Federal Express 2001 Annual Report Download - page 34

Notes to Consolidated Financial Statements
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NOTE 14: LEGAL PROCEEDINGS
We are subject to legal proceedings and claims that arise in the
ordinary course of our business. In our opinion, the aggregate lia-
bility, if any, with respect to these actions will not materially
adversely affect our financial position or results of operations.
NOTE 15: ASSET IMPAIRMENTS
Asset impairment adjustments of $102,000,000 at FedEx Express
were recorded in the fourth quarter of 2001. Impaired assets
were adjusted to fair value based on estimated fair market val-
ues. All charges relating to asset impairments were reflected as
other operating expenses in the Consolidated Statements of
Income. The asset impairment charge was comprised of two parts:
Certain assets related to the MD10 aircraft program $ 93,000,000
Ayres Loadmaster program deposits and other 9,000,000
$102,000,000
These aircraft procurement programs were in place to ensure
adequate aircraft capacity for future volume growth. Due to low-
ered capacity requirements, it became evident during the fourth
quarter of 2001 that FedEx Express had more aircraft capacity
commitments than required. Certain aircraft awaiting modifica-
tion under the MD10 program and the purchase commitments for
the Ayres aircraft were evaluated and determined to be impaired.
The MD10 program curtailment charge is comprised primarily of
the write down of impaired DC10 airframes, engines and parts to
a nominal estimated salvage value. Costs relating to the disposal
of the assets were also recorded. These assets are expected to
be disposed of primarily during 2002. The Ayres Loadmaster program
charge is comprised primarily of the write-off of deposits for
aircraft purchases. Capitalized interest and other costs estimated
to be unrecoverable in connection with the bankruptcy of Ayres
Corporation were also expensed.
NOTE 16: OTHER EVENTS
On April 24, 2001, FedEx Supply Chain Services committed to a plan
to reorganize certain of its unprofitable, nonstrategic logistics busi-
ness and reduce overhead. Total 2001 costs of $22,000,000 were
incurred in connection with this plan, primarily comprising costs for
estimated contractual settlements ($8,000,000), asset impairment
charges ($5,000,000) and severance and employee separation
($5,000,000). Asset impairment charges were recognized to reduce
the carrying value of long-lived assets (primarily software) to esti-
mated fair values, and an accrual of $17,000,000 was recorded for
the remaining reorganization costs. The accrual had a balance of
approximately $12,000,000 remaining at May 31, 2001, reflecting pri-
marily the payment of severance costs and contractual settlements.
Approximately 120 principally administrative positions were elimi-
nated under the plan. The reorganization will be completed in 2002.
On January 10, 2001, FedEx Express and the U.S. Postal Service
entered into two service contracts: one for domestic air trans-
portation of postal express shipments, and the other for placement
of FedEx Drop Boxes at U.S. Post Offices.
In 2000, FedEx Express recorded nonoperating gains of approxi-
mately $11,000,000 from the sale of securities and approximately
$12,000,000 from the insurance settlement for a leased MD11 air-
craft destroyed in October 1999.
NOTE 17: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
First Second Third Fourth
In thousands, except per share amounts Quarter Quarter Quarter Quarter(1)
2001
Revenues $4,778,736 $4,894,921 $4,838,780 $5,116,603
Operating income 310,967 345,412 191,305 223,206
Income before income taxes 274,245 315,128 158,489 179,711
Net income 168,660 193,804 108,689 113,218
Earnings per common share .59 .68 .38 .38
Earnings per common share – assuming dilution .58 .67 .37 .38
2000
Revenues $4,319,977 $4,570,104 $4,518,057 $4,848,807
Operating income 283,807 304,535 206,472 426,260
Income before income taxes 262,880 282,928 186,998 404,934
Net income 159,034 171,183 113,128 244,991
Earnings per common share .53 .58 .39 .86
Earnings per common share – assuming dilution .52 .57 .39 .85
(1) Fourth quarter of 2001 includes a $102,000,000 charge for impairment of certain assets related to aircraft programs at FedEx Express and a $22,000,000 reorganization charge at
FedEx Supply Chain Services.