聯邦快遞 (FDX) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the FedEx corporation fourth-quarter earnings release conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Jim Clifford. Sir, you may begin.

Thank you, Holly. Good morning and welcome to the FedEx corporation fourth-quarter earnings conference call, ladies and gentlemen. I'm Jim Clifford, vice president, investor relations, at FedEx corporation. the earnings release and stat book on our web page at FedEx.com. This call is being webcast from our website and will be available for approximately two weeks. Joining us today on the call are membersth with the media. Market professionals who have questions regarding financial and operating performance should ask them during this conference call rather than a follow-up call with our investor relations department. Also, we urge you to visit the investor relations section of our website at FedEx.com to stay abreast of information regarding FedEx. Our website includes certain financial and operating data, including our stat book, and will provide notice of upcoming conference calls and other events of interest to investors. I want to mention again this morning that we are planning our next analyst meeting for October the 1st in New York. You should have received a notice to save the date via e-mail. Please let us know if you need more information, and we will certainly be giving you more detail in the future. I want to remind all listeners that FedEx corporation desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act. Certain statements made by us during this call may be considered forward-looking statements, such as statements relating to management's views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from historical experience or from future results, express or implied, by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, any impacts on the company's business resulting from the events that occurred on September the 11th, 2001, as well as general economic and competitive conditions in the markets we serve, matching capacity to volume levels, and other factors which can be found in FedEx corporation's and its subsidiaries' press releases and filings with the SEC. Joining us on the call today are Fred Smith, chairman of the board, president, and chief executive officer, Alan Graf, executive vice president and chief financial officer, Mike Glenn, executive vice president of market development and corporate communications, Dave Ron sick, president and CEO of FedEx express, Dan Sullivan, president and CEO of FedEx ground, and Doug Duncan, president and CEO of Fred ex-freight. And now, our chairman, Fred Smith, will share his views on the quarter, followed by Alan Graf. After Alan, we will have time for Q and A. Fred?

Thank you very much, Jim, and thank you, ladies and gentlemen for participating on this call. In a few moments, I'm going to give you a brief recap of the highlights of our results, but before I do that, I'm going to ask Alan Graf to comment specifically on some of the misinformation that has been floating around this morning that's very concerning to us, because it's masking really outstanding results and prospects, so I'd like to have Alan address this issue first and then I'll give you my overall recap. Alan?

Thank you, Fred, and good morning, everyone. We certainly have some confusion out there this morning. Hopefully in the next couple minutes, I'll be able to straighten that out. In fact, the earnings guidance in today's press release is the first guidance that has been provided by the company to anyone on our first quarter and on our year for fiscal year '03. As a result, we have not lowered guidance nor have we issued a warning. In fact, our range of 40 to 50 cents a share in the first quarter, should we hit the up side of that, would be an over 20% year-over-year improvement. Unfortunately, our range has been compared to a First Call number of 57 cents. That number was developed by eight analysts on their own with no guidance from the company and would have represented an over 40% year-over-year increase in our earnings per share. Those same always, however, in the second quarter have forecasted 79 cents a share, which would be a 2% decline year over year, so I believe there's some confusion in those models as to the cyclicality, seasonality, and normal spreads of our business improvement. We did say in the press release that we expect for the year to increase revenue, increase profitability, and return on invested capital, and to continue to generate positive cash flow in the new fiscal year. All of those are true, and the 18 analysts that follow us in First Call have a consensus EPS estimate of the year for $2.77, and I'm certainly comfortable with that range for the year at this point. So again, just to clear this up, we have not given any guidance other than our press release today. We are not giving a warning. We are not lowering guidance. And in fact, we will shortly issue another press release to confirm what I just said, to eliminate the confusion in the market, which is unfortunate, because we've had such an outstanding fourth quarter, an outstanding year, and have such a bright outlook for '03. And with that, I'd like to turn it back to Fred to highlight some of the great accomplishments FedEx has had.

Thank you very much, Alan, for that clarification. Regarding the earnings announcement of today, we had a very solid quarterly performance and a very good year, particularly given the uncertain economic environment. We believe that our FedEx strategy of operating independently and competing collectively is yielding very solid results, despite, as I mentioned a moment ago, a very challenging economic landscape. We believe that there is a modest economic recovery underway, and there are a number of underlying trends that would benefit our business. Just today, a front-page article in - I think it was the journal - talks about the new environment of operating with lean inventories, and that particularly plays to our strengths. We believe that, as I mentioned a moment ago, that our strategy that we announced now about two-and-a-half years ago is working very well. It - as Alan mentioned - generated significant free cash flow in FY '02. $616 million and allowed us to make, on top of that, a small acquisition as well. We achieved record earnings, and our fundamental financial strength is at an all-time high. We have a very strong focus across all of our operating companies to keep our costs down. Particularly noteworthy was the outstanding efforts by the FedEx express management, which is, of course, tied in to the high-tech and high-value-added sectors more than our other operating companies, which were particularly affected by the broader economic retrenchment, and we are focused on continuing to improve our service levels, despite these efforts to maintain excellent cost controls and to improve productivity at the same time. And we've demonstrated that we can do all of those things. Capital expenditures for FY '02 were the lowest in eight years, and again, with particular emphasis on the outstanding job by the express management team, they balanced their capital needs with volumes which were soft during the year because of the high-tech and high-value-added sectors. There was a sharp increase in our cash flow, which allowed us to initiate our first cash dividend. It signals our board of directors very strong confidence in the stability of future growth and financial prospects of FedEx corporation. All of our operating companies are operating their business performance on what they do best in their respective segments. FedEx express enjoyed revenue growth for the first time in five quarters, and it continued to be solidly profitable during a very, very tough economy due to productivity enhancements, excellent cost controls, again as I mentioned, the good controls on capital expenditures, more efficient use of our air network assets, and our contract which commenced with the U.S. Postal Service last September. FedEx ground had a very good quarter, indeed, and an excellent year, as it expanded its network capacity, improved the transit times and speed for many shipments, improved customer service, and deployed more robust information systems, and of course our strategy that we announced two-and-a-half years ago has had a major effect on our ground unit in the now-familiar purple and green logo of FedEx, allowing it to have a much greater visibility in the eyes of the shipping public. We have a strong pipeline of incremental ground growth opportunities, and the FedEx home delivery growth trends also remain strong. Our FedEx freight unit is now clearly the number one regional LDL carrier in the country, and is gaining market share. This freight unit provides FedEx an unmatched competitive advantage in the market, and we are in the process now of rebranding our FedEx freight operating units and adding new service offerings which we expect to improve the growth prospects of FedEx freight even further. FedEx corporation can now offer customers a greater variety of shipping options through a common information system and keep them in the FedEx family and our IT professionals continue to demonstrate their technical prowess and great leadership in that area of the business. Our sales force is now better trained and more effective in cross-selling both ground and express services, and it's backed by a new set of advanced automation and tracking tools developed by our IT unit. Ground and freight companies are operating at record profits and service reliability levels. Regarding the broader economic landscape, we believe there are some signs of a modest economic recovery. In FedEx express in Asia and Europe, we see traffic there leading these trends internationally, but manufacturing, high-tech and wholesale sectors appear to be still lagging the rest of the economy. Now, express stands to gain the most from growth in these three sectors as it's right-sized it's operations and done such a good job of controlling its costs, and we believe that our diversified global network will enable us to take full advantage of an improving economy. We have positive underlying trends, we have strong operating leverage at express, the expanded business alliance with the postal service is an excellent contract and is contributing to express's revenue and margins. We see continued migration of customers to FedEx.com for shipping and customer service issues, which is helping us to reduce costs, and improving customer satisfaction. As I mentioned at the on-set, we believe that increasing efforts to achieve global supply chain efficiencies and fast cycle distribution methods will continue to benefit FedEx as people move smaller shipments, whether packages or freight, in a just in time and just as needed basis. So to sum up, in fiscal '03, we'll continue to improve how well we sell our full suite of services to customers. We want to make that experience seamless and easy. Our entire management team remains steadfast in our commitment to improving return on investment. Cash flow and earnings per share. Let me say that again. Our entire management team remains steadfast in improving our return on invested capital, improving our cash flow, and our EPS. I would like to personally thank, at the end of FY '02, my partners and colleagues on the FedEx management team, our strategic management committee, which are the four executive vice presidents and the presidents and CEOs of our three major operating companies. They have worked long and hard and produced truly outstanding results in a tough year economically, and when the company was in the process of also rolling out a number of major initiatives such as FedEx home delivery - excuse me - and I know I express the appreciation of all of the members of our strategic management committee to our over 200,000 FedEx teammates that work in our various operating companies around the world for their strong performance, their high morale, and their "can do" attitude and most importantly for their commitment to our customers. So with that, let me turn the microphone back over to Alan Graf to flesh out some of the remarks, and then we'll go to questions.

Fred, that was very good and comprehensive, an analysis. I would point you to my favorite page in the press release, which is Page 10, and there you see under our definition of free cash flow $616 million. That's a very important number for us. We're very proud of it. We want to emphasize that we've retired a significant amount of debt. We've bought back stock to prevent dilution from our employee stock option programs, and we've increased our cash balances and we intend to do it again in '03 and beyond. And with that, Jim, let's open it up for questions.

Holly?

Yes, sir.

If you would, please, would you give instructions to the listeners on the use of the - their phones and so forth and let's proceed with the Q and A.

Thank you, sir. The floor is now open for questions. If you do have a question or a comment, please press the numbers 1, followed by 4, on your touch-tone phone. If at any point your question has been answered, you may remove yourself from queue by pressing the pound key. We do ask that while you pose your question, that you please pick up the handset to provide optimum sound quality. Once again, that is 1, followed by 4, on your touch-tone phone at this time. Please hold while we poll for questions. Thank you. Our first question is coming from Jordan Al in engineer of Goldman Sachs. Please state your question or comment.

Yes, good morning, everyone. Just a question. Obviously, once again, the ground business had a very strong top line. What was very impressive, though, was the ground operation on the margin side, and I'm just curious if you could comment a bit further on that and your thoughts a little bit on sort of the secular trend line in that business.

Thanks, Jordan. I'll let Dan Sullivan, whose management team has done a terrific job comment on that. Dan?

Okay. Alan, thank you. Beside excellent growth and decent yield improvement during the quarter, as you pointed out, we also had excellent productivity across the board in all our key areas of docks, load factor, and in our P and D operations. We kept good control of all other expenses beyond that, and even with good growth of 21%, we kept our head count low as well. So it was an excellent quarter from that point of view, in terms of good control of all expenses.

Thank you. Our next question is coming from Gary YABON of Credit Suisse First Boston. Please state your question or comment.

Thank you. If I could go back to the express business, maybe this is for Alan or Dave. Salary - salaries came in higher than I had expected. Could you talk a little bit about where those trends are and the head count in express was, again, a bit higher than I had expected. Can you talk about what occurred in the quarter and what you see going forward for as far out in fiscal '03 as you're willing to discuss?

Thank you, Gary. This is Alan. I'll start out. Because the company performed so well in the fourth quarter, we did reinstate some bonus pools for our management team that has worked extremely hard and is well deserving and although they'll be well below target, we felt it was the appropriate thing to do and have done that. As to head count, as you know, we have been working that down very, very judiciously. Dave can tell you that in more detail. Certainly express is oversized at the moment for the amount of volume it has, but our expectation is - in '03 is obvious that we'll get back on growth plan both in domestic and continue to accelerate our IP growth as you saw happening in the fourth quarter. Dave?

Yeah. Thanks, Alan. Thanks for the question, Gary. We obviously have done a very good job through the year, as Fred and Alan have both pointed out, on FTEs. For the fourth quarter, just for your information, and for others, we're actually down about 4% on our U.S.-based variable FTEs, right about in line with where the volume has been, Gary. That's a little bit less than where we've been. We've been about six or seven percent, actually right about where the volume was also in the second and third quarter. But just to go back to Alan's point, in the fourth quarter, we have our wage initiatives begin for all of FedEx express, so that kicked in in February, so it's one month in the third quarter, and then of course the fourth. The VCP that Alan mentioned as well, along with some healthcare and pension. So all up, we ended up right around 4% down year over year in the fourth quarter on U.S.-based FTEs.

VCP is a variable compensation program, for those of you who aren't familiar with that acronym. Thank you, Dave.

Yes, Gary just one thing. Of course the numbers I referenced excludes the FTEs that have been put on the U.S. post office and that's an important piece. Of course that shows worsening expenses, much higher revenue.

Thank you. Our next question is coming from James Valentine of Morgan Stanley. Please state your question or comment.

Great. Thanks. Guys, real good job here with ground and freight. Definitely those things are humming along here. I had a question, first, Alan, about your opening comments about our consensus and guidance. Now, this is just back of the envelope, I'm on the road now, but I think the last three years, say '01, 2000, '99, your first quarter has been about a quarter of your full-year earnings. You know, if we took the mid-range of your guidance of the fourth quarter annualized is about $1.80 a share and consensus is 277 and I'm just trying to understand other than the economic recovery, what other seasonal types things this year would be in the numbers that we need to be looking for.

Well, obviously your premise is flawed, Jim, because we didn't have 25% last physical equal year.

No. 17%, but I'm just saying prior to the recession, that's what the run rate had been.

Well, you know, I can tell that you it's very difficult to manage a company of this size in an economic recovery environment where high-tech and manufacturing are not yet at the levels where they need to be to try to get back to hit those numbers, but let me just try to give you the answer here. Obviously we're going to have to step up our pension and healthcare accruals. As the discount rate for pension expenses lower and the returns are - have obviously been very poor. Healthcare, as you well know, is everybod's double-digit inflation problem that we're trying to manage. And then lastly, we believe that the economic recovery will pick up steam in the second half of the fiscal year. We don't need a lot to hit that number that we've been talking about, but we do need some. And then of course we still have one more full quarter where last year we did not have the dynamic fuel surcharge and this year we do, and that could restrain first quarter a bit at the moment, depending on where those go. Obviously, the wildcard is what's going to happen with diversion from the threat of an UPS strike, and, you know, our Crystal ball, just like yours on that one. So the best I can do, that pretty much explains it. But it's tracking very much like last year, which was also a fairly poor economic environment the first quarter.

Thank you. Our next question is coming from Donald Broughton of A. G. Edwards. Please state your question or comment.

Yes. Congratulations, gentlemen. Strong quarter all around. Can you give us a little more color, though, on yield for express? It looks like on a per-package basis, it was down slightly, but on a per-pound basis, it was up again. Can you give us more insight than what's just there in the numbers?

Yeah, that's exactly correct. If you take a look at the decomposition of the U.S. domestic yield, the total was down 26 cents per piece. Fuel surcharge was negative 37. Weight was negative 57. Weight per pound was actually plus 74. And there are a few other things flowing through there. So overall, we were down 26 cents. for IP, while we're at it, actually the weights moved up. The weights moved up, rate per pound decreased a bit, which is fine, as we try to find the right combination of yield and growth for our IP product. So overall, IP was up.

Thank you. Our next question is coming from Jeff Kauffman with omega advisors.

Thank you very much. Alan, I got a longer-term question here. with all the cash you're generating, there's a lot of things you can do with it. You mentioned the dividend, you mentioned the debt paydown. Can you give us a feeling for priorities, and at what point some of these become satisfied? Have the rating agencies told you where debt to cap and some other figures they'd like to see for an up grade, or what kind of debt level would you like to see before you start funneling more of that cash flow into other things such as acquisitions or what have you? Just kind of give us a road map for that.

Well, that's a - first of all, it's a great road map to have in front of me for the first time in a very long period of time. My boss wants us to be AAA rated. It might take a while to get there. We've just met with the rating agencies, so I would not want to presuppose what they're going to do. I'm positive they're very happy, at least with the stability of our rating. We do have a very large component of our capital structure in off-balance-sheet aircraft leases, and when you add that to the on-balance-sheet debt, that's a fairly high leverage number for a triple B or B AA sort of - BBB+ , B AA 1 sort of a rating. So we're going to work on that, continue to improve the balance sheet. Obviously, we have a dividend. We've started nominally. Obviously, we'll continue to buy back stock for options programs. You know, beyond that, it's obviously inappropriate to talk about any sort of corporate development acc cysts, but the point overall is, we are a much improved company from a financial strength standpoint and have a lot of flexibility.

Thank you. Our next question is with Marty Vesco of U.S. Bankcorp Piper Jaffray. Please state your question or comment.

Regarding your guidance for first quarter of 40 to 50 cents, can you give us a little bit of detail as to what your assumptions are for volumes, maybe, for the domestic package and the international priority and also domestic ground?

the addendum, of course, goes through the end of October and we're talking to them.

Because we believe our markets are going to continue to grow and we have many investment opportunities. In '03, we will increase that to approximately a billion nine. We've done a fabulous job at express of managing our aircraft capital requirements down. In fact, we've eliminated about $2 billion worth of spending, but we still are going to take a lot of wide bodies in fiscal '03 that we really won't need in '03, but of course we will be able to use in '04 and beyond. As you can see from the growth rates, ground is growing almost exponentially, and we will be increasing our investment in ground. We will spend approximately 325 million at ground in '03, and in fact, we expect ground's capacities to double over the next five to six years. We're going to increase our IT investment with some productivity tools in our field at express. In our areas, we'll spend about 300 million at services, as a result. Freight will spend a little over a hundred million dollars as we continue to expand our networks. So all up, you get about a billion nine versus about a billion six fifteen in '03. Dan, you want to take the home delivery question, please.

Sure. I think we had really a tremendous year at home delivery. The volumes were clearly excellent and the second half of the year they were one-third of our total growth at the same time through good productivity, the collocation concept that we adopted during fiscal year '03 really reduced our costs, so we were able to, as the press release pointed out this morning, take our loss down about 38 to 40%, and I would expect we'll do the same thing here in fiscal year '03. And as we've told you in the past, we should meet profitability in '04, but I've been tremendously pleased with the way that unit has - has operated and they're ahead of our expectations and we're very optimistic about continued growth and good controls of the - of the operation and I think a very profitable unit ultimately.

Thank you. Our next question is coming from Greg burns of J. P. Morgan. Please state your question or comment.

Thanks. Hello. Alan, just I'm curious if you could quantify what the swing in higher pension and healthcare accruals and a change in the discount rate - if you can quantify what the hit to earnings will be versus, say, last year.

Well, we'll be disclosing in our 10-K much greater detail about our pension accounting. It will be up across the FedEx family of companies about a hundred million dollars year over year. Again, lower expected long-term returns and lower discount rate, both impacting that. Healthcare, we don't break that out specifically, but it will also have an impact, but not to the degree that the pension does.

Thank you. Our next question is coming from Heather Lawrence of Fidelity Investments. Please state your question or comment.

My question has been answered. Thank you.

Thank you. Our next question is coming from Steve Jacobs of U.S. Bankcorp Piper Jaffray. Please state your question or comment.

Hi. Good morning. Just one more detail regarding the comments on the ground service enhancements and also I'd like to get an idea about what your on-time performance is and what your goals are. Thank you.

You want to take that one?

Allen, you want me to take that one?

Yeah, please, Dan.

Well, we've done several things to improve service. One, we have - through some technology, have been able to speed up our network and provide a faster overall service to our customers. At the same time, we've been able to improve our on-time performance on those lanes, and that's running at approximately 98% on time. Over the last couple of years, we've expanded our overnight coverage as well, which has really helped to stimulate our growth. We've improved pretty much all of our quality metrics, such as loss, damage, scanned proficiency and those kinds of things, so I think our overall value proposition is much stronger than it - than it was in the past, and I think our sales reps, along with learning about the ground business, are much more comfortable selling our - selling our service.

Thank you. Our next question is coming from Daniel McKinney of McDonald Investments. Please state your question or comment.

Good morning. Strong quarter. I wonder if you could talk a little bit more about the growth rates you're experiencing geographically and if you could talk about the other expenses that you have outside of the three main areas for pension.

Well, I'll give you the express overview. You have it in your earnings release, but the international performance was very good this quarter. We grew international priority at 3%. That was led by Asia and Europe in mid-teen performance. Of course the U.S. international outbound is still lagging a little bit behind. Deferred at express was also up 3%, and of course you have the numbers on the express sector here for domestic. It was negative 3. However, direction Neal, that's very important that if you look at the Q2 performance at express, we were negative 11. Of course driven by 9/11. And then negative 5 to negative 3. So we're making marked improvement across the board.

As to your broader question, of course this is a portfolio of services offered to a broad base of customers on a global basis, and all of our costs are very dynamic, and we will, of course, be managing them over the year. We expect to have continued cost reductions, where appropriate. Some productivity improvements, better performance at ground, and continued high growth at ground. and one area I probably haven't mentioned is the entire risk management coverage area. That will be up substantially, along with pension and healthcare. And depending on our retirement and timing of maintenance at express, there could be some small spikes in maintenance expense at express, but again, I think all of those are manageable and all of those are in our - in our earlier comments that we're not uncomfortable with 277 for the year. So, you know, it's going to be a balancing act and a managing act and I think we've executed so well over the past 18 months, we've got a high degree of confidence in this.

Thank you. Our next question is coming from Bob Boden of Bloomberg. Please state your question or comment.

Good morning, everyone. I don't know if this has been mentioned and I missed it but I was wondering what the assumptions were regarding an UPS strike for the first quarter and full-year 2003 numbers. Are you assuming that one won't happen, one will happen, or are you sort of, you know, picking somewhere in between?

I'm going to have Mike Glenn address that question.

Well, first, let me say that we hope that UPS customers are not inconvenienced again, but having said that, one of the things that we learned coming out of the last negotiations is we must do a very, very good job in preparing to protect our customers in the event of such an action, and as a result of that, we've put in contingency plans to help our customers manage through any potential disruption, although, again, we hope that does not occur. Regarding the impact, most of the discussion with customers to date has been on ground. Certainly that's the bigger segment, and customers are more concerned about protecting that segment. We have seen some impact in the fourth quarter. I would put that, based upon an analytical analysis, in the range of 60 to 70,000 pieces for the quarter, going more likely to 90 to a hundred thousand pieces impact in May, and inching up from there. It's - it's really impossible to predict what's going to happen. It all depends upon whether the negotiations are - reach a successful conclusion or not. If they do not, and we get closer to the deadline, we would anticipate that volumes strengthen. Again, primarily at ground with the impact we've seen on express to date has not been material, but that's clearly just dependent upon the outcome of the labor negotiations.

Thank you. Our next question is coming from James Winchester of Lazzard. Please state your question or comment.

Yes. Good morning. Just to get a little bit more definition on a few of the earlier questions, first off, on fuel, you mentioned that you think that if you look at the net of surcharges against the change in fuel price, it would be back to sort of a wash by November. It was 60 million the most recent quarter. Can you give us a little bit of a quantification of what you think the year to year comp would be in the next quarter, what the variance would be. Secondly, if you could comment on the average daily volume from USPS, just directionally or ballparking, so we have some understanding of what that volume component was. and then I have a final follow-up question, but if we could hit those first.

Well, as I've said, we're not going to discuss individual customers and we're not going to discuss volumes, revenues, and yields of the postal service contract. As to fuel, based on where fuel prices are today, and what our outlook for the surcharge is, there will be a negative impact in the first quarter, but nothing like we had in the fourth quarter. Much more manageable. and what would be your last question?

Thank you. Our next question is coming from came sheesh gin call of SG consulting group. Please state your question or comment.

Hello, Alan. Great quarter. Very pleased with the results. I have two questions, one relating to FedEx ground, another one to FedEx freight. the FedEx ground one is in connection with the comment Dan made earlier that the profitability has come from productivity gains. If you look at your revenue, it introduce by 27 and volume 21. I would imagine that some of that has come from either the weight or the zones, if that at all has contributed to it, and also through high margins on the home deliveries than what may have been anticipated. and the second question has to do with FedEx freight, that with the freight now going up to 900 miles next day, is that likely to shift some business from FedEx express to FedEx freight, and also from the hundred weight program of FedEx to FedEx freight because the distances are farther because of next day service.

Dan, you want to go first?

Well, first of all, as far as the yields are concerned, our revenue per package grew mostly because of our real rate increase, and I think a good deal of that came from the continuing growth that we're having with the small and mid-sized shipper area. The weight and zone was - was pretty flat year over year and didn't contribute a good deal to yield. the - certainly home delivery is having an impact because of the residential surcharge which has helped boost our extra services generally, which has also had a fairly significant impact on yield. So overall, obviously yield has had impact on the bottom line, as the overall growth has, but certainly productivity made a substantial contribution year over year in the quarter.

Doug Duncan on freight.

the 900-mile service offering is in response to what our customers have really asked for, and our - in the east, where we operate 40-plus hubs, there is an opportunity for customers that have got some flexibility at the time they give us the freight that we can get further reach with our daytime line haul network, and that's what we're exploring here. I really don't seep it conflicting with any of our other service offerings. It's a different type of business. It's a different type of freight offering. And I think it's complementary and not competitive in any way.

Thank you. Our next question is coming from Richard Thompson of commercial appeal. Please state your question or comment.

My question has been answered. Thank you.

Thank you. Our next question is coming from David Campbell of RBC Dain Rauscher. Please state your question or comment.

Hi. Good morning, Alan, and gentlemen. I was very excited during the course of the last 40 days. I think - or maybe 60 days ago, we had a call - I got a call from some survey company asking us - asking for my opinion as to how the company could increase its - the financial disclosure. And given the - what's going on in the corporate world today, I thought that FedEx was going to lead the way in increasing its disclosure quarterly and so forth of financial data. Has there been any results from that survey?

You have - you have put some of my colleagues - this is Jim Clifford, David. My colleagues have got to see the results of the summary of this survey in - on Friday at the SMC, so they haven't all seen it.

I can say, David, that when you see our 10-K this year, you will see a significantly enhanced disclosure on critical accounting policies, those sensitivity those policies have to judgment and external events, and I think you'll be very pleased in general.

Thank you. Our next question is coming from James Valentine of Morgan Stanley. Please state your question or comment.

This is Chad, actually. Jim had to step off. But I just had one quick follow-up question. It was with regards to the government payment of 120 million for September 11th, and in the last 10-Q, there was a comment about how the DOT was basically looking at this payment and I was just wondering if we could get an update on that.

We've received no additional payments from the DOT.

Thank you. Our next question is coming from David Campbell of RBC Dain Rauscher. Please state your question or comment.

Sorry. I had one more question, and that is, Alan, you were talking, I think in the answers to some questions, it seemed like you were assuming the first quarter '03 would be a poor first quarter, something like a poor economic environment or continuing the economic environment, and yet you're talking about an improving economy. and, you know, I see growth in air freight in general for the first time in, oh, I don't know a long time, 12, 18 months. I see growth in air freight and I was just curious as to why you would be a little bit cautious about growth in your business in the first quarter. Is it because you think shippers are diverting packages to deferred - deferred shipments or - and avoiding next-day shipments, or what is it?

David, I'm not sure you asked me a question or you were giving me a speech, but I'm not sure where you get your air freight numbers and what exactly that means and what you're referring to. As we've said, and I'll state again, the high-tech and manufacturing sectors are lagging the overall economic recovery. Those are very high users of express, and until those get back to more normal times, we're not going to see the growth rates at express and domestic that we've seen in the past. However, as Dave Baron sick mentioned, we are seeing an uptick in our international priority as more customers source and sell on a global basis and we're very excited about that. My point being is that our first quarter numbers do not have a rebound in manufacturing and high-tech built into them. It's just as simple as that.

Thank you.

Operator?

Yes, sir.

This is Jim again. I think we probably have reached the end of the road here. We've gotten the max out of the Q and A period, I think Fred and Alan have some other things they've got to do with the press and the media. So again, thanks everybody for being on the call. Thank my colleagues here for participating. And we'll see you again next quarter.

Thank you. This does conclude today's teleconference. May disconnect your lines at this time and have a great day.