Federal Express 2009 Annual Report Download - page 64

FEDEX CORPORATION
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Effective June 1, 2009, Caribbean Transportation Services, Inc. (“CTS” ), a business in the FedEx Freight segment, was integrated into
FedEx Express to leverage synergies between CTS and FedEx Express and to gain cost effi ciencies by maximizing the use of FedEx
Express assets for this service offering.
FEDEX SERVICES SEGMENT
The FedEx Services segment includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FCIS, which is responsible for customer service, billings and collections for FedEx Express and FedEx Ground U.S.
customers; FedEx Global Supply Chain Services, which provides a range of logistics services to our customers; and FedEx Offi ce, which
provides retail access to our customers for our package transportation businesses and an array of document and business services.
The costs of the sales, marketing and information technology support provided by FedEx Services and the customer service functions
of FCIS, together with the normal, ongoing net operating costs of FedEx Global Supply Chain Services and FedEx Offi ce, are allocated
primarily to the FedEx Express and FedEx Ground segments based on metrics such as relative revenues or estimated services provided.
We believe these allocations approximate the net cost of providing these functions. The $810 million fourth quarter 2009 impairment
charge for the Kinko’s goodwill and the $891 million 2008 charge predominantly associated with impairment charges for the Kinko’s
trade name and goodwill were not allocated to the FedEx Express or FedEx Ground segments, as the charges were unrelated to the
core performance of those businesses.
The operating expenses line item “ Intercompany charges” on the accompanying unaudited fi nancial summaries of our transportation
segments in Management’s Discussion and Analysis of Operations and Financial Condition (“ MD&A” ) includes the allocations from the
FedEx Services segment to the respective transportation segments. The “ Intercompany charges” caption also includes allocations for
administrative services provided between operating companies and certain other costs such as corporate management fees related to
services received for general corporate oversight, including executive offi cers and certain legal and fi nance functions. Management
evaluates transportation segment fi nancial performance based on operating income.
OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable
segment. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are refl ected as
revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues
and expenses are eliminated in the consolidated results and are not separately identifi ed in the following segment information, as the
amounts are not material.
The following table provides a reconciliation of reportable segment revenues, depreciation and amortization, operating income (loss)
and segment assets to consolidated fi nancial statement totals for the years ended or as of May 31 (in millions):
FedEx FedEx FedEx FedEx
Express Ground Freight Services Other and Consolidated
Segment (1) Segment Segment
(2) Segment (3) Eliminations Total
Revenues
2009 $ 22,364 $ 7,047 $ 4,415 $ 1,977 $ (306) $ 35,497
2008 24,421 6,751 4,934 2,138 (291) 37,953
2007 22,681 6,043 4,586 2,136 (232) 35,214
Depreciation and amortization
2009 $ 961 $ 337 $ 224 $ 451 $ 2 $ 1,975
2008 944 305 227 469 1 1,946
2007 856 268 195 420 3 1,742
Operating income (loss)
2009 $ 794 $ 807 $ (44) $ (810) $ – $ 747
2008 1,901 736 329 (891) – 2,075
2007 1,991 822 463 – – 3,276
Segment assets (4)
2009 $ 13,483 $ 3,291 $ 3,044 $ 3,240 $ 1,186 $ 24,244
2008 13,416 2,770 3,276 4,651 1,520 25,633
2007 15,650 3,937 3,150 5,384 (4,121) 24,000
(1) FedEx Express segment 2009 operating expenses include a charge of $260 million primarily related to aircraft-related asset impairments. FedEx Express segment 2007 operating expenses include
a charge of $143 million associated with upfront compensation and benefi ts under our pilot labor contract.
(2) FedEx Freight segment 2009 operating expenses include a charge of $100 million primarily related to impairment charges associated with goodwill related to the Watkins Motor Lines (now known
as FedEx National LTL) acquisition. FedEx Freight segment results include the results of FedEx National LTL from the date of its acquisition on September 3, 2006.
(3) FedEx Services segment 2009 operating expenses include a charge of $810 million related to impairment of goodw ill resulting from the Kinko’s acquisition. FedEx Services segment 2008 operating
expenses include a charge of $891 million predominantly related to impairment charges associated with the decision to minimize the use of the Kinko’s trade name and goodwill resulting from the
Kinko’s acquisition. The normal, ongoing net operating costs of the FedEx Services segment are allocated back to the transportation segments.
(4) Segment assets include intercompany receivables.