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FedEx Annual Report 2012
to stay ahead, we go beyond

Table of contents

  • Page 1
    to stay ahead, we go beyond FedEx Annual Report 2012

  • Page 2
    "I WILL MAKE EVERY FEDEX EXPERIENCE OUTSTANDING." - The Purple Promise

  • Page 3
    ..., we go beyond - in the way we manage our business, deliver the quality service our customers expect and create solutions for a more sustainable world. A good or acceptable experience doesn't cut it for us. We share a goal to deliver outstanding FedEx experiences, a commitment we call the Purple...

  • Page 4
    ... ago, is paying off with a strong return to profitability. Revenues grew 8 percent year over year. Offering both priority and economy service options and industry-leading transit times have made FedEx Freight a market share leader, and customers are delighted by our LTL value proposition. Global...

  • Page 5
    ... production scheduling, reliability, and logistics information systems. Better visibility into supply chains allows greater use of ocean transportation to ship customers' commodity freight, a distinct advantage given higher fuel prices. As a result, we've been expanding our FedEx Trade Networks...

  • Page 6
    ... GAINING SPEED FedEx Express is the largest all-cargo airline in the world and the largest express transportation company. Our long-range Boeing 777F aircraft directly link global markets, speeding customers' shipments door-to-door. In the last two years, we've improved global access by completing...

  • Page 7
    .... Combined with industry-leading transit times, these changes have made FedEx Freight a market leader in the U.S. LTL industry, a $31 billion market in 2011. FedEx Services transforms our superior technology and delivery services into shipping and business solutions for customers. Their choices...

  • Page 8
    ...-time system. IF KNOWLEDGE IS POWER, FedEx customers have a competitive advantage thanks to the FedEx Trade Networks team that manages My Global Trade Data. They're dedicated to providing the quality tracking and reporting that are essential to managing international freight forwarding shipments...

  • Page 9
    ...envelope shipping. FedEx Express is the first global express transportation company to offer the program to customers at no charge. We're modernizing our aircraft ï¬,eet with Boeing 757s, 767s and 777s, which are delivering significant increases in fuel efficiency and reduced operating costs and...

  • Page 10
    ...5/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending May 31. (1) 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...

  • Page 11
    ... sales, marketing, information technology, communications and back-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...

  • Page 12
    ...FedEx Express segment(1) FedEx Ground segment FedEx Freight segment(2) FedEx Services segment Other and eliminations (1) FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express...

  • Page 13
    ... our services, which drove yield growth and volume increases across all our transportation segments, particularly in International Priority ("IP") package shipments at FedEx Express. Our FedEx Ground segment delivered strong results through increasing volume, yield and operating margins. The FedEx...

  • Page 14
    ...3,404 2009 2010 U.S. domestic package 2011 IP package 2012 3,300 2009 2010 2011 2012 FedEx Express and FedEx Ground(2) Total Average Daily Package Volume 7,800 7,600 7,400 7,200 7,002 7,000 6,800 6,600 6,780 75.0 7,353 80.0 7,538 85.0 90.0 FedEx Freight Average Daily LTL Shipments 86.0 84...

  • Page 15
    ...fuel prices change and when indexed fuel surcharges automatically adjust. FedEx Ground segment operating income increased $439 million in 2012 driven by higher yields and strong demand for all our major services. At our FedEx Freight segment, operating income increased $337 million due to higher LTL...

  • Page 16
    ... providers in international locations primarily due to business acquisitions at FedEx Express. The following graph for our transportation segments shows our average cost of jet and vehicle fuel per gallon for the years ended May 31: Salaries and employee benefits increased 9% in 2011 due to...

  • Page 17
    ... consolidated financial statements. BUSINESS ACQUISITIONS During 2012, we continued to expand our FedEx Express international network. On July 25, 2011, we completed our acquisition of Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican domestic express package delivery company...

  • Page 18
    ... Segment > FedEx Express (express transportation) > FedEx Trade Networks (air and ocean freight forwarding and customs brokerage) > FedEx SupplyChain Systems (logistics services) > FedEx Ground (small-package ground delivery) > FedEx SmartPost (small-parcel consolidator) > FedEx Freight (LTL...

  • Page 19
    ... on a regional basis by FedEx Express and reported in the FedEx Express segment in expense line items outside of intercompany charges. The FedEx Services segment includes: FedEx Services, which provides sales, marketing, information technology, communications and back-office support to our other...

  • Page 20
    ... 31: Percent Operating expenses: Change 36.4% 37.4% 39.0% Salaries and employee benefits 2012/ 2011/ 2012 2011 2010 2011 2010 Purchased transportation 6.9 6.4 5.5 (1) Package Statistics 6.3 6.8 7.3 Rentals and landing fees Average daily package Depreciation and amortization 4.4 4.3 4.7 volume (ADV...

  • Page 21
    ... a 5.9% average list price increase on dated financial statements). FedEx Express U.S. domestic and U.S. outbound express package and Salaries and benefits increased 9% in 2011 due to volume-related freight shipments and made various changes to other surcharges, while increases in labor hours, the...

  • Page 22
    ...573 FedEx Express segment operating income and operating margin are Operating expenses: expected to increase modestly in 2013, on continued growth in Salaries and employee 1,451 benefits international revenues led by IP package services. We also expect improved operating results due to productivity...

  • Page 23
    ... due to rate increases, higher fuel surcharges and higher extra service revenue. Average daily package volume increased 4% at FedEx Ground in 2012 due to market share gains from continued growth in our FedEx Home Delivery service and an increase in our commercial business. At FedEx SmartPost, yields...

  • Page 24
    ... 30, 2011. In 2010, this charge represents impairment charges associated with goodwill related to the FedEx National LTL acquisition. Percent of Revenue 2012 2011 2010 Operating expenses: Salaries and employee benefits Purchased transportation Rentals Depreciation and amortization Fuel Maintenance...

  • Page 25
    ... costs associated with the combination of $133 million in 2011, including $89 million recorded in the "Impairment and other charges" caption of the consolidated income statement. Salaries and employee benefits increased 8% in 2011 primarily due to volume-related increases in labor, wage increases...

  • Page 26
    ... 22 2012 2011 2010 Aircraft and related equipment $ 1,875 $ 1,988 $ 1,537 Facilities and sort equipment 638 555 630 Vehicles 723 282 220 Information and technology investments Other equipment Total capital expenditures FedEx Express segment FedEx Ground segment FedEx Freight segment FedEx Services...

  • Page 27
    ... to credit ratings drop below investment grade, our access to financing purchase 9 of these B777F aircraft is conditioned upon there being no may become limited. event that causes FedEx Express or its employees not to be covered by Subsequent to year-end, we completed acquisitions in Poland...

  • Page 28
    ... 30% increase in fuel efficiency and a minimum of a 20% reduction in unit operating costs. On June 29, 2012, FedEx Express entered into a supplemental agreement to purchase nine additional B767F aircraft. Additionally, FedEx Express exercised ten B767F options available under the December 2011...

  • Page 29
    ... generally accepted in the United States, future contractual payments under our operating leases (totaling $14 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...

  • Page 30
    ...in the discount rate increases pension expense. The discount rate affects the PBO and pension expense based on the measurement dates, as Our retirement plans cost is included in the "Salaries and Employee described below. Benefits" caption in our consolidated income statements. A summary of Amounts...

  • Page 31
    ...illustrates for our largest tax-qualified U.S. domestic pension plan: Sensitivity (in millions) Effect on 2013 Effect on 2012 Pension Expense Pension Expense One-basis-point change in discount rate $ 2.3 $ 1.9 PLAN ASSETS. The estimated average rate of return on plan assets is a long-term, forward...

  • Page 32
    ... in 2010. $ (927) (339) SELF-INSURANCE ACCRUALS (265) We are self-insured up to certain limits for costs associated with $ (1,531) workers' compensation claims, vehicle accidents and general business liabilities, and benefits paid under employee healthcare and long-term disability programs. Our...

  • Page 33
    ... air network capacity of FedEx Express to match current and anticipated shipment volumes. The majority of these aircraft were temporarily idled and not in revenue service. In 2011, we incurred asset impairment charges of $29 million related to the combination of our LTL operations at FedEx Freight...

  • Page 34
    ... information becomes available losses. In connection with the combination of our LTL networks in to management. These reevaluations are based on factors including, 2011, this unit was merged into the FedEx Freight reporting unit. but not limited to, changes in facts or circumstances, changes in tax...

  • Page 35
    ... to other legal proceedings and claims, including those relating to general commercial matters, employment-related claims and FedEx Ground's owner-operators. Accounting guidance for contingencies requires an accrual of estimated loss from a contingency, such as a tax or other legal proceeding or...

  • Page 36
    ...our international business, we are increasingly affected by the health of the global economy. In 2012, global economic conditions resulted in decreased demand for our U.S. domestic and International Priority package services at FedEx Express, as customers utilized lower priced deferred services. Our...

  • Page 37
    ...network capacity of FedEx Express to match current and anticipated shipment volumes, we made a decision to retire from service certain aircraft and certain excess aircraft engines and thus recorded a noncash impairment charge of $134 million. We are also developing operating and cost structure plans...

  • Page 38
    ... will increase operating costs and potentially slow service for businesses, including those in the transportation industry. For example, the U.S. Transportation Security Administration continues to require FedEx Express to comply with a Full All-Cargo Aircraft Operator Standard Security Plan, which...

  • Page 39
    ... 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...

  • Page 40
    ... 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...

  • Page 41
    ... balance sheets of FedEx Corporation as of May 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income (loss), and cash ï¬,ows for each of the three years in the period ended May 31, 2012 of FedEx Corporation and our report...

  • Page 42
    FEDEX CORPORATION CONSOLIDATED STATEMENTS OF INCOME (in millions, except per share amounts) Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Impairment and other charges Other ...

  • Page 43
    FEDEX CORPORATION CONSOLIDATED BALANCE SHEETS May 31, (in millions, except share data) 2012 2011 Assets Current Assets Cash and cash equivalents Receivables, less allowances of $178 and $182 Spare parts, supplies and fuel, less allowances of $184 and $169 Deferred income taxes Prepaid expenses ...

  • Page 44
    ... income taxes and other noncash items Impairment and other charges Stock-based compensation Changes in assets and liabilities: Receivables Other current assets Pension assets and liabilities, net Accounts payable and other liabilities Other, net Cash provided by operating activities Investing...

  • Page 45
    ..., except share data) Balance at May 31, 2009 Net income Foreign currency translation adjustment, net of tax of $2 Retirement plans adjustments, net of tax of $617 Total comprehensive income Purchase of treasury stock Cash dividends declared ($0.44 per share) Employee incentive plans and other...

  • Page 46
    ... sales, marketing, information technology, communications and back-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...

  • Page 47
    ...ï¬,ect management's assumptions for discount rate, expected longterm investment returns on plan assets, salary increases, expected retirement, mortality, employee turnover and future increases in healthIMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets are care costs. We determine the discount rate...

  • Page 48
    ...end adjustments related to increases in our projected benefit obligation due to a decrease in the discount rate used to measure the liability at May 31, 2011. SELF-INSURANCE ACCRUALS. We are self-insured for costs associated with workers' compensation claims, vehicle accidents and general business...

  • Page 49
    ... ARRANGEMENTS. The pilots of FedEx Express, which represent a small number of FedEx Express's total employees, are employed under a collective bargaining agreement. In 2011, the pilots ratified a new labor contract that includes safety initiatives, increases in hourly pay rates and travel per diem...

  • Page 50
    ... in 2012 relates to the acquisition of the Mexican domestic express package delivery company, Multipack. See Note 3 for related disclosures. Our reporting units with significant recorded goodwill include our FedEx Express, FedEx Freight and FedEx Office (reported in the FedEx Services segment...

  • Page 51
    ... and equipment. These bonds require interest payments at least annually, with principal payments due at the end of the related lease agreement. NOTE 7: LEASES We utilize certain aircraft, land, facilities, retail locations and equipment under capital and operating leases that expire at various...

  • Page 52
    ... the years ended May 31 was as follows (in millions): Stock-based compensation expense 2012 $ 105 2011 $ 98 2010 $ 101 2013 2014 2015 2016 2017 Thereafter Total Less amount representing interest Present value of net minimum lease payments Capital Leases $ 120 2 2 1 1 11 137 9 We have two types of...

  • Page 53
    ... the annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield will decrease compensation expense. The following table summarizes information about stock option activity for the year ended May 31, 2012: Stock Options Weighted-Average Weighted-Average...

  • Page 54
    ... TO CONSOLIDATED FINANCIAL STATEMENTS Our current federal income tax expenses in 2012, 2011 and 2010 were significantly reduced by accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small Business The calculation of basic and diluted earnings per common share...

  • Page 55
    ... Internal Revenue Service to certain of our unrecognized tax positions will increase or decrease within the next 12 months, but an estimate of the range of the is currently auditing our consolidated U.S. income tax returns for the reasonably possible changes cannot be made. However, we do not 2010...

  • Page 56
    ... in the Critical Accounting Estimates section of Management's Discussion and Analysis of Results of Operations and Financial Condition ("MD&A") in this Annual Report. PENSION PLANS. Our largest pension plan covers certain U.S. employees age 21 and over, with at least one year of service. Pension...

  • Page 57
    ... our investment management program to achieve in excess of the returns we could expect if investments were made strictly in indexed funds. Our estimated long-term rate of return on plan assets remains at 8% for 2013, consistent with our expected rate of return in 2012 and 2011. Our actual return in...

  • Page 58
    ... inputs is shown in the table below (in millions): Balance at beginning of the year Actual return on plan assets: Assets held during current year Assets sold during the year Purchases, sales and settlements Balance at end of the year 2012 $ 403 3 38 (42) $ 402 2011 $ 399 27 36 (59) $ 403 56

  • Page 59
    ...22 $ - $ (648) $ Change in Plan Assets Fair value of plan assets at the beginning of year Actual return on plan assets Company contributions Benefits paid Other Fair value of plan assets at the end of year Funded Status of the Plans Amount Recognized in the Balance Sheet at May 31: Current pension...

  • Page 60
    ... not used in determination of funded status. ABO Exceeds the Fair Value of Plan Assets 2012 2011 $ (21,555) $ (16,530) 17,333 15,538 (22,185) (17,014) $ (4,852) $ (1,476) Contributions to our U.S. Pension Plans for the years ended May 31 were as follows (in millions): Required Voluntary 2012 $ 496...

  • Page 61
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Net periodic benefit cost for the three years ended May 31 were as follows (in millions): Pension Plans 2011 $ 521 900 (1,062) 184 $ 543 Postretirement Healthcare Plans 2011 $ 31 34 - (5) $ 60 Service cost Interest cost Expected return on plan assets ...

  • Page 62
    ... Segment > FedEx Express (express transportation) > FedEx Trade Networks (air and ocean freight forwarding and customs brokerage) > FedEx SupplyChain Systems (logistics services) > FedEx Ground (small-package ground delivery) > FedEx SmartPost (small-parcel consolidator) > FedEx Freight (LTL...

  • Page 63
    ..., operating income (loss) and segment assets to consolidated financial statement totals for the years ended or as of May 31 (in millions): FedEx Express Segment(1) Revenues 2012 2011 2010 Depreciation and amortization 2012 2011 2010 Operating income (loss) 2012 2011 2010 Segment assets(3) 2012 2011...

  • Page 64
    ... FINANCIAL STATEMENTS The following table presents revenue by service type and geographic information for the years ended or as of May 31 (in millions): 2012 Revenue by Service Type FedEx Express segment: Package: $ 6,546 $ U.S. overnight box 1,747 U.S. overnight envelope 3,001 U.S. deferred Total...

  • Page 65
    ... lawsuits and state tax and other administrative proceedings that claim that the company's owner-operators should be treated as employees, rather than independent contractors. Most of the class-action lawsuits were consolidated for administration of the pre-trial proceedings by a single federal...

  • Page 66
    ...appeal. represents a class of single-route, pickup-and-delivery owner-operators CALIFORNIA PAYSTUB CLASS ACTION. A federal court in California in Colorado who drove vehicles weighing less than 10,001 pounds at ruled in April 2011 that paystubs for certain FedEx Express employees any time from August...

  • Page 67
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS begin date, total overtime hours worked and the correct overtime wage rate. The ruling came in a class action lawsuit filed by a former courier seeking damages on behalf of herself and all other FedEx Express employees in California that allegedly ...

  • Page 68
    ... Consolidated Assets Current Assets Cash and cash equivalents Receivables, less allowances Spare parts, supplies, fuel, prepaid expenses and other, less allowances Deferred income taxes Total current assets Property and Equipment, at Cost Less accumulated depreciation and amortization Net property...

  • Page 69
    ... Consolidated Assets Current Assets Cash and cash equivalents Receivables, less allowances Spare parts, supplies, fuel, prepaid expenses and other, less allowances Deferred income taxes Total current assets Property and Equipment, at Cost Less accumulated depreciation and amortization Net property...

  • Page 70
    ...265 813 $ 1,452 Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Impairment and other charges Intercompany charges, net Other Operating Income Other Income (Expense): Equity in...

  • Page 71
    ...894 710 $ 1,184 Revenues Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Impairment and other charges Intercompany charges, net Other Operating Income Other Income (Expense): Equity in...

  • Page 72
    ... treasury stock Other, net Cash (used in) provided by financing activities Effect of exchange rate changes on cash Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period CONDENSED CONSOLIDATING STATEMENTS OF...

  • Page 73
    ... between subsidiaries Intercompany dividends Principal payments on debt Proceeds from stock issuances Excess tax benefit on the exercise of stock options Dividends paid Other, net Cash used in financing activities Effect of exchange rate changes on cash Net (decrease) increase in cash and cash...

  • Page 74
    ... the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income (loss), and cash ï¬,ows for each of the three years in the period ended May 31, 2012. These...

  • Page 75
    ...retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in the second quarter of 2011. See Notes 1 and 17 to the accompanying consolidated financial statements. (2) Results for 2011...

  • Page 76
    ... (3*) (4) Joshua Cooper Ramo(3) Vice Chairman Kissinger Associates, Inc. Strategic advisory firm Chairman and President Barksdale Management Corporation Investment management company John A. Edwardson (1*) Chairman CDW LLC Technology products and services company Susan C. Schwab (2) Professor...

  • Page 77
    ...cer FedEx Trade Networks FEDEX SERVICES SEGMENT Sherry A. Aaholm Executive Vice President, Information Technology FedEx Services Craig M. Simon President and Chief Executive Officer FedEx SupplyChain Systems Donald F. Colleran Executive Vice President, Global Sales FedEx Services FEDEX FREIGHT...

  • Page 78
    ...901) 818-7500, fedex.com ANNUAL MEETING OF SHAREOWNERS: Monday, September 24, 2012, 10:00 a.m. local time, FedEx Express World Headquarters, 3670 Hacks Cross Road, Building G, Memphis, Tennessee 38125. STOCK LISTING: FedEx Corporation's common stock is listed on the New York Stock Exchange under the...

  • Page 79
    WHEN WE GO BEYOND, OUR CUSTOMERS STAY AHEAD. The marketplace is a world of opportunity, and our job is to put it within reach. When we connect people, communities ï¬,ourish, countries prosper and the world becomes a richer place. MORE > fedex.com/annualreport2012

  • Page 80
    FEDEX CORPORATION 942 South Shady Grove Road Memphis, Tennessee 38120 fedex.com