Federal Express 2002 Annual Report Download

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The New FedEx
Leading the Way
02
Annual Report

Table of contents

  • Page 1
    The New FedEx Leading the Way Annual Report 02

  • Page 2
    ... and development programs and the reorganizing of operations at FedEx Supply Chain Services, Inc. Represents earnings before goodw ill accounting change, interest, taxes, depreciation and amor tization. Represents net cash provided by operating activities less net cash used in investing activities...

  • Page 3
    ... time-critical expedited delivery. We were the first to use bar code labeling in the ground transportation industry and the first express company to offer time-definite freight service. And yet, today, FedEx is so much more. M ore services. M ore technology. All backed by more than 214,000 employees...

  • Page 4
    ... small-package ground carrier, providing competitively priced, dependable deliver y in one to five business days w ith a money-back guarantee. Includes FedEx Home Delivery, offering low -cost businessto-residential delivery. FedEx Freight The U.S. market leader of next-day and second-day regional...

  • Page 5
    ..., information technology and trade consulting. FedEx Services Coordinates sales, marketing and tec hnology suppor t for FedEx Express and FedEx Ground. Includes FedEx Supply Chain Services, w hich offers customized supply chain solutions, inc luding transpor tation management, integrated logistic...

  • Page 6
    ... U.S. markets, so the FedEx Express early-morning service now delivers to over a million more businesses by 8:30 a.m. Combined w ith FedEx Priorit y Overnight ® and FedEx Standard Overnight ® , our customers have a range of overnight delivery options they can absolutely, positively count on, day...

  • Page 7
    ... y market. It's t he first residential ground service to offer a money-back guarantee. It's t he only deliver y service to offer standard evening and w eekend delivery. And it offers unmatched premium options like day-specific delivery and delivery by appointment. Clearly, FedEx Home Delivery is...

  • Page 8
    ...orks. Customers can access package tracking and drop-off location data for FedEx Express, FedEx Ground and FedEx Home Delivery via Web-enabled personal digital assistants, cell phones and pagers. FedEx couriers, contract delivery personnel and other team members use w ireless data collection devices...

  • Page 9
    ...he ability to access multiple shipment information simultaneously. The ability to customize information w ith more detail such as box contents. And the ability to receive e-mail, w ireless and fax status alerts of critical shipping events such as clearance delays and failed delivery attempts. All of...

  • Page 10
    ... FedEx is the only company in our industry to be rated " A" in the Council on Economic Priorities' corporate responsibility profile for the environment. Providing Employees w ith a Great Place to Work We believe FedEx is a great place to w ork - and plenty of people agree w ith us. In the past year...

  • Page 11
    ... to corporate publications, e-mail, broc hures and let ters, FedEx has placed full-page ads in Time and USA Today to promote t he initiative. Providing cash and volunteer support, w e helped triple the reach of the National Safe Kids program - from 41 locations in 2000 to 120 locations in 2002...

  • Page 12
    ..., compete collectively" strategy and provided superior value to our shareholders. We increased revenues to a record $20.6 billion w ith the startup of the transportation agreement betw een FedEx Express and the U.S. Postal Service, strong volume grow th at FedEx Ground and its Home Delivery service...

  • Page 13
    ... low er discount rates and decreased returns on pension plan assets. Variable compensation w as slightly higher in 2002. During 2002, w e implemented new indices for calculating fuel surcharges at FedEx Express and FedEx Ground, w hich more closely link the surcharges to prevailing market prices for...

  • Page 14
    ... revenue grow th of FedEx International Priority ® (" IP" ) packages. During 2001, volume grow th w as higher at FedEx Ground as this subsidiary continued to grow its core business and expand its new home delivery service offering. The effects of the acquisition of FedEx Freight East added...

  • Page 15
    ...executed contingency plans and transported all domestic shipments during this period through ground-based trucking operations. We resumed air operations w ithin hours of receiving c lear anc e fr om t he Feder al Aviat ion Administr at ion. Business levels at FedEx Ground and FedEx Freight w ere not...

  • Page 16
    ...combined the sales, marketing and information technology functions of our FedEx Express and FedEx Ground reportable segments to form a shared services company that supports the package businesses of both of these segments. FedEx Services provides our customers w ith a single point of contact for all...

  • Page 17
    fedex annual report 2002 L EA D I N G T H E W A Y FedEx Corporation FedEx Express The follow ing table compares revenues, operating expenses and operating income (dollars in millions) and selected statistics (in thousands, except yield amounts) for the years ended M ay 31: Percent Change Percent ...

  • Page 18
    ... Asian market. Total freight revenue for 2002 increased significantly due to improved domestic freight volume and yield, reflecting the impact of the USPS transportation agreement, w hich began in August 2001. On January 10, 2001, FedEx Express and the USPS entered into tw o service contracts: one...

  • Page 19
    ... home delivery service helped FedEx Ground realize double-digit revenue grow th in both 2002 and 2001, as volumes and yields increased. Sales and marketing activities have been effective in attracting new small- and medium-sized customers, w hich generate higher yielding package revenues. For 2002...

  • Page 20
    ... of allocated sales, marketing, customer support and information technology costs during 2003. During 2003, w e expect the operating loss from FedEx Home Delivery to improve, w ith this service becoming profitable sometime in 2004. FedEx Freight The follow ing table show s revenues, operating...

  • Page 21
    ...Custom Critical, a criticalshipment carrier; FedEx Trade Netw orks, w hose subsidiaries for m a global trade ser vic es c ompany; FedEx Ser vic es, a provider of supply chain management services and sales, marketing and IT support for FedEx Express and FedEx Ground; and certain unallocated corporate...

  • Page 22
    ... pickup and delivery of commercial package and freight shipments. Our employees and agents are involved throughout the process and our operational, billing and accounting systems directly capture and control all relevant information necessary to record revenue, bill customers and collect amounts...

  • Page 23
    ...in the assumed expected long-term rate of return has a negative effect on pension expense). Our 2002 expected long-term rate of return of 10.9% reflects our active investment management program, w hich has consistently outperformed the related market indices over the past ten years. Also, because of...

  • Page 24
    ...up to certain limits for costs associated w ith w orkers' compensation claims, vehicle accident and general business liabilities, and benefits paid under employee health care programs. At M ay 31, 2002 w e had total self-insurance accruals reflected in our balance sheet of approximately $839 million...

  • Page 25
    ... table provides a summary of our cash flow s for the years ended M ay 31 (in millions): 2002 2001 2000 Cash provided by operating activities Cash used in investing activities: Capital investments and other Business acquisitions Free cash flow Cash (used in) provided by financing activities Increase...

  • Page 26
    ...management of capital expenditures and w orking capital. Positive free cash flow indicates excess funds are available to invest in operations, reduce outstanding debt and provide return on capital to our shareholders. Debt Financing Activities At April 1, 2002, certain existing debt at FedEx Express...

  • Page 27
    ... ial statements for a breakdow n of c apital expenditures by segment.) In 2002, in spite of capital spending related to the 2001 addition of FedEx Freight East, as w ell as scheduled deliveries of aircraft that w ere planned and committed to w ell before the economic slow dow n, management's cost...

  • Page 28
    ... debt w ere estimated based on quoted market prices or on the current rates offered for debt w ith similar terms and maturities. Currently, derivative instruments are not used to manage interest rate risk. While w e are a global provider of transportation services, the substantial majority of our...

  • Page 29
    ...residential home delivery service; - sudden changes in fuel prices; - the timing and amount of any money w e are entitled to receive under the Air Transportation Safety and System Stabilization Act; - competition from other providers of transportation and logistics services; - our ability to compete...

  • Page 30
    ... employee benefits Purchased transpor tation Rentals and landing fees Depreciation and amor tization Fuel M aintenance and repairs Airline stabilization compensation Other OPERATING INCOM E Other Income (Expense) Interest, net Other, net Income Before Income Taxes Provision for Income Taxes Income...

  • Page 31
    ... 2002 L EA D I N G T H E W A Y Consolidated Balance Sheets M ay 31 In millions, except share data 2002 2001 ASSETS Current Assets Cash and cash equivalents Receivables, less allow ances of $147 and $137 Spare par ts, supplies and fuel, less allow ances of $91 and $78 Deferred income taxes...

  • Page 32
    ... Proceeds from stock issuances Purchases of treasury stock Other, net Cash (used in) provided by financing activities CASH AND CASH EQUIVALENTS Net increase (decrease) in cash and cash equivalents Balance at beginning of year Balance at end of year The ac c ompanying notes are an integral par t of...

  • Page 33
    ...Unrealized loss on available-for-sale securities, net of deferred tax benefit of $2 Total comprehensive income Shares issued for acquisition (175,644 shares) Purchase of treasury stock Employee incentive plans and other (1,539,941 shares issued) Amor tization of deferred compensation BALANCE AT M AY...

  • Page 34
    ... of the service for our logistics and trade services businesses. For shipments in transit, revenue is recorded based on the percentage of service completed at the balance sheet date. Delivery costs are accrued as incurred. Our contract logistics and global trade services businesses engage in...

  • Page 35
    ... estimated undiscounted cost of claims, w hich includes incurred-but-not-reported claims. Current w orkers' compensation, employee health claims and Aircraft and related equipment Package handling and ground suppor t equipment and vehicles Computer and electronic equipment Other 5 to 20 years...

  • Page 36
    ...M ay 31, 2001 balance sheet. Effective June 1, 2001, under the SFAS 133 transition rules, the deferred charge w as reclassified to be included as a component of accumulated other comprehensive income. This entire charge w as recognized in income in 2002 as the related fuel w as purchased. We did not...

  • Page 37
    ... of testing (including declining volumes and higher fuel costs) reduced the estimated future expected performance for this reporting unit. Under SFAS 142, the impairment adjustment recognized at adoption of the new rules w as reflected as a cumulative effect of accounting change in our 2002 income...

  • Page 38
    ... outstanding share of FedEx Freight East common stock w as converted into 0.6639 shares of common stock of FedEx. The excess purchase price over the estimated fair value of the net assets acquired (approximately $600 million) has been recorded as goodw ill. On M arch 31, 2000, the common stock of...

  • Page 39
    ... 2002 2001 Accrued Salaries and Employee Benefits: Salaries Employee benefits Compensated absences Accrued Expenses: Self-insurance accruals Taxes other than income taxes Other Other Liabilities: Deferred lease obligations Deferred gains, principally related to aircraft transactions Self-insurance...

  • Page 40
    ..., 2002) are guaranteed by FedEx Express. These guarantees can only be invoked in the event FedEx Express defaults on the lease obligations and certain other remedies are not available. We incur other commercial commitments in the normal course of business to support our operations. Letters of credit...

  • Page 41
    ...to directors w ho are not employees) to purchase shares of common stock at a price not less than its fair market value at the date of grant. Options granted have a maximum term of ten years. Vesting requirements are determined at the discretion of the Compensation Committee of the Board of Directors...

  • Page 42
    ... the market price at the date of aw ard. Compensation related to these plans is recorded as a reduction of common stockholders' investment and is amortized to expense as restrictions on such shares expire. The follow ing table summarizes information about restricted stock aw ards for the years ended...

  • Page 43
    ... EA D I N G T H E W A Y FedEx Corporation Note 10: Computation of Earnings Per Share The calculation of basic earnings per common share and diluted earnings per common share for the years ended M ay 31 w as as follow s: In millions, except per share amounts 2002 2001 2000 Note 11: Income Taxes The...

  • Page 44
    ... certain tax law limitations. International defined benefit pension plans provide benefits primarily based on final earnings and years of service and are funded in accordance w ith local law s and income tax regulations. Plan assets consist primarily of marketable equity securities and fixed income...

  • Page 45
    ... to employee service rendered to date, but does not include the effects of estimated future pay increases. Therefore, the ABO as compared to plan assets is an indication of the assets currently available to fund vested and nonvested benefits accrued through M ay 31. At M ay 31, 2002, all...

  • Page 46
    ...31, 2002, or 2002 benefit expense. Defined Contribution Plans Profit sharing and other defined contribution plans are in place covering a majority of U.S. employees. Profit sharing plans provide for discretionary employer contributions, w hich are determined annually by the Board of Directors. Other...

  • Page 47
    ... report 2002 L EA D I N G T H E W A Y FedEx Corporation provides our customers w ith a single point of contact for all express and ground services. Prior to the formation of FedEx Services, each business had its ow n self-contained sales, marketing and information technology functions. The costs...

  • Page 48
    Notes to Consolidated Financial Statements Geographic Information1 In millions 2002 2001 2000 Note 15: Commitments Annual purchase commitments under various contracts as of M ay 31, 2002, w ere as follow s (in millions): AircraftAircraft Related1 Other 2 Total Revenues: U.S. International Long-...

  • Page 49
    ... 24, 2001, FedEx Supply Chain Services committed to a plan to reorganize certain of its unprofitable, nonstrategic logistic s business and reduc e overhead. Total 2001 c osts of $22 million w ere recorded in connection w ith this plan, primarily comprising costs for estimated contractual settlements...

  • Page 50
    ...to Consolidated Financial Statements Note 19: Summary of Quar terly Operating Results (Unaudited) In millions, except per share amounts First Quar ter Second Quar ter Third Quar ter 1 Four th Quar ter 2 2002 Revenues Operating income Income before cumulative effect of change in accounting principle...

  • Page 51
    ... Board of Directors and Stockholders FedEx Corporation We have audited the accompanying consolidated balance sheet of FedEx Corporation as of M ay 31, 2002, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income, and cash flow s for the year...

  • Page 52
    ... million ($65 million, net of tax) at FedEx Express and reorganization c osts of $22 million ($14 million, net of tax) at FedEx Supply Chain Ser vic es w ere rec orded in 2001. See Notes 17 and 18 of t he ac c ompanying audited financ ial statements. Results for 2002 reflect our adoption of SFAS 142...

  • Page 53
    fedex annual report 2002 L EA D I N G T H E W A Y Board of Directors James L. Barksdale 3 President and Chief Executive Officer Barksdale M anagement Corporation Philanthropic investment company Ralph D. DeNunzio 2* President Harbor Point Associates, Inc. Private investment and consulting firm ...

  • Page 54
    ... James S. Hudson Corporate Vice President and Chief Accounting Officer FedEx Express David J. Bronczek President and Chief Executive Officer David F. Rebholz Executive Vice President, Operations and Systems Suppor t M ichael L. Ducker Executive Vice President, International FedEx Ground Daniel...

  • Page 55
    ... documents filed w ith the Securities and Exchange Commission (SEC) and other financial and statistic al infor mation are available on our Web site at fedex.com. You w ill be mailed a copy of the Form 10-K upon request to Investor Relations, FedEx Corporation, 942 South Shady Grove Road, M emphis...

  • Page 56
    FedEx Corporation 942 South Shady Grove Road M emphis, Tennessee 38120 fedex.com