Federal Express 2011 Annual Report Download - page 13

Download and view the complete annual report

Please find page 13 of the 2011 Federal Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 80

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80

11
MANAGEMENT’S DISCUSSION AND ANALYSIS
Overview
Our results for 2011 reflect the momentum of improved global eco-
nomic conditions and strong demand for our services, which drove
yield growth and volume increases across all our transportation
segments during 2011, particularly in FedEx International Priority (“IP”)
package shipments at FedEx Express. Our FedEx Ground segment
continued its exceptional performance, increasing volume, yield and
operating margins. The FedEx Freight segment returned to profit-
ability in the fourth quarter of 2011 primarily due to higher LTL yield.
All of our transportation segments benefited from our yield manage-
ment initiatives in 2011. Despite the strength in our businesses and
significantly improved results, we incurred increased retirement plans
and medical costs, higher aircraft maintenance expenses, higher costs
associated with the restoration of compensation programs curtailed
during the recession and one–time costs associated with the combina-
tion of our LTL operations (described below) during 2011.
The combination of our FedEx Freight and FedEx National LTL opera-
tions was completed on January 30, 2011. Our combined LTL network
will increase efficiencies, reduce operational costs and provide
customers both Priority and Economy LTL freight services across
all lengths of haul from one integrated company. The combination
resulted in the following incremental costs and charges which were
incurred primarily in the second and third quarters of 2011 (in millions):
Other program costs include $15 million in 2011 of accelerated
depreciation expense due to a change in the estimated useful life of
certain assets impacted by the combination of these operations and
other incremental costs directly associated with the program. The net
cash effect of the program was immaterial, as cash proceeds from
asset sales of $88 million offset severance and other cash outlays for
the program.
In 2010, our results reflected the impact of the global recession, which
negatively impacted volumes and yields, principally in the first half of
the fiscal year. As the global and U.S. economies began to emerge
from recession in the second half of 2010, we experienced significant
volume growth across all of our transportation segments. Our FedEx
Ground segment continued to grow throughout the recession, as
customers opted for lower–priced ground transportation services and
we continued to gain market share. Despite higher shipment volumes
in 2010, our FedEx Freight segment had a difficult year, resulting in an
operating loss caused by the highly competitive pricing environment in
the LTL market due to excess industry capacity.
2011
Severance $ 40
Lease terminations 20
Asset impairments 29
Impairment and other charges 89
Other program costs 44
Total program costs $ 133