Federal Express 2005 Annual Report Download - page 80

FEDEX CORPORATION
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The expected long-term rate of return assumptions for each
asset class are selected based on historical relationships
between the asset classes and the economic and capital mar-
ket environments, updated for current conditions. Additional
information about our pension plan can be found in the Critical
Accounting Policies section of Management’s Discussion
and Analysis.
Benefit payments, which reflect expected future service, are
expected to be paid as follows for the years ending May 31
(in millions):
2006 $ 228
2007 263
2008 283
2009 321
2010 375
2011-2015 2,718
These estimates are based on assumptions about future events.
Actual benefit payments may vary significantly from these
estimates.
Future medical benefit costs are estimated to increase at an
annual rate of 13% during 2006, decreasing to an annual growth
rate of 5% in 2019 and thereafter. Future dental benefit costs are
estimated to increase at an annual rate of 6.75% during 2006,
decreasing to an annual growth rate of 5% in 2013 and thereafter.
Our postretirement healthcare cost is capped at 150% of the 1993
per capita projected employer cost and, therefore, is not subject
to medical and dental trends after the capped cost is attained.
Therefore, a 1% change in these annual trend rates would not
have a significant impact on the accumulated postretirement
benefit obligation at May 31, 2005, or 2005 benefit expense.
Defined Contribution Plans
Profit sharing and other defined contribution plans are in place
covering a majority of U.S. employees. The majority of U.S.
employees are covered under 401(k) plans to which we provide
discretionary matching contributions based on employee contri-
butions. In addition, some employees are covered under profit
sharing plans which provide for discretionary contributions, as
determined annually by those business units. Expense under
these plans was $97 million in 2005, $89 million in 2004 and $82
million in 2003.
NOTE 14: BUSINESS SEGMENT INFORMATION
Our operations for the periods presented are primarily repre-
sented by FedEx Express, FedEx Ground, FedEx Freight and FedEx
Kinko’s. These businesses form the core of our reportable seg-
ments. Other business units in the FedEx portfolio are FedEx
Trade Networks, FedEx SmartPost, FedEx Supply Chain Services,
FedEx Custom Critical and Caribbean Transportation Services.
Management evaluates segment financial performance based on
operating income.
Our reportable segments include the following businesses:
FedEx Express Segment FedEx Express
FedEx Trade Networks
FedEx Ground Segment FedEx Ground
FedEx SmartPost
FedEx Supply Chain Services
FedEx Freight Segment FedEx Freight
FedEx Custom Critical
Caribbean Transportation Services
FedEx Kinko’s Segment FedEx Kinko’s
The FedEx Kinko’s segment was formed in the fourth quarter of
2004 as a result of our acquisition of FedEx Kinko’s (formerly known
as Kinko’s, Inc.). As discussed in Note 3, we acquired FedEx Kinko’s
on February 12, 2004, and its results of operations have been
included in our financial results from the date of acquisition.
FedEx Services provides customer-facing sales, marketing and
information technology support, primarily for FedEx Express and
FedEx Ground. The costs for these activities are allocated based
on metrics such as relative revenues or estimated services pro-
vided. We believe these allocations approximate the cost of
providing these functions. Other allocations include costs for
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.
Certain operating companies provide transportation and related
services for other FedEx companies outside their reportable seg-
ment. Billings for such services are based on negotiated rates
which we believe approximate fair value and are reflected as
revenues of the billing segment. Such intersegment revenues and
expenses are not separately identified in the following segment
information as the amounts are not material and are eliminated
in the consolidated results.