Federal Express 1998 Annual Report Download - page 29

FDX CORPORATION P27
On January 27, 1998, Federal Express Corporation
(“FedEx”) and Caliber System, Inc. (“Caliber”) became wholly-
owned subsidiaries of a newly-formed holding company,
FDX Corporation (together with its subsidiaries, the “Com-
pany”). In this transaction, which was accounted for as a
pooling of interests, Caliber shareholders received 0.8
shares of the Company’s common stock for each share of
Caliber common stock. Each share of FedEx common stock
was automatically converted into one share of the Com-
pany’s common stock. There were approximately
146,800,000 of $.10 par value shares so issued or con-
verted. The accompanying financial statements have been
restated to include the financial position and results of oper-
ations for both FedEx and Caliber for all periods presented.
Caliber operated on a13 four-week period calendar end-
ing December 31 with 12 weeks in each of the first
three quarters and 16 weeks in the fourth quarter.
FedEx’s fiscal year ending May 31 consists of four, three-
month quarters. The accompanying consolidated
results of operations and cash flows and the following
financial and statistical information for the year ended
May 31, 1998 combine Caliber’s 53-week period from
May 25, 1997 to May 31, 1998 with FedEx’s year
ended May 31, 1998. The Company’s consolidated
financial position as of May 31, 1998 consists of Cal-
iber’s financial position as of May 31, 1998 consolidated
with FedEx’s financial position as of May 31, 1998. The
accompanying consolidated results of operations and
cash flows and the following financial and statistical
information for the years ended May 31, 1997 and
1996 combine Caliber’s 52 weeks ended December
31, 1996 and 1995, respectively, with FedEx’s years
ended May 31, 1997 and 1996, respectively. The Com-
pany’s consolidated financial position as of May 31,
1997 consists of Caliber’s financial position as of
December 31, 1996 consolidated with FedEx’s financial
position as of May 31, 1997.
Due to the different fiscal year ends, Caliber’s results of
operations for the period January 1, 1997 to May 24,
1997 do not appear in the Consolidated Statements of
Income and instead are recorded as a direct adjust-
ment to equity. Caliber’s revenues, operating expenses
and net loss for this period were $1.0 billion, $1.1 billion
and $41 million, respectively. Included in expenses for
this period was an $85 million pre-tax charge ($56 mil-
lion, net of tax) related to the restructuring of Viking
Freight, Inc. (“Viking”), Caliber’s regional freight carrier
(discussed below).
RESULTS OF OPERATIONS
Consolidated net income for 1998 was $503 million
($3.37 per share, assuming dilution) compared with
$196 million ($1.33 per share, assuming dilution) and
$281million ($1.92 per share, assuming dilution) for 1997
and 1996, respectively. Current year results reflect strong
domestic package volume growth and slightly improving
revenue per package (yield) at both FedEx and RPS, Inc.
(“RPS”) and significant improvements in Viking’s operations.
FedEx’s net income for 1998 was $421 million com-
pared with $361 million and $308 million for 1997 and
1996, respectively. Year-over-year improvements in
FedEx’s consolidated results for the past three years
reflect double-digit growth of its express delivery pack-
age 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 margins declined in the face of
diminished airfreight revenues, foreign currency fluctua-
tions and rising expenses.
From continuing operations, Caliber recorded income of
$78 million for 1998, a loss of $165 million for 1997
and income of $92 million for 1996. The current year
income is attributable to strong volume growth and
increased yields at RPS, Caliber’s ground small-package
carrier, and improved operations at Viking since its
restructuring in March 1997 (discussed below). Exclud-
ing impairment charges related to the Viking restructur-
ing, Caliber recorded net income of $10 million in 1997.
Non-recurring Items
Results of operations included various non-recurring
items which affected reported earnings for 1998 and
1997 as discussed below.
Current year results included $88 million ($80 million,
net of tax) of expenses related to the acquisition of Cal-
iber and the formation of the Company. These expenses
were primarily investment banking fees and payments to
members of Caliber’s management in accordance with
pre-existing management retention agreements. Exclud-
ing these expenses, consolidated net income for 1998
was $583 million, or $3.91 per share, assuming dilu-
tion.
Also in the current year, Viking recognized a $16 million
gain from assets sold in its restructuring, which was
announced by Caliber on March 27, 1997. Under the
restructuring plan, operations at Viking’s midwestern,
eastern and northeastern divisions ceased on March
27, 1997, and Viking’s southwestern division operated
through June 1997 and was subsequently sold. Viking
continues to operate in the western United States
where it has been a leader in the regional less-than-
truckload market for many years. In connection with the
restructuring, Caliber recorded a non-cash asset
impairment charge of $225 million ($175 million, net of
tax) in December 1996 and an $85 million restructur-
ing charge in March 1997. Excluding the net effect of
the December 1996 charge, consolidated net income
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION