Federal Express 2011 Annual Report Download - page 49

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEDEX FREIGHT NETWORK COMBINATION. The previously announced
combination of our FedEx Freight and FedEx National LTL operations
was completed on January 30, 2011. Our combined LTL network will
increase efficiencies, reduce operational costs and provide custom-
ers both Priority and Economy LTL freight services across all lengths
of haul from one integrated company. These actions resulted in the
following incremental costs, including an impairment charge recorded
during 2011. Charges for the year ended May 31, 2011 include the
following (in millions):
Other program costs include $15 million of accelerated depreciation
expense due to a change in the estimated useful life of certain assets
impacted by the combination of these operations and other incremen-
tal costs directly associated with the program. Substantially all of the
severance accruals were paid during the fourth quarter of 2011 and
the remaining severance accruals will be paid during the first quarter
of 2012. We have received $88 million related to asset sales, which
offset the total cash outlays for the program. The estimates recorded
at May 31, 2011 are not subject to any material risk of change.
USE OF ESTIMATES. The preparation of our consolidated financial
statements requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities, the reported amounts
of revenues and expenses and the disclosure of contingent liabilities.
Management makes its best estimate of the ultimate outcome for
these items based on historical trends and other information available
when the financial statements are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate,
which is typically in the period when new information becomes avail-
able to management. Areas where the nature of the estimate makes
it reasonably possible that actual results could materially differ from
amounts estimated include: self–insurance accruals; retirement plan
obligations; long–term incentive accruals; tax liabilities; accounts
receivable allowances; obsolescence of spare parts; contingent
liabilities; loss contingencies, such as litigation and other claims; and
impairment assessments on long–lived assets (including goodwill).
NOTE 2: RECENT ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly
impact our reported results and the comparability of our financial
statements. We believe the following new accounting guidance is
relevant to the readers of our financial statements.
On June 1, 2008, we adopted the authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”) on fair value measure-
ments, which provides a common definition of fair value, establishes a
uniform framework for measuring fair value and requires expanded
disclosures about fair value measurements. On June 1, 2009, we
implemented the previously deferred provisions of this guidance for
nonfinancial assets and liabilities recorded at fair value, as required. The
adoption of this new guidance had no impact on our financial statements.
On June 1, 2009, we adopted the authoritative guidance issued by FASB
on employers’ disclosures about postretirement benefit plan assets. This
guidance provides objectives that an employer should consider when
providing detailed disclosures about assets of a defined benefit pension
or other postretirement plan, including disclosures about investment poli-
cies and strategies, categories of plan assets, significant concentrations
of risk and the inputs and valuation techniques used to measure the fair
value of plan assets. See Note 12 for related disclosures.
On June 1, 2009, we adopted the authoritative guidance issued by
FASB related to interim disclosures about the fair value of financial
instruments. This guidance requires disclosures about the fair value of
financial instruments for interim reporting periods in addition to annual
reporting periods.
In June 2011, the FASB issued new guidance to make the presentation
of items within OCI more prominent. The new standard will require
companies to present items of net income, items of OCI and total
comprehensive income in one continuous statement or two separate con-
secutive statements, and companies will no longer be allowed to present
items of OCI in the statement of stockholders’ equity. Reclassification
adjustments between OCI and net income will be presented separately
on the face of the financial statements. This new standard is effective
for our fiscal year ending May 31, 2013.
We believe there is no additional new accounting guidance adopted but
not yet effective that is relevant to the readers of our financial state-
ments. However, there are numerous new proposals under development
which, if and when enacted, may have a significant impact on our
financial reporting.
NOTE 3: BUSINESS COMBINATIONS
On February 22, 2011, FedEx Express completed the acquisition of the
Indian logistics, distribution and express businesses of AFL Pvt. Ltd.
and its affiliate Unifreight India Pvt. Ltd. for $96 million in cash. The
financial results of the acquired businesses are included in the FedEx
Express segment from the date of acquisition and were not material to
our results of operations or financial condition. Substantially all of the
purchase price was allocated to goodwill.
On December 15, 2010, FedEx entered into an agreement to acquire
Servicios Nacionales Mupa, S.A. de C.V. (MultiPack), a Mexican
domestic express package delivery company. This acquisition will be
funded with cash from operations and is expected to be completed
during the first quarter of 2012, subject to customary closing condi-
tions. The financial results of the acquired company will be included
in the FedEx Express segment from the date of acquisition and will be
immaterial to our 2012 results.
These acquisitions will give us more robust domestic transportation
networks and added capabilities in these important global markets.
2011
Severance $ 40
Lease terminations 20
Asset impairments 29
Impairment and other charges 89
Other program costs 44
Total program costs $ 133