Federal Express 1998 Annual Report Download

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FDX CORPORATION ANNUAL REPORT 1998
FDX CORPORATION ANNUAL REPORT 1998

Table of contents

  • Page 1
    FDX CORPORATION ANNUAL REPORT 1998 FDX CORPORATION ANNUAL REPORT 1998

  • Page 2
    =A WHOLE GREATER

  • Page 3
    ... , 1998, Federal Express Corporation launched a new era in transportation - again. Twenty-five years after it founded the express distribution industry, FedEx acquired the Caliber System, Inc. companies, leaders in ground smallpackage delivery, surface expedited shipping, less-than-truckload freight...

  • Page 4
    = A $400 BILLION P2

  • Page 5
    ...as "just-in-time" shipping, the explosive growth of electronic commerce, and the proliferation of global sourcing and selling across markets. Prior to the acquisition, neither FedEx nor RPS individually could offer the same complementary mix of express and ground small-package delivery services. Now...

  • Page 6
    ... day-definite, ground small-package network would surely result in diminished service quality and increased costs. = COMPLETE ONE Under the FDX umbrella, we will leverage our shared strengths while operating each delivery network independently, with each focused on its respective markets. For FedEx...

  • Page 7
    ..., tens of thousands of RPS customers do not use FedEx for their international or U.S. domestic express shipments. Given an opportunity to obtain the best of both delivery services, we find many businesses eager to become full-ï¬,edged "FDX customers." FDX is now positioned to meet customer needs by...

  • Page 8
    ...strategies: 1) A collaborative sales process that leverages our shared customer relationships; 2) Aggressive global marketing of the broad FDX portfolio to targeted prospective customers; and 3) Strategic application of information systems to reduce costs and improve customer access and connectivity...

  • Page 9
    OF LEADERSHIP + + + P7

  • Page 10
    = P8

  • Page 11
    ...shipped around the world to hospitals, factories, auto dealerships, even church nursery centers. But perhaps the most critical shipments are the FedEx boxes that arrive just in time for Mother's Day, the busiest day of the year for restaurants. At Outback Steakhouse and other restaurants, customers...

  • Page 12
    P10

  • Page 13
    ..., Dell has FedEx deliver computers and parts from its factory in Malaysia to its largest Asian market - Japan. In North America, Caliber Logistics provides distribution and ï¬,eet management services for Dell facilities in Austin, Texas. FedEx, meanwhile, handles the express deliveries of several...

  • Page 14
    ... sales offices, service locations and manufacturing sites by utilizing the transportation management services of FDX. Unisys employees simply call a toll-free number staffed by Caliber Logistics. Caliber distribution experts rely on FedEx, RPS, Roberts Express, and Viking Freight to ship everything...

  • Page 15
    ... of FDX services to meet their deadlines and budgets: FedEx express services or RPS ground small-package delivery services. And the sky is no limit. Russian and U.S. commanders of the Mir Space Station recently exchanged commemorative Art Leather albums. This year, FedEx and RPS will deliver more...

  • Page 16
    ...its state-of-the-art inventory tracking system, which identifies and transfers slow-moving items and keeps staple merchandise in stock. Store advertising, payroll and other timesensitive corporate shipments are delivered via FedEx. In other words, for one-stop shipping, Stage Stores shops FDX. P14

  • Page 17
    P15

  • Page 18
    ..., RPS delivers a growing number of those shipments. For more time-sensitive deliveries, Ingram Micro did itself - and its customers - one better, locating its national distribution facility just minutes from the FedEx SuperHub in Memphis, Tennessee. By leveraging late-night cutoff times for next-day...

  • Page 19
    ... delivery. Employees and Contractors: 190,0 0 0 Headquarters: Memphis, Tennessee Stock Symbol: FDX Online: www.fdxcorp.com Roberts Express, the world's leading surfaceexpedited carrier for nonstop, time-critical and special-handling shipments. Caliber Logistics, a pioneer in providing customized...

  • Page 20
    ... possible unprecedented next-business-day delivery by 10:30 a.m. - backed by the FedEx Money-Back Guarantee - from key markets in Asia to thousands of U.S. cities, major Canadian markets and Mexico City. SERVICE EXCELLENCE Fiscal year 1998 marked Federal Express Corporation's 25th anniversary, and...

  • Page 21
    ...shipment volumes, FedEx employees earned systemwide ISO 9001 recertification while handling 30 percent more volume than normal. To recognize FedEx's most treasured asset - its people - for their absolute dedication to customer service during this challenging period, FedEx paid a $25 million Special...

  • Page 22
    ... on strategically expanding its core capability - delivering business-to-business packages at rates and service levels that make it the price-value leader in its market. = A $16 BILLION RPS, like its sister company, FedEx, is an industry leader in on-time performance. In early 1998, RPS enhanced...

  • Page 23
    ... yet another important service to the diverse portfolio that FDX offers its customers. With next- and secondbusiness-day regional freight service, plus direct ocean service to Alaska and Hawaii, Viking's 4, 700 employees handle approximately 12,000 shipments per day, achieving on-time delivery on...

  • Page 24
    HIGHLIGHTS OF THE YEAR Nearly 1 ,000 times each business day, Roberts Express, Inc. engineers and executes timespecific, door-to-door surface and air-charter delivery solutions that solve special-handling challenges for FDX customers within North America and Europe. How special? Consider the 60-ton...

  • Page 25
    ... European revenues to nearly 10 percent of the company's annual total. During the second half of 1998, the company expects to continue its controlled, opportunistic expansion by initiating operations in Mexico and Asia. To help customers manage logistics activities and information seamlessly...

  • Page 26
    ... was accretive to FedEx earnings in fiscal year 1998. The transaction included no goodwill charges, produced a tax-free exchange of shares for Caliber stockholders, and left the FDX balance sheet in robust health. 97 98 REVENUES (in billions) $3.91 $2.53 FINANCIAL SECTION 97 (1) 98 EARNINGS...

  • Page 27
    ... daily pounds Average revenue per pound Operating weekdays Aircraft ï¬,eet RPS Average daily package volume Average revenue per package Operating weekdays Viking Shipments per day Average revenue per hundredweight Operating weekdays Average number of employees (based on a standard full-time workweek...

  • Page 28
    ... daily pounds Average revenue per pound Operating weekdays Aircraft ï¬,eet RPS Average daily package volume Average revenue per package Operating weekdays Viking Shipments per day Average revenue per hundredweight Operating weekdays Average number of employees (based on a standard full-time workweek...

  • Page 29
    ... in FedEx's consolidated results for the past three years reï¬,ect double-digit growth of its express delivery package volume and slight improvements in U.S. domestic yield. In 1998, U.S. domestic margins improved as yields increased at a higher rate than cost per package. However, international...

  • Page 30
    ... shows a comparison of revenues for the years ended May 31: In millions 1998 1997 1996 Percent Change 1998/1997 1997/1996 FedEx: U.S. domestic express International Priority (IP) International Express Freight (IXF) and Airport-to-Airport (ATA) FedEx Air Charter Logistics services (1) Other $ 9,326...

  • Page 31
    ... increased year-overyear, due to FedEx's expansion in international markets, despite excess market capacity and downward pressure on yields. The increases in FedEx's other revenue in 1998 and 1997 were primarily attributable to increased sales of engine noise reduction kits. RPS's revenue per day...

  • Page 32
    ...increases in salaries and employee benefits expense. Increases in purchased transportation were primarily volume related, with the majority of the increases occurring at RPS in 1998 and at FedEx in 1997 . Rentals and landing fees increased primarily due to additional aircraft leased by FedEx. As of...

  • Page 33
    ... to increases in revenue per package (3.9%) exceeding increases in cost per package (2.9%) and due to a rise in average daily volume (11%). Also, as noted above, 1998 U.S. domestic operating results were significantly impacted by the UPS strike. Sales of engine noise reduction kits contributed $127...

  • Page 34
    ... of competitive pricing changes, customer responses to yield-management initiatives, changing customer demand patterns and domestic economic conditions. FedEx's operating income from the sales of engine noise reduction kits peaked in 1998 and is expected to decline $45 million year-over-year in...

  • Page 35
    ... historically financed its capital investments through the use of lease, debt and equity financing in addition to the use of internally generated cash from operations. Generally, management's practice in recent years with respect to funding new widebodied aircraft acquisitions has been to finance...

  • Page 36
    ... L I D AT E D S TAT E M E N T S O F I N C O M E Years ended May 31 In thousands, except Earnings Per Share 1998 1997 1996 REVENUES Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Maintenance and repairs Fuel Merger...

  • Page 37
    ... stock, at cost, and deferred compensation Total common stockholders' investment 3,979,639 18,409 3,574,251 73,090 3,961,230 3,501,161 $ 9,686,060 The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. $ 9,044,316 FDX CORPORATION...

  • Page 38
    ... 1,184,533 INVESTING ACTIVITIES Purchases of property and equipment, including deposits on aircraft of $70,359, $26,107 and $68,202 Proceeds from dispositions of property and equipment: Sale-leaseback transactions Reimbursements of A300 deposits Other dispositions Net receipts from (advances...

  • Page 39
    ... - - BALANCE AT MAY 31 ,1996 Cash dividends declared by Caliber System, Inc. Purchase of treasury stock Forfeiture of restricted stock Two-for-one stock split by Federal Express Corporation in the form of a 100% stock dividend Issuance of common and treasury stock under employee incentive plans...

  • Page 40
    ... Common Stockholders' Investment for the year ended May 31, 1998 to reï¬,ect this activity. In 1998, the Company incurred $88,000,000 of expenses related to the acquisition of Caliber and the formation of the Company, primarily investment banking fees and payments to members of Caliber's management...

  • Page 41
    ... over 5 to 10 years. For income tax purposes, depreciation is generally computed using accelerated methods. Deferred gains. Gains on the sale and leaseback of aircraft and other property and equipment are deferred and amortized over the life of the lease as a reduction of rent expense. Included in...

  • Page 42
    ... and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: ACCRUED EXPENSES May 31 In thousands 1998 1997 Insurance Compensated absences Employee benefits Taxes other than income taxes Salaries Aircraft overhaul Other...

  • Page 43
    ...35% Special Facilities Revenue Bonds. The proceeds of the bonds in combination with other funds were used to refund outstanding MSCAA 1982B 8.3% bonds on September 2, 1997 . The 1997 bonds have a maturity date of September 1, 2012. FedEx is obligated under a lease agreement with MSCAA to pay rentals...

  • Page 44
    ...under its restricted stock plans. As of May 31, 1998, a total of 6,112,517 shares at an average cost of $23.61 per share had been purchased and reissued under the above-mentioned plans. On January 27 , 1998, as part of the Caliber acquisition,1,950,251 shares of Caliber treasury stock (equivalent to...

  • Page 45
    ... to certain key employees (and, under the 1993 plan, to directors who are not employees of the Company) to purchase shares of common stock of the Company at a price not less than its fair market value at the date of grant. Options granted have a maximum term of 10 years. Vesting requirements are...

  • Page 46
    ...market price of the Company's common stock at the date of award. Compensation expense related to these plans is recorded as a reduction of common stockholders' investment and is being amortized as restrictions on such shares expire. The following table summarizes information about restricted stock...

  • Page 47
    ... per share for the years ended May 31 was as follows: In thousands, except per share amounts: 1998 1997 1996 Income from continuing operations Loss from discontinued operations Income (loss) from discontinuance Net income applicable to common stockholders Average shares of common stock outstanding...

  • Page 48
    ... $558,550 $543,426 NOTE 10: PENSION AND PROFIT SHARING PLANS The Company sponsors defined benefit pension plans covering substantially all employees. The largest plans cover U.S. domestic employees age 21 and over, with at least one year of service and provide benefits based on final average...

  • Page 49
    ... all U.S. domestic employees age 21 and over, with at least one year of service with the Company as of the contribution date. The plans provide for discretionary employer contributions which are determined annually by the Board of Directors. Profit sharing expense was $124,700,000 in 1998, $107...

  • Page 50
    ..., Caliber Logistics, Inc., a contract logistics provider and Roberts Express, Inc., a surface expedited carrier . For reporting purposes, operations for FedEx are classified into two geographic areas, U.S. domestic and international. Shipments which either originate in or are destined to locations...

  • Page 51
    ... for the Company's operations for the years ended or at May 31 is as follows: In thousands FedEx U.S. Domestic FedEx International RPS Other Total Revenues: 1998 1997 1996 Operating Income (Loss): 1998 1997 1996 Identifiable Assets: 1998 1997 (1) (2) $9,665,342 8,322,037 7,466,311 $ 752...

  • Page 52
    ... March 1998, put options were exercised by an airline requiring FedEx to purchase seven MD11s for a total purchase price of $416,000,000. Delivery of the aircraft will begin in 2000. FedEx has entered into contracts which are designed to limit its exposure to ï¬,uctuations in jet fuel prices. Under...

  • Page 53
    ...of appraised values for real estate and quoted prices for equipment. Assets held for sale from the restructuring (principally real estate and revenue equipment) are included in property and equipment in the accompanying consolidated balance sheet. Caliber completed the sale of all but $11,640,000 of...

  • Page 54
    ...,000 of expenses ($.53 per share, net of tax, assuming dilution) related to the acquisition of Caliber and the formation of the Company. Fourth quarter 1998 included Caliber's results for the 13-week period from March 1,1998 to May 31,1998 consolidated with FedEx's results for the three months ended...

  • Page 55
    ...TA N T S To the Stockholders of FDX Corporation: We have audited the accompanying consolidated balance sheets of FDX Corporation (a Delaware corporation) and subsidiaries as of May 31, 1998 and 1997 , and the related consolidated statements of income, common stockholders' investment and cash ï¬,ows...

  • Page 56
    ... DATA FedEx Express package: Average daily package volume Average pounds per package Average revenue per pound Average revenue per package Airfreight: Average daily pounds Average revenue per pound Operating weekdays Aircraft ï¬,eet RPS Average daily package volume Average revenue per package...

  • Page 57
    .... Executive Vice President and Chief Financial Officer KENNETH R. MASTERSON Executive Vice President, General Counsel and Secretary T. MICHAEL GLENN Executive Vice President, Market Development and Corporate Communications DENNIS H. JONES Executive Vice President and Chief Information Officer FDX...

  • Page 58
    .... Annual meeting: The annual meeting of stockholders will be held at The Memphis Marriott, 2625 Thousand Oaks Boulevard, Memphis, Tennessee, on Monday, September 28, 1998, at 10:00 a.m., CDT. Inquiries: For financial information, contact Elizabeth R. Allen, Investor Relations, FDX Corporation, Box...

  • Page 59
    ...set standards for service against which every carrier is measured, instilled employees with a singular commitment to satisfy the customer, innovated incessantly, and proved that a service company could win the Malcolm Baldrige National Quality Award. In 25 years, FedEx redefined service for all time...

  • Page 60
    FDX Corporation 6075 Poplar Avenue Memphis, Tennessee 381 19