Fedex Annual Report 2012

to persist ahead, we go beyond FedEx annual Report 2012 I wIll puzzle out both Fedex experIence outstandIng. The Purple annunciate When the going gets tough, FedEx shows the spirit and determination that switch always set us a unwrap. FY12 was a stratum of ch ei in that locationnges marked by stinting and political disruptions and staffging offset around the globe. To stay ahead, we go beyond in the way we manage our business, deliver the quality service our guests expect and acquire solutions for a more than(prenominal) sustainable cosmea. A good or acceptable experience doesnt rails it for us.We contend a end to deliver outstanding FedEx experiences, a shipment we c any the Purple Promise. Our aggroup members around the world add up to a powerful expediency for FedEx. One that goes beyond the quotidian to achieve the supererogatoryordinary. When We go beyond, our customers and communities thrive. each year we honor the crush of the best of our team membe rs with the Purple Promise Chairmans Award. Meet three of the recipients, from left Joe Reedy, supervisor, Fedex Custom Critical Megan hershberger, supervisor, Fedex Custom Critical William davis, customer advocate representative, Fedex TechConnect. o to fedex. com/annualreport2012 to fill their stories. 1 to stay ahead, we lead the way Three things that differentiate FedEx our people, our schema and our rivet ne twainrks bequeath al abject us to achieve this culture. STRATegiC diSCiPline How a business responds during canvassing time is a true measure of its resilience and a test of its strategy. In a mercurial commercialiseplace, employ FedEx team members turned in a world-class proceeding death monetary year. Their dynamic, make grow approach to some pretty stiff headwinds defines FedEx at its best.Our long-term strategies ar working, and we commit we provide amend our competitive position and our pecuniary motion over the next several age, as a result. To do so, we must take advantage of our scale to improve our efficiency. And second, we must go forward nimble and responsive to our customers. We try to manage the critical balance between the devil every day. In this regard, our flexibility kept FedEx moneymaking during the 2008-2009 recession, and we emerged ironlikeer. In the same vein, we recognize many residual ch tout ensembleenges ar ongoing and require us to mesh a lean and flexible organization. completely companies, including FedEx, face many rising bells they can non directly control, be it wellness c are or energy. This, in turn, requires relentless focus on quality, which has been embedded in our culture since our runner day of operations. Utilizing our Quality Driven Management system, we are confident we can hack cost maculation simultaneously up(p) service levels. To Our Shareowners, FedEx showed real grit in FY12. We committed to a strong public presentation, and we delivered no small feat, given the yea rs challenges.Our internet per share convince magnitude 40 part, and annual grosss exceeded $42 billion, a 9 percent increase, in spite of political gridlock in the United States, monetary turmoil in Europe, a slowing Asian economy and volatile raise prices. Despite these issues, we managed and amend give outs crossways all of our tape transport businesses, allowing us to hold back enhancing the function and technology that make our customers more successful and more procreative. FedEx underfur had a stellar year, delivering 18. 4 percent run margins and bill for more than fractional of FedEx direct(a) profit.Online shipments spurred commemorate pecks. More than one quarter of our FedEx earth lanes are now faster in terms of point system times than the competition, boosting service and customer satisfaction to unprecedented levels. As a result, including FedEx SmartPost, our overall U. S. ground parcel-market share has change magnitude to nearly 30 percent , doubling over the utmost(a) decade. The rapid transformation of FedEx transport, which basically reinvented the LTL payload industry a little more than a year ago, is paying off with a strong eturn to profit cogency. tax tax enhancements grew 8 percent year over year. Offering both priority and economy service options and industry-leading overfly times halt made FedEx despatch a market share leader, and customers are delighted by our LTL value proposition. Global un veritablety, a slowdown of Asia exports and weakness in the technology sector challenged FedEx verbalize in FY12. Although U. S. internal and world(prenominal) priority bundle volumes were down, pass improvements helped FedEx elicit maintain profit top executive.Were taking advantage of the flexibility weve built into our system to distich our capacity to the necessary weve speed the retirement of older, less cost- good aircraft and are replacing them with more fuel- good planes and we are taking so me some other actions to increase FedEx prove margins in the future, despite the low- egress environment. 2 FoCuSed neTWoRkS Our customers expectations and needs evolve constantly, and so must we. The Roman statesman Marcus Aurelius summed it up best nary(prenominal)hing happens without change. Thats why our operating companies relentlessly adjust their networks to meet traffic flows and levels.Each network is separate so it can optimize its business without compromise. Hence our competitive advantage of speed and flexibility FedEx posit, FedEx grease and FedEx Freight are superior networks with industry-leading service levels. Superior networks translate into superior solutions for customers. Thats real value. consent as an example the globular rise of online buying, now growing at three to four times the rate of retail sales growth overall. For FedEx, that means more deliveries, whether a output is secured or returned. Its the perfect fuel for growth, internationally an d in the United States.Retailers want a range of merchant marine options that satisfies their customers diverse expectations for cost and service. In the U. S. we offer demonstrate service, customized ground home delivery, and FedEx SmartPost, our most inexpensive transit option. The low cost of FedEx SmartPost allows retailers to offer free exaltation as a marketing tactic. In fact, consumers Were guardianship our eye on the ball loWering costs and improving our efficiency for continued success. chose the free-shipping option for half of holiday ecommerce transactions last November and December, according to omS meat, a firm that analyzes online commerce. As noned earlier, our QDM philosophy and methods are built on the proven premise that high quality put downs costs, improves service levels, and bring ups the customer experience. Its a three-legged stool that agrees our long-term growth strategies. We apply QDM principles to our sustainability decisivenesss, just as w e do to our business decisions, because its good business and good for the planet. The FedEx Express vehicle fleet is ahead of plan to be 20 percent more fuel efficient by 2020 than it was in 2005.To support our air fleet modernization program, we have tardily agreed to leveraging superfluous Boeing 767 aircraft that are substantially more fuel efficient than the aircraft they volition replace. In FY12, we invested about $4 billion in capital expenditures, about half associate to modernizing our air fleet. We think such initiatives are an integral part of this years No. 6 ranking on fortunes Worlds Most Admired Companies list and No. 7 on the Reputation Institutes list of the most socially responsible companies in the United States.FedEx provides the efficient access that businesses of all sizings need to succeed, build prosperous communities and raise living measurings worldwide. proficient ask a British mother who redesigned a simple handbag. In just three geezerhood this FedEx customer turned her product into a $3. 3 gazillion global business called Cambridge Satchel Company. Or call down to the founder of OtterBox, a company that makes protective cases for mobile devices. Thanks to the mastery of global supply range of mountainss, he grew his business from $5 million to almost $169 million in just three years, while creating more than 500 jobs in his hometown of Fort Collins, Colo.We believe we can continue to improve FedExs financial performance in fiscal year 2013 and beyond taild on the strategy and initiatives discussed above. But we read our achievements deposit on the trust of our customers, shareowners, and team members and we will continue to earn their confidence by conducting our business with integrity, dependability, and commitment every day, every transaction. Thats our Purple Promise. Sincerely, WoRld-ClASS SoluTionS Growth in the U. S. and Europe is moderate, but there are positive signs worldwide because of the strength of em erging markets.Countries such as China, India, Mexico and Brazil are quick becoming consumers as well as producers, driving increased demand. The long-term future for global job remains solid, and we are committed to providing solutions for businesses large and small to lay outively compete in this primal market. occupation express will continue to grow long term as the integration of the worlds economies generate more small shipments moving directly from the point of production to the end user. Thats why the unique capabilities of our Boeing 777Fs are a distinct advantage for us.Their long range and nonstop capabilities provide shippers more time to process shipments each day. Con rate of flowly, air consignment shipping is becoming more episodic. High-value technology products make up a large portion of this market these days, and more of these goods are being shipped as part of large upstart product launches. As a consequence, it often takes a large fleet of wide-body ai rcraft like ours to quickly flex capacity up and down. If a customer asks us to add extra flights, FedEx can do it better than our competitors because we have the largest all-cargo fleet in the world.These make outs are reinforced by ameliorate production scheduling, reliability, and logistics breeding systems. Better visibility into supply chains allows greater use of ocean ecstasy to ship customers commodity freight, a distinct advantage given higher(prenominal) fuel prices. As a result, weve been expanding our FedEx Trade Networks capabilities. Since 2008, weve opened 47 freight-forwarding offices worldwide to help businesses range of mountains their markets via ocean or air. Its a pigment part of our strategy to provide customers with the world-class solutions they need to compete.Despite the slowdown in Europe last year, our business there continues to grow. To better serve customers, FedEx Express is opening stations across Europe. Weve also recently completed acquisiti ons of transportation companies in Poland, France, and Brazil to provide customers in those markets with better domestic service and improved access to global markets. innovATion AT WoRk As we grow, we know we must continue to bring together the world responsibly. It starts with the Purple Promise, which FedEx team members deliver millions of times a day worldwide I will make every FedEx experience outstanding. If the Purple Promise is our soreness, Quality Driven Management (QDM) represents our hands its how we do things at FedEx. Frederick W. Smith Chairman, President and CEO MORE fedex. com/annualreport2012 3 to stay ahead, we change the endorse As the speed of global change accelerates, the difference between leaders and followers is defined by one word agility. We not only have the ability to quickly react to changing economic conditions and customer needs, but also the agility to anticipate and effect change. FedEx is redefining our industry as we continually regulate a nd refine our focused networks to gain speed and efficiency.When we change the game, our customers win. ACCeleRATing ACCeSS gAining SPeed FedEx Express is the largest all-cargo airline in the world and the largest express transportation company. Our long-range Boeing 777F aircraft directly link global markets, speeding customers shipments door-to-door. In the last two years, weve improved global access by completing acquisitions in India, Mexico, Poland, France and Brazil. To accommodate evolving customer needs, the global offices of FedEx Trade Networks offer end-to-end shipping operate, including air and ocean freight forwarding supported by customs brokerage.FedEx flat coat continues to delight customers by shortening transit times throughout the U. S. and Canada. Businesses can reach more locations faster than with any other ground carrier. Convenient FedEx stain home delivery and FedEx SmartPost function support the growing consumer trend to buy online, which grew by double digits in each of the last two years. In the United States, Cyber Monday online sales rose 22 percent, to $1. 25 billion last year the largest online shop day ever, boosting holiday shipping volumes to record levels.CuSToMeRS ARe in The FAST lAne thanks to a dedicated Fedex ground team that continually fine-tunes the ground network, much like a race car, to conjure speed, safety and reliability. From left kimberly Whigham, managing director, vehicle Maintenance Jeff grimm, managing director, linehaul Planning brian neal, manager, Safety Process Management Steve griffin, vice president, linehaul full-bodied Sturges, senior manager, linehaul engineering. go to fedex. com/annualreport2012 to read their story. 4 ShiFTing geARS innovATing SoluTionSFedEx Freight is the first carrier to offer less-than-truckload (LTL) shipping customers two choices priority and economy. In an industry where most shipments are processed manually, were automating much of the shipping process, improving c ustomers productivity and earning their loyalty. Weve also made it much easier and faster for shippers to classify freight with Freight Central, our contented online resource for LTL shippers. Combined with industry-leading transit times, these changes have made FedEx Freight a market leader in the U. S. LTL industry, a $31 billion market in 2011.FedEx Services transforms our superior technology and delivery services into shipping and business solutions for customers. Their choices are based on whats most important to them today. Thats why our portfolio includes air and ocean freight forwarding solutions to complement our express and air cargo services. Meanwhile, at FedEx stake locations, we installed 8,000 pieces of printing equipment in the last two years. The technology can deliver a variety of signage and over-sized prints for customers ranging from big-box retailers with manifold locations to large corporations to small businesses. uperior netWorks deliver game-changing cus tomer solutions. MORE fedex. com/annualreport2012 5 to stay ahead, we do whats reform A passion for quality drives FedEx team members worldwide. Our culture of continuous improvement embraces change and drives innovation. In turn, we enhance the lives of our customers and their communities so that our customers remain among the most satisfied and loyal in the industry. Whether its the transportation services we provide, the breeding technology we support or the sustainable solutions we implement, when we do the right thing, we earn their trust.QuAliTy dRiven MAnAgeMenT is how we successfully respond to the pressures of todays business environment. In a recent improvement effort, weve cut missed and damaged shipments, demonstrating our commitment to service excellence and saving millions of dollars. Global teams also worked on behalf of customers to continue improving the customs clearance process. More accurate clearance documentation, technology improvements and better collabo ration among global regulative authorities give FedEx customers an edge in the marketplace. inFoRMATion about a shipment is as important as the shipment itself.Whether its an overnight holiday gift or a supply chain that stretches across the globe, our customers stay in-the-know thanks to our superior technology. The bleak Colorado Springs Enterprise Data Center is the heart of a cutting-edge IT transformation to hybrid cloud architecture. This innovative technology enables FedEx to be more productive and efficient by accessing computer resources even as data expands at 40 percent per year. The size and scope of the implementation is one of the largest inwardly a commercial real-time system. iF knoWledge iS PoWeR, Fedex customers have a competitive advantage thanks to he Fedex Trade networks team that manages My global Trade data. Theyre dedicated to providing the quality tracking and reporting that are essential to managing international freight forwarding shipments. From left R enee brown, product specialist Paul kirkeby, senior programmer analyst Chauntisse Foster, senior product advisor Alan hunt, iT manager. go to fedex. com/annualreport2012 to read their story. 6 SuSTAinAbiliTy and innovation go hand in hand at FedEx. We call it EarthSmart FedEx solutions for a more sustainable world.Our customers can now neutralize their carbon emissions when they ship their documents by taking advantage of our new FedEx carbon-neutral envelope shipping. FedEx Express is the first global express transportation company to offer the program to customers at no charge. Were modernizing our aircraft fleet with Boeing 757s, 767s and 777s, which are delivering substantive increases in fuel efficiency and reduced operating costs and emissions. After only six years into our 15-year plan, we have completed 69 percent of our goal to reduce aircraft emissions intensity 20 percent by 2020.Because were ahead of plan, our goal is to now reduce aircraft emissions intensity 30 perce nt by 2020. At FedEx Office, more than 5 million pounds of paper were recycled in 2011, saving tens of thousands of trees. FedEx Office built in unfree paper-recycling systems into all of its matrimony America locations, because many communities have unsatisfactory recycling or none at all. FedEx is closing in on our vehicle fleet fuel-efficiency goal making our vehicle fleet 20 percent more fuel efficient by 2020 years ahead of memorandum.Our strategy has been to reduce the number of vehicles that we need by continually making our routes more efficient and then selecting the most efficient vehicle for the job. Were adding 87 all-electric trucks to the fleet to bring the total to cxxx in the United States, Asia and Europe. About 11,000 Sprinter vans will also be added. Each is 70 to nose candy percent more fuel efficient than the truck it replaces. MORE fedex. com/annualreport2012 7 OPERATING MARGIN 2008(4) 2009(3) 2010 2011(2) 2012(1) 5. 5% 2. 1% 5. 8% 6. 1% 7. 5% financial highlights 2008(4) DILUTED EARNINGS PER SHARE $3. 60 $0. 1 $3. 76 (in millions, except earnings per share) 2012(1) Percent 2011(2) permute 9 34 140bp 40 40 17 22 9 (1) (3) 2009(3) 2010 2011(2) REVENUE 2012(1) direct Results revenue enhancements $ 42,680 $ 39,304 Operating income 3,186 2,378 Operating margin 7. 5% 6. 1% Net income 2,032 1,452 weaken earnings per common share 6. 41 4. 57 mediocre common and common equivalent shares 317 317 smashing expenditures 4,007 3,434 Financial Position Cash and currency equivalents Total assets Long-term debt, including authentic portion Common stockholders investment $ 2,843 29,903 1,667 14,727 $ 2,328 27,385 1,685 15,220 in billions) $4. 57 $6. 41 2008 2009 2010 $38. 0 $35. 5 $34. 7 lessen ON AVERAGE fair play 2011 (4) 2008 2009 2012 (3) 2010 2011(2) 2012(1) 8. 3% $39. 3 0. 7% $42. 7 8. 6% 10. 0% 13. 6% OPERATING MARGIN DEBT TO union capitalization 2008(4) 2009(3) 2008 2010 5. 5% 2. 1% 12. 1% 5. 8% 15. 9% 12. 3% 10. 0% 10. 2% 201 1(2) 2012 2009 2010 2011 2012 (1) 6. 1% 7. 5% DILUTED EARNINGS PER SHARE 2008(4) 2009 2010 STOCK monetary value ( may 31 close) $91. 71 $55. 43 $83. 49 2008 (3) 2009 2010 $3. 60 $0. 31 $3. 76 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL turn over* 120 $110 $100 $90 $80 $70 $60 $50 $40 5/07 5/08 5/09 5/10 5/11 5/12 2011(2) 2011 2012(1) 2012 $93. 64 $4. 57 $89. 14 $6. 41 RETURN ON AVERAGE EQUITY 2008(4) 2009(3) 2010 2011(2) 2012(1) 8. 3% 0. 7% 8. 6% 10. 0% 13. 6% DEBT TO TOTAL CAPITALIZATION 2008 2009 2010 2011 2012 12. 1% 15. 9% 12. 3% 10. 0% 10. 2% FedEx Corporation S&P 500 Dow Jones carry-over median(a) *$100 invested on 5/31/07 in stock or index, including reinvestment of dividends. fiscal year ending may 31. (1) results for 2012 include a $134 million ($84 million, net of tax or $0. 6 per cut share) impairment charge resulting from the decision to retire 24 aircraft and connect engines at fedex express and the bump of a $66 million lawful harbour initially save in 2011. (2) results for 2011 include charges of just about $199 million ($104 million, net of tax and applicable variable incentive compensation come tos, or $0. 33 per reduce share) for the combination of our fedex freight and fedex national ltl operations and a $66 million reserve associated with a legal matter at fedex express. (3) results for 2009 include a charge of $1. billion ($1. 1 billion, net of tax, or $3. 45 per diluted share) originally for impairment charges associated with state of grace and aircraft. (4) results for 2008 include a charge of $891 million ($696 million, net of tax, or $2. 23 per diluted share) put down during the fourth quarter, predominantly for impairment charges associated with intangible assets from the fedex office acquisition. STOCK PRICE (May 31 close) 2008 2009 2010 2011 2012 $91. 71 $55. 43 $83. 49 $93. 64 $89. 14 COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN* 8ManageMents countersign and analysis of results of operations and financial conditio n OVERVIEW OF FINANCIAL SECTION The financial surgical incision of the FedEx Corporation (FedEx) Annual Report (Annual Report) consists of the following Managements Discussion and psychoanalysis of Results of operations and Financial Condition (MD&A), the Consolidated Financial Statements and the notes to the Consolidated Financial Statements, and another(prenominal) Financial Information, all of which include information about our significant accounting policies, practices and the transactions that underlie our financial results.The following MD&A describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations and the critical accounting estimates of FedEx. The discussion in the financial sectionalisation should be read in conjunction with the other sections of this Annual Report and our detailed discussion of risk factors included in this MD&A. our reportable members.Our FedEx Services subdivision provides sales, marketing, information technology, communications and back-office support to our transportation segments. In addition, the FedEx Services segment provides customers with retail access to FedEx Express and FedEx screen background shipping services through FedEx Office and Print Services, Inc. (FedEx Office) and provides customer service, technical support and billing and collection services through FedEx TechConnect, Inc. FedEx TechConnect). See Reportable parts for further discussion. The key indicators necessary to understand our operating results include the overall customer demand for our various services based on macroeconomic factors and the global economy the volumes of transportation services provided through our networks, primarily measured by our average perfunctory volume and hipment weight the mix of services purchased by our customers the prices we obtain for our services, primarily measured by yield (revenue per parcel or pound or revenue per hundredweight for LTL freight shipments) our ability to manage our cost structure (capital expenditures and operating get downs) to match shifting volume levels and the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel snarfs. ORGANIZATION OF INFORMATIONOur MD&A is serene of three major(ip) sections Results of Operations, Financial Condition and Critical Accounting Estimates. These sections include the following information Results of Operations includes an overview of our consolidated 2012 results compared to 2011, and 2011 results compared to 2010. This section also includes a discussion of key actions and events that preserveed our results, as well as our outlook for 2013. The overview is followed by a financial epitome and analysis (including a discussion of both historic operating results and our outlook for 2013) for each of our reportable transportation segments. gt Our financial condition is reviewed through an analysi s of key elements of our liquidity, capital resources and contractual cash obligations, including a discussion of our cash flows and our financial commitments. Critical accounting estimates discusses those financial contestation elements that we believe are important to understanding certain of the material judgments and assumptions incorporated in our financial results. We conclude with a discussion of risks and uncertainties that may impact our financial and operating results. The majority of our operating expenses are directly impacted by revenue and volume levels.Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent with the change in revenues and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than changes in revenues and volume. Except as otherwise specified, references to years indicate our fiscal year ended May 31, 2012 or ended May 31 of the year re ferenced and comparisons are to the prior year. References to our transportation segments include, collectively, our FedEx Express, FedEx Ground and FedEx Freight segments. DESCRIPTION OF BUSINESSWe provide a broad portfolio of transportation, e-commerce and business services through companies competing collectively, operating severally and managed collaboratively, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (FedEx Express), the worlds largest express transportation company FedEx Ground incase System, Inc. (FedEx Ground), a leading North American provider of small- big money ground delivery services and FedEx Freight, Inc. (FedEx Freight), a leading North American provider of less-than-truckload (LTL) freight services.These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (FedEx Services), form the core of 9 focussings discussion and analysis RESULTS OF OPERATIONS CONSOLIDATED RESULTS Th e following table compares summary operating results (dollars in millions, except per share amounts) for the years ended May 31 Percent Change 2011(2) 2010 2012/2011 2011/2010 2012(1) Revenues $ 42,680 $ 39,304 $ 34,734 9 13 Operating income 3,186 2,378 1,998 34 19 Operating margin 7. 5% 6. 1% 5. 8% 140bp 30bp Net income $ 2,032 $ 1,452 $ 1,184 40 23 Diluted earnings per share $ 6. 1 $ 4. 57 $ 3. 76 40 22 (1) Operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially record in 2011. (2) Operating expenses include $133 million in costs associated with the combination of our FedEx Freight and FedEx subject LTL operations, impressive January 30, 2011, and a $66 million legal reserve associated with the ATA Airlines lawsuit against FedEx Express.The following table shows changes in reven ues and operating income by reportable segment for 2012 compared to 2011, and 2011 compared to 2010 (dollars in millions) Revenues Dollar Change Percent Change 2012/2011 2011/2010 2012/2011 2011/2010 $ 1,934 $ 3,026 8 14 1,088 1,046 13 14 371 590 8 14 (13) (86) (1) (5) (4) (6) NM NM $ 3,376 $ 4,570 9 13 Operating Income Dollar Change Percent Change 2012/2011 2011/2010 2012/2011 2011/2010 $ 32 $ 101 3 9 439 301 33 29 337 (22) 193 (14) $ 808 $ 380 34 19FedEx Express segment(1) FedEx Ground segment FedEx Freight segment(2) FedEx Services segment some other and eliminations (1) FedEx Express segment 2012 operating expenses include an impairment charge of $134 million resulting from the decision to retire 24 aircraft and related engines at FedEx Express and the reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011. (2) FedEx Freight segment 2011 operating expenses include $133 million in costs associated with the co mbination of our FedEx Freight and FedEx depicted object LTL operations, effectual January 30, 2011. 0 managements discussion and analysis Overview Revenues, operating income and operating margins increased in 2012 cod to the exceptional performance of our FedEx Ground segment, improved profitability at FedEx Freight and increased yields across all our operating segments, despite moderating global economic conditions. Our results for 2012 include the impact of certain charges and credits as described below, which favorably impacted our year-overyear results by $0. 15 per diluted share, after considering the effect of variable incentive compensation accruals.In addition, our results significantly benefited in 2012 from the timing staff that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. We also benefited from a milder winter, as our 2011 results were negatively impacted by unusually exhausting winter weather. 26 related engines, as well as six Boeing MD10-10 aircraft and 17 related engines. The decision to retire these aircraft will better set out the U. S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes.Our 2011 results include one-time costs associated with the combination of our FedEx Freight and FedEx field LTL operations of $133 million, including $89 million of impairment and other charges. Our results for 2011 reflected the momentum of improved global economic conditions and strong demand for our services, which swarm yield growth and volume increases across all our transportation segments, particularly in International antecedence (IP) package shipments at FedEx Express. Our FedEx Ground segment delivered strong results through increasing volume, yield and operating margins.The FedEx Freight segment returned to profitability in the fourth quarter of 2011, primarily over receivable(p) to higher LTL yield. All of our transportation segments benefited from our yield management initiatives in 2011. The combination of our FedEx Freight and FedEx National LTL operations was completed in 2011. Our combined LTL network increases efficiencies, reduces practicable costs and provides customers both Priority and Economy LTL freight services across all lengths of haul from one integrated company.Our 2012 results include the reversal of a $66 million reserve associated with the ATA Airlines lawsuit at FedEx Express. This reserve was initially recorded in 2011 when a loss was deemed probable as a result of an adverse decision in the lawsuit. We reversed this reserve during 2012 when FedEx Express won the approach of this case and the appeals court overturned the prior ruling (See Note 17 of the accompanying consolidated financial statements).Additionally, our 2012 results include a noncash impairment charge of $134 million due to our decision to retire from service 18 Airbus A310-200 aircraft and 11 managements discussion and analysis 3,00 0 3,000 2,603 2,603 2,638 2,638 2,684 (1) (1) FedEx FedEx Express(1) Express(1) modal(a) quotidian software program stack comely fooling pile rule book 2,684 3,000 2,577 FedEx Express(1) average out Daily packet Volume 2,638 2,684 4,100 FedEx FedEx Ground(2) Ground(2) Average Daily Package Volume Average Daily Package Volume 4,100 (2) (2) FedEx Ground( Average Daily ,907 3,907 FedEx FedEx Ground Ground FedEx FedEx Express Express 2,500 2,500 2,500 The following graphs for FedEx Express, FedEx Ground and FedEx Freight show selected 3,900 3,900 (in thousands) for the years ended May 31 volume trends Average Daily Package Volume 3,900 Average Daily Package Volume Average Daily Package Volume 2,000 Average Daily Package Volume 2,000 2,000 3,000 1,500 2,500 1,000 3,000 2,000 500 2,500 1,500 0 2,000 1,000 1,500 500 1,000 0 500 0 3,000 2,603 1,500 2,500 1,000 3,000 2,000 2,603 475 500 2,500 1,500 0 2,000 2009 1,000 2,577 2,603 ,100 2,577 FedEx2,603 2,638 Express(1) 2,684 2,577 1,5 00 2,577 Express(1)2,638 2,684 FedEx Average Daily Package Volume Average Daily Package Volume 523 2,603 2,638 475 575 523 2,638 2,684 575 2,684 559 2,577 1,000 500 559 2,577 475 523 575 4,100 4,100 3,700 3,700 3,900 3,900 4,100 559 4,100 3,500 3,500 3,404 3,700 3,900 3,300 FedEx Ground(2) FedEx Ground(2) 3,700 Average Daily Package Volume Average Daily Package3,907 3,907 Volume 3,523 3,523 3,404 2009 3,523 2010 3,404 3,523 2009 2010 3,404 3,523 2010 2011 2011 2012 2012 3,746 3,746 3,500 3,907 3,300 3,907 3,404 ,746 3,746 3,523 0 2010 2010 2011 2011 2012 2012 2009 575 575 559 559 523 523 U. S. domestic package 475 475 U. S. domestic 1,500 U. S. domestic package package IP package IP package 500 2009 2010 1,000 0 2009 475 500 0 2009 575 559 575 559 2009 2010 2010 2011 2011 2012 2012 523 523 475 U. S. domestic package package IP package IP package U. S. domestic 3,700 3,900 3,300 2011 2012 2009 3,500 3,500 IP package 3,404 3,700 3,700 3,300 3,500 3,300 2009 3,500 3,404 3,300 3,523 201 1 2010 3,746 2011 3,746 2012 2012 2009 2010 2) 2011 2012 2011 2012 FedEx2009 2010 Freight2011 FedEx 2010 Freight FedEx2009 2010 Express and FedEx Ground(2)FedEx Express and FedEx Ground2009 FedEx and FedEx Ground(2) 2012 Express 2010 2011 U. S. domestic package package IP package IP package Volume U. S. domestic Total Average Daily Package Volume AverageLTL Shipments Total Average Daily Package Volume Total Average Daily Package Average Daily Daily LTL Shipments 3,300 2012 FedEx Freight Average Daily 7,800 7,600 7,400 7,800 7,200 7,600 7,000 7,800 7,400 6,800 7,600 7,200 6,600 7,400 7,000 7,200 6,800 7,000 6,600 6,800 7,800 7,600 7,800 (2) (2) 7,538 7,6007,538 90. 0 7,538 0. 0 86. 0 86. 0 90. 0 FedEx FedEx Express and FedEx Ground Express and FedEx Ground Total Average Daily7,353 7,353 Volume Total AveragePackage Daily Package Volume 7,400 7,400 (2) FedEx Express and FedEx Ground(2) FedEx Express and FedEx Ground7,200 7,200 7,600 Total Average Daily Package 7,538 7,538 Total Average Daily Package Volume Volume 7,002 7,002 7,800 7,353 85. 0 90. 0 80. 0 85. 0 FedEx FedEx Freight Freight 84. 9 84. 9 85. 0 Average Daily LTL Shipments Average Daily LTL Shipments 82. 3 82. 3 90. 0 80. 0 7,000 7,800 7,400 6,780 6,800 7,600 7,200 6,600 7,400 2009 7,000 6,780 7,002 2009 2010 6,780 7,002 2009 2010 6,780 7,002 ,353 7,353 7,000 7,002 6,800 7,538 7,538 7,002 2010 7,353 2011 7,353 2012 2011 6,600 6,780 85. 0 90. 0 75. 0 80. 0 85. 0 70. 0 85. 0 74. 4 90. 0 75. 0 FedEx FreightFreight86. 0 FedEx 80. 0 86. 0 Average Daily LTL Shipments 84. 9 Average Daily LTL Shipments 84. 9 74. 4 82. 3 82. 3 86. 0 86. 0 84. 9 2009 2010 82. 3 74. 4 2010 2011 82. 3 2011 2012 70. 0 75. 0 84. 9 2012 2009 74. 4 82. 3 2012 2009 2010 2011 7,200 6,780 6,800 7,000 6,600 2009 6,780 6,800 80. 0 85. 0 70. 0 2012 2009 74. 4 75. 0 75. 0 80. 0 80. 0 70. 0 75. 0 70. 0 74. 4 2009 75. 0 2010 2010 2011 2011 2012 2012 74. 4 2009 2010 2010 2011 2011 2012 012 70. 0 70. 0 6,600 6,600 The following graphs 2010 FedEx Express, FedEx Ground and FedEx Freight show selected yield trends for the years ended 2011 31 for May 2011 2009 2010 2011 2011 2012 2012 2009 2009 2009 2010 2010 2012 2012 FedEx FedEx Express Express Revenue per Package admit Yield Revenue per Package (1) (1) FedEx Express Revenue per Package Yield (1) FedEx FedEx Ground Ground Revenue per Package Yield Yield Revenue per Package $9. 25 (2) (2) (2) (2) FedEx Ground ( Revenue per P $70. 00 $60. 00 $50. 00 $70. 00 $40. 00 $60. 00 $30. 00 $70. 00 $50. 00 $20. 00 $60. 00 $40. 00 $10. 00 $50. 0 $30. 00 $40. 00 $20. 00 $30. 00 $10. 00 $20. 00 $21. 00 $10. 00 $20. 00 $19. 00 $21. 00 $18. 00 $20. 00 $21. 00 $17. 00 $19. 00 $20. 00 $16. 00 $18. 00 $19. 00 $17. 00 $70. 00 $57. 81 $60. 00 $70. 00 $57. 81 $53. 10 (1) (1) $56. 08 $53. 10 FedEx FedEx Express Express Revenue per Package Yield Yield Revenue per Package $50. 00 $50. 00 $40. 00 $57. 81 $60. 00 $30. 00 $70. 00 $50. 00 $30. 00 $70. 00 $60. 83 $60. 83 $57. 81 $60. 00 $56. 08 $9. 25 $53. 10 $56. 08 $8. 75 $9. 25 $8. 25 $8. 75 $9. 25 $7. 75 $14. 61 2010 $15. 59 $8. 25 $8. 75 $7. 25 $9. 25 $60. 83 $8. 75 FedEx FedEx Ground Ground $8. 77 $8. 77 $8. 5 Revenue per Package Yield Yield Revenue per Package FedEx Express(1) FedEx Express(1) $60. 83 $40. 00$60. 83 $57. 81 Revenue$53. 10 Package Yield Yield Revenue$53. 10$56. 08 $56. 08 per per Package $16. 21 $57. 81$14. 61 $53. 10 2009 2010 $15. 59 $14. 61$56. 08 $53. 10 2010 2011 $60. 83 $17. 12 $17. 12 $20. 00$60. 83 $16. 21 $15. 59 $56. 08 $10. 00 2011 2012 2012 2009 $9. 25 $8. 25 $20. 00 $16. 21 $57. 81 $60. 00 $40. 00 $10. 00 $50. 00 2009 $30. 00 $8. 75 $9. 25 $7. 70 $7. 75 $17. 12 FedEx Ground (2) FedEx Ground (2) $8. 25 $8. 17 $8. 17 Revenue per Package Yield Yield $8. 77 Revenue per Package $8. 7 $7. 70 $7. 73 $7. 73 $8. 17 2009 2010 $7. 70 $7. 73 2010 2011 $7. 73 $8. 17 $8. 17 $8. 77 2011 2012 $8. 17 $7. 75 $8. 77 $7. 25 2012 2009 2010 $7. 70 $7. 73 U. S. domestic $17. 12 $40. 00 U. S. domestic package pack age IP package IP package $17. 12 $20. 00 $16. 21 $16. 21 $15. 59 $14. 61 $15. 59 $14. 61 U. S. domestic package $8. 25 $8. 75 $7. 25 2011 2012 2009 $7. 70 $7. 75 $7. 75 IP package $8. 25 $8. 25 $30. 00 $10. 00 2009 2010 2010 2011 2011 2012 2012 2009 $17. 12 $17. 12 $20. 00 $16. 21 $16. 21 $15. 59 $14. 61 U. S. domestic package U. S. domestic package $14. 61$15. 59IP package IP package $21. 00 $21. 0 $10. 00 2009 2010 2010 2011 2011 2012 2012 2009 $20. 00$19. 57 $20. 00 $19. 57 U. S. domestic package package IP package IP package U. S. domestic $19. 07 $19. 07 $19. 07 $19. 00 $21. 00 $19. 00 FedEx Freight FedEx FedEx Freight Freight Average arouse approach per Gallon Gallon Average provide Cost per $7. 25 $7. 25 $7. 73 $7. 70 $7. 70 $7. 73 2009 2009 2010 2010 2011 2011 2012 $7. 75 $7. 75 LTL Revenue per hundredweight Yield LTL Revenue per centner Yield LTL Revenue per Hundredweight Yield FedEx FedEx Freight Freight LTL Revenue per Hundredweight Yield Yield LTL Revenue per Hu ndredweight $18. 24 $17. 7 $4. 50 $7. 25 $4. 00 $4. 50 $7. 25 2009 $4. 00 $19. 57 $4. 50 2009 2010 2010 2011 2011 $3. 80 2012 2012 Average Fuel C 2012 $4. 00 Average Fuel Cost per Gallon Gallon $3. 80 Average Fuel Cost per $3. 04 $3. 25 $2. 69 $2. 66 $3. 25 $3. 31 $3. 50$3. 31 $2. 66 $3. 80 $3. 04 $2. 69 $2. 15 FedEx FreightFreight FedEx $18. 24 $18. 24 LTL Revenue per Hundredweight Yield Yield LTL Revenue per Hundredweight $18. 00$19. 57 $18. 00 $20. 00 $19. 57 $19. 07 $21. 00 $17. 00 $19. 00 $20. 00 $19. 07 $16. 00 $18. 00 2009 $19. 00 $17. 00 $19. 07 $17. 07 $17. 07 $18. 24 $19. 07 2009 2010 $17. 07 2010 2011 $17. 07 $18. 4 $18. 24 $17. 00 $19. 57 $19. 57 $16. 00 2011 2012 2012 2009 2010 2011 $3. 50 $3. 50 $3. 04 $4. 50 $4. 50 $3. 00 $3. 00 $2. 62 $4. 00 $4. 00 $2. 50 $2. 50 $4. 50 $4. 50 $3. 50 $3. 50 $3. 04 $2. 00 $2. 00 $4. 00 $4. 00 $3. 00 $3. 00 $2. 62 $1. 50 $1. 50 $3. 50 2012 $3. 50 2009 $2. 50 $2. 50 $3. 04 $3. 00 $2. 00 $2. 50 $1. 50 $2. 00 $1. 50 Average Fuel Cost per Gallon Gallon Average Fuel Cost per $3. 00 $2. 62 $2. 69 $3. 04 $2. 15 $2. 15 $3. 25 $2. 69 $2. 66 2010 $3. 25 2011 $2. 15 $2. 69 $2. 66 $2. 15 2010 2011 resiny 2010 2011 reverse lightning $3. 25 $3. 31 $2. 50 $3. 80 $2. 62 $3. 31 $3. 80 $2. 00$3. 80 $2. 66 $1. 50$3. 1 $3. 25 $3. 31 2011 2012 2012 2009 Jet $2. 66 Jet fomite 2010 $2. 62 $2. 69 $18. 00 $18. 00 (2) Package statistics do not include the operations of FedEx SmartPost. $17. 07 $17. 07 $16. 00 $16. 00 2009 2009 2010 2010 2011 2011 2012 2012 $17. 00 $17. 00 (1) Excludes international domestic operations. $18. 24 2009 2010 $3. 04 $2. 15 Vehicle $3. 00 Vehicle $2. 00 $2. 62 $2. 69 $2. 62 $2. 15 2009 2010 Vehicle Vehicle $2. 50 $1. 50 2009 $2. 00 $1. 50 2009 2011 2012 Jet 2011 2012 Jet 2012 12 $16. 00 $16. 00 2009 2009 2010 2010 2011 2011 2012 2012 2009 2010 Vehicle Vehicle 2012 managements discussion and analysis evenue During 2012, revenues increased 9% due to yield growth across all our transportation segments. At FedEx Ex press, revenues increased 8% in 2012 led by higher U. S. domestic and IP package yields. However, U. S. domestic package and IP package volumes declined due to weakening global economic conditions. Revenues increased 13% during 2012 at our FedEx Ground segment due to higher yields and strong demand for all our major services. At FedEx Freight, revenues increased 8% during 2012 due to higher LTL yield as a result of higher fuel surcharges and yield management programs, despite a decrease in volume.Revenues increased 13% during 2011 due to yield increases and volume growth across all our transportation segments. Yields improved due to higher fuel surcharges and increased base rates under our yield improvement programs. At FedEx Express, revenues increased 14% in 2011 led by IP volume growth in Asia, as well as U. S. domestic and IP package yield increases. At the FedEx Ground segment, revenues increased 14% in 2011 due to continued volume growth driven by market share gains and yield growth at both FedEx Ground and FedEx SmartPost.At FedEx Freight, yield increases due to our yield management programs and higher LTL fuel surcharges, and higher average daily LTL volumes led to a 14% increase in revenues in 2011. impairment and Other Charges In May 2012, we made the decision to retire from service 18 Airbus A310-200 aircraft and 26 related engines, as well as six Boeing MD10-10 aircraft and 17 related engines. As a consequence of this decision, a noncash impairment charge of $134 million ($84 million, net of tax, or $0. 26 per diluted share) was recorded in the fourth quarter.The decision to retire these aircraft, the majority of which were temporarily idled and not in revenue service, will better align the U. S. domestic air network capacity of FedEx Express to match current and anticipated shipment volumes. Operating inCOme The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the years ended May 31 2012 2011 2010 Operating expenses Salaries and employee benefits $ 16,099 $ 15,276 $ 14,027 Purchased transportation 6,335 5,674 4,728 Rentals nd landing fees 2,487 2,462 2,359 Depreciation and amortization 2,113 1,973 1,958 Fuel 4,956 4,151 3,106 Maintenance and repairs 1,980 1,979 1,715 (1) (2) Impairment and other charges 134 89 18 Other (3) 5,390 5,322 4,825 Total operating expenses $ 39,494 $ 36,926 $ 32,736 (1) Represents charges resulting from the decision to retire 24 aircraft and related engines at FedEx Express. (2) Represents charges associated with the combination of our FedEx Freight and FedEx National LTL operations, effective January 30, 2011. 3) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airlines lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consolidated financial statements). Percent of Revenue 2012 2011 2010 Operating expenses Salaries and employee benefits Purchased transportation Rentals a nd landing fees Depreciation and amortization Fuel Maintenance and repairs Impairment and other charges Other (3) Total operating expenses Operating margin 37. 7% 14. 9 5. 8 5. 0 11. 6 4. 6 0. 3(1) 12. 6 92. 5 7. 5% 38. % 14. 4 6. 3 5. 0 10. 6 5. 0 0. 2(2) 13. 5 93. 9 6. 1% 40. 4% 13. 6 6. 8 5. 6 8. 9 4. 9 0. 1 13. 9 94. 2 5. 8% In 2011, we incurred impairment and other charges of $89 million related to the combination of our LTL operations at FedEx Freight. In 2010, we recorded a charge of $18 million for the impairment of goodwill related to the FedEx National LTL acquisition, eliminating the remaining goodwill attributable to this reporting unit. (1) Represents charges resulting from the decision to retire 24 aircraft and related engines at FedEx Express. 2) Represents charges associated with the combination of our FedEx Freight and FedEx National LTL operations effective January 30, 2011. (3) Includes the 2012 reversal of a $66 million legal reserve associated with the ATA Airli nes lawsuit which was initially recorded in 2011 (See Note 17 of the accompanying consolidated financial statements. ) Our 2012 operating income increased 34% and operating margin increased 140 basis points driven by higher yields across all our transportation segments due to higher fuel surcharges and our yield management programs. Our results lso significantly benefited in 2012 from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. FedEx Ground segment operating income increased $439 million in 2012 driven by higher yields and strong demand for all our major services. At our FedEx Freight segment, operating income increased $337 million due to higher LTL yield and efficiencies gained from the combination of our LTL operations in 2011. Additionally, our year-over-year comparisons were favorably impacted by several items as described above in the Overview section. 13 anagements discussion and analysis FedEx Ground (2) R evenue per Package Yield Salaries and benefits increased 5% in 2012 primarily due to higher $9. 25 incentive compensation costs and the full reinstatement of 401(k) $8. 77 company-matching contributions effective January 1, 2011. Purchased $8. 75 transportation costs increased 12% in 2012 due to volume growth and higher fuel surcharges at FedEx Ground, costs associated with the $8. 25 $8. 17 magnification of our freight forwarding business at FedEx Trade Networks $7. 73 and higher utilization of third-party transportation providers in interna$7. 0 $7. 75 tional locations primarily due to business acquisitions at FedEx Express. $7. 25 The following graph for our transportation segments shows our average 2009 2010 2011 2012 cost of jet and vehicle fuel per gal for the years ended May 31 Salaries and employee benefits increased 9% in 2011 due to the reinstatement of merit recompense increases, increases in pension and medical Average Fuel Cost per Gallon costs and the reinstatement of full 401(k) company-matching contributions effective January 1, 2011. Purchased transportation increased $4. 0 20% in 2011 due to volume growth, higher fuel surcharges and higher $3. 80 $4. 00 rates paid to our independent contractors at FedEx Ground, as well as costs associated with the expansion of our freight forwarding business $3. 31 $3. 25 $3. 50 $3. 04 at FedEx Trade Networks. Maintenance and repairs expense increased $3. 00 $2. 69 $2. 66 $2. 62 15% in 2011 primarily due to an increase in maintenance events, as a $2. 50 result of timing, and higher utilization of our fleet driven by increased $2. 15 volumes. Other operating expense increased 10% primarily due to $2. 0 volume- and weather-related expenses. $1. 50 2009 2010 2011 2012 Vehicle Jet costs, and increased maintenance and repairs expenses had a negative impact on our performance for 2011. Costs related to the combination of our FedEx Freight and FedEx National LTL operations also negatively impacted our 2011 result s by $133 million. Unusually severe weather in the second half of 2011 caused widespread disruptions to our networks, which led to lost revenues and pack higher purchased transportation, salaries and wages and other operational costs.Additionally, a $66 million reserve associated with an adverse venire decision in the ATA Airlines lawsuit against FedEx Express was recognized in 2011. Fuel expense increased 19% during 2012 primarily due to price increases. Our fuel surcharges, which are more fully described in the vicenary and Qualitative Disclosures About Market Risk section of this MD&A, have a timing lag and are designed to pass through the price of fuel not included in our base shipping rates to our customers.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, fuel surcharges significantly exceeded incremental fuel costs in 2012. If fuel prices remain at current levels, that effect is exp ected to reverse in 2013. Our analysis considers the estimated impact of the reduction in fuel surcharges included in the base rates charged for FedEx Express and FedEx Ground services.However, this analysis does not consider the negative effects that fuel surcharge levels may have on our business, including reduced demand and shifts by our customers to lower-yielding services. While fluctuations in fuel surcharge rates can be significant from flow to period, fuel surcharges represent one of the many individual components of our pricing structure that impact our overall revenue and yield. Additional components include the mix of services sold, the base price and extra service charges we obtain for these services and the level of pricing discounts offered.In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative fuel surcharge rates in effect for 2012, 2011 and 2010 in the accompanying discussions o f each of our transportation segments. In 2011, operating income increased 19% primarily due to yield and volume increases across all our transportation segments. Higher compensation and benefits, including retirement plans and medical Fuel expense increased 34% during 2011 primarily due to increases in the average price per congius of fuel and fuel consumption driven by volume increases.Based on a static analysis of the net impact of yearover-year changes in fuel prices compared to year-over-year changes in fuel surcharges, fuel had a positive impact on operating income in 2011, predominantly at FedEx Express. Other inCOme and expense Interest expense reduced $34 million in 2012 due to debt maturities, an increase in capitalized interest related to the timing of move on payments on aircraft purchases and lower financing fees. Interest expense increased $7 million in 2011 due to a decrease in capitalized interest related to timing of construction projects and progress payments on aircraft purchases. nCOme taxes Our effective tax rate was 35. 3% in 2012, 35. 9% in 2011 and 37. 5% in 2010. Our 2012 rate was lower than our 2011 rate primarily due to favorable audit developments. The 2011 rate was lower than our 2010 rate primarily due to increased permanently reinvested foreign earnings and a lower state rate driven by favorable audit and legislative developments. Our permanent reinvestment strategy with respect to unremitted earnings of our foreign subsidiaries provided a 1. 3% benefit to our 2012 effective tax rate.Our total permanently reinvested foreign earnings were $1. 0 billion at the end of 2012 and $640 million at the end of 2011. Our current federal income tax expenses in 2012, 2011 and 2010 were significantly reduced by accelerated depreciation deductions we claimed under provisions of the Tax Relief and the Small Business Jobs Acts of 2010, the American Recovery and Reinvestment Tax Act of 2009, and the Economic Stimulus Act of 2008. Those Acts, des igned 14 managements discussion and analysis to stimulate new business investment in the U. S. accelerated our depreciation deductions for new qualifying investments, such as our new Boeing 777 Freighter (B777F) aircraft. These are timing benefits only, in that the depreciation would have otherwise been recognized in later years. The components of the provision for federal income taxes for the years ended May 31 were as follows (in millions) Current Deferred Total Federal Provision 2012 $ (120) 947 $ 827 2011 $ 79 485 $ 564 2010 $ 36 408 $ 444 OutlOOk We anticipate revenue and earnings growth in 2013 despite only modest growth in the global economy. We believe U.S. domestic and global economic conditions will be impacted by the European debt crisis, slowing growth in Asia, and the uncertainty these issues create on the global economy and the demand for our services. These weaker global economic conditions have driven a shift by our customers from premium services to our deferred ser vices, and we expect that trend to continue in 2013. For 2013, we expect our effective tax rate to be between 37. 0% and 38. 0%. The actual rate, however, will depend on a number of factors, including the amount and source of operating income.We also expect our current federal income tax expense will increase in 2013, possibly significantly, due to lower accelerated depreciation benefits than in prior years. Additional information on income taxes, including our effective tax rate atonement and liabilities for uncertain tax positions, can be found in Note 11 of the accompanying consolidated financial statements. Business aCquisitiOns During 2012, we continued to expand our FedEx Express international network. On July 25, 2011, we completed our acquisition of Servicios Nacionales Mupa, S. A. de C.V. (MultiPack), a Mexican domestic express package delivery company, for $128 million in cash from operations. Last year, FedEx Express completed the acquisition of the Indian logistics, dis tribution and express businesses of AFL Pvt. Ltd. and its affiliate Unifreight India Pvt. Ltd. for $96 million in cash on February 22, 2011. The financial results of these acquired businesses are included in the FedEx Express segment from the date of acquisition and were not material, individually or in the aggregate, to our results of operations or financial condition.Substantially all of the purchase price was allocated to goodwill, which was merely attributed to our FedEx Express reporting unit. Our anticipated earnings growth in 2013 is predicated on continued improvement in profitability at our FedEx Freight segment from yield growth and efficiency improvements and the sustained strong performance of our FedEx Ground segment. International revenue growth and network efficiency improvements at FedEx Express should also nominate to our earnings growth in 2013.However, significant cost headwinds in pension expense will stay earnings growth in 2013 as a historically low discount rate at our May 31, 2012 measurement date will increase these costs by approximately $150 million. During 2013, we will continue to evaluate actions and opportunities to reduce costs, improve efficiencies and adjust our networks to match anticipated demand. Initial actions were taken in 2012, as we made the decision to retire 24 aircraft and related engines at FedEx Express to better align the U. S. omestic air network capacity to match current and anticipated shipment volumes. In addition, we remain focused on modernizing our aircraft fleet at FedEx Express by adding newer aircraft that are more reliable, fuel efficient and technologically advanced, and retiring older, less-efficient aircraft. As a result of these efforts, FedEx Express is shortening the depreciable lives of the following aircraft and related engines 31 surplus Boeing MD10-10s, 18 additional Airbus A310s, four Boeing 727s (B727) and one Boeing MD10-30.This will accelerate the retirement of these aircraft to align with the delivery schedule for replacement Boeing 767-300 Freighter (B767F) and Boeing 757-200 (B757) aircraft. The accelerated depreciation on these aircraft is expected to total $69 million in 2013, with a partial offset from the avoidance of depreciation related to the aircraft retirements (described in the Impairment and Other Charges section above).FedEx Express is also developing an operating and cost structure plan during 2013 to further improve its operational efficiency. Our capital expenditures for 2013 are expected to decrease to approximately $3. 9 billion, with fewer aircraft deliveries in 2013. We will continue to evaluate our investments in critical long-term strategic projects to ensure our capital expenditures generate high returns on investments and are balanced with our outlook for global economic conditions. On June 29, 2012, FedEx Express entered into a upplemental agreement to purchase nine additional B767F aircraft, exercised ten B767F options available under the December 2011 agreement and purchased the right to 15 additional options. In conjunction with the supplemental agreement to purchase B767F aircraft, FedEx Express converted four B777F aircraft deliveries to equivalent purchase value for B767F aircraft purchased under the supplemental agreement. For additional details on key 2013 capital projects, refer to the chief city Resources and Liquidity Outlook sections of this MD&A.Subsequent to year-end, we completed the following acquisitions Opek Sp. z o. o. , a Polish domestic express package delivery company, for $54 million in cash from operations on June 13, 2012 TATEX, a French express transportation company, for $55 million in cash from operations on July 3, 2012 Rapidao Cometa Logistica e Transportes S. A. , a Brazilian transportation and logistics company, for $398 million in cash from operations on July 4, 2012Based on the timing of the purpose of these acquisitions in relation to the date of issuance of the financial s tatements, the initial purchase price accounting was not completed for these acquisitions. The financial results of these acquired businesses will be included in the FedEx Express segment from the date of acquisition and will be immaterial to our 2013 results. These acquisitions will give us more robust transportation networks within these countries and added capabilities in these important global markets. 5 managements discussion and analysis Our outlook is dependent upon a stable pricing environment for fuel, as volatility in fuel prices impacts our fuel surcharge levels, fuel expense and demand for our services. Historically, our fuel surcharges have largely offset incremental fuel costs however, volatility in fuel costs may impact earnings because adjustments to our fuel surcharges lag changes in actual fuel prices paid. Therefore, the trailing impact of adjustments to our fuel urcharges can significantly affect our earnings all positively or negatively in the short-term. NEW A CCOUNTING GUIDANCE New accounting rules and apocalypse requirements can significantly impact our reported results and the comparability of our financial statements. During our fiscal year, the Financial Accounting Standards jump on issued new guidance to make the presentation of items within other comprehensive income (OCI) more prominent.The new standard will require companies to present items of net income, items of OCI and total As described in Note 17 of the accompanying consolidated financial comprehensive income in one continuous statement or two separate statements and the Independent Contractor Matters section of our consecutive statements, and companies will no longer be allowed to FedEx Ground segment MD&A, we are involved in a number of lawsuits present items of OCI in the statement of stockholders equity. This new and other proceedings that challenge the status of FedEx Grounds standard is effective for our fiscal year ending May 31, 2013. wner-operators as independent contractors. FedEx Ground anticipates continuing changes to its relationships with its contractors. The nature, We believe there is no additional new accounting guidance adopted but not yet effective that is relevant to the readers of our financial timing and amount of any changes are dependent on the outcome of statements. However, there are numerous new proposals under develnumerous future events. We cannot reasonably estimate the potenopment which, if and when enacted, may have a significant impact on tial impact of any such changes or a meaningful range of say-so outcomes, although they could be material.However, we do not believe our financial reporting. that any such changes will impair our ability to operate and profitably REPORTABLE SEGMENTS grow our FedEx Ground business. See Risk Factors for a discussion of these and other potential risks and uncertainties that could materially affect our future performance. seasOnality Of Business Our businesses are cyclical in nature, as seasonal worker fluctuations affect volumes, revenues and earnings. Historically, the U. S. express package business experiences an increase in volumes in late November and December.International business, particularly in the Asia-to-U. S. market, peaks in October and November in advance of the U. S. holiday sales season. Our first and third fiscal quarters, because they are pass vacation and post winter-holiday seasons, have historically experienced lower volumes relative to other periods. Normally, the fall is the busiest shipping period for FedEx Ground, while late December, June and July are the slowest periods. For FedEx Freight, the spring and fall are the busiest periods and the latter part of December, January and February are the slowest periods.For FedEx Office, the summer months are normally the slowest periods. Shipment levels, operating costs and earnings for each of our companies can also be adversely affected by inclement weather, particularly the impact of severe winter weather in our third fiscal quarter. 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 FedEx Express Segment FedEx Ground Segment FedEx Freight Segment FedEx Services Segment gt FedEx Express (express transportation) FedEx Trade Networks (air and ocean freight forwarding and customs brokerage) FedEx SupplyChain Systems (logistics services) FedEx Ground (small-package ground delivery) FedEx SmartPost (small-parcel consolidator) FedEx Freight (LTL freight transportation) FedEx Custom Critical (time-critical transportation) FedEx Services (sales, marketing, information technology, communications and back-office functions) FedEx TechConnect (customer service, technical support, billings and collections) FedEx Office (document and business services and package acceptance) 6 managements discussion and analysis FED EX 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. For the international regions of FedEx Express, some of these functions are performed on a regional basis by FedEx Express and reported in the FedEx Express segment in expense line i