Federal Express 1999 Annual Report Download

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FDX CORPORATION 1999 ANNUAL REPORT
Global Connectivity Reliable
Integrated
Fast-Cycle
High-Tech Networked
E-Commerce
DELIVERING SUPERIOR TRANSPORTATION, LOGISTICS,
AND E-COMM ERCE SOLUTIONS WORLDWIDE

Table of contents

  • Page 1
    Global Connectivity Reliable Fast-Cycle Integrated E-Commerce High-Tech DELIVERING SUPERIOR TRANSPORTATION, LOGISTICS, AND E-COM M ERCE SOLUTIONS WORLDWIDE Networked FDX CORPORATION 1999 ANNUAL REPORT

  • Page 2
    ...America's second-largest provider of business-to-business ground small-package delivery. Roberts Express, the w orld's leading surface-expedited carrier for nonstop, time-critical and special-handling shipments. Employees and Contractors: 190,000 Headquarters: M emphis, Tennessee Stock Symbol: FDX...

  • Page 3
    ...16 +18 Reï¬,ects the tw o-for-one stock split effected in the form of a 100% stock dividend on M ay 6, 1999. Non-recurring items include a charge of $91 million ($54 million net of tax or $.18 per share, assuming dilution) in 1999 related to strike contingency planning, a charge of $88 million ($80...

  • Page 4
    ... 26% to $631 million, reï¬,ecting package volume grow th as w ell as excellent cost controls and aggressive yield-management programs. â- â- Earnings per share rose to a record $2.10. FDX market value increased 73% , w hich led to our second tw o-for-one stock split in the past three years. As...

  • Page 5
    ...-tech, high-speed global marketplace. And it's our responsibility to help them choose the right FDX network at the right time, w ith the right price. This strategy has paid off handsomely since FDX w as created 18 months ago. In FY99, our tw o largest operating companies -FedEx and RPS-each set new...

  • Page 6
    .... As the w orld's largest express carrier, Federal Express supports an open aviation regime, w hich w e see as the best w ay to ensure free and fair trade in the air cargo industry in the 21st century. In FY99, a new bilateral agreement w as reached w ith China, doubling the frequencies available to...

  • Page 7
    ...commerce long before the Internet w as opened for commercial use. In 1987, w e launched the original FedEx Pow erShip® netw ork of proprietary computers, allow ing customers to process their shipments electronically. In 1996, w e added FedEx interNetShip® to our popular Web site at w w w.fedex.com...

  • Page 8
    ... market. Business-tobusiness e-commerce is estimated to top $100 billion in sales this year and exceed the trilliondollar sales mark by 2003. Computers and electronics -already tw o of our largest customer segments -account for almost half of this category, and supply chains are increasingly moving...

  • Page 9
    ...ficient use of capital. Our FY99 performance w as a great start for our new company, but I believe the best is yet to come. FDX has built superior physical, virtual, and people netw orks not just to prepare for change, but to shape change on a global scale: to change the w ay w e all connect w ith...

  • Page 10
    ... progress tow ard becoming cash ï¬,ow positive. These are key strategic objectives, and w e anticipate continued progress in FY00. As w e move into FY00, w e believe that our diverse global netw ork, portfolio management strategy, w orld-class information and technology systems, and strong balance...

  • Page 11
    ...strike, the Company and FedEx began strike contingency planning, including entering into agreements for additional third-party air and ground transportation and establishing special financing arrangements. Subsequently, the FPA agreed to end all job actions for 60 days and negotiations resumed. Such...

  • Page 12
    .... FEDERAL EXPRESS CORPORATION The follow ing table compares revenues and operating income (in millions) and selected statistics (in thousands, except dollar amounts) for FedEx for the years ended M ay 31: Percent Change 1999/ 1998/ 1998 1997 1999 1998 1997 Revenues: Package: U.S. overnight...

  • Page 13
    ... deferred services, including FedEx Express Saver.® This grow th w as augmented by incremental UPS strike-related volume, the majority of w hich w as in the deferred service category. The increase in yield w as largely a result of yield-management actions, such as a 3% to 4% price increase targeted...

  • Page 14
    ..., management expects scheduled maintenance and repairs expense for B727 engines and for other aircraft to increase in 2000 due to a greater number of routine cycle checks resulting from fleet usage and certain Federal Aviation Administration directives. FedEx's operating income from the sales of...

  • Page 15
    ... of competitive pricing changes, customer responses to yield-management initiatives and changing customer demand patterns. RPS is testing new delivery services to residential areas. Depending on the results of the test, RPS w ill determine w hen and to w hat extent, if any, these services are to...

  • Page 16
    ... operating leases have provided economic benefits favorable to ow nership w ith respect to market values, liquidity and after-tax cash flow s. In the future, other forms of secured financing may be pursued to finance FedEx's aircraft acquisitions w hen management determines that it best meets FedEx...

  • Page 17
    ...' services become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. In 1998 and 1997, FedEx entered into contracts that w ere designed to limit its...

  • Page 18
    ...-critical purchased hardw are and softw are, custom ized softw are applications, facilities/equipment and other embedded chip systems (collectively, " Non-IT Systems" ) is 98% complete. The inventory and assessment phases relating to the Non-IT Systems of the Company's other operating subsidiaries...

  • Page 19
    ...expenditures w ill include project management of the corporate contingency effort and the command and control center, further system audit and validation, and project management to ensure compliance of new systems development. The Company classifies costs as Y2K for reporting purposes if they remedy...

  • Page 20
    ... of communications and failure of a supplier or vendor. The contingency plans include, among other things, items such as pre-arranging alternative operating locations, replacing non-Y2K compliant suppliers and vendors, using back-up systems equipment and stockpiling additional inventory and supplies...

  • Page 21
    ... 196,104 .67 - .67 .67 - .67 Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization M aintenance and repairs Fuel M erger expenses Restructuring and impairment charges (credits) Other OPERATING INCOM E OTHER INCOM E (EXPENSE) Interest, net...

  • Page 22
    ... SHEETS FDX Corporation M ay 31 In thousands 1999 1998 ASSETS CURRENT ASSETS Cash and cash equivalents Receivables, less allow ances of $68,305 and $61,409 Spare parts, supplies and fuel Deferred income taxes Prepaid expenses and other Total current assets PROPERTY AND EQUIPM ENT, AT COST...

  • Page 23
    ...$70,359 and $26,107 Proceeds from dispositions of property and equipment: Sale-leaseback transactions Reimbursements of A300 and M D11 deposits Other dispositions Net receipts from (advances to) discontinued operations Other, net Cash used in investing activities FINANCING ACTIVITIES (1,769,946) 80...

  • Page 24
    ... - - Total comprehensive income Cash dividends declared by Caliber System, Inc. - - (28,184) Purchase of treasury stock - - - Forfeiture of restricted stock - - - Tw o-for-one stock split by Federal Express Corporation in the form of a 100% stock dividend (56,994,074 shares) 5,699 - (5,699) Issuance...

  • Page 25
    ...the form of a 100% stock dividend that w as paid on M ay 6, 1999 to stockholders of record on April 15, 1999. All per share amounts have been adjusted to reflect the stock split. On January 27, 1998, Federal Express Corporation (" FedEx" ) and Caliber System, Inc. (" Caliber" ) became w holly-ow ned...

  • Page 26
    ... difference betw een rent expense and rent payments. SELF-INSURANCE ACCRUALS. The Company is self-insured up to certain levels for w orkers' compensation, employee health care and vehicle liabilities. Accruals are based on the actuarially estimated undiscounted cost of claims. Included in other...

  • Page 27
    ... those instruments at fair value. The impact, if any, on earnings, comprehensive income and financial position of the adoption of SFAS No. 133 w ill depend on the amount, timing and nature of any agreements entered into by the Company. In April 1998, the Accounting Standards Executive Committee of...

  • Page 28
    ... those dates. The estimated fair values w ere determined based on quoted market prices or on current rates offered for debt w ith similar terms and maturities. NOTE 5: LEASE COM M ITM ENTS The Company utilizes certain aircraft, land, facilities and equipment under capital and operating leases that...

  • Page 29
    ... to Employees," and related interpretations to measure compensation expense for its plans. Compensation cost for the restricted stock plans w as $8,928,000, $5,817,000 and $3,421,000 for 1999, 1998 and 1997, respectively. If compensation cost for the Company's stock-based compensation plans had...

  • Page 30
    ... of the Company's stock incentive plans, options may be granted to certain key employees (and, under the 1997 plan, to directors w ho 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...

  • Page 31
    ... employees. All restrictions on the shares expire over periods varying from tw o to five years from their date of aw ard. Shares are valued at the market price of the Company's common stock at the date of aw ard. Compensation related to these plans is recorded as a reduction of common stockholders...

  • Page 32
    ... statutory federal income tax rate to the Company's effective income tax rate for the years ended M ay 31 is as follow s: 1999 1998 1997 Statutory U.S. income tax rate Increase resulting from: State and local income taxes, net of federal benefit Non-recurring items (1998 Caliber acquisition, 1997...

  • Page 33
    ... cost in 1999. POSTRETIREM ENT HEALTH CARE PLANS. FedEx offers medical and dental coverage to eligible U.S. retirees and their eligible dependents. Vision coverage is provided for retirees, but not their dependents. Substantially all FedEx U.S. employees become eligible for these benefits at age...

  • Page 34
    ... return on plan assets Foreign currency exchange rate changes Company contributions Plan participant contributions Benefits paid Fair value of plan assets at end of year FUNDED STATUS OF THE PLANS $(246,186) Unrecognized actuarial (gain) loss Unrecognized prior service (benefit) cost Unrecognized...

  • Page 35
    ...an annual grow th rate of 5.25% in 2010 and thereafter. FedEx's cost is capped at 150% of the 1993 employer cost and, therefore, w ill not be subject to medical and dental trends after the capped cost is attained, projected to be in 2001. Caliber's health care costs w ere estimated to increase at an...

  • Page 36
    ...9,686,060 Includes revenue of certain Viking divisions that w ere subsequently sold. See Note 15. Includes $81,000,000 of FedEx strike contingency costs. See Note 15. Includes $74,000,000 of merger expenses. See Note 1. Includes a $225,000,000 charge related to the Viking restructuring. See Note 15...

  • Page 37
    ... Corporation The follow ing table presents the Company's revenue by service type and geographic information for the years ended or as of M ay 31: In thousands 1999 1998 1997 REVENUE BY SERVICE TYPE FedEx: Package: U.S. overnight U.S. deferred International Priority Freight: U.S. International...

  • Page 38
    .... FedEx has agreements w ith tw o airlines to acquire 53 DC10 aircraft (39 of w hich had been received as of M ay 31, 1999), spare parts, aircraft engines and other equipment, and maintenance services in exchange for a combination of aircraft noise reduction kits and cash. Delivery of these aircraft...

  • Page 39
    ...Fair value w as based on estimates 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...

  • Page 40
    ... Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated statements of income, stockholders' equity and cash flow s for the year ended December 31, 1996, of Caliber System, Inc., a company acquired during...

  • Page 41
    ...1.10 286,978 289,002 - Average shares of common stock Average common and common equivalent shares Cash dividends (3) FINANCIAL POSITION Property and equipment, net Total assets Long-term debt, less current portion Common stockholders' investment OTHER OPERATING DATA FEDEX $ 6,559,217 10,648,211...

  • Page 42
    ...filed electronically w ith the SEC can also be found on the Internet at the SEC's Web site (http://w w w.sec.gov). Auditors: Arthur Andersen LLP, M emphis, Tennessee. Registrar and transfer agent: Equiserve -First Chicago Trust Division, Shareholder Services, P .O. Box 2500, Jersey City, New Jersey...

  • Page 43
    ... Inc. M anaged dental care company Ralph D. DeNunzio (2) President Harbor Point Associates, Inc. Private investment and consulting firm Frederick W. Smith Chairman, President and Chief Executive Officer FDX Corporation Dr. Joshua I. Smith (1) Chairman, President and Chief Executive Officer The...

  • Page 44
    Information-Intensive Velocity Real-Time Supply Chain Innovation Visibility Value-Added FDX Corporation 942 South Shady Grove Road M emphis, Tennessee 38120 w w w.fdxcorp.com