Federal Express 2001 Annual Report Download - page 23

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NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. FedEx Corporation (“FedEx”) is a
premier global provider of transportation, e-commerce and sup-
ply chain management services, whose operations are primarily
represented by Federal Express Corporation (“FedEx Express”),
the world’s largest express transportation company; FedEx
Ground Package System, Inc. (“FedEx Ground”), North America’s
second largest provider of small-package ground delivery serv-
ice; and FedEx Freight System, Inc. (“FedEx Freight”), a leading
provider of regional less-than-truckload (“LTL”) freight services.
Other operating companies included in the FedEx portfolio are
FedEx Custom Critical, Inc. (“FedEx Custom Critical”), a critical-
shipment carrier; FedEx Trade Networks, Inc. (“FedEx Trade
Networks”), a global trade services company; and FedEx Supply
Chain Services, Inc. (“FedEx Supply Chain Services”), a contract
logistics provider.
FedEx Freight was formed in the third quarter of 2001 in con-
junction with our acquisition of American Freightways, Inc.
(“American Freightways”). FedEx Freight includes the results of
operations of American Freightways, a multiregional LTL carrier,
from January 1, 2001 and Viking Freight, Inc. (“Viking”), an LTL
carrier operating principally in the western United States, from
December 1, 2000.
PRINCIPLES OF CONSOLIDATION. The consolidated financial
statements include the accounts of FedEx and its subsidiaries.
All significant intercompany accounts and transactions have
been eliminated.
SUBSIDIARY GUARANTORS. Certain long-term debt contains
subsidiary guarantees. The guarantees provided by our sub-
sidiaries are full and unconditional, joint and several, and any
subsidiaries which are not guarantors are minor as defined by
Securities and Exchange Commission (“SEC”) regulations. FedEx,
as the parent company issuer of this debt, has no independent
assets or operations. There are no significant restrictions on our
ability or the ability of any guarantor to obtain funds from its sub-
sidiaries by means of dividend or loan.
CREDIT RISK. Credit risk in trade receivables is substantially miti-
gated by our credit evaluation process, short collection terms,
and sales to a large number of customers, as well as the low rev-
enue per transaction for most of our transportation services.
Allowances for potential credit losses are determined based
on historical experience, current evaluation of the composition
of accounts receivable and expected credit trends.
REVENUE RECOGNITION. Revenue is recognized upon delivery of
shipments. For shipments in transit, revenue is recorded based on
the percentage of service completed at the balance sheet date.
ADVERTISING. Generally, advertising costs are expensed as
incurred and are classified in other operating expenses.
Advertising expenses were $236,559,000, $221,511,000 and
$202,104,000 in 2001, 2000 and 1999, respectively.
CASH EQUIVALENTS. Cash equivalents in excess of current
operating requirements are invested in short-term, interest-
bearing instruments with maturities of three months or less at
the date of purchase and are stated at cost, which approximates
market value. Interest income was $11,197,000, $15,116,000 and
$12,399,000 in 2001, 2000 and 1999, respectively.
MARKETABLE SECURITIES. Marketable securities are classified
as available-for-sale securities and are reported at fair value.
Unrealized gains and losses are reported, net of related deferred
income taxes, as a component of accumulated other comprehen-
sive income.
SPARE PARTS, SUPPLIES AND FUEL. Spare parts are stated prin-
cipally at weighted-average cost. Supplies and fuel are stated
principally at standard cost, which approximates actual cost on a
first-in, first-out basis. Neither method values inventory in excess
of current replacement cost.
PROPERTY AND EQUIPMENT. Expenditures for major additions,
improvements, flight equipment modifications and certain equip-
ment overhaul costs are capitalized. Maintenance and repairs
are charged to expense as incurred. The cost and accumulated
depreciation of property and equipment disposed of are removed
from the related accounts, and any gain or loss is reflected in the
results of operations.
For financial reporting purposes, depreciation and amortization
of property and equipment is provided on a straight-line basis
over the asset’s service life or related lease term as follows:
Flight equipment 5 to 20 years
Package handling and ground support
equipment and vehicles 3 to 30 years
Computer and electronic equipment 3 to 10 years
Other 2 to 30 years
Aircraft airframes and engines are assigned residual values
ranging up to 20% of asset cost. All other property and equipment
have no material residual values. Vehicles are depreciated on a
straight-line basis over five to 10 years. Depreciation expense
was $1,241,493,000, $1,132,129,000, and $1,017,950,000 in 2001,
2000 and 1999, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS