Federal Express 2006 Annual Report Download - page 84

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FEDEX CORPORATION
82
Benefit payments, which reflect expected future service,
are expected to be paid as follows for the years ending May 31
(in millions):
Pension Plans Postretirement Healthcare Plans
2007 $ 289 $ 30
2008 295 30
2009 342 32
2010 348 33
2011 390 34
2012-2016 $2,759 $196
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 12% during 2007, 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 6.5% during 2007, decreasing to an
annual growth rate of 5% in 2013 and thereafter. A 1% change in
these annual trend rates would not have a significant impact on the
accumulated postretirement benefit obligation at May 31, 2006 or
2006 benefit expense because the level of these benefits is capped.
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 $104 million in 2006, $97 million in 2005 and
$89 million in 2004.
NOTE 14: BUSINESS SEGM ENT INFORM ATION
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.
The measure of whether a pension plan is underfunded for financial accounting purposes is based on a comparison of the ABO to the
fair value of plan assets and amounts accrued for such benefits in the balance sheets. Although not legally required, we made $456
million in tax-deductible voluntary contributions to our qualified U.S. pension plans in 2006 compared to total tax-deductible voluntary
contributions of $460 million in 2005. Currently, we do not expect any contributions for 2007 will be legally required. However, we
currently expect to make tax-deductible voluntary contributions in 2007 at levels approximating those in 2006.
We have certain nonqualified defined benefit pension plans that are not funded because such funding provides no current tax deduction
and would be deemed current compensation to plan participants. Primarily related to those plans and certain international plans, we have
ABOs aggregating approximately $499 million at May 31, 2006 and $399 million at May 31, 2005, with assets of $161 million at May 31,
2006 and $127 million at May 31, 2005. Plans with this funded status resulted in the recognition of a minimum pension liability in our
balance sheets. This minimum liability was $122 million at May 31, 2006 and $63 million at May 31, 2005.
Net periodic benefit cost for the three years ended May 31 was as follows (in millions):
Pension Plans Postretirement Healthcare Plans
2006 2005 2004 2006 2005 2004
Service cost $ 473 $ 417 $ 376 $42 $37 $35
Interest cost 642 579 490 32 32 25
Expected return on plan assets (811) (707) (597) –––
Recognized actuarial losses 110 60 62 –––
Amortization of transition obligation (1) –– –––
Amortization of prior service cost 12 12 12 (1) (1) –
$ 425 $ 361 $ 343 $73 $68 $60
Increases in pension costs from the prior year are primarily the result of changes in discount rate.
Weighted-average actuarial assumptions for our primary U.S. plans, which comprise substantially all of our projected benefit obliga-
tions, are as follows:
Pension Plans Postretirement Healthcare Plans
2006 2005 2004 2006 2005 2004
Discount rate 5.912% 6.285% 6.78% 6.08% 6.16% 6.57%
Rate of increase in future compensation levels 3.46 3.15 3.15 –– –
Expected long-term rate of return on assets 9.10 9.10 9.10 –– –