Federal Express 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Federal Express annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 92

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92

I can see farther.

Table of contents

  • Page 1
    I can see farther.

  • Page 2
    I can reach beyond the walls of my home, office and store.

  • Page 3
    1

  • Page 4
    2

  • Page 5
    With one loading dock, I can reach customers around the globe. 3

  • Page 6

  • Page 7
    I can be a local merchant and a citizen of the world. 5

  • Page 8

  • Page 9
    I can gain access to almost anyone or anything on the planet. This used to be the astronauts' view - now it's a map of my sales territory.

  • Page 10

  • Page 11
    From the day our first customer shipped a box overnight, we've been at the leading edge of change. We've pioneered packaging and systems, technologies and trade routes. We've enabled new ways of working and new business models. We've closed the gap between the virtual and physical worlds. All for ...

  • Page 12
    ... share) of business realignment costs and a $37 million, net of tax, or $0.12 per diluted share benefit related to a favorable ruling on an IRS tax case and the reduction of the company's effective tax rate. 2004 also includes the results of operations of FedEx Kinko's from February 12, 2004 (date...

  • Page 13
    ... network capacity to five million packages a day by 2010. Also in FY05, we expanded the FedEx Ground service portfolio with the acquisition of Parcel Direct, now called FedEx SmartPost. Targeted to customers in the fast-growing e-tail and catalog industries, FedEx SmartPost provides a cost-effective...

  • Page 14
    ... our collective strategy involves our retail presence - giving our customers a convenient drop-off point for both Express and Ground package shipping. With the conversion of 176 former FedEx World Service Centers to FedEx Kinko's Ship Centers, along with the continued opening of new locations, FedEx...

  • Page 15
    ... business days. FedEx Ground provides cost-effective, day-definite shipping, specializing in small-package ground delivery with convenient U.S. residential service through its FedEx Home Delivery service. FedEx Freight is a leading U.S. regional, less-than-truckload freight company, delivering...

  • Page 16

  • Page 17
    "I am on your schedule." 15

  • Page 18
    16

  • Page 19
    ... prices (four to six days via FedEx Ground) or faster access (two days via FedEx Express). To meet customer demand, FedEx runs its own facility under the same roof as L.L. Bean's 600,000-square-foot order fulfillment center in Freeport. The operation processes thousands of mail, phone, fax and Web...

  • Page 20
    "I was born global." 18

  • Page 21
    ... operating around the world, FedEx offers the expertise and shipping services to help any company enter new markets. Kaenon uses FedEx Express for international shipping, while FedEx Ground handles deliveries to retailers in the United States and Canada - as well as many of Kaenon's online customers...

  • Page 22
    ... in our business model," said Jerome Kearns, vice president of global product fulfillment at Motion Computing. "The FedEx direct-ship programs from China to our distribution channel and to our end customers help Motion expand globally at an accelerated pace and in a cost-effective manner." Since...

  • Page 23
    "I am the future." 21

  • Page 24
    Taiwan Hong Kong Subic Bay Philippines Vietnam 22

  • Page 25
    ... new Pentax Direct Distribution System, with products moving from regional manufacturing to the FedEx Asia-Pacific Hub at Subic Bay, the Philippines. Inside the onsite Pentax operation, order data is received from Pentax information systems and individual shipments are prepared for direct delivery...

  • Page 26
    ... orders from any Windows application. Despite all the amazing advances that have been made over the past few decades, I believe we're only beginning to realize computing's potential - as File, Print FedEx Kinko's clearly shows." Bill Gates Chairman and Chief Software Architect, Microsoft Corporation

  • Page 27
    ...from her home computer. "The copies were all ready when I arrived and they were sorted correctly with tabs and everything," said McIlvoy, a sales manager for W.P. Hickman Systems Inc. "It was like having my own personal assistant. It was convenient and a real time saver." FedEx Kinko's has long been...

  • Page 28
    ... for CompUSA's fast-cycle inventory replenishment. Shipments from manufacturers arrive at five distribution centers around the nation, where the products are immediately sorted and loaded right onto FedEx Freight trucks, eliminating the costly need to warehouse goods. The trucks deliver directly to...

  • Page 29
    "I bypass warehouses." 27

  • Page 30
    "I am always fresh."

  • Page 31
    ...are focused on customer service." While the company's processes are meticulous - every berry is dipped and packaged by hand at the Roseville, Calif., headquarters on the day it is shipped - this is no small-scale operation. The ability to ship overnight has allowed Shari's Berries to increase annual...

  • Page 32
    ... the stores' success is a combination of FedEx services that keeps the right mix of products in stock at each location. The hottest, fast-selling merchandise is shipped from factories directly to Louis Vuitton stores worldwide by FedEx Express. Rush orders are handled by FedEx International Priority...

  • Page 33
    "...and Brussels...and Chicago...and Johannesburg...and Melbourne...and Sydney...and Manila...and Tokyo...and Salzburg...and Antwerp...and Cannes...and Berlin...and São Paulo...and Athens...and Vancouver...and Toronto...and Los Angeles...and Honolulu." 31

  • Page 34
    "I am a successful "I am an entrepreneur entrepreneur." at heart." 32

  • Page 35
    ...based on volume as well as reliable performance. This opportunity appeals to entrepreneurs who are willing to make the investment to get started in the business. In addition to the initial acquisition fee for the route, FedEx Ground contractors pay for their own trucks, insurance, uniforms, fuel and...

  • Page 36
    "I am clean."

  • Page 37
    ... saving more than one million barrels of crude oil a year. "As fuel prices rise, fuel-efficient trucks are an investment every company should be making," said Gwen Ruta, director of corporate partnerships at Environmental Defense. "They're not only good for business but good for America." fedex...

  • Page 38
    ...: Several years ago, we committed to managing FedEx Corporation for improving financial performance - setting very specific long-term goals around improved margins, earnings growth, better cash flow and higher return on capital. Since then, we've consistently delivered against those goals. And...

  • Page 39
    ... companies that compete collectively and are managed collaboratively under the respected FedEx brands. These operating companies are primarily represented by FedEx Express, the world's largest express transportation company; FedEx Ground, a leading provider of small-package ground delivery services...

  • Page 40
    ... share benefit related to a favorable ruling on a tax case and the reduction of our effective tax rate described below. Also, see Note 12 to the accompanying consolidated financial statements. The following table shows changes in revenues and operating income by reportable segment for 2005 compared...

  • Page 41
    ...increased use of contract carriers to support international express and domestic LTL volume growth. Other operating expenses increased disproportionately in 2005 primarily due to the inclusion of a full year of production supplies costs at FedEx Kinko's. Other Income and Expense and Income Taxes Net...

  • Page 42
    .... These opportunities include initiatives to improve pickup and delivery efficiency, increase cross-operating company collaboration, and manage the growth of employee salaries and benefits. During 2006, we expect continued strong growth of international volumes and yields at FedEx Express. We...

  • Page 43
    ... FedEx Services to FedEx Express, FedEx Ground, FedEx Freight and FedEx Kinko's. The "Intercompany charges" caption also includes allocations for services provided between operating companies and certain other costs such as corporate management fees related to services received for general corporate...

  • Page 44
    ... daily volume growth during 2005 while outbound shipments from the United States, Europe and Latin America continued to improve. IP yield increased across all regions during 2005 due to higher fuel surcharge revenue, an increase in international average weight per package and favorable exchange rate...

  • Page 45
    MANAGEMENT'S DISCUSSION AND ANALYSIS U.S. domestic composite yield increased 5% in 2005, due to higher fuel surcharge revenue and increases in average weight per package and average rate per pound. U.S. domestic volumes at FedEx Express increased 2% in 2005 after several years of flat to negative ...

  • Page 46
    ... 2003 Revenues Operating expenses: Salaries and employee benefits Purchased transportation Rentals Depreciation and amortization Fuel Maintenance and repairs Business realignment costs Intercompany charges Other Total operating expenses Operating income Operating margin Average daily package volume...

  • Page 47
    ... Parcel Direct), a division of a privately held company, for $122 million in cash. FedEx SmartPost is a leading small-parcel consolidator and broadens our portfolio of services by allowing us to offer a cost effective option for delivering low-weight, less time-sensitive packages to U.S. residences...

  • Page 48
    ...LTL average daily shipments, which reflected a strengthening economy and market share gains. LTL yield grew 6% during the year, reflecting incremental fuel surcharges due to higher fuel prices, growth in our interregional freight service and higher rates. FedEx Freight Segment Operating Income FedEx...

  • Page 49
    ...Service Centers to FedEx Kinko's Ship Centers, the growth of current lines of business and the expansion of our retail network. We expect the 2006 operating margin will be comparable to 2005, as the completion of rebranding and increased productivity efforts will be partially offset by costs related...

  • Page 50
    ... acquisitions. Cash Used for Capital Investments. Capital expenditures were higher in 2005 than the prior year primarily due to planned aircraft expenditures at FedEx Express to support IP volume growth. We also made opportunistic purchases of aircraft in order to take advantage of favorable pricing...

  • Page 51
    ... FedEx Express to support IP volume growth. We also made opportunistic purchases of aircraft in order to take advantage of favorable pricing conditions in the used aircraft market for certain strategically valuable aircraft types. Also, additional investments were made in the FedEx Ground and FedEx...

  • Page 52
    ... benefits is determined by accounting and actuarial methods that include numerous estimates, including: discount rates; expected longterm investment returns on plan assets; future salary increases; and employee turnover, mortality and retirement ages. The determination of our annual pension cost...

  • Page 53
    ... Plan Assets. Pension plan assets are invested primarily in listed securities. Our pension plans hold only a minimal investment in FedEx common stock that is entirely at the discretion of thirdparty pension fund investment managers. The estimated average rate of return on plan assets is a long-term...

  • Page 54
    ...Other fixed income securities 53% 20 2 75 15 10 100% 53% 17 5 75 15 10 100% The actual compound geometric return on our pension plan assets was 10.0%, net of investment manager fees, for the 15year period ended February 28, 2005. In 2003, we assumed a long-term rate of return on pension assets of...

  • Page 55
    ... on completion of five years of service. SELF-INSURANCE ACCRUALS We are self-insured up to certain limits for costs associated with workers' compensation claims, vehicle accidents and general business liabilities, and benefits paid under employee healthcare and long-term disability programs. At...

  • Page 56
    ..., the following estimates used by management can significantly affect the outcome of the impairment test: revenue growth rates; operating margins; discount rates and expected capital expenditures. Each year, independent of our goodwill impairment test, we update our weighted-average cost of capital...

  • Page 57
    ... pickup and delivery of commercial package and freight shipments, as well as providing document solutions and business services. Our employees and agents are involved throughout the process and our operational, billing and accounting systems directly capture and control all relevant information...

  • Page 58
    .... In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting reported operating results, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' services become more or less attractive...

  • Page 59
    ... relating to aircraft, vehicle and sort capacity, to shifting customer volume levels; • our ability to effectively operate, integrate and leverage the FedEx Kinko's business; • sudden changes in fuel prices or currency exchange rates; • our ability to maintain or increase our fuel surcharges...

  • Page 60
    ..., 2005. Our independent registered public accounting firm, Ernst & Young LLP, audited management's assessment and the effectiveness of our internal control over financial reporting. Ernst & Young has issued their report concurring with management's assessment, which is included in this Annual Report...

  • Page 61
    ... related consolidated statements of income, changes in stockholders' investment and comprehensive income, and cash flows for each of the three years in the period ended May 31, 2005 of FedEx Corporation and our report dated July 12, 2005 expressed an unqualified opinion thereon. Memphis, Tennessee...

  • Page 62
    ...CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share amounts) 2005 Years ended May 31, 2004 2003 REVENUES Operating Expenses: Salaries and employee benefits Purchased transportation Rentals and landing fees Depreciation and amortization Fuel Maintenance and repairs Business...

  • Page 63
    ... Current portion of long-term debt Accrued salaries and employee benefits Accounts payable Accrued expenses Total current liabilities Long-Term Debt, Less Current Portion Other Long-Term Liabilities Deferred income taxes Pension, postretirement healthcare and other benefit obligations Self-insurance...

  • Page 64
    ... taxes and other noncash items Tax benefit on the exercise of stock options Changes in operating assets and liabilities, net of the effects of businesses acquired: Receivables Other current assets Pension assets and liabilities, net Accounts payable and other operating liabilities Other, net Cash...

  • Page 65
    ... liability adjustment, net of deferred tax benefit of $12 Total comprehensive income Purchase of treasury stock Cash dividends declared ($0.29 per share) Employee incentive plans and other (4,013,182 shares issued) Amortization of deferred compensation BALANCE AT MAY 31, 2004 Net income Foreign...

  • Page 66
    ... and business services through operating companies that compete collectively and are managed collaboratively under the respected FedEx brands. Our operations are primarily represented by Federal Express Corporation ("FedEx Express"), the world's largest express transportation company; FedEx Ground...

  • Page 67
    ..., management makes assumptions concerning future salary increases, future expected long-term returns on plan assets and future increases in healthcare costs. Discount rates are established as of the measurement date using theoretical bond models that select high-grade corporate bonds with cash flows...

  • Page 68
    ...-INSURANCE ACCRUALS We are primarily self-insured for workers' compensation claims, vehicle accidents and general liabilities, benefits paid under employee healthcare programs and long-term disability benefits. Accruals are primarily based on the actuarially estimated, undiscounted cost of claims...

  • Page 69
    ... Parcel Direct), a division of a privately held company, for $122 million in cash. FedEx SmartPost is a leading small-parcel consolidator and broadens our portfolio of services by allowing us to offer a cost effective option for delivering low-weight, less time-sensitive packages to U.S. residences...

  • Page 70
    ..., net of tax, of business realignment costs and a $37 million, net of tax, nonrecurring tax benefit at FedEx. We paid a portion of the purchase price from available cash balances. To finance the remainder of the purchase price, we issued commercial paper backed by a six-month $2 billion credit...

  • Page 71
    ... compensation related to the modification of previously granted stock options and incremental pension and healthcare benefits. Other also includes professional fees directly associated with the business realignment initiatives and relocation costs. (2) Amounts charged to other assets and liabilities...

  • Page 72
    ...which commits FedEx Express to firm purchase obligations for two of these aircraft during both 2005 and 2006. As a result, the amended leases were accounted for as capital leases, which added $221 million to both fixed assets and long-term liabilities at May 31, 2003. Two of these aircraft were paid...

  • Page 73
    ...Express makes payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass-through certificates. The pass-through certificates are not direct obligations of, or guaranteed by, FedEx or FedEx Express. Aircraft Package handling and ground support...

  • Page 74
    FEDEX CORPORATION STOCK COMPENSATION PLANS Stock Options Plan Under the provisions of our stock incentive plans, key employees and non-employee directors may be granted options to purchase shares of common stock at a price not less than its fair market value at the date of grant. Options granted ...

  • Page 75
    ... method. Restricted Stock Plans Under the terms of our restricted stock plans, shares of common stock are awarded to key employees. All restrictions on the shares expire ratably over a four-year period. Shares are valued at the market price at the date of award. Compensation related to these plans...

  • Page 76
    ...The 37.4% effective tax rate in 2005 was favorably impacted ($12 million tax benefit or $0.04 per diluted share) by the one-time reduction of a valuation allowance on foreign tax credits arising from certain of our international operations as a result of the passage of the American Jobs Creation Act...

  • Page 77
    ... fixed income portfolios, to earn a long-term investment return that meets our pension plan obligations. Active management strategies are utilized within the plan in an effort to realize investment returns in excess of market indices. Our pension cost is materially affected by the discount rate used...

  • Page 78
    ... on plan assets Company contributions Benefits paid Other Fair value of plan assets at end of year Funded Status of the Plans Unrecognized actuarial loss (gain) Unamortized prior service cost Unrecognized transition amount Prepaid (accrued) benefit cost Amount Recognized in the Balance Sheet at...

  • Page 79
    ... present value of benefits attributable 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 May...

  • Page 80
    ... 2004, and its results of operations have been included in our financial results from the date of acquisition. FedEx Services provides customer-facing sales, marketing and information technology support, primarily for FedEx Express and FedEx Ground. The costs for these activities are allocated based...

  • Page 81
    ... $48 million related to an Airline Stabilization Act charge. (4) Includes business realignment costs of $428 million in the FedEx Express segment, $1 million in the FedEx Ground segment and $6 million in Other and Eliminations. (5) Segment assets include intercompany receivables. The following...

  • Page 82
    ... FLOW INFORMATION Cash paid for interest expense and income taxes for the years ended May 31 was as follows (in millions): 2005 2004 2003 FedEx Express segment: Package: $ 5,969 U.S. overnight box U.S. overnight envelope 1,798 U.S. deferred 2,799 Total domestic package revenue 10,566 International...

  • Page 83
    ... sheet includes an additional $126 million of fixed assets and $133 million of long-term liabilities. NOTE 18: COMMITMENTS Annual purchase commitments under various contracts as of May 31, 2005 were as follows (in millions): Aircraft AircraftRelated(1) Other(2) Total 2006 2007 2008 2009 2010...

  • Page 84
    ... or other benefits. The plaintiffs generally seek unspecified monetary damages, injunctive relief, or both. To date, one of these wage-and-hour cases, Foster v. FedEx Express, has been certified as a class action. The plaintiffs represent a class of hourly FedEx Express employees in California from...

  • Page 85
    ... basic and diluted share) related to an Airline Stabilization Act charge described in Note 1. (2) Includes an $11 million ($0.04 per basic and diluted share) benefit from an income tax adjustment described in Note 12. (3) Includes FedEx Kinko's from February 12, 2004 (date of acquisition). See Note...

  • Page 86
    ... the three years in the period ended May 31, 2005, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of FedEx Corporation's internal control over...

  • Page 87
    ... stock outstanding Average common and common equivalent shares outstanding Cash dividends declared Financial Position Property and equipment, net Total assets Long-term debt, less current portion Common stockholders' investment Other Operating Data FedEx Express aircraft fleet Average full-time...

  • Page 88
    ...LLC Investment management firm Chief Executive Officer Diageo plc Consumer food and beverage company Peter S. Willmott (1)(4*) Chairman and Chief Executive Officer Willmott Services, Inc. Retail and consulting firm (1) Audit Committee (2) Compensation Committee (3) Information Technology Oversight...

  • Page 89
    ..., International Bram B. Johnson Executive Vice President, Strategic Planning, Quality Management and Communications FedEx Trade Networks G. Edmond Clark President and Chief Executive Officer FedEx SmartPost Ward B. Strang President and Chief Executive Officer FedEx Freight Segment FedEx Supply...

  • Page 90
    ...have also filed with the New York Stock Exchange the most recent Annual CEO Certification as required by section 303A.12(a) of the NYSE Listed Company Manual. Independent Registered Public Accounting Firm: Ernst & Young LLP, Memphis, Tennessee. Equal Employment Opportunity: Our greatest asset is our...

  • Page 91
    We've helped you stay at the leading edge of change because we see farther, too. Whatever you can see, we can make possible.

  • Page 92
    How far can you see? FedEx Corporation 942 South Shady Grove Road Memphis, Tennessee 38120 fedex.com