Federal Express 2007 Annual Report Download

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Possibility speaks.

Table of contents

  • Page 1
    Possibility speaks.

  • Page 2
    Talking to FedEx gives voice to new possibilities. And those conversations yield powerful returns: ideas that move your business and the world forward. Quiksilver meets the demand for its outdoor sports apparel and accessories in 90 countries - from Chile to China - using the FedEx portfolio for ...

  • Page 3
    

  • Page 4
    With the most express ï¬,ights from India and secure, temperature-controlled delivery, FedEx helps Zydus Cadila provide its healthcare solutions to people around the globe. 

  • Page 5
    Using a variety of FedEx shipping solutions, Build-A-Bear Workshop® brings customized, furry friendships to life in more than 15 countries. 

  • Page 6
    With freight delivery options that match speed to need, FedEx keeps Borders employees selling books rather than waiting for trucks. 

  • Page 7
    

  • Page 8
    Rosenstiel's, a family-owned business since 1880, uses FedEx as its modern-day clipper ship to export fine art prints from London to more than 100 countries. 

  • Page 9
    Using critical replacement parts stocked at FedEx Kinko's Office and Print Centers, Wincor Nixdorf's technicians get customers' ATMs up and running faster. 

  • Page 10
    

  • Page 11
    By replacing Boeing 727s with 757s, FedEx is adding planes that lessen the environmental impact - reducing fuel consumption up to 36% while providing 20% more capacity. 

  • Page 12
    By consolidating Lug's shipments from Canada, FedEx enables the company to cut costs, streamline customs clearance and move 10 times more of its travel accessories across the border each day. 0

  • Page 13
    With the click of a mouse you can access FedEx Kinko's Print Online, an innovation that connects your computer to the professional printing capabilities of FedEx Kinko's Office and Print Centers. 

  • Page 14
    

  • Page 15
    ... choices to ensure a better future, and greater access for communities at the farthest frontiers of the world. FedEx has always been ï¬,uent in possibility. We continue to give people, businesses and nations the ability to move forward, achieving higher standards of living and new levels of success.

  • Page 16
    ....62 Return on average equity Debt to total capitalization Stock price (May 31 close) (1) Results for 2007 include a $143 million charge associated with upfront compensation and benefits under the new pilot labor contract. (2) Results for 2006 include a $79 million ($49 million, net of tax, or...

  • Page 17
    ...China express network. Within three months, we instituted next-business-day domestic express service in China, improving access to markets for businesses throughout the world's largest nation. In India, we acquired our service provider, PAFEX, giving us a wholly owned subsidiary serving nearly 4,400...

  • Page 18
    ... our networks easier to use and helping us offer new solutions that enable customers to build their businesses by tapping into the power of access. FedEx team members in our operating companies literally see the world from the air, the ground, and from store windows facing main streets and malls...

  • Page 19
    ... information networks: FedEx Express provides time-definite shipping to more than 220 countries and territories. FedEx Ground provides cost-effective, daydefinite package delivery throughout the United States and Canada. FedEx Freight is a leading North American less-than-truckload freight company...

  • Page 20
    Possibilities speak when we talk with customers about enhancing their return on investment, increasing sales, improving the experience for their customers or extending access to more of the world. By understanding customers' needs and tailoring solutions to serve them, we help turn conversations ...

  • Page 21
    

  • Page 22
    Sony China 0

  • Page 23
    ... we compete as a united front? We didn't need vendors - we needed a carrier that could help us work smarter and grow our business. FedEx talked with us to understand our business objectives. They saw that some of our processes weren't serving our business needs and proposed changes to better address...

  • Page 24
    .... We provided a creative technology solution that gives Sony the information it needs to make solid decisions if weather or other factors threaten the timing of a shipment. And with the ï¬,exibility to access FedEx express, ground and freight services to optimize shipping, Sony has increased its...

  • Page 25

  • Page 26
    Crocs 

  • Page 27
    ... advantages when FedEx changed the conversation about what was possible." "When Crocs started talking to FedEx three years ago, we were a small company that wanted to break the mold in our industry. Footwear has always been a seasonal business where retailers typically place orders six months ahead...

  • Page 28
    ... the company with a suite of services to move products manufactured in China to the U.S. market, matching speed to demand. Using an innovative technology solution developed by FedEx, Crocs can select the best mode of delivery for a shipment and generate the appropriate U.S. domestic shipping labels...

  • Page 29
    

  • Page 30
    China 

  • Page 31
    ...- it opens up possibilities that customers are increasingly talking to us about." "Sometimes in order to change the conversation about what's possible, you have to build the infrastructure to support new ideas. We did this when FedEx began service in the United States 35 years ago, and the growth in...

  • Page 32
    ..., humidity, speed and light - factors that are critical for certain types of shipments. Advanced as it sounds, it goes back to our idea that 'the information about the package is as important as the package itself.' This important principle has driven FedEx from the beginning." - Miley Ainsworth...

  • Page 33
    

  • Page 34
    ... in three dynamic international markets - China, India and the United Kingdom - and began offering domestic time-definite service to customers throughout China. In the United States, we absorbed the acquisition and network integration costs associated with our new FedEx National LTL business. We...

  • Page 35
    ...'s Discussion and Analysis 57 Management's Report on Internal Control over Financial Reporting 58 Report of Independent Registered Public Accounting Firm 59 Consolidated Financial Statements 63 Notes to Consolidated Financial Statements 88 Report of Independent Registered Public Accounting Firm 89...

  • Page 36
    ... and managed collaboratively, under the respected FedEx brand. These operating companies are primarily represented by FedEx Express, the world's largest express transportation company; FedEx Ground, a leading provider of small-package ground delivery services; FedEx Freight Corporation...

  • Page 37
    ..., except yield amounts) for the years ended May : Average Daily Package Volume (ADV) FedEx Express and FedEx Ground Total ADV % Change 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2005 FedEx Express 2006 2007 FedEx Ground 0 2005 2006 FedEx Freight LTL Group 2007 3,255 3,283 3,265 2,609 2,815...

  • Page 38
    ... by lower incentive compensation accruals. Purchased transportation costs increased in 00 due to FedEx Ground volume growth, the FedEx National LTL acquisition and IP package volume growth. The pilots of FedEx Express, who represent a small number of our total employees, are employed under...

  • Page 39
    ...growth driven by increased shipments at FedEx Ground, the fullyear benefit of the FedEx National LTL business and expansion of international business at FedEx Express (both IP and international domestic services). We expect our earnings in 00 to be below our long-term goal of 0% to % annual...

  • Page 40
    ... strategies related to adding new locations, improving customer service and increasing investments in employee development and training. We expect these strategies to continue to adversely affect profitability in 00. FedEx Kinko's plans to open approximately 00 new centers in the coming year...

  • Page 41
    ... services) FedEx Ground (small-package ground delivery) FedEx SmartPost (small-parcel consolidator) FedEx Freight LTL Group: FedEx Freight (regional LTL freight transportation) FedEx National LTL (long-haul LTL freight transportation) FedEx Custom Critical (time-critical...

  • Page 42
    ...labor contract with our pilots. (4) Includes a $75 million one-time, noncash charge to adjust the accounting for certain facility leases. (1) Package and freight statistics include only the operations of FedEx Express. (2) We reclassified certain prior period international priority freight service...

  • Page 43
    ... analysis of the year-over-year changes in fuel prices compared to changes in fuel surcharges. Salaries and employee benefits increased in 00 primarily as a result of the new labor contract with our pilots. Purchased transportation costs increased % in 00 due to IP volume growth, which...

  • Page 44
    ... margin (dollars in millions) and selected package statistics (in thousands, except yield amounts) for the years ended May : 2007 00 00 Percent Change 2007/ 00/ 2006 00 Revenues: Operating expenses: Salaries and employee benefits Purchased transportation...

  • Page 45
    ...by higher year-over-year expenses related to investments in new technology and the opening of additional FedEx Ground facilities. Salaries and employee benefits increased in 00 principally due to wage rate increases and increases in staffing and facilities to support volume growth. Depreciation...

  • Page 46
    ... FedEx National LTL shipments. Ongoing costs to integrate information technology systems and to increase sales resources to support long-term growth opportunities, as well as incremental costs associated with facility expansions, are expected to restrain operating income and operating...

  • Page 47
    ... by a decline in copy product line revenues. In 00, salaries and employee benefits increased due to the addition of FedEx Kinko's Ship Centers, higher group health insurance costs and increased costs associated with employee training and development programs. Increased depreciation in...

  • Page 48
    ... 00, we made tax-deductible voluntary contributions to our principal U.S. domestic pension plans of $ million, compared to $ million during 00 and $0 million during 00. Cash Used in Investing Activities. During 00, $. billion of cash was used for the FedEx National LTL, ANC, DTW...

  • Page 49
    ... cash from operations. Percent Change 2007/ 00/ 2006 00 Aircraft and related equipment Facilities and sort equipment Vehicles Information and technology investments Other equipment Total capital expenditures FedEx Express segment FedEx Ground segment FedEx Freight segment FedEx...

  • Page 50
    ... or after-tax cash flows. In accordance with accounting principles generally accepted in the United States, our operating leases are not recorded in our balance sheet. Credit rating agencies routinely use information concerning minimum lease payments required for our operating leases to...

  • Page 51
    ...Also, we are currently evaluating the mix of investments between equities and fixed income securities, whose cash flows will more closely align with the cash flows of our pension obligations. Based on these considerations, we have reduced our estimated long-term rate of return on plan assets from...

  • Page 52
    ... discount rate. Domestic equities International equities Private equities Total equities Long duration fixed income securities Other fixed income securities 52% 21 3 76 15 9 100% 53% 17 5 75 15 10 100% % 0 00% 0 00% Plan Assets. Pension plan assets are invested...

  • Page 53
    ... status of the plans reflects a snapshot of the state of our long-term pension liabilities at the plan measurement date. Our plans remain adequately funded to provide benefits to our employees as they come due and current benefit payments are nominal compared to our total plan assets (benefit...

  • Page 54
    ...FedEx Freight FedEx Express DTW Group ANC FedEx National LTL Other 0 The annual evaluation of goodwill impairment requires the use of estimates and assumptions to determine the fair value of our reporting units using a discounted cash flow methodology, such as: revenue growth rates...

  • Page 55
    ... commercial package and freight shipments, as well as providing document solutions and business services. Our employees, independent contractors and agents are involved throughout the process and our operational, billing and accounting systems directly capture and control all relevant information...

  • Page 56
    ... 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...

  • Page 57
    ... we acquired the LTL freight operations of Watkins Motor Lines (renamed FedEx National LTL) and made strategic acquisitions in China, the United Kingdom and India. While we expect these acquisitions to enhance our value proposition to customers and improve our long-term profitability, there can...

  • Page 58
    ... tax, accounting, labor or environmental rules; • our ability to manage our cost structure for capital expenditures and operating expenses and match them to shifting customer volume levels; • changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian dollar...

  • Page 59
    ... and d-(f) under the Securities Exchange Act of , 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...

  • Page 60
    ... related consolidated statements of income, changes in stockholders' investment and comprehensive income, and cash flows for each of the three years in the period ended May , 00 of FedEx Corporation and our report dated July , 00 expressed an unqualified opinion thereon. Memphis, Tennessee...

  • Page 61
    FEDEX CORPORATION Consolidated Statements of Income (In millions, except per share amounts) 2007 Years ended May , 00 00 REVENUES Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel ...

  • Page 62
    ... pension cost Intangible and other assets Total other long-term assets LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities Long-Term...

  • Page 63
    ...Lease accounting charge Excess tax benefits on the exercise of stock options Stock-based compensation Changes in operating assets and liabilities, net of the effects of businesses acquired: Receivables Other current assets Pension assets and liabilities...

  • Page 64
    ...Treasury Stock Total BALANCE AT MAY 31, 2004 Net income Foreign currency translation adjustment, net of deferred taxes of $ Minimum pension liability adjustment, net of deferred taxes of $ Total comprehensive income Cash dividends declared ($0. per share) Employee incentive plans...

  • Page 65
    ... brand. These operating companies are primarily represented by Federal Express Corporation ("FedEx Express"), the world's largest express transportation company; FedEx Ground Package System, Inc. ("FedEx Ground"), a leading provider of small-package ground delivery services; FedEx Freight...

  • Page 66
    ... or losses and prior service costs or credits existing at the time of adoption. Additionally, SFAS  requires the measurement date for plan assets and liabilities to coincide with the sponsor's year-end. We currently use a February  measurement date for our plans; therefore, this standard...

  • Page 67
    ... 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...

  • Page 68
    ...: self-insurance accruals; retirement plan obligations; long-term incentive accruals; tax liabilities; obsolescence of spare parts; contingent liabilities; and impairment assessments on long-lived assets (including goodwill and indefinite lived intangible assets). Note 2: Recent Accounting...

  • Page 69
    ... to the reacquired rights for the use of certain FedEx technology and service marks. These intangible assets will be amortized over their estimated useful lives of approximately two years. We paid the purchase price for these acquisitions from available cash balances, which included the net...

  • Page 70
    ... reportable operating segment and changes therein follows (in millions): May , 00 Purchase Adjustments and Other May , 00 Goodwill Acquired Purchase Adjustments and Other May 31, 2007 FedEx Express segment FedEx Ground segment FedEx Freight segment FedEx Kinko...

  • Page 71
    ... This facility expires in July of 00. These instruments are generally required under certain U.S. self-insurance programs and are used in the normal course of international operations. The underlying liabilities insured by these instruments are reflected in the balance sheets, where applicable...

  • Page 72
    ...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...

  • Page 73
    ...during the years ended May : 2007 00 00 Expected lives Expected volatility Risk-free interest rate Dividend yield 5 years 22% 4.879% 0.3023%  years 0.%  years % .% 0.% The weighted-average Black-Scholes value of our stock option grants using the assumptions...

  • Page 74
    ...for the year ended May , 00, as the exercise price of each of these options was greater than the average market price of our common stock for the period.  Property, equipment, leases and intangibles Employee benefits Self-insurance accruals Other Net operating loss/credit...

  • Page 75
    ...our employees. These programs include defined benefit pension plans, defined contribution plans and retiree healthcare plans. The accounting for pension and healthcare plans includes numerous assumptions, such as: discount rates; expected long-term investment returns on plan assets; future salary...

  • Page 76
    ... are currently evaluating the mix of investments between equities and fixed income securities, the cash flows of which will more closely align with the cash flows of our pension obligations. Based on these considerations, we will reduce our estimated long-term rate of return on plan assets from...

  • Page 77
    ... of plan assets at end of year Funded Status of the Plans Unrecognized net actuarial loss (gain) Unamortized prior service cost (credit) Unrecognized net transition amount Employer contributions after measurement date Net amount recognized Amount Recognized in the Balance Sheet at...

  • Page 78
    ... Exceeds the Fair Value of Plan Assets 2007 00 Plan funding is actuarially determined and is subject to certain tax law limitations. International defined benefit pension plans provide benefits primarily based on final earnings or final average earnings and years of service and are funded in...

  • Page 79
    ... Chain Services, FedEx Custom Critical and Caribbean Transportation Services. Management evaluates segment financial performance based on operating income. FedEx Services provides customer-facing sales, marketing and information technology support, primarily for FedEx Express and FedEx Ground...

  • Page 80
    ..., operating income and segment assets to consolidated financial statement totals for the years ended or as of May  (in millions): FedEx Express Segment FedEx Ground Segment FedEx Freight Segment() FedEx Kinko's Segment Other and Eliminations Consolidated Total Revenues 2007...

  • Page 81
    ... Canadian domestic express operations. (3) Includes the operations of FedEx National LTL from the date of acquisition, September 3, 2006. (4) International revenue includes shipments that either originate in or are destined to locations outside the United States. Noncurrent assets include property...

  • Page 82
    ... class-action lawsuits and other proceedings that claim that the company's owner-operators should be treated as employees, rather than independent contractors. These matters include Estrada v. FedEx Ground, a class action involving single work area contractors that was filed in California state...

  • Page 83
    ..., net of tax, or $0.16 per diluted share) charge to adjust the accounting for certain facility leases, predominantly at FedEx Express, as described in Note 7. (2) Results for the second quarter of 2007 include a $143 million charge at FedEx Express associated with upfront compensation and benefits...

  • Page 84
    ... Intercompany Receivable Goodwill Investment in Subsidiaries Other Assets LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities Long-Term...

  • Page 85
    ... Receivable Goodwill Prepaid Pension Cost Investment in Subsidiaries Other Assets LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities...

  • Page 86
    ... CORPORATION CONDENSED CONSOLIDATING STATEMENTS OF INCOME Parent Guarantor Subsidiaries Year Ended May , 00 Non-Guarantor Subsidiaries Eliminations Consolidated REVENUES Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees...

  • Page 87
    ... Year Ended May , 00 Non-Guarantor Subsidiaries Eliminations Consolidated REVENUES Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Intercompany charges...

  • Page 88
    ...asset dispositions Cash Used in Investing Activities FINANCING ACTIVITIES Net transfers (to) from Parent Principal payments on debt Proceeds from debt issuance Proceeds from stock issuances Excess tax benefits on the exercise of stock options Dividends paid Other, net Cash...

  • Page 89
    ... cash acquired Proceeds from asset dispositions Other, net Cash Used in Investing Activities FINANCING ACTIVITIES Net transfers (to) from Parent Principal payments on debt Proceeds from stock issuances Dividends paid Cash (Used in) Provided by Financing Activities CASH AND CASH...

  • Page 90
    ... Defined Benefit Pension and Other Postretirement Benefit Plans - An Amendment of FASB Statements No. , , 0 and (R)." We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of FedEx Corporation's internal...

  • Page 91
    ... equivalent shares outstanding Cash dividends declared Financial Position Property and equipment, net Total assets Long-term debt, less current portion Common stockholders' investment Other Operating Data FedEx Express aircraft fleet Average full-time equivalent employees and contractors...

  • Page 92
    ... and Chief Executive Officer Packet Design, LLC Internet technology company Frederick W. Smith Chairman, President and Chief Executive Officer FedEx Corporation J. Kenneth Glass () () Retired Chairman, President and Chief Executive Officer First Horizon National Corporation Bank holding...

  • Page 93
    ... President and President, International Rodger G. Marticke Executive Vice President and Chief Operating Officer William J. Logue Executive Vice President, Operations and Systems Support FedEx Freight Douglas G. Duncan President and Chief Executive Officer FedEx Kinko's Kenneth A. May President...

  • Page 94
    ... Chain Services®, FedEx SmartPost®, FedEx Home Delivery®, FedEx Trade Networks® and FedEx Services®. FedEx National LTLSM, Caribbean Transportation ServicesSM, and FedEx Global Supply Chain ServicesSM are service marks of Federal Express Corporation. FedEx Kinko's Office and Print Centers...

  • Page 95
    This entire annual report is printed on paper certified by the Forest Stewardship Council, which promotes environmentally appropriate, socially beneficial and economically viable management of the world's forests. The paper contains a mix of pulp derived from FSC-certified well-managed forests ...

  • Page 96
    FedEx Corporation 942 South Shady Grove Road Memphis, Tennessee 38120 fedex.com