01—Abstract
Summary
Summary of the 10-K/A filed July 21, 2004. Cited figures are marked; the original filing is the authoritative source.
FedEx Corporation's fiscal 2004 10-K/A (Amendment No. 1, for the year ended May 31, 2004) is a narrow amendment that corrects the unaudited pro forma results table in Note 2 (Business Combinations).
The corrected pro forma figures for FY2004, as if the FedEx Kinko's acquisition had occurred at the start of FY2003, are revenues of $26.056 billiona, net income of $836 million, basic EPS of $2.80 and diluted EPS of $2.75. No other changes were made to the original Form 10-K filed July 16, 2004. The amendment does not change reported results, which show FY2004 revenues of $24.71 billion (up 9.9%), net income of $838 million (up 1%), and diluted EPS of $2.76 (up from $2.74).
The year was shaped by the February 2004 acquisition of FedEx Kinko's for about $2.4 billionb in cash, financed largely by $1.6 billion of senior notes. This added $1.7 billion of goodwill and a $567 million indefinite-lived Kinko's trade name, which pushed total goodwill to $2.8 billion and total assets to $19.1 billion. Operating income was roughly flat at $1.44 billion, held down by $435 million of business realignment costs, mainly voluntary early-retirement programs at FedEx Express that drew about 3,600 employees.
Operating cash flow rose sharply to $3.02 billionc from $1.87 billion, helped by a pension-related swing and higher payables. Capital expenditures fell to $1.27 billion from $1.51 billion. Investors should weigh a few items.
The effective tax rate fell to 36.5% from 38.0%, partly due to a favorable court ruling on jet engine maintenance costs that delivered a one-time $26 milliond benefit. Total debt rose to about $3.6 billion from $2.0 billion.
Pending matters include a Department of Transportation claim of $31.6 million related to September 11 airline stabilization compensation, with a possible loss range of zero to $49.6 million, and California wage-and-hour class actions. Management also expects a roughly $30 million increase in pension cost for 2005.
02—Key points
Key Highlights
- Revenue rose 9.9% to $24.71 billion in FY2004 from $22.49 billion, driven by the FedEx Kinko's acquisition (partial-year contribution of about $521 million in its segment) and growth in FedEx Express international priority revenue, which rose 17.5%.
- Net income was $838 million, up 1% from $830 million, and diluted EPS was $2.76 versus $2.74; the increase was muted by $435 million of business realignment costs and higher expenses.
- The 10-K/A corrects only the Note 2 pro forma table: FY2004 pro forma revenue of $26.056 billion, net income of $836 million, and basic and diluted EPS of $2.80 and $2.75.
- Acquired FedEx Kinko's on February 12, 2004 for about $2.4 billion in cash, creating $1.7 billion of goodwill and a $567 million non-amortizing trade name; funded with $1.6 billion of senior unsecured notes.
- Operating cash flow increased to $3.02 billion from $1.87 billion, while capital expenditures declined to $1.27 billion from $1.51 billion, which supported the funding of the acquisition.
- Total debt rose to about $3.6 billion from $2.0 billion, and the balance sheet grew to $19.1 billion in total assets; stockholders' investment reached $8.04 billion.
- Effective tax rate fell to 36.5% from 38.0%, aided by a favorable IRS maintenance-cost ruling that produced a one-time $26 million net benefit, and a DOT claim of up to $49.6 million remains a contingent risk.
03—Questions
Frequently Asked Questions
Why was this 10-K/A filed, and does it change FedEx's reported financials?
The amendment corrects only the unaudited pro forma table in Note 2 covering the FedEx Kinko's acquisition. The corrected FY2004 pro forma figures are revenue of $26.056 billion, net income of $836 million, and diluted EPS of $2.75. No reported financial statement figures were changed, and no other parts of the original Form 10-K were modified.
How did the FedEx Kinko's acquisition affect FedEx's financial position?
The company paid about $2.4 billion in cash, financed by commercial paper backed by a six-month facility, which was then refinanced with $1.6 billion of senior notes in March 2004. The deal added $1.7 billion of goodwill and a $567 million trade name, lifting total goodwill to $2.8 billion. Kinko's contributed about $521 million of revenue in its partial year, and the segment was not yet profitable at scale, with $39 million of operating income.
What were the main drivers of the FY2004 results and the business realignment costs?
Revenue growth came from FedEx Express, Ground, and Freight, plus Kinko's. Operating income was flat at $1.44 billion because of $435 million of business realignment costs, mostly voluntary early-retirement and severance programs at FedEx Express that about 3,600 employees accepted. Management expects these initiatives to lower salary and benefit costs in future periods.
What legal or contingent risks should investors watch?
The Department of Transportation has demanded repayment of $31.6 million in September 11 airline stabilization compensation, and FedEx is contesting it. The potential loss range is zero to $49.6 million, given that $119 million was previously recognized. Separately, there are California wage-and-hour class actions, which management does not expect to materially affect financial results, and the company expects a pension cost increase of about $30 million for 2005.
04—Continue