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    FedEx Corporation 2000 Annual Report


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    Time-definite, global express transportation Small-package ground delivery (formerly RPS) Integrated logistics and supply chain solutions (formerly FDX Logistics) Expedited, door-to-door, super-critical delivery (formerly Roberts Express) Customs brokerage and trade facilitation solutions After two years as FDX Corporation, we have adopted a new name that, we believe, more accurately reflects our corporate identity: FedEx Corporation, the parent company for the FedEx family of services worldwide. Changes have occurred quickly, including new names for our major operating companies, new logos and new colors. And we are already beginning to see the benefits of a more focused, more effi- cient FedEx family of companies. But what has not changed is our fundamental business philoso- phy – to operate independently yet compete collectively. And what will never change is our mission – to produce superior financial returns for our shareowners as we serve our customers with the highest quality transportation, logistics and e-commerce solutions.


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    SELECTED FINANCIAL DATA Percen t In t h ou san ds, except earn in gs per sh are 2000 1999 C h an ge O PERAT IN G RESU LT S Reven u es $18,256,945 $16,773,470 + 9 O perat in g in com e 1,221,074 1,163,086 + 5 O perat in g m argin 6.7% 6.9% N et in com e 688,336 631,333 + 9 Earn in gs per sh are, assu m in g dilu t ion $ 2.32 $ 2.10 +10 C ash earn in gs per sh are, assu m in g dilu t ion (1) $ 6.22 $ 5.54 +12 Average com m on an d com m on equ ivalen t sh ares 296,326 300,643 – 1 EBIT DA (2) $ 2,398,663 $ 2,194,373 + 9 C apital expen dit u res, in clu din g equ ivalen t capital (3) $ 1,991,600 $ 2,330,613 –15 FIN AN C IAL PO SIT IO N Total asset s $11,527,111 $10,648,211 + 8 Lon g-term debt 1,782,790 1,374,606 +30 C om m on stock h olders’ in vest m en t 4,785,243 4,663,692 + 3 FedEx (1) N et in com e plu s depreciat ion an d am ort izat ion divided by average com m on an d com m on equ ivalen t sh ares. 1 (2) Earn in gs before in terest , taxes, depreciat ion an d am ort izat ion . (3) Represents actual cash expenditures plus the equivalent am ount of cash that would have been expended for the acquisition of assets Corp. (principally aircraft), whose use was obtained through long-term operating leases entered into during the period. 14.6% 14.6% $18.3 $2.32 13.5% $16.8 $2.10 $15.9 $1.69 98 99 00 98 99 00 98 99 00 REVENUES EARNINGS RETURN O N (in billions) PER SHARE AVERAGE EQ UITY $2.4 29.3% $2.3 $2.3 27.1% $2.2 $2.0 $2.0 22.8% 98 99 00 98 99 00 98 99 00 EBITDA(2) CAPITAL EXPENDITURES DEBT TO TO TAL (in billions) AND EQ UIVALENTS CAPITALIZATIO N (in billions)(3)


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    M ESSAGE FRO M THE CEO DEAR FELLO W SHAREO W NERS, T h is n ew st rat egic plan is based on t h ree Ju st as we did in FY99 – w h en we overcam e sou n d prin ciples: sign ifican t ch allen ges t o post record rev- > To leverage a sign ifican t poin t of com pet i- en u es, record earn in gs per sh are an d record t ive d ifferen t iat ion , we st ren gt h en ed ou r service levels – FedEx C orporat ion h as closed su perior bu sin ess ph ilosoph y – t o operat e FY00 w it h t h e st ron g fin an cial resu lt s t h at i n d e p e n d e n t l y yet c o m p et e c o l l e ct i ve l y. ou r sh areow n ers h ave com e to expect . In depen den t ly, each com pan y is free to focu s For t h e 12 m on t h s en ded M ay 31, 2000: on t h e dist in ct n eeds of it s m arket segm en t , w it h ou t com prom isin g n et work s or service. > R even u e rose 9% to $18.3 b illion C ollect ively, t h e en t ire FedEx fam ily work s > N et in com e in creased 9% to t oget h er t o cross-sell services an d ch oreo- $688 m illion graph cu stom er solu t ion s. > Earn in gs per sh are rose to $2.32 versu s $2.10 per d ilu ted sh are a year ago, for > To ex t en d t h e st ren gt h of t h e pow erfu l a 10% gain . Fed Ex b ran d n am e, we rebran ded ou r m ajor 2 operating com panies to include FedEx Express, C on t in u ed econ om ic st ren gt h – part icu larly FedEx Ground, FedEx Custom Critical, FedEx in t h e h igh -t ech an d h igh -valu e-added sec- Logistics and FedEx Trade N etworks. t ors – led t o im proved grow t h rat es in t h e l a rge st s e gm e n t o f o u r b u s i n e s s , ex p re s s > To prov id e a sin gle poin t of access for ou r t ran spor t at ion . O u r in t er n at ion al express cu stom ers, we reorganized and created the new business continued to grow at the fastest pace, FedEx C orporat e Services com pan y, w h ich w it h reven u es risin g 18% , led by in creases in integrates custom er-related activities such as A s i a -P a c i fi c a n d Eu r o p e . C o m b i n e o u r sales, m arketing and inform ation technology. im proved grow t h rates w it h ou r dem on st rated T h rou gh FedEx Services, ou r cu stom ers n ow fiscal respon sibilit y – for exam ple, h oldin g have one “touch point” to connect with the full capital spen din g to less t h an $2 billion – an d range of FedEx services – one sales rep, one toll- it ’s eviden t t h at , for FY00, FedEx C orporat ion free custom er service line, one Web site, one t u rn ed ch allen ge in to opport u n it y. custom er autom ation platform and, soon, one account num ber and one invoice. FEDEX STRATEGIC PLAN “ C h allen ge” was also t h e operat ive word for It ’s really very sim ple. O u r st rategic plan is an in creasin gly com pet it ive en viron m en t . To good for cu st om ers, good for sh areow n ers t u r n t h at ch allen ge in t o ou r com pet it ive an d good for FedEx. C u stom ers ben efit from a d va n t a ge , Fe d Ex C o r p o ra t io n c o n d u ct e d con ven ien t , on e-st op sh oppin g for t h e fu ll exten sive research to develop a n ew st rategic ran ge of FedEx t ran sportat ion , logist ics an d p l a n , w h i c h w e u n ve i l e d i n Ja n u a r y a n d e-com m erce solu t ion s. Sh areow n ers ben efit called “ Project ARISE.” from t an gible, st rat egic oppor t u n it ies for con t in u ed profit able grow t h . An d, in t h e


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    process, m ore t h an 200,000 em ployees an d in t h e largest e-com m erce dist ribu t ion even t con t ract ors of FedEx C orporat ion ben efit to date: the delivery of 250,000 Harry Potter from in creased opport u n it ies at a com pan y books, with guaranteed Saturday delivery. w idely regarded as on e of Am erica’s great For ou r cu stom ers, ou r diversified port folio places to work . st rat egy is t h e righ t approach , offerin g t h e righ t FedEx service at t h e righ t t im e an d t h e STRATEGIC GRO W TH O PPO RTUNITIES righ t price. Alt h ou gh ou r st rategic in it iat ives w ill requ ire addit ion al spen din g over t h e n ext t h ree years, > A t t ract n ew b u sin ess from sm all an d we plan to m it igate t h ose cost s as we con soli- m ed iu m -siz ed cu stom ers. date su pport fu n ct ion s, rat ion alize services, an d redu ce adm in ist rat ive cost s. M ore im por- Our sales integration plan also calls for m ore t an t ly, we expect ou r n ew st rat egic plan t o dedicat ed at t en t ion t o sm all an d m ediu m - gen erat e su bst an t ial in crem en t al reven u es sized cu stom ers. We plan to add m ore t h an FedEx an d profit s begin n in g in FY01 as we focu s on 250 accou n t execu t ives – m ost dedicat ed 3 t h e follow in g grow t h opport u n it ies: t o o u r s m a l l e r c u st o m e rs – a n d i n c re a s e Corp. prospecting for new accounts by up to 35% . > G en erate in crem en t al volu m e in ou r core t ran sport at ion b u sin esses by Wh y t h e special at t en t ion t o sm all an d cross-sellin g all Fed Ex serv ices. m e d i u m -s i z e d c u s t o m e r s ? Fi r s t , t h e s e sm aller accou n t s gen erate n early h alf of total An est im at ed 1.7 m illion bu sin esses sh ip FedEx reven u e. Secon d, in today’s “ start -u p” bot h express an d grou n d packages, accou n t - b u s i n e s s e n v i ro n m e n t , s m a l l e r a c c o u n t s in g for n early 14 m illion sh ipm en t s every day. h ave u n iqu e n eeds for t ran sportat ion , logis- T h ese “ m u lt i-m ode” sh ippers n eed on e con - t ics, an d in form at ion services. Wh et h er it ’s a ven ien t , bu n dled solu t ion , w h ich is w h y ou r n ew In tern et -based com pan y or a t radit ion al in t egrat ed sales force h as been t rain ed t o brick -an d-m ort ar fir m , sm aller com pan ies c ro s s -s e l l b ot h Fe d Ex Ex p re s s a n d Fe d Ex are sou rcin g an d sellin g worldw ide, an d t h ey G rou n d services. n eed a reliable bu sin ess ally t o h elp t h em n avigate t h is global econ om y. Sin ce we con solidat ed ou r sales t eam s on April 1, we’ve already begu n t o see resu lt s. > C reate n ew reven u e st ream s. M an y com pan ies t h at h ave looked to FedEx on ly for reliable express t ran sport at ion are Since we announced our new strategic plan last n ow expan din g to u se ou r ot h er services as Jan u ary, we h ave already taken t wo decisive well. In fact , ou r bu n dlin g st rategy brou gh t steps to create en t irely n ew reven u e st ream s im m ediat e – an d h igh -profile – bu sin ess as that com plem ent our core businesses. Am azon .com tapped FedEx Express an d ou r new FedEx Hom e Delivery service to participate


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    In Febru ary, we created t h e n ew FedEx Trade electronic custom s clearance to speed an inter- N e t w o r k s s u b s i d i a r y t o o ffe r c u s t o m s national sh ipm en t on t o it s fin al dest in at ion . brokerage an d t rade facilitat ion solu t ion s for Alt h ou gh grou n d t ran sportat ion m ay be con - ou r global cu st om ers. T h is n ew operat in g st rain ed by geograph ic bou n daries, FedEx com pan y in clu des cu st om s brok er Tower G rou n d is u n iqu ely posit ion ed to take advan - Group International and World Tariff, Lim ited, tage of t h e su rge in U .S. im port s an d export s t h e prem ier sou rce of cu stom s du t y an d tax a s a m e m b e r o f t h e glo b a l Fe d Ex fa m ily. in form at ion arou n d t h e globe. In addit ion , it s t ru ck s can be an im portan t In M arch , we lau n ch ed t h e in n ovat ive n ew sou rce of cross-border t ran sportat ion t h rou gh - FedEx Hom e Delivery service to m ajor m etro- ou t t h e N AFTA region . politan areas – an d ju st t h ree m on t h s later, as We believe t h at in t ern at ion al grow t h m u st we issu ed FY00 earn in gs, we took advan tage re m a i n a h i gh p r i o r i t y a s m a n u fa ct u r i n g of ou r fin an cial st ren gt h to accelerate plan s becom es even m ore focu sed on h igh -tech an d for expan sion . Wit h opt ion s for delivery by h igh -valu e-added item s t h at are sold globally. 4 appoin t m en t , at n igh t , or on Sat u rdays, we believe that FedEx Hom e Delivery truly fits the > C apit aliz e on e-com m erce. way we live, work and shop today. It’s a perfect solution for online m erchants, m any of whom As t h e global econ om y con t in u es at it s robu st have learned the hard way that tim ely, accu- pace, t h e evolu t ion of e-com m erce is h avin g a rate fulfillm ent of orders is a virtual necessity. profou n d effect . Wh ile t ot al e-com m erce is project ed t o gen erat e abou t $450 billion in > Ex pan d t h e h igh -m argin sales t h is year, it ’s t h e bu sin ess-to-bu sin ess in tern at ion al b u sin ess. segm en t t h at w ill accou n t for over 90% of t h ose t ran sact ion s. T h e fast est grow t h du rin g FY00 con t in u ed to be t h e FedEx Express in tern at ion al bu si- N o m at ter w h at t h e u lt im ate dest in at ion – n ess, w it h reven u e in creasin g 18% year over bu sin ess or con su m er – e-com m erce start -u ps year an d gain in g over 20% in t h e fou rt h qu ar- an d t radit ion al firm s alike n eed on e seam less, ter alon e. in tegrated system for In tern et -based orderin g a n d p ro c u re m e n t , l i n k e d t o t h e p h ys i c a l Bu t t h e global econ om y is also t h e risin g t ran sport at ion an d logist ics solu t ion s t h at t ide for all FedEx com pan ies – in clu din g t h e en su re t im ely order fu lfillm en t . An d FedEx is expedit ed service of FedEx C u st om C rit ical posit ion ed righ t at t h e h eart of t h is t ren d. t h rou gh ou t N ort h Am erica an d Eu rope an d Wit h ou r u n m at ch ed global ph ysical n et work t h e worldw ide operat ion s of FedEx Logist ics. an d ou r state-of-t h e-art in form at ion n et work , O u r n ewest operat in g com pan y, FedEx Trade FedEx h elps ou r cu stom ers bridge t h e e-world N et work s, is t ru ly a global player, providin g w it h t h e real world.


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    A s w e m ove fo r w a rd w i t h o u r c o r p o ra t e > Prov id e m ean in gfu l su pply reposit ion in g, we m u st recogn ize t h at ch an ge ch ain solu t ion s. is n ot h in g n ew for FedEx. We’ve been ch an g- In addit ion to t h ese e-com m erce solu t ion s, in g sin ce day on e an d, in t h e process, h elpin g Fe d Ex e n a b l e s c o m p a n i e s o f a l l s i z e s – to ch an ge t h e way t h e world work s. To stay w h et h er t h ey do bu sin ess on lin e or t h rou gh ah ead of today’s h igh -tech , h igh -speed global t radit ion al m ean s – to st ream lin e t h eir su p- econ om y, FedEx is ch an gin g in a very posit ive ply ch ain s. way – becom in g m ore collaborat ive, m ore i n n ova t i ve a n d m o r e e ffi c i e n t , w i t h a n T h e best way t o explain t h e su pply-ch ain absolu te focu s on con t in u ed grow t h in earn - con cept is by exam ple. O n e sem icon du ctor in gs an d cash flow. com pan y was sou rcin g com pon en t s from 17 differen t cou n t ries. It t ook abou t t h ree O ver a qu arter-cen t u ry ago, Federal Express week s to get t h e com pon en t s from su ppliers invented the m odern air/ground express indus- in t h ose cou n t ries t h rou gh t h e com pan y’s try and changed the business world dram ati- FedEx N ort h Am erican wareh ou ses an d on to t h e cally. N ow, we’re ready to reinvent ourselves – 5 en d cu stom ers. Bu t t h ree week s is a lifet im e and our industry – for the 21st century. Corp. in an in du st ry w it h h igh obsolescen ce rates. O n a fin al n ote, I wou ld like to express m y Wit h a FedEx solu t ion , t h e com pan y cu t it s person al grat it u de for t h ree of ou r dist in - order-t o-delivery t im e from t h ree week s t o gu ish ed Board m em bers: C h arles M an at t , u n der five days, w h ile in creasin g it s abilit y to w h o resign ed in D ecem ber 1999 to becom e t rack goods in t ran sit . Plu s, $8 m illion of U .S. am bassador to t h e D om in ican Repu blic; in ven tory was con verted in to u sable produ ct . Robert Allen , w h o reach es ou r Board ret ire- T h at ’s t h e t ru e power – an d t h e bot tom -lin e m en t age in Sept em ber 2000; an d Jack son im pact – of in n ovat ive t ran sportat ion , logis- Sm art , w h o passed away in Ju n e. We w ill t ics an d in for m at ion solu t ion s. In t oday’s m iss t h eir keen in t elligen ce, qu ick in sigh t bu sin ess en viron m en t , it ’s sim ply t h e sm art an d bu sin ess acu m en , w h ich h ave h elped way to work . An d t h at ’s w h y we view t h ese sh ape FedEx C orporat ion . in tegrated su pply ch ain solu t ion s as a m ajor grow t h opport u n it y for all FedEx com pan ies. Frederick W. Sm it h FEDEX STRENGTH C h airm an , Presid en t As we close FY00, I am pleased to report t h at an d C h ief Execu t ive O fficer t h e state of FedEx C orporat ion is very st ron g in deed – w it h st ron g fin an cial resu lt s, st ron g gr ow t h p r o s p e c t s a n d a s t r o n g b u s i n e s s ph ilosoph y to gu ide ou r operat ion s.


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    M ESSAGE FRO M THE CFO CO NTINUED GRO W TH, IM PRO VED CASH FLO W S u p ou r in tern at ion al n et work – rou te au t h ori- FedEx C orporat ion post ed solid fin an cial t ies t h at are n ow t h e en vy of ou r com pet itors. perform an ce in FY00 as we con t in u ed to su c- cessfu lly im plem en t ou r port folio m an age- > Becom in g less capit al in ten sive m en t st rat egy of operat in g ou r su bsidiaries in depen den t ly w h ile com pet in g collect ively. Wit h t h e FedEx Express core global n et work N evert h eless, it was a year of ch allen ge an d in place, we were able to redu ce capital expen - ch an ge as we experien ced som e of t h e h igh est dit u res com pared to last year as a percen tage fu el prices of t h e past decade an d bore t h e in i- of reven u es an d on an absolu te basis. Also, we t ial cost s of ou r n ew st rat egic plan . Wh ile con t in u ed to reallocate fu n ds to ot h er grow t h u n dertak in g t h ese reposit ion in g act ion s, we opport u n it ies like FedEx G rou n d, w h ich sig- rem ain ed focu sed on ou r n ear-term com m it - n ifican t ly expan ded t h e capacit y of it s pri- m en t t o ou r sh areow n ers an d ach ieved t h e m ary bu sin ess-t o-bu sin ess grou n d service, follow in g resu lt s in FY00: an d began t h e FedEx H om e D elivery rollou t . 6 > Solid EPS grow t h of 10% > Im proved cash flow Strong cost reductions, productivity gains and Wit h EBIT DA in creasin g 9% to $2.4 billion , service level im provem en t s, com bin ed w it h we con t in u ed to m ake sign ifican t progress in fuel surcharges and fuel hedging, partially off- FY00 to becom in g cash flow posit ive, w h ich set the $273 m illion increase in fuel costs due we w ill ach ieve n o later t h an FY03. to higher prices and the initial costs of our new Look in g ah ead, FY01 prom ises to be a pivotal go-to-m arket strategies. EPS growth also bene- year for ou r com pan y as ou r n ew go-to-m arket fit ed as we ret u r n ed cash t o sh areow n ers st rat egies begin t o gain t ract ion . Wh ile t h e through the repurchase of 15 m illion shares of cost s of t h ese in it iat ives w ill cau se som e drag FedEx com m on stock. on ou r earn in gs grow t h , especially in t h e first h alf of t h e year, ou r grow t h an d profitabilit y > A ccelerated reven u e grow t h of 9% sh ou ld im prove su bstan t ially as t h ese effort s com e to fru it ion an d add to ou r base of bu si- Wit h con t in u ed st ron g grow t h in ou r in tern a- n ess in t h e lat ter part of t h e year. For t h e fu ll t ion al express bu sin ess an d m odest grow t h in year, we expect ou r resu lt s w ill sh ow a con - ou r dom est ic express an d grou n d bu sin ess, t in u at ion of solid grow t h w it h im provin g FedEx C orporat ion ach ieved record reven u es earn in gs, ret u rn s an d cash flows. of $18.3 billion . O u r in t ern at ion al express bu sin ess con t in u ed to ben efit from ou r deci- sion several years ago to aggressively develop Alan B. G raf, Jr. t h e u n paralleled rou te au t h orit ies t h at m ake Execu t ive Vice Presid en t an d C h ief Fin an cial O fficer


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    M ANAGEM ENT’S DISCUSSIO N AND ANALYSIS RESULTS O F O PERATIO NS n ew corporat e ser vices com pan y called FedEx C orporate Services, In c. (“ FedEx Services” ) effec- Consolidated Results t ive Ju n e 1, 2000. We also lau n ch ed ou r FedEx FedEx Corporation (also referred to herein as “FedEx” H om e D elivery service in M arch 2000. T h is service or t h e “ C om pan y” ) resu lt s for 2000 reflect st ron g was in it ially offered to approxim ately 50% of t h e in tern at ion al package volu m e grow t h , part icu larly U .S. popu lat ion . T h e rebran din g an d reorgan iza- in Asia an d Eu rope, an d im proved reven u e per t ion act ion s an d FedEx H om e D elivery n egat ively package (yield), w h ich lessen ed t h e effect of h igh er affected 2000 operat in g in com e by approxim ately fu el prices. U .S. dom est ic package volu m e grow t h $40 m illion . du rin g 2000 was below t h at experien ced over t h e As expect ed, operat in g profit from t h e sale of past t wo years. H owever, t h e C om pan y’s execu t ion en gin e n oise redu ct ion k it s (“ h u sh k it s” ) declin ed of cost con t ain m en t an d produ ct ivit y en h an ce- by $50 m illion in 2000, follow in g a $30 m illion m en t program s h elped m it igat e t h e im pact of a declin e in 1999. decrease in U .S. dom est ic volu m e grow t h in 2000. Operating results for 1999 included $81 m illion in Increased prices caused fuel expense to increase by operat in g expen ses associat ed w it h st rik e con - $273 m illion in 2000. In respon se to h igh er fu el t in gen cy plan n in g du rin g con t ract n egot iat ion s cost s, several of ou r su bsidiaries im plem en t ed b e t w e e n Fe d Ex Ex p r e s s a n d t h e Fe d e x P i l o t s fu el su rch arges du rin g 2000. At Federal Express Association (“ FPA” ). To avoid service interruptions C orporat ion (“ FedEx Express” ), t h e C om pan y’s FedEx related to a t h reaten ed st rike, FedEx began st rike largest bu sin ess segm en t , a 3% fu el su rch arge on con t in gen cy plan n in g, in clu din g en t erin g in t o 7 m ost U.S. dom estic and international services was agreem ents for additional third-party air and ground Corp. im plem en ted effect ive Febru ary 1, 2000. Effect ive t ran sportat ion an d establish in g special fin an cin g April 1, 2000, this surcharge was increased to 4% . arran gem en t s. N egot iat ion s w it h t h e FPA u lt i- T h e su rch arge applies t o all sh ipm en t s t en dered m ately resu lted in a five-year collect ive bargain in g within the United States and all U.S. export ship- agreem en t t h at took effect on M ay 31, 1999. m ents, where legally and contractually possible. We h ave also en t ered in t o jet fu el h edgin g con t ract s O perat in g resu lt s in 1998 in clu ded $88 m illion of design ed to lim it ou r exposu re to flu ct u at ion s in expen ses relat ed t o t h e acqu isit ion of C aliber fu el prices. In 2000, we received approxim at ely Syst em , In c. (“ C aliber” ) an d t h e for m at ion of $18 m illion under these contracts, principally in the FedEx. T h ese expen ses were prim arily in vest m en t fourth quarter. FedEx Ground Package System , Inc. b a n k i n g fe e s a n d p a y m e n t s t o m e m b e r s o f (“ FedEx Ground” ) also im plem ented a 1.25% fuel C aliber ’s m an agem en t in accordan ce w it h pre- surcharge on all of its services, effective August 7, existing m anagem ent retention agreem ents. Exclud- 2000, in response to continued high fuel costs. in g t h ese expen ses, con solidat ed n et in com e for 1998 was $583 m illion . D u rin g 2000, we began a m ajor rebran din g an d reorgan izat ion in it iat ive t h at m an agem en t believes Another significant item im pacting 1998’s results of w ill en able ou r operat in g su bsidiaries to com pete operat ion s was t h e Team sters st rike again st U n ited collect ively w h ile retain in g t h e in depen den t oper- Parcel Service (“ UPS” ) in August 1997. FedEx ana- at in g st ru ct u re of t h eir bu sin ess u n it s. T h e n ew lytically calculated that the volum e not retained at bran din g st rategy exten ded t h e FedEx bran d n am e t h e en d of t h e first qu art er of 1998 con t ribu t ed to t h ree su bsidiaries an d t h e C om pan y, form erly a p p r ox i m a t e l y $17 0 m i l l i o n i n r eve n u e s a n d FD X C orporat ion . T h e reorgan izat ion is design ed approxim ately $.12 addit ion al earn in gs per sh are. to en h an ce reven u e grow t h an d im prove fin an cial ret u r n s by c e n t ra l i z i n g t h e s a l e s , m a r k et i n g, O t h er In com e an d Ex pen se an d In com e Taxes cu st om er ser vice an d m ost of t h e in for m at ion N et in terest expen se in creased 8% for 2000, du e to t ech n ology fu n ct ion s of ou r t wo largest su bsidi- h igh er average debt levels, prim arily in cu rred as aries. M ost of t h ese fu n ct ion s were m oved in to a a re su lt o f Fe d Ex ’s st o c k re p u rc h a se p ro gra m ,


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    acqu isit ion s an d bon d redem pt ion s. For 1999, n et all express an d grou n d services. H owever, t h ere are in terest expen se decreased 21% prim arily du e to cert ain risk s an d u n cert ain t ies associat ed w it h lower debt levels. t h is in it iat ive t h at cou ld affect it s su ccess an d FedEx’s fu t u re fin an cial perform an ce. T h ose risk s Other, net in 2000 included gains of approxim ately an d u n certain t ies in clu de, bu t are n ot lim ited to, $12 m i l l i o n fro m a n i n s u ra n c e s et t l e m e n t fo r t h e com plexit ies an d cost s associated w it h in te- a d e st roye d M D 11 a i rc ra ft a n d a p p rox i m a t e l y grat in g t h e sales an d m arket in g fu n ct ion s, in clu d- $11 m illion from t h e sale of secu rit ies h eld. In 1999 in g t h e tech n ologies su pport in g t h ose fu n ct ion s; t h is category in clu ded approxim ately $10 m illion m arket accept an ce of t h e n ew bran din g st rat egy of expen ses related to t h e C om pan y’s st rike con t in - a n d t h e c o m b i n e d s a l e s fo r c e ; c o m p e t i t i ve gen cy plan s described above, prim arily cost s associ- respon ses to ou r act ion s, in clu din g t h ose affect in g ated w it h a bu sin ess in terru pt ion credit facilit y. pricin g, an d gen eral U .S. an d in t ern at ion al eco- Fe d Ex ’s e ffe ct i ve t a x ra t e w a s 3 9.5 % i n 2 0 0 0 , n om ic con dit ion s. 40.5% in 1999 an d 44.6% in 1998. Exclu din g n on - We w ill con t in u e t o in vest in t h e expan sion of recu rrin g it em s from t h e C aliber acqu isit ion in FedEx H om e D elivery an d h ave an n ou n ced plan s 1998, t h e effect ive rate wou ld h ave been 41.5% in to accelerate t h e rollou t of t h is service to ach ieve 1998. T h e 39.5% effect ive t ax rat e in 2000 was service coverage of approxim ately 80% of t h e U .S. lower t h an t h e 1999 effect ive rate prim arily du e to popu lat ion by Sept em ber 2001. We believe t h is st ron ger resu lt s from in t er n at ion al operat ion s. ser vice w ill allow t h e C om pan y t o capt u re an G en erally, t h e effect ive tax rate exceeds t h e stat u - in creased sh are of t h e bu sin ess-to-con su m er sh ip- 8 tory U .S. federal tax rate becau se of state in com e pin g m arket , part icu larly in retail sales gen erated taxes an d ot h er factors as iden t ified in N ote 10 of t h rou gh t h e In tern et . FedEx H om e D elivery oper- N otes to C on solidated Fin an cial Statem en t s. For at in g losses are expected to approxim ate $50 m il- 2001, we expect t h e effect ive t ax rat e w ill n ot lion in 2001. Act u al resu lt s for 2001 w ill depen d exceed, an d cou ld possibly be lower t h an , t h e 2000 u p o n a n u m b e r o f fa c t o r s s u c h a s c o n s u m e r rat e. T h e act u al rat e, h owever, w ill depen d on a dem an d for an d sat isfact ion w it h t h e FedEx H om e n u m b e r o f fa ct o rs , i n c l u d i n g t h e a m o u n t a n d D elivery produ ct , com pet it ive respon ses t o t h e sou rce of operat in g in com e. produ ct , t h e exten t of ou r abilit y to penetrate the bu sin ess-t o-con su m er elect ron ic com m erce m ar- O u t look ket , an d t h e abilit y to at t ract an d retain qu alified In 2001, we expect FedEx w ill realize in creased vol- con t ractors for t h e delivery n et work . u m es an d yields as a resu lt of t h e rebran din g an d reorgan izat ion in it iat ive begu n in 2000. Train in g of For 2001, fu el cost s are expected to rem ain at levels t h e com bin ed sales force was com plet ed in t h e approach in g t h ose experien ced in t h e secon d h alf of fou rt h qu art er of 2000 an d sales an d m arket in g 2000. FedEx cu rren t ly h as jet fu el h edges in place to effort s t o cross-sell express an d grou n d services fix t h e price of approxim at ely on e-t h ird of t h e h ave begu n . Wh ile t h ere w ill be con t in u ed fron t - an t icipated jet fu el u sage for 2001 an d an t icipates en d cost s associated w it h in creasin g t h e sales force retain in g it s fu el su rch arge u n t il su ch t im e as fu el an d em ph asizin g m arket in g effort s on sm all an d cost s h ave declin ed for a su st ain ed period. T h e m ediu m -sized cu stom ers, we expect t h e C om pan y act u al effect of t h e cost of fu el an d ou r abilit y to m ay begin to realize ben efit s from t h is in it iat ive m it igate price flu ct u at ion s t h rou gh fu el su rch arges start in g as early as t h e secon d qu arter of 2001. Fu ll an d t h e u se of jet fu el h edgin g con t ract s is su bject i n t e gra t i o n o f t h e c u st o m e r s e r v i c e fu n ct i o n , to a n u m ber of u n certain t ies, in clu din g variabilit y expect ed t o be com plet ed in t h e secon d h alf of in t h e spot price of jet fu el, act ion s taken by foreign 2 0 01, w i l l p rov i d e c u st o m e rs w i t h o n e Fe d Ex produ cers of cru de oil, t h e act ion s of com pet itors accou n t n u m ber an d a sin gle poin t of con tact for an d ot h ers w it h in t h e t ran spor t at ion in du st r y regardin g fu el su rch arges, an d gen eral U .S. an d in tern at ion al econ om ic con dit ion s.


  • Page 11

    FedEx Express T h e follow in g table com pares reven u es an d operat in g in com e (in m illion s) an d selected stat ist ics (in t h ou - san ds, except dollar am ou n t s) for t h e years en ded M ay 31: Percen t C h an ge 2000 1999 1998 2000/1999 1999/1998 Reven u es: Package: U .S. overn igh t $ 7,538 $ 7,185 $ 6,810 + 5 + 6 U .S. deferred 2,428 2,271 2,179 + 7 + 4 In tern at ion al Priorit y (IP) 3,552 3,019 2,731 +18 +11 Total package reven u e 13,518 12,475 11,720 + 8 + 6 Freigh t : U .S. 566 440 337 +29 + 30 In tern at ion al 492 531 598 – 7 –11 Total freigh t reven u e 1,058 971 935 + 9 + 4 O t h er 492 533 600 – 8 –11 Total reven u es $15,068 $13,979 $13,255 + 8 + 5 O perat in g in com e $ 900 $ 871 $ 837 + 3 + 4 FedEx Package: 9 Average daily packages: U .S. overn igh t 2,020 1,957 1,886 + 3 + 4 Corp. U .S. deferred 916 894 872 + 3 + 3 IP 319 282 259 +13 + 9 Total packages 3,255 3,133 3,017 + 4 + 4 Reven u e per package (yield): U .S. overn igh t $ 14.52 $ 14.34 $ 14.22 + 1 + 1 U .S. deferred 10.31 9.93 9.84 + 4 + 1 IP 43.36 41.87 41.45 + 4 + 1 C om posite 16.16 15.56 15.30 + 4 + 2 Freigh t : Average daily pou n ds: U .S. 4,693 4,332 3,356 + 8 +29 In tern at ion al 2,420 2,633 2,770 – 8 – 5 Total freigh t 7,113 6,965 6,126 + 2 +14 Reven u e per pou n d (yield): U .S. $ .47 $ .40 $ .40 +18 – In tern at ion al .79 .79 .85 – – 7 C om posite .58 .54 .60 + 7 –10 R even u es an t icipated, t h e h igh er-yieldin g IP services experi- In 2000, total package reven u e for FedEx Express enced strong growth, particularly in Asia and Europe. i n c re a s e d 8 % , p r i n c i p a l l y d u e t o i n c re a s e s i n Tot al freigh t reven u e in creased in 2000 du e t o international package volum e and yield. List price h igh er average daily pou n ds an d im proved yields in in creases, in clu din g an average 2.8% dom est ic U .S. freigh t , offset by declin es in in t er n at ion al rate in crease in M arch 1999, t h e fu el su rch arges freigh t pou n ds. im plem ented in the second half of the year, an ongo- ing yield m anagem ent program and a slight increase In 1999, FedEx Express experien ced in creased vol- in average weigh t per package, all con t ribu ted to u m e a n d s l i gh t l y i m p rove d y i e l d s i n i t s U .S. t h e in creases in yields in 2000. Wh ile grow t h in overn igh t , U .S. deferred an d IP services. G row t h U .S. dom est ic pack age volu m e was lower t h an in h igh er-priced U .S. over n igh t an d IP services


  • Page 12

    an d h igh er average weigh t per pack age were t h e In 1998, operat in g in com e im proved as pack age p r i m a r y fa ct o rs i n reve n u e grow t h . Li st p r i c e yield in creased at a h igh er rat e t h an cost s. An in creases an d ot h er yield-m an agem en t act ion s in crease in average daily packages also con t ribu ted con t ribu ted to t h e yield im provem en t in 1999. to t h e im provem en t in operat in g in com e. In 1998, fu el expen se in clu ded am ou n t s paid by FedEx T h e U .S. deferred package grow t h rate declin ed in Express u n der jet fu el h edgin g con t ract s t h at were 1999 in large part du e t o specific m an agem en t design ed to m it igate som e of t h e in creased jet fu el act ion s to rest rict grow t h of t h ese lower-yieldin g cost s. Lower in t er n at ion al freigh t yield, risin g ser vices. IP pack age volu m e an d in t er n at ion al expen ses associated w it h in tern at ion al expan sion freigh t pou n ds an d yield were n egat ively affected a n d fo re i gn c u r re n c y fl u ct u a t i o n s a l o n g w i t h by weak n ess in Asian m arket s, especially in U .S. expen ses of $14 m illion related to t h e acqu isit ion ou t bou n d t raffic dest in ed for t h at region . of C aliber n egat ively affected 1998 resu lt s. O per- O t h er reven u e in clu ded C an adian dom est ic rev- at in g in com e for 1998 in creased approxim at ely en u e, ch arter services, logist ics services, sales of $50 m illion relat ed t o t h e U PS st rike. Proceeds h u sh k it s an d ot h er. Reven u e from h u sh k it sales fro m a 2 % t e m p o ra r y fu e l s u rc h a rge o n U .S. h as con t in u ed to declin e over t h e past t h ree years dom est ic sh ipm en t s t h rou gh Au gu st 1, 1997 also an d is expected to be n egligible h ereafter. h ad a favorable im pact . O perat in g In com e Year-over-year com parison s were also affected by O perat in g in com e in creased 3% in 2000 despit e flu ct u at ion s in t h e con t ribu t ion from sales of h igh er fu el cost s an d cost s associated w it h t h e cor- hushkits. Operating profit from these sales declined 10 porate realign m en t an d reorgan izat ion of t h e sales, $50 m illion in 2000 and $30 m illion in 1999. m arket in g an d in form at ion tech n ology fu n ct ion s. A 48% in crease in average fu el price per gallon h ad O u t look a n egat ive im pact of approxim ately $260 m illion We believe U .S. over n igh t pack age volu m es for on 2000 fuel costs, in clu din g t h e resu lt s of jet fu el FedEx Express w ill grow in 2001 at rat es h igh er h edgin g con t ract s en tered in to to m it igate som e of t h an t h ose experien ced in 2000, w it h secon d h alf t h e in creased jet fu el cost s. Fu el su rch arges im ple- grow t h rat es exceedin g t h ose in t h e first h alf of m en t ed du rin g 2000 offset t h e in crease in fu el 2001. We believe U .S. deferred pack age volu m e cost s in t h e fou rt h qu arter. As an t icipated, m ain te- grow t h rates at FedEx Express w ill be lower in 2001 n an ce an d repairs in creased in 2000 du e t o t h e as we im plem en t t h e st rategy of sh ift in g a port ion t im in g of sch edu led m ain t en an ce an d a great er of t h ese sh ipm en t s t o FedEx G rou n d. Im proved n u m ber of rou t in e cycle ch eck s resu lt in g from dom est ic yields associated w it h t h e n ew sales in i- fl e e t u s a ge a n d c e r t a i n Fe d e r a l Av i a t i o n t iat ives are also expect ed in 2001. We expect IP Adm in ist rat ion direct ives. package volu m e grow t h rates to rem ain st ron g in 2001. Freigh t pou n ds are expected to con t in u e to O perat in g in com e in creased in 1999 com pared to increase in 2001, with increases in the U.S. partially 1998 in spite of $81 m illion in st rike con t in gen cy offset by continued declines in international freight, cost s in 1999 an d con t in u ed weak n ess in Asian as it is replaced by higher-yielding priority packages. m arkets. Lower fuel prices and cost controls, includ- ing adju st m en t s in n et work expan sion an d aircraft FedEx Express also plan s to con t in u e cost con tain - d e p l oy m e n t p l a n s , c o n t r i b u t e d t o i m p r ove d m en t an d produ ct ivit y en h an cem en t program s in resu lt s. A declin e in average jet fu el price per gal- 2001. By lowerin g discret ion ary spen din g an d lim it - lon of 23% was part ially offset by an in crease in in g staffin g addit ion s, we expect to align con t rol- gallon s con su m ed of 6% . Alt h ou gh in tern at ion al lable cost s w it h bu sin ess grow t h ; h owever, t h ese freigh t pou n ds an d reven u e per pou n d con t in u ed to act ion s w ill n ot affect plan s for st rategic spen din g declin e in 1999, h igh er yieldin g IP volu m e con t in - in su pport of lon g-term grow t h goals. u ed to grow, u t ilizin g capacit y ot h erw ise occu pied by freigh t .


  • Page 13

    FedEx Express w ill con t in u e to u se t h e flexibilit y regulatory conditions for aviation rights and the rate of its global network infrastructure by reconfigurin g of dom estic and international econom ic growth. it s syst em an d fligh t s t o m eet m arket dem an ds. In t h e past t h ree years, t h e FedEx Express world- While long-term profitability is expected to im prove, w ide aircraft fleet h as in creased, resu lt in g in a i n c re m e n t a l c o st s i n c u r re d d u r i n g p e r i o d s o f correspon din g rise in m ain ten an ce expen se. Wh ile st rategic expan sion an d varyin g econ om ic con di- we expect a predictable pat tern of aircraft m ain te- t ion s can affect sh ort -term operat in g resu lt s. n an ce an d repairs expen se, u n an t icipated m ain te- Act u al resu lt s m ay vary depen din g on t h e su ccess- n a n c e eve n t s w i l l o c c a s i o n a l l y d i s r u p t t h i s fu l im plem en t at ion of ou r reorgan izat ion an d pat tern , resu lt in g in periodic flu ct u at ion s in m ain - rebran din g in it iat ive, t h e im pact of com pet it ive ten an ce an d repairs expen se. p r i c i n g c h a n ge s , c u st o m e r re s p o n s e s t o y i e l d FedEx Express’s operat in g in com e from t h e sales of m an agem en t in it iat ives, t h e t im in g an d exten t of h u sh k it s, w h ich peaked in 1998 an d declin ed in n et work refin em en t , act ion s by ou r com pet itors, 1999 an d 2000, is expected to becom e in sign ifican t in clu din g capacit y flu ct u at ion s, jet fu el prices, in 2001. FedEx Ground T h e follow in g table com pares reven u es an d operat in g in com e (in m illion s) an d selected package stat ist ics (in t h ou san ds, except dollar am ou n t s) for t h e years en ded M ay 31: FedEx Percen t C h an ge 2000 1999 1998 2000/1999 1999/1998 11 Reven u es $2,033 $1,878 $1,711 +8 +10 Corp. O perat in g in com e $ 226 $ 231 $ 171 –2 +35 Average daily packages 1,442 1,385 1,326 +4 + 4 Reven u e per package (yield) $ 5.55 $ 5.36 $ 5.04 +4 + 6 R even u es O perat in g In com e Reven u es for FedEx G rou n d in creased 8% in 2000, O perat in g in com e for 2000 reflect s h igh er operat - w h ile average daily pack ages in creased 4% an d in g cost s, du e prim arily t o in creases in capacit y yields in creased 4% . T h e in crease in yields is du e an d t ech n ology, as well as t h e effect s of FedEx t o a 2.3% price in crease, w h ich was effect ive in H om e D elivery an d t h e rebran din g an d reorgan iza- Febru ary 1999 an d a sligh t in crease in t h e m ix of t ion in it iat ives. D epreciat ion expen se in creased h igh er yieldin g packages. 2 0 % i n 2 0 0 0 a s n ew t e r m i n a l fa c i l i t i e s w e re open ed late in 1999 an d t h rou gh ou t t h e first h alf of In 1999, FedEx G rou n d’s reven u e in creased du e 2000. In M arch 2000, FedEx G rou n d lau n ch ed it s t o im provin g yields an d st eady volu m e grow t h . n ew service, FedEx H om e D elivery. T h is n ew serv- Yields were posit ively im pacted by rate in creases ice is dedicated to m eet in g t h e n eeds of bu sin ess- of 2.3% an d 3.7% in Febr u ar y 1999 an d 1998, t o-con su m er sh ippers. C u rren t ly, t h is service is respect ively. D u rin g 1999, FedEx G rou n d recog- available for approxim ately 50% of t h e U .S. popu - n ized a year-to-date, on e-t im e ben efit of approxi- l a t i o n . A n o p e ra t i n g l o s s o f $19 m i l l i o n w a s m a t e l y $ 6 m i l l i o n t o a l i gn i t s e s t i m a t i o n in cu rred by t h e h om e delivery service in 2000. m et h odology for in -t ran sit reven u e w it h t h at of o u r ot h e r o p e ra t i n g s u b s i d i a r i e s . Ye a r -t o -d a t e Operating incom e increased in 1999 due to increased pack age yield was in creased by $.02 becau se of volu m e an d yield-m an agem en t act ion s. Resu lt s t h is on e-t im e adju st m en t . for 1998 con t ain ed approxim at ely $6 m illion of in crem en tal operat in g in com e associated w it h t h e Resu lt s for 1998 in clu ded in crem en t al volu m e U PS st rike. associat ed w it h t h e U PS st rik e. Exclu din g t h is i n c r e m e n t a l vo l u m e , ave r a ge d a i l y p a c k a ge s in creased 6% for 1999.


  • Page 14

    O u t look reflects an increase at FedEx Custom Critical, offset FedEx G rou n d con t in u es t o expan d capacit y in by m odest decreases at Viking and FedEx Logistics. o rd e r t o a c c o m m o d a t e vo l u m e grow t h , w h i l e m ain t ain in g or im provin g yields. FedEx G rou n d O perat in g In com e open ed t wo addit ion al h u b facilit ies in 2000 an d In creased operat in g in com e for 2000 is du e t o w ill con t in u e to expan d package processin g capac- st ron g earn in gs at Vik in g an d con t in u ed earn in gs it y to m eet it s grow t h plan s. Package volu m e an d grow t h at FedEx C u stom C rit ical. Resu lt s for 2000 yields are expect ed t o in crease in 2001 as t h e also in clu de a $10 m illion favorable adju st m en t resu lt s of t h e n ew rebran din g an d reorgan izat ion relat ed t o est im at ed fu t u re lease cost s from t h e effort are realized. Vik in g rest ru ct u rin g. O perat in g in com e for 1999 reflected im proved perform an ces at FedEx C u stom FedEx Ground plans to accelerate its expansion of C rit ical, offset by a declin e at FedEx Logist ics. t h e h om e delivery service to reach approxim ately 80% of the U.S. population by Septem ber 2001 and O perat in g in com e in 1998 in clu des $74 m illion in full U.S. coverage by Septem ber 2002. We expect to expenses, which were not allocated to operating seg- incur operating losses on the FedEx Ground hom e m ents, for m erger costs associated with the acquisi- delivery service of approxim at ely $50 m illion in t ion of C aliber. T h ese expen ses were prim arily 2001, including costs associated with the accelera- in vest m en t ban k in g fees an d paym en t s to m em - tion of the expansion of the service. bers of C aliber’s m an agem en t in accordan ce w it h pre-exist in g m an agem en t reten t ion agreem en t s. Actual results m ay vary depending on a num ber of 12 factors, such as consum er dem and for and satisfac- t ion w it h t h e FedEx G rou n d produ ct , t h e service FINANCIAL CO NDITIO N coverage and brand awareness of the FedEx Ground produ ct , com pet it ive respon ses in clu din g pricin g Liquidity and capacity fluctuations, the rate of U.S. dom estic C ash an d cash equ ivalen t s totaled $68 m illion at econom ic growth, the extent of FedEx Ground’s abil- M ay 31, 2000, com pared w it h $325 m illion at ity to penetrate the business-to-consum er electronic M ay 31, 1999. C ash flows from operat in g act ivit ies com m erce m arket , an d t h e abilit y to at t ract an d du rin g 2000 t ot aled $1.6 billion , com pared w it h retain qualified contractors for the delivery network. $1.8 billion for 1999 an d $1.6 billion for 1998. O ther O perations FedEx’s operat ion s h ave gen erated in creased cash O t h er operat ion s in clu de FedEx G lobal Logist ics, earn in gs over t h e past t h ree years. T h e follow in g In c. (“ FedEx Logist ics” ), a con t ract logist ics pro- table com pares cash earn in gs (in billion s, except vider; FedEx Custom Critical, Inc. (“FedEx Custom per sh are am ou n t s) for t h e years en ded M ay 31: Critical”), a critical-shipm ent carrier; FedEx Trade 2000 1999 1998 N et work s, In c. (“ FedEx Trade N et work s” ), a t rade EBIT DA (earn in gs before services provider; Vik in g Freigh t , In c. (“ Vik in g” ), in terest , taxes, deprecia- a region al less-t h an -t ru ck load freigh t carrier oper- t ion an d am ort izat ion ) $ 2.4 $ 2.2 $ 2.0 at in g in t h e west ern U n it ed St at es, an d cert ain u n allocated corporate item s. C ash earn in gs per sh are (n et in com e plu s depre- ciat ion an d am ort izat ion R even u es divided by average Reven u es from ot h er operat ion s in creased 26% in com m on an d com m on 2000. Excluding the effects of businesses acquired in equ ivalen t sh ares) $6.22 $5.54 $4.92 2000, the increase was 15% com pared with 1% in T h e C om pan y cu rren t ly h as a $1.0 billion revolv- 1999, due to substantially higher revenues at FedEx i n g c r e d i t fa c i l i t y t h a t i s ge n e r a l l y u s e d t o C u stom C rit ical com bin ed w it h dou ble-digit rev- fin an ce t em porary operat in g cash requ irem en t s en u e grow t h at Vik in g. Reven u e grow t h for 1999 an d t o provide su pport for t h e issu an ce of com - m ercial paper. As of M ay 31, 2000, approxim at ely


  • Page 15

    $478 m illion of t h e credit facilit y rem ain s avail- T h e follow in g table com pares capital expen dit u res able. For m ore in form at ion regardin g t h e credit (in clu din g equ ivalen t capit al, w h ich is defin ed fa c i l i t y, s e e N ot e 5 o f N ot e s t o C o n s o l i d a t e d below ) for t h e years en ded M ay 31 (in m illion s): Fin an cial St at em en t s. 2000 1999 D u rin g 2000, FedEx acqu ired t h ree bu sin esses for Aircraft an d related equ ipm en t $ 469 $ 606 approxim at ely $264 m illion , prim arily in cash . Facilit ies an d sort equ ipm en t 437 466 In form at ion an d T h ese pu rch ases were fu n ded from operat ion s an d tech n ology equ ipm en t 378 366 borrow in gs u n der ou r com m ercial paper program . O t h er equ ipm en t 343 332 O n Sept em ber 27, 1999, t h e C om pan y’s Board of Total capital expen dit u res 1,627 1,770 Equ ivalen t capital, prin cipally D irectors approved a plan t h at au t h orized t h e pu r- aircraft -related 365 561 ch ase of u p to 15 m illion , or approxim ately 5% , of Total $1,992 $2,331 FedEx’s ou t stan din g sh ares of com m on stock . We com pleted t h e pu rch ase of 15 m illion sh ares at an FedEx fin an ces a sign ifican t am ou n t of it s aircraft average cost of $39.75 per sh are. T h e pu rch ase of an d cert ain ot h er equ ipm en t n eeds u sin g lon g- t h ese sh ares was fu n ded prin cipally t h rou gh t h e term operat in g leases. We believe t h e determ in a- issu an ce of com m ercial paper. Sh ares h eld in t rea- t ion to lease versu s bu y equ ipm en t is a fin an cin g su ry w ill be u sed for gen eral corporate pu rposes. decision , an d bot h form s of fin an cin g are con sid- ered w h en evalu at in g t h e resou rces com m it ted for FedEx Express redeem ed $100 m illion of 9.625% FedEx capital. T h e am ou n t t h at t h e C om pan y wou ld h ave u n secu red sin k in g fu n d deben t u res on M arch 1, expen ded to pu rch ase t h ese asset s h ad it n ot ch o- 13 2000. T h e bon d redem pt ion was fin an ced w it h sen to obtain t h eir u se t h rou gh operat in g leases is Corp. com m ercial paper borrow in gs. con sidered equ ivalen t capital in t h e table above. In 1999, FedEx filed a $1 billion sh elf regist rat ion Wh ile capital expen dit u res over t h e past t wo years st a t e m e n t w i t h t h e Se c u r i t i e s a n d Exc h a n ge h ave been redu ced based on lower t h an expected C om m ission (“ SEC ” ), in dicat in g t h at we m ay issu e U .S. dom est ic volu m e grow t h at FedEx Express, we u p to t h at am ou n t in on e or m ore offerin gs of eit h er plan to con t in u e to m ake st rategic capital in vest - u n secu red debt secu rit ies, preferred stock or com - m en t s in su pport of ou r lon g-term grow t h goals. m on stock , or a com bin at ion of su ch in st ru m en t s. For 2001, we expect capit al spen din g, in clu din g T h e C om pan y m ay, at it s opt ion , direct FedEx equ ivalen t capit al, t o approxim at e $2.3 billion . Express to issu e gu aran tees of t h e debt secu rit ies. For in form at ion on t h e C om pan y’s pu rch ase com - m it m en t s, see N ote 14 of N otes to C on solidated We believe t h at cash flow from operat ion s, ou r Fin an cial Statem en t s. com m ercial paper program an d revolvin g ban k credit facilit y w ill adequ ately m eet t h e C om pan y’s We h ave h istorically fin an ced ou r capital in vest - work in g capital n eeds for t h e foreseeable fu t u re. m en t s t h rou gh t h e u se of lease, debt an d equ it y fin an cin g in addit ion to t h e u se of in tern ally gen er- Capital Resources ated cash from operat ion s. G en erally, ou r pract ice FedEx’s operations are capital intensive, character- in recen t years w it h respect to fu n din g n ew w ide- ized by significant investm ents in aircraft, vehicles, bodied aircraft acqu isit ion s h as been t o fin an ce com pu t er an d t elecom m u n icat ion s equ ipm en t , su ch aircraft t h rou gh lon g-term lease t ran sact ion s package handling facilities and sort equipm ent. The t h at qu alify as off-balan ce sh eet operat in g leases am ount and tim ing of capital additions depend on u n der applicable accou n t in g ru les. We h ave deter- various factors including volum e growth, dom estic m in ed t h at t h ese operat in g leases h ave provided an d in t er n at ion al econ om ic con dit ion s, n ew or econ om ic ben efit s favorable t o ow n ersh ip w it h enhanced services, geographical expansion of serv- respect t o m arket valu es, liqu idit y an d aft er-t ax ices, com petition, availability of satisfactory financ- cash flows. In t h e fu t u re, ot h er form s of secu red ing and actions of regulatory authorities. financing m ay be pursued to finance FedEx Express’s


  • Page 16

    aircraft acqu isit ion s w h en we det erm in e t h at it est im ated based on qu oted m arket prices or on the best m eet s FedEx Express’s n eeds. FedEx Express cu rren t rates offered for debt w it h sim ilar term s h as been su ccessfu l in obtain in g in vest m en t capi- an d m at u rit ies. FedEx does n ot u se derivat ive tal, bot h dom est ic an d in tern at ion al, for lon g-term fin an cial in st ru m en t s to m an age in terest rate risk . leases on term s acceptable to it alt h ou gh t h e m ar- FedEx’s earn in gs are affected by flu ct u at ion s in t h e ket place for su ch capit al can becom e rest rict ed valu e of t h e U .S. dollar, as com pared w it h foreign depen din g on a variet y of econ om ic factors beyon d cu rren cies, as a resu lt of t ran sact ion s in foreign it s con t rol. See N ote 5 of N otes to C on solidated m arket s. At M ay 31, 2000, t h e resu lt of a u n iform Fin an cial Statem en t s for addit ion al in for m at ion 10% st ren gt h en in g in t h e valu e of t h e dollar rela- con cern in g t h e C om pan y’s debt facilit ies. t ive t o t h e cu rren cies in w h ich t h e C om pan y’s In Ju ly 1999, approxim ately $231 m illion of pass- t ran sact ion s are den om in at ed wou ld resu lt in a t h rou gh cert ificates were issu ed to fin an ce or refi- decrease in operat in g in com e of approxim at ely n an ce t h e debt port ion of leveraged operat in g leases $52 m illion for t h e year en din g M ay 31, 2001 (t h e related to fou r A300 aircraft , w h ich were delivered com parable am ou n t in t h e prior year was $25 m il- in 2000. In Ju n e 1998, approxim ately $833 m illion lion ). T h is calcu lat ion assu m es t h at each exch an ge of pass-t h rou gh cert ificates were issu ed to fin an ce rate wou ld ch an ge in t h e sam e direct ion relat ive to or refin an ce t h e debt port ion of FedEx Express’s t h e U .S. dollar. In addit ion to t h e direct effect s of leveraged operat in g leases related to eigh t A300 an d ch an ges in exch an ge rat es, w h ich are a ch an ged five M D11 aircraft , w h ich were delivered in 2000. dollar valu e of t h e resu lt in g report ed operat in g T h e pass-t h rou gh cert ificates are n ot direct obliga- resu lt s, ch an ges in exch an ge rates also affect t h e 14 t ion s of, or gu aran teed by, t h e C om pan y or FedEx volu m e of sales or t h e foreign currency sales price as Express, bu t am ou n t s payable by FedEx Express com petitors’ services becom e m ore or less at t rac- u n der t h e leveraged operat in g leases are su fficien t t ive. FedEx’s sen sit ivit y an alysis of t h e effect s of to pay t h e prin cipal of an d in terest on t h e cert ifi- changes in foreign currency exchange rates does n ot cates. In Ju n e 2000, FedEx Express filed a sh elf reg- factor in a poten t ial ch an ge in sales levels or local ist rat ion w it h t h e SEC , in dicat in g t h at it m ay issu e cu rren cy prices. u p to $450 m illion in pass-t h rou gh cert ificates in FedEx h as en tered in to jet fu el h edgin g con t ract s on e or m ore offerin gs to fin an ce or refin an ce lever- on beh alf of it s su bsidiary FedEx Express, w h ich aged operat in g aircraft leases. are design ed to lim it it s exposu re to flu ct u at ion s in We believe t h at t h e capital resou rces available to u s jet fu el prices. U n der t h ese con t ract s, FedEx m akes provide flexibilit y to access t h e m ost efficien t m ar- (or receives) paym en t s based on t h e differen ce ket s for fin an cin g it s capital acqu isit ion s, in clu d- bet ween a fixed price an d t h e m arket price of jet in g aircraft , an d are adequ at e for FedEx’s fu t u re fu el, as det er m in ed by an in dex of spot m arket capital n eeds. prices represen t in g variou s geograph ic region s. T h e d i ffe r e n c e i s r e c o r d e d a s a n i n c r e a s e o r Market Risk Sensitive Instruments and Positions decrease in fu el expen se. M arket risk for jet fu el is FedEx cu rren t ly h as m arket risk sen sit ive in st ru - est im at ed as t h e pot en t ial decrease in ear n in gs m en t s related to in terest rates; h owever, t h ere is resu lt in g from a h ypot h et ical 10% in crease in jet n o sign ifican t exposu re to ch an gin g in terest rates fu el prices applied t o project ed 2001 u sage an d on ou r lon g-term debt becau se t h e in terest rates am ou n t s t o approxim at ely $49 m illion , n et of a re fi xe d . A s d i s c l o s e d i n N ot e 5 o f N ot e s t o h edgin g set t lem en t s, as of M ay 31, 2000. T h ere C on solidated Fin an cial Statem en t s, FedEx h as ou t - w e r e n o s u c h je t fu e l h e d gi n g c o n t r a c t s a t st a n d i n g u n s e c u re d l o n g-t e r m d e b t exc l u s i ve M ay 31, 1999. As of M ay 31, 2000, jet fu el h edgin g of capital leases of $1.1 billion an d $1.2 billion at con t ract s cover approxim at ely on e-t h ird of t h e M ay 31, 2000 an d 1999, respect ively. M arket risk est im at ed u sage in 2001. See N ot es 2 an d 14 of for fixed-rat e lon g-t erm debt is est im at ed as t h e N ot es t o C on solidat ed Fin an cial St at em en t s for pot en t ial decrease in fair valu e resu lt in g from a accou n t in g policy an d addit ion al in for m at ion h ypot h et ical 10% in crease in in t erest rat es an d regardin g jet fu el h edgin g con t ract s. am ounts to approxim ately $54 m illion as of May 31, FedEx does n ot pu rch ase or h old an y derivat ive 2000 ($45 m illion as of M ay 31, 1999). T h e u n der- fin an cial in st ru m en t s for t radin g pu rposes. l y i n g fa i r va l u e s o f o u r l o n g-t e r m d e b t w e r e


  • Page 17

    Deferred Tax Assets Sin ce 1996, FedEx h as in cu r red approxim at ely At M ay 31, 2000, t h e C om pan y h ad a n et cu m u la- $115 m illion on Y2K com plian ce ($22 m illion in t ive deferred tax liabilit y of $27 m illion , con sist in g 2000), w h ich was fu n ded by in tern al cash flows. of $884 m illion of deferred tax asset s an d $911 m il- We do n ot expect to in cu r an y m aterial addit ion al lion of deferred t ax liabilit ies. T h e reversals of Y2K-related cost s. We classified cost s as Y2K for deferred tax asset s in fu t u re periods w ill be offset report in g pu rposes if t h ey rem edied on ly Y2K risk s by sim ilar am ou n t s of deferred tax liabilit ies. or resu lted in t h e form u lat ion of con t in gen cy plan s an d wou ld ot h erw ise h ave been u n n ecessary in t h e Euro Currency Conversion n orm al cou rse of bu sin ess. For 2000, Y2K expen di- Since the beginning of the European Union’s tran- t u res were less t h an 10% of t h e C om pan y’s total sition to the euro on January 1, 1999, our subsidiaries in form at ion tech n ology expen se bu dget . We believe have been prepared to quote rates to custom ers, gen- t h at n o sign ifican t in form at ion tech n ology project s erate billings and accept paym ents, in both euro and were deferred du e to ou r Y2K com plian ce effort . legacy currencies. The legacy currencies will rem ain legal t en der t h rou gh D ecem ber 31, 2001. FedEx believes t h at t h e in t rodu ct ion of t h e eu ro, an y FO RWARD-LO O KING STATEM ENTS price t ran sparen cy brou gh t abou t by it s in t rodu c- C ert ain st at em en t s con t ain ed in t h is report are t ion an d t h e ph asin g ou t of t h e legacy cu rren cies “ forward-look in g statem en t s” w it h in t h e m ean in g w ill n ot h ave a m at erial im pact on ou r con soli- of t h e Private Secu rit ies Lit igat ion Reform Act of FedEx dat ed fin an cial posit ion , resu lt s of operat ion s or 1995, su ch as statem en t s relat in g to m an agem en t ’s cash flows. C ost s associated w it h t h e eu ro project 15 views w it h respect to fu t u re even t s an d financial a re b e i n g ex p e n s e d a s i n c u r re d a n d a re b e i n g Corp. perform ance. Such forward-looking statem ents are fu n ded en t irely by in tern al cash flows. su bject t o risk s, u n cert ain t ies an d ot h er fact ors t h at cou ld cau se act u al resu lt s to differ m aterially Year 2000 Compliance from h istorical experien ce, or from fu t u re resu lt s FedEx’s operat in g su bsidiaries rely h eavily on expressed or im plied by such forward-looking state- soph ist icat ed in for m at ion t ech n ology for t h eir m en t s. Poten t ial risk s an d u n certain t ies in clu de, bu sin ess operat ion s. O u r Year 2000 (“ Y2K” ) com - bu t are n ot lim ited to, econ om ic an d com pet it ive pu ter com plian ce issu es were, t h erefore, broad an d con dit ion s in t h e m arket s w h ere FedEx operates, com plex. N ot h in g h as com e t o t h e C om pan y’s m at ch in g capacit y t o volu m e levels an d ot h er at t en t ion t h at wou ld cau se it t o believe t h at it s u n certain t ies detailed from t im e to t im e in FedEx’s Y2K com plian ce effort was n ot su ccessfu l. Secu rit ies an d Exch an ge C om m ission filin gs.


  • Page 18

    CO NSO LIDATED STATEM ENTS O F INCO M E Years en ded M ay 31 In t h ou san ds, except per sh are am ou n t s 2000 1999 1998 REVEN U ES $18,256,945 $16,773,470 $15,872,810 O PERAT IN G EXPEN SES Salaries an d em ployee ben efit s 7,597,964 7,087,728 6,647,140 Pu rch ased t ran sportat ion 1,674,854 1,537,785 1,481,590 Ren tals an d lan din g fees 1,538,713 1,396,694 1,304,296 D epreciat ion an d am ort izat ion 1,154,863 1,035,118 963,732 M ain ten an ce an d repairs 1,101,424 958,873 874,400 Fu el 918,513 604,929 726,776 O t h er 3,049,540 2,989,257 2,864,216 17,035,871 15,610,384 14,862,150 O PERAT IN G IN C OM E 1,221,074 1,163,086 1,010,660 OT H ER IN C OM E (EXPEN SE) In terest , n et (106,060) (98,191) (124,413) O t h er, n et 22,726 (3,831) 13,271 (83,334) (102,022) (111,142) IN C OM E FROM C O N T IN U IN G O PERAT IO N S BEFO RE IN C OM E TAXES 1,137,740 1,061,064 899,518 16 PROVISIO N FO R IN C OM E TAXES 449,404 429,731 401,363 IN C OM E FROM C O N T IN U IN G O PERAT IO N S 688,336 631,333 498,155 IN C OM E FROM D ISC O N T IN U ED O PERAT IO N S, N ET O F IN C OM E TAXES – – 4,875 N ET IN C OM E $ 688,336 $ 631,333 $ 503,030 EARN IN G S PER C OM M O N SH ARE C on t in u in g operat ion s $ 2.36 $ 2.13 $ 1.70 D iscon t in u ed operat ion s – – .02 $ 2.36 $ 2.13 $ 1.72 EARN IN G S PER C OM M O N SH ARE – ASSU M IN G D ILU T IO N C on t in u in g operat ion s $ 2.32 $ 2.10 $ 1.67 D iscon t in u ed operat ion s – – .02 $ 2.32 $ 2.10 $ 1.69 T h e accom pan yin g n otes are an in tegral part of t h ese con solidated fin an cial statem en t s.


  • Page 19

    CO NSO LIDATED BALANCE SHEETS M ay 31 In t h ou san ds 2000 1999 ASSET S C U RREN T ASSET S C ash an d cash equ ivalen t s $ 67,959 $ 325,323 Receivables, less allowan ces of $85,972 an d $68,305 2,547,043 2,153,166 Spare part s, su pplies an d fu el 255,291 291,922 D eferred in com e taxes 317,784 290,721 Prepaid expen ses an d ot h er 96,667 79,896 Total cu rren t asset s 3,284,744 3,141,028 PRO PERT Y AN D EQ U IPM EN T, AT C O ST Fligh t equ ipm en t 4,960,204 4,556,747 Package h an dlin g an d grou n d su pport equ ipm en t an d veh icles 4,270,596 3,858,788 C om pu ter an d elect ron ic equ ipm en t 2,416,666 2,363,637 O t h er 3,095,077 2,940,735 14,742,543 13,719,907 Less accu m u lated depreciat ion an d am ort izat ion 7,659,016 7,160,690 N et propert y an d equ ipm en t 7,083,527 6,559,217 FedEx OT H ER ASSET S G oodw ill 500,547 344,002 17 Equ ipm en t deposit s an d ot h er asset s 658,293 603,964 Corp. Total ot h er asset s 1,158,840 947,966 $11,527,111 $10,648,211 LIABILIT IES AN D STO C KH O LD ERS’ IN VEST M EN T C U RREN T LIABILIT IES C u rren t port ion of lon g-term debt $ 6,537 $ 14,938 Accru ed salaries an d em ployee ben efit s 755,747 740,492 Accou n t s payable 1,120,855 1,133,952 Accru ed expen ses 1,007,887 895,375 Total cu rren t liabilit ies 2,891,026 2,784,757 LO N G -T ERM D EBT, LESS C U RREN T PO RT IO N 1,776,253 1,359,668 D EFERRED IN C OM E TAXES 344,613 293,462 OT H ER LIABILIT IES 1,729,976 1,546,632 C OM M IT M EN T S AN D C O N T IN G EN C IES (N otes 6, 14 an d 15) C OM M O N STO C KH O LD ERS’ IN VEST M EN T C om m on stock , $.10 par valu e; 800,000 sh ares au t h orized; 298,573 an d 297,987 sh ares issu ed 29,857 29,799 Addit ion al paid-in capital 1,079,462 1,061,312 Retain ed earn in gs 4,295,041 3,615,797 Accu m u lated ot h er com preh en sive in com e (36,074) (24,688) 5,368,286 4,682,220 Less t reasu ry stock , at cost an d deferred com pen sat ion 583,043 18,528 Total com m on stock h olders’ in vest m en t 4,785,243 4,663,692 $11,527,111 $10,648,211 T h e accom pan yin g n otes are an in tegral part of t h ese con solidated fin an cial statem en t s.


  • Page 20

    CO NSO LIDATED STATEM ENTS O F CASH FLO W S Years en ded M ay 31 In t h ou san ds 2000 1999 1998 O PERAT IN G AC T IVIT IES In com e from con t in u in g operat ion s $ 688,336 $ 631,333 $ 498,155 Adju st m en t s to recon cile in com e from con t in u in g operat ion s to cash provided by operat in g act ivit ies: D epreciat ion an d am ort izat ion 1,154,863 1,035,118 963,732 Provision for u n collect ible accou n t s 71,107 55,649 72,700 D eferred in com e taxes an d ot h er n on cash item s (7,363) (34,037) 29,570 G ain from disposals of propert y an d equ ipm en t (17,068) (2,330) (7,188) C h an ges in operat in g asset s an d liabilit ies, n et of bu sin esses acqu ired: In crease in receivables (404,511) (294,121) (267,367) D ecrease (in crease) in ot h er cu rren t asset s 70,720 (155,720) (102,203) In crease in accou n t s payable an d ot h er operat in g liabilit ies 107,543 555,565 450,836 O t h er, n et (38,385) (19,337) (32,963) C ash provided by operat in g act ivit ies 1,625,242 1,772,120 1,605,272 IN VEST IN G AC T IVIT IES Pu rch ases of propert y an d equ ipm en t , in clu din g deposit s on 18 aircraft of $1,500, $1,200 an d $70,359 (1,627,418) (1,769,946) (1,880,173) Proceeds from disposit ion s of propert y an d equ ipm en t : Sale-leaseback t ran sact ion s – 80,995 322,852 Reim bu rsem en t s of A300 an d M D11 deposit s 24,377 67,269 106,991 O t h er disposit ion s 165,397 195,641 162,672 Acqu isit ion s of bu sin esses (257,095) – – O t h er, n et (13,378) (22,716) (471) C ash u sed in in vest in g act ivit ies (1,708,117) (1,448,757) (1,288,129) FIN AN C IN G AC T IVIT IES Prin cipal paym en t s on debt (115,090) (269,367) (533,502) Proceeds from debt issu an ces 517,664 – 267,105 Proceeds from stock issu an ces 15,523 49,932 33,925 D ividen ds paid – – (7,793) Pu rch ase of t reasu ry stock (606,506) (8,168) (7,049) O t h er, n et 13,920 (2) 110 C ash u sed in fin an cin g act ivit ies (174,489) (227,605) (247,204) C ASH AN D C ASH EQ U IVALEN T S C ash (u sed in ) provided by con t in u in g operat ion s (257,364) 95,758 69,939 C ash u sed in discon t in u ed operat ion s – – (1,735) Balan ce at begin n in g of year 325,323 229,565 161,361 Balan ce at en d of year $ 67,959 $ 325,323 $ 229,565 T h e accom pan yin g n otes are an in tegral part of t h ese con solidated fin an cial statem en t s.


  • Page 21

    CO NSO LIDATED STATEM ENTS O F CHANGES IN STO CKHO LDERS’ INVESTM ENT AND CO M PREHENSIVE INCO M E Accu m u lated Addit ion al O t h er C om - D eferred C om m on Paid-in Retain ed preh en sive Treasu ry C om pen - In t h ou san ds, except sh ares Stock C apital Earn in gs In com e Stock sat ion Total BALAN C E AT M AY 31, 1997 $14,762 $ 937,978 $2,618,492 $ 3,019 $ (55,482) $(17,608) $3,501,161 N et in com e – – 503,030 – – – 503,030 Foreign cu rren cy t ran slat ion adju st m en t , n et of deferred tax ben efit of $2,793 – – – (30,296) – – (30,296) Total com prehensive income 472,734 Adju st m en t to con form C aliber System , In c.’s fiscal year – 492 (51,795) – (1,765) – (53,068) C ash dividen ds declared by C aliber System , In c. – – (3,899) – – – (3,899) Pu rch ase of t reasu ry stock – – – – (7,049) – (7,049) Forfeit u re of rest ricted stock – – – – (979) 586 (393) Issu an ce of stock u n der em ployee in cen t ive plan s (1,466,895 sh ares) 135 54,195 – – 7,918 (7,204) 55,044 C an cellat ion of C aliber System , In c. t reasu ry stock (156) 156 (66,474) – 57,357 – (9,117) Am ort izat ion of deferred com pen sat ion – – – – – 5,817 5,817 BALAN C E AT M AY 31, 1998 14,741 992,821 2,999,354 (27,277) – (18,409) 3,961,230 FedEx N et in com e – – 631,333 – – – 631,333 19 Foreign cu rren cy t ran slat ion adju st m en t , n et of deferred Corp. tax ben efit of $959 – – – (611) – – (611) U n realized gain on available-for- sale secu rit ies, n et of deferred taxes of $2,100 – – – 3,200 – – 3,200 Total com prehensive income 633,922 Pu rch ase of t reasu ry stock – – – – (8,168) – (8,168) Forfeit u re of rest ricted stock – – – – (1,196) 507 (689) Two-for-on e stock split by FedEx C orporat ion in t h e form of a 100% stock dividen d (148,931,996 sh ares) 14,890 – (14,890) – – – – Issu an ce of stock u n der em ployee in cen t ive plan s (1,770,626 sh ares) 168 68,491 – – 8,083 (8,273) 68,469 Am ort izat ion of deferred com pen sat ion – – – – – 8,928 8,928 BALAN C E AT M AY 31, 1999 29,799 1,061,312 3,615,797 (24,688) (1,281) (17,247) 4,663,692 N et in com e – – 688,336 – – – 688,336 Foreign cu rren cy t ran slat ion adju st m en t , n et of deferred tax ben efit of $1,881 – – – (9,021) – – (9,021) U n realized loss on available-for- sale secu rit ies, n et of deferred tax ben efit of $1,513 – – – (2,365) – – (2,365) Total com prehensive income 676,950 Pu rch ase of t reasu ry stock – – – – (606,506) – (606,506) Forfeit u re of rest ricted stock – – – – (790) 845 55 Issu an ce of stock u n der em ployee in cen t ive plan s an d ot h er (1,715,585 sh ares) 58 18,150 (9,092) – 44,483 (14,725) 38,874 Am ort izat ion of deferred com pen sat ion – – – – – 12,178 12,178 BALAN C E AT M AY 31, 2000 $29,857 $1,079,462 $4,295,041 $(36,074)$(564,094) $(18,949) $4,785,243 T h e accom pan yin g n otes are an in tegral part of t h ese con solidated fin an cial statem en t s.


  • Page 22

    NO TES TO CO NSO LIDATED FINANCIAL STATEM ENTS NO TE1: BASIS O F PRESENTATIO N m aterial residu al valu es. Veh icles are depreciated O n Jan u ary 19, 2000, a n ew bran din g st rategy was on a st raigh t -lin e basis over five to 10 years. an n ou n ced t h at resu lted in n am e ch an ges of t h e For in com e tax pu rposes, depreciat ion is gen erally h o l d i n g c o m p a n y a n d c e r t a i n o p e ra t i n g c o m - com pu ted u sin g accelerated m et h ods. pan ies t o in clu de t h e FedEx bran d n am e. T h e n a m e o f t h e h o l d i n g c o m p a n y w a s c h a n ge d D EFERRED G AIN S. G ain s on t h e sale an d lease- fro m FD X C o r p o ra t i o n t o Fe d Ex C o r p o ra t i o n back of aircraft an d ot h er propert y an d equ ipm en t (“ FedEx” ) an d t h e follow in g operat in g su bsidiaries’ are deferred an d am ort ized over t h e life of t h e n am es were ch an ged: lease as a redu ct ion of ren t expen se. In clu ded in Form er N ew Bran d ot h er liabilit ies at M ay 31, 2000 an d 1999, were N am e N am e N am e deferred gain s of $533,371,000 an d $429,488,000, RPS, In c. FedEx G rou n d FedEx G rou n d respect ively. Package System , In c. FD X Logist ics FedEx G lobal FedEx Logist ics D EFERRED LEASE O BLIG AT IO N S. Wh ile certain Logist ics, In c. of FedEx’s aircraft an d facilit y leases con tain flu c- Robert s Express FedEx C u stom FedEx C u stom t u at in g or escalat in g paym en t s, t h e relat ed ren t C rit ical, In c. C rit ical expen se is recorded on a st raigh t -lin e basis over T h e n am es of Federal Express C orporat ion (“ FedEx t h e lease t er m . In clu ded in ot h er liabilit ies at Express” ) an d Vik in g Freigh t , In c. (“ Vik in g” ) did M ay 31, 2000 an d 1999, were $354,566,000 an d n ot ch an ge. $ 3 21,2 4 8 ,0 0 0 , r e s p e c t i ve l y, r e p r e s e n t i n g t h e cu m u lat ive differen ce bet ween ren t expen se an d 20 NO TE 2: SUM M ARY O F SIGNIFICANT ren t paym en t s. ACCO UNTING PO LICIES SELF-IN SU RAN C E AC C RUALS. FedEx is self- PRIN C IPLES O F C O N SO LIDAT IO N . T h e con soli- in su red u p to certain levels for workers’ com pen sa- dated fin an cial statem en t s in clu de t h e accou n t s of t ion , em ployee h ealt h care an d veh icle liabilit ies. FedEx C orporat ion an d it s su bsidiaries. All sign ifi- Accru als are based on t h e act u arially est im at ed can t in tercom pan y accou n t s an d t ran sact ion s h ave u n discou n ted cost of claim s. In clu ded in ot h er lia- been elim in ated. bilities at May 31, 2000 and 1999, were $324,869,000 PRO PERT Y AN D EQ U IPM EN T. Expen dit u res for and $282,889,000, respectively, representing the long- m ajor addit ion s, im provem en t s, fligh t equ ipm en t term portion of self-insurance accruals for FedEx’s m odificat ion s an d cert ain equ ipm en t overh au l workers’ com pen sat ion an d veh icle liabilit ies. cost s are capit alized. M ain t en an ce an d repairs are C APITALIZ ED IN T EREST. In terest on fu n ds u sed c h a rge d t o ex p e n se a s in c u r re d . T h e c o st a n d to fin an ce t h e acqu isit ion an d m odificat ion of air- accu m u lat ed depreciat ion of propert y an d equ ip- craft , con st ru ct ion of certain facilit ies, an d devel- m en t disposed of are rem oved from t h e relat ed opm en t of certain soft ware u p to t h e date t h e asset accou n t s, an d an y gain or loss is reflect ed in t h e is placed in service is capit alized an d in clu ded resu lt s of operat ion s. in t h e cost of t h e asset . C apitalized in terest was For fin an cial report in g pu rposes, depreciat ion an d $34,823,000, $38,880,000 an d $33,009,000 for am ort izat ion of propert y an d equ ipm en t is pro- 2000, 1999 an d 1998, respect ively. vided on a st raigh t -lin e basis over t h e asset ’s serv- AD VERT ISIN G . Advert isin g cost s are gen erally ice life or related lease term as follows: expen sed as in cu rred an d are in clu ded in ot h er operat in g expen ses. Adver t isin g expen ses were Fligh t equ ipm en t 5 to 20 years $221,511,000, $202,104,000 an d $183,253,000 in Package h an dlin g an d grou n d su pport 2000, 1999 an d 1998, respect ively. equ ipm en t an d veh icles 3 to 30 years C om pu ter an d elect ron ic equ ipm en t 3 to 10 years CASH EQUIVALEN TS. Cash equivalents in excess O t h er 2 to 30 years of cu rren t operat in g requ irem en t s are in vest ed in sh ort -t erm , in t erest -bearin g in st ru m en t s w it h Aircraft airfram es an d en gin es are assign ed resid- m aturities of three m onths or less at the date of pur- u a l va l u e s ra n gi n g fro m 10 % t o 2 0 % o f a s s et ch ase an d are stated at cost , w h ich approxim ates cost . All ot h er propert y an d equ ipm en t h ave n o


  • Page 23

    m arket valu e. In t erest in com e was $15,116,000, FedEx h as n ot provided for U .S. federal in com e $12,399,000 an d $11,283,000 in 2000, 1999 an d taxes on it s foreign su bsidiaries’ earn in gs deem ed 1998, respect ively. to be perm an en t ly rein vested. Q u an t ificat ion of t h e deferred tax liabilit y, if an y, associated w it h perm a- M ARKETABLE SEC U RIT IES. FedEx’s m arketable n en t ly rein vested earn in gs is n ot pract icable. secu rit ies are available-for-sale secu rit ies an d are reported at fair valu e. U n realized gain s an d losses REVEN U E REC O G N IT IO N . Reven u e is recorded are reported, n et of related deferred in com e taxes, as based on t h e percen t age of service com plet ed at a com pon en t of accu m u lated ot h er com preh en sive t h e balan ce sh eet date. in com e w it h in com m on stock h olders’ in vest m en t . REC EN T PRO N O U N C EM EN T S. St at em en t of SPARE PART S, SU PPLIES AN D FU EL. Spare part s Fin an cial Accou n t in g Stan dards (“ SFAS” ) N o. 133, are st at ed prin cipally at weigh t ed-average cost ; “Ac c o u n t i n g fo r D e r i va t i ve In s t r u m e n t s a n d su pplies an d fu el are stated prin cipally at stan dard H edgin g Act ivit ies,” was issu ed in Ju n e 1998, was cost , w h ich approxim ates act u al cost on a first -in , su bsequ en t ly am en ded by SFAS N o. 137, an d is n ow first -ou t basis. N eit h er m et h od valu es in ven tory in effect ive for fiscal years begin n in g aft er Ju n e 15, excess of cu rren t replacem en t cost . 2000 (2002 for FedEx). T h e Statem en t requ ires an en t it y to recogn ize all derivat ives as eit h er asset s G O O D WILL. G oodw ill is t h e excess of t h e pu r- or liabilit ies in t h e balan ce sh eet an d to m easu re ch ase price over t h e fair valu e of n et asset s of t h ose in st ru m en t s at fair valu e. T h e im pact of t h e bu sin esses acqu ired. It is am ort ized on a st raigh t - FedEx adopt ion of SFAS N o. 133, if an y, on earn in gs, com - lin e basis over periods gen erally ran gin g from preh en sive in com e an d fin an cial posit ion w ill 21 15 t o 40 years. Accu m u lat ed am ort izat ion was depen d on t h e am ou n t , t im in g an d n at u re of an y Corp. $165,624,000 an d $157,106,000 at M ay 31, 2000 an d agreem en t s en tered in to by FedEx. As of M ay 31, 1999, respect ively. 2000, FedEx h as n ot adopt ed t h e provision s of IM PAIRM EN T O F LO N G -LIVED ASSET S. FedEx SFAS N o. 133. reviews lon g-lived asset s for im pairm en t w h en cir- SFAS N o. 138, “Accounting for C ertain D erivat ive cu m stan ces in dicate t h e carryin g valu e of an asset Instrum ents and Certain Hedging Activities,” was m ay n ot be recoverable. If an im pairm en t exist s, an issued in June 2000, and am ends SFAS N o. 133. SFAS adju st m en t is m ade to w rite t h e asset dow n to it s N o. 138 m ust be adopted concurrently with FedEx’s fair valu e, an d a loss is recorded as t h e differen ce adopt ion of SFAS N o. 133. FedEx does n ot believe bet ween t h e carryin g valu e an d fair valu e. the am endm ent will affect it s im plem en tat ion of FO REIG N C U RREN C Y T RAN SLAT IO N . Tran s- SFAS N o. 133. lat ion gain s an d losses of FedEx’s foreign opera- REC LASSIFIC AT IO N S. C ertain prior year am ou n t s t ion s t h at u se local cu rren cies as t h e fu n ct ion al h ave been reclassified t o con for m t o t h e 2000 cu rren cy are accu m u lat ed an d report ed, n et of presen tat ion . related deferred in com e taxes, as a com pon en t of accu m u lated ot h er com preh en sive in com e w it h in U SE O F EST IM AT ES. T h e preparat ion of t h e con - com m on st ock h olders’ in vest m en t . Tran sact ion solidated fin an cial statem en t s in con form it y w it h gain s an d losses t h at arise from exch an ge rate flu c- gen erally accepted accou n t in g prin ciples requ ires t u at ion s on t ran sact ion s den om in at ed in a cu r- m an agem en t to m ake est im ates an d assu m pt ion s ren cy ot h er t h an t h e local fu n ct ion al cu rren cy are t h at affect t h e reported am ou n t s of asset s an d lia- in clu ded in t h e resu lt s of operat ion s. bilit ies an d disclosu re of con t in gen t asset s an d lia- bilit ies at t h e date of t h e fin an cial statem en t s an d IN C OM E TAXES. D eferred in com e taxes are pro- t h e report ed am ou n t s of reven u es an d expen ses vided for t h e t ax effect of t em porary differen ces du rin g t h e report in g period. Act u al resu lt s cou ld bet ween t h e tax basis of asset s an d liabilit ies an d differ from t h ose est im ates. t h eir repor t ed am ou n t s in t h e fin an cial st at e- m en t s. FedEx u ses t h e liabilit y m et h od to accou n t for in com e taxes, w h ich requ ires deferred taxes to be recorded at t h e stat u tory rate expected to be in effect w h en t h e taxes are paid.


  • Page 24

    NO TE 3: BUSINESS CO M BINATIO N AND NO TE 4: ACCRUED SALARIES AND EM PLO YEE ACQ UISITIO NS BENEFITS AND ACCRUED EXPENSES O n Ja n u a r y 2 7, 19 9 8 , Fe d Ex Ex p r e s s b e c a m e T h e com pon en t s of accru ed salaries an d em ployee a w h olly-ow n ed su bsidiary of FedEx C orporat ion ben efit s an d accru ed expen ses were as follows: in con n ect ion w it h t h e acqu isit ion of C aliber M ay 31 Syst em , In c. (“ C aliber” ). T h e acqu isit ion was In t h ou san ds 2000 1999 accou n t ed for as a poolin g of in t erest s. FedEx Salaries $ 216,705 $216,647 C orporat ion exch an ged 0.8 sh ares of it s com m on Em ployee ben efit s 225,192 236,741 st ock for each sh are of C aliber com m on st ock . C om pen sated absen ces 313,850 287,104 Each sh are of FedEx Express’s com m on stock was Total accru ed salaries an d au tom at ically con verted in to on e sh are of FedEx em ployee ben efit s $ 755,747 $740,492 C orporat ion com m on stock . In su ran ce $ 363,899 $345,804 Taxes ot h er t h an in com e taxes 237,342 225,378 O n Septem ber 10, 1999, FedEx Logist ics acqu ired O t h er 406,646 324,193 t h e asset s of G eoLogist ics Air Services, In c., an Total accru ed expen ses $1,007,887 $895,375 airfreigh t forwarder servicin g freigh t sh ipm en t s NO TE 5: LO NG-TERM DEBT AND O THER bet ween t h e U n it ed St at es an d Pu ert o Rico, for FINANCING ARRANGEM ENTS approxim ately $116,000,000 in cash . T h is bu sin ess operates u n der t h e n am e C aribbean Tran sportat ion M ay 31 Services, In c. T h e excess of pu rch ase price over t h e In t h ou san ds 2000 1999 est im at ed fair valu e of t h e n et asset s acqu ired U n secu red debt , in terest rates of 22 7.60% to 10.57% , du e ($103,000,000) h as been recorded as goodw ill an d is t h rou gh 2098 $ 975,862 $ 988,120 bein g am ort ized ratably over 15 years. U n secu red sin k in g fu n d O n Febru ary 29, 2000, FedEx acqu ired t h e com - deben t u res, in terest rate of 9.63% , origin ally du e t h rou gh m on stock of Tower G rou p In tern at ion al, a leader 2020, called du rin g 2000 – 98,598 in t h e bu sin ess of providin g in tern at ion al cu stom s C om m ercial paper, effect ive clearan ce services, for approxim ately $140,000,000 in terest rate of 6.73% 521,031 – in cash . T h is bu sin ess is operat in g as a su bsidiary C apital lease obligat ion s an d o f Fe d Ex Tra d e N et w o r k s , In c . (“ Fe d Ex Tra d e tax exem pt bon ds, in terest N et work s” ). T h e excess of pu rch ase price over t h e rates of 5.35% to 7.88% , est im at ed fair valu e of t h e n et asset s acqu ired du e t h rou gh 2017 253,569 253,425 ($30,000,000) h as been recorded as goodw ill an d is Less bon d reserves 9,024 9,024 bein g am ort ized ratably over 25 years. 244,545 244,401 O t h er debt , in terest rates of O n M arch 31, 2000, FedEx acqu ired t h e com m on 9.68% to 11.12% 41,352 43,487 stock of World Tariff, Lim ited, a prem ier sou rce of 1,782,790 1,374,606 cu st om s du t y an d t ax in for m at ion arou n d t h e Less cu rren t port ion 6,537 14,938 globe, for approxim at ely $8,400,000 in cash an d $1,776,253 $1,359,668 stock . T h is bu sin ess is operat in g as a su bsidiary of FedEx Trade N et work s. T h e excess of pu rch ase FedEx h as a $1,000,000,000 revolvin g credit agree- price over t h e est im ated fair valu e of t h e n et asset s m en t w it h dom est ic an d foreign ban k s. T h e revolv- a c q u i r e d ($ 8 , 3 0 0 , 0 0 0 ) h a s b e e n r e c o r d e d in g credit agreem en t com prises t wo part s. T h e first as goodw ill an d is bein g am ort ized rat ably over part provides for a com m it m en t of $800,000,000 25 years. t h rou gh Jan u ary 27, 2003. T h e secon d part provides fo r a 3 6 4 -d ay c o m m i t m e n t fo r $ 2 0 0 ,0 0 0 ,0 0 0 T h e operat in g resu lt s of t h ese acqu ired com pan ies t h rou gh O ctober 13, 2000. In terest rates on borrow - are in clu ded in t h e operat ion s of FedEx from t h e in gs u n der t h is agreem en t are gen erally determ in ed dat e of acqu isit ion . Pro form a resu lt s in clu din g by m at u rit ies selected an d prevailin g m arket con di- t h ese acqu isit ion s wou ld n ot differ m aterially from t ion s. T h e agreem en t con tain s certain coven an t s reported resu lt s in an y of t h e periods presen ted. an d rest rict ion s, n on e of w h ich are expected to sig- n ifican t ly affect FedEx’s operat ion s or it s abilit y to pay dividen ds. As of M ay 31, 2000, approxim ately


  • Page 25

    $2,093,000,000 was available for t h e paym en t of Sch edu led an n u al prin cipal m at u rit ies of lon g-term dividen ds u n der t h e rest rict ive coven an t of t h e debt for t h e five years su bsequ en t to M ay 31, 2000, a gre e m e n t . C o m m e rc i a l p a p e r b o r row i n gs a re are as follows: $6,500,000 in 2001; $202,600,000 in backed by u n u sed com m it m en t s u n der t h is revolv- 2002; $6,100,000 in 2003; $25,100,000 in 2004; an d in g credit agreem en t an d redu ce t h e am ou n t avail- $5,500,000 in 2005. able u n der t h e agreem en t . Borrow in gs u n der t h is FedEx’s lon g-term debt , exclu sive of capital leases, credit agreem en t an d com m ercial paper borrow - h a d c a r r y i n g va l u e s o f $1, 0 6 3 , 0 0 0 , 0 0 0 a n d in gs are classified as lon g-term based on FedEx’s $1,178,000,000 at M ay 31, 2000 an d 1999, respec- abilit y an d in ten t to refin an ce su ch borrow in gs. At t ively, com pared w it h fair valu es of approxim ately M ay 31, 2000, $478,000,000 of t h e $1,000,000,000 $1,055,000,000 an d $1,250,000,000 at t h ose dates. com m it m en t am ou n t was available. T h e est im ated fair valu es were determ in ed based U n secu red sin k in g fu n d deben t u res in t h e am ou n t on qu ot ed m arket prices or on t h e cu rren t rat es of $100,000,000, origin ally du e t h rou gh 2020, were offered for debt w it h sim ilar term s an d m at u rit ies. redeem ed by FedEx Express on M arch 1, 2000. O t h e r i n c o m e (ex p e n s e ) i n c l u d e s a c h a rge o f NO TE 6: LEASE CO M M ITM ENTS approxim ately $6,000,000, w h ich represen t s pre- FedEx u t ilizes certain aircraft , lan d, facilit ies an d m iu m s paid to t h e h olders of t h e bon ds ret ired an d equ ipm en t u n der capital an d operat in g leases t h at t h e w rite-off of t h e related u n am ort ized deferred expire at variou s dates t h rou gh 2027. In addit ion , fin an ce ch arges an d discou n t . s u p p l e m e n t a l a i rc ra ft a re l e a s e d u n d e r a gre e - FedEx m en t s t h at gen erally provide for can cellat ion u pon T h e com pon en t s of u n secu red debt were as follows: 23 30 days’ n ot ice. Corp. M ay 31 In t h ou san ds 2000 1999 T h e com pon en t s of proper t y an d equ ipm en t Sen ior debt , in terest rates of recorded u n der capital leases were as follows: 7.80% to 9.88% , du e M ay 31, t h rou gh 2013 $673,970 $673,779 In t h ou san ds 2000 1999 Bon ds, in terest rate of 7.60% , Package h an dlin g an d grou n d du e in 2098 239,382 239,376 su pport equ ipm en t M ediu m term n otes, in terest an d veh icles $226,580 $245,041 rates of 9.95% to 10.57% , du e t h rou gh 2007 62,510 74,965 Facilit ies 134,442 134,442 C om pu ter an d elect ron ic $975,862 $988,120 equ ipm en t an d ot h er 6,852 6,496 367,874 385,979 O f t h e sen ior debt ou t stan din g at M ay 31, 2000 an d Less accu m u lated am ort izat ion 260,526 268,696 1999, $200,000,000 was issu ed by C aliber. O n $107,348 $117,283 April 28, 2000, FedEx assu m ed all obligat ion s r e l a t i n g t o t h e n o t e s , i n c l u d i n g r e s t r i c t i ve Ren t expen se u n der operat in g leases for t h e years coven an t s lim it in g t h e abilit y of FedEx an d it s su b- en ded M ay 31 was as follows: sidiaries t o in cu r lien s on asset s an d en t er in t o In t h ou san ds 2000 1999 1998 l e a s i n g t ra n s a ct i o n s . T h e s e n ot e s m a t u re o n M in im u m ren tals $1,298,821 $1,246,259 $1,135,567 Au gu st 1, 2006 an d bear in terest at 7.80% . C on t in gen t ren tals 98,755 59,839 60,925 Tax exem pt bon ds were issu ed by t h e M em ph is- $1,397,576 $1,306,098 $1,196,492 Sh elby C ou n t y Airport Au t h orit y (“ M SC AA” ) an d C on t in gen t ren tals are based on h ou rs flow n u n der t h e C it y of In dian apolis. Lease agreem en t s w it h su pplem en tal aircraft leases. t h e M SC AA an d a loan agreem en t w it h t h e C it y of In dian apolis coverin g t h e facilit ies an d equ ipm en t A su m m ary of fu t u re m in im u m lease paym en t s fin an ced w it h t h e bon d proceeds obligat e FedEx u n der capital leases an d n on can cellable operat in g Express to pay ren tals an d loan paym en t s, respec- leases (prin cipally aircraft an d facilit ies) w it h an t ively, equ al to t h e prin cipal an d in terest du e on t h e bon ds.


  • Page 26

    in it ial or rem ain in g term in excess of on e year at Fe d Ex a p p l i e s Ac c o u n t i n g P r i n c i p l e s Bo a r d M ay 31, 2000 is as follows: O pin ion N o. 25, “Accou n t in g for Stock Issu ed to C apital O perat in g Em ployees,” an d related in terpretat ion s to m easu re In t h ou san ds Leases Leases com pen sat ion expen se for it s plan s. C om pen sat ion 2001 $ 15,195 $ 1,258,109 cost for t h e rest ricted stock plan s was $12,178,000, 2002 15,174 1,087,035 $ 8 ,9 2 8 ,0 0 0 a n d $ 5 ,817,0 0 0 fo r 2 0 0 0 , 19 9 9 a n d 2003 15,024 990,125 1998, respect ively. If com pen sat ion cost for FedEx’s 2004 14,894 926,290 st ock -based com pen sat ion plan s h ad been det er- 2005 14,828 877,701 T h ereafter 287,673 9,263,996 m in ed u n der SFAS N o. 123, “Accou n t in g for Stock - Based C om pen sat ion ,” FedEx’s n et in com e an d $362,788 $14,403,256 earn in gs per sh are wou ld h ave been t h e pro form a At M ay 31, 2000, t h e presen t valu e of fu t u re m in i- am ou n t s in dicated below : m u m l e a s e p ay m e n t s fo r c a p i t a l l e a s e o b l i ga - In t h ou san ds, t ion s, in clu din g cert ain t ax exem pt bon ds, was except per sh are data 2000 1999 1998 $200,259,000. N et in com e: As reported $688,336 $631,333 $503,030 FedEx Express m ak es paym en t s u n der cer t ain Pro form a 659,601 609,960 489,556 leveraged operat in g leases t h at are su fficien t to pay Earn in gs per sh are, prin cipal an d in terest on certain pass-t h rou gh cer- assu m in g dilu t ion : t ificat es. T h e pass-t h rou gh cert ificat es are n ot As reported $ 2.32 $ 2.10 $ 1.69 Pro form a 2.23 2.03 1.64 24 direct obligat ion s of, or gu aran t eed by, FedEx or FedEx Express. T h e pro form a disclosu res, applyin g SFAS N o. 123, are n ot likely t o be represen t at ive of pro form a NO TE 7: PREFERRED STO CK disclosu res for fu t u re years. T h e pro form a effect T h e C ert ificat e of In corporat ion au t h orizes t h e is n ot expect ed t o be fu lly reflect ed u n t il 2002, Board of D irectors, at it s discret ion , to issu e u p to sin ce SFAS N o. 123 is applicable to opt ion s gran ted 4,000,000 sh ares of Series Preferred St ock . T h e by FedEx after M ay 31, 1995, an d becau se opt ion s stock is issu able in series, w h ich m ay vary as to vest over several years an d addit ion al gran t s cou ld cer t ain righ t s an d preferen ces, an d h as n o par be m ade. valu e. As of M ay 31, 2000, n on e of t h ese sh ares h ad been issu ed. Fixed Stock O ption Plans U n der t h e provision s of FedEx’s st ock in cen t ive NO TE 8: CO M M O N STO CKHO LDERS’ INVESTM ENT p l a n s , o pt i o n s m ay b e gra n t e d t o c e r t a i n k ey Stock Compensation Plans em ployees (an d, u n der t h e 1997 plan , to directors At M ay 31, 2000, FedEx h ad opt ion s an d awards w h o a re n ot e m p l oye e s o f Fe d Ex ) t o p u rc h a s e o u t st a n d i n g u n d e r st o c k -b a s e d c o m p e n s a t i o n sh ares of com m on stock of FedEx at a price n ot less plan s described below. As of M ay 31, 2000, t h ere t h an it s fair m ark et valu e at t h e dat e of gran t . were 25,210,811 sh ares of com m on stock reserved O pt ion s gran ted h ave a m axim u m term of 10 years. fo r i s s u a n c e u n d e r t h e s e p l a n s . T h e Bo a rd o f Vest in g requ irem en t s are determ in ed at t h e discre- D irect ors h as au t h orized repu rch ase of FedEx’s t ion of t h e C om pen sat ion C om m it tee of t h e Board c o m m o n st o c k n e c e s s a r y fo r gra n t s u n d e r i t s of D irect ors. Presen t ly, opt ion vest in g periods r e s t r i c t e d s t o c k p l a n s . A s o f M a y 31, 2 0 0 0 , ran ge from on e to eigh t years. At M ay 31, 2000, 13,418,185 of t h e 27,688,302 t ot al sh ares repu r- t h ere were 9,714,810 sh ares available for fu t u re c h a s e d by Fe d Ex a t a n ave ra ge c o st o f $ 2 7.4 2 gran t s u n der t h ese plan s. (i n c l u d i n g t h e 15 ,0 0 0 ,0 0 0 s h a re s re p u rc h a s e d u n der t h e cu rren t year stock repu rch ase program , see N ot e 9) h ad been reissu ed u n der t h e above- m en t ion ed plan s.


  • Page 27

    Begin n in g w it h t h e gran t s m ade on or after Ju n e 1, 1995, t h e fair valu e of each opt ion gran t was est im ated on t h e gran t date u sin g t h e Black -Sch oles opt ion -pricin g m odel w it h t h e follow in g assu m pt ion s for each opt ion gran t : 2000 1999 1998 D ividen d yield 0% 0% 0% Expected volat ilit y 30% 25% 25% Risk -free in terest rate 5.6%–6.8% 4.2% –5.6% 5.4% –6.5% Expected lives 2.5–9.5 years 2.5–5.5 years 2.5–6.5 years T h e follow in g table su m m arizes in form at ion abou t FedEx’s fixed stock opt ion plan s for t h e years en ded M ay 31: 2000 1999 1998 Weighted- Weigh ted- Weigh ted- Average Average Average Exercise Exercise Exercise Shares Price Sh ares Price Sh ares Price O u t stan din g at begin n in g of year 13,399,532 $23.11 13,388,452 $19.74 13,523,460 $17.09 G ran ted 3,218,450 50.79 3,377,500 31.80 2,485,544 28.20 Exercised (1,232,699) 18.81 (3,135,640) 17.86 (2,336,984) 13.45 Forfeited (374,632) 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 33.81 (230,780) 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 26.59 (283,568) 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 19.51 FedEx O u t stan din g at en d of year 15,010,651 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 29.12 13,399,532 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 23.11 13,388,452 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 19.74 Exercisable at en d of year 5,781,855 21.44 4,404,146 18.57 5,349,626 16.92 25 Corp. T h e weigh ted-average fair valu e of opt ion s gran ted du rin g t h e year was $16.63, $9.12 an d $8.25 for t h e years en ded M ay 31, 2000, 1999 an d 1998, respect ively. T h e follow in g table su m m arizes in form at ion abou t fixed stock opt ion s ou t stan din g at M ay 31, 2000: O pt ion s O u t stan din g O pt ion s Exercisable Weigh ted- Weigh ted- Weigh ted- Average Average Average Ran ge of N u m ber Rem ain in g Exercise N u m ber Exercise Exercise Prices O u t stan din g C on t ract u al Life Price Exercisable Price $ 8.63–$10.91 281,246 1.2 years $ 9.73 281,246 $ 9.73 12.00– 16.50 2,095,522 3.9 years 15.48 1,649,622 15.51 17.50– 25.19 4,523,806 5.7 years 20.16 2,139,188 20.65 26.44– 37.25 5,068,127 7.7 years 30.61 1,655,299 29.73 38.69– 55.94 3,041,950 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 9.2 years 51.15 56,500 㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮㛮 40.07 8.63– 55.94 15,010,651 6.7 years 29.12 5,781,855 21.44 Restricted Stock Plans U n der t h e term s of FedEx’s Rest ricted Stock Plan s, sh ares of FedEx’s com m on stock are awarded to key em ployees. All rest rict ion s on t h e sh ares expire over periods varyin g from t wo to five years from t h eir date of award. Sh ares are valu ed at t h e m ark et price of FedEx’s com m on st ock at t h e dat e of award. C om pen sat ion related to t h ese plan s is recorded as a redu ct ion of com m on stock h olders’ in vest m en t an d is bein g am ort ized to expen se as rest rict ion s on su ch sh ares expire. T h e follow in g table su m m arizes in for- m at ion abou t rest ricted stock awards for t h e years en ded M ay 31: 2000 1999 1998 Weighted- Weigh ted- Weigh ted- Average Average Average Shares Fair Value Sh ares Fair Valu e Sh ares Fair Valu e Awarded 283,750 $51.90 252,000 $32.71 240,000 $32.99 Forfeited 20,000 37.71 16,900 44.38 28,000 34.94 At M ay 31, 2000, t h ere were 485,350 sh ares available for fu t u re awards u n der t h ese plan s.


  • Page 28

    NO TE 9: CO M PUTATIO N O F EARNINGS PER SHARE T h e calcu lat ion of basic earn in gs per sh are an d earn in gs per sh are, assu m in g dilu t ion , for t h e years en ded M ay 31 was as follows: In t h ou san ds, except per sh are am ou n t s 2000 1999 1998 In com e from con t in u in g operat ion s $688,336 $631,333 $498,155 In com e from discon t in u ed operat ion s – – 4,875 N et in com e applicable to com m on stock h olders $688,336 $631,333 $503,030 Average sh ares of com m on stock ou t stan din g 291,727 295,983 293,401 Basic earn in gs per sh are: C on t in u in g operat ion s $ 2.36 $ 2.13 $ 1.70 D iscon t in u ed operat ion s – – .02 $ 2.36 $ 2.13 $ 1.72 Average sh ares of com m on stock ou t stan din g 291,727 295,983 293,401 C om m on equ ivalen t sh ares: Assu m ed exercise of ou t stan din g dilu t ive opt ion s 12,735 13,090 13,849 Less sh ares repu rch ased from proceeds of assu m ed exercise of opt ion s (8,136) (8,430) (8,842) Average com m on an d com m on equ ivalen t sh ares 296,326 300,643 298,408 Earn in gs per sh are, assu m in g dilu t ion : C on t in u in g operat ion s $ 2.32 $ 2.10 $ 1.67 D iscon t in u ed operat ion s – – .02 $ 2.32 $ 2.10 $ 1.69 26 In Septem ber 1999, FedEx’s Board of D irectors approved a plan t h at au t h orized t h e pu rch ase of u p to 15,000,000, or approxim ately 5% , of FedEx’s ou t stan din g sh ares of com m on stock . FedEx com pleted it s pu rch ases u n der t h e plan in 2000 at an average cost of $39.75 per share. As of May 31, 2000, FedEx h ad 14,128,998 sh ares in t reasu ry for gen eral corporate pu rposes. NO TE10: INCO M E TAXES In com e taxes h ave been provided for foreign opera- T h e com pon en t s of t h e provision for in com e taxes t ion s based u pon t h e variou s tax laws an d rates of for t h e years en ded M ay 31 were as follows: t h e cou n t ries in w h ich FedEx’s operat ion s are con - In t h ou san ds 2000 1999 1998 du ct ed. T h ere is n o direct relat ion sh ip bet ween C u rren t provision : FedEx’s overall foreign in com e tax provision an d D om est ic foreign pret ax book in com e du e t o t h e differen t Federal $365,137 $385,164 $267,471 m et h ods of taxat ion u sed by cou n t ries t h rou gh ou t State an d local 48,837 49,918 32,839 t h e w o r l d . In 19 9 8 , Fe d Ex e n t i t i e s i n fo re i gn Foreign 39,844 22,730 36,543 locat ion s repor t ed a n et foreign pret ax loss of 453,818 457,812 336,853 $98,000,000, com prisin g foreign pret ax in com e D eferred provision o f $ 2 0 8 , 0 0 0 , 0 0 0 a n d fo r e i gn p r e t a x l o s s e s (credit ): of $306,000,000. D om est ic Federal (3,444) (21,773) 56,408 State an d local 469 (4,437) 7,860 Foreign (1,439) (1,871) 242 (4,414) (28,081) 64,510 $449,404 $429,731 $401,363


  • Page 29

    A recon ciliat ion of t h e stat u tory federal in com e tax rate to FedEx’s effect ive in com e tax rate for t h e years en ded M ay 31 is as follows: 2000 1999 1998 Stat u tory U .S. in com e tax rate 35.0% 35.0% 35.0% In crease resu lt in g from : State an d local in com e taxes, n et of federal ben efit 2.8 2.8 2.7 N on recu rrin g item s (1998 C aliber acqu isit ion ) – – 3.1 O t h er, n et 1.7 2.7 3.8 Effect ive tax rate 39.5% 40.5% 44.6% Effect ive tax rate (exclu din g n on recu rrin g item ) 39.5% 40.5% 41.5% T h e sign ifican t com pon en t s of deferred tax asset s an d liabilit ies as of M ay 31 were as follows: In t h ou san ds 2000 1999 D eferred D eferred D eferred D eferred Tax Tax Tax Tax Assets Liabilities Asset s Liabilit ies Propert y, equ ipm en t an d leases $206,239 $686,547 $122,515 $608,719 Em ployee ben efit s 207,297 127,784 198,750 79,374 Self-in su ran ce accru als 245,923 – 228,020 – O t h er 224,615 96,572 233,331 97,264 FedEx $884,074 $910,903 $782,616 $785,357 27 NO TE11: EM PLO YEE BENEFIT PLANS T h ese ben efit en h an cem en t s are reflected in t h e Corp. PEN SIO N PLAN S. FedEx spon sors defin ed ben efit fu n ded st at u s of t h e plan s at M ay 31, 2000 an d pen sion plan s coverin g a m ajorit y of all em ployees. 1999, bu t did n ot m aterially affect pen sion cost in T h e largest plan s cover certain U .S. em ployees age eit h er year. 21 an d over, w it h at least on e year of service, an d P O ST R ET IR EM EN T H EA LT H C A R E P LA N S. provide ben efit s based on average ear n in gs an d FedEx Express offers m edical an d den tal coverage years of service. Plan fu n din g is act u arially deter- to eligible U .S. ret irees an d t h eir eligible depen - m in ed, an d is also su bject to certain tax law lim ita- den t s. Vision coverage is provided for ret irees, bu t t ion s. In tern at ion al defin ed ben efit pen sion plan s n ot t h e i r d e p e n d e n t s . Su b st a n t i a l l y a l l Fe d Ex provide ben efit s prim arily based on fin al earn in gs Express U .S. em ployees becom e eligible for t h ese an d years of service an d are fu n ded in accordan ce ben efit s at age 55 an d older, if t h ey h ave perm a- w it h local laws an d in com e tax regu lat ion s. Plan n en t , con t in u ou s service w it h FedEx Express of at asset s con sist prim arily of m arketable equ it y secu - least 10 years after at tain m en t of age 45 if h ired rit ies an d fixed in com e in st ru m en t s. D u rin g 1999, prior to Jan u ary 1, 1988, or at least 20 years after ben efit s provided u n der certain of FedEx’s pen sion at tain m en t of age 35 if h ired on or after Jan u ary 1, plan s were en h an ced, prin cipally in con n ect ion 1988. Life in su ran ce ben efit s are provided on ly to w it h t h e rat ificat ion on Febru ary 4, 1999, of a col- ret irees of t h e form er Tiger In tern at ion al, In c. w h o l e ct i ve b a rga i n i n g a gre e m e n t b et w e e n Fe d Ex ret ired prior to acqu isit ion . FedEx G rou n d offers Express an d t h e Fedex Pilot s Associat ion (“ FPA” ). sim ilar ben efit s to it s eligible ret irees.


  • Page 30

    T h e follow in g table provides a recon ciliat ion of t h e ch an ges in t h e pen sion an d post ret irem en t h ealt h care plan s’ ben efit obligat ion s an d fair valu e of asset s over t h e t wo-year period en ded M ay 31, 2000 an d a state- m en t of t h e fu n ded stat u s as of M ay 31, 2000 an d 1999: Pen sion Post ret irem en t In t h ou san ds Plan s H ealt h C are Plan s 2000 1999 2000 1999 C H AN G E IN BEN EFIT O BLIG AT IO N Ben efit obligat ion at begin n in g of year $ 4,385,519 $4,121,795 $ 246,186 $ 217,027 Service cost 337,780 331,005 26,450 23,676 In terest cost 336,143 288,221 19,579 16,962 Am en dm en t s, ben efit en h an cem en t s an d acqu isit ion s 12,853 125,145 1,420 1,681 Act u arial gain (510,132) (427,179) (28,607) (7,402) Plan part icipan t con t ribu t ion s – – 1,112 679 Foreign cu rren cy exch an ge rate ch an ges (618) 3,112 – – Ben efit s paid (67,800) (56,580) (9,133) (6,437) Ben efit obligat ion at en d of year $ 4,493,745 $4,385,519 $ 257,007 $ 246,186 C H AN G E IN PLAN ASSET S Fair valu e of plan asset s at begin n in g of year $ 4,952,431 $4,434,870 $ – $ – Act u al ret u rn on plan asset s 630,706 451,738 – – Foreign cu rren cy exch an ge rate ch an ges (5,192) (1,283) – – C om pan y con t ribu t ion s 217,271 123,686 8,021 5,758 Plan part icipan t con t ribu t ion s – – 1,112 679 28 Ben efit s paid (67,800) (56,580) (9,133) (6,437) Fair valu e of plan asset s at en d of year $ 5,727,416 $4,952,431 $ – $ – FU N D ED STAT U S O F T H E PLAN S $ 1,233,671 $ 566,912 $(257,007) $(246,186) U n recogn ized act u arial gain (1,173,903) (595,238) (49,286) (20,809) U n recogn ized prior service cost 121,697 132,116 254 291 U n recogn ized t ran sit ion am ou n t (10,529) (11,852) – – Prepaid (accru ed) ben efit cost $ 170,936 $ 91,938 $(306,039) $(266,704) AM O U N T S REC O G N IZ ED IN T H E BALAN C E SH EET AT M AY 31: Prepaid ben efit cost $ 302,935 $ 188,423 $ – $ – Accru ed ben efit liabilit y (131,999) (96,485) (306,039) (266,704) M in im u m pen sion liabilit y (12,662) (86,000) – – In tan gible asset 12,662 86,000 – – Prepaid (accru ed) ben efit cost $ 170,936 $ 91,938 $(306,039) $(266,704) N et periodic ben efit cost for t h e years en ded M ay 31 was as follows: Post ret irem en t In t h ou san ds Pen sion Plan s H ealt h C are Plan s 2000 1999 1998 2000 1999 1998 Service cost $ 337,780 $ 331,005 $ 250,753 $26,450 $23,676 $18,385 In terest cost 336,143 288,221 245,697 19,579 16,962 14,767 Expected ret u rn on plan asset s (546,169) (483,709) (377,421) – – – N et am ort izat ion an d deferral 5,977 (1,948) (2,304) (93) (211) (709) $ 133,731 $ 133,569 $ 116,725 $45,936 $40,427 $32,443 WEIG H T ED -AVERAG E AC T UARIAL ASSU M PT IO N S 2000 1999 1998 2000 1999 1998 D iscou n t rate 8.5% 7.5% 7.0% 8.3% 7.3% 7.2% Rate of in crease in fu t u re com pen sat ion levels 5.0 4.6 4.6 – – – Expected lon g-term rate of ret u rn on asset s 10.9 10.9 10.3 – – –


  • Page 31

    T h e project ed ben efit obligat ion , accu m u lat ed PRO FIT SH ARIN G PLAN S. T h e profit sh arin g ben efit obligat ion , an d fair valu e of plan asset s for plan s cover a m ajorit y of U .S. em ployees age 21 an d t h e pen sion plan s w it h accu m u lated ben efit obli- over, w it h at least on e year of service w it h FedEx as gat ion s in excess of plan asset s were $177,900,000, of t h e con t ribu t ion date. T h e plan s provide for dis- $126,300,000 an d $2,700,000, respect ively, as of c ret io n a r y e m p loye r c o n t r ib u t io n s, w h ic h a re M ay 31, 2000, an d $201,700,000, $172,800,000 an d det erm in ed an n u ally by t h e Board of D irect ors. $2,600,000, respect ively, as of M ay 31, 1999. T h e Profit sh arin g expen se was $125,300,000 in 2000, m in im u m pen sion liabilit y an d cor respon din g $137,500,000 in 1999 an d $124,700,000 in 1998. in tan gible asset recogn ized in t h e balan ce sh eet at In clu ded in t h ese expen se am ou n t s are cash dist ri- M ay 31, 1999, relate prin cipally to t h e collect ive bu t ion s m ade direct ly to em ployees of $39,100,000, bargain in g agreem en t bet ween FedEx Express an d $46,800,000 an d $43,100,000 in 2000, 1999 an d t h e FPA. During 2000, FedEx obtained the necessary 1998, respect ively. approvals t o fu n d a su bst an t ial port ion of t h ese ben efit s in the qualified pension plan, and t h e m in i- NO TE12: BUSINESS SEGM ENT INFO RM ATIO N m u m liabilit y an d relat ed in t an gible asset h ave FedEx C orporat ion is a global t ran sportat ion an d been redu ced accordin gly. logist ics provider prim arily com posed of FedEx Express, t h e world’s largest express t ran sportat ion FedEx Express’s fu t u re m edical ben efit cost s were com pany, and FedEx Ground, a ground sm all-package est im ated to in crease at an an n u al rate of 8.5% du r- carrier. Other operating com panies included in the in g 2001, decreasin g to an an n u al grow t h rate of FedEx FedEx Corporation portfolio are FedEx Logistics, a 6.3% in 2006 an d t h ereafter. Fu t u re den tal ben efit contract logistics provider; FedEx Custom Critical, 29 cost s were est im ated to in crease at an an n u al rate a critical-shipm ent carrier; FedEx Trade N etworks, a Corp. o f 7.5 % d u r i n g 2 0 01, d e c re a s i n g t o a n a n n u a l gl o b a l t r a d e s e r v i c e s c o m p a n y ; a n d Vi k i n g, grow t h rate of 6.3% in 2006 an d t h ereafter. FedEx a regional less-than-truckload freight carrier operat- Ex p re s s ’s c o st i s c a p p e d a t 15 0 % o f t h e 19 9 3 ing principally in the western United States. Other em ployer cost an d, t h erefore, w ill n ot be su bject to also includes certain unallocated corporate item s. m edical an d den tal t ren ds after t h e capped cost is at tain ed, projected to be in 2001. A 1% ch an ge in FedEx h as determ in ed it s reportable operat in g seg- these annual trend rates would not have a signifi- m en t s t o be FedEx Express an d FedEx G rou n d, can t im pact on t h e accu m u lat ed post ret irem en t bot h of w h ich operate in sin gle lin es of bu sin ess. benefit obligation at May 31, 2000, or 2000 benefit FedEx evalu at es fin an cial perform an ce based on expense. Claim s are paid as incurred. operat in g in com e. T h e follow in g table provides a recon ciliat ion of reportable segm en t reven u es, depreciat ion an d am ort iza- t ion , operat in g in com e an d segm en t asset s to FedEx’s con solidated fin an cial statem en t totals: FedEx FedEx Consolidated In thousands Express Ground Other Total Reven u es 2000 $15,068,338 $2,032,570 $1,156,037 $18,256,945 1999 13,979,277 1,878,107 916,086 16,773,470 1998 13,254,841 1,710,882 907,087 15,872,810 D epreciat ion an d am ort izat ion 2000 $ 997,735 $ 99,140 $ 57,988 $ 1,154,863 1999 912,002 82,640 40,476 1,035,118 1998 844,606 79,835 39,291 963,732 O perat in g in com e 2000 $ 899,610 $ 225,812 $ 95,652 $ 1,221,074 1999 871,476 (1) 231,010 60,600 1,163,086 1998 836,733 171,203 2,724 (2) 1,010,660 Segm en t asset s 2000 $ 9,740,539 $1,057,519 $ 729,053 $11,527,111 1999 9,115,975 896,723 635,513 10,648,211 (1) In clu des $81,000,000 of st rike con t in gen cy cost s. See N ote 16. (2) In clu des $74,000,000 of m erger expen ses.


  • Page 32

    T h e follow in g t able provides a recon ciliat ion of report able segm en t capit al expen dit u res t o FedEx’s con solidated totals for t h e years en ded M ay 31: FedEx FedEx Consolidated In thousands Express Ground Other Total 2000 $1,330,904 $244,073 $52,441 $1,627,418 1999 1,550,161 179,969 39,816 1,769,946 1998 1,761,963 78,041 40,169 1,880,173 T h e follow in g table presen t s FedEx’s reven u e by service t ype an d geograph ic in form at ion for t h e years en ded or as of M ay 31: In t h ou san ds 2000 1999 1998 REVEN U E BY SERVIC E T YPE FedEx Express: Package: U .S. overn igh t $ 7,537,844 $ 7,185,462 $ 6,810,211 U .S. deferred 2,428,002 2,271,151 2,179,188 In tern at ion al priorit y 3,551,593 3,018,828 2,731,140 Freigh t : U .S. 566,259 439,855 337,098 In tern at ion al 492,280 530,759 597,861 O t h er 492,360 533,222 599,343 Total FedEx Express 15,068,338 13,979,277 13,254,841 30 FedEx G rou n d 2,032,570 1,878,107 1,710,882 O t h er 1,156,037 916,086 907,087 $18,256,945 $16,773,470 $15,872,810 G EO G RAPH IC IN FO RM AT IO N (1) Reven u es: U .S. $13,804,849 $12,910,107 $12,231,537 In tern at ion al 4,452,096 3,863,363 3,641,273 $18,256,945 $16,773,470 $15,872,810 Lon g-lived asset s: U .S. $ 7,224,219 $ 6,506,424 In tern at ion al 1,018,148 1,000,759 $ 8,242,367 $ 7,507,183 (1) G en erally, in tern at ion al reven u e in clu des sh ipm en t s t h at eit h er origin ate in or are dest in ed to locat ion s ou t side t h e U n ited States. Lon g-lived asset s in clu de propert y an d equ ipm en t , goodw ill an d ot h er lon g-term asset s. Fligh t equ ipm en t is allocated bet ween geograph ic areas based on u sage. NO TE13: SUPPLEM ENTAL CASH FLO W INFO RM ATIO N C ash paid for in terest expen se an d in com e taxes for t h e years en ded M ay 31 was as follows: In t h ou san ds 2000 1999 1998 In terest (n et of capitalized in terest ) $124,964 $114,326 $130,250 In com e taxes 354,614 437,340 355,563 N on cash in vest in g an d fin an cin g act ivit ies for t h e years en ded M ay 31 were as follows: In t h ou san ds 2000 1999 1998 Fair valu e of asset s su rren dered u n der exch an ge agreem en t s (w it h t wo airlin es) $19,450 $48,248 $90,428 Fair valu e of asset s acqu ired u n der exch an ge agreem en t s 28,018 34,580 78,148 Fair valu e of asset s su rren dered (u n der) over fair valu e of asset s acqu ired $ (8,568) $13,668 $12,280 Fair valu e of t reasu ry stock issu ed in bu sin ess acqu isit ion $ 6,817 $ – $ –


  • Page 33

    NO TE14: CO M M ITM ENTS AND CO NTINGENCIES FedEx’s annual purchase com m itm ents under various contracts as of May 31, 2000, were as follows: Aircraft - In t h ou san ds Aircraft Related (1) O t h er (2) Total 2001 $222,500 $427,600 $376,300 $1,026,400 2002 252,000 381,300 18,300 651,600 2003 441,700 456,900 7,600 906,200 2004 235,000 446,500 7,600 689,100 2005 165,400 452,200 7,600 625,200 (1) Prim arily aircraft m odificat ion s, rotables, spare part s an d spare en gin es. (2) Prim arily facilit ies, veh icles, com pu ter an d ot h er equ ipm en t . At M ay 31, 2000, FedEx Express was com m it ted to con t ract s, FedEx m ak es (or receives) paym en t s pu rch ase 28 M D11s, 13 D C10s (in addit ion to t h ose based on t h e differen ce bet ween a fixed price an d discu ssed in t h e follow in g paragraph ) an d 75 Ayres t h e m arket price of jet fu el, as determ in ed by an ALM 200s to be delivered t h rou gh 2007. D eposit s in dex of spot m arket prices represen t in g variou s an d progress paym en t s of $7,100,000 h ave been geograph ic region s. T h e differen ce is recorded as m ade toward t h ese pu rch ases. an in crease or decrease in fu el expen se. U n der jet fu el h edgin g con t ract s, FedEx received $18,512,000 FedEx Express h as agreem en t s w it h t wo airlin es to in 2000 an d m ade paym en t s of $28,764,000 in acqu ire 53 D C10 aircraft (49 of w h ich h ad been FedEx 1998. T h ere was n o jet fu el h edgin g act ivit y in received as of M ay 31, 2000), spare part s, aircraft 1999. As of M ay 31, 2000, con t ract s in place to fix 31 en gin es an d ot h er equ ipm en t , an d m ain t en an ce t h e price of jet fu el cover a total n ot ion al volu m e Corp. services in exch an ge for a com bin at ion of aircraft of 352,822,000 gallon s, or approxim ately on e-t h ird en gin e n oise redu ct ion k it s an d cash . D elivery of of t h e est im ated u sage in 2001. Based on cu rren t t h ese aircraft began in 1997 an d w ill con t in u e m arket prices, t h e fair valu e of t h ese jet fu el h edg- t h rou gh 2001. Addit ion ally, t h ese airlin es m ay exer- in g con t ract s, w h ich h ave n o carryin g valu e, was c i s e p u t o pt i o n s t h ro u gh D e c e m b e r 31, 2 0 0 3 , an asset of approxim ately $51,060,000 at M ay 31, requ irin g FedEx Express to pu rch ase u p to 11 addi- 2000. T h ere were n o su ch jet fu el h edgin g con - t ion al D C10s alon g w it h addit ion al aircraft en gin es t ract s in place at M ay 31, 1999. an d equ ipm en t . In April 2000, pu t opt ion s were exercised by an air- NO TE15: LEGAL PRO CEEDINGS lin e requ irin g FedEx Express to pu rch ase six D C10s FedEx an d it s su bsidiaries are su bject to legal pro- (in addit ion t o t h ose discu ssed in t h e precedin g ceedin gs an d claim s t h at arise in t h e ordin ary paragraph ) for a total pu rch ase price of $26,400,000. cou rse of t h eir bu sin ess. In t h e opin ion of m an age- D elivery of t h e aircraft is expected to be com pleted m en t , t h e aggregate liabilit y, if an y, w it h respect to by April 2001. t h ese act ion s w ill n ot m aterially adversely affect FedEx’s fin an cial posit ion or resu lt s of operat ion s. In Jan u ary 1999, pu t opt ion s were exercised by an airlin e requ irin g FedEx Express t o pu rch ase six NO TE16: O THER EVENTS D C10s (in addit ion to t h ose discu ssed above) for a In 2000, FedEx Express recorded n on operat in g total pu rch ase price of $21,150,000. D elivery of five gain s of approxim ately $11,000,000 from t h e sale of of t h e aircraft was com pleted by Au gu st 1999, an d secu rit ies an d approxim ately $12,000,000 from t h e t h e com m it m en t to pu rch ase t h e sixt h aircraft h as in su ran ce set t lem en t for a leased M D11 dest royed been can celled. in O ctober 1999. FedEx h as en tered in to jet fu el h edgin g con t ract s To avoid service in terru pt ion s related to a t h reat - on beh alf of it s su bsidiary FedEx Express, w h ich en ed st rike by t h e FPA in N ovem ber 1998, FedEx a re d e s i gn e d t o l i m i t i t s ex p o s u re t o fl u ct u a - and FedEx Express im plem ented strike contingency t ion s in jet fu el prices. U n der t h ese jet fu el h edgin g p l a n s i n c l u d i n g e n t e r i n g i n t o a gre e m e n t s fo r


  • Page 34

    additional third-party air and ground transportation O n M arch 27, 1997, C aliber an n ou n ced a m ajor an d est ablish in g special fin an cin g arran gem en t s. restructuring of its Viking subsidiary. In connection Su bsequ en t ly, a five-year collect ive bargain in g w it h t h e rest ru ct u rin g, Vik in g recorded a pret ax agreem en t was ratified by the FPA m em bership in rest ru ct u rin g ch arge of $85,000,000 ($56,400,000 February 1999 an d becam e effect ive M ay 31, 1999. n et of tax) in t h e period from Jan u ary 1, 1997 to Costs associated with these contingency plans were M ay 24, 1997. T h is rest ru ct u rin g ch arge is in clu ded approxim ately $91,000,000. O f t h ese cost s, approx- in t h e adju st m en t to con form C aliber’s fiscal year im ately $81,000,000, prim arily the cost of contracts in t h e accom pan yin g C on solidat ed St at em en t s for supplem ental airlift and ground transportation, o f C h an ges in St ock h olders’ In vest m en t an d was included in operating expenses. The rem aining Com prehensive In com e an d, t h erefore, is exclu ded $10,000,000 was included in nonoperating expenses from t h e C on solidat ed St at em en t s of In com e. and represents the costs associated with obtaining C om pon en t s of t h e $85,000,000 rest r u ct u rin g additional short-term financing capabilities. ch arge in clu ded asset im pairm en t ch arges, fu t u re le a se c o st s a n d ot h e r c o n t ra ct u a l o b liga t io n s, In 19 9 8 , Fe d Ex Ex p re s s re a l i z e d a n et ga i n o f em ployee severan ce an d ot h er ben efit s an d ot h er $17,000,000 from the insurance settlem ent and the exit cost s. G ain s on asset s sold in t h e rest ru ct u r- release from certain related liabilit ies on a leased in g of $16,000,000 were recogn ized in t h e t h ird MD11 aircraft destroyed in an accident in July 1997. qu arter of 1998 an d est im ates, prim arily for fu t u re T h e ga i n w a s re c o rd e d i n o p e ra t i n g a n d n o n - lease cost s, were revised in 2000 resu lt in g in a operating incom e in substantially equal am ounts. favorable adju st m en t of approxim ately $10,000,000. 32 FedEx in cu rred $88,000,000 of m erger expen ses T h ere are n o rem ain in g accr u ed rest r u ct u rin g related to t h e acqu isit ion of C aliber an d t h e form a- cost s at M ay 31, 2000. t ion of FedEx in 1998, prim arily in vest m en t ban k - O n N ovem ber 6, 1995, C aliber an n ou n ced plan s to in g fees an d paym en t s t o m em bers of C aliber’s exit t h e airfreigh t bu sin ess served by it s w h olly- m an agem en t in accordan ce w it h pre-exist in g m an - ow n ed su bsidiary, Roadway G lobal Air, In c. In com e a ge m e n t ret e n t i o n a gre e m e n t s . T h e re a re n o from discon t in u an ce of $4,875,000, n et of tax, in rem ain in g accru ed cost s at M ay 31, 2000 related to 1998 in clu ded t h e favorable set t lem en t of leases t h e m erger. an d ot h er con t ract u al obligat ion s. NO TE17: SUM M ARY O F Q UARTERLY O PERATING RESULTS (UNAUDITED) First Secon d T h ird Fou rt h In t h ou san ds, except earn in gs per sh are Q u arter Q u arter Q u arter Q u arter 2000 Reven u es $4,319,977 $4,570,104 $4,518,057 $4,848,807 O perat in g in com e 283,807 304,535 206,472 426,260 In com e before in com e taxes 262,880 282,928 186,998 404,934 N et in com e 159,034 171,183 113,128 244,991 Earn in gs per com m on sh are $ .53 $ .58 $ .39 $ .86 Earn in gs per com m on sh are – assu m in g dilu t ion $ .52 $ .57 $ .39 $ .85 1999 (1) Reven u es $4,082,302 $4,209,237 $4,098,418 $4,383,513 O perat in g in com e 283,843 336,987 152,038 390,218 In com e before in com e taxes 255,348 312,404 121,269 372,043 N et in com e 149,379 182,756 77,833 221,365 Earn in gs per com m on sh are $ .51 $ .62 $ .26 $ .74 Earn in gs per com m on sh are – assu m in g dilu t ion $ .50 $ .61 $ .26 $ .73 (1) T h ird qu arter 1999 resu lt s in clu ded approxim ately $91,000,000 of expen ses ($54,100,000 n et of tax or $.18 per sh are, assu m in g dilu t ion ) for con t in gen cy plan s m ade by FedEx related to t h e t h reaten ed st rike by t h e FPA.


  • Page 35

    REPO RT O F INDEPENDENT PUBLIC ACCO UNTANTS To t h e Stock h olders of FedEx C orporat ion : am ou n t s an d disclosu res in t h e fin an cial st at e- m en t s. An au dit also in clu des assessin g t h e We h ave au dited t h e accom pan yin g con solidated accou n t in g prin ciples u sed an d sign ifican t est i- balan ce sh eet s of FedEx C orporat ion (a D elaware m ates m ade by m an agem en t , as well as evalu at in g corporat ion ) an d su bsidiaries as of M ay 31, 2000 t h e overall fin an cial st at em en t presen t at ion . We an d 1999, an d t h e related con solidated statem en t s believe t h at ou r au dit s provide a reason able basis of in com e, ch an ges in st ock h olders’ in vest m en t for ou r opin ion . an d com preh en sive in com e an d cash flows for each of t h e t h ree years in t h e period en ded M ay 31, In ou r opin ion , t h e fin an cial statem en t s referred 2000. T h ese fin an cial statem en t s are t h e respon si- t o above presen t fairly, in all m at erial respect s, bilit y of FedEx’s m an agem en t . O u r respon sibilit y t h e fin an cial posit ion of FedEx C orporat ion as of is to express an opin ion on t h ese fin an cial state- May 31, 2000 and 1999, and the results of its opera- m en t s based on ou r au dit s. tions and its cash flows for each of the three years in the period ended May 31, 2000, in conform ity with We con du cted ou r au dit s in accordan ce w it h au dit - accou n t in g prin ciples gen erally accept ed in t h e in g st an dards gen erally accept ed in t h e U n it ed United States. States. T h ose stan dards requ ire t h at we plan an d perform t h e au dit to obtain reason able assu ran ce abou t w h et h er t h e fin an cial st at em en t s are free of m aterial m isstatem en t . An au dit in clu des exam - M em ph is, Ten n essee FedEx in in g, on a t est basis, eviden ce su pport in g t h e Ju n e 27, 2000 33 Corp.


  • Page 36

    SELECTED CO NSO LIDATED FINANCIAL DATA Years en ded M ay 31, In t h ou san ds, except per sh are am ou n t s an d O t h er O perat in g D ata 2000 1999 1998 1997 1996 O PERAT IN G RESU LT S Reven u es $18,256,945 $16,773,470 $15,872,810 $14,237,892 $12,721,791 O perat in g in com e (1) 1,221,074 1,163,086 1,010,660 507,002 779,552 In com e from con t in u in g operat ion s before in com e taxes 1,137,740 1,061,064 899,518 425,865 702,094 In com e from con t in u in g operat ion s 688,336 631,333 498,155 196,104 400,186 In com e (loss) from discon t in u ed operat ion s (2) – – 4,875 – (119,614) N et in com e (1) $ 688,336 $ 631,333 $ 503,030 $ 196,104 $ 280,572 PER SH ARE DATA Earn in gs (loss) per sh are: Basic: C on t in u in g operat ion s $ 2.36 $ 2.13 $ 1.70 $ .67 $ 1.38 D iscon t in u ed operat ion s (2) – – .02 – (.41) $ 2.36 $ 2.13 $ 1.72 $ .67 $ .97 Assu m in g dilu t ion : C on t in u in g operat ion s $ 2.32 $ 2.10 $ 1.67 $ .67 $ 1.37 34 D iscon t in u ed operat ion s (2) – – .02 – (.41) $ 2.32 $ 2.10 $ 1.69 $ .67 $ .96 Average sh ares of com m on stock 291,727 295,983 293,401 291,426 289,390 Average com m on an d com m on equ ivalen t sh ares 296,326 300,643 298,408 294,456 291,686 C ash dividen ds (3) – – – – – FIN AN C IAL PO SIT IO N Propert y an d equ ipm en t , n et $ 7,083,527 $ 6,559,217 $ 5,935,050 $ 5,470,399 $ 4,973,948 Total asset s 11,527,111 10,648,211 9,686,060 9,044,316 8,088,241 Lon g-term debt , less cu rren t port ion 1,776,253 1,359,668 1,385,180 1,597,954 1,325,277 C om m on stock h olders’ in vest m en t 4,785,243 4,663,692 3,961,230 3,501,161 3,312,440 OT H ER O PERAT IN G DATA FedEx Express: O perat in g week days 257 256 254 254 256 Aircraft fleet 663 634 613 584 557 FedEx G rou n d: O perat in g week days 254 253 256 254 252 Average fu ll-t im e equ ivalen t em ployees 163,324 156,386 150,823 145,995 (1) In con n ect ion w it h it s rest ru ct u rin g, Vik in g recorded a pretax asset im pairm en t ch arge of $225,000,000 ($175,000,000, n et of tax) in 1997. (2) D iscon t in u ed operat ion s in clu de t h e operat ion s of Roadway Express, In c., a w h olly-ow n ed su bsidiary of C aliber, w h ose sh ares were dist ribu ted to C aliber stock h olders on Jan u ary 2, 1996, an d Roadway G lobal Air, In c., a w h olly-ow n ed su bsidiary of C aliber, w h ich exited t h e airfreigh t bu sin ess in calen dar 1995. (3) C aliber declared dividen ds of $3,899,000, $28,184,000, an d $54,706,000, for 1998, 1997, an d 1996, respect ively. C aliber declared addit ion al dividen ds of $10,833,000 from Jan u ary 1, 1997 to M ay 25, 1997 t h at are n ot in clu ded in t h e precedin g am ou n t s. FedEx h as n ever paid cash dividen ds on it s com m on stock .


  • Page 37

    BO ARD O F DIRECTO RS RO BERT H . ALLEN (2) G EO RG E J. M IT C H ELL (1) Private In vestor an d M an agin g Part n er Special C ou n sel C h allen ge In vest m en t Part n ers Vern er, Liipfert , Bern h ard, In vest m en t firm M cPh erson an d H an d Law firm JAM ES L. BARKSDALE (3) Fou n der FRED ERIC K W. SM IT H T h e Bark sdale G rou p C h airm an , Presiden t an d Ven t u re capit al firm C h ief Execu t ive O fficer FedEx C orporat ion RO BERT L. C OX (1) Part n er D R. JO SH UA I. SM IT H (1) Warin g C ox Vice C h airm an an d Presiden t Law firm iG ate, In c. Broad b an d n et w ork in g com pan y RALPH D . D EN U N Z IO (2* ) Presiden t PAU L S. WALSH (2) H arbor Poin t Associates, In c. G rou p C h ief O perat in g O fficer Private in vest m en t an d con su lt in g firm D iageo plc C on su m er food an d b everage com pan y JU D IT H L. EST RIN (3* ) FedEx Presiden t an d C h ief Execu t ive O fficer PET ER S. WILLM OT T (1) Packet D esign , In c. C h airm an an d C h ief Execu t ive O fficer 35 In tern et tech n ology com pan y Willm ot t Services, In c. Corp. R et ail an d con su lt in g firm PH ILIP G REER * (1 ) Sen ior M an agin g D irector Weiss, Peck & G reer, L.L.C . (1) Au dit C om m it tee In vest m en t m an agem en t firm (2) C om pen sat ion C om m it tee (3) In form at ion Tech n ology O versigh t J.R. H YD E, III (2) C om m it tee C h airm an *( ) C om m it tee C h air Pit t co M an agem en t , LLC In vest m en t m an agem en t com pan y D R. SH IRLEY A. JAC KSO N (3) Presiden t Ren sselaer Polytech n ic In st it u te Tech n ological u n iversit y


  • Page 38

    EXECUTIVE O FFICERS FedEx Corporation FRED ERIC K W. SM IT H KEN N ET H R. M AST ERSO N C h airm an , Presiden t an d Execu t ive Vice Presiden t , C h ief Execu t ive O fficer G en eral C ou n sel an d Secretary ALAN B. G RAF, JR. T. M IC H AEL G LEN N Execu t ive Vice Presiden t an d Execu t ive Vice Presiden t , C h ief Fin an cial O fficer M arket D evelopm en t an d C orporate C om m u n icat ion s RO BERT B. C ART ER Execu t ive Vice Presiden t an d JAM ES S. H U D SO N C h ief In form at ion O fficer C orporate Vice Presiden t an d C h ief Accou n t in g O fficer FedEx Express FedEx Ground DAVID J. BRO N C Z EK DAN IEL J. SU LLIVAN Presiden t an d C h ief Execu t ive O fficer Presiden t an d C h ief Execu t ive O fficer DAVID F. REBH O LZ IVAN T. H O FM AN N Execu t ive Vice Presiden t , Execu t ive Vice Presiden t an d 36 O perat ion s an d System s Su pport C h ief O perat in g O fficer M IC H AEL L. D U C KER RO D G ER G . M ART IC KE Execu t ive Vice Presiden t , Execu t ive Vice Presiden t In tern at ion al FedEx Logistics FedEx Custom Critical JO SEPH C . M C C ART Y R. BRU C E SIM PSO N Presiden t an d C h ief Execu t ive O fficer Presiden t an d C h ief Execu t ive O fficer FedEx Trade Networks Viking Freight G . ED M O N D C LARK D O U G LAS G . D U N C AN Presiden t an d C h ief Execu t ive O fficer Presiden t an d C h ief Execu t ive O fficer


  • Page 39

    CO RPO RATE INFO RM ATIO N STO C K LIST IN G : FedEx C orporat ion’s com m on FIN A N C IA L IN FO R M AT IO N , IN C LU D IN G stock is listed on T h e N ew York Stock Exch an ge FO RM 10-K: Copies of FedEx Corporation’s Annual u n der t h e t icker sym bol FD X. Report on Form 10-K (exclu din g exh ibit s), ot h er FedEx docu m en t s filed w it h t h e Secu rit ies an d STO C KH O LD ERS: At Ju ly 15, 2000, t h ere were Exch an ge C om m ission (SEC ) an d ot h er FedEx 16,293 stock h olders of record. financial and statistical inform ation are available on M ARKET IN FO RM AT IO N : Following are high and FedEx’s Web site at w w w.fedex.com . You w ill be low sale prices, by qu arter, for FedEx C orporat ion m ailed a copy of t h e Form 10-K u pon requ est to com m on stock in 2000 and 1999 adjusting for a two- In vestor Relat ion s, FedEx C orporat ion , 942 Sou t h for-one stock split in the form of a 100% stock divi- Sh ady G rove Road, M em ph is, Ten n essee 38120, dend that was paid on May 6, 1999, to stockholders (901) 818-7200. FedEx docu m en t s fi led elect ron - of record on April 15, 1999. N o cash dividends have ically w it h t h e SEC can also be fou n d on t h e been declared by the Com pany. In tern et at t h e SEC ’s Web site at w w w.sec.gov. First Secon d T h ird Fou rt h IN ST IT U T IO N A L IN VEST O R IN Q U IR IES: Q u arter Q u arter Q u arter Q u arter C on tact J.H . C lippard, Jr., Vice Presiden t , In vestor FY 2000 Relations, FedEx Corporation, 942 South Shady Grove H igh $57 1 ⁄8 00 $47 5 ⁄16 0 $47 15 ⁄16 $42 7 ⁄16 Low 38 1 ⁄2 00 34 7 ⁄8 0 0 33 3 ⁄16 0 30 9 ⁄16 Road, M em ph is, Ten n essee 38120, (901) 818-7200, or visit FedEx’s Web site at www.fedex.com . FY 1999 H igh $3329 ⁄32 $33 23 ⁄32 $49 00000 $61 7 ⁄8 0 AU D ITO R S: A r t h u r A n d e rs e n LLP, M e m p h i s , Low 24 11 ⁄32 21 13 ⁄16 33 9 ⁄32 0 44 9 ⁄16 Ten n essee. C O R P O R AT E H EA D Q U A RT ER S: 9 4 2 So u t h EQ UAL EM PLOYM EN T O PPO RT U N IT Y: FedEx Sh ady G rove Road, M em ph is, Ten n essee 38120, C orporat ion is fi rm ly com m it ted to afford Equ al (901) 369-3600. Em ploym en t O pport u n it y to all in dividu als regard- A N N U A L M EET IN G : T h e a n n u a l m e et i n g o f less of age, sex, race, color, religion , n at ion al ori- stock h olders w ill be h eld at t h e West in William gin , cit izen sh ip, disabilit y, or stat u s as a Viet n am Pen n H otel, 530 William Pen n Place, Pit t sbu rgh , era or special disabled vet eran . We are st ron gly Pen n sylvan ia on M on day, Septem ber 25, 2000, at bou n d to t h is com m it m en t becau se adh eren ce to 10:00 a.m . ED T. Equ al Em ploym en t O pport u n it y prin ciples is t h e on ly accept able way of life. We adh ere t o t h ose G EN ERAL AN D M ED IA IN Q U IRIES: C on t act prin ciples n ot ju st becau se t h ey’re t h e law, bu t Sh i r l e e M . C l a r k , D i re ct o r, P u b l i c R e l a t i o n s , becau se it ’s t h e righ t t h in g to do. FedEx C orporat ion , 942 Sou t h Sh ady G rove Road, M em ph is, Ten n essee 38120, (901) 395-3460. SERVIC E M ARKS: Federal Express,® FedEx,® an d t h e FedEx ® logo are regist ered service m ark s of SH AREOWN ER AC C O U N T IN Q U IRIES: C on - Federal Express C orporat ion . Reg. U .S. Pat . & T m . t act Equ iser ve – First C h icago Tr u st D ivision , O ff. an d in cert ain ot h er cou n t ries. T h e FedEx Sh areh older Services, P.O . Box 2500, Jersey C it y, Express SM logo, t h e FedEx G rou n d SM logo an d t h e N ew Jersey 07303-2500, (800) 446-2617 / Joh n H . FedEx C u stom C rit ical SM logo are service m ark s of Ru occo (312) 407-5153. For in for m at ion on t h e Federal Express C orporat ion . D irect Service™ In vest m en t Program for Sh are- ow n ers of FedEx C orporat ion , call (800) 524-3120. T h is program provides an altern at ive to t radit ion al Design by Addison w w w.addison.com ret ail brokerage m et h ods of pu rch asin g, h oldin g an d sellin g FedEx com m on stock . Port ion s of t h is an n u al report were prin ted on recycled paper.


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    FedEx Corporation 942 South Shady Grove Road M emphis, Tennessee 38120 www.fedex.com


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