 6,931 | 246 | (2,146 | ) | 7,680 | ||||||||||||||
STOCKHOLDERS’ INVESTMENT | 17,398 | 17,857 | 4,229 | (22,086 | ) | 17,398 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 24,869 | $ | 29,199 | $ | 5,499 | $ | (26,000 | ) | $ | 33,567 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
-117-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1,768 | $ | 272 | $ | 304 | $ | (52 | ) | $ | 2,292 | |||||||||
| Receivables, less allowances | 1 | 2,717 | 712 | (39 | ) | 3,391 | ||||||||||||||
| Spare parts, supplies, fuel, prepaid expenses and other, less allowances | 1 | 838 | 83 | — | 922 | |||||||||||||||
| Deferred income taxes | — | 486 | 25 | — | 511 | |||||||||||||||
| Total current assets | 1,770 | 4,313 | 1,124 | (91 | ) | 7,116 | ||||||||||||||
| PROPERTY AND EQUIPMENT, AT COST | 23 | 26,984 | 2,253 | — | 29,260 | |||||||||||||||
| Less accumulated depreciation and amortization | 17 | 14,659 | 1,167 | — | 15,843 | |||||||||||||||
| Net property and equipment | 6 | 12,325 | 1,086 | — | 13,417 | |||||||||||||||
| INTERCOMPANY RECEIVABLE | 758 | — | 379 | (1,137 | ) | — | ||||||||||||||
| GOODWILL | — | 1,485 | 744 | — | 2,229 | |||||||||||||||
| INVESTMENT IN SUBSIDIARIES | 11,973 | 2,129 | — | (14,102 | ) | — | ||||||||||||||
| PENSION ASSETS | 311 | — | — | — | 311 | |||||||||||||||
| OTHER ASSETS | 911 | 994 | 121 | (855 | ) | 1,171 | ||||||||||||||
| $ | 15,729 | $ | 21,246 | $ | 3,454 | $ | (16,185 | ) | $ | 24,244 | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||||||||||||||
| CURRENT LIABILITIES | ||||||||||||||||||||
| Current portion of long-term debt | $ | 500 | $ | 153 | $ | — | $ | — | $ | 653 | ||||||||||
| Accrued salaries and employee benefits | 26 | 711 | 124 | — | 861 | |||||||||||||||
| Accounts payable | 5 | 1,078 | 380 | (91 | ) | 1,372 | ||||||||||||||
| Accrued expenses | 51 | 1,426 | 161 | — | 1,638 | |||||||||||||||
| Total current liabilities | 582 | 3,368 | 665 | (91 | ) | 4,524 | ||||||||||||||
| LONG-TERM DEBT, LESS CURRENT PORTION | 1,250 | 680 | — | — | 1,930 | |||||||||||||||
| INTERCOMPANY PAYABLE | — | 1,137 | — | (1,137 | ) | — | ||||||||||||||
| OTHER LONG-TERM LIABILITIES | ||||||||||||||||||||
| Deferred income taxes | — | 1,875 | 51 | (855 | ) | 1,071 | ||||||||||||||
| Other liabilities | 271 | 2,732 | 90 | — | 3,093 | |||||||||||||||
| Total other long-term liabilities | 271 | 4,607 | 141 | (855 | ) | 4,164 | ||||||||||||||
| STOCKHOLDERS’ INVESTMENT | 13,626 | 11,454 | 2,648 | (14,102 | ) | 13,626 | ||||||||||||||
| $ | 15,729 | $ | 21,246 | $ | 3,454 | $ | (16,185 | ) | $ | 24,244 | ||||||||||
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
ASSETS | ||||||||||||||||||||
CURRENT ASSETS | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,906 | $ | 417 | $ | 636 | $ | (116 | ) | $ | 2,843 | |||||||||
Receivables, less allowances | 3 | 3,793 | 943 | (35 | ) | 4,704 | ||||||||||||||
Spare parts, supplies, fuel, prepaid expenses and other, less allowances | 261 | 671 | 44 | — | 976 | |||||||||||||||
Deferred income taxes | — | 514 | 19 | — | 533 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 2,170 | 5,395 | 1,642 | (151 | ) | 9,056 | ||||||||||||||
PROPERTY AND EQUIPMENT, AT COST | 29 | 34,301 | 1,834 | — | 36,164 | |||||||||||||||
Less accumulated depreciation and amortization | 20 | 17,822 | 1,074 | — | 18,916 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net property and equipment | 9 | 16,479 | 760 | — | 17,248 | |||||||||||||||
INTERCOMPANY RECEIVABLE | — | 323 | 1,524 | (1,847 | ) | — | ||||||||||||||
GOODWILL | — | 1,553 | 834 | — | 2,387 | |||||||||||||||
INVESTMENT IN SUBSIDIARIES | 17,163 | 2,978 | — | (20,141 | ) | — | ||||||||||||||
OTHER ASSETS | 2,845 | 1,099 | 86 | (2,818 | ) | 1,212 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 22,187 | $ | 27,827 | $ | 4,846 | $ | (24,957 | ) | $ | 29,903 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND STOCKHOLDERS’ INVESTMENT | ||||||||||||||||||||
CURRENT LIABILITIES | ||||||||||||||||||||
Current portion of long-term debt | $ | — | $ | 417 | $ | — | $ | — | $ | 417 | ||||||||||
Accrued salaries and employee benefits | 83 | 1,365 | 187 | — | 1,635 | |||||||||||||||
Accounts payable | 6 | 1,276 | 482 | (151 | ) | 1,613 | ||||||||||||||
Accrued expenses | 184 | 1,406 | 119 | — | 1,709 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 273 | 4,464 | 788 | (151 | ) | 5,374 | ||||||||||||||
LONG-TERM DEBT, LESS CURRENT PORTION | 1,000 | 250 | — | — | 1,250 | |||||||||||||||
INTERCOMPANY PAYABLE | 1,847 | — | — | (1,847 | ) | — | ||||||||||||||
OTHER LONG-TERM LIABILITIES | ||||||||||||||||||||
Deferred income taxes | — | 3,649 | 5 | (2,818 | ) | 836 | ||||||||||||||
Other liabilities | 4,340 | 3,193 | 183 | — | 7,716 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other long-term liabilities | 4,340 | 6,842 | 188 | (2,818 | ) | 8,552 | ||||||||||||||
STOCKHOLDERS’ INVESTMENT | 14,727 | 16,271 | 3,870 | (20,141 | ) | 14,727 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| $ | 22,187 | $ | 27,827 | $ | 4,846 | $ | (24,957 | ) | $ | 29,903 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
-118-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
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 | |||||||||
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | $ | — | $ | 37,073 | $ | 7,543 | $ | (329 | ) | $ | 44,287 | |||||||||
OPERATING EXPENSES: | ||||||||||||||||||||
Salaries and employee benefits | 103 | 14,375 | 2,092 | — | 16,570 | |||||||||||||||
Purchased transportation | — | 4,839 | 2,574 | (141 | ) | 7,272 | ||||||||||||||
Rentals and landing fees | 5 | 2,198 | 324 | (6 | ) | 2,521 | ||||||||||||||
Depreciation and amortization | 1 | 2,200 | 185 | — | 2,386 | |||||||||||||||
Fuel | — | 4,650 | 96 | — | 4,746 | |||||||||||||||
Maintenance and repairs | 1 | 1,791 | 117 | — | 1,909 | |||||||||||||||
Business realignment, impairment and other charges | 21 | 639 | — | — | 660 | |||||||||||||||
Intercompany charges, net | (227 | ) | (329 | ) | 556 | — | — | |||||||||||||
Other | 96 | 4,565 | 1,193 | (182 | ) | 5,672 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| — | 34,928 | 7,137 | (329 | ) | 41,736 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OPERATING INCOME | — | 2,145 | 406 | — | 2,551 | |||||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||||||
Equity in earnings of subsidiaries | 1,561 | 253 | — | (1,814 | ) | — | ||||||||||||||
Interest, net | (108 | ) | 42 | 5 | — | (61 | ) | |||||||||||||
Intercompany charges, net | 113 | (131 | ) | 18 | — | — | ||||||||||||||
Other, net | (5 | ) | (20 | ) | (10 | ) | — | (35 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
INCOME BEFORE INCOME TAXES | 1,561 | 2,289 | 419 | (1,814 | ) | 2,455 | ||||||||||||||
Provision for income taxes | — | 710 | 184 | — | 894 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET INCOME | $ | 1,561 | $ | 1,579 | $ | 235 | $ | (1,814 | ) | $ | 1,561 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
COMPREHENSIVE INCOME | $ | 2,622 | $ | 1,618 | $ | 268 | $ | (1,814 | ) | $ | 2,694 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
- 126 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
(LOSS)
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 | |||||||||
| Parent | Guarantor Subsidiaries | Non-guarantor Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
REVENUES | $ | — | $ | 36,412 | $ | 6,569 | $ | (301 | ) | $ | 42,680 | |||||||||
OPERATING EXPENSES: | ||||||||||||||||||||
Salaries and employee benefits | 114 | 14,153 | 1,832 | — | 16,099 | |||||||||||||||
Purchased transportation | — | 4,509 | 1,944 | (118 | ) | 6,335 | ||||||||||||||
Rentals and landing fees | 5 | 2,221 | 267 | (6 | ) | 2,487 | ||||||||||||||
Depreciation and amortization | 1 | 1,962 | 150 | — | 2,113 | |||||||||||||||
Fuel | — | 4,877 | 79 | — | 4,956 | |||||||||||||||
Maintenance and repairs | 1 | 1,882 | 97 | — | 1,980 | |||||||||||||||
Impairment and other charges | — | 134 | — | — | 134 | |||||||||||||||
Intercompany charges, net | (218 | ) | (323 | ) | 541 | — | — | |||||||||||||
Other | 97 | 4,482 | 988 | (177 | ) | 5,390 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| — | 33,897 | 5,898 | (301 | ) | 39,494 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
OPERATING INCOME | — | 2,515 | 671 | — | 3,186 | |||||||||||||||
OTHER INCOME (EXPENSE): | ||||||||||||||||||||
Equity in earnings of subsidiaries | 2,032 | 395 | — | (2,427 | ) | — | ||||||||||||||
Interest, net | (75 | ) | 31 | 5 | — | (39 | ) | |||||||||||||
Intercompany charges, net | 80 | (102 | ) | 22 | — | — | ||||||||||||||
Other, net | (5 | ) | (10 | ) | 9 | — | (6 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
INCOME BEFORE INCOME TAXES | 2,032 | 2,829 | 707 | (2,427 | ) | 3,141 | ||||||||||||||
Provision for income taxes | — | 875 | 234 | — | 1,109 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET INCOME | $ | 2,032 | $ | 1,954 | $ | 473 | $ | (2,427 | ) | $ | 2,032 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
COMPREHENSIVE (LOSS) INCOME | $ | (120 | ) | $ | 1,796 | $ | 380 | $ | (2,427 | ) | $ | (371 | ) | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
-119-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
Year Ended May 31, 2008
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| REVENUES | $ | — | $ | 31,464 | $ | 6,860 | $ | (371 | ) | $ | 37,953 | |||||||||
| OPERATING EXPENSES: | ||||||||||||||||||||
| Salaries and employee benefits | 98 | 11,660 | 2,444 | — | 14,202 | |||||||||||||||
| Purchased transportation | — | 3,392 | 1,333 | (91 | ) | 4,634 | ||||||||||||||
| Rentals and landing fees | 4 | 2,127 | 313 | (3 | ) | 2,441 | ||||||||||||||
| Depreciation and amortization | 2 | 1,651 | 293 | — | 1,946 | |||||||||||||||
| Fuel | — | 4,095 | 314 | — | 4,409 | |||||||||||||||
| Maintenance and repairs | 1 | 1,907 | 160 | — | 2,068 | |||||||||||||||
| Impairment charges | — | 882 | — | — | 882 | |||||||||||||||
| Intercompany charges, net | (204 | ) | (94 | ) | 298 | — | — | |||||||||||||
| Other | 99 | 4,400 | 1,074 | (277 | ) | 5,296 | ||||||||||||||
| — | 30,020 | 6,229 | (371 | ) | 35,878 | |||||||||||||||
| OPERATING INCOME | — | 1,444 | 631 | — | 2,075 | |||||||||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||||||
| Equity in earnings of subsidiaries | 1,125 | 310 | — | (1,435 | ) | — | ||||||||||||||
| Interest, net | (44 | ) | 4 | (14 | ) | — | (54 | ) | ||||||||||||
| Intercompany charges, net | 51 | (66 | ) | 15 | — | — | ||||||||||||||
| Other, net | (7 | ) | 3 | (1 | ) | — | (5 | ) | ||||||||||||
| INCOME BEFORE INCOME TAXES | 1,125 | 1,695 | 631 | (1,435 | ) | 2,016 | ||||||||||||||
| Provision for income taxes | — | 687 | 204 | — | 891 | |||||||||||||||
| NET INCOME | $ | 1,125 | $ | 1,008 | $ | 427 | $ | (1,435 | ) | $ | 1,125 | |||||||||
| Parent | Guarantor Subsidiaries | Non-guarantor 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 | ) | |||||||||||
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INCOME BEFORE INCOME TAXES | 1,452 | 1,987 | 478 | (1,652 | ) | 2,265 | ||||||||||||||
Provision for income taxes | — | 677 | 136 | — | 813 | |||||||||||||||
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NET INCOME | $ | 1,452 | $ | 1,310 | $ | 342 | $ | (1,652 | ) | $ | 1,452 | |||||||||
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COMPREHENSIVE INCOME | $ | 1,240 | $ | 1,329 | $ | 425 | $ | (1,652 | ) | $ | 1,342 | |||||||||
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-120-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
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 | |||||||||
| Guarantor | Non- guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
CASH PROVIDED BY OPERATING ACTIVITIES | $ | 247 | $ | 3,936 | $ | 486 | $ | 19 | $ | 4,688 | ||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Capital expenditures | (3 | ) | (3,029 | ) | (343 | ) | — | (3,375 | ) | |||||||||||
Business acquisitions, net of cash acquired | — | — | (483 | ) | — | (483 | ) | |||||||||||||
Proceeds from asset dispositions and other | — | 49 | 6 | — | 55 | |||||||||||||||
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CASH USED IN INVESTING ACTIVITIES | (3 | ) | (2,980 | ) | (820 | ) | — | (3,803 | ) | |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Net transfers from (to) Parent | 141 | (58 | ) | (83 | ) | — | — | |||||||||||||
Payment on loan between subsidiaries | — | (385 | ) | 385 | — | — | ||||||||||||||
Intercompany dividends | — | 21 | (21 | ) | — | — | ||||||||||||||
Principal payments on debt | — | (417 | ) | — | — | (417 | ) | |||||||||||||
Proceeds from debt issuances | 1,739 | — | — | — | 1,739 | |||||||||||||||
Proceeds from stock issuances | 280 | — | — | — | 280 | |||||||||||||||
Excess tax benefit on the exercise of stock options | 23 | — | — | — | 23 | |||||||||||||||
Dividends paid | (177 | ) | — | — | — | (177 | ) | |||||||||||||
Purchase of treasury stock | (246 | ) | — | — | — | (246 | ) | |||||||||||||
Other, net | (18 | ) | (119 | ) | 119 | — | (18 | ) | ||||||||||||
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CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 1,742 | (958 | ) | 400 | — | 1,184 | ||||||||||||||
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Effect of exchange rate changes on cash | — | (10 | ) | 15 | — | 5 | ||||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,986 | (12 | ) | 81 | 19 | 2,074 | ||||||||||||||
Cash and cash equivalents at beginning of period | 1,906 | 417 | 636 | (116 | ) | 2,843 | ||||||||||||||
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Cash and cash equivalents at end of period | $ | 3,892 | $ | 405 | $ | 717 | $ | (97 | ) | $ | 4,917 | |||||||||
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- 129 -
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
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 | |||||||||
| Guarantor | Non- guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | (88 | ) | $ | 4,383 | $ | 570 | $ | (30 | ) | $ | 4,835 | ||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Capital expenditures | (5 | ) | (3,792 | ) | (210 | ) | — | (4,007 | ) | |||||||||||
Business acquisition, net of cash acquired | — | — | (116 | ) | — | (116 | ) | |||||||||||||
Proceeds from asset dispositions and other | — | 74 | — | — | 74 | |||||||||||||||
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CASH USED IN INVESTING ACTIVITIES | (5 | ) | (3,718 | ) | (326 | ) | — | (4,049 | ) | |||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Net transfers from (to) Parent | 625 | (550 | ) | (75 | ) | — | — | |||||||||||||
Intercompany dividends | — | 76 | (76 | ) | — | — | ||||||||||||||
Principal payments on debt | — | (29 | ) | — | — | (29 | ) | |||||||||||||
Proceeds from stock issuances | 128 | — | — | — | 128 | |||||||||||||||
Excess tax benefit on the exercise of stock options | 18 | — | — | — | 18 | |||||||||||||||
Dividends paid | (164 | ) | — | — | — | (164 | ) | |||||||||||||
Purchase of treasury stock | (197 | ) | — | (197 | ) | |||||||||||||||
Other, net | — | (19 | ) | 19 | — | — | ||||||||||||||
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CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | 410 | (522 | ) | (132 | ) | — | (244 | ) | ||||||||||||
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Effect of exchange rate changes on cash | — | (5 | ) | (22 | ) | — | (27 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 317 | 138 | 90 | (30 | ) | 515 | ||||||||||||||
Cash and cash equivalents at beginning of period | 1,589 | 279 | 546 | (86 | ) | 2,328 | ||||||||||||||
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Cash and cash equivalents at end of period | $ | 1,906 | $ | 417 | $ | 636 | $ | (116 | ) | $ | 2,843 | |||||||||
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-121-
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended May 31, 2008
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
| CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | $ | (44 | ) | $ | 2,889 | $ | 620 | $ | — | $ | 3,465 | |||||||||
| INVESTING ACTIVITIES | ||||||||||||||||||||
| Capital expenditures | (1 | ) | (2,683 | ) | (263 | ) | — | (2,947 | ) | |||||||||||
| Collection on (payment of) loan to Parent | (5,971 | ) | 5,971 | — | — | — | ||||||||||||||
| Proceeds from asset dispositions and other | — | 34 | 16 | — | 50 | |||||||||||||||
| CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | (5,972 | ) | 3,322 | (247 | ) | — | (2,897 | ) | ||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||
| Net transfers from (to) Parent | 463 | (296 | ) | (167 | ) | — | — | |||||||||||||
| Payment on loans between subsidiaries | — | 16 | (16 | ) | — | — | ||||||||||||||
| Dividend paid (to) from Parent | 5,971 | (5,971 | ) | — | — | — | ||||||||||||||
| Intercompany dividends | — | 165 | (165 | ) | — | — | ||||||||||||||
| Principal payments on debt | (551 | ) | (85 | ) | (3 | ) | — | (639 | ) | |||||||||||
| Proceeds from stock issuances | 108 | — | — | — | 108 | |||||||||||||||
| Excess tax benefit on the exercise of stock options | 38 | — | — | — | 38 | |||||||||||||||
| Dividends paid | (124 | ) | — | — | — | (124 | ) | |||||||||||||
| CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | 5,905 | (6,171 | ) | (351 | ) | — | (617 | ) | ||||||||||||
| Effect of exchange rate changes on cash | — | 2 | 17 | — | 19 | |||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (111 | ) | 42 | 39 | — | (30 | ) | |||||||||||||
| Cash and cash equivalents at beginning of period | 1,212 | 124 | 233 | — | 1,569 | |||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,101 | $ | 166 | $ | 272 | $ | — | $ | 1,539 | ||||||||||
| 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 | |||||||||||||||
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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 | ) | ||||||||||||
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CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES | 255 | (719 | ) | 177 | — | (287 | ) | |||||||||||||
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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 | ||||||||||||||
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Cash and cash equivalents at end of period | $ | 1,589 | $ | 279 | $ | 546 | $ | (86 | ) | $ | 2,328 | |||||||||
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-122-
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 56 to the accompanying consolidated financial statements, we had outstanding fixed-rate, long-term debt (exclusive of capital leases) with estimated fair values of $2.1$3.2 billion at May 31, 20102013 and $2.4$2.0 billion at May 31, 2009.2012. 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 $41$77 million as of May 31, 20102013 and $35$30 million as of May 31, 2009.2012. 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, euro, Brazilian real, Canadian dollar and the British pound and Japanese yen.pound. 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 2010, operating income was positively impacted due to foreign currency fluctuations. During 2009,2013 and 2012, foreign currency fluctuations negatively impactedhad a slightly positive impact on operating income. 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, 2010,2013, 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 $33$132 million for 2011.2014. This theoretical calculation required under SEC guidelines assumes that each exchange rate would change in the same direction relative to the U.S. dollar. This calculationdollar, which is not indicative ofconsistent with 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 5%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.
-123-
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, 2010.2013. This information should be read in conjunction with the Consolidated Financial Statements, Management’s Discussion and Analysis of Results of Operations and Financial ConditionMD&A and other financial data appearing elsewhere in this Annual Report.
| 2010 | 2009(1) | 2008(2) | 2007(3) | 2006(4) | ||||||||||||||||
Operating Results | ||||||||||||||||||||
| Revenues | $ | 34,734 | $ | 35,497 | $ | 37,953 | $ | 35,214 | $ | 32,294 | ||||||||||
| Operating income | 1,998 | 747 | 2,075 | 3,276 | 3,014 | |||||||||||||||
| Income before income taxes | 1,894 | 677 | 2,016 | 3,215 | 2,899 | |||||||||||||||
| Net income | 1,184 | 98 | 1,125 | 2,016 | 1,806 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
| Earnings per share: | ||||||||||||||||||||
| Basic | $ | 3.78 | $ | 0.31 | $ | 3.64 | $ | 6.57 | $ | 5.94 | ||||||||||
| Diluted | $ | 3.76 | $ | 0.31 | $ | 3.60 | $ | 6.48 | $ | 5.83 | ||||||||||
| Average shares of common stock outstanding | 312 | 311 | 309 | 307 | 304 | |||||||||||||||
| Average common and common equivalent shares outstanding | 314 | 312 | 312 | 311 | 310 | |||||||||||||||
| Cash dividends declared | $ | 0.44 | $ | 0.44 | $ | 0.30 | $ | 0.37 | $ | 0.33 | ||||||||||
Financial Position | ||||||||||||||||||||
| Property and equipment, net | $ | 14,385 | $ | 13,417 | $ | 13,478 | $ | 12,636 | $ | 10,770 | ||||||||||
| Total assets | 24,902 | 24,244 | 25,633 | 24,000 | 22,690 | |||||||||||||||
| Long-term debt, less current portion | 1,668 | 1,930 | 1,506 | 2,007 | 1,592 | |||||||||||||||
| Common stockholders’ investment | 13,811 | 13,626 | 14,526 | 12,656 | 11,511 | |||||||||||||||
Other Operating Data | ||||||||||||||||||||
| FedEx Express aircraft fleet | 664 | 654 | 677 | 669 | 671 | |||||||||||||||
| Average full-time equivalent employees and contractors | 245,109 | 247,908 | 254,142 | 241,903 | 221,677 | |||||||||||||||
| 2013(1) | 2012(2) | 2011(3) | 2010(4) | 2009(5) | ||||||||||||||||
Operating Results | ||||||||||||||||||||
Revenues | $ | 44,287 | $ | 42,680 | $ | 39,304 | $ | 34,734 | $ | 35,497 | ||||||||||
Operating income | 2,551 | 3,186 | 2,378 | 1,998 | 747 | |||||||||||||||
Income before income taxes | 2,455 | 3,141 | 2,265 | 1,894 | 677 | |||||||||||||||
Net income | 1,561 | 2,032 | 1,452 | 1,184 | 98 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||
Basic | $ | 4.95 | $ | 6.44 | $ | 4.61 | $ | 3.78 | $ | 0.31 | ||||||||||
Diluted | $ | 4.91 | $ | 6.41 | $ | 4.57 | $ | 3.76 | $ | 0.31 | ||||||||||
Average shares of common stock outstanding | 315 | 315 | 315 | 312 | 311 | |||||||||||||||
Average common and common equivalent shares outstanding | 317 | 317 | 317 | 314 | 312 | |||||||||||||||
Cash dividends declared | $ | 0.56 | $ | 0.52 | $ | 0.48 | $ | 0.44 | $ | 0.44 | ||||||||||
Financial Position | ||||||||||||||||||||
Property and equipment, net | $ | 18,484 | $ | 17,248 | $ | 15,543 | $ | 14,385 | $ | 13,417 | ||||||||||
Total assets | 33,567 | 29,903 | 27,385 | 24,902 | 24,244 | |||||||||||||||
Long-term debt, less current portion | 2,739 | 1,250 | 1,667 | 1,668 | 1,930 | |||||||||||||||
Common stockholders’ investment | 17,398 | 14,727 | 15,220 | 13,811 | 13,626 | |||||||||||||||
Other Operating Data | ||||||||||||||||||||
FedEx Express aircraft fleet | 647 | 660 | 688 | 667 | 654 | |||||||||||||||
| (1) | Results for 2013 include $560 million ($353 million, net of tax, or $1.11 per diluted share) of business realignment costs and a $100 million ($63 million, net of tax, or $0.20 per diluted share) impairment charge resulting from the decision to retire 10 aircraft and related engines at FedEx Express. See Note 1 to the accompanying consolidated financial statements. Additionally, common stockholders’ investment includes an other comprehensive income increase of $861 million, net of tax, for the funded status of our retirement plans at May 31, 2013. |
| (2) | Results for 2012 include a $134 million ($84 million, net of tax or $0.26 per diluted share) impairment charge resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve initially recorded in 2011. See Note 1 to the accompanying consolidated financial statements. Additionally, common stockholders’ investment includes an other comprehensive income charge of $2.4 billion, net of tax, for the funded status of our retirement plans at May 31, 2012. |
| (3) | 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 $66 million reserve associated with a legal matter at FedEx Express. See Note 1 to the accompanying consolidated financial statements. Additionally, common stockholders’ investment includes an other comprehensive income charge of $350 million, net of tax, for the funded status of our retirement plans at May 31, 2011. |
| (4) | Common stockholders’ investment includes an other comprehensive income charge of $1.0 billion, net of tax, for the funded status of our retirement plans at May 31, 2010. |
| (5) | Results for 2009 include a charge of $1.2 billion ($1.1 billion, net of tax, or $3.45 per diluted share) primarily | |
-124-
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
We have audited the consolidated financial statements of FedEx Corporation as of May 31, 20102013 and 2009,2012, and for each of the three years in the period ended May 31, 2010,2013, and have issued our report thereon dated July 15, 20102013 (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 15, 2010
-125-
FEDEX CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 2010, 2009,2013, 2012, AND 2008
2011
(IN MILLIONS)
| ADDITIONS | ||||||||||||||||||||
| BALANCE | CHARGED | BALANCE | ||||||||||||||||||
| AT | CHARGED | TO | AT | |||||||||||||||||
| BEGINNING | TO COSTS | OTHER | END OF | |||||||||||||||||
| DESCRIPTION | OF YEAR | EXPENSES | ACCOUNTS | DEDUCTIONS | YEAR | |||||||||||||||
Accounts Receivable Reserves: | ||||||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
| 2010 | $ | 114 | $ | 124 | $ | — | $ | 145 | (a) | $ | 93 | |||||||||
| 2009 | 88 | 181 | — | 155 | (a) | 114 | ||||||||||||||
| 2008 | 79 | 134 | — | 125 | (a) | 88 | ||||||||||||||
Allowance for Revenue Adjustments | ||||||||||||||||||||
| 2010 | $ | 82 | $ | — | $ | 430 | (b) | $ | 439 | (c) | $ | 73 | ||||||||
| 2009 | 70 | — | 466 | (b) | 454 | (c) | 82 | |||||||||||||
| 2008 | 57 | — | 486 | (b) | 473 | (c) | 70 | |||||||||||||
Inventory Valuation Allowance: | ||||||||||||||||||||
| 2010 | $ | 175 | $ | 12 | $ | — | $ | 17 | $ | 170 | ||||||||||
| 2009 | 163 | 15 | — | 3 | 175 | |||||||||||||||
| 2008 | 156 | 10 | — | 3 | 163 | |||||||||||||||
| ADDITIONS | ||||||||||||||||||||
DESCRIPTION | BALANCE AT BEGINNING OF YEAR | CHARGED TO EXPENSES | CHARGED TO OTHER ACCOUNTS | DEDUCTIONS | BALANCE AT END OF YEAR | |||||||||||||||
Accounts Receivable Reserves: | ||||||||||||||||||||
Allowance for Doubtful Accounts | ||||||||||||||||||||
2013 | $ | 94 | $ | 167 | $ | — | $ | 167 | (a) | $ | 94 | |||||||||
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2012 | 97 | 160 | — | 163 | (a) | 94 | ||||||||||||||
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2011 | 93 | 152 | — | 148 | (a) | 97 | ||||||||||||||
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Allowance for Revenue Adjustments | ||||||||||||||||||||
2013 | $ | 84 | $ | — | $ | 573 | (b) | $ | 575 | (c) | $ | 82 | ||||||||
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2012 | 85 | — | 570 | (b) | 571 | (c) | 84 | |||||||||||||
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2011 | 73 | — | 532 | (b) | 520 | (c) | 85 | |||||||||||||
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Inventory Valuation Allowance: | ||||||||||||||||||||
2013 | $ | 184 | $ | 24 | $ | — | $ | 3 | $ | 205 | ||||||||||
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2012 | 169 | 15 | — | — | 184 | |||||||||||||||
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2011 | 170 | 13 | — | 14 | 169 | |||||||||||||||
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| (a) | Uncollectible accounts written off, net of recoveries. | |
| (b) | Principally charged against revenue. | |
| (c) | Service failures, rebills and other. |
-126-
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
| Year Ended May 31, | ||||||||||||||||||||
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
| Earnings: | ||||||||||||||||||||
| Income before income taxes | $ | 1,894 | $ | 677 | $ | 2,016 | $ | 3,215 | $ | 2,899 | ||||||||||
| Add back: | ||||||||||||||||||||
| Interest expense, net of capitalized interest | 79 | 85 | 98 | 136 | 142 | |||||||||||||||
| Amortization of debt issuance costs | 14 | 5 | 5 | 6 | 5 | |||||||||||||||
| Portion of rent expense representative of interest factor | 806 | 795 | 784 | 766 | 842 | |||||||||||||||
| Earnings as adjusted | $ | 2,793 | $ | 1,562 | $ | 2,903 | $ | 4,123 | $ | 3,888 | ||||||||||
| Fixed Charges: | ||||||||||||||||||||
| Interest expense, net of capitalized interest | $ | 79 | $ | 85 | $ | 98 | $ | 136 | $ | 142 | ||||||||||
| Capitalized interest | 80 | 71 | 50 | 34 | 33 | |||||||||||||||
| Amortization of debt issuance costs | 14 | 5 | 5 | 6 | 5 | |||||||||||||||
| Portion of rent expense representative of interest factor | 806 | 795 | 784 | 766 | 842 | |||||||||||||||
| $ | 979 | $ | 956 | $ | 937 | $ | 942 | $ | 1,022 | |||||||||||
| Ratio of Earnings to Fixed Charges | 2.9 | 1.6 | 3.1 | 4.4 | 3.8 | |||||||||||||||
| Year Ended May 31, | ||||||||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
Earnings: | ||||||||||||||||||||
Income before income taxes | $ | 2,455 | $ | 3,141 | $ | 2,265 | $ | 1,894 | $ | 677 | ||||||||||
Add back: | ||||||||||||||||||||
Interest expense, net of capitalized interest | 82 | 52 | 86 | 79 | 85 | |||||||||||||||
Amortization of debt issuance costs | 5 | 5 | 16 | 14 | 5 | |||||||||||||||
Portion of rent expense representative of interest factor | 864 | 797 | 852 | 806 | 795 | |||||||||||||||
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Earnings as adjusted | $ | 3,406 | $ | 3,995 | $ | 3,219 | $ | 2,793 | $ | 1,562 | ||||||||||
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Fixed Charges: | ||||||||||||||||||||
Interest expense, net of capitalized interest | $ | 82 | $ | 52 | $ | 86 | $ | 79 | $ | 85 | ||||||||||
Capitalized interest | 45 | 85 | 71 | 80 | 71 | |||||||||||||||
Amortization of debt issuance costs | 5 | 5 | 16 | 14 | 5 | |||||||||||||||
Portion of rent expense representative of interest factor | 864 | 797 | 852 | 806 | 795 | |||||||||||||||
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| $ | 996 | $ | 939 | $ | 1,025 | $ | 979 | $ | 956 | |||||||||||
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Ratio of Earnings to Fixed Charges | 3.4 | 4.3 | 3.1 | 2.9 | 1.6 | |||||||||||||||
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-127-
Exhibit Number | Description of Exhibit | ||||
Certificate of Incorporation and Bylaws | |||||
| 3.1 | |||||
| 3.2 | Amended and Restated Bylaws of FedEx. (Filed as Exhibit 3.3 to FedEx’s Current Report on Form 8-K dated September 26, 2011 and filed September 28, 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 | ||||
| 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.) | ||||
| 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 | Fourth Amendment dated December 22, 2011 (but effective as of December 15, 2011) 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 10.4 to FedEx’s FY12 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.5 | Fifth Amendment dated December 19, 2012 (but effective as of January 1, 2013) 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 10.5 to FedEx’s FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.6 | 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.) | ||||
| 10.7 | 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.) | ||||
| 10.8 | 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.) | ||||
Exhibit Number | Description of Exhibit | ||||
| 10.9 | 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.) | ||||
| 10.10 | 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.) | ||||
| 10.11 | 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.) | ||||
E-1
| 10.12 | 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.) | ||||
| 10.13 | 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.) | ||||
| 10.14 | 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.) | ||||
| 10.15 | 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.) | ||||
| 10.16 | 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 Agreements | |||||
| 10.17 | 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.) | ||||
| 10.18 | 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.) | ||||
| 10.19 | 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.) | ||||
Exhibit Number | Description of Exhibit | ||||
| 10.20 | 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.) | ||||
| 10.21 | 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.) | ||||
E-2
| 10.22 | 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.) | ||||
| 10.23 | 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.) | ||||
| 10.24 | 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 | ||||
| 10.25 | 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.) | ||||
| 10.26 | 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.) | ||||
Exhibit Number | Description of Exhibit | |
| 10.27 | 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.) | |
| 10.28 | 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 granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.26 to FedEx’s FY11 Annual Report on Form 10-K, and incorporated herein by reference.) | |
| 10.29 | Supplemental Agreement No. 19 (and related side letter) dated as of October 27, 2011, 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 FY12 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
| 10.30 | Supplemental Agreement No. 20 (and related side letters) dated as of December 14, 2011, 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 FY12 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
| 10.31 | Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 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 FY12 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
| 10.32 | Supplemental Agreement No. 1 (and related side letters) dated as of June 29, 2012, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal 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 FY13 First Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
| 10.33 | Supplemental Agreement No. 21 dated as of June 29, 2012, amending the Boeing 777 Freighter Purchase Agreement dated November 7, 2006 between The Boeing Company and Federal 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 FY13 First Quarter Report on Form 10-Q, and incorporated herein by reference.) | |
Exhibit Number | Description of Exhibit | ||||
| 10.34 | Supplemental Agreement No. 2 dated as of October 8, 2012, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal 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 FY13 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.35 | Supplemental Agreement No. 3 (and related side letters) dated as of December 11, 2012, amending the Boeing 767-3S2 Freighter Purchase Agreement dated as of December 14, 2011 between The Boeing Company and Federal 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 FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.36 | Supplemental Agreement No. 22 (and related side letters) dated as of December 11, 2012, amending the Boeing 777 Freighter Purchase Agreement dated November 7, 2006 between The Boeing Company and Federal 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 FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| U.S. Postal Service | |||||
| 10.37 | Transportation Agreement dated July 31, 2006 between the United States Postal Service (the “USPS”) 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.) | ||||
| 10.38 | Amendment dated November 30, 2006 to the Transportation Agreement dated July 31, 2006 between the | ||||
| 10.39 | Letter Agreement dated March 8, 2007 and Letter Agreement dated May 14, 2007, each amending the Transportation Agreement dated July 31, 2006 | ||||
| 10.40 | Amendment dated June 20, 2007 and Amendment dated July 31, 2007, each amending the Transportation Agreement dated July 31, 2006 | ||||
| 10.41 | Amendment dated December 4, 2007 to the Transportation Agreement dated July 31, 2006 | ||||
E-3
Exhibit Number | |||||
Description of Exhibit | |||||
| 10.42 | Letter Agreement dated October 23, 2008 and Amendment dated October 23, 2008, each amending the Transportation Agreement dated July 31, 2006 between the | ||||
| 10.43 | Letter Agreement dated March 4, 2009, amending the Transportation Agreement dated July 31, 2006 between the | ||||
| 10.44 | Letter Agreement dated September 29, 2009, amending the Transportation Agreement dated July 31, 2006 between the | ||||
| 10.45 | Amendment dated December 8, 2009 to the Transportation Agreement dated July 31, 2006 between the | ||||
| 10.46 | Letter Agreement dated August 30, 2010, amending the Transportation Agreement dated July 31, 2006 between the USPS 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.) | ||||
| 10.47 | Amendment dated November 22, 2010 to the Transportation Agreement dated July 31, 2006 between the USPS 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.) | ||||
| 10.48 | Letter Agreement dated September 9, 2011, amending the Transportation Agreement dated July 31, 2006 between the USPS 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 FY12 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.49 | |||||
| 10.50 | Amendment dated December 3, 2012 to the Transportation Agreement dated July 31, 2006 between the USPS 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 FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
Exhibit Number | Description of Exhibit | ||||
| 10.51 | Letter Agreement dated January 25, 2013, amending the Transportation Agreement dated July 31, 2006 between the USPS 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 FY13 Third Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| *10.52 | Transportation Agreement dated April 23, 2013 between the USPS 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. | ||||
| *10.53 | Amendment dated May 28, 2013, amending the Transportation Agreement dated April 23, 2013 between the USPS 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. | ||||
| Financing Agreement | |||||
| 10.54 | Five-Year Credit Agreement dated as of | ||||
| 10.55 | First Amendment dated March 1, 2013 amending the Five-Year Credit Agreement dated April 26, 2011, among FedEx, JPMorgan Chase Bank, N.A., individually and as administrative agent, and certain lenders. (Filed as Exhibit 10.6 to FedEx’s FY13 Third Quarter Report on Form 10-Q, 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 | |||||
| 10.56 | 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.) | ||||
| 10.57 | 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.) | ||||
E-4
| 10.58 | Amendment to 1993 and 1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to FedEx | ||||
| 10.59 | 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.) | ||||
Exhibit Number | Description of Exhibit | ||||
| 10.60 | Amendment to 1997 Stock Incentive Plan. (Filed as Exhibit A to FedEx’s FY98 Definitive Proxy Statement, and incorporated herein by reference.) | ||||
| 10.61 | 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.) | ||||
| 10.62 | 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.) | ||||
| 10.63 | 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.) | ||||
| 10.64 | 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.) | ||||
| 10.65 | Amendment to 1995, 1997, 1999 and 2002 Stock Incentive Plans and | ||||
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| 10.66 | 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 | ||||
| 10.67 | 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 | ||||
Exhibit Number | Description of Exhibit | ||||
| 10.68 | 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.) | ||||
| 10.69 | 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.) | ||||
| 10.70 | 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.) | ||||
| 10.71 | 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.) | ||||
| 10.72 | |||||
| *10.73 | Compensation Arrangements with Named Executive Officers. | ||||
| 10.74 | Compensation Arrangements with Outside Directors. (Filed as Exhibit 10.1 to FedEx’s FY13 Second Quarter Report on Form 10-Q, and incorporated herein by reference.) | ||||
| 10.75 | 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.) | ||||
| 10.76 | Form of revised Management Retention Agreement, dated March 18, 2010, entered into between FedEx | ||||
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| Other Exhibits | |||||
| *12 | Statement re Computation of Ratio of Earnings to Fixed Charges (presented on page | ||||
| *21 | Subsidiaries of Registrant. | ||||
| *23 | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. | ||||
Exhibit Number | Description of Exhibit | ||||
| *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. |
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