Federal Express 2009 Annual Report Download

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The Long Future

Table of contents

  • Page 1
    The Long Future

  • Page 2

  • Page 3
    ... year? Or this quarter? But the strongest companies take a longer view. FedEx... has always looked at the world of commerce with uncommon foresight. Our greatest strength has been our ability to deliver what the future requires. That should never change, even in times...

  • Page 4
    ... over the world need fast access to ideas, goods, opportunities and to each other. That's why FedEx is investing strategically to match emerging trade patterns and business models. Our new hub in Guangzhou, China, puts us in the heart of Asia's fastest-growing production and trade center. Because of...

  • Page 5
    ...committed to getting the job done with fewer resources. That's why we've launched our "20 by 20" initiative, aiming to reduce our aircraft's carbon emissions by 20 percent and increase our delivery vehicles' fuel efficiency by 20 percent, all by 2020. We're adding zero-emission, all-electric trucks...

  • Page 6
    ... the package itself. Hundreds of thousands of businesses have created supply chains that depend on FedEx's ability to move goods and information for them. Seeing the long future means giving businesses the ability to see and understand - in real time - how they should respond to changing markets. 4

  • Page 7
    ... the best business decision we ever made." Frederick W. Smith Chairman, President and CEO No matter how fast global commerce changes, our team members' commitment to each other - and to serve our customers - never changes. Every day, our team keeps our Purple Promise: to make every FedEx experience...

  • Page 8
    ... people the world over need fast access to ideas, goods, and opportunities. We continue to strategically expand our networks to provide more access points to more customers. For example, in the past year, we opened our new Guangzhou, China, hub, our largest outside the United States. It will help us...

  • Page 9
    ... delivery commitment option, a first for the less-than-truckload freight industry. FedEx Trade Networks introduced a service to help customers meet new U.S. Customs filing requirements. PURPLE CULTURE with exports alone supporting more than 12 million jobs. We will continue to take a strong stand...

  • Page 10
    ... earnings per share 2009 (1) 2008 (2) Percent Change Operating Results Revenues Operating income Operating margin Net income Diluted earnings per share Average common and common equivalent shares Capital expenditures Financial Position Total assets Long-term debt, including current portion...

  • Page 11
    ... average daily volume and shipment w eight; • the mix of services purchased by our customers; • the prices w e obtain for our services, primarily measured by yield (revenue per package or pound or revenue per hundredw eight for LTL freight shipments); • our ability to manage our cost structure...

  • Page 12
    ... compared to 2007 (in millions): Revenues Dollar Change Percent Change 2009/2008 2008/2007 2009/2008 2008/2007 Operating Income (Loss) Dollar Change Percent Change 2009/2008 2008/2007 2009/2008 2008/2007 FedEx Express segment (1) FedEx Ground segment FedEx Freight segment (2) FedEx Services segment...

  • Page 13
    ...demand for most of our services, particularly at our FedEx Express and FedEx Freight segments. Business and consumer spending, a key driver of volumes shipped across our netw orks, contracted signifi cantly in 2009. Declines in U.S. domestic volumes at FedEx Express w ere partially mitigated by the...

  • Page 14
    ...in FedEx Express freight services driven by higher base rates and higher fuel surcharges in the fi rst half of 2009. FedEx Freight LTL Group volumes decreased as a result of the recession despite maintaining market share. W ithin our FedEx Ground segment, volumes increased during 2009 due to market...

  • Page 15
    ...31: 2009 Percent of Revenue 2008 2007 ing graphs for our transportat ion segments show our The follow ing transportation et and veh icle fuel per gallon and the year-overaverage cost of j jet vehicle n total fuel expense for the years ended year percentage change i in 31: M ay 31: Average Fuel Cost...

  • Page 16
    ... in 2009, based on a static analysis of the impact to operating income of year-over-year changes in fuel prices compared to changes in fuel surcharges. This analysis considers the estimated benefi ts of the reduction in fuel surcharges included in the base rates charged for FedEx Express services...

  • Page 17
    ... long-haul LTL freight servic es and domestic express servic es in the United Kingdom and China. See Note 3 of the accompanying consolidated fi nancial statements for further information about these acquisitions. We paid the purchase price for these acquisitions from available cash balances, w hich...

  • Page 18
    ... to annual reporting periods. This FSP and APB w ill be effective for our fi rst quarter of fi scal year 2010. In M ay 2009, the FASB issued SFAS N o. 165, " Subsequent Events," w hich establishes general standards of accounting for and disclosures of events that occur after the balance sheet date...

  • Page 19
    ... Our reportable segments as of M ay 31, 2009 included the follow ing businesses: FedEx Express Segment FedEx Express (express transportation) FedEx Trade Netw orks (global trade services) FedEx Ground (small-package ground delivery) FedEx SmartPost (small-parcel consolidator) FedEx Freight LTL Group...

  • Page 20
    ... United Kingdom, Canada, China and India. We reclassifi reclassified international domestic revenues previously included w ithin other revenues to conform to the current period presentation. (2) Other revenues includes FedEx Trade Netw orks. (3) Represents charges associated w ith aircraft-related...

  • Page 21
    ... rate per pound. Composite freight yield increased in 2009 due to general rate increases and higher fuel surcharges. FedEx Express revenues inc reased in 2008 primarily due to increases in fuel surcharges, grow th in IP volume and the impact of favorable currency exchange rates. Revenue increases...

  • Page 22
    ... 2009, based on a static analysis of the impact to operating income of the yearover-year changes in fuel prices compared to changes in fuel surc harges. This analysis c onsiders the estimated benefits of the reduction in fuel surcharges included in the base rates charged for FedEx Express services...

  • Page 23
    ... FedEx Ground segment revenues inc reased during 2008 due to volume and yield grow th. Volume grow th at FedEx Ground resulted from market share gains and the c ustomer appeal of our cost-effective alternative to overnight air delivery services. Average daily volumes at FedEx Ground increased during...

  • Page 24
    ... the accompanying consolidated fi nancial statements. FedEx Ground Segment Outlook We expect the FedEx Ground segment to have continued revenue grow th in 2010, led by increases in commercial and FedEx Home Delivery average daily volumes due to market share gains. FedEx SmartPost volumes are also...

  • Page 25
    ...w e maintained market share. LTL yield dec reased 3% during 2009 due to the continuing effects of the competitive pricing environment and low er fuel surcharges. FedEx Freight segment revenues increased in 2008 primarily due to the full-year inclusion of the FedEx National LTL acquisition. LTL yield...

  • Page 26
    ... related to strategically investing in key markets for long-term grow th. Intercompany charges increased 35% during 2009 primarily due to allocated telecommunication expenses (formerly a direct charge) and higher allocated information technology costs from FedEx Services. FedEx Freight segment...

  • Page 27
    ...the years ended M ay 31 (in millions): 2009 2008 2007 Percent Change 2009/ 2008/ 2008 2007 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...

  • Page 28
    ...investments for airc raft and airc raft-related equipment at FedEx Express. Airc raft-related c apital outlays inc lude the B757s, the fi rst of w hich entered revenue service in 2009 and w hich are substantially more fuel-effi cient per unit than the aircraft type they are replac ing, and the new...

  • Page 29
    ... included in current liabilities. Operating Activities In accordance w ith accounting principles generally accepted in the United States, future contractual payments under our operating leases are not recorded in our balance sheet. Credit rating agencies routinely use information concerning minimum...

  • Page 30
    ...ount rates; expec ted long-term investment returns on plan assets; future salary increases; employee turnover; mortality; and retirement ages. These assumptions most signifi cantly impact our U.S. domestic pension plans. U.S. domestic and international pension plans U.S. domestic and international...

  • Page 31
    ... in discount rate One-basis-point change in expected return on assets $1.5 1.2 $13.9 - Pension cost for our primary domestic pension plan w as favorably affec ted in 2009 by approximately $210 million due to an increase in the discount rate driven by higher interest rates in the bond market year...

  • Page 32
    ... future returns on those assets. The follow ing table summarizes our current asset allocation strategy (dollars in millions): Plan Assets at M easurement Date Asset Class Actual 2009 Actual% Target% Actual 2008 Actual% Target% Domestic equities International equities Private equities Total equities...

  • Page 33
    ...limits for costs associated w ith w orkers' compensation claims, vehicle accidents and general business liabilities, and benefi ts paid under employee healthcare and long-term disability programs. At M ay 31, 2009, there w ere $1.5 billion of self-insurance accruals reï¬, ected in our balance sheet...

  • Page 34
    ... for payments under operating leases. The w eighted-average remaining lease term of all operating leases outstanding at M ay 31, 2009 w as approximately six years. The future commitments for operating leases are not reï¬, ected as a liability in our balance sheet under U.S. accounting rules. The...

  • Page 35
    ... at this reporting unit. In response to these conditions, FedEx Offi ce initiated an internal reorganization designed to improve revenue-generating capabilities and reduce costs. Several actions w ere taken during 2009 to reduce FedEx Offi ce's cost structure and position it for long-term grow th...

  • Page 36
    ... deferred tax assets and liabilities. Our provision for income taxes is based on domestic and international statutory income tax rates in the jurisdictions in w hich w e operate, applied to taxable income, reduced by applicable tax credits. We account for operating taxes based on multi-state, local...

  • Page 37
    ... of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. COM M ODITY W hile w e have market risk for changes in the price of jet and vehicle fuel, this risk is largely mitigated by our fuel surcharges because our...

  • Page 38
    ...could pass other labor legislation, such as the currently proposed Employee Free Choice Act (the " EFCA" ) (also called " card-check legislation" ), that could adversely affect our companies, such as FedEx Ground and FedEx Freight, w hose employees are governed by the National Labor Relations Act of...

  • Page 39
    ... law suits and numerous tax and other administrative proceedings that claim that the company's ow ner-operators or their drivers should be treated as our employees, rather than independent contractors. We expect to incur certain costs, including legal fees, in defending the status of FedEx Ground...

  • Page 40
    ... netw orks, customer demand for our various services or the prices w e obtain for our services; • market acceptance of our new service and grow th initiatives; • any liability resulting from and the costs of defending against class-action litigation, such as w age-and-hour and discrimination and...

  • Page 41
    ... ay 31, 2009. The effectiveness of our internal control over fi nancial reporting as of M ay 31, 2009, has been audited by Ernst & Young LLP, the independent registered public accounting fi rm w ho also audited the Company's consolidated fi nancial statements included in this Annual Report. Ernst...

  • Page 42
    ... Public Company Accounting Oversight Board (United States), the consolidated balance sheets of FedEx Corporation as of May 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income, and cash ï¬,ows for each of the three years...

  • Page 43
    FEDEX CORPORATION Consolidated Statem ents of Incom e (In millions, except per share amounts) 2009 Years ended M ay 31, 2008 2007 REVENUES OPERATING EXPENSES: Salaries and employee benefi ts Purchased transportation Rentals and landing fees Depreciation and amortization Fuel M aintenance and ...

  • Page 44
    ...expenses Total current liabilities Long-Term Debt, Less Current Portion Other Long-Term Liabilities Deferred income taxes Pension, postretirement healthcare and other benefi t obligations Self-insurance accruals Deferred lease obligations Deferred gains, principally related to aircraft transactions...

  • Page 45
    ... for uncollectible accounts Deferred income taxes and other noncash items Noncash impairment charges Stock-based compensation Changes in operating assets and liabilities, net of the effects of businesses acquired: Receivables Other assets Pension assets and liabilities, net Accounts payable and...

  • Page 46
    ...net of tax of $15 Retirement plans adjustment, net of tax of $296 Total comprehensive income Cash dividends declared ($0.30 per share) Employee incentive plans and other (2,556,318 shares issued) BALANCE AT M AY 31, 2008 Adjustment to opening balances for SFAS 158 measurement date transition, net of...

  • Page 47
    ... prior year fi nancial statements to conform to the current year presentation. For example, at FedEx Ground certain fuel supplement costs related to our independent c ontrac tors w ere rec lassified from fuel expense to purchased transportation to conform to the current period presentation. REVENUE...

  • Page 48
    ... our reporting units is determined using an income or market approach incorporating market participant considerations and management's assumptions on revenue grow th rates, operating margins, discount rates and expec ted c apital expenditures. Fair value determinations may include both internal and...

  • Page 49
    ... ted long-term investment returns on plan assets, salary increases, expected retirement, mortality, employee turnover and future increases in healthcare costs. We determine the discount rate (w hich is required to be the rate at w hich the projected benefi t obligation could be effectively settled...

  • Page 50
    ...annual reporting periods. This FSP and APB w ill be effective for our fi rst quarter of fi scal year 2010. In M ay 2009, the FASB issued SFAS N o. 165, " Subsequent Events," w hich establishes general standards of accounting for and disc losures of events that oc c ur after the balanc e sheet date...

  • Page 51
    NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS Note 3: Business Com binations During 2007, w e made the follow ing acquisitions: Segment Business Acquired Rebranded Date Acquired Purchase Price (in millions) FedEx Freight FedEx Express FedEx Express Watkins M otor Lines ANC Holdings Ltd. Tianjin ...

  • Page 52
    ... at this reporting unit. In response to these conditions, FedEx Offi ce initiated an internal reorganization designed to improve revenue-generating capabilities and reduce costs. Several actions w ere taken during 2009 to reduce FedEx Offi ce's cost structure and position it for long-term grow th...

  • Page 53
    ...consolidated statements of income and is included in the results of the FedEx Freight segment. Other Reporting Units Goodw ill Our remaining reporting units w ith signifi cant recorded goodw ill (excluding FedEx Offi ce and FedEx National LTL) include our FedEx Express reporting unit and our FedEx...

  • Page 54
    ...506 Scheduled annual principal maturities of debt, exclusive of capital leases, for the fi ve years subsequent to M ay 31, 2009, are as follow s (in millions): 2010 2011 2012 2013 2014 $ 500 250 - 300 250 Note 5: Selected Current Liabilities The components of selected current liability captions...

  • Page 55
    ..., 2009 w as approximately six years. W hile certain of our lease agreements contain covenants governing the use of the leased assets or require us to maintain certain levels of insurance, none of our lease agreements include material fi nancial covenants or limitations. FedEx Express makes payments...

  • Page 56
    ... annual rate of dividends per share over the exercise price of the option. An increase in the dividend yield w ill decrease compensation expense. The follow ing table summarizes information about stock option activity for the year ended M ay 31, 2009: Stock Options WeightedWeighted-Average Average...

  • Page 57
    ... tw o years. Total shares outstanding or available for grant related to equity compensation at M ay 31, 2009 represented 9% of the total outstanding common and equity compensation shares and equity compensation shares available for grant. Current provision (benefi t) Domestic: Federal State and...

  • Page 58
    ...2009, the Internal Revenue Servic e (" IRS" ) c ompleted its audit of our c onsolidated U.S. inc ome tax returns for the 2004 through 2006 tax years. The completion of the audit did not have a material effect on our consolidated fi nancial statements. We are no longer subject to U.S. federal income...

  • Page 59
    ... discount rates; expected long-term investment returns on plan assets; future salary increases; employee turnover; mortality; and retirement ages. These assumptions most signific antly impac t our U.S. domestic pension plans. We made signifi cant changes to our retirement plans during 2008 and 2009...

  • Page 60
    ... long-term rate of return on an annual basis and revise it as appropriate. As part of our strategy to manage future pension costs and net funded status volatility, w e are transitioning to a more liability-driven investment strategy, w hich w ill better align our plan assets and liabilities. This...

  • Page 61
    ... return on plan assets Company contributions Benefi ts paid Other Fair value of plan assets at end of year Funded Status of the Plans Employer contributions after measurement date Net amount recognized Amount Recognized in the Balance Sheet at M ay 31: Noncurrent pension assets Current pension...

  • Page 62
    ...ed plans. W hile our U.S. tax-qualifi ed plans have ample funds to meet benefi t payments, current market conditions have negatively impacted asset values over the near term. We anticipate making contributions to the U.S. tax-qualifi ed plans totaling approximately $850 million in 2010, including...

  • Page 63
    ... years ending M ay 31 (in millions): Pension Plans Postretirement Healthcare Plans FedEx Express Segment FedEx Express (express transportation) FedEx Trade Netw orks (global trade services) FedEx Ground (small-package ground delivery) FedEx SmartPost (small-parcel consolidator) FedEx Freight LTL...

  • Page 64
    ... income (loss) and segment assets to consolidated fi nancial statement totals for the years ended or as of M ay 31 (in millions): FedEx Express Segment (1) FedEx Ground Segment FedEx Freight Segment (2) FedEx Services Segment (3) Other and Eliminations Consolidated Total Revenues 2009 2008...

  • Page 65
    ... Inform ation Cash paid for interest expense and income taxes for the years ended M ay 31 w as as follow s (in millions): 2009 2008 2007 FedEx Express segment: Package: U.S. overnight box U.S. overnight envelope U.S. deferred Total domestic package revenue International Priority (IP) International...

  • Page 66
    ..., as to FedEx Ground, the conditionally certifi ed class of plaintiffs is now limited to a claim of failure to pay regular w ages due under the federal Fair Labor Standards Act. In April 2009, in another one of these w age-and-hour cases, Bibo v. FedEx Express, a California federal court granted...

  • Page 67
    ... overtime pay. In M arch 2009, a jury trial in the Anfi nson case w as held, and the jury returned a verdict in favor of FedEx Ground, fi nding that all 320 class members w ere independent contractors, not employees. The plaintiffs have appealed the verdict. The other contractor-model law suits...

  • Page 68
    ..., currently holds an approximate 10% ow nership interest in the National Football League Washington Redskins professional football team (" Redskins" ) and is a member of its board of directors. FedEx has a multi-year naming rights agreement w ith the Redskins granting us certain marketing rights...

  • Page 69
    ... BALANCE SHEETS Parent Guarantor Subsidiaries M ay 31, 2009 Non-Guarantor Subsidiaries Eliminations Consolidated ASSETS Current Assets Cash and cash equivalents Receivables, less allow ances Spare parts, supplies and fuel, prepaid expenses and other, less allow ances Deferred income taxes Total...

  • Page 70
    ... BALANCE SHEETS Parent Guarantor Subsidiaries M ay 31, 2008 Non-Guarantor Subsidiaries Eliminations Consolidated ASSETS Current Assets Cash and cash equivalents Receivables, less allow ances Spare parts, supplies and fuel, prepaid expenses and other, less allow ances Deferred income taxes Total...

  • Page 71
    NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS CONDENSED CONSOLIDATING STATEM ENTS OF INCOM E Parent Guarantor Subsidiaries Year Ended M ay 31, 2009 Non-Guarantor Subsidiaries Eliminations Consolidated REVENUES OPERATING EXPENSES: Salaries and employee benefi ts Purchased transportation Rentals and ...

  • Page 72
    FEDEX CORPORATION CONDENSED CONSOLIDATING STATEM ENTS OF INCOM E Parent Guarantor Subsidiaries Year Ended M ay 31, 2007 Non-Guarantor Subsidiaries Eliminations Consolidated REVENUES OPERATING EXPENSES: Salaries and employee benefi ts Purchased transportation Rentals and landing fees Depreciation ...

  • Page 73
    ... from Parent Principal payments on debt Proceeds from stock issuances Excess tax benefi ts on the exercise of stock options Dividends paid Other, net CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES CASH AND CASH EQUIVALENTS Effect of exchange rate changes on cash Net (decrease) increase in cash and...

  • Page 74
    ... Registered Public Accounting Firm The Board of Directors and Stockholders FedEx Corporation We have audited the accompanying consolidated balance sheets of FedEx Corporation as of May 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders' investment and...

  • Page 75
    ... stock outstanding Average common and common 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 ï¬, eet Average full-time...

  • Page 76
    ..., Inc. Casino entertainment company Chairman and Chief Executive Offi cer CDW Corporation Technology products and services company Susan C. Schw ab (2) Judith L. Estrin (3* ) (4) Professor University of M aryland School of Public Policy Former U.S. Trade Representative Chief Executive Of...

  • Page 77
    ... FedEx Ground W illiam J. Logue Executive Vice President and Chief Operating Offi cer, United States FedEx Express Ward B. Strang President and Chief Executive Offi cer FedEx SmartPost G. Edmond Clark President and Chief Executive Offi cer FedEx Trade Netw orks FedEx Freight Segment Douglas...

  • Page 78
    ..., FedEx International Priority ® Freight, FedEx SmartPost ® , FedEx Home Delivery ® , FedEx Trade Netw orks ® and FedEx National LTL® . Caribbean Transportation Services SM , FedEx Offi ce SM , and FedEx Global Supply Chain Services SM are service marks of Federal Express Corporation. FY 2009...

  • Page 79
    ... express transportation company, providing fast and reliable delivery to more than 220 countries and territories. FedEx Ground provides low-cost, small-package shipping in the United States and Canada. FedEx Freight is a leading North American provider of less-than-truckload (LTL) freight services...

  • Page 80
    FedEx Corporation 942 South Shady Grove Road Memphis, Tennessee 38120 fedex.com