Federal Express 2011 Annual Report Download - page 62

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: BUSINESS SEGMENT INFORMATION
FedEx Express, FedEx Ground and FedEx Freight represent our major
service lines and, along with FedEx Services, form the core of our
reportable segments. Our reportable segments include the following
businesses:
Effective January 30, 2011, our FedEx Freight and FedEx National LTL
businesses were merged into a single operation. FedEx Freight now
offers two standard services: FedEx Freight Priority, a faster transit
service with a price premium; and FedEx Freight Economy, an
economical service.
FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing,
administrative and information technology functions in shared services
operations that support our transportation businesses and allow us to
obtain synergies from the combination of these functions. The FedEx
Services segment includes: FedEx Services, which provides sales,
marketing and information technology support to our other compa-
nies; FedEx TechConnect, which is responsible for customer service,
technical support, billings and collections for U.S. customers of our
major business units; and FedEx Office, which provides an array of
document and business services and retail access to our customers for
our package transportation businesses. Effective September 1, 2009,
FedEx SupplyChain Systems, formerly included in the FedEx Services
reporting segment, was realigned to become part of the FedEx Express
reporting segment. Prior year amounts have not been reclassified
to conform to the current year segment presentation because these
reclassifications are immaterial.
The FedEx Services segment provides direct and indirect support to
our transportation businesses, and we allocate all of the net operat-
ing costs of the FedEx Services segment (including the net operating
results of FedEx Office) to reflect the full cost of operating our
transportation businesses in the results of those segments. Within
the FedEx Services segment allocation, the net operating results of
FedEx Office are allocated to FedEx Express and FedEx Ground. The
allocations of net operating costs are based on metrics such as relative
revenues or estimated services provided. We believe these allocations
approximate the net cost of providing these functions. We review and
evaluate the performance of our transportation segments based on
operating income (inclusive of FedEx Services segment allocations).
For the FedEx Services segment, performance is evaluated based on
the impact of its total allocated net operating costs on our transporta-
tion segments.
The operating expenses line item “Intercompany charges” on the
accompanying unaudited financial summaries of our transporta-
tion segments in MD&A reflects the allocations from the FedEx
Services segment to the respective transportation segments. The
“Intercompany charges” caption also includes charges and credits 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
officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.
Effective August 1, 2009, approximately 3,600 employees (predomi-
nantly from the FedEx Freight segment) were transferred to entities
within the FedEx Services segment. This internal reorganization further
centralized most customer support functions, such as sales, customer
service and information technology, into our shared services organiza-
tions. While the reorganization had no impact on the net operating
results of any of our transportation segments, the net intercompany
charges to our FedEx Freight segment increased significantly with cor-
responding decreases to other expense captions, such as salaries and
employee benefits. The impact of this internal reorganization to the
expense captions in our other segments was immaterial.
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 reflected 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 our consolidated results and are not separately identified
in the following segment information, as the amounts are not material.
FedEx Express Segment
>
FedEx Express
(express transportation)
>
FedEx Trade Networks
(global trade services)
>
FedEx SupplyChain Systems
(logistics services)
FedEx Ground Segment
>
FedEx Ground
(small–package ground delivery)
>
FedEx SmartPost
(small–parcel consolidator)
FedEx Freight Segment
>
FedEx Freight
(LTL freight transportation)
>
FedEx Custom Critical
(time–critical transportation)
FedEx Services Segment
>
FedEx Services
(sales, marketing and information
technology functions)
>
FedEx TechConnect
(customer service, technical support,
billings and collections)
>
FedEx Office
(document and business services and
package acceptance)