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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1999.
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________
TO _________________.
COMMISSION FILE NUMBER 333-39483
FDX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1721435
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
942 SOUTH SHADY GROVE ROAD, MEMPHIS, TENNESSEE 38120
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 369-3600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.10 per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. / /
As of August 2, 1999, 298,256,834 shares of the Registrant's Common
Stock were outstanding and the aggregate market value of the voting stock
held by non-affiliates of the Registrant (based on the closing sale price of
such stock on the New York Stock Exchange) was approximately $12,396,388,225.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
May 31, 1999 are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Meeting of Stockholders
to be held September 27, 1999 are incorporated by reference into Part III.
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TABLE OF CONTENTS
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PART I
ITEM 1. Business....................................................... 1
ITEM 2. Properties..................................................... 17
ITEM 3. Legal Proceedings.............................................. 21
ITEM 4. Submission of Matters to a Vote of Security Holders............ 22
Executive Officers of the Registrant........................... 23
PART II
ITEM 5. Market for Registrant's Common Equity
and Related Stockholder Matters.............................. 25
ITEM 6. Selected Financial Data........................................ 25
ITEM 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................... 25
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk .... 25
ITEM 8. Financial Statements and Supplementary Data.................... 26
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 26
PART III
ITEM 10. Directors and Executive Officers of the Registrant............. 26
ITEM 11. Executive Compensation......................................... 26
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management............................................... 26
ITEM 13. Certain Relationships and Related Transactions................. 26
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 27
FINANCIAL STATEMENT SCHEDULE INDEX
Report of Independent Public Accountants on Financial Statement Schedule S-1
SCHEDULE II Valuation and Qualifying Accounts........................... S-2
EXHIBIT INDEX............................................................ E-1
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PART I
ITEM 1. BUSINESS
FDX CORPORATION
INTRODUCTION
FDX Corporation ("FDX" or the "Company") was incorporated in Delaware on
October 2, 1997. The Company is a $17 billion global transportation and
logistics enterprise that offers customers a one-stop source for global
shipping, logistics and supply chain solutions. Services offered by FDX
companies include worldwide express delivery, ground small-parcel delivery,
less-than-truckload freight delivery and global logistics, supply chain
management and electronic commerce solutions. These services are offered
through a portfolio of operating companies: Federal Express Corporation, the
Company's largest subsidiary ("FedEx"), RPS, Inc. ("RPS"), Viking Freight,
Inc. ("Viking"), Roberts Express, Inc. ("Roberts Express") and Caliber
Logistics, Inc. ("Caliber Logistics"), a wholly-owned subsidiary of FDX
Global Logistics, Inc. ("FDX Global Logistics").
Each FDX company competes in a separate, well-defined segment of the
total transportation and logistics market. FedEx is the world leader in
global express distribution, offering time-certain delivery within 24-48
hours among markets that comprise more than 90 percent of the world's gross
domestic product. RPS is North America's second largest provider of
business-to-business guaranteed ground package delivery. Viking is a
less-than-truckload freight carrier operating principally in the western
United States. Roberts Express is the world's leading surface-expedited
carrier for time-critical shipments requiring special handling. FDX Global
Logistics offers complete supply chain solutions by combining worldwide
transportation, information and physical logistics services.
For financial information concerning the Company's business segments,
refer to Note 11 of Notes to Consolidated Financial Statements contained in
the Company's Annual Report to Stockholders for the fiscal year ended
May 31, 1999, which Note is incorporated herein by reference.
PURPOSE OF FDX
The purpose of FDX is to provide strategic direction to, and coordination
of, the FDX portfolio of companies. FDX believes that certain sales and
marketing activities, financial planning and reporting, legal and regulatory
compliance, communications and information systems development are functions
that are best coordinated across subsidiary lines. The Company intends to use
advanced information systems to connect the FDX companies. These aligned
information systems are being designed to make it easy and convenient for
customers to use the full range of FDX services.
FDX believes that seamless information integration is critical in order
to obtain business synergies from multiple operating units. For example, in
the Company's fiscal year ended May 31, 1999, the Company combined FedEx and
RPS domestic shipping functionality on the FDX PowerShip-Registered
Trademark- and RPS Multi-Ship-Registered Trademark- proprietary computer
networks. This permits customers to use the dedicated computer installed in
their offices and, with a few keystrokes, switch between FedEx and RPS
domestic shipping services.
The Company manages the business as a portfolio. As a result, decisions
on capital investment, expansion of delivery and information technology
networks, and service additions or enhancements are
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based on achieving the highest overall return on capital. For each one of the
FDX companies, the Company's management focuses on making appropriate
investments in the technology and transportation assets necessary to optimize
FDX's earnings performance and cash flow.
FDX STRATEGY
FDX's strategy is to have focused operating companies that excel in each
segment of the transportation and logistics marketplace, from price-sensitive
to service-sensitive, and to create synergies across companies through
coordinated sales and marketing programs enhanced by state-of-the-art
information technology. FDX believes that operating independent delivery
networks, each focused on its own respective markets, results in optimal
service quality, reliability and profitability from each of the Company's
businesses. All of the FDX subsidiaries are free to focus exclusively on the
market segments in which they have the most expertise.
The Company believes that its strategy is proving to be successful. In
the Company's fiscal year ended May 31, 1999, the Company's two largest
operating companies--FedEx and RPS--each set new records for service
levels and financial results. Service levels improved due to the fact that
each company concentrated on providing its customers with the best service
for its particular market segment. Profitability improved, in part, because
of the Company's ability to steer traffic to the operating company which can
best provide the required service on the most cost-efficient basis.
The Company has selected its strategy in order to capitalize on four
trends shaping the emerging "Network Economy":
GLOBAL SOURCING AND SELLING
As the world's economy becomes more fully integrated, and as barriers
and borders to trade continue to decrease, companies are sourcing and selling
globally. They obtain components from Southeast Asia, assemble them in Latin
America and sell them in the United States. This, in turn,
has opened multiple legs of transportation on both the in-bound "sourcing"
side as well as the out-bound "selling" side. With customers in 210
countries, FDX is a major facilitator in this supply chain because of its
global reach, express services and information capabilities.
RAPID GROWTH OF HIGH-TECH AND HIGH-VALUE-ADDED BUSINESSES
FDX believes that the high-tech and high-value-added goods sector will
continue to experience strong growth as a percentage of total economic
activity. Information technology alone now contributes more than one-third of
real economic growth in the United States. In 1997, the high-tech electronics
industry was both the largest U.S. exporter and the largest U.S. importer.
U.S. exports of high-tech goods has risen 96% since 1990. The
high-value-added sector, however, is broader, including pharmaceuticals,
automotive, electronics, aviation and other goods with high value per pound.
ACCELERATION OF THE SUPPLY CHAIN
The third major trend affecting the "Network Economy" is the increase
of fast-cycle logistics. Companies of varying sizes, particularly in
industries experiencing rapid obsolescence, are increasing productivity,
efficiency and profitability through sharply increased supply chain velocity.
A supply
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chain is the series of transportation and information exchanges required to
convert raw materials into finished, delivered goods. Managing inventory at
rest is unprofitable. Warehouses, for example, are expensive ways to ensure
the availability of goods. FDX believes in substituting real-time information
to manage inventory in motion, thereby enabling customers to reduce overhead
and obsolescence while speeding time-to-market.
To take advantage of the move toward faster, more efficient supply
chains, in October 1998, the Company created FDX Global Logistics. The
Company believes that the future of logistics will not be in brick-and-mortar
warehouses, but in providing information-intensive services that increase the
value, visibility and velocity of the goods in customers' supply chains.
RAPID GROWTH OF BUSINESS-TO-BUSINESS E-COMMERCE
While there has been significant press recently about the expected
growth of consumer purchases over the Internet, the business-to-business
e-commerce marketplace is substantially larger than the business-to-consumer
e-commerce marketplace. Business-to-business e-commerce is estimated to be
over $100 billion in sales in 1999 and to exceed the trillion sales mark by
2003. Computers and electronics--already two of the Company's largest
customer segments--account for almost half of this category, and supply
chains are increasingly moving online. While FDX expects business-to-business
e-commerce to remain the largest e-commerce segment, the Company is also
leveraging the strength of the FDX portfolio in the business-to-consumer
market. The Company plans to continue handling the "time-sensitive" side of
residential deliveries, particularly for higher-value goods, through its
FedEx subsidiary. In addition, RPS is testing a new "service-sensitive"
residential delivery service to expand the Company's mix of transportation
and logistics solutions and to open opportunities for additional Internet
retail business. Depending on the results of the Pittsburgh, Pennsylvania
metropolitan-area test program, FDX believes it can roll out a
business-to-consumer RPS delivery service by Spring 2000. See "RPS,
Inc.--Recent Developments."
While the "Network Economy" is global, high-tech, fast-cycle and
networked through e-commerce, and FDX management believes that the Company's
global portfolio of services, technology and information is well configured
to the dynamics of this new economy, the Company's actual results may vary
depending upon such important factors as the impact of competitive pricing
changes, customer responses to yield management initiatives, changing
customer demand patterns, the timing and extent of network refinement,
actions by the Company's competitors, including capacity fluctuations,
regulatory conditions for aviation rights, and changing U.S. domestic and
international economic conditions.
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The following describes in more detail the business of each of the five FDX
operating companies:
FEDERAL EXPRESS CORPORATION
INTRODUCTION
FedEx began operations in 1973. On January 27, 1998, FedEx became a
wholly-owned subsidiary of the Company. FedEx invented express distribution
in 1973 and remains the industry leader, providing rapid, reliable,
time-definite delivery of documents, packages and freight to 210 countries.
FedEx connects areas of the world that generate 90 percent of the world's
gross domestic product through door-to-door, customs-cleared service, with a
money-back guarantee. FedEx's extensive air route authorities and
transportation infrastructure, combined with its use of leading-edge
information technologies, make FedEx the world's largest express-distribution
company, providing fast, reliable service for over three million shipments
each business day. FedEx employs more than 141,000 employees and has more
than 44,000 drop-off locations, 637 aircraft and 46,000 vehicles in its
integrated global network.
FedEx is ISO 9001 certified for its global operations. ISO 9001 is
currently the most rigorous international standard for Quality Management and
Assurance. FedEx is the only express transportation company to receive
worldwide certification of its systems. The ISO 9000 quality standards were
developed by the International Organization for Standardization in Geneva,
Switzerland to promote and facilitate international trade. More than 90
countries, including European Union members, the United States and Japan,
recognize ISO 9000.
RECENT DEVELOPMENTS
NETSCAPE PORTAL AGREEMENT
In April 1999, FDX and Netscape-Registered Trademark- Communications
Corporation, a subsidiary of America Online, Inc., established a multi-year
strategic agreement to offer businesses and consumers a convenient one-stop
portfolio of delivery services on Netscape's fast-growing Internet portal,
Netscape Netcenter-TM-. FedEx announced that it will license Netscape's
customized Internet portal service, Custom Netcenter-TM-, to create a FedEx
Internet package shipping portal. The alliance benefits businesses and
consumers by simplifying e-commerce transactions with streamlined shipping
for online purchases, personalized package status tracking and the future
integration of these features with the Netscape Communicator-TM- Internet
browser. The companies offer these features through a new Netcenter service
called the Delivery Center and through a FedEx portal customized to user
requirements. The agreement showcases the strength of FedEx's shipping
services and related information to the 13 million Netcenter users. Among the
services that are expected to be available in 1999-2000:
- FEDEX SHIPPING SERVICES FOR ALL NETCENTER E-COMMERCE TRANSACTIONS--
FedEx will be the pre-selected carrier on Netscape-Registered
Trademark- Store for purchases made on the Netcenter-Registered
Trademark- General Store and Software Depot
- FEDEX CUSTOM NETCENTER--this shipping-focused, FedEx Internet
portal will be built using Netscape's Custom Netcenter-TM- service
and will combine Netcenter content with FedEx services
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- DELIVERY CENTER-TM- -- a standalone program accessible from the
Netcenter portal where customers can track packages, ship FedEx
packages online with FedEx interNetShip-Registered Trademark-, get
shipping rates, locate package drop off points and access the latest
information on FedEx and RPS services
- MY NETSCAPE DELIVERY CHANNEL-TM- -- to enable customers that
customize their personal start page on the web to include FedEx and
RPS services they use often such as tracking, FedEx interNetShip,
rate finder and drop-off locator
- NETSCAPE ADDRESS BOOK-TM- INTEGRATION -- this new service will be
available as part of the Netscape Contact address book and will allow
consumers to easily print shipping labels from their address book
contact lists
The first Netscape services scheduled to be available are expected to be
the Delivery Center and the My Netscape Delivery Channel. Netscape, Netscape
Navigator and the Netscape "N" and Ship's Wheel logos are registered
trademarks of Netscape Communications Corporation in the United States and in
other countries. Netscape Netcenter, Netscape Custom Netcenter, Netscape
Communicator, Netscape Delivery Center, Netcenter General Store, Netcenter
Software Depot, My Netscape Delivery Channel and Netscape Address Book are
also trademarks of Netscape Communications Corporation, which may be
registered in other countries.
FEDEX U.S. EXPRESS FREIGHT SERVICES
In March 1999, FedEx expanded its express freight services offering to
handle the needs of the time-definite freight market, which is growing at
almost twice the rate of the non-time-definite market. FedEx offers customers
the option of one, two or three business day service backed by two money-back
guarantees. Shipments must be 151 lbs. - 2,200 lbs, and be forkliftable,
stackable, banded and shrinkwrapped. FedEx 1Day-SM- Freight offers noon
delivery, next-business-day in most areas of the continental United States,
including Alaska. FedEx 2Day Freight-Registered Trademark- offers 4:30 p.m.
delivery in 2 business days in all 50 states. No advance booking is required.
FedEx 3Day-SM- Freight offers 4:30 p.m. delivery within 3 business days in
every state except Alaska and Hawaii. No advance booking is required.
EXPANDED CHINESE ROUTE AUTHORITY
In June 1999, the U.S. Department of Transportation ("DOT") announced a
new protocol with the Chinese government permitting FedEx to expand its
existing service to China. FedEx is the only U.S. all-cargo airline with
route authority to serve China. DOT announced that FedEx would receive four
new weekly flights immediately and two additional flights beginning April
2000. The Company believes that these rights will be increasingly valuable as
the Asian economic recovery progresses.
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ENHANCED WEB-BASED SOLUTIONS
Throughout 1999, FedEx continued to enhance its Internet-based solutions
for customers. In February 1999, the company upgraded its online tracking
application so that FedEx customers may query and receive package status
information for up to 25 shipments simultaneously and forward the detailed
tracking results to up to three e-mail addresses. Also, a simplified feature
now enables users to enter only the tracking number instead of the ship date
and destination data previously required. Users in Japan, France, Italy,
Germany, the Netherlands and Portuguese and Spanish-speaking countries in
Latin America can obtain package status information in their native
languages. FedEx maintains electronic connections with approximately two
million customers via FedEx Powership-Registered Trademark-, FedEx
Ship-Registered Trademark- and FedEx interNetShip-Registered Trademark-.
Approximately 70% of the company's shipments are initiated electronically.
FedEx's goal is to move this toward 100%.
FEDEX SERVICES
Detailed information about all of FedEx's services can be found on
FedEx's Internet web site at WWW.FEDEX.COM. FedEx offers three U.S. overnight
delivery services: FedEx First Overnight-Registered Trademark-, FedEx
Priority Overnight-Registered Trademark- and FedEx Standard
Overnight-Registered Trademark-. Overnight document and package service
extends to virtually the entire United States population. FedEx
SameDay-Registered Trademark- service is for urgent shipments up to 70 pounds
to virtually any U.S. destination. Packages and documents are either picked
up from shippers by FedEx couriers or are dropped off by shippers at FedEx
facilities, FedEx World Service Centers-Registered Trademark-,
FedEx-Registered Trademark- Drop Boxes, FedEx ShipSites-Registered Trademark-
or FedEx Authorized ShipCenters-Registered Trademark- strategically located
throughout the country. Two U.S. deferred services are available for less
urgent shipments: FedEx 2Day-Registered Trademark- and FedEx Express
Saver-Registered Trademark-. FedEx 1Day-SM- Freight, FedEx 2Day
Freight-Registered Trademark- and FedEx 3Day-SM- Freight are described above
in "FedEx U.S. Express Freight Services".
U.S. overnight and second-day services are primarily used by customers
for shipment of time-sensitive documents and goods, high-value machines and
machine parts, computer parts, software and consumer items from
manufacturers, distributors and retailers and to retailers, manufacturers and
consumers. FedEx employees handle virtually every shipment from origin to
destination.
In addition to the services discussed above, FedEx offers various
international package and document delivery services and international
freight services, including: FedEx-Registered Trademark- International Next
Flight, FedEx International First-Registered Trademark-, FedEx International
Priority-Registered Trademark- ("IP"), FedEx International Economy-Registered
Trademark-, FedEx International Priority DirectDistribution-Registered
Trademark-, FedEx International Priority Plus-Registered Trademark-, FedEx
International MailService-Registered Trademark-, FedEx International
Priority-Registered Trademark- Freight, FedEx International
Economy-Registered Trademark- Freight, FedEx International Express
Freight-Registered Trademark-, FedEx International Airport-to-Airport-SM-,
FedEx Expressclear-SM- Electronic Customs Clearance, and FedEx International
Broker Select-Registered Trademark-.
FedEx offers next business day 10:30 a.m. express cargo service
from Asia to the United States. The company has a direct flight from Osaka,
Japan to Memphis, Tennessee. The nonstop daily flight cuts transit times
across the Pacific in half for FedEx customers -- from 48 to 24 hours -- who
ship from Asia to North America. The FedEx IP service is backed by FedEx's
money-back guarantee. The flight schedule also enables the company to offer
its Asian customers later pickup times for connections through the company's
AsiaOne-Registered Trademark- hub in Subic Bay, The Philippines, to 13
major Asian markets.
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CHARTER SERVICES AND CRAF PARTICIPATION
FedEx offers commercial and military charter services which supplement
the utilization of aircraft capacity when not needed in FedEx's scheduled
operations. In addition to providing these charter services, FedEx
participates in the Civil Reserve Air Fleet ("CRAF") program. Under this
program, the Department of Defense may requisition for military use certain
of FedEx's wide-bodied aircraft in the event of a declared need, including a
national emergency. FedEx is compensated for the operation of any aircraft
requisitioned under the CRAF program at standard contract rates established
each year in the normal course of awarding contracts. Through its
participation in the CRAF program, FedEx is entitled to bid on peacetime
military cargo charter business. FedEx, together with a consortium of other
carriers, currently contracts with the United States Government for charter
flights.
FedEx offers commercial and military charter services which supplement
the utilization of aircraft capacity when not needed in FedEx's scheduled
operations. During fiscal 1999, revenues from charter operations accounted
for approximately 0.7% of FedEx's total revenues and approximately 0.7% and
0.6% of total revenues during fiscal 1998 and 1997, respectively.
ELECTRONIC COMMERCE AND CUSTOMER SERVICES
Electronic Commerce and Customer Services ("ECCS"), formerly Logistics
and Electronic Commerce, combines the FedEx customer service, customer
automation and retail automation organizations with the FedEx customer
technology organization. ECCS focuses on markets in which delivering
high-speed, time-definite, information-intensive solutions provide
significant customer value. In 1999, ECCS further expanded its information
systems focus to solutions that enable customers to do business
electronically -- ranging from order-entry to after-sales support. The
combination of these electronic commerce capabilities and FedEx's global
transportation and information network allow FedEx's customers to create or
redesign their supply chains to reduce cost and improve service to their
customers.
ECCS offers FedEx customers several services as well as customer
automation. FedEx interNetShip-SM- provides shipment processing capability
within the United States on the World Wide Web. From FedEx's Web site
(WWW.FEDEX.COM), shippers can retrieve precise details on the status of their
shipments any time of day from anywhere in the world. FedEx also offers FedEx
Ship-Registered Trademark- software, free of charge, that can be used on a
personal computer. FedEx Ship allows customers to generate plain-paper
airbills on a laser printer, track shipment status, order FedEx pickups and
maintain a database of shipping addresses and activity using modems and their
own personal computers. FedEx PowerShip-Registered Trademark- 2, is a
stand-alone automated shipping system that provides package tracking,
produces shipping labels, calculates shipping charges, invoices the customer
daily and produces customized reports. For customers that ship 100 or more
packages a day, FedEx offers FedEx PowerShip Plus-Registered Trademark-
software, that performs the same functions as FedEx PowerShip 2 but can be
integrated with the customer's own computer systems for customer service,
accounting, inventory control and financial analysis purposes. FedEx
PowerShip PassPort-Registered Trademark- is an automated shipping system that
is automatically updated with FedEx's system information, such as routing
codes and rates. FedEx PowerShip 3-Registered Trademark- enables customers
who ship as few as three packages per day to enjoy the advantage of automated
shipping. FedEx offers supply chain management tools such as FedEx Express
Bridge-TM- for SAP R/3 and FedEx Net Return (which improves product returns
from customers by putting the process online). FedEx Direct Link-TM- allows
customers to receive and manage all of their FedEx invoicing data
electronically.
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Additional options include FedEx Ship API-TM- and FedEx
Track API.-TM- FedEx Ship API streamlines a customer's online shipping
process by integrating FedEx's shipping templates and tools into the
customer's Web site or corporate information system. FedEx Ship API connects
the customer directly to FedEx when placing shipping orders and scheduling
pickup requests. FedEx Track API enables the customer's employees to track
FedEx packages without ever leaving the customer's Web site or corporate
information system.
PRICING
FedEx periodically publishes list prices in its Service Guides for the
majority of its services. In general, during fiscal 1999, U.S. shipping rates
were based on the service selected, destination zone, weight, size, any
ancillary service charge and whether or not the shipment was picked up by a
FedEx courier or dropped off by the customer at a FedEx location.
International rates are based on the type of service provided and vary with
size, weight and destination. FedEx offers its customers volume discounts
generally based on actual or potential average daily revenue produced.
Discounts are determined by reference to several local and national revenue
bands developed by FedEx.
Effective March 15, 1999, FedEx increased list rates an average of 2.8%
for shipments within the U.S. Rates for most shipments from the U.S. to most
of the 211 countries served by the company's global network remained the same.
SERVICE REVENUES
The following table shows the amount of revenues generated for each
class of service offered for the fiscal years ended May 31 (amounts in
thousands):
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1999 1998 1997
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Package:
U.S. overnight $ 7,185,462 $ 6,810,211 $ 6,243,790
U.S. deferred 2,271,151 2,179,188 1,621,647
International Priority 3,018,828 2,731,140 2,351,092
Freight:
U.S. 439,855 337,098 207,729
International 530,759 597,861 604,472
Other* 533,222 599,343 491,020
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Total $13,979,277 $13,254,841 $11,519,750
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* Includes revenues from sales of aircraft engine noise reduction kits,
revenues generated by the specialized services summarized above under
"Electronic Commerce and Customer Services," Canadian domestic revenue
and charter services.
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SEASONALITY OF BUSINESS
FedEx's express package business and freight business are both
seasonal in nature. Historically, the U.S. package business experiences an
increase in late November and December. International business, particularly
in the Asia to U.S. market, peaks in October and November due to U.S.
holiday sales. The latter part of FedEx's third fiscal quarter and late
summer, being post winter-holiday and summer vacation seasons, have
historically exhibited lower volumes relative to other periods.
OPERATIONS
FedEx's global transportation and distribution services are provided
through an extensive worldwide network consisting of numerous aviation and
ground transportation operating rights and authorities, 637 aircraft,
approximately 46,000 vehicles, sorting facilities, FedEx World Service
Centers, FedEx Drop Boxes, FedEx ShipSites, FedEx Authorized ShipCenters and
sophisticated package tracking, billing and communications systems.
FedEx's primary sorting facility, the SuperHub located in Memphis,
serves as the center of FedEx's multiple hub-and-spoke system. A second
national hub is located in Indianapolis. In addition to these national hubs,
FedEx operates regional hubs in Newark, Oakland and Fort Worth and major
metropolitan sorting facilities in Los Angeles and Chicago. Facilities in
Anchorage, Alaska and Subic Bay, The Philippines, serve as sorting facilities
for express package and freight traffic moving to and from Asia, Europe and
North America. Major sorting and freight handling facilities are located at
Narita Airport in Tokyo, Charles de Gaulle Airport in Paris, Stansted Airport
outside London and Pearson Airport in Toronto. Facilities in Subic Bay and
Charles de Gaulle Airport are also designed to serve as regional hubs for
their respective market areas.
Throughout its worldwide network, FedEx operates city stations and
employs a staff of customer service agents, cargo handlers and couriers who
pick up and deliver shipments in the station's service area. In some cities,
FedEx operates FedEx World Service Centers which are staffed, store-front
facilities located in high-traffic, high-density areas. Unmanned FedEx Drop
Boxes provide customers the opportunity to drop off packages at locations in
office buildings, shopping centers and corporate or industrial parks. FedEx
has also formed alliances with certain retailers to extend this customer
convenience network to drop-off sites in retail stores. In international
regions where low package traffic makes FedEx's direct presence less
economical, Global Service Participants ("GSP") have been selected to
complete deliveries.
FedEx has an advanced package tracking and billing system, FedEx
COSMOS-Registered Trademark-, that utilizes hand-held electronic scanning
equipment and computer terminals. This system provides proof of delivery
information, an electronically reproduced airbill for the customer and
information regarding the location of a package within FedEx's system. For
international shipments, FedEx has developed FedEx Expressclear, a worldwide
electronic customs clearance system, which speeds up customs clearance by
allowing customs agents in destination countries to review information about
shipments before they arrive.
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FUEL SUPPLIES AND COSTS
During fiscal 1999, FedEx purchased aviation fuel from various suppliers
under contracts which vary in length from 12 to 36 months and which provide
for specific amounts of fuel to be delivered. The fuel represented by these
contracts is purchased at market prices which may fluctuate daily. Management
believes that, barring a substantial disruption in supplies of crude oil,
these agreements will ensure the availability of an adequate supply of fuel
for FedEx's needs for the immediate future. However, a substantial reduction
of oil supplies from oil producing regions or refining capacity, or other
events causing a substantial reduction in the supply of aviation fuel, could
have a significant adverse effect on FedEx.
In past years, FedEx has entered into contracts which are designed to
limit its exposure to fluctuations in jet fuel prices. Under these contracts,
FedEx makes (or receives) payments based on the difference between a
specified lower (or upper) limit and the market price of jet fuel, as
determined by an index of spot market prices representing various geographic
regions. The difference is recorded as an increase or decrease in fuel
expense. FedEx hedges its exposure to jet fuel price market risk only on a
conservative, limited basis. At May 31, 1998, all such contracts had expired.
Under jet fuel contracts, FedEx made payments of $28,764,000 in 1998 and
received $15,162,000 (net of payments) in 1997. FedEx may enter into fuel
hedging contracts in 2000. The timing and magnitude of such contracts may
vary due to availability and pricing.
The following table sets forth FedEx's costs for aviation fuel and its
percentage of total operating expense for the previous five fiscal years:
<TABLE>
<CAPTION>
TOTAL COST PERCENTAGE OF TOTAL
FISCAL YEAR (IN THOUSANDS) OPERATING EXPENSE
----------- -------------- -------------------
<S> <C> <C>
1999 $467,598 3.6%
1998 570,959 4.6
1997 557,533 5.2
1996 461,401 4.8
1995 394,225 4.5
</TABLE>
Approximately 15% of FedEx's requirement for vehicle fuel is purchased
in bulk. The remainder of FedEx's requirement is satisfied by retail
purchases with various discounts. The percentage of total operating expense
for vehicle fuel purchases for each of the last five fiscal years has not
exceeded 1.5%.
COMPETITION
The express package and freight markets are both highly competitive and
sensitive to price and service. The ability to compete effectively depends
upon price, frequency and capacity of scheduled service, extent of geographic
coverage and reliability. Competitors in these markets include other express
package concerns, principally United Parcel Service of America, Inc. ("UPS"),
Airborne Express, DHL Worldwide Express, passenger airlines offering package
express services, regional express delivery concerns, airfreight forwarders
and the United States Postal Service. FedEx's principal competitors in the
international market are UPS, foreign national air carriers, foreign postal
authorities such as Deutsche Poste and TNT Post Group, United States
passenger airlines and all-cargo airlines.
10
<PAGE>
FedEx currently holds certificates of authority to serve more foreign
countries than any other United States all-cargo air carrier and its
extensive, scheduled international route system allows it to offer
single-carrier service to many points not offered by its principal all-cargo
competitors. This international route system, combined with an integrated air
and ground network, enables FedEx to offer international customers more
extensive single-carrier service to a greater number of U.S. domestic points
than can be provided currently by competitors. However, many of FedEx's
competitors in the international market are government owned, controlled, or
subsidized carriers which may have greater resources, lower costs, less
profit sensitivity and more favorable operating conditions than FedEx.
REGULATION
AIR
Under the Federal Aviation Act of 1958, as amended, both DOT and the
Federal Aviation Administration ("FAA") exercise regulatory authority over
FedEx. The DOT's authority relates primarily to economic aspects of air
transportation. The DOT's jurisdiction extends to aviation route authority
and to other regulatory matters, including the transfer of route authority
between carriers. FedEx holds various certificates issued by the DOT,
authorizing FedEx to engage in U.S. and international air transportation of
property and mail on a worldwide basis. FedEx's international authority
permits it to carry cargo and mail from several points in its U.S. route
system to numerous points throughout the world. The DOT regulates
international routes and practices and is authorized to investigate and take
action against discriminatory treatment of United States air carriers abroad.
The right of a United States carrier to serve foreign points is subject to
the DOT's approval and generally requires a bilateral agreement between the
United States and the foreign government. The carrier must then be granted
the permission of such foreign government to provide specific flights and
services. The regulatory environment for global aviation rights may from time
to time impair the ability of FedEx to operate its air network in the most
efficient manner.
The FAA's regulatory authority relates primarily to safety and
operational aspects of air transportation, including aircraft standards and
maintenance, personnel and ground facilities, which may from time to time
affect the ability of FedEx to operate its aircraft in the most efficient
manner. FedEx holds an operating certificate granted by the FAA pursuant to
Part 121 of the Federal Aviation Regulations. This certificate is of
unlimited duration and remains in effect so long as FedEx maintains its
standards of safety and meets the operational requirements of the regulations.
GROUND
The ground transportation performed by FedEx is integral to its air
transportation services. Prior to January 1996, FedEx conducted its
interstate motor carrier operations pursuant to common and contract carrier
authorities issued by the Interstate Commerce Commission ("ICC"). The ICC
Termination Act of 1995 abolished the ICC and transferred responsibility for
interstate motor carrier registration to the DOT.
The enactment of the Federal Aviation Administration Authorization Act
of 1994 abrogated the authority of states to regulate the rates, routes or
services of intermodal all-cargo air carriers and most motor carriers. States
may now only exercise jurisdiction over safety and insurance. FedEx is
registered in those states that require registration.
11
<PAGE>
COMMUNICATION
Because of the extensive use of radio and other communication facilities
in its aircraft and ground transportation operations, FedEx is subject to the
Federal Communications Commission Act of 1934, as amended. Additionally, the
Federal Communications Commission regulates and licenses FedEx's activities
pertaining to satellite communications.
ENVIRONMENTAL
Pursuant to the Federal Aviation Act, the FAA, with the assistance of
the Environmental Protection Agency, is authorized to establish standards
governing aircraft noise. FedEx's present aircraft fleet is in compliance
with current noise standards of the Federal Aviation Regulations. FedEx's
aircraft are also subject to, and are in compliance with, the regulations
governing engine emissions. In addition to federal regulation of aircraft
noise, certain airport operators have local noise regulations which limit
aircraft operations by type of aircraft and time of day. These regulations
have had a restrictive effect on FedEx's aircraft operations in some of the
localities where they apply but do not have a material effect on any of
FedEx's significant markets. Congress' passage of the Airport Noise and
Capacity Act of 1990 established a National Noise Policy which enabled FedEx
to plan for noise reduction and better respond to local noise constraints.
Certain regulations under the Clean Water Act, the Clean Air Act and the
Resource Conservation and Recovery Act impact FedEx's operations. In addition
to the matters discussed above, FedEx is most directly affected by
regulations pertaining to underground storage tanks, hazardous waste
handling, vehicle and equipment emissions and the discharge of effluents from
properties and equipment owned or operated by FedEx.
EMPLOYEES
FedEx is headquartered in Memphis, Tennessee. Theodore L. Weise is the
President and Chief Executive Officer of the company. At June 30, 1999, FedEx
employed approximately 88,000 permanent full-time and 50,000 permanent
part-time employees, of which approximately 21% are employed in Memphis.
Employees of FedEx's international branches and subsidiaries in the aggregate
represent approximately 12% of all employees. FedEx believes its relationship
with its employees is excellent.
On February 4, 1999, FedEx and the Fedex Pilots Association ("FPA")
announced that the union's membership had ratified a five-year collective
bargaining agreement to take effect on May 31, 1999, bringing the negotiating
process to a successful conclusion. The agreement provides, in part, for a
17% pay increase over the term of the contract (3.4% average annual
increase), enhanced retirement benefits, direct pilot input on scheduling
issues, and limits on types of trips scheduled during certain times of the
day.
Attempts by other labor organizations to organize certain other groups
of employees have been initiated. Although FedEx is responding to these
organization attempts, it cannot predict the outcome of these labor
activities or their effect, if any, on FedEx or its employees.
12
<PAGE>
RPS, INC.
INTRODUCTION
By focusing on high-volume business-to-business customers, maintaining a
low cost structure and efficiently using information technology, RPS has
become the second-largest ground small-package carrier in the United States.
RPS serves customers in the small-package market in North America, focusing
primarily on the business-to-business delivery of packages weighing up to 150
pounds. RPS provides ground service to 100% of the United States population
and overnight service to 74% of the United States population. Through its
subsidiary, RPS, Ltd., service is provided to 100% of the Canadian
population. Additionally, RPS provides service to Mexico through an alliance
with Estefeda Mexicana, S.A. de C.V. RPS also offers service offshore to
Puerto Rico, Alaska and Hawaii via a ground/air network operation in
cooperation with other transportation providers.
RPS provides other specialized transportation services to meet specific
customer requirements in the small-package market. RPS conducts its
operations primarily with 8,700 owner-operated vehicles and, in addition,
owns over 10,000 trailers. Competition for high-volume, profitable business
focuses largely on providing competitive pricing and dependable service.
Beginning July 1998, RPS initiated a money-back guarantee on all
business-to-business ground deliveries within the continental United States.
RPS utilizes advanced automatic sortation technology to streamline the
handling of approximately 1.4 million daily packages. RPS also utilizes
software systems and Internet-based applications to offer its customers new
ways to connect internal package information with external delivery
information. In 1998, RPS added multiple-carrier shipment tracing and
proof-of-delivery signature functionality to its Web site (WWW.SHIPRPS.COM).
Like FedEx, RPS utilizes a hub-and-spoke sorting and distribution
system. Its 27 hubs are equipped with the most sophisticated
package-sortation technology in the industry, with average processing speeds
of 15,000 to 20,000 packages per hour.
Using overhead laser scanners, hub conveyors electronically guide
packages to their appropriate destination chute, where they are loaded for
transport to their destination terminals for local delivery. RPS is still the
only ground carrier to operate a fully automated sortation system for greater
efficiency and package integrity.
RPS is headquartered in Pittsburgh, Pennsylvania. Daniel J. Sullivan is
the President and Chief Executive Officer of the company. RPS has more than
31,000 employees and contractors in North America. RPS' primary competitors
are UPS (non-express services) and the United States Postal Service.
RECENT DEVELOPMENTS
In July 1999, RPS began piloting a new package delivery service targeted
to businesses that ship to residential addresses. Depending on the results of
the pilot, the company believes it can roll out a business-to-residential
service as early as spring 2000. RPS intends to leverage its existing
pickup operation and automated hub and linehaul network while initiating a
separate delivery network comprised of distinct terminals and a separate team
of independent contractors. The test involves the delivery of packages to
residences in the Pittsburgh, Pennsylvania metropolitan area. The company
will release further details of its new service once the results of the
prototype service are fully analyzed.
13
<PAGE>
In January 1999, RPS announced its intention to boost its
package-processing capacity by 50% through a three-year expansion program.
Plans include the opening of three new state-of-the-art distribution hubs
that will support key metropolitan markets in New York, Chicago and Los
Angeles, as well as the relocation and expansion of more than 50 local
terminals over the next three years. RPS plans to invest $500 million in this
three year expansion. The Company recently opened a 195,000 square-foot
distribution hub in Rialto, CA, and a similar 153,000 square-foot
facility in Champaign, IL. These new facilities will, as do all RPS
hubs, use computerized package-sortation systems to ensure maximum
productivity and efficiency. RPS' third new hub will support the company's
plans to expand service within the New York metropolitan area. Scheduled to
open in the summer of 2000, the Woodbridge, NJ facility will be the largest
in the RPS network. It will be 329,000 square feet in size and capable of
processing 30,000 packages per hour - approximately double the processing
capacity of the average RPS hub. By the end of 1999, the company also will
expand existing hubs in Toledo, OH, Denver, CO and Sacramento, CA.
Also planned for completion by mid-2000 are the relocations and
expansions of more than 15 pick-up and delivery terminals, including
facilities in Albany, NY, Long Island, NY, Baltimore, MD, Beltsville, MD
(serving Washington, D.C.), Norfolk, VA, Pittsburgh, PA, Cincinnati, OH,
Detroit, MI, Carol Stream, IL (serving the Chicago metro area), Dallas, TX
and Burbank, CA.
VIKING FREIGHT, INC.
Viking specializes in one- and two-day less-than-truckload (LTL) service
throughout the western United States. Service is also available to Alaska and
Hawaii via alliances with ocean freight companies. Viking's management
focuses on achieving high levels of on-time delivery, easy-to-use information
technology and responsive customer service.
With next- and second-business day regional freight service, plus direct
ocean service to Alaska and Hawaii, Viking's 4,800 employees handle
approximately 13,000 shipments per day, achieving an award-winning on-time
delivery performance exceeding that of most other LTL carriers. Consistent
with its EZTDBW-Registered Trademark- ("Easy To Do Business With") service
philosophy, Viking has created two customer advisory boards -- one for
corporate accounts, the other for smaller shippers -- to better anticipate
and meet customers' needs. Viking has enhanced its customer service and today
responds to most inquiries within seconds. Viking's Web sites
(WWW.VIKINGFREIGHT.COM AND WWW.EZTDBW.COM) let customers conduct business
electronically with convenience and confidence.
In 1999, for the fourth time in the twelve year history of the award,
NASSTRAC named Viking its regional LTL carrier of the year. In addition,
readers of LOGISTICS MANAGEMENT AND DISTRIBUTION magazine voted to award
Viking the "QUEST FOR QUALITY AWARD FOR 1998," the eighth year Viking has
received this award.
Viking is headquartered in San Jose, California. Douglas G. Duncan is
the President and Chief Executive Officer of the company. Viking's primary
regional competitors are ConWay Western Express, Inc., USF Bestway, Inc. and
USF Reddaway Truck Line, Inc. Viking also competes with other regional and
long-haul carriers.
14
<PAGE>
ROBERTS EXPRESS, INC.
Roberts Express is the world's largest surface-expedited carrier.
Roberts Express offers one service: time-specific, non-stop, door-to-door
delivery for critical shipments anytime, anywhere. Each shipper has exclusive
vehicle usage, eliminating freight handling since operations are free from
freight consolidation. A network of over 2,200 vehicles assures the customer
of time-specific service anywhere within the United States and Canada, with
pickup in less than ninety minutes within twenty-five miles of any of Roberts
Express's 223 ExpressCenters. CUSTOMER LINK, Roberts Express's integrated
two-way satellite communications system, enables the customer to immediately
trace his shipment to determine its status and to-the-minute delivery time.
Service is available 24 hours a day, 365 days a year, including weekends
and holidays, at no extra cost. If at any time during transport Roberts
Express is more than 15 minutes late, both the shipper and the consignee are
notified. If Roberts Express is more than two hours late on delivery, the
company will refund the customer 25% of the freight charges. If Roberts
Express is more than four hours late on delivery, the company will refund the
customer 50% of the freight charges. In many cases, Roberts Express offers
(with guaranteed delivery times) a faster and less expensive alternative to
heavyweight airfreight. More than 96% of shipments are delivered to the
customer within fifteen minutes of Roberts Express's time-specific promise.
Roberts' White Glove Services -Registered Trademark- division
specializes in the transport of high value products, medical and electronic
equipment, tradeshow exhibits, temperature-sensitive commodities and
high-security shipments. Roberts CharterAir -Registered Trademark- division
uses Roberts Express and White Glove vehicles and brokered aircraft on a
non-scheduled, exclusive use point-to-point basis to provide a door-to-door
guaranteed emergency "air-taxi" service. Express and Air Charter services are
available through Roberts Europe. Command operations are located in
Mastricht, The Netherlands. With continuous monitoring of shipments, two-way
satellite communications and multilingual agents and drivers, Roberts Europe
provides expedited services almost anywhere in Europe.
In March 1999, the company introduced Roberts Express Point-to-Point
service, a faster alternative to conventional airfreight service.
Point-to-Point utilizes Roberts Express vehicles and scheduled air freighters
to provide early next-day delivery of critical heavyweight airfreight
anywhere in the continental U.S. The new service is also available to and
from Canada and Europe. Point-to-point service is quicker than ground
expedited transportation for distances greater than 1,500 miles and is less
expensive than exclusive-use air charters.
Roberts Express is headquartered in Akron, Ohio. R. Bruce Simpson is the
President of the company. Roberts Express has approximately 600 employees and
1,700 owner-operators. Daily volume approximates 1,000 shipments. The
company's primary competitors are ConWay NOW, Inc., CTX, Emery Expedite,
Inc., Landstar Express America, Inc., TNT Expedite and Tri-State Expediting
Service, Inc.
FDX GLOBAL LOGISTICS, INC.
FDX Global Logistics was incorporated in Delaware on November 2, 1998
and serves as the holding company for Caliber Logistics, the operating company.
Caliber Logistics is a contract logistics provider to targeted industries
with expertise across the entire supply chain, from inbound materials
management through distribution to the final consumer. Services provided
include global transportation management, dedicated transportation, warehouse
operations and management, finished goods distribution, just-in-time
logistics programs, customer order processing, returnable container
management, freight bill payment and auditing and other management services
outsourced by its customers.
15
<PAGE>
An important element in Caliber Logistics' overall value to customers is
improved information exchange. Caliber Logistics' transportation management
programs use advanced electronic data interchanges to speed communications
between customers and their suppliers. Faster communication translates into
more cost-effective logistics and competitive advantages. Caliber Logistics
manages over 100 logistics contracts, three million shipments per year and
over six million square feet of warehouse space.
FDX Global Logistics headquarters is located in Memphis, Tennessee.
Caliber Logistics headquarters is located in Hudson, Ohio. Caliber Logistics
European headquarters is located in Leiden, The Netherlands. Joseph C.
McCarty is the President and Chief Executive Officer of FDX Global Logistics.
Caliber Logistics, the operating company, has approximately 2,800 employees
and 600 owner-operators.
RECENT DEVELOPMENTS
On August 6, 1999, FDX Global Logistics announced the signing of an
agreement to acquire, for approximately $116 million in cash, substantially
all the assets of Geologistics Air Services, Inc. ("GLAS"). The acquisition
is subject to the approval of the U.S. Government and to the satisfaction of
certain conditions by GLAS and the company. The acquisition is expected to
close in the fall of 1999. FDX Global Logistics intends to operate GLAS
through a newly-formed, wholly-owned subsidiary, Caribbean Transportation
Services, Inc., a Delaware corporation ("CTS"). GLAS, a provider of
airfreight forwarder services between the United States, Puerto Rico and the
Dominican Republic, specializes in arranging the shipment of heavyweight and
oversized cargo. GLAS provides airfreight forwarder services to the medical,
pharmaceutical and technology sectors. GLAS is headquartered in Greensboro,
North Carolina. Richard A. Faieta, President and Chief Executive Officer of
GLAS, will serve as President and Chief Executive Officer of CTS.
RPS, VIKING, ROBERTS EXPRESS - REGULATION
Prior to January 1996, RPS, Viking and Roberts Express conducted their
operations pursuant to common and contract carrier authorities issued by the
ICC. The ICC Termination Act of 1995 abolished the ICC and transferred
responsibility for interstate motor carrier registration to the DOT.
The operations of RPS, Viking and Roberts Express in interstate commerce
are currently regulated by the DOT and the Federal Highway Administration,
which retain limited oversight authority over motor carriers. Federal
legislation has been enacted that preempted regulation by the states of rates
and service in intrastate freight transportation.
Like other interstate motor carriers, RPS, Viking and Roberts Express
are subject to certain DOT safety requirements governing interstate
operations. In addition, vehicle weight and dimensions remain subject to both
federal and state regulations.
RPS, Viking and Roberts Express are subject to federal, state and local
environmental laws and regulations relating to, among other things,
contingency planning for spills of petroleum products and the disposal of
waste oil. Additionally, RPS, Viking and Roberts Express are subject to
numerous regulations dealing with underground fuel storage tanks and each
company has environmental management programs to conform with these
regulations.
16
<PAGE>
RPS, VIKING, ROBERTS EXPRESS - SEASONALITY
The transportation and logistics industry is affected directly by the
state of the overall economy. Seasonal fluctuations affect tonnage, revenues
and earnings. Normally, the fall of each year is the busiest shipping period
for each of the three companies; the latter part of December, January, June
and July of each year are the slowest periods. Shipment levels, operating
costs and earnings can also be adversely affected by inclement weather.
ITEM 2. PROPERTIES
FDX CORPORATION
The Company does not own any real property. The Company leases two
facilities in the Memphis area for its corporate headquarters and
administrative offices.
FEDERAL EXPRESS CORPORATION
FedEx's principal owned or leased properties include its aircraft,
vehicles, national, regional and metropolitan sorting facilities,
administration buildings, FedEx World Service Centers, FedEx Drop Boxes and
data processing and telecommunications equipment.
AIRCRAFT AND VEHICLES
FedEx's aircraft fleet at June 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
MAXIMUM GROSS
STRUCTURAL PAYLOAD
DESCRIPTION NUMBER (POUNDS PER AIRCRAFT)*
- ----------- ------ ----------------------
<S> <C> <C>
McDonnell Douglas MD11 29** 198,500
McDonnell Douglas DC10-30 22** 172,000
McDonnell Douglas DC10-10 59** 142,000
Airbus A300-600 32** 117,700
Airbus A310-200 39** 74,200
Boeing B727-200 95** 59,500
Boeing B727-100 68** 38,000
Fokker F27-500 24 14,000
Fokker F27-600 8 12,500
Cessna 208B 251 3,500
Cessna 208 10 3,000
---
Total 637
</TABLE>
- ----------
* Maximum gross structural payload includes revenue payload and container
weight.
** 29 MD11, 17 DC10-30, four DC10-10, 32 A300, 16 A310, 13 B727-200 and five
B727-100 aircraft are subject to operating leases.
17
<PAGE>
The A300s and A310s are two-engine, wide-bodied aircraft which have a
longer range and more capacity than B727s. The MD11s are three-engine,
wide-bodied aircraft which have a longer range and larger capacity than
DC10s. The DC10s are three-engine, wide-bodied aircraft which have been
specially modified to meet FedEx's cargo requirements. The B727s are
three-engine aircraft configured for cargo service. FedEx's Fokker F27 and
Cessna 208 turbo-prop aircraft are owned by FedEx and leased to unaffiliated
operators to support FedEx operations in areas where demand does not justify
use of a larger aircraft. An inventory of spare engines and parts is
maintained for each aircraft type.
In addition, FedEx "wet leases" approximately 21 smaller piston-engine
and turbo-prop aircraft which feed packages to and from airports served by
FedEx's larger jet aircraft. The wet lease agreements call for the
owner-lessor to provide flight crews, insurance and maintenance, as well as
fuel and other supplies required to operate the aircraft. FedEx's wet lease
agreements are for terms not exceeding one year and are generally cancellable
upon 30 days' notice.
At June 30, 1999, FedEx operated worldwide approximately 46,000 ground
transport vehicles, including pick-up and delivery vans, larger trucks called
container transport vehicles and over-the-road tractors and trailers.
AIRCRAFT PURCHASE COMMITMENTS
At May 31, 1999, FedEx was committed under various contracts to purchase
five Airbus A300s, 31 MD11s, six DC10s (in addition to those discussed in the
following paragraph) and 75 Ayres ALM 200 aircraft to be delivered through
2007.
FedEx has entered into agreements with two airlines to acquire 53 DC10
aircraft (39 of which have been received as of May 31, 1999), spare parts,
aircraft engines and other equipment, and maintenance services in exchange
for a combination of aircraft engine noise reduction kits and cash. Delivery
of these aircraft began in 1997 and will continue through 2001. Additionally,
these airlines may exercise put options through December 31, 2003, requiring
FedEx to purchase up to 20 additional DC10s along with additional aircraft
engines and equipment. In January 1999, put options were exercised by an
airline requiring FedEx to purchase nine DC10s (in addition to the 53
discussed immediately above) for a total purchase price of $29,700,000.
Delivery of the aircraft began in March 1999 and is expected to be completed
by January 2000.
18
<PAGE>
SORTING AND HANDLING FACILITIES
At July 1, 1999, FedEx operated the following sorting and handling
facilities:
<TABLE>
<CAPTION>
SORTING LEASE
SQUARE CAPACITY EXPIRATION
LOCATION ACRES FEET (PER HOUR)* LESSOR YEAR
-------- ----- ------ ----------- ------ ----------
<S> <C> <C> <C> <C> <C>
NATIONAL
Memphis, Tennessee 479 3,074,440 465,000 Memphis-Shelby County 2012
Airport
Authority
Indianapolis, Indiana 120 645,000 175,000 Indianapolis Airport 2016
Authority
REGIONAL
Fort Worth, Texas 168 641,000 74,000 Fort Worth Alliance 2014
Airport Authority
Newark, New Jersey 56 503,800 142,000 Port Authority of New 2010
York and New Jersey
Oakland, California 66 320,000 47,500 City of Oakland 2011
METROPOLITAN
Los Angeles, California 25 305,000 53,000 City of Los Angeles 2009
Chicago, Illinois 55 419,000 47,000 City of Chicago 2018
Anchorage, Alaska+ 42 258,000 14,200 Alaska Department of 2013
Transportation and Public
Facilities
INTERNATIONAL
Subic Bay, 18 300,000 16,000 Subic Bay Metropolitan 2002
The Philippines++ Authority
</TABLE>
- ----------
* Documents and packages
+ Handles international express package and freight shipments to and from
Asia, Europe and North America.
++ Handles intra-Asia express package and freight shipments.
FedEx's facilities at the Memphis International Airport also consist of
aircraft hangars, flight training and fuel facilities, administrative offices
and warehouse space. FedEx leases these facilities from the Memphis-Shelby
County Airport Authority under several leases. The leases cover land, the
administrative and sorting buildings, other facilities, ramps and certain
related equipment. FedEx has the option to purchase certain equipment (but
not buildings or improvements to real estate) leased under such leases at the
end of the lease term for a nominal sum. The leases obligate FedEx to
maintain and insure the leased property and to pay all related taxes,
assessments and other charges. The leases are subordinate to, and FedEx's
rights thereunder could be affected by, any future lease or agreement between
the Authority and the United States Government.
19
<PAGE>
In addition to the facilities noted above, FedEx has major international
sorting and freight handling facilities located at Narita Airport in Tokyo,
Japan, Charles de Gaulle Airport in Paris, France, Stansted Airport outside
London, England and Pearson Airport in Toronto, Canada. New, larger
facilities were opened in 1998 at the new Chek Lap Kok airport in Hong Kong,
CKS International Airport in Taiwan and Dubai, United Arab Emirates.
Construction on a 189,000 square foot facility to be located at Miami
International Airport is expected to begin in late 1999 or early 2000.
CHARLES DE GAULLE EUROPEAN REGIONAL HUB
FedEx currently leases approximately 108,000 square feet from Aeroports
de Paris ("ADP") for FedEx's European sort facility. FedEx expects its new
European regional hub facility located at Charles de Gaulle Airport, Roissy
(Paris), France to be operational in early September 1999. The facility will
be 861,325 square feet located in 14 different buildings. FedEx will lease
the space from ADP. The lease term commences on the first day of operations
of the new facility and terminates 30 years later. The sort capacity in phase
one of the facility is expected to be 48,000 packages and documents per hour.
As of July 30, 1999, FedEx is in the operational testing and training
phase of the new facility. The first day of operations is scheduled to be
September 6, 1999. The aircraft ramp is in place and FedEx expects that the
facility will be ready to accept aircraft on September 6.
FedEx is required to give ADP two months' prior notice when the company
will move out of the existing leased facility and terminate the lease. The
company has not yet given ADP such notice because FedEx may need to keep some
of the existing leased space. As of July 30, 1999, FedEx plans to retain
approximately half of the present area or about 54,000 square feet for
heavyweight airfreight operations, ECCS operations (principally warehousing
operations) and for FedEx's GSPs.
ADMINISTRATIVE AND OTHER PROPERTIES AND FACILITIES
FedEx has facilities housing administrative and technical operations on
approximately 200 acres adjacent to the Memphis International Airport. Of the
seven buildings located on this site, four are subject to long-term leases,
and the other three are owned by FedEx. FedEx also leases approximately 90
facilities in the Memphis area for its corporate headquarters, warehouse
facilities and administrative offices. FedEx has opened an office campus in
Collierville, Tennessee for its information technology and telecommunications
division, and is building a headquarters office campus in East Shelby County,
Tennessee. The headquarters campus, which will comprise nine separate
buildings with more than 1.1 million square feet of space, is designed to
consolidate many administrative and training functions currently spread
throughout the Memphis metropolitan area. When completed by late fall of
2001, the office campus will bring together approximately 3,700 employees
from more than 100 work groups.
FedEx owns 14 and leases 711 facilities for city station operations in
the United States. In addition, 151 city stations are owned or leased
throughout FedEx's international network. The majority of these leases are
for terms of five to ten years. FedEx believes that suitable alternative
facilities are available in each locale on satisfactory terms, if necessary.
As of July 1, 1999, FedEx leased space for 372 FedEx World Service Centers in
the United States and had placed approximately 34,066 Drop Boxes. FedEx also
owns stand-alone mini-centers located on leaseholds in parking lots adjacent
to office buildings, shopping centers and office parks of which 114 were
operating at July 1, 1999. Internationally, FedEx leases space for 43 FedEx
World Service Centers and has approximately 973 FedEx Drop Boxes.
20
<PAGE>
FedEx leases central processing units and most of the disk drives,
printers and terminals used for data processing. Owned equipment consists
primarily of Digitally Assisted Dispatch Systems ("DADS") terminals used in
communications between dispatchers and couriers, computerized routing,
tracing and billing equipment used by customers and mobile radios used in
FedEx's vehicles. FedEx also leases space on C-Band and Ku-Band satellite
transponders for use in its telecommunications network.
RPS, INC.
As of June 30, 1999, RPS operated 369 facilities, including 27 hubs.
Fifty-four of the facilities, 23 of which are hubs, are owned; 315 facilities
are leased, generally for terms of three years or less. Thirteen of the
facilities, three of which are hubs, are operated by RPS, Ltd., RPS'
subsidiary operating in Canada. The 27 hub facilities are strategically
located to cover the geographic area served by RPS. These facilities average
111,000 square feet and range in size from 33,000 to 315,000 square feet.
RPS' corporate offices and information and data centers are located in
the Pittsburgh, Pennsylvania area in an approximately 350,000 square foot
building owned by RPS.
VIKING FREIGHT, INC.
As of June 30, 1999, Viking operated 50 terminals, 35 of which are
owned. The terminals are strategically located to cover the geographic area
served by Viking. These facilities range in size from 1,800 to 72,650 square
feet of office and dock space, and are located on sites ranging from 1.8 to
22.0 acres. The company's corporate headquarters is located in leased
facilities in San Jose, California.
ROBERTS EXPRESS, INC.
Roberts Express's corporate headquarters is located in Akron, Ohio in
owned facilities. Roberts does not use terminal facilities in its business.
FDX GLOBAL LOGISTICS, INC.
FDX Global Logistics' corporate headquarters is located in Memphis,
Tennessee in leased facilities. Caliber Logistics' headquarters is located in
Hudson, Ohio in leased facilities.
ITEM 3. LEGAL PROCEEDINGS
FEDERAL EXPRESS CORPORATION
There are two separate class-action lawsuits against FedEx generally
alleging that FedEx has breached its contract with the plaintiffs in
transporting packages shipped by them. These lawsuits allege that FedEx
continued to collect a 6.25% federal excise tax on the transportation of
property shipped by air after the tax expired on December 31, 1995, until it
was reinstated in August 1996. The plaintiffs seek certification as a
class action, damages, an injunction to enjoin FedEx from continuing to
collect the excise tax referred to above, and an award of attorneys' fees and
costs. One case was filed in Circuit Court of Greene County, Alabama.
21
<PAGE>
The other case, which was filed in the Supreme Court of New York, New
York County, and contained allegations and requests for relief substantially
similar to the Alabama case, was dismissed with prejudice on FedEx's motion
on October 7, 1997. The Court found that there was no breach of contract and
that the other causes of action were preempted by federal law. The plaintiffs
appealed the dismissal. This case originally alleged that FedEx continued to
collect the excise tax on the transportation of property shipped by air after
the tax expired on December 31, 1996. The New York complaint was later
amended to cover the first expiration period of the tax (December 31, 1995
through August 27, 1996) covered in the original Alabama complaint. The
dismissal was affirmed by the appellate court on March 2, 1999. The
plaintiffs are now seeking permission to appeal to the next appellate level.
The air transportation excise tax expired on December 31, 1995, was
reenacted by Congress effective August 27, 1996, and expired again on
December 31, 1996. The excise tax was then reenacted by Congress effective
March 7, 1997. The expiration of the tax relieved FedEx of its obligation to
pay the tax during the periods of expiration. The Taxpayer Relief Act of
1997, signed by President Clinton in August 1997, extended the tax for ten
years through September 30, 2007.
FedEx intends to vigorously defend itself in this case. No amount has
been reserved for this contingency.
In November 1987, The Flying Tiger Line Inc. ("Flying Tigers"), a
company acquired by FedEx in 1989, received a notice from the United States
Environmental Protection Agency ("EPA") identifying Flying Tigers as a
potentially responsible party ("PRP") in connection with a "Superfund" site
located in Monterey Park, California. The site is a 190-acre landfill which
operated from 1948 through 1984. In June 1985, the EPA began a remedial
investigation of the site to identify the extent of contamination. The EPA
estimates that approximately 0.1% of the waste disposed at the site is
attributable to Flying Tigers. Flying Tigers participated in a partial
settlement relating to remedial actions for management of contamination and
site control. Partial consent decrees were entered in the United States
District Court for the Central District of California in 1989 and 1992 which
provided, in part, for payments of $109,000 and $230,000, respectively, by
Flying Tigers and FedEx to the partial-settlement escrow account. All
outstanding issues are not expected to be resolved for several years. Due to
several variables which are beyond FedEx's control, it is impossible to
accurately estimate FedEx's potential share of the remaining costs, but based
on Flying Tigers' relatively insignificant contribution of waste to the site,
FedEx believes that its remaining liability will not be material.
THE COMPANY
The Company and its subsidiaries are subject to other legal proceedings
and claims that arise in the ordinary course of their business. In the
opinion of management, the aggregate liability, if any, with respect to these
other actions will not materially adversely affect the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended May 31, 1999.
22
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Company is as follows
(included herein pursuant to Instruction 3 to Item 401(b) of Regulation S-K
and General Instruction G(3) of Form 10-K):
<TABLE>
<CAPTION>
OFFICER, YEAR FIRST
ELECTED AS OFFICER AGE POSITIONS HELD WITH COMPANY
------------------- --- ---------------------------
<S> <C> <C>
FREDERICK W. SMITH 54 Chairman, President and Chief
1971 Executive Officer of the Company
since January 1998; Chairman of
FedEx since 1975; Chairman,
President and Chief Executive
Officer of FedEx from April 1993
to January 1998; Chief Executive
Officer of FedEx from 1977 to
January 1998; and President of
FedEx from June 1971 to February
1975.
T. MICHAEL GLENN 43 Executive Vice President - Market
1985 Development and Corporate
Communications of the Company
since January 1998; Senior Vice
President - Marketing, Customer
Service and Corporate
Communications of FedEx from June
1994 to January 1998; Senior Vice
President - Marketing and Corporate
Communications of FedEx from
December 1993 to June 1994; Senior
Vice President - Worldwide Marketing
Catalog Services and Corporate
Communications of FedEx from June
1993 to December 1993; Senior Vice
President - Catalog and Remail
Services of FedEx from September
1992 to June 1993; Vice President -
Marketing of FedEx from August 1985
to September 1992; and various
management positions in sales and
marketing and senior sales
specialist of FedEx from 1981 to
1985.
ALAN B. GRAF, JR. 45 Executive Vice President and Chief
1987 Financial Officer of the Company
since January 1998; Executive Vice
President and Chief Financial
Officer of FedEx from February
1996 to January 1998; Senior Vice
President and Chief Financial
Officer of FedEx from December
1991 to February 1996; Vice
President and Treasurer of FedEx
from August 1987 to December 1991;
and various management positions
in finance and a senior financial
analyst of FedEx from 1980 to 1987.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
OFFICER, YEAR FIRST
ELECTED AS OFFICER AGE POSITIONS HELD WITH COMPANY
------------------- --- ---------------------------
<S> <C> <C>
JAMES S. HUDSON 50 Corporate Vice President - Strategic
1992 Financial Planning and Control and
Principal Accounting Officer since
January 1998; Vice President - Corporate
Financial Planning and Control of
FedEx from January 1997 to January
1998; Vice President, Controller
and Chief Accounting Officer of
FedEx from December 1994 to January
1997; Vice President-Finance -
Europe, Africa and Mediterranean of
FedEx from July 1992 to December
1994; and various management
positions in finance at FedEx from
1974 to 1992.
DENNIS H. JONES 47 Executive Vice President and Chief
1986 Information Officer of the Company since
January 1998; Senior Vice President
and Chief Information Officer of FedEx
from December 1991 to January 1998;
Vice President - Customer
Automation and Invoicing of FedEx
from December 1986 to December
1991; and various management
positions in finance and a
financial analyst of FedEx from
1975 to 1986.
KENNETH R. MASTERSON 55 Executive Vice President, General
1980 Counsel and Secretary of the Company
since January 1998; Executive Vice
President, General Counsel and
Secretary of FedEx from February
1996 to January 1998; Senior Vice
President, General Counsel and
Secretary of FedEx from September
1993 to February 1996; Senior Vice
President and General Counsel of
FedEx from February 1981 to
September 1993; and Vice President
- Legal of FedEx from January 1980
to February 1981.
</TABLE>
Officers are elected by, and serve at the discretion of, the Board of
Directors. There is no arrangement or understanding between any officer and
any person, other than a director or executive officer of the Company or of
any of its subsidiaries acting in his or her official capacity, pursuant to
which any officer was selected. There are no family relationships between any
executive officer and any other executive officer or director of the Company
or of any of its subsidiaries. There has been no event involving any
executive officer under any bankruptcy act, criminal proceeding, judgment or
injunction during the past five years.
24
<PAGE>
PART II
Information for Items 5 through 8 of this Report appears in the
Company's 1999 Annual Report to Stockholders as indicated in the following
table and is incorporated herein by reference.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Information regarding stock listing, market information and stockholders
is contained in the Corporate Information section of the Company's 1999
Annual Report to Stockholders, on page 40 under the headings, "Stock
listing," "Stockholders" and "Market information" and is incorporated herein
by reference. As of August 2, 1999, the closing price of the Company's common
stock on the New York Stock Exchange was $44.75 per share.
No cash dividends have been declared. The Company has never declared a
dividend on its shares because its policy has been to reinvest earnings in
the Company's businesses.
There are no material restrictions on the Company's ability to declare
dividends, nor are there any material restrictions on the ability of the
Company's subsidiaries to transfer funds to the Company in the form of cash
dividends, loans or advances. See Note 4 to Notes to Consolidated Financial
Statements set forth in the Company's 1999 Annual Report to Stockholders,
which Note is incorporated herein by reference.
<TABLE>
<CAPTION>
PAGE IN ANNUAL REPORT
TO STOCKHOLDERS
---------------------
<S> <C>
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Data................. 39
See Management's Discussion and Analysis of Results
of Operations and Financial Condition set forth in the
Company's 1999 Annual Report to Stockholders for a
discussion of factors such as accounting changes, business
combinations or dispositions of business operations that
may materially affect the comparability of the information
reflected in selected financial data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.... 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK................................ 14, 15
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income......................... 19
Consolidated Balance Sheets............................... 20
Consolidated Statements of Cash Flows..................... 21
Consolidated Statements of Changes in
Stockholders' Investment and Comprehensive Income....... 22
Notes to Consolidated Financial Statements................ 23
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding members of the Company's Board of Directors is
presented in sections "Stock Ownership - Directors and Executive Officers,"
"Election of Directors," "Meetings and Committees," "Compensation of
Directors," and "Transactions with Management and Others and Compensation
Committee Interlocks and Insider Participation" on pages 6, 8 through 12 and
on page 21 of the Definitive Proxy Statement for the Company's 1999 Annual
Meeting of Stockholders which will be held September 27, 1999 and is
incorporated herein by reference. Information regarding executive officers of
the Company is included above in Part I of this Form 10-K under the caption
"Executive Officers of the Registrant" pursuant to Instruction 3 to Item
401(b) of Regulation S-K and General Instruction G(3) of Form 10-K.
Information for Items 11 through 13 of this Report appears in the
Definitive Proxy Statement for the Company's 1999 Annual Meeting of
Stockholders to be held on September 27, 1999, as indicated in the following
table and is incorporated herein by reference.
<TABLE>
<CAPTION>
PAGE IN PROXY
STATEMENT
-------------
<S> <C>
ITEM 11. EXECUTIVE COMPENSATION
Compensation Information................................... 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Stock Ownership - Directors and Executive Officers......... 2
Stock Ownership - Significant Stockholders................. 2
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others and Compensation
Committee Interlocks and Insider Participation......... 21
</TABLE>
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, together with
the Notes to Consolidated Financial Statements, and the report thereon of
Arthur Andersen LLP, dated June 29, 1999, are presented on pages 19 through
38 of the Company's 1999 Annual Report to Stockholders and are incorporated
herein by reference. The Report of Independent Auditors on the consolidated
statements of income, shareholders' equity and cash flows of Caliber System,
Inc. (not presented separately herein) for the year ended December 31, 1996
is included as Exhibit 99 to this Report. With the exception of the
aforementioned information and the information incorporated by reference in
Items 1, 5, 6, 7, 7A and 8 hereof, the Company's 1999 Annual Report to
Stockholders is not to be deemed as filed as part of this Report.
<TABLE>
<CAPTION>
2. FINANCIAL STATEMENT SCHEDULE PAGE NUMBER
IN FORM 10-K
------------
<S> <C>
Report of Independent Public Accountants on Financial Statement
Schedule..................................................... S-1
Schedule II - Valuation and Qualifying Accounts................ S-2
</TABLE>
All other financial statement schedules have been omitted because they
are not applicable or the required information is included in the
consolidated financial statements, or the notes thereto, contained in the
Company's 1999 Annual Report to Stockholders and incorporated herein by
reference.
3. EXHIBITS
Exhibits 3.1, 3.2, 4.1 through 4.28, 10.1 through 10.105, 12,
13, 21, 23.1, 23.2, 24, 27 and 99 are being filed in connection with this
Report and incorporated herein by reference.
The Exhibit Index on pages E-1 through E-15 is incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
No reports were filed on Form 8-K for the fourth quarter of the Company's
fiscal year.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FDX CORPORATION
(Registrant)
BY: /s/ JAMES S. HUDSON
-----------------------------------
James S. Hudson
Corporate Vice President -
Strategic Financial Planning
and Control
(PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ FREDERICK W. SMITH* Chairman, President and
- --------------------------- Chief Executive Officer
Frederick W. Smith and Director
(PRINCIPAL EXECUTIVE OFFICER)
/s/ ALAN B. GRAF, JR.* Executive Vice President and
- --------------------------- Chief Financial Officer
Alan B. Graf, Jr. (PRINCIPAL FINANCIAL OFFICER)
/s/ JAMES S. HUDSON Corporate Vice President - August 16, 1999
- --------------------------- Strategic Financial Planning
James S. Hudson and Control
(PRINCIPAL ACCOUNTING OFFICER)
/s/ ROBERT H. ALLEN * Director
- ---------------------------
Robert H. Allen
/s/ ROBERT L. COX * Director
- ---------------------------
Robert L. Cox
/s/ RALPH D. DENUNZIO * Director
- ---------------------------
Ralph D. DeNunzio
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ JUDITH L. ESTRIN * Director
- ---------------------------
Judith L. Estrin
/s/ PHILIP GREER * Director
- ---------------------------
Philip Greer
/s/ J. R. HYDE, III * Director
- ---------------------------
J. R. Hyde, III
/s/ CHARLES T. MANATT * Director
- ---------------------------
Charles T. Manatt
/s/ GEORGE J. MITCHELL * Director
- ---------------------------
George J. Mitchell
/s/ JACKSON W. SMART, JR.* Director
- ---------------------------
Jackson W. Smart, Jr.
/s/ JOSHUA I. SMITH * Director
- ---------------------------
Joshua I. Smith
/s/ PAUL S. WALSH* Director
- ---------------------------
Paul S. Walsh
/s/ PETER S. WILLMOTT * Director
- ---------------------------
Peter S. Willmott
*By: /s/ JAMES S. HUDSON August 16, 1999
-------------------
James S. Hudson
Attorney-in-Fact
</TABLE>
29
<PAGE>
S-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To FDX Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in FDX Corporation's 1999 Annual
Report to Stockholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated June 29, 1999. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
financial statement schedule on page S-2 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The financial statement schedule has been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/S / ARTHUR ANDERSEN LLP
----------------------------------
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
June 29, 1999
<PAGE>
S-2
SCHEDULE II
FDX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31,1999,
1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE
BALANCE AT CHARGED TO CHARGED TO AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
- ----------- ---------- ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Accounts
Receivable Allowances
- ---------------------
1999............... $61,409 $71,704 $2,769 (A) $ 67,577 (B) $68,305
------- ------- ------ -------- -------
------- ------- ------ -------- -------
1998 (1)........... $86,154 $95,634 $ -- $120,379 (B) $61,409
------- ------- ------ -------- -------
------- ------- ------ -------- -------
1997 (2)........... $43,395 $76,150 $ -- $ 51,415 (B) $68,130
------- ------- ------ -------- -------
------- ------- ------ -------- -------
Viking
Restructuring Reserve
- ---------------------
1999............... $18,857 $ -- $ -- $ 2,818 (C) $16,039
------- ------- ------ -------- -------
------- ------- ------ -------- -------
1998 (1)........... $64,342 $ -- $ -- $ 45,485 (C) $18,857
------- ------- ------ -------- -------
------- ------- ------ -------- -------
Reserve Related to
Merger of
FedEx and Caliber
- ------------------
1999............... $27,274 $ -- $ -- $ 11,628 (C) $15,646
------- ------- ------ -------- -------
------- ------- ------ -------- -------
1998 (1)........... $ -- $88,000 $ -- $ 60,726 (C) $27,274
------- ------- ------ -------- -------
------- ------- ------ -------- -------
</TABLE>
(A) Reclassifications.
(B) Uncollectible accounts written off, net of recoveries.
(C) Amounts paid and charged to reserve.
(1) Period comprises Caliber's 53-week period from May 25, 1997 to May 31,
1998 consolidated with FedEx's year ended May 31, 1998.
(2) Period comprises Caliber's calendar year ended December 31, 1996
consolidated with FedEx's year ended May 31, 1997.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of Registrant
(Filed as Exhibit 3.1 to Amendment No. 1 to Registrant's
Registration Statement on Form S-4, Commission File No.
333-39483, and incorporated herein by reference.)
3.2 Amended and Restated By-laws of Registrant (Filed as Exhibit
3.2 to Amendment No. 1 to Registrant's Registration Statement on
Form S-4, Commission File No. 333-39483, and incorporated
herein by reference.)
4.1 Indenture dated as of May 15, 1989 between FedEx and BONY
relating to FedEx's unsecured debt securities. (Filed as an
exhibit to FedEx's Registration Statement No. 33-28796 on Form
S-3 and incorporated herein by reference.)
4.2 Supplemental Indenture No. 2 dated as of August 11, 1989
between FedEx and BONY. (Filed as Exhibit 4.2 to FedEx's
Registration Statement No. 33-30415 on Form S-3 and
incorporated herein by reference.)
E-1
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4.3 Supplemental Indenture No. 3 dated as of October 15, 1989
between FedEx and BONY relating to FedEx's 9 5/8% Sinking Fund
Debentures due October 15, 2019. (Filed as Exhibit 4.2 to
FedEx's Current Report on Form 8-K dated October 16, 1989,
Commission File No. 1-7806, and incorporated herein by
reference.)
4.4 Supplemental Indenture No. 5 dated as of August 15, 1990
between FedEx and BONY. (Filed as Exhibit 4(c) to FedEx's
Current Report on Form 8-K dated August 28, 1990, Commission
File No. 1-7806, and incorporated herein by reference.)
4.5 Indenture dated May 15, 1989 including Supplemental Indenture
Nos. 2, 3 and 5 dated as described above, between FedEx and
BONY, relating to FedEx's Medium-Term Notes, Series B, the last
of which is due August 15, 2006, FedEx's 9 7/8% Notes due April
1, 2002, FedEx's 9.65% Notes due June 15, 2012. (Filed as
described above.)
4.6 Form of Fixed Rate Medium-Term Note, Series B, the last of
which is due August 15, 2006. (Filed as Exhibit 4.4 to FedEx's
Registration Statement No. 33-40018 on Form S-3 and
incorporated herein by reference.)
4.7 Form of Floating Rate Medium-Term Note, Series B, the last of
which is due August 15, 2006. (Filed as Exhibit 4.5 to FedEx's
Registration Statement No. 33-40018 on Form S-3 and
incorporated herein by reference.)
4.8 Form of 9 7/8% Note due April 1, 2002. (Filed as Exhibit 4.1 to
FedEx's Current Report on Form 8-K dated March 23, 1992,
Commission File No. 1-7806, and incorporated herein by
reference.)
4.9 Form of 9.65% Note due June 15, 2012. (Filed as Exhibit 4.1 to
FedEx's Current Report on Form 8-K dated June 18, 1992,
Commission File No. 1-7806, and incorporated herein by
reference.)
4.10 Indenture dated as of July 1, 1996 between FedEx and The First
National Bank of Chicago, as Trustee, relating to FedEx's
unsecured debt securities. (Filed as Exhibit 4.14 to FedEx's
FY96 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
4.11 Supplemental Indenture No. 1 dated as of July 1, 1997 between
FedEx and The First National Bank of Chicago relating to
FedEx's 7.60% Notes due July 1, 2097. (Filed as Exhibit 4.1 to
FedEx's Current Report on Form 8-K dated July 7, 1997,
Commission File No. 1-7806, and incorporated herein by
reference.)
4.12 Form of 7.60% Note due July 1, 2097. (Filed as Exhibit 4.2 to
FedEx's Current Report on Form 8-K dated July 7, 1997,
Commission File No. 1-7806, and incorporated herein by
reference.)
E-2
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4.13 Pass Through Trust Agreement dated as of February 1, 1993, as
amended and restated as of October 1, 1995, between FedEx and
BONY, as Pass Through Trustee, relating to FedEx's 1993 Pass
Through Certificates, Series A1, A2, B1, B2, C1 and C2, 1995
Pass Through Certificates, Series A1, A2, B1, B2 and B3 and
1996 Pass Through Certificates, Series A1 and A2. (Filed as
Exhibit 4.a.1 to FedEx's Current Report on Form 8-K dated
October 26, 1995, Commission File No. 1-7806, and incorporated
herein by reference.)
4.14 Form of 8.04% and 8.76% 1993 Pass Through Certificates, Series
A1 and A2 due November 22, 2007 and May 22, 2015, respectively.
(Filed as Exhibit 4(a)(2) to FedEx's Current Report on Form 8-K
dated February 4, 1993, Commission File No. 1-7806, and
incorporated herein by reference.)
4.15 Form of 6.68% and 7.63% 1993 Pass Through Certificates, Series
B1 and B2 due January 1, 2008 and January 1, 2015,
respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report
on Form 8-K dated September 23, 1993, Commission File No.
1-7806, and incorporated herein by reference.)
4.16 Form of 7.15% and 7.96% 1993 Pass Through Certificates, Series
C1 and C2 due September 28, 2012 and March 28, 2017,
respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report
on Form 8-K dated December 2, 1993, Commission File No. 1-7806,
and incorporated herein by reference.)
4.17 Form of 7.63% and 8.06% 1995 Pass Through Certificates, Series
A1 and A2 due January 5, 2014 and January 5, 2016,
respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report
on Form 8-K dated August 16, 1995, Commission File No. 1-7806,
and incorporated herein by reference.)
4.18 Form of 6.05%, 7.11% and 7.58% 1995 Pass Through Certificates,
Series B1, B2 and B3 due March 19, 1996, January 2, 2014 and
July 2, 2019, respectively. (Filed as Exhibit 4.a.2 to FedEx's
Current Report on Form 8-K dated October 26, 1995, Commission
File No. 1-7806, and incorporated herein by reference.)
4.19 Form of 7.85% and 8.17% 1996 Pass Through Certificates, Series
A1 and A2 due January 30, 2015 and January 30, 2018,
respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report
on Form 8-K dated June 5, 1996, Commission File No. 1-7806, and
incorporated herein by reference.)
4.20 Pass Through Trust Agreement dated as of March 1, 1994 between
FedEx and BONY, as Pass Through Trustee, relating to FedEx's
1994 Pass Through Certificates, Series A310-A1, A310-A2 and
A310-A3. (Filed as Exhibit 4.a.1 to FedEx's Current Report on
Form 8-K dated March 16, 1994, Commission File No. 1-7806, and
incorporated herein by reference.)
4.21 Form of 7.53%, 7.89% and 8.40% 1994 Pass Through Certificates,
Series A310-A1, A310-A2 and A310-A3 due September 23, 2006,
September 23, 2008 and March 23, 2010, respectively. (Filed as
Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated March
16, 1994, Commission File No. 1-7806, and incorporated herein
by reference.)
E-3
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4.22 Pass Through Trust Agreement dated as of June 1, 1996 between
FedEx and State Street Bank and Trust Company, as Pass Through
Trustee, relating to FedEx's 1996 Pass Through Certificates,
Series B1 and B2. (Filed as Exhibit 4(a)(1) to FedEx's
Registration Statement No. 333-07691 on Form S-3 and
incorporated herein by reference.)
4.23 Form of 7.39% and 7.84% 1996 Pass Through Certificates, Series
B1 and B2 due January 30, 2013 and January 30, 2018,
respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report
on Form 8-K dated October 17, 1996, Commission File No. 1-7806,
and incorporated herein by reference.)
4.24 Pass Through Trust Agreement dated as of May 1, 1997 between
FedEx and First Security Bank, National Association, as Pass
Through Trustee. (Filed as Exhibit 4.a.3 to FedEx's Form 8-K
dated May 12, 1997, Commission File No. 1-7806, and
incorporated herein by reference.)
4.25 Form of 7.50%, 7.52% and 7.65% 1997-1 Pass Through
Certificates, Class A, B and C due January 15, 2018, January
15, 2018 and January 15, 2014, respectively. (Filed as Exhibit
4.a.2 to FedEx's Current Report on Form 8-K dated May 22, 1997,
Commission File No. 1-7806, and incorporated herein by
reference.)
4.26 Form of 6.72%, 6.845% and 7.02% 1998-1 Pass Through
Certificates, Class A, B and C due January 15, 2022, January
15, 2019 and January 15, 2016, respectively. (Filed as Exhibit
4.a.3 to FedEx's Current Report on Form 8-K dated June 30,
1998, Commission File No. 1-7806, and incorporated herein by
reference.)
4.27 Pass Through Trust Agreement dated as of June 1, 1999 between
FedEx and the Bank of New York, as Pass Through Trustee. (Filed
as Exhibit 4(a)(1) to FedEx's Registration Statement
No. 333-80001 on Form S-3 and incorporated herein by
reference.)
4.28 Form of 7.65%, 7.90% and 8.25% 1999-1 Pass Through Certificates
Class A, B and C due January 15,2023, January 15, 2020 and
January 15, 2019, respectively. (Filed as Exhibit 4(a)(2) to
FedEx's Registration Statement No. 333-80001 on Form S-3 and
incorporated herein by reference.)
10.1 Indenture dated as of August 1, 1979 between the Memphis-Shelby
County Airport Authority (the "Authority") and BONY, as
Trustee. (Refiled as Exhibit 10.1 to FedEx's FY90 Annual Report
on Form 10-K, Commission File No. 1-7806, and incorporated
herein by reference.)
10.2 Second Supplemental Indenture dated as of May 1, 1982 between
the Authority and BONY. (Refiled as Exhibit 10.2 to FedEx's
FY93 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.3 Third Supplemental Indenture dated as of November 1, 1982
between the Authority and BONY. (Refiled as Exhibit 10.3 to
FedEx's FY93 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.4 Fourth Supplemental Indenture dated as of December 1, 1984
between the Authority and BONY relating to 7 7/8% Special
Facilities Revenue Bonds, Series 1984 due September 1, 2009.
(Refiled as Exhibit 10.4 to FedEx's FY95 Annual Report on Form
10-K, Commission File No. 1-7806, and incorporated herein by
reference.)
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10.5 Fifth Supplemental Indenture dated as of July 1, 1992 between
the Authority and BONY relating to 6 3/4% Special Facilities
Revenue Bonds, Refunding Series 1992 due September 1, 2012.
(Filed as Exhibit 10.5 to FedEx's FY92 Annual Report on Form
10-K, Commission File No. 1-7806, and incorporated herein by
reference.)
10.6 Sixth Supplemental Indenture dated as of July 1, 1997 between
the Authority and BONY relating to 5.35% Special Facilities
Revenue Bonds, Refunding Series 1997 due September 1, 2012.
(Filed as Exhibit 10.6 to FedEx's FY97 Annual Report on Form
10-K, Commission File No. 1-7806, and incorporated herein by
reference.)
10.7 Guaranty dated as of August 1, 1979 from FedEx to BONY.
(Refiled as Exhibit 10.5 to FedEx's FY90 Annual Report on Form
10-K, Commission File No. 1-7806, and incorporated herein by
reference.)
10.8 Reaffirmation of Guaranty dated as of May 1, 1982 from FedEx to
BONY. (Refiled as Exhibit 10.7 to FedEx's FY93 Annual Report on
Form 10-K, Commission File No. 1-7806, and incorporated herein
by reference.)
10.9 Reaffirmation of Guaranty dated as of December 1, 1984 from
FedEx to BONY relating to Special Facilities Revenue Bonds,
Series 1984. (Refiled as Exhibit 10.10 to FedEx's FY93 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.10 Reaffirmation of Guaranty dated as of July 30, 1992 from FedEx
to BONY relating to Special Facilities Revenue Bonds, Refunding
Series 1992. (Filed as Exhibit 10.11 to FedEx's FY92 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.11 Reaffirmation of Guaranty dated as of July 1, 1997 from FedEx
to BONY relating to Special Facilities Revenue Bonds, Refunding
Series 1997. (Filed as Exhibit 10.11 to FedEx's FY97 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.12 Consolidated and Restated Lease Agreement dated as of August 1,
1979 between the Authority and FedEx. (Refiled as Exhibit 10.12
to FedEx's FY90 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.13 First Supplemental Lease Agreement dated as of April 1, 1981
between the Authority and FedEx. (Filed as Exhibit 10.13 to
FedEx's FY92 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.14 Second Supplemental Lease Agreement dated as of May 1, 1982
between the Authority and FedEx. (Refiled as Exhibit 10.14 to
FedEx's FY93 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
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10.15 Third Supplemental Lease Agreement dated November 1, 1982
between the Authority and FedEx. (Filed as Exhibit 28.22 to
FedEx's FY93 Second Quarter Report on Form 10-Q, Commission
File No. 1-7806, and incorporated herein by reference.)
10.16 Fourth Supplemental Lease Agreement dated July 1, 1983 between
the Authority and FedEx. (Filed as Exhibit 28.23 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.17 Fifth Supplemental Lease Agreement dated February 1, 1984
between the Authority and FedEx. (Filed as Exhibit 28.24 to
FedEx's FY93 Second Quarter Report on Form 10-Q, Commission
File No. 1-7806, and incorporated herein by reference.)
10.18 Sixth Supplemental Lease Agreement dated April 1, 1984 between
the Authority and FedEx. (Filed as Exhibit 28.25 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.19 Seventh Supplemental Lease Agreement dated June 1, 1984 between
the Authority and FedEx. (Filed as Exhibit 28.26 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.20 Eighth Supplemental Lease Agreement dated July 1, 1988 between
the Authority and FedEx. (Filed as Exhibit 28.27 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.21 Ninth Supplemental Lease Agreement dated July 12, 1989 between
the Authority and FedEx. (Filed as Exhibit 28.28 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.22 Tenth Supplemental Lease Agreement dated October 1, 1991
between the Authority and FedEx. (Filed as Exhibit 28.29 to
FedEx's FY93 Second Quarter Report on Form 10-Q, Commission
File No. 1-7806, and incorporated herein by reference.)
10.23 Eleventh Supplemental Lease Agreement dated as of July 1, 1994
between the Authority and FedEx. (Filed as Exhibit 10.21 to
FedEx's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.24 Twelfth Supplemental Lease Agreement dated July 1, 1993 between
the Authority and FedEx. (Filed as Exhibit 10.23 to FedEx's
FY93 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.25 Thirteenth Supplemental Lease Agreement dated as of June 1,
1995 between the Authority and FedEx. (Filed as Exhibit 10.23
to FedEx's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
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10.26 Fourteenth Supplemental Lease Agreement dated as of January 1,
1996 between the Authority and FedEx. (Filed as Exhibit 10.24
to FedEx's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.27 Fifteenth Supplemental Lease Agreement dated as of January 1,
1997 between the Authority and FedEx. (Filed as Exhibit 10.1 to
FedEx's FY97 Third Quarter Report on Form 10-Q, Commission File
No. 1-7806, and incorporated herein by reference.)
10.28 Sixteenth Supplemental Lease Agreement dated as of April 1,
1997 between the Authority and FedEx (Filed as Exhibit 10.28 to
FedEx's FY97 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.29 Seventeenth Supplemental Lease Agreement dated as of May 1,
1997 between the Authority and FedEx. (Filed as Exhibit 10.29
to FedEx's FY97 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.30 Special Facility Lease Agreement dated as of August 1, 1979
between the Authority and FedEx. (Refiled as Exhibit 10.15 to
FedEx's FY90 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.31 First Special Facility Supplemental Lease Agreement dated as of
May 1, 1982 between the Authority and FedEx. (Filed as Exhibit
10.25 to FedEx's FY93 Annual Report on Form 10-K, Commission
File No. 1-7806, and incorporated herein by reference.)
10.32 Second Special Facility Supplemental Lease Agreement dated as
of November 1, 1982 between the Authority and FedEx. (Filed as
Exhibit 10.26 to FedEx's FY93 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.33 Third Special Facility Supplemental Lease Agreement dated as of
December 1, 1984 between the Authority and FedEx. (Refiled as
Exhibit 10.25 to FedEx's FY95 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.34 Fourth Special Facility Supplemental Lease Agreement dated as
of July 1, 1992 between the Authority and FedEx. (Filed as
Exhibit 10.20 to FedEx's FY92 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.35 Fifth Special Facility Supplemental Lease Agreement dated as of
July 1, 1997 between the Authority and FedEx. (Filed as Exhibit
10.35 to FedEx's FY97 Annual Report on Form 10-K, Commission
File No. 1-7806, and incorporated herein by reference.)
10.36 Special Facility Lease Agreement dated as of July 1, 1993
between the Authority and FedEx. (Filed as Exhibit 10.29 to
FedEx's FY93 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
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10.37 Special Facility Ground Lease Agreement dated as of July 1,
1993 between the Authority and FedEx. (Filed as Exhibit 10.30
to FedEx's FY93 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.38 Indenture dated as of July 1, 1993 between the Authority and
BONY, as Trustee, relating to 6.20% Special Facility Revenue
Bonds, Series 1993, due July 1, 2014. (Filed as Exhibit 10.31
to FedEx's FY93 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.39 Guaranty dated as of July 1, 1993 from FedEx to BONY relating
to 6.20% Special Facility Revenue Bonds, Series 1993. (Filed as
Exhibit 10.32 to FedEx's FY93 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.40 Lease Agreement dated as of May 7, 1985 between the City of
Oakland and FedEx. (Filed as Exhibit 28.5 to FedEx's FY93
Second Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
10.41 Affirmative Action Agreement dated as of May 14, 1985, to Lease
Agreement dated May 7, 1985, between the City of Oakland and
FedEx. (Filed as Exhibit 28.6 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.42 First Supplemental Agreement dated August 5, 1986, to Lease
Agreement dated May 7, 1985, between the City of Oakland and
FedEx. (Filed as Exhibit 28.7 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.43 Second Supplemental Agreement dated February 17, 1987, to Lease
Agreement dated May 7, 1985, between the City of Oakland and
FedEx. (Filed as Exhibit 28.8 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.44 Third Supplemental Agreement dated February 1989, to Lease
Agreement dated May 7, 1985, between the City of Oakland and
FedEx. (Filed as Exhibit 28.9 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.45 Amendment dated August 1, 1989, to Lease Agreement dated May 7,
1985, between the City of Oakland and FedEx. (Refiled as
Exhibit 10.40 to FedEx's FY95 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.46 Lease and First Right of Refusal Agreement dated July 22, 1988
between the State of Alaska, Department of Transportation and
Public Facilities and FedEx. (Filed as Exhibit 28.10 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
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10.47 Development Agreement dated July 22, 1988, to Lease and First
Right of Refusal Agreement dated July 22, 1988, between the
State of Alaska, Department of Transportation and Public
Facilities and FedEx. (Filed as Exhibit 28.11 to FedEx's FY93
Second Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
10.48 Supplement No. 1 dated May 19, 1989, to Development Agreement
dated July 22, 1988, between the State of Alaska, Department of
Transportation and Public Facilities and FedEx. (Filed as
Exhibit 28.12 to FedEx's FY93 Second Quarter Report on Form
10-Q, Commission File No. 1-7806, and incorporated herein by
reference.)
10.49 Supplement No. 1 dated July 19, 1989, to Lease and First Right
of Refusal Agreement dated July 22, 1988, between the State of
Alaska, Department of Transportation and Public Facilities and
FedEx. (Filed as Exhibit 28.13 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.50 Right-of-Way Agreement dated September 19, 1989, to Lease and
First Right of Refusal Agreement dated July 22, 1988, between
the State of Alaska, Department of Transportation and Public
Facilities and FedEx. (Filed as Exhibit 28.14 to FedEx's FY93
Second Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
10.51 Supplement No. 2 dated April 23, 1991, to Lease and First Right
of Refusal Agreement dated July 22, 1988, between the State of
Alaska, Department of Transportation and Public Facilities and
FedEx. (Filed as Exhibit 28.15 to FedEx's FY93 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.52 Lease Agreement dated October 1, 1983 between The Port
Authority of New York and New Jersey and FedEx. (Filed as
Exhibit 28.16 to FedEx's FY93 Second Quarter Report on Form
10-Q, Commission File No. 1-7806, and incorporated herein by
reference.)
10.53 Supplement No. 1 dated October 1, 1983 to Lease Agreement
dated October 1, 1983 between The Port Authority of New York
and New Jersey and FedEx. (Filed as Exhibit 28.17 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.54 Supplement No. 2 dated September 1, 1985 to Lease Agreement
dated October 1, 1983 between The Port Authority of New York
and New Jersey and FedEx. (Filed as Exhibit 28.18 to FedEx's
FY93 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.55 Supplement No. 3 dated June 1, 1992 to Lease Agreement dated
October 1, 1983 between The Port Authority of New York and New
Jersey and FedEx. (Filed as Exhibit 28.19 to FedEx's FY93
Second Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
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10.56 Supplement No. 4 dated March 1, 1993 to Lease Agreement dated
October 1, 1983 between The Port Authority of New York and New
Jersey and FedEx. (Filed as Exhibit 10.51 to FedEx's FY95
Annual Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.57 Supplement No. 5 dated February 1, 1994 to Lease Agreement
dated October 1, 1983 between The Port Authority of New York
and New Jersey and FedEx. (Filed as Exhibit 10.52 to FedEx's
FY95 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.58 Amended and Restated Land Lease Agreement dated August 1993
between FedEx and the Indianapolis Airport Authority. (Filed as
Exhibit 10.52 to FedEx's FY94 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.59 Indenture dated as of September 1, 1993 between the City of
Indianapolis, Indiana and NBD Bank, N.A., as Trustee, relating
to the City of Indianapolis Airport Facility Revenue Refunding
Bonds, Series 1994, due April 1, 2017. (Filed as Exhibit 10.1
to FedEx's FY94 First Quarter Report on Form 10-Q, Commission
File No. 1-7806, and incorporated herein by reference.)
10.60 Loan Agreement between the City of Indianapolis and FedEx.
(Filed as Exhibit 10.2 to FedEx's FY94 First Quarter Report on
Form 10-Q, Commission File No. 1-7806, and incorporated herein
by reference.)
10.61 Form of Promissory Note to the City of Indianapolis. (Filed as
Exhibit 10.3 to FedEx's FY94 First Quarter Report on Form 10-Q,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.62 Indenture dated as of October 1, 1994 between the Indianapolis
Airport Authority and NBD Bank, N. A., as Trustee, relating to
7.10% Special Facilities Revenue Bonds, Series 1994 due January
15, 2017. (Filed as Exhibit 10.1 to FedEx's FY95 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.63 Guaranty dated as of October 1, 1994 from FedEx to NBD Bank,
N.A. relating to 7.10% Special Facilities Revenue Bonds, Series
1994 due January 15, 2017. (Filed as Exhibit 10.2 to FedEx's
FY95 Second Quarter Report on Form 10-Q, Commission File No.
1-7806, and incorporated herein by reference.)
10.64 Land and Special Facilities Lease Agreement dated as of October
1, 1994 between FedEx and the Indianapolis Airport Authority
relating to 7.10% Special Facilities Revenue Bonds, Series 1994
due January 15, 2017. (Filed as Exhibit 10.3 to FedEx's FY95
Second Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
</TABLE>
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10.65 Lease Agreement dated October 9, 1994 between FedEx and Subic
Bay Metropolitan Authority. (Filed as Exhibit 10.62 to FedEx's
FY95 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.66 Indenture dated as of April 1, 1996 between Alliance Airport
Authority, Inc. and The First National Bank of Chicago, as
Trustee, relating to AllianceAirport Authority, Inc. Special
Facilities Revenue Bonds, Series 1996 (Federal Express
Corporation Project) due April 1, 2021. (Filed as Exhibit 10.66
to FedEx's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.67 Guaranty dated as of April 1, 1996 from Registrant to The First
National Bank of Chicago relating to AllianceAirport Authority,
Inc. Special Facilities Revenue Bonds, Series 1996 (Federal
Express Corporation Project) due April 1, 2021. (Filed as
Exhibit 10.67 to FedEx's FY96 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.68 Land and Special Facilities Lease Agreement dated as of April
1, 1996 between FedEx and AllianceAirport Authority, Inc.
relating to AllianceAirport Authority, Inc. Special Facilities
Revenue Bonds, Series 1996 (Federal Express Corporation
Project) due April 1, 2021. (Filed as Exhibit 10.68 to FedEx's
FY96 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.69 Assignment and Assumption Agreement dated April 10, 1996
between AllianceAirport Authority, Inc. and the City of Fort
Worth, Texas relating to AllianceAirport Authority, Inc.
Special Facilities Revenue Bonds, Series 1996 (Federal Express
Corporation Project) due April 1, 2021. (Filed as Exhibit 10.69
to FedEx's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.70 1980 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1980 Stock Incentive Plan, as amended. (Filed as
Exhibit 10.59 to FedEx's FY93 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.71 1983 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1983 Stock Incentive Plan, as amended. (Filed as an
exhibit to FedEx's Registration Statement No. 2-95720 on Form
S-8 and incorporated herein by reference.)
10.72 1984 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1984 Stock Incentive Plan, as amended. (Filed as an
exhibit to FedEx's Registration Statement No. 2-95720 on Form
S-8 and incorporated herein by reference.)
10.73 1987 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1987 Stock Incentive Plan, as amended. (Filed as an
exhibit to FedEx's Registration Statement No. 33-20138 on Form
S-8 and incorporated herein by reference.)
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10.74 1989 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1989 Stock Incentive Plan, as amended. (Filed as
Exhibit 10.26 to FedEx's FY90 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.75 1993 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1993 Stock Incentive Plan, as amended. (1993 Stock
Incentive Plan was filed as Exhibit A to FedEx's FY93
Definitive Proxy Statement, Commission File No. 1-7806, and
incorporated herein by reference, and the form of stock option
agreement was filed as Exhibit 10.61 to FedEx's FY94 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.76 Amendment to FedEx's 1980, 1983, 1984, 1987 and 1989 Stock
Incentive Plans. (Filed as Exhibit 10.27 to FedEx's FY90 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.77 Amendment to FedEx's 1983, 1984, 1987, 1989 and 1993 Stock
Incentive Plans. (Filed as Exhibit 10.63 to FedEx's FY94 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.78 1995 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1995 Stock Incentive Plan. (1995 Stock Incentive
Plan was filed as Exhibit A to FedEx's FY95 Definitive Proxy
Statement, Commission File No. 1-7806, and incorporated herein
by reference, and the form of stock option agreement was filed
as Exhibit 99.2 to FedEx's Registration Statement No. 333-03443
on Form S-8, and incorporated herein by reference.)
10.79 Amendment to FedEx's 1980, 1983, 1984, 1987, 1989, 1993 and
1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to FedEx's
FY97 Annual Report on Form 10-K, Commission File No. 1-7806,
and incorporated herein by reference.)
10.80 1997 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1997 Stock Incentive Plan. (1997 Stock Incentive
Plan was filed as Annex E to Joint Proxy Statement/Prospectus
contained in Amendment No. 1 to Registrant's Registration
Statement on Form S-4, Commission File No. 333-39483, and
incorporated herein by reference, and the form of stock option
agreement was filed as Exhibit 99.2 to FedEx's Registration
Statement No. 333-03443 on Form S-8, and incorporated herein by
reference.)
10.81 1986 Restricted Stock Plan and Form of Restricted Stock
Agreement pursuant to 1986 Restricted Stock Plan. (Filed as
Exhibit 10.28 to FedEx's FY90 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.82 1995 Restricted Stock Plan and Form of Restricted Stock
Agreement pursuant to 1995 Restricted Stock Plan. (1995
Restricted Stock Plan filed as Exhibit B to FedEx's FY95
Definitive Proxy Statement, Commission File No. 1-7806, and
incorporated herein by reference, and the Form of Restricted
Stock Agreement was filed as Exhibit 10.80 to FedEx's FY96
Annual Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
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10.83 1997 Restricted Stock Plan and Form of Restricted Stock
Agreement pursuant to 1997 Restricted Stock Plan. (Filed as
Exhibit 10.82 to FedEx's FY97 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.84 Amendment to 1997 Stock Incentive Plan (Filed as Exhibit A to
Registrant's FY98 Definitive Proxy Statement, Commission File
No. 333-39483, and incorporated herein by reference.)
10.85 FedEx's Amended and Restated Retirement Parity Pension Plan.
(Filed as Exhibit 10.83 to FedEx's FY97 Annual Report on
Form 10-K, Commission File No. 1-7806, and incorporated herein
by reference.)
10.86 Management Performance Bonus Plan. (Description of the
performance bonus plan contained in the Definitive Proxy
Statement for Registrant's 1999 Annual Meeting of Stockholders,
under the heading "Report on Executive Compensation of the
Compensation Committee of the Board of Directors" is
incorporated herein by reference.)
10.87 Long-Term Performance Bonus Plan. (A description of each
long-term performance bonus plan is contained in the Definitive
Proxy Statement for Registrant's 1999 Annual Meeting of
Stockholders, under the heading "Long-Term Incentive Plans -
Awards in Last Fiscal Year" and is incorporated herein by
reference.)
10.88 Purchase Agreement between AVSA and FedEx for purchase of
Airbus A300 aircraft. Confidential treatment has been granted
for confidential commercial and financial information, pursuant
to Rule 24b-2 under the Securities Exchange Act of 1934. (Filed
as Exhibit 10.36 to FedEx's FY91 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.89 Amendment Nos. 1 through 4 to Purchase Agreement dated July 3,
1991 between AVSA and FedEx. Confidential treatment has been
granted for confidential commercial and financial information
contained in this exhibit pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibits
10.1 through 10.5 to FedEx's FY97 Second Quarter Report on Form
10-Q, Commission File No. 1-7806, and incorporated herein by
reference.)
10.90 Sales Agreement dated April 7, 1995 between FedEx and American
Airlines, Inc. for the purchase of MD11 aircraft. Confidential
treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934. (Filed as Exhibit 10.79 to
FedEx's FY95 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.91 Amendment No. 1, dated September 19, 1996, to Sales Agreement
dated April 7, 1995 between FedEx and American Airlines, Inc.
(Filed as Exhibit 10.93 to FedEx's FY97 Annual Report on Form
10-K, Commission File No. 1-7806, and incorporated herein by
reference.)
E-13
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.92 Modification Services Agreement dated September 16, 1996
between McDonnell Douglas Corporation and FedEx. Confidential
treatment has been granted for confidential commercial and
financial information contained in this exhibit pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibit 10.6 to FedEx's FY97 Second Quarter
Report on Form 10-Q, Commission File No. 1-7806, and
incorporated herein by reference.)
10.93 Letter Agreement No. 3 dated July 15, 1997, amending the
Modification Services Agreement dated September 16, 1996,
between McDonnell Douglas and FedEx. Confidential treatment has
been granted for confidential commercial and financial
information contained in this exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as amended. (Filed
as Exhibit 10.1 to FedEx's FY98 First Quarter Report on Form
10-Q, Commission File No. 1-7806, and incorporated herein by
reference.)
10.94 Letter Agreement Nos. 5-7 dated January 12, 1998, March 16,
1998 and February 26, 1998, respectively, amending the
Modification Services Agreement dated September 16, 1996,
between McDonnell Douglas Corporation and FedEx. Confidential
treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibits
10.1 through 10.3 to FedEx's FY98 Second Quarter Report on Form
10-Q, Commission File No. 1-7806, and incorporated herein by
reference.)
10.95 Aircraft Sales Agreement dated as of April 21, 1998 between
Flightlease, Ltd. and FedEx. Confidential treatment has been
granted for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended. (Filed as Exhibit 10.94 to Registrant's FY98
Annual Report on Form 10-K, Commission File No. 333-39483, and
incorporated herein by reference.)
10.96 Credit Agreement dated January 15, 1998 among Registrant and
The First National Bank of Chicago, individually and as agent,
and certain lenders. (Filed as Exhibit 10.1 to Registrant's
FY98 Third Quarter Report on Form 10-Q, Commission File No.
333-39483, and incorporated herein by reference.)
10.97 Amendment No. 1 dated as of December 10, 1998 to Credit
Agreement dated as of January 15, 1998 among Registrant,
The First National Bank of Chicago, as Agent, and certain
Lenders. (Filed as Exhibit 10.2 to Registrant's FY99
Second Quarter Report on Form 10-Q, Commision File No.
333-39483, and incorporated herein by reference.)
10.98 Registrant's Retirement Plan for Outside Directors. (Filed as
Exhibit 10.85 to FedEx's FY97 Annual Report on Form 10-K,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.99 First Amendment to Registrant's Retirement Plan for Outside
Directors. (Filed as Exhibit 10.86 to FedEx's FY97 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
10.100 Registrant's Amended and Restated Retirement Plan for Outside
Directors. (Filed as Exhibit 10.87 to FedEx's FY97 Annual
Report on Form 10-K, Commission File No. 1-7806, and
incorporated herein by reference.)
E-14
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.101 Eighteenth Supplemental Lease Agreement dated as of July 1,
1997, between the Authority and FedEx. (Filed as Exhibit 10.2
to FedEx's FY98 First Quarter Report on Form 10-Q, Commission
File No. 1-7806, and incorporated herein by reference.)
10.102 Nineteenth Supplemental Lease Agreement dated as of September
1, 1998, between the Authority and FedEx. (Filed as Exhibit
10.1 to FedEx's FY99 Second Quarter Report on Form 10-Q,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.103 Amendments dated March 19, 1998 and January, 1999, amending the
Sales Agreement dated April 7, 1995, between American Airlines,
Inc. and FedEx. Confidential treatment has been granted for
confidential commercial and financial information, pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as
amended. (Filed as Exhibits 10.1 and 10.2, to FedEx's FY99
Third Quarter Report on Form 10-Q, Commission File No. 1-7806,
and incorporated herein by reference.)
10.104 Letter Agreement No. 9 dated January 27, 1999, amending the
Modification Services Agreement dated September 16, 1996,
between McDonnell Douglas Corporation and FedEx. Confidential
treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.3 to FedEx's FY99 Third Quarter Report on Form 10-Q,
Commission File No. 1-7806, and incorporated herein by
reference.)
10.105 Amendment No. 1 dated January 22, 1999, amending the
Modification Services Agreement dated September 16, 1996,
between McDonnell Douglas Corporation and FedEx. Confidential
treatment has been granted for confidential commercial and
financial information, pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. (Filed as Exhibit
10.4 to FedEx's FY99 Third Quarter Report on Form 10-Q,
Commission File No. 1-7806, and incorporated herein by
reference.)
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
13 Registrant's Annual Report to Stockholders for the fiscal year
ended May 31, 1999.
21 Subsidiaries of Registrant.
23.1 Consent of Independent Public Accountants.
23.2 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule.
E-15
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
99 Report of Independent Auditors.
</TABLE>
E-16
<PAGE>
Exhibit 12
<TABLE>
<CAPTION>
FDX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
Year Ended May 31,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ ------------ --------- --------- ------------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes........... $ 693,564 $ 702,094 $425,865 $ 899,518 $ 1,061,064
Add back:
Interest expense, net of
capitalized interest........... 130,923 109,249 110,080 135,696 110,590
Amortization of debt
issuance costs...... 2,493 1,628 1,328 1,481 9,249
Portion of rent expense
representative of
interest factor................ 333,971 393,775 439,729 508,325 570,789
----------- ---------- --------- --------- -------------
Earnings as adjusted................. $1,160,951 $1,206,746 $977,002 $1,545,020 $ 1,751,692
----------- ---------- --------- --------- -------------
----------- ---------- --------- --------- -------------
Fixed Charges:
Interest expense, net of
capitalized interest........... $ 130,923 $ 109,249 $110,080 $ 135,696 $ 110,590
Capitalized interest.............. 27,381 44,654 45,717 33,009 38,880
Amortization of debt
issuance costs................. 2,493 1,628 1,328 1,481 9,249
Portion of rent expense
representative of interest
factor......................... 333,971 393,775 439,729 508,325 570,789
----------- ---------- --------- --------- -------------
$ 494,768 $ 549,306 $596,854 $ 678,511 $ 729,508
----------- ---------- --------- --------- -------------
----------- ---------- --------- --------- -------------
Ratio of Earnings to Fixed
Charges 2.3 2.2 1.6 2.3 2.4
----------- ---------- --------- --------- -------------
----------- ---------- --------- --------- -------------
</TABLE>
<PAGE>
FDX CORPORATION 1999 ANNUAL REPORT
Global Connectivity
Reliable
Fast-Cycle
Integrated
E-Commerce
High-Tech
Networked
DELIVERING SUPERIOR TRANSPORTATION, LOGISTICS, AND E-COMMERCE SOLUTIONS
WORLDWIDE
FDX is a unique holding company that provides strategic direction for FedEx,
RPS and the other FDX operating companies. A $17 billion global
transportation and logistics enterprise, FDX offers a diverse portfolio of
solutions at all levels of the supply chain. Services offered by FDX
companies include worldwide express delivery, ground small-package delivery,
less-than-truckload freight delivery, and global logistics and electronic
commerce solutions.
FDX COMPANIES AT A GLANCE
FedEx, the world leader in global express distribution, offering time-certain
delivery within 24 to 48 hours among markets that generate more than 90% of
the world's gross domestic product.
RPS, North America's second-largest provider of business-to-business ground
small-package delivery.
Roberts Express, the world's leading surface-expedited carrier for nonstop,
time-critical and special-handling shipments.
FDX Global Logistics, a leader in providing customized, integrated logistics
solutions worldwide.
Viking Freight, the foremost less-than-truckload freight carrier in the
western United States.
FDX Corporation
Employees and Contractors: 190,000
Headquarters: Memphis, Tennessee
Stock Symbol: FDX
Online: www.fdxcorp.com
<PAGE>
MISSION AND VALUES
FDX will produce superior financial returns for its shareowners by providing
high value-added logistics, transportation and related information services
through focused operating companies. Customer requirements will be met in the
highest quality manner appropriate to each market segment served. FDX will
strive to develop mutually rewarding relationships with its employees,
partners and suppliers. Safety will be the first consideration in all
operations. Corporate activities will be conducted to the highest ethical and
professional standards.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
In thousands, except earnings per share 1999 1998 Percent Change
<S> <C> <C> <C>
OPERATING RESULTS
Revenues $16,773,470 $15,872,810 + 6
Operating income 1,163,086 1,010,660 +15
Operating margin 6.9% 6.4%
Net income 631,333 503,030 +26
Earnings per share, assuming dilution (1) $2.10 $1.69 +24
Earnings per share, excluding non-recurring
items, assuming dilution (1)(2) $2.28 $1.95 +17
Average common and common
equivalent shares (1) 300,643 298,408 + 1
FINANCIAL POSITION
Total assets $10,648,211 $ 9,686,060 +10
Long-term debt 1,374,606 1,642,709 -16
Common stockholders' investment 4,663,692 3,961,230 +18
</TABLE>
REVENUES (in billions)
<TABLE>
<CAPTION>
<S> <C>
97 $14.2
98 $15.9
99 $16.8
</TABLE>
EARNINGS PER SHARE (1)
<TABLE>
<CAPTION>
<S> <C>
97 $0.67
98 $1.69
99 $2.10
</TABLE>
EARNINGS PER SHARE
EXCLUDING NON-RECURRING
ITEMS (1)(2)
<TABLE>
<CAPTION>
<S> <C>
97 $1.26
98 $1.95
99 $2.28
</TABLE>
DEBT TO TOTAL CAPITALIZATION
<TABLE>
<CAPTION>
<S> <C>
97 33.0%
98 29.3%
99 22.8%
</TABLE>
RETURN ON AVERAGE EQUITY
<TABLE>
<CAPTION>
<S> <C>
97 5.8%
98 13.5%
99 14.6%
</TABLE>
(1) Reflects the two-for-one stock split effected in the form of a 100% stock
dividend on May 6, 1999.
(2) Non-recurring items include a charge of $91 million ($54 million net of tax
or $.18 per share, assuming dilution) in 1999 related to strike contingency
planning, a charge of $88 million ($80 million net of tax or $.26 per share,
assuming dilution) in 1998 related to the acquisition of Caliber System, Inc.,
and a charge of $225 million ($175 million net of tax or $.59 per share,
assuming dilution) in 1997 related to the restructuring of Viking Freight, Inc.
operations.
DEAR FELLOW SHAREOWNERS
In our first full year of consolidated operations, FDX Corporation turned in
a record performance in three very important areas. First, we increased
shareowner value by growing profits, expanding margins, and strengthening our
balance sheet. Second, we enhanced our service offerings to help our
customers create a competitive advantage in today's global
marketplace-providing innovative, technology-enabled supply chain solutions
along with e-commerce connectivity. Third, we continued our commitment to a
"people culture" that recognizes and rewards the above-and-beyond efforts of
our FDX employees and contractors.
During the past year, we also faced many challenges. Some were external, such
as managing through the Asian economic crisis. Others were internal,
including contract negotiations with the Fedex Pilots Association that
required costly strike contingency plans before we reached a five-year
agreement. In some cases, these challenges required extraordinary efforts
that may have deterred us from reaching some goals as quickly as we would
have liked. Still, the FDX network turned challenge into opportunity as we
proved that we deliver far more than packages. We deliver results.
FINANCIAL SUMMARY: FDX Results for Shareowners
In FY99, FDX exercised strong financial discipline to increase net income and
earnings per share at rates surpassing our solid revenue growth.
Revenue increased 6% to a record $16.8 billion.
<PAGE>
Net income jumped 26% to $631 million, reflecting package volume growth as
well as excellent cost controls and aggressive yield-management programs.
Earnings per share rose to a record $2.10.
FDX market value increased 73%, which led to our second two-for-one stock
split in the past three years.
As our results indicate, in FY99 FDX continued to deliver exceptional
shareowner value.
PORTFOLIO MANAGEMENT: FDX Solutions for Customers
When I reported to you last year, I emphasized the following twofold strategy
to capitalize on our broad range of service offerings:
1. Independently, each FDX operating company would remain focused on a
distinct market segment in order to operate in the most efficient and
profitable manner possible.
2. Collectively, we would create synergies across companies through coordinated
sales and marketing programs linked by state-of-the-art information technology.
This strategy has paid off handsomely since FDX was created 18
months ago. In FY99, our two largest operating companies-FedEx and RPS-each set
new records for service levels and financial results. Independently, that's an
outstanding accomplishment. But collectively, these results confirm that the
whole certainly is greater than the sum of its parts. Across every operating
company, the entire FDX team is working together to provide the total solutions
that our customers demand and deserve.
Operating Independently
Each FDX company competes in a separate, well-defined segment of the total
transportation and logistics market.
FedEx-one of the most recognized business-to-business brands in the world-is the
leader in virtually every segment of the information-intensive express
transportation market.
RPS offers cost-effective, guaranteed ground package delivery, utilizing
state-of-the-art sortation and scanning technology.
Viking Freight is the less-than-truckload leader in the western United States,
providing reliable, on-time regional freight service.
Roberts Express-which created the expedited delivery market-provides the fast
response and special handling required to meet our customers' service-critical
needs.
FDX Global Logistics offers one-stop shopping for complete supply chain
solutions by combining transportation, information, and physical logistics
services.
At FDX, we also view these individual companies through a collective lens. While
each company is focused on meeting distinct market needs, our customers have a
lot in common. They want an easy, convenient way to connect to the high-tech,
high-speed global marketplace. And it's our responsibility to help them choose
the right FDX network at the right time, with the right price.
Sharing Collective Strengths
Leveraging cross-company synergies allows FDX to deliver meaningful customer
benefits in two very important areas.
Customer Benefit #1: Coordinated sales and marketing programs are introducing
our customers to FDX "sister companies" that they haven't done business with
before.
FDX has created a new collaborative sales group, called Worldwide Services,
to provide complete supply chain solutions to our larger customers when those
solutions require the involvement of more than one FDX company. Worldwide
Services has already delivered incremental revenue and helped strengthen
customer relationships. In response to market demand, we have recently
expanded this group's responsibilities and have extended our cooperative
sales strategy. Quite frankly, our customers have responded even more
enthusiastically than we had expected when given the opportunity to buy
across the FDX portfolio.
<PAGE>
Customer Benefit #2: Information integration is making it easier for our
customers to do business with FDX.
When it comes to managing synergies across businesses, we've found that
seamless information integration is a critical component. In the past year,
we combined FedEx and RPS domestic shipping functionality on our FDX
PowerShip-Registered Trademark- and RPS Multi-Ship-Registered Trademark-
proprietary computer networks. Now, customers can sit at the dedicated
computer installed in their offices and-with just a few keystrokes-switch
between FedEx and RPS domestic shipping. In addition to improving our
proprietary systems, we have also upgraded the functionality on our Web sites
and concluded an agreement with Netscape Netcenter, providing access to FedEx
and RPS online services for more than 13 million users. Going forward, we
expect FDX technology to enhance a range of customer-related activities,
including customer automation, tracking, and management reports.
BUSINESS TRENDS: The FDX Global View
As FDX continues to pursue its twofold strategy for portfolio management, we
are realizing our vision for a high-tech marketplace that requires fast,
global reach-the same vision that drove the birth of Federal Express and the
modern air/ground express delivery industry in the early 1970s. Today, FDX is
uniquely positioned to take advantage of four major trends that are shaping
what many now call the Network Economy.
Providing Fast, Global Reach
As the world's economy becomes more fully integrated-and as barriers and
borders continue to come down-it just makes good economic sense to source and
sell globally. That, in turn, has opened multiple legs of transportation on
both the inbound "sourcing" side as well as the outbound "selling" side of
virtually every multinational business.
But this past year has tested many global companies, including FDX, which
serves 210 countries principally through the FedEx system. Despite the
softness in Pacific markets-a trend that only recently seems to be reversing
itself-the FedEx international door-to-door express business still grew in
FY99, though at less than its recent rate. This continued growth is due, in
part, to the flexibility of the FedEx global network-the ability to
reconfigure our system or simply to reroute existing flights in order to take
advantage of favorable market trends.
But in a "business without borders" environment, the true challenge is to
create a framework for global commerce. As the world`s largest express
carrier, Federal Express supports an open aviation regime, which we see as
the best way to ensure free and fair trade in the air cargo industry in the
21st century. In FY99, a new bilateral agreement was reached with China,
doubling the frequencies available to U.S. carriers. FedEx remains the only
U.S. all-express carrier with authority to fly to and from China. As we
continue to work toward true "open skies" all around the world, FDX will also
work aggressively toward other global issues, such as streamlined customs
clearance procedures.
Serving and Served by High Tech
The second major global trend is the increase in the high-tech, high
value-added sector as a percentage of total economic activity. Information
technology alone now contributes more than one-third of real economic growth
in the United States. But the high-value-added sector is much broader,
including pharmaceuticals, automotive, electronics, aviation and other goods
with high value per pound. Over the past 50 years, the weight of the nation's
economic output has barely changed while the value has increased fivefold.
As part of the new supply chain model, FDX is both a transporter and user of
high-tech and high-value goods. We supply the transportation, information,
and logistics solutions that help companies like Cisco, Dell, and Sun
Microsystems do business more effectively. But we are also a customer of
information
<PAGE>
technology goods. FDX spent nearly $1.5 billion last year to strengthen our
superior technology capabilities and to attract the best and the brightest
people.
Speeding the Supply Chain
The third influence is the increase in fast-cycle logistics as companies of
all sizes discover the power of supply chain velocity. It's not just doing
business faster; it's doing business smarter by replacing inventory with
information. After all, a warehouse is just an expensive place to put
something so you know that you have it. That's managing inventory at rest.
Instead, if you can substitute real-time information to manage inventory in
motion, you can dramatically reduce overhead and obsolescence while speeding
time to market.
To take advantage of the move toward faster, more efficient supply chains,
last October we created FDX Global Logistics. We believe that the future of
logistics will not be in brick-and-mortar warehouses, but in the kind of
information-intensive services that have been a hallmark of FedEx and now
FDX. Our operating companies are helping customers move from managing
inventory at rest to managing inventory in motion, providing the added value,
visibility, and velocity that companies need to succeed.
Conducting Business Electronically
Finally, perhaps the best way to minimize time and distance is through
electronic commerce in general and the Internet in particular.
FedEx was a pioneer in electronic commerce long before the Internet was
opened for commercial use. In 1987, we launched the original FedEx
PowerShip-Registered Trademark- network of proprietary computers, allowing
customers to process their shipments electronically. In 1996, we added FedEx
interNetShip-Registered Trademark- to our popular Web site at www.fedex.com,
becoming the first company with true Internet shipping capabilities. In fact,
FedEx interNetShip recently received the prestigious Computerworld
Smithsonian Award for its innovative use of technology. Today, with a
combination of FedEx PowerShip computers, FedEx Ship-Registered Trademark-
software, and FedEx interNetShip, more than two-thirds of U.S. domestic
shipping transactions are handled electronically. As far as two million FedEx
customers are concerned, it doesn't matter whether they use a designated
computer terminal, proprietary software, or the Internet. It's all about
convenience, accessibility, and connectivity.
Overall, the Internet has done for e-commerce what Henry Ford did for the
automobile: It's taken a luxury for a few and turned it into an affordable
tool for many. The Internet has opened e-commerce to companies of all sizes
and has created a new global business channel for selling products and
delivering digital information.
When calculating the Internet's full potential, however, it's important to
break away from the "buy-it.com" mentality in the popular press and look at
the much larger business-to-business sector, which is more than 10 times the
size of the business-to-consumer market. Business-to-business e-commerce is
estimated to top $100 billion in sales this year and exceed the
trillion-dollar sales mark by 2003. Computers and electronics-already two of
our largest customer segments-account for almost half of this category, and
supply chains are increasingly moving online. That's why we call
business-to-business the "sweet spot" of e-commerce, and why we view these
electronic customer connections as an incremental and diversified source of
revenue for FDX.
While business-to-business e-commerce will be-by far-the largest segment, we
are also leveraging the strength of the FDX portfolio in the business-to-home
market. FedEx will continue to handle the "time-sensitive" side of
residential deliveries, particularly for higher-value goods. But we are also
testing a new "service-sensitive" RPS residential delivery service to expand
our comprehensive mix of transportation and logistics solutions-and to open
the door for additional Internet retail business. Depending on the results of
the Pittsburgh-area test program, we could roll out a business-to-residential
RPS delivery service as early as next spring.
<PAGE>
Connecting the Network Economy
The new economy is global, high-tech, fast-cycle, and networked through
e-commerce-four trends that are coming together to change the way we all live
and work. People will increasingly have the ability to communicate and
transact business anywhere, any time as we move from mass production to mass
customization.
At FDX, our worldwide transportation network connects our customers to the
global marketplace. Our information network connects our customers with their
customers and with their supply chain alliances. But in the new economy,
there's one more essential network.
CORPORATE CULTURE: The FDX Commitment
Trucks and airplanes can't go anywhere without people. Computers still can't
rule the world alone. Even in this Network Economy-or perhaps especially in
this Network Economy-the essential ingredient is the human network: people
who keep the entrepreneurial spirit alive. I believe FDX has the best people
network anywhere, with more than 190,000 employees and contractors who will
do "absolutely, positively" whatever it takes to serve our customers.
In the past year, our companies have received more than their share of
accolades, consistently ranking as one of the best places to work by
publications such as Fortune and Working Mother. But I believe the true
measure of our people is found in the thousands of stories that play out
every day, all around the world-whether it's a driver who springs into action
to save the life of a stranger trapped in a wrecked car, a courier who drives
200 miles out of her way on Christmas Eve to deliver medicine to a sick
child, or an employee who decides to walk 15 miles to work, in the middle of
the night with snow and ice on the ground, when his regular ride falls
through.
Our people are the faces of FDX, and I believe that our company has a very
special bond with our employees, our customers, and our shareowners. To each
of you, FDX makes a corporate commitment.
To FDX teammates, we thank you for your unwavering commitment to our
customers, and we pledge to strengthen our mutual opportunities. Our
companies are great places to work because you make them that way.
To FDX customers, we pledge to help you succeed in the fast-changing global
marketplace. Independently, FDX companies will provide the transportation,
information, and e-commerce solutions you need for superior supply chain
performance. Collectively, we will make it easier for you to buy across the
entire spectrum of FDX services, and we will leverage technology to do so.
To FDX shareowners, we pledge to continue our focus on increasing shareowner
value. Our five-year goals call for annual earnings growth in the 12% to 15%
range and return on equity at or above 20%. We expect to achieve these
results by growing our business, improving operating margins, and making more
efficient use of capital.
Our FY99 performance was a great start for our new company, but I believe the
best is yet to come. FDX has built superior physical, virtual, and people
networks not just to prepare for change, but to shape change on a global
scale: to change the way we all connect with each other in the new Network
Economy.
Frederick W. Smith
Chairman, President and Chief Executive Officer
The FDX network turned challenge into opportunity as we proved that we deliver
far more than packages. We deliver results.
These results confirm that the whole certainly is greater than the sum of its
parts. Across every operating company, the entire FDX team is working together
to provide the total solutions that our customers demand and deserve.
Our customers want an easy, convenient way to connect to the high-tech,
high-speed global marketplace. And it's our responsibility to help them
choose the right FDX network at the right time, with the right price.
<PAGE>
Now, customers can sit at the dedicated computer installed in their offices
and-with just a few keystrokes-switch between FedEx and RPS domestic shipping.
FedEx remains the only U.S. all-express carrier with authority to fly to and
from China.
FDX spent nearly $1.5 billion last year to strengthen our superior technology
capabilities and to attract the best and the brightest people.
Our operating companies are helping customers move from managing inventory at
rest to managing inventory in motion, providing the added value, visibility,
and velocity that companies need to succeed.
With a combination of FedEx PowerShip computers, FedEx Ship software, and
FedEx interNetShip, more than two-thirds of U.S. domestic shipping
transactions are handled electronically.
We are also testing a new "service-sensitive" RPS residential delivery
service to expand our comprehensive mix of transportation and logistics
solutions--and to open the door for additional Internet retail business.
FDX has the best people network anywhere, with more than 190,000 employees
and contractors who will do "absolutely, positively" whatever it takes to
serve our customers.
MESSAGE FROM THE CHIEF FINANCIAL OFFICER
FDX Corporation posted a strong financial performance in FY99. We
successfully executed our portfolio management strategy of independently
operating our FDX subsidiaries to be more competitive in their distinct
market segments, while we exploited sales and marketing synergies across the
FDX portfolio, utilizing world-class information and technology systems. With
this new strategy, FDX achieved record revenue of $16.8 billion in FY99 while
net income rose 26% to $631 million and earnings per share increased 24% to
$2.10.
Along with the earnings growth, FDX made significant progress in other
important financial measures:
1. Increased profit margins. The FDX operating margin improved to 7.4% from
6.9% last year, excluding non-recurring pilot contingency costs and merger
expenses. This improvement was the result of proactive efforts to grow higher
margin services-including RPS ground, FedEx international express and FedEx
domestic boxes-faster than lower-margin FedEx deferred services, while
increasing yields, improving productivity and service levels, and controlling
costs.
2. Stable capital expenditures. While we continued to improve the
competitiveness, capacity and efficiency of the FDX physical and virtual
networks, we kept capital spending basically flat versus FY98. Now that the
core FedEx global network is in place, we are slowing the spending on FedEx
infrastructure and investing in the most profitable growth opportunities
across the entire spectrum of the FDX organization. For example, we announced
a $500 million multi-year investment as part of our plan to double RPS
capacity and increase RPS revenue approximately 15% annually over the next
five years.
3. Stronger balance sheet. FDX reduced debt and continued to improve debt to
total capitalization to 23% this year from 29% in FY98. Similarly, debt to
total capitalization, including aircraft leases, followed its downward trend,
dropping to 53% from 57% the previous year.
4. Improved returns and cash flow. With the actions enumerated above, we
improved our return on investment and made genuine progress toward becoming
cash flow positive. These are key strategic objectives, and we anticipate
continued progress in FY00.
As we move into FY00, we believe that our diverse global network, portfolio
management strategy, world-class information and technology systems, and
strong balance sheet uniquely position FDX to succeed in today's global
marketplace. We remain dedicated to growing revenues, enhancing margins,
stabilizing capital expenditures, providing greater returns, strengthening
our balance sheet, improving cash flow-and enhancing shareowner value.
Alan B. Graf, Jr.
<PAGE>
Executive Vice President and Chief Financial Officer
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FDX Corporation
RESULTS OF OPERATIONS
Effective May 31, 1999, FDX Corporation (together with its subsidiaries,
the "Company") adopted Statement of Financial Accounting Standards ("SFAS")
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Under the guidelines provided in this Statement, the Company
determined its reportable operating segments to be Federal Express
Corporation ("FedEx") and RPS, Inc. ("RPS"). For additional information on
the Company's operating segments, see Note 11 of Notes to Consolidated
Financial Statements.
CONSOLIDATED RESULTS
Current year results reflect package volume growth and improved revenue
per package (yield) at both FedEx and RPS and lower fuel costs. Results of
operations included various non-recurring items which affected reported
earnings of $631 million in 1999 ($2.10 per share, assuming dilution), $503
million in 1998 ($1.69 per share, assuming dilution) and $196 million in 1997
($.67 per share, assuming dilution) as discussed below.
On October 30, 1998, contract negotiations between FedEx and the Fedex
Pilots Association ("FPA") were discontinued. In November, the FPA began
actively encouraging its members to decline all overtime work and issued
ballots seeking strike authorization. To avoid service interruptions related
to a threatened strike, the Company and FedEx began strike contingency
planning, including entering into agreements for additional third-party air
and ground transportation and establishing special financing arrangements.
Subsequently, the FPA agreed to end all job actions for 60 days and
negotiations resumed. Such negotiations resulted in a five-year collective
bargaining agreement that was ratified by the FPA membership in February 1999
and took effect on May 31, 1999. Costs associated with these contingency
plans, including contracts for supplemental airlift and ground transportation
and a business interruption credit facility, reduced the third quarter's
pre-tax earnings by approximately $91 million. Excluding these costs,
earnings per share, assuming dilution, was approximately $2.28 for 1999.
Effective June 1, 1998, the Company adopted a new accounting standard
that requires certain costs of software developed or obtained for internal
use to be capitalized. Pre-tax income for 1999 increased $41 million as a
result of the adoption of this standard.
Results in 1998 included $88 million ($80 million, after taxes) of
expenses related to the acquisition of Caliber System, Inc. ("Caliber") and
the formation of the Company. These expenses were primarily investment
banking fees and payments to members of Caliber's management in accordance
with pre-existing management retention agreements. Excluding these expenses,
consolidated net income for 1998 was $583 million, or $1.95 per share,
assuming dilution.
Another significant item impacting 1998's results of operations was the
Teamsters strike against United Parcel Service ("UPS") in August 1997. The
Company analytically calculated that the volume not retained at the end of
the first quarter of 1998 contributed approximately $170 million in revenues
and approximately $.12 additional earnings per share.
In 1998, Viking Freight, Inc. ("Viking") recognized a $16 million
pre-tax gain from the sale of certain assets in its restructuring, which was
announced by Caliber on March 27, 1997. Under the restructuring plan,
operations at Viking's midwestern, eastern and northeastern divisions ceased
on March 27, 1997, and Viking's southwestern division operated through June
1997 and was subsequently sold. Viking continues to operate in the western
United States. In connection with the restructuring, Viking recorded a
non-cash asset impairment charge of $225 million in December 1996. Excluding
the after-tax effect of this charge, consolidated net income for 1997 was
$371 million, or $1.26 per share, assuming dilution.
OTHER INCOME AND EXPENSE AND INCOME TAXES
Net interest expense decreased 21% for 1999, primarily due to lower debt
levels. For 1998, net interest expense increased 19% primarily due to lower
levels of capitalized interest. Interest is capitalized during the
modification of certain aircraft from passenger to freighter configuration
and the construction of certain facilities.
<PAGE>
Other net expense in 1999 included approximately $10 million related to
FedEx's strike contingency plans described above, primarily costs associated
with a business interruption credit facility. Other, net for 1998 included a
gain of approximately $8 million from an insurance settlement for an MD11
aircraft destroyed in an accident in July 1997. In 1997 other, net included a
$17 million gain from an insurance settlement for a DC10 aircraft destroyed
by fire in September 1996.
The Company's effective tax rate was 40.5% in 1999, 44.6% in 1998 and
53.9% in 1997. Excluding non-recurring items from the Caliber acquisition in
1998 and the Viking restructuring in 1997, the effective rate would have been
41.5% in 1998 and 43.0% in 1997. The 40.5% effective tax rate in 1999 was
lower than the 41.5% effective tax rate (excluding non-recurring items) in
1998 primarily due to the combination of stronger results from international
operations and lower worldwide income taxes on foreign earnings. Generally,
the effective tax rate exceeds the statutory U.S. federal tax rate because of
state income taxes and other factors as identified in Note 9 of Notes to
Consolidated Financial Statements. For 2000, management expects the effective
tax rate will not exceed, and could possibly be lower than, the 1999 rate.
The actual rate, however, will depend on a number of factors, including the
amount and source of operating income.
FEDERAL EXPRESS CORPORATION
The following table compares revenues and operating income (in millions)
and selected statistics (in thousands, except dollar amounts) for FedEx for
the years ended May 31:
<TABLE>
<CAPTION>
Percent Change
1999/ 1998/
1999 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Revenues:
Package:
U.S. overnight $ 7,185 $ 6,810 $ 6,244 + 6 + 9
U.S. deferred 2,271 2,179 1,622 + 4 + 34
International Priority (IP) 3,019 2,731 2,351 +11 + 16
- ------------------------------------------------------------------------------
Total package revenue 12,475 11,720 10,217 + 6 + 15
Freight:
U.S 440 337 208 +30 + 62
International 531 598 604 -11 - 1
- ------------------------------------------------------------------------------
Total freight revenue 971 935 812 + 4 + 15
Other 533 600 491 -11 + 22
- ------------------------------------------------------------------------------
Total revenues $13,979 $13,255 $11,520 + 5 + 15
- -----------------------------------------------------------------------------------------------------------
Operating income $ 871 $ 837 $ 699 + 4 + 20
- -----------------------------------------------------------------------------------------------------------
Package:
Average daily packages:
U.S. overnight 1,957 1,886 1,809 + 4 + 4
U.S. deferred 894 872 675 + 3 + 29
IP 282 259 226 + 9 + 15
- ------------------------------------------------------------------------------
Composite 3,133 3,017 2,710 + 4 + 11
Revenue per package (yield):
U.S. overnight $ 14.34 $ 14.22 $ 13.59 + 1 + 5
U.S. deferred 9.93 9.84 9.45 + 1 + 4
IP 41.87 41.45 40.91 + 1 + 1
Composite 15.56 15.30 14.84 + 2 + 3
Freight:
Average daily pounds:
U.S 4,332 3,356 1,594 +29 +111
International 2,633 2,770 2,542 - 5 + 9
- ------------------------------------------------------------------------------
Composite 6,965 6,126 4,136 +14 + 48
Revenue per pound (yield):
U.S $ .40 $ 40 $ .51 - - 22
International .79 .85 .94 - 7 - 10
Composite .54 .60 .77 -10 - 22
- -----------------------------------------------------------------------------------------------------------
</TABLE>
REVENUES
In 1999, FedEx experienced increased volume and slightly improved yields in
its U.S. overnight, U.S. deferred and IP services. Growth in higher-priced U.S.
overnight and IP services and higher average weight per
<PAGE>
package were the primary factors in revenue growth. List price increases and
other yield-management actions contributed to the yield improvement in 1999.
FedEx, through enhanced technology, has also improved its ability to capture
incremental revenue based upon certain package characteristics, such as
weight and package dimensions.
The U.S. deferred package growth rate declined in 1999 in large part due
to specific management actions to restrict growth of these lower-yielding
services. IP package volume and international freight pounds and yield were
negatively impacted by weakness in Asian markets, especially in U.S. outbound
traffic destined for that region.
In 1998, package revenue increased on a year-over-year basis primarily
due to rapid growth of U.S. deferred services, including FedEx Express
Saver.-Registered Trademark- This growth was augmented by incremental UPS
strike-related volume, the majority of which was in the deferred service
category. The increase in yield was largely a result of yield-management
actions, such as a 3% to 4% price increase targeted to list price and
standard discount matrix customers for U.S. packages effective February 15,
1998.
The expiration of the air cargo transportation excise tax added
approximately $50 million to revenue in 1997. The tax expired on December 31,
1995, was reenacted by Congress effective August 27, 1996, and expired again
on December 31, 1996. FedEx was not obligated to pay the tax during the
periods in which it was expired. The excise tax was reenacted by Congress
effective March 7, 1997, and, in August 1997 it was extended for 10 years
through September 30, 2007.
Other revenue included sales of engine noise reduction kits, logistics
services, Canadian domestic revenue, charter services and other.
OPERATING INCOME
Operating income increased in 1999 compared to 1998 in spite of $81
million in strike contingency costs in 1999 and continued weakness in Asian
markets. Lower fuel prices and cost controls, including adjustments in
network expansion and aircraft deployment plans, contributed to improved
results. A decline in average jet fuel price per gallon of 23% was partially
offset by an increase in gallons consumed of 6%. Although international
freight pounds and revenue per pound continued to decline in 1999, higher
yielding IP volume continued to grow, utilizing capacity otherwise occupied
by freight.
In 1998, operating income improved as package yield increased at a
higher rate than cost per package. An increase in average daily packages also
contributed to the improvement in operating income. Fuel expense in 1998 rose
slightly due to an increase in gallons consumed of 13%, largely offset by a
decrease in average jet fuel price per gallon of 10%. In 1998, fuel expense
included amounts paid by FedEx under contracts that were designed to limit
FedEx's exposure to fluctuations in jet fuel prices. Lower international
freight yield, rising expenses associated with international expansion and
foreign currency fluctuations negatively affected 1998 results. Operating
income for 1998 included approximately $50 million related to the UPS strike
as well as proceeds from a 2% temporary fuel surcharge on U.S. domestic
shipments through August 1, 1997. Also included in 1998 were $14 million of
expenses related to the acquisition of Caliber.
Operating income for 1997 included the effects of the 2% temporary fuel
surcharge and additional revenue due to the expiration of the air cargo
transportation excise tax. In 1997, fuel expense included amounts received
and paid by FedEx under contracts which were designed to limit FedEx's
exposure to fluctuations in jet fuel prices.
Operating margins were 6.2% (6.8% excluding the strike contingency
costs), 6.3% (5.9% excluding the aforementioned 1998 items) and 6.1% (5.2%
excluding the aforementioned 1997 items) in 1999, 1998 and 1997, respectively.
Year-over-year comparisons were also affected by fluctuations in the
contribution from sales of engine noise reduction kits. Profit from these
sales declined $30 million in 1999 after increasing $40 million in 1998.
OUTLOOK
FedEx will continue to manage yields with the goal of ensuring an
appropriate balance between revenues generated and the cost of providing
services. Management expects its yield-management actions, including a 2.8%
domestic rate increase implemented in March 1999, to support yield increases
in 2000. Management believes package volumes in the U.S. will grow in 2000 at
rates slightly below those experienced in 1999, with
<PAGE>
the growth rate accelerating for IP services. Freight pounds are expected to
continue to increase in 2000, with increases in the U.S. partially offset by
continued declines in international freight. Freight yield is expected to
decline in 2000 for both U.S. and international shipments. Actual results,
however, may vary depending on the impact of competitive pricing changes,
customer responses to yield-management initiatives, changing customer demand
patterns, the timing and extent of network refinement, actions by FedEx's
competitors, including capacity fluctuations, regulatory conditions for
aviation rights and economic conditions.
FedEx will continue to use the flexibility of its global network
infrastructure by reconfiguring its system and flights to meet market
demands. While long-term profitability is expected to improve, incremental
costs incurred during periods of strategic expansion and varying economic
conditions can affect short-term operating results.
Salaries and employee benefits costs have risen over the past three
years, generally consistent with revenues. Management will continue its cost
control efforts, but expects salaries and employee benefits to continue to
increase as a result of volume growth and the incremental costs of the
collective bargaining agreement with the FPA that became effective May 31,
1999.
In the past three years, FedEx's worldwide aircraft fleet has increased
resulting in a corresponding rise in maintenance expense. FedEx expects a
predictable pattern of aircraft maintenance and repairs expense. However,
unanticipated maintenance events will occasionally disrupt this pattern,
resulting in periodic fluctuations in maintenance and repairs expense. Given
FedEx's increasing fleet size, aging fleet and variety of aircraft types,
management believes that maintenance and repairs expense will continue a
trend of year-over-year increases for the foreseeable future. In addition,
management expects scheduled maintenance and repairs expense for B727 engines
and for other aircraft to increase in 2000 due to a greater number of routine
cycle checks resulting from fleet usage and certain Federal Aviation
Administration directives.
FedEx's operating income from the sales of engine noise reduction kits
peaked in 1998, and is expected to decline approximately $60 million year
over year in 2000 and to become insignificant by 2001. Actual results may
differ depending primarily on the impact of actions by FedEx's competitors
and regulatory conditions.
FedEx may enter into contracts in 2000 designed to limit its exposure to
fluctuations in jet fuel prices. The timing and magnitude of such contracts
may vary due to their availability and pricing.
RPS, INC.
RPS's revenue and operating income increased in 1999 and 1998. Package
volume and revenue per package also increased each year. The following table
compares revenues and operating income (in millions) and selected package
statistics (in thousands, except dollar amounts) for RPS for the years ended
May 31:
<TABLE>
<CAPTION>
Percent Change
1999/ 1998/
1999 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,878 $1,711 $1,347 +10 +27
- --------------------------------------------------------------------------------------------
Operating income $ 231 $ 171 $ 138 +35 +24
- --------------------------------------------------------------------------------------------
Average daily packages 1,385 1,326 1,067 + 4 +24
Revenue per package (yield) $ 5.36 $ 5.04 $ 4.96 + 6 + 2
- --------------------------------------------------------------------------------------------
</TABLE>
REVENUES
In 1999, RPS's revenue increased due to improving yield and steady
volume growth. Yield was positively impacted by rate increases of 2.3% and
3.7% in February 1999 and 1998, respectively. During 1999, RPS recognized a
year-to-date, one-time benefit of approximately $6 million to align its
estimation methodology for in-transit revenue with that of the Company's
other operating subsidiaries. Year-to-date package yield was increased by
$.02 because of this one-time adjustment. The prior year included incremental
volume associated with the UPS strike. Excluding this incremental volume,
average daily packages increased 6% and 23% for 1999 and 1998, respectively.
OPERATING INCOME
Operating income increased in 1999 due to increased volume and
yield-management actions. The increase in operating income for 1998 resulted
from package volume growth and the positive effect of the UPS strike.
<PAGE>
Results for 1998 contained approximately $6 million of incremental operating
income during the 12 days of the UPS strike. Operating margins were 12.3%,
10.0% and 10.3% in 1999, 1998 and 1997, respectively.
OUTLOOK
In 2000, RPS will focus on volume and revenue growth, cost controls, and
service quality. Package processing capacity will be expanded to meet growth
goals. RPS will continue its yield improvement efforts. However, actual
results will depend on the impact of competitive pricing changes, customer
responses to yield-management initiatives and changing customer demand
patterns.
RPS is testing new delivery services to residential areas. Depending on
the results of the test, RPS will determine when and to what extent, if any,
these services are to be offered. If the new residential services are
implemented, there will be additional start-up and capital costs associated
with the implementation.
OTHER OPERATIONS
Other operations include Viking, a regional less-than-truckload freight
carrier operating in the western United States; Roberts Express, Inc.
("Roberts"), a critical-shipment carrier; FDX Global Logistics, Inc.
("Logistics"), a contract logistics provider; and certain unallocated
corporate charges.
REVENUES
Revenues from other operations increased 1% and decreased 34% in 1999
and 1998, respectively. Revenue growth for 1999 reflects an increase at
Roberts, offset by modest decreases at Viking and Logistics. The decline in
1998 was primarily attributable to the Viking restructuring in March 1997 in
which operations at four of five divisions were terminated by June 1997. See
"Results of Operations - Consolidated Results" for additional information on
the Viking restructuring.
OPERATING INCOME
Operating income from other operations reflected improved performance at
Roberts in 1999, offset by a decline at Logistics. Viking's 1999 performance
also improved over 1998 operating income exclusive of a $16 million pre-tax
gain in 1998 on the sale of assets as a result of Viking's restructuring. In
1997, Viking recorded an asset impairment charge of $225 million ($175
million, after taxes) associated with its restructuring.
Operating income in 1998 includes $74 million in expenses, which were
not allocated to operating segments, for merger costs associated with the
acquisition of Caliber. These expenses were primarily investment banking fees
and payments to members of Caliber's management in accordance with
pre-existing management retention agreements. In addition, in 1998 Caliber
recorded approximately $5 million of income, net of tax, from discontinued
operations relating to the exiting of the airfreight business by one of
Caliber's subsidiaries in 1995.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $325 million at May 31, 1999, an
increase of $96 million compared with increases of $69 million and $33
million in 1998 and 1997, respectively. Cash provided from operations during
1999 was $1.8 billion compared with $1.6 billion and $1.1 billion in 1998 and
1997, respectively. The Company currently has available a $1.0 billion
revolving bank credit facility that is generally used to finance temporary
operating cash requirements and to provide support for the issuance of
commercial paper. Management believes that cash flow from operations, its
commercial paper program and the revolving bank credit facility will
adequately meet its working capital needs for the foreseeable future.
CAPITAL RESOURCES
The Company's operations are capital intensive, characterized by
significant investments in aircraft, vehicles, computer and
telecommunications equipment, package handling facilities and sort equipment.
The amount and timing of capital additions depend on various factors
including volume growth, domestic and international economic conditions, new
or enhanced services, geographical expansion of services, competition,
availability of satisfactory financing and actions of regulatory authorities.
<PAGE>
Capital expenditures for 1999 totaled $1.8 billion and included aircraft
modifications, facilities, customer automation and computer equipment,
vehicles and ground support equipment and one MD11 aircraft (which was
subsequently sold and leased back). In comparison, 1998 expenditures totaled
$1.9 billion and included three MD11 aircraft (which were subsequently sold
and leased back), four A310 aircraft, aircraft modifications, customer
automation and computer equipment, facilities and vehicles and ground support
equipment. For information on the Company's purchase commitments, see Note 13
of Notes to Consolidated Financial Statements.
The Company has historically financed its capital investments through
the use of lease, debt and equity financing in addition to the use of
internally generated cash from operations. Generally, management's practice
in recent years with respect to funding new wide-bodied aircraft acquisitions
has been to finance such aircraft through long-term lease transactions that
qualify as off-balance sheet operating leases under applicable accounting
rules. Management has determined that these operating leases have provided
economic benefits favorable to ownership with respect to market values,
liquidity and after-tax cash flows. In the future, other forms of secured
financing may be pursued to finance FedEx's aircraft acquisitions when
management determines that it best meets FedEx's needs. FedEx has been
successful in obtaining investment capital, both domestic and international,
for long-term leases on terms acceptable to it although the marketplace for
such capital can become restricted depending on a variety of economic factors
beyond its control. See Note 4 of Notes to Consolidated Financial Statements
for additional information concerning the Company's debt and credit
facilities.
In July 1999, approximately $231 million of pass through certificates
were issued to finance or refinance the debt portion of leveraged operating
leases related to four A300 aircraft to be delivered through October 1999. In
June 1998, approximately $833 million of pass through certificates were
issued to finance or refinance the debt portion of FedEx's leveraged
operating leases related to eight A300 and five MD11 aircraft to be delivered
through the summer of 1999. The pass through certificates are not direct
obligations of, or guaranteed by, the Company or FedEx, but amounts payable
by FedEx under the leveraged operating leases are sufficient to pay the
principal of and interest on the certificates.
Management believes that the capital resources available to the Company
provide flexibility to access the most efficient markets for financing its
capital acquisitions, including aircraft, and are adequate for the Company's
future capital needs.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The Company currently has market risk sensitive instruments related to
interest rates. As disclosed in Note 4 of Notes to Consolidated Financial
Statements, the Company has outstanding unsecured long-term debt, exclusive
of capital leases of $1.2 billion and $1.4 billion at May 31, 1999 and 1998,
respectively. The Company does not have significant exposure to changing
interest rates on its long-term debt because the interest rates are fixed.
Market risk for fixed-rate long-term debt is estimated as the potential
decrease in fair value resulting from a hypothetical 10% increase in interest
rates and amounts to approximately $45 million as of May 31, 1999 ($55
million as of May 31, 1998). The underlying fair values of the Company's
long-term debt were estimated based on quoted market prices or on the current
rates offered for debt with similar terms and maturities. The Company does
not currently use derivative financial instruments to manage interest rate
risk.
The Company's earnings are affected by fluctuations in the value of the
U.S. dollar as compared to foreign currencies, as a result of transactions in
foreign markets. At May 31, 1999, the result of a uniform 10% strengthening
in the value of the dollar relative to the currencies in which the Company's
transactions are denominated would result in a decrease in operating income
of approximately $25 million for the year ending May 31, 2000 (the comparable
amount in the prior year was $15 million). This calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
In addition to the direct effects of changes in exchange rates, which are a
changed dollar value of the resulting reported operating results, changes in
exchange rates also affect the volume of sales or the foreign currency sales
price as competitors' services become more or less attractive. The Company's
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in a potential change in sales levels or local currency
prices.
In 1998 and 1997, FedEx entered into contracts that were designed to
limit its exposure to fluctuations in jet fuel prices. FedEx hedges its
exposure to jet fuel price market risk only on a conservative, limited basis.
No such contracts were outstanding as of May 31, 1998, nor were any entered
into during 1999. Management may enter
<PAGE>
into similar contracts in 2000, the timing and magnitude of which may vary
due to the availability and pricing of such contracts. See Notes 2 and 13 of
Notes to Consolidated Financial Statements for accounting policies regarding
derivative instruments and additional information regarding jet fuel
contracts.
The Company does not purchase or hold any derivative financial
instruments for trading purposes.
DEFERRED TAX ASSETS
At May 31, 1999, the Company had a net cumulative deferred tax liability
of $3 million consisting of $735 million of deferred tax assets and $738
million of deferred tax liabilities. The reversals of deferred tax assets in
future periods will be offset by similar amounts of deferred tax liabilities.
EURO CURRENCY CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
fixed conversion rates between their existing sovereign currencies ("legacy
currencies") and a single currency called the euro. On January 4, 1999, the
euro began trading on currency exchanges and became available for non-cash
transactions. The legacy currencies will remain legal tender through December
31, 2001. Beginning January 1, 2002, euro-denominated bills and coins will be
introduced, and by July 1, 2002, legacy currencies will no longer be legal
tender.
The Company established euro task forces to develop and implement euro
conversion plans. The work of the task forces in preparing for the
introduction of the euro and the phasing out of the various legacy currencies
includes numerous facets such as converting information technology systems,
adapting billing and payment systems and modifying processes for preparing
financial reports and records.
Since January 1, 1999, the Company's subsidiaries have been prepared to
quote rates to customers, generate billings and accept payments, in both
euros and legacy currencies. Based on the work of the Company's euro task
forces to date, the Company believes that the introduction of the euro, any
price transparency brought about by its introduction and the phasing out of
the legacy currencies will not have a material impact on the Company's
consolidated financial position, results of operations or cash flows. Costs
associated with the euro project are being expensed as incurred and are being
funded entirely by internal cash flows.
YEAR 2000 COMPLIANCE
INTRODUCTION
The Company's operating subsidiaries rely heavily on sophisticated
information technology ("IT") for their business operations. For example,
FedEx maintains electronic connections with approximately two million
customers via its proprietary products and technologies. The Company's Year
2000 ("Y2K") computer compliance issues are, therefore, broad and complex.
The FedEx Y2K Project Office, which was established in 1996, coordinates and
supports FedEx's Y2K compliance effort. The Company has also engaged a major
international consulting firm to assist its subsidiaries in their Y2K program
management.
The Company's Y2K compliance efforts are focused on business-critical
items. Hardware, software, systems, technologies and applications are
considered "business-critical" if a failure would either have a material
adverse impact on the Company's business, financial condition or results of
operations or involve a safety risk to employees or customers.
STATE OF READINESS
Generally, the Company believes that FedEx's Y2K compliance effort is on
schedule. The Company's other operating subsidiaries are substantially on
schedule.
IT SYSTEMS
FedEx's compliance effort for all business-critical infrastructure and
applications software (collectively, "IT Systems") is substantially complete.
FedEx has inventoried all IT Systems. Assessment/design (researching the
compliance status and determining the impact of, and renovation requirements
for, the IT Systems) and renovation (making IT Systems compliant) are
substantially complete. Testing, which involves validating compliance, is
also substantially complete. Within IT Systems, certification of application
software, which involves FedEx's independent, internal review to verify
whether the appropriate testing process has occurred, is approximately 98%
complete. Noncompliant applications as of May 31, 1999 include systems
dependent upon
<PAGE>
external government or vendor interfaces and are expected to be compliant by
September 1, 1999. However, contingency plans will be in place to help
mitigate any negative impact of the noncompliance of such systems. Within IT
Systems, certification of the operating system software and program product
software (collectively, "infrastructure") at FedEx is substantially complete.
FedEx's IT Systems compliance effort is targeted to be 100% complete by
September 1, 1999.
The Company's other operating subsidiaries have completed the inventory
and assessment phases relating to business-critical IT Systems. The remaining
phases relating to IT Systems are under way. The IT Systems compliance effort
of the Company's other operating subsidiaries is targeted to be 100% complete
by November 1, 1999.
NON-IT SYSTEMS
FedEx's Y2K program relating to business-critical purchased hardware and
software, customized software applications, facilities/equipment and other
embedded chip systems (collectively, "Non-IT Systems") is 98% complete.
The inventory and assessment phases relating to the Non-IT Systems of
the Company's other operating subsidiaries are targeted for completion by
July 31, 1999, with the remaining phases targeted for completion by November
1, 1999.
FedEx has established several definitions for compliance related to
Non-IT Systems. For air infrastructure components (such as airports and air
traffic systems), FedEx defines compliant to mean that these components are
being aggressively assessed and that approved processes are in place to
monitor their evolving status and develop specific operational contingency
plans. For business-critical suppliers and affiliates, FedEx defines
compliant to mean that the suppliers and affiliates have been assessed, and a
contingency plan has been developed as necessary.
For the automated shipping solutions offered to customers, FedEx defines
compliant to mean that FedEx has made available a compliant version of the
associated shipping solution. A customer may choose to remain on a
noncompliant version of software if the customer is willing to assume the
associated risks and there are no potentially unfavorable impacts on FedEx's
internal systems. The implementation of Y2K-compliant automated shipping
solutions by customers, particularly where development is required by the
customer, will likely continue through December 31, 1999 and beyond. FedEx
will continue to test the combinations of features, functionality and methods
of use contained in its shipping solutions through December 31, 1999 and will
make changes as required.
For electronic interfaces with customers and suppliers, FedEx defines
compliant to mean that it has made compliant transaction sets available and
has made systems modifications that enable FedEx to translate noncompliant
versions that mitigate the potential impact to FedEx's internal systems.
Y2K INTERFACES WITH MATERIAL THIRD PARTIES
The Company's operating subsidiaries are making concerted efforts to
understand the Y2K status of third parties (including, among others, domestic
and international government agencies, customs bureaus, U.S. and
international airports and air traffic control systems, customers,
independent contractors, vendors and suppliers) whose Y2K standing could
either have a material adverse effect on the Company's business, financial
condition or results of operations or involve a safety risk to employees or
customers. All of the Company's operating subsidiaries are actively
encouraging Y2K compliance on the part of third parties and are developing
contingency plans in the event of their Y2K noncompliance.
In conjunction with the International Air Transport Association (IATA)
and the Air Transport Association of America (ATA), FedEx is involved in a
global and industry-wide effort to understand the Y2K compliance status of
airports, air traffic systems, customs clearance and other U.S. and
international government agencies, and common vendors and suppliers. FedEx
has developed contingency plans to minimize the impact of Y2K issues on its
air operations. Contingency plans will be implemented, as necessary, to
mitigate the impact of Y2K problems that might arise during the transition
into 2000.
FedEx's vendor and product compliance program includes the following
tasks: assessing vendor compliance status; product testing; tracking vendor
compliance progress; developing contingency plans, including identifying
alternate suppliers, as needed; addressing contract language; replacing,
renovating or upgrading parts; requesting
<PAGE>
presentations from vendors or making on-site assessments, as required; and
sending questionnaires. Failure to respond to these questionnaires results in
further mail or phone correspondence, contingency plan development and/or
vendor/product replacement. The Company's other operating subsidiaries are
developing a supply chain dependency model to assess the risk levels
associated with the Y2K noncompliance of material third parties.
TESTING
FedEx's Y2K testing effort includes functional testing of remedial
measures and regression testing to validate that changes have not altered
existing functionality. FedEx's test plans include sections that define the
scope of the testing effort, roles and responsibilities of test participants,
the test approach planned, software, hardware and data requirements, and test
environments/techniques to be used as well as other sections defining the
test effort. System functionality for future date accuracy is being verified
and documented. FedEx uses an independent, internal process to verify that
the appropriate testing process has occurred.
A separate homogenous Y2K mainframe environment has been created to test
operating system software and program products software. The Y2K mainframe
environment is designed to accomplish future date "end-to-end" testing of the
larger applications and to validate interface communications between
applications.
COSTS TO ADDRESS Y2K COMPLIANCE
Since 1996, the Company has incurred approximately $93 million on Y2K
compliance ($43 million in 1999), which includes internal and external
software/hardware analysis, repair, vendor and supplier assessments, risk
mitigation planning, and related costs. The Company continues to monitor its
total expected costs associated with Y2K compliance efforts, and currently
expects that it will incur additional total costs of approximately $35
million, including depreciation of $10 million. Remaining Y2K expenditures
will include project management of the corporate contingency effort and the
command and control center, further system audit and validation, and project
management to ensure compliance of new systems development. The Company
classifies costs as Y2K for reporting purposes if they remedy only Y2K risks
or result in the formulation of contingency plans and would otherwise be
unnecessary in the normal course of business.
The Company's Y2K compliance effort is being funded entirely by internal
cash flows. For the fiscal year ended May 31, 1999, Y2K expenditures were
less than 10% of the Company's total IT expense budget. Although there are
opportunity costs to the Company's Y2K compliance effort, management believes
that no significant information technology projects have been deferred due to
this work.
CONTINGENCY PLANNING AND RISKS
FedEx's key contingency plans were completed by January 31, 1999. These
plans address the activities to be performed in preparation for and during a
Y2K-related failure that could have an immediate and significant impact on
normal operations. A Y2K-related failure could include, but is not limited
to, power outages, system or equipment failures, erroneous data, loss of
communications and failure of a supplier or vendor. The contingency plans
include, among other things, items such as pre-arranging alternative
operating locations, replacing non-Y2K compliant suppliers and vendors, using
back-up systems equipment and stockpiling additional inventory and supplies.
They also outline alternative procedures, including manual ones, that can be
performed in order to carry out mission-critical functions and
trouble-shooting procedures the IT organization can follow to bring internal
systems and equipment back into operation after a Y2K-related failure. The
plans also establish procedures for company-wide communications. These are in
addition to the Company's operational contingency plans for the pick-up,
delivery and movement of packages. FedEx has created a Y2K contingency
command and control center that will link to its other operations command and
control centers. Key personnel will be on call beginning November 1999 and on
site by December 31, 1999.
FedEx's goal for completing all other contingency plans is September 30,
1999. Plans covering vendor and supplier issues are substantially complete.
These plans are in place to minimize Y2K-related risks that a vendor and
supplier might pose if they are behind in their own Y2K efforts. As of May
31, 1999, FedEx had substantially completed the development of its testing
plans. Testing will include structured walk-throughs, mock drills and
simulations and is expected to be completed by October 31, 1999. The
Company's other operating subsidiaries have substantially completed their
business-critical Y2K contingency plans and are currently formulating other
contingency plans for non-business-critical Y2K compliance issues. Although
the cost of developing contingency
<PAGE>
plans is included in the total project costs described above, the cost of
implementing any necessary contingency plans is not known at this time.
Due to the general uncertainty inherent in the Company's Y2K compliance,
mainly resulting from the Company's dependence upon the Y2K compliance of the
government agencies and third-party suppliers, vendors and customers with
whom the Company deals, the Company believes that there is no single most
reasonably likely worst case scenario. However, the Company believes that a
most reasonably likely worst case scenario could include, but is not limited
to, the following situations: delivery delays and the related re-routing
costs due to the lack of readiness of airports and air traffic systems,
principally outside the United States; the inability to serve certain
customers or geographic areas due to their lack of compliance or lack of
readiness of customs bureaus in various countries and business continuance
capabilities of suppliers, vendors, customers and independent contractors,
including third-party pick-up and delivery providers on whom the Company
relies in some international locations; and service delays or failures
associated with the global utilities and telecommunications infrastructure.
The Company's Y2K program, including related contingency planning, is
designed to substantially lessen the possibility of significant interruptions
of normal operations. Despite its efforts to date, the Company may still
incur substantial expenditures or experience significant delays in delivering
its services as Y2K problems, both domestic and international, become known.
Noncompliant systems of vendors, suppliers, customers and other third parties
could also adversely affect the Company. While costs related to the lack of
Y2K compliance of third parties, business interruptions, litigation and other
liabilities related to Y2K issues could materially and adversely affect the
Company's business, results of operations and financial condition, the
Company expects its Y2K compliance efforts to reduce significantly the
Company's level of uncertainty about the impact of Y2K issues affecting both
its IT Systems and Non-IT Systems.
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION" OR MADE BY MANAGEMENT OF THE COMPANY THAT
CONTAIN MORE THAN HISTORICAL INFORMATION MAY BE CONSIDERED FORWARD-LOOKING
STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995), WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS BECAUSE OF IMPORTANT FACTORS IDENTIFIED IN THIS SECTION.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FDX Corporation
<TABLE>
<CAPTION>
Years ended May 31
In thousands, except Earnings Per Share 1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $16,773,470 $15,872,810 $14,237,892
- -----------------------------------------------------------------------------------------------
OPERATING EXPENSES
Salaries and employee benefits 7,087,728 6,647,140 6,150,247
Purchased transportation 1,537,785 1,481,590 1,252,901
Rentals and landing fees 1,396,694 1,304,296 1,138,690
Depreciation and amortization 1,035,118 963,732 928,833
Maintenance and repairs 958,873 874,400 773,765
Fuel 604,929 726,776 734,722
Merger expenses - 88,000 -
Restructuring and impairment charges (credits) - (16,000) 225,036
Other 2,989,257 2,792,216 2,526,696
- -----------------------------------------------------------------------------------------------
15,610,384 14,862,150 13,730,890
- -----------------------------------------------------------------------------------------------
OPERATING INCOME 1,163,086 1,010,660 507,002
- -----------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest, net (98,191) (124,413) (104,195)
Other, net (3,831) 13,271 23,058
- -----------------------------------------------------------------------------------------------
(102,022) (111,142) (81,137)
- -----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,061,064 899,518 425,865
PROVISION FOR INCOME TAXES 429,731 401,363 229,761
- -----------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 631,333 498,155 196,104
- -----------------------------------------------------------------------------------------------
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES - 4,875 -
- -----------------------------------------------------------------------------------------------
NET INCOME $ 631,333 $ 503,030 $ 196,104
- -----------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
Continuing operations $ 2.13 $ 1.70 $ .67
Discontinued operations - .02 -
- -----------------------------------------------------------------------------------------------
$ 2.13 $ 1.72 $ .67
- -----------------------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE --
ASSUMING DILUTION
Continuing operations $ 2.10 $ 1.67 $ .67
Discontinued operations - .02 -
- -----------------------------------------------------------------------------------------------
$ 2.10 $ 1.69 $ .67
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
FDX Corporation
<TABLE>
<CAPTION>
May 31
In thousands 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 325,323 $ 229,565
Receivables, less allowances of $68,305 and $61,409 2,153,166 1,943,423
Spare parts, supplies and fuel 291,922 364,714
Deferred income taxes 290,721 232,790
Prepaid expenses and other 79,896 109,640
- -----------------------------------------------------------------------------------------------
Total current assets 3,141,028 2,880,132
- -----------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, AT COST
Flight equipment 4,556,747 4,056,541
Package handling and ground support equipment and vehicles 3,858,788 3,425,279
Computer and electronic equipment 2,363,637 2,162,624
Other 2,940,735 2,819,430
- -----------------------------------------------------------------------------------------------
13,719,907 12,463,874
Less accumulated depreciation and amortization 7,160,690 6,528,824
- -----------------------------------------------------------------------------------------------
Net property and equipment 6,559,217 5,935,050
- -----------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill 344,002 356,272
Equipment deposits and other assets 603,964 514,606
- -----------------------------------------------------------------------------------------------
Total other assets 947,966 870,878
- -----------------------------------------------------------------------------------------------
$10,648,211 $ 9,686,060
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Current portion of long-term debt $ 14,938 $ 257,529
Accrued salaries and employee benefits 740,492 611,750
Accounts payable 1,133,952 1,145,410
Accrued expenses 895,375 789,150
- -----------------------------------------------------------------------------------------------
Total current liabilities 2,784,757 2,803,839
- -----------------------------------------------------------------------------------------------
LONG-TERM DEBT, LESS CURRENT PORTION 1,359,668 1,385,180
- -----------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 293,462 274,147
- -----------------------------------------------------------------------------------------------
OTHER LIABILITIES 1,546,632 1,261,664
- -----------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 13 and 14)
COMMON STOCKHOLDERS' INVESTMENT
Common stock, $.10 par value; 400,000 shares authorized;
297,987 and 147,411 shares issued 29,799 14,741
Additional paid-in capital 1,061,312 992,821
Retained earnings 3,615,797 2,999,354
Accumulated other comprehensive income (24,688) (27,277)
- -----------------------------------------------------------------------------------------------
4,682,220 3,979,639
Less treasury stock, at cost, and deferred compensation 18,528 18,409
- -----------------------------------------------------------------------------------------------
Total common stockholders' investment 4,663,692 3,961,230
- -----------------------------------------------------------------------------------------------
$10,648,211 $ 9,686,060
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FDX Corporation
<TABLE>
<CAPTION>
Years ended May 31
In thousands 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 631,333 $ 498,155 $ 196,104
Adjustments to reconcile income from continuing
operations to cash provided by operating activities:
Depreciation and amortization 1,035,118 963,732 928,833
Provision for uncollectible accounts 55,649 72,700 40,634
Deferred income taxes and other non-cash items (34,037) 45,570 (9,610)
Restructuring and impairment charges (credits) - (16,000) 225,036
Gain from disposals of property and equipment (2,330) (7,188) (20,143)
Changes in assets and liabilities, net of effects
from disposition of business:
Increase in receivables (294,121) (267,367) (426,357)
Increase in other current assets (155,720) (102,203) (443,799)
Increase in accounts payable and other
operating liabilities 555,565 450,836 647,780
Other, net (19,337) (32,963) (29,300)
- -------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 1,772,120 1,605,272 1,109,178
- -------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property and equipment, including deposits
on aircraft of $1,200, $70,359 and $26,107 (1,769,946) (1,880,173) (1,762,979)
Proceeds from dispositions of property and equipment:
Sale-leaseback transactions 80,995 322,852 162,400
Reimbursements of A300 and MD11 deposits 67,269 106,991 63,039
Other dispositions 195,641 162,672 62,991
Net receipts from (advances to) discontinued operations - 1,735 (2,527)
Other, net (22,716) (2,206) 1,044
- -------------------------------------------------------------------------------------------------------------
Cash used in investing activities (1,448,757) (1,288,129) (1,476,032)
- -------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on debt (269,367) (533,502) (9,670)
Proceeds from debt issuances - 267,105 433,404
Proceeds from stock issuances 49,932 33,925 31,013
Dividends paid - (7,793) (34,825)
Other, net (8,170) (6,939) (9,741)
- -------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (227,605) (247,204) 410,181
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash provided by continuing operations 95,758 69,939 43,327
Cash used in discontinued operations - (1,735) (10,802)
Balance at beginning of year 229,565 161,361 128,327
- -------------------------------------------------------------------------------------------------------------
Balance at end of year $ 325,323 $ 229,565 $ 160,852
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT AND
COMPREHENSIVE INCOME
FDX Corporation
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury Deferred
In thousands, except shares Stock Capital Earnings Income Stock Compensation Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1996 $ 8,960 $ 903,086 $2,456,271 $ 7,110 $(51,722) $(11,265) $3,312,440
Net income - - 196,104 - - - 196,104
Foreign currency translation adjustment,
net of deferred taxes of $756 - - - (4,091) - - (4,091)
----------
TOTAL COMPREHENSIVE INCOME 192,013
Cash dividends declared by Caliber
System, Inc. - - (28,184) - - - (28,184)
Purchase of treasury stock - - - - (15,057) - (15,057)
Forfeiture of restricted stock - - - - (803) 720 (83)
Two-for-one stock split by Federal
Express Corporation in the form of
a 100% stock dividend
(56,994,074 shares) 5,699 - (5,699) - - - -
Issuance of common and treasury stock
under employee incentive plans
(1,336,116 shares) 103 34,892 - - 12,100 (10,484) 36,611
Amortization of deferred compensation - - - - - 3,421 3,421
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1997 14,762 937,978 2,618,492 3,019 (55,482) (17,608) 3,501,161
Net income - - 503,030 - - - 503,030
Foreign currency translation adjustment,
net of deferred tax benefit of $2,793 - - - (30,296) - - (30,296)
----------
TOTAL COMPREHENSIVE INCOME 472,734
Adjustment to conform Caliber System,
Inc.'s fiscal year - 492 (51,795) - (1,765) - (53,068)
Cash dividends declared by Caliber
System, Inc. - - (3,899) - - - (3,899)
Purchase of treasury stock - - - - (7,049) - (7,049)
Forfeiture of restricted stock - - - - (979) 586 (393)
Issuance of common and treasury stock
under employee incentive plans
(1,466,895 shares) 135 54,195 - - 7,918 (7,204) 55,044
Cancellation of Caliber System, Inc.
treasury stock (156) 156 (66,474) - 57,357 - (9,117)
Amortization of deferred compensation - - - - - 5,817 5,817
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1998 14,741 992,821 2,999,354 (27,277) - (18,409) 3,961,230
Net income - - 631,333 - - - 631,333
Foreign currency translation adjustment,
net of deferred tax benefit of $959 - - - (611) - - (611)
Unrealized gain on available-for-sale
securities, net of deferred taxes
of $2,100 - - - 3,200 - - 3,200
----------
TOTAL COMPREHENSIVE INCOME 633,922
Purchase of treasury stock - - - - (8,168) - (8,168)
Forfeiture of restricted stock - - - - (1,196) 507 (689)
Two-for-one stock split by FDX
Corporation in the form of a 100%
stock dividend (148,931,996 shares) 14,890 - (14,890) - - - -
Issuance of common and treasury stock
under employee incentive plans
(1,770,626 shares) 168 68,491 - - 8,083 (8,273) 68,469
Amortization of deferred compensation - - - - - 8,928 8,928
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1999 $29,799 $1,061,312 $3,615,797 $(24,688) $ (1,281) $(17,247) $4,663,692
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FDX Corporation
NOTE 1: BUSINESS COMBINATION AND BASIS OF PRESENTATION
On March 17, 1999, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend that was paid on May 6, 1999 to
stockholders of record on April 15, 1999. All per share amounts have been
adjusted to reflect the stock split.
On January 27, 1998, Federal Express Corporation ("FedEx") and Caliber
System, Inc. ("Caliber") became wholly-owned subsidiaries of a newly formed
holding company, FDX Corporation (together with its subsidiaries, the
"Company"). In this transaction, which was accounted for as a pooling of
interests, Caliber stockholders received 0.8 shares of the Company's common
stock for each share of Caliber common stock. Each share of FedEx common
stock was automatically converted into one share of the Company's common
stock. There were approximately 146,800,000 of $0.10 par value shares so
issued or converted. The accompanying financial statements include the
financial position and results of operations for both FedEx and Caliber for
all periods presented.
The Company operates on four, three-month quarters with a fiscal year
ending May 31. Prior to becoming a subsidiary of the Company, Caliber
operated on a 13 four-week period calendar ending December 31, with 12 weeks
in each of the first three quarters and 16 weeks in the fourth quarter. The
Company's consolidated results of operations and cash flows for the year
ended May 31, 1998 comprise Caliber's 53-week period from May 25, 1997 to May
31, 1998 consolidated with FedEx's year ended May 31, 1998. For years prior
to 1998, the Company's consolidated results of operations, cash flows and
financial position comprise Caliber's information for the calendar year
ending just prior to the Company's fiscal year end consolidated with FedEx's
information for that fiscal year.
Due to the different fiscal year ends, Caliber's results for the 20-week
period from January 1, 1997 to May 24, 1997 are not included in the financial
statements for 1998 or 1997. For this period, Caliber had revenues of
$1,028,119,000, operating expenses of $1,083,898,000, a net loss of
$40,912,000, dividends declared of $10,883,000 and other changes, net, in
common stockholders' investment of $1,273,000. Accordingly, an adjustment was
included in the Company's Consolidated Statements of Changes in Stockholders'
Investment and Comprehensive Income for the year ended May 31, 1998 to
reflect this activity.
In 1998, the Company incurred $88,000,000 of expenses related to the
acquisition of Caliber and the formation of the Company, primarily investment
banking fees and payments to members of Caliber's management in accordance
with pre-existing management retention agreements.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of FDX Corporation and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements,
flight equipment modifications, and certain overhaul costs are capitalized.
Maintenance and repairs are charged to expense as incurred. The cost and
accumulated depreciation of property and equipment disposed of are removed
from the related accounts, and any gain or loss is reflected in the results
of operations.
For financial reporting purposes, depreciation and amortization of
property and equipment is provided on a straight-line basis over the asset's
service life or related lease term as follows:
<TABLE>
- -----------------------------------------------------------------------------
<S> <C>
Flight equipment 5 to 20 years
Package handling and ground support equipment and vehicles 5 to 30 years
Computer and electronic equipment 3 to 10 years
Other 2 to 30 years
- -----------------------------------------------------------------------------
</TABLE>
Aircraft airframes and engines are assigned residual values ranging from
10% to 20% of asset cost. All other property and equipment have no material
residual values. Vehicles are depreciated on a straight-line basis over five
to ten years.
For income tax purposes, depreciation is generally computed using
accelerated methods.
<PAGE>
DEFERRED GAINS. Gains on the sale and leaseback of aircraft and other
property and equipment are deferred and amortized over the life of the lease
as a reduction of rent expense. Included in other liabilities at May 31, 1999
and 1998, were deferred gains of $429,488,000 and $338,119,000, respectively.
DEFERRED LEASE OBLIGATIONS. While certain of the Company's aircraft and
facility leases contain fluctuating or escalating payments, the related rent
expense is recorded on a straight-line basis over the lease term. Included in
other liabilities at May 31, 1999 and 1998, were $321,248,000 and
$324,203,000, respectively, representing the cumulative difference between
rent expense and rent payments.
SELF-INSURANCE ACCRUALS. The Company is self-insured up to certain
levels for workers' compensation, employee health care and vehicle
liabilities. Accruals are based on the actuarially estimated undiscounted
cost of claims. Included in other liabilities at May 31, 1999 and 1998, were
$282,889,000 and $277,696,000, respectively, representing the long-term
portion of self-insurance accruals for the Company's workers' compensation
and vehicle liabilities.
CAPITALIZED INTEREST. Interest on funds used to finance the acquisition
and modification of aircraft and construction of certain facilities up to the
date the asset is placed in service is capitalized and included in the cost
of the asset. Capitalized interest was $38,880,000, $33,009,000, and
$45,717,000 for 1999, 1998 and 1997, respectively.
ADVERTISING. Advertising costs are generally expensed as incurred and
are included in other operating expenses. Advertising expenses were
$202,104,000, $183,253,000 and $162,337,000 for 1999, 1998 and 1997,
respectively.
CASH EQUIVALENTS. Cash equivalents in excess of current operating
requirements are invested in short-term, interest-bearing instruments with
maturities of three months or less at the date of purchase and are stated at
cost, which approximates market value. Interest income was $12,399,000,
$11,283,000,and $5,885,000 in 1999, 1998 and 1997, respectively.
MARKETABLE SECURITIES. The Company's marketable securities are
available-for-sale securities and are reported at fair value. Unrealized
gains and losses are reported, net of related deferred income taxes, as a
component of accumulated other comprehensive income within common
stockholders' investment.
SPARE PARTS, SUPPLIES AND FUEL. Spare parts are stated principally at
weighted-average cost; supplies and fuel are stated principally at standard
cost, which approximates actual cost on a first-in, first-out basis. Neither
method values inventory in excess of current replacement cost.
GOODWILL. Goodwill is the excess of the purchase price over the fair
value of net assets of businesses acquired. It is amortized on a
straight-line basis over periods ranging up to 40 years. Accumulated
amortization was $157,106,000 and $144,580,000 at May 31, 1999 and 1998,
respectively.
FOREIGN CURRENCY TRANSLATION. Translation gains and losses of the
Company's foreign operations that use local currencies as the functional
currency are accumulated and reported, net of related deferred income taxes,
as a component of accumulated other comprehensive income within common
stockholders' investment. Transaction gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other
than the local functional currency are included in the results of operations.
INCOME TAXES. Deferred income taxes are provided for the tax effect of
temporary differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. The Company uses the
liability method to account for income taxes, which requires deferred taxes
to be recorded at the statutory rate expected to be in effect when the taxes
are paid.
The Company has not provided for U.S. federal income taxes on its
foreign subsidiaries' earnings deemed to be permanently reinvested.
Quantification of the deferred tax liability, if any, associated with
permanently reinvested earnings is not practicable.
REVENUE RECOGNITION. Revenue is recorded based on the percentage of
service completed for shipments in transit at the balance sheet date.
EARNINGS PER SHARE. In accordance with the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," basic
earnings per share is computed by dividing net income by the number of
weighted-average common shares outstanding during the year. Earnings per
share, assuming dilution, is computed by dividing net income by the number of
weighted-average common shares and common stock equivalents outstanding
during the year (see Note 8).
<PAGE>
RECENT PRONOUNCEMENTS. The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," during the first quarter of 1999. This Statement
requires that foreign currency translation and unrealized gains or losses on
the Company's available-for-sale securities be included in other
comprehensive income and that the accumulated balance of other comprehensive
income be separately displayed. Prior year information has been restated to
conform to the requirements of the Statement.
On June 1, 1998, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Pre-tax income for 1999 increased by $41,000,000 as a result
of the adoption of this standard.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
was subsequently amended by SFAS No. 137 and is now effective for fiscal
years beginning after June 15, 2000. The Statement requires an entity to
recognize all derivatives as either assets or liabilities in the balance
sheet and to measure those instruments at fair value. The impact, if any, on
earnings, comprehensive income and financial position of the adoption of SFAS
No. 133 will depend on the amount, timing and nature of any agreements
entered into by the Company.
In April 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants released SOP 98-5
requiring that start-up activities be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 31, 1998. This SOP will
not have a material impact on the Company's operations.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the 1999 presentation.
USE OF ESTIMATES. The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
NOTE 3: ACCRUED SALARIES AND EMPLOYEE BENEFITS AND ACCRUED EXPENSES
The components of accrued salaries and employee benefits and accrued
expenses were as follows:
<TABLE>
<CAPTION>
May 31
In thousands 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Salaries $158,846 $143,876
Employee benefits 282,325 189,324
Compensated absences 299,321 278,550
- -------------------------------------------------------------------------------------------------
Total accrued salaries and employee benefits $740,492 $611,750
- -------------------------------------------------------------------------------------------------
Insurance $345,804 $292,905
Taxes other than income taxes 225,378 190,046
Other 324,193 306,199
- -------------------------------------------------------------------------------------------------
Total accrued expenses $895,375 $789,150
- -------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
May 31
In thousands 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured debt, interest rates of 7.60% to 10.57%, due through 2098 $ 988,120 $1,253,770
- ----------------------------------------------------------------------------------------------------
Unsecured sinking fund debentures, interest rate of 9.63%, due through 2020 98,598 98,529
- ----------------------------------------------------------------------------------------------------
Capital lease obligations and tax exempt bonds, interest rates of
5.35% to 7.88%, due through 2017 253,425 253,425
Less bond reserves 9,024 9,024
- ----------------------------------------------------------------------------------------------------
244,401 244,401
- ----------------------------------------------------------------------------------------------------
Other debt, interest rates of 9.68% to 9.98% 43,487 46,009
- ----------------------------------------------------------------------------------------------------
1,374,606 1,642,709
Less current portion 14,938 257,529
- ----------------------------------------------------------------------------------------------------
$1,359,668 $1,385,180
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Company has a $1,000,000,000 revolving credit agreement with
domestic and foreign banks. The revolving credit agreement comprises two
parts. The first part provides for a commitment of $800,000,000 through
January 27, 2003. The second part provides for a 364-day commitment for
$200,000,000 through January 14, 2000. Interest rates on borrowings under
this agreement are generally determined by maturities selected and prevailing
market conditions. The agreement contains certain covenants and restrictions,
none of which are expected to significantly affect the Company's operations
or its ability to pay dividends. As of May 31, 1999, approximately
$1,588,000,000 was available for the payment of dividends under the
restrictive covenant of the agreement. Commercial paper borrowings are backed
by unused commitments under this revolving credit agreement and reduce the
amount available under the agreement. At May 31, 1999, all of the
$1,000,000,000 commitment amount was available.
The components of unsecured debt were as follows:
<TABLE>
<CAPTION>
May 31
In thousands 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior debt, interest rates of 7.80% to 9.88%, due through 2013 $673,779 $ 773,532
Bonds, interest rate of 7.60%, due in 2098 239,376 249,344
Medium term notes, interest rates of 9.95% to 10.57%, due through 2007 74,965 230,894
- -------------------------------------------------------------------------------------------------
$988,120 $1,253,770
- -------------------------------------------------------------------------------------------------
</TABLE>
Of the senior debt outstanding at May 31, 1999 and 1998, $200,000,000 was
issued by Caliber. The Caliber notes mature on August 1, 2006 and bear interest
at 7.80%. The notes contain restrictive covenants limiting the ability of
Caliber and its subsidiaries to incur liens on assets and enter into leasing
transactions.
Tax exempt bonds were issued by the Memphis-Shelby County Airport Authority
("MSCAA") and the City of Indianapolis. Lease agreements with the MSCAA and a
loan agreement with the City of Indianapolis covering the facilities and
equipment financed with the bond proceeds obligate FedEx to pay rentals and loan
payments, respectively, equal to principal and interest due on the bonds.
Scheduled annual principal maturities of long-term debt for the five years
subsequent to May 31, 1999, are as follows: $14,900,000 in 2000; $11,500,000 in
2001; $207,100,000 in 2002; $11,100,000 in 2003; and $30,100,000 in 2004.
The Company's long-term debt, exclusive of capital leases, had carrying
values of $1,178,000,000 and $1,446,000,000 at May 31, 1999 and 1998,
respectively, compared with fair values of approximately $1,250,000,000 and
$1,597,000,000 at those dates. The estimated fair values were determined based
on quoted market prices or on current rates offered for debt with similar terms
and maturities.
NOTE 5: LEASE COMMITMENTS
The Company utilizes certain aircraft, land, facilities and equipment under
capital and operating leases that expire at various dates through 2027. In
addition, supplemental aircraft are leased under agreements that generally
provide for cancellation upon 30 days' notice.
The components of property and equipment recorded under capital leases were
as follows:
<TABLE>
<CAPTION>
May 31
In thousands 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Package handling and ground support equipment and vehicles $245,041 $261,985
Facilities 134,442 134,442
Computer and electronic equipment and other 6,496 6,518
- -------------------------------------------------------------------------------------------------
385,979 402,945
- -------------------------------------------------------------------------------------------------
Less accumulated amortization 268,696 274,494
- -------------------------------------------------------------------------------------------------
$117,283 $128,451
- -------------------------------------------------------------------------------------------------
</TABLE>
Rent expense under operating leases for the years ended May 31 was as
follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $1,246,259 $1,135,567 $ 986,758
Contingent rentals 59,839 60,925 57,806
- -------------------------------------------------------------------------------------------------
$1,306,098 $1,196,492 $1,044,564
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Contingent rentals are based on hours flown under supplemental aircraft
leases.
A summary of future minimum lease payments under capital leases and
non-cancellable operating leases (principally aircraft and facilities) with
an initial or remaining term in excess of one year at May 31, 1999 is as
follows:
<TABLE>
<CAPTION>
In thousands Capital Operating
Leases Leases
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 15,023 $ 1,011,957
2001 15,023 933,339
2002 15,023 876,055
2003 15,023 809,770
2004 14,894 764,550
Thereafter 302,502 8,717,952
- -------------------------------------------------------------------------------------------------
$377,488 $13,113,623
- -------------------------------------------------------------------------------------------------
</TABLE>
At May 31, 1999, the present value of future minimum lease payments for
capital lease obligations including certain tax exempt bonds was $200,077,000.
FedEx makes payments under certain leveraged operating leases that are
sufficient to pay principal and interest on certain pass through
certificates. The pass through certificates are not direct obligations of, or
guaranteed by, the Company or FedEx.
NOTE 6: PREFERRED STOCK
The Certificate of Incorporation authorizes the Board of Directors, at
its discretion, to issue up to 4,000,000 shares of Series Preferred Stock.
The stock is issuable in series, which may vary as to certain rights and
preferences, and has no par value. As of May 31, 1999, none of these shares
had been issued.
NOTE 7: COMMON STOCKHOLDERS' INVESTMENT
STOCK COMPENSATION PLANS
At May 31, 1999, the Company had options and awards outstanding under
stock-based compensation plans described below. As of May 31, 1999, there
were 16,712,860 shares of common stock reserved for issuance under these
plans. The Board of Directors has authorized repurchase of the Company's
common stock necessary for grants under its restricted stock plans. As of May
31, 1999, a total of 12,479,946 shares at an average cost of $12.23 per share
had been purchased and reissued under the above-mentioned plans.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations to
measure compensation expense for its plans. Compensation cost for the
restricted stock plans was $8,928,000, $5,817,000 and $3,421,000 for 1999,
1998 and 1997, respectively. If compensation cost for the Company's
stock-based compensation plans had been determined under SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
In thousands, except per share data 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As reported $631,333 $503,030 $196,104
Pro forma 609,960 489,556 187,624
Earnings per share, assuming dilution:
As reported $ 2.10 $ 1.69 $ .67
Pro forma $ 2.03 $ 1.64 $ .64
- -------------------------------------------------------------------------------------------------
</TABLE>
The pro forma disclosures, applying SFAS No. 123, are not likely to be
representative of pro forma disclosures for future years. The pro forma
effect is not expected to be fully reflected until 2002 since SFAS No. 123 is
applicable to options granted by the Company after May 31, 1995, and because
options vest over several years and additional grants could be made.
<PAGE>
FIXED STOCK OPTION PLANS
Under the provisions of the Company's stock incentive plans, options may
be granted to certain key employees (and, under the 1997 plan, to directors
who are not employees of the Company) to purchase shares of common stock of
the Company at a price not less than its fair market value at the date of
grant. Options granted have a maximum term of 10 years. Vesting requirements
are determined at the discretion of the Compensation Committee of the Board
of Directors. Presently, option vesting periods range from one to seven
years. At May 31, 1999, there were 2,564,228 shares available for future
grants under these plans.
Beginning with the grants made on or after June 1, 1995, the fair value
of each option grant was estimated on the grant date using the Black-Scholes
option-pricing model with the following assumptions for each option grant:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 25% 25% 25%
Risk-free interest rate 4.2%-5.6% 5.4%-6.5% 5.8%-6.9%
Expected lives 2.5-5.5 years 2.5-6.5 years 2.5-8.5 years
- -----------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about the Company's fixed stock
option plans for the years ended May 31:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 13,388,452 $19.74 13,523,460 $17.09 12,888,356 $15.76
Granted 3,377,500 31.80 2,485,544 28.20 3,401,064 20.02
Exercised (3,135,640) 17.86 (2,336,984) 13.45 (2,273,006) 13.65
Forfeited (230,780) 26.59 (283,568) 19.51 (536,060) 17.99
---------- ---------- ----------
Outstanding at end of year 13,399,532 23.11 13,388,452 19.74 13,480,354 17.10
---------- ---------- ----------
Exercisable at end of year 4,404,146 18.57 5,349,626 16.92 4,530,298 13.92
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted-average fair value of options granted during the year was
$9.12, $8.25 and $8.12 for the years ended May 31, 1999, 1998 and 1997,
respectively.
The following table summarizes information about fixed stock options
outstanding at May 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7.64-$11.28 380,234 2.2 years $ 9.74 380,234 $ 9.74
11.56 - 16.50 2,633,758 4.5 years 15.30 1,752,758 15.27
17.50 - 25.19 4,996,172 6.6 years 20.20 1,733,194 20.53
26.44 - 36.94 5,317,368 8.7 years 30.42 488,460 28.23
39.88 - 48.44 72,000 8.5 years 40.48 49,500 39.88
---------- ---------
7.64 - 48.44 13,399,532 6.9 years 23.11 4,404,146 18.57
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
RESTRICTED STOCK PLANS
Under the terms of the Company's Restricted Stock Plans, shares of the
Company's common stock are awarded to key employees. All restrictions on the
shares expire over periods varying from two to five years from their date of
award. Shares are valued at the market price of the Company's common stock at
the date of award. Compensation related to these plans is recorded as a
reduction of common stockholders' investment and is being amortized to expense
as restrictions on such shares expire. The following table summarizes
information about awards under the principal restricted stock plans for the
years ended May 31:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-
Average Average Average
Shares Fair Value Shares Fair Value Shares Fair Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Awarded 252,000 $32.71 240,000 $32.99 403,800 $25.97
Forfeited 16,900 44.38 28,000 34.94 36,000 20.02
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
At May 31, 1999, there were 749,100 shares available for future awards
under these plans.
NOTE 8: COMPUTATION OF EARNINGS PER SHARE
The calculation of basic earnings per share and earnings per share,
assuming dilution, for the years ended May 31 was as follows:
<TABLE>
<CAPTION>
In thousands, except per share amounts: 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $631,333 $498,155 $196,104
Income from discontinued operations - 4,875 -
- --------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $631,333 $503,030 $196,104
- --------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding 295,983 293,401 291,426
Basic earnings per share:
Continuing operations $ 2.13 $ 1.70 $ .67
Discontinued operations - .02 -
- --------------------------------------------------------------------------------------------------------------------------
$ 2.13 $ 1.72 $ .67
- --------------------------------------------------------------------------------------------------------------------------
Average shares of common stock outstanding 295,983 293,401 291,426
Common equivalent shares:
Assumed exercise of outstanding dilutive options 13,090 13,849 12,200
Less shares repurchased from proceeds of assumed exercise of options (8,430) (8,842) (9,170)
Average common and common equivalent shares 300,643 298,408 294,456
Earnings per share, assuming dilution:
Continuing operations $ 2.10 $ 1.67 $ .67
Discontinued operations - .02 -
- --------------------------------------------------------------------------------------------------------------------------
$ 2.10 $ 1.69 $ .67
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE 9: INCOME TAXES
The components of the provision for income taxes for the years ended May 31
were as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision:
Domestic
Federal $385,164 $267,471 $153,244
State and local 49,918 32,839 29,344
Foreign 22,730 36,543 44,165
- --------------------------------------------------------------------------------------------------------------------------
457,812 336,853 226,753
- --------------------------------------------------------------------------------------------------------------------------
Deferred provision (credit):
Domestic
Federal (21,773) 56,408 577
State and local (4,437) 7,860 95
Foreign (1,871) 242 2,336
- --------------------------------------------------------------------------------------------------------------------------
(28,081) 64,510 3,008
- --------------------------------------------------------------------------------------------------------------------------
$429,731 $401,363 $229,761
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's operations included the following pre-tax income (loss) with
respect to entities in foreign locations for the years ended May 31:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Entities with pre-tax income $ 256,000 $ 208,000 $ 205,000
Entities with pre-tax losses (296,000) (306,000) (191,000)
- --------------------------------------------------------------------------------------------------------------------------
$ (40,000) $ (98,000) $ 14,000
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income taxes have been provided for foreign operations based upon the
various tax laws and rates of the countries in which the Company's operations
are conducted. There is no direct relationship between the
<PAGE>
Company's overall foreign income tax provision and foreign pre-tax book
income due to the different methods of taxation used by countries throughout
the world.
A reconciliation of the statutory federal income tax rate to the
Company's effective income tax rate for the years ended May 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. income tax rate 35.0% 35.0% 35.0%
Increase resulting from:
State and local income taxes, net of federal benefit 2.8 2.7 2.9
Non-recurring items (1998 Caliber acquisition, 1997 Viking restructuring) - 3.1 10.9
Other, net 2.7 3.8 5.1
- --------------------------------------------------------------------------------------------------------------------------
Effective tax rate 40.5% 44.6% 53.9%
- --------------------------------------------------------------------------------------------------------------------------
Effective tax rate (excluding non-recurring items) 40.5% 41.5% 43.0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred tax assets and liabilities as of May
31 were as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Depreciation $ - $608,719 $ - $523,843
Deferred gains on sales of assets 122,515 - 86,053 -
Employee benefits 151,559 32,183 126,513 22,595
Self-insurance accruals 228,020 - 204,303 -
Other 233,331 97,264 183,941 95,729
- --------------------------------------------------------------------------------------------------------------------------
$735,425 $738,166 $600,810 $642,167
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10: EMPLOYEE BENEFIT PLANS
The Company sponsors defined benefit pension plans and postretirement
health care plans.
The Company has adopted SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits," which changes the presentation
of information about pension and other postretirement benefit plans.
Disclosures for prior years have been restated.
PENSION PLANS. The defined benefit pension plans cover substantially all
employees. The largest plans cover U.S. employees age 21 and over, with at
least one year of service and provide benefits based on final average
earnings and years of service. Plan funding is actuarially determined, and is
also subject to certain tax law limitations. International defined benefit
pension plans provide benefits primarily based on final earnings and years of
service and are funded in accordance with local laws and income tax
regulations. Plan assets consist primarily of marketable equity securities
and fixed income instruments. During 1999 benefits provided under certain of
the Company's pension plans were enhanced, principally in connection with the
ratification on February 4, 1999 of a collective bargaining agreement between
FedEx and the Fedex Pilots Association ("FPA"). These benefit enhancements
are reflected in the funded status of the plans at May 31, 1999 but did not
materially affect pension cost in 1999.
POSTRETIREMENT HEALTH CARE PLANS. FedEx offers medical and dental
coverage to eligible U.S. retirees and their eligible dependents. Vision
coverage is provided for retirees, but not their dependents. Substantially
all FedEx U.S. employees become eligible for these benefits at age 55 and
older, if they have permanent, continuous service with FedEx of at least 10
years after attainment of age 45 if hired prior to January 1, 1988, or at
least 20 years after attainment of age 35 if hired on or after January 1,
1988. Life insurance benefits are provided only to retirees of the former
Tiger International, Inc. who retired prior to acquisition. RPS, Inc. ("RPS")
offers similar benefits to its eligible retirees.
The following table provides a reconciliation of the changes in the
pension and postretirement health care plans' benefit obligations and fair
value of assets over the two-year period ended May 31, 1999, and a statement
of the funded status as of May 31, 1999 and 1998:
<PAGE>
<TABLE>
<CAPTION>
Postretirement
In thousands Pension Plans Health Care Plans
- --------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $4,121,795 $3,142,168 $ 217,027 $ 174,503
Service cost 331,005 250,753 23,676 18,385
Interest cost 288,221 245,697 16,962 14,767
Amendments and benefit enhancements 125,145 - 1,681 40
Actuarial (gain) loss (426,863) 543,071 (7,402) 14,292
Plan participant contributions - - 679 818
Foreign currency exchange rate changes 2,796 (10,174) - -
Benefits paid (56,580) (49,720) (6,437) (5,778)
- --------------------------------------------------------------------------------------------------------------------------
Benefit obligation at end of year $4,385,519 $4,121,795 $ 246,186 $ 217,027
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $4,434,870 $3,632,684 $ - $ -
Actual return on plan assets 451,738 766,148 - -
Foreign currency exchange rate changes (1,283) (786) - -
Company contributions 123,686 86,544 5,758 4,960
Plan participant contributions - - 679 818
Benefits paid (56,580) (49,720) (6,437) (5,778)
- --------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $4,952,431 $4,434,870 $ - $ -
- --------------------------------------------------------------------------------------------------------------------------
FUNDED STATUS OF THE PLANS $ 566,912 $ 313,075 $(246,186) $(217,027)
Unrecognized actuarial (gain) loss (595,238) (197,366) (20,809) (13,531)
Unrecognized prior service (benefit) cost 132,116 5,757 291 (1,477)
Unrecognized transition amount (11,852) (13,197) - -
- --------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 91,938 $ 108,269 $(266,704) $(232,035)
- --------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOGNIZED IN THE BALANCE SHEET AT MAY 31:
Prepaid benefit cost $ 188,423 $ 184,547 $ - $ -
Accrued benefit liability (96,485) (76,278) (266,704) (232,035)
Minimum pension liability (86,000) (847) - -
Intangible asset 86,000 847 - -
- --------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost $ 91,938 $ 108,269 $(266,704) $(232,035)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Net periodic benefit cost for the years ended May 31 was as follows:
<TABLE>
<CAPTION>
In thousands Pension Plans Postretirement Health Care Plans
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 331,005 $ 250,753 $246,443 $23,676 $18,385 $17,830
Interest cost 288,221 245,697 221,975 16,962 14,767 13,663
Expected return on plan assets (483,709) (377,421) (334,475) - - -
Net amortization and deferral (1,948) (2,304) 12,547 (211) (709) (252)
- ------------------------------------------------------------------------------------------------------------------------------
$ 133,569 $ 116,725 $146,490 $40,427 $32,443 $31,241
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS
1999 1998 1997 1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Discount rate 7.5% 7.0% 8.0% 7.3% 7.2% 7.8%
Rate of increase in future compensation levels 4.6 4.6 5.4 - - -
Expected long-term rate of return on assets 10.9 10.3 10.3 - - -
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and
fair value of plan assets for pension plans with accumulated benefit
obligations in excess of plan assets were $201,700,000, $172,800,000 and
$2,600,000, respectively, as of May 31, 1999, and $91,100,000, $66,700,000
and $1,900,000, respectively, as of May 31, 1998. The minimum pension
liability and corresponding intangible asset recognized in the balance sheet
at May 31, 1999 relate to the collective bargaining agreement between FedEx
and the FPA.
FedEx's future medical benefit costs were estimated to increase at an
annual rate of 9.0% during 2000, decreasing to an annual growth rate of 5.25%
in 2008 and thereafter. Future dental benefit costs were estimated to
increase at an annual rate of 7.75% during 2000, decreasing to an annual
growth rate of 5.25% in 2010 and thereafter. FedEx's cost is capped at 150%
of the 1993 employer cost and, therefore, will not be subject to medical and
dental trends after the capped cost is attained, projected to be in 2001.
Caliber's health care costs were estimated to increase at an annual rate of
7.9% during 2000, decreasing to an annual growth rate of 5.25% in
<PAGE>
2006 and thereafter. A 1% change in these annual trend rates would not have a
significant impact on the accumulated postretirement benefit obligation of
the Company at May 31, 1999, or 1999 benefit expense. The Company pays claims
as incurred.
PROFIT SHARING PLANS. The profit sharing plans cover substantially all
U.S. employees age 21 and over, with at least one year of service with the
Company as of the contribution date. The plans provide for discretionary
employer contributions which are determined annually by the Board of
Directors. Profit sharing expense was $137,500,000 in 1999, $124,700,000 in
1998 and $107,400,000 in 1997. Included in these expense amounts are cash
distributions made directly to employees of $46,800,000, $43,100,000 and
$28,600,000 in 1999, 1998 and 1997, respectively.
NOTE 11: BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective May 31, 1999. The Statement
establishes standards for reporting information about operating segments.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by
the chief operating decision-maker in allocating resources and assessing
performance.
FDX is a global transportation and logistics provider primarily composed
of FedEx, the world's largest express transportation company, and RPS, a
business-to-business ground small-package carrier. Other operating companies
included in the FDX portfolio are Viking Freight, Inc. ("Viking"), a
less-than-truckload carrier operating principally in the western United
States; Roberts Express, Inc., a critical-shipment carrier; and FDX Global
Logistics, Inc., a contract logistics provider. Other also includes certain
unallocated corporate charges.
Based on the guidelines provided in SFAS No. 131, the Company determined
its reportable operating segments to be FedEx and RPS, both of which operate
in single lines of business. The Company evaluates financial performance
based on operating income.
The following table provides a reconciliation of reportable segment
revenues, depreciation and amortization, operating income and segment assets
to the Company's consolidated financial statement totals:
<TABLE>
<CAPTION>
Consolidated
In thousands FedEx RPS Other Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
1999 $13,979,277 $1,878,107 $ 916,086 $16,773,470
1998 13,254,841 1,710,882 907,087 15,872,810
1997 11,519,750 1,346,803 1,371,339 (1) 14,237,892
Depreciation and Amortization
1999 $ 912,002 $ 82,640 $ 40,476 $ 1,035,118
1998 844,606 79,835 39,291 963,732
1997 777,374 69,857 81,602 928,833
Operating Income (Loss)
1999 $ 871,476(2) $ 231,010 $ 60,600 $ 1,163,086
1998 836,733 171,203 2,724 (3) 1,010,660
1997 699,042 138,112 (330,152)(4) 507,002
Segment Assets
1999 $ 9,115,975 $ 896,723 $ 635,513 $10,648,211
1998 8,433,106 846,139 406,815 9,686,060
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes revenue of certain Viking divisions that were subsequently sold.
See Note 15.
(2) Includes $81,000,000 of FedEx strike contingency costs. See Note 15.
(3) Includes $74,000,000 of merger expenses. See Note 1.
(4) Includes a $225,000,000 charge related to the Viking restructuring. See Note
15.
<PAGE>
The following table provides a reconciliation of reportable segment capital
expenditures to the Company's consolidated totals for the years ended May 31:
<TABLE>
<CAPTION>
Consolidated
In thousands FedEx RPS Other Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $1,550,161 $179,969 $ 39,816 $1,769,946
1998 1,761,963 78,041 40,169 1,880,173
1997 1,470,592 152,836 139,551 1,762,979
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the Company's revenue by service type and
geographic information for the years ended or as of May 31:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue by Service type
FedEx:
Package:
U.S. overnight $ 7,185,462 $6,810,211 $6,243,790
U.S. deferred 2,271,151 2,179,188 1,621,647
International Priority 3,018,828 2,731,140 2,351,092
Freight:
U.S. 439,855 337,098 207,729
International 530,759 597,861 604,472
Other 533,222 599,343 491,020
- --------------------------------------------------------------------------------------------------------
Total FedEx 13,979,277 13,254,841 11,519,750
RPS 1,878,107 1,710,882 1,346,803
Other 916,086 907,087 1,371,339
- --------------------------------------------------------------------------------------------------------
$16,773,470 $15,872,810 $14,237,892
Geographic Information(1)
Revenues
U.S. $12,910,107 $12,231,537 $11,001,733
International 3,863,363 3,641,273 3,236,159
- --------------------------------------------------------------------------------------------------------
$16,773,470 $15,872,810 $14,237,892
Long-lived Assets
U.S. $ 6,506,424 $ 5,817,111
International 1,000,759 988,817
- --------------------------------------------------------------------------------------------------------
$ 7,507,183 $ 6,805,928
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Generally, international revenue includes shipments that either originate in
or are destined to locations outside the United States. Long-lived assets
include property and equipment, goodwill and other long-term assets. Flight
equipment is allocated between geographic areas based on usage.
NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31
was as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest (net of capitalized interest) $114,326 $130,250 $108,828
Income taxes 437,340 355,563 195,253
- --------------------------------------------------------------------------------------------------------
</TABLE>
Non-cash investing and financing activities for the years ended May 31 were
as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fair value of assets surrendered under exchange agreements
(with two airlines) $48,248 $90,428 $62,018
Fair value of assets acquired under exchange agreements 34,580 78,148 46,662
Fair value of assets surrendered in excess of assets acquired 13,668 12,280 15,356
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 13: COMMITMENTS AND CONTINGENCIES
The Company's annual purchase commitments under various contracts as of
May 31, 1999, were as follows:
<PAGE>
<TABLE>
<CAPTION>
Aircraft-
In thousands Aircraft Related(1) Other(2) Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 $431,400 $329,700 $528,000 $1,289,100
2001 310,300 626,300 78,200 1,014,800
2002 316,900 229,200 8,500 554,600
2003 381,500 193,600 - 575,100
2004 200,800 7,800 - 208,600
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Primarily aircraft modifications, rotables, spare parts and spare engines.
(2) Facilities, vehicles, computer and other equipment.
At May 31, 1999, FedEx was committed to purchase five A300s, 31 MD11s,
six DC10s (in addition to those discussed in the following paragraph) and 75
Ayres ALM 200s to be delivered through 2007. Deposits and progress payments
of $27,407,000 have been made toward these purchases.
FedEx has agreements with two airlines to acquire 53 DC10 aircraft (39
of which had been received as of May 31, 1999), spare parts, aircraft engines
and other equipment, and maintenance services in exchange for a combination
of aircraft noise reduction kits and cash. Delivery of these aircraft began
in 1997 and will continue through 2001. Additionally, these airlines may
exercise put options through December 31, 2003, requiring FedEx to purchase
up to 20 additional DC10s along with additional aircraft engines and
equipment.
In January 1999, put options were exercised by an airline requiring
FedEx to purchase nine DC10s (in addition to those discussed in the preceding
paragraph) for a total purchase price of $29,700,000. Delivery of the
aircraft began in March 1999 and is expected to be completed by January 2000.
FedEx entered into contracts in previous years which were designed to
limit its exposure to fluctuations in jet fuel prices. Under these contracts,
FedEx made (or received) payments based on the difference between a specified
lower (or upper) limit and the market price of jet fuel, as determined by an
index of spot market prices representing various geographic regions. The
difference was recorded as an increase or decrease in fuel expense. At May
31, 1998, all such contracts had expired. Under jet fuel contracts, FedEx
made payments of $28,764,000 in 1998 and received $15,162,000 (net of
payments) in 1997.
NOTE 14: LEGAL PROCEEDINGS
There are two separate class-action lawsuits against FedEx generally
alleging that FedEx has breached its contract with the plaintiffs in
transporting packages shipped by them. These lawsuits allege that FedEx
continued to collect a 6.25% federal excise tax on the transportation of
property shipped by air after the tax expired on December 31, 1995, until it
was reinstated in August 1996. The plaintiffs seek certification as a class
action, damages, an injunction to enjoin FedEx from continuing to collect the
excise tax referred to above, and an award of attorneys' fees and costs. One
case was filed in Circuit Court of Greene County, Alabama.
The other case, which was filed in the Supreme Court of New York, New
York County, and contained allegations and requests for relief substantially
similar to the Alabama case, was dismissed with prejudice on FedEx's motion
on October 7, 1997. The Court found that there was no breach of contract and
that the other causes of action were preempted by federal law. The plaintiffs
appealed the dismissal. This case originally alleged that FedEx continued to
collect the excise tax on the transportation of property shipped by air after
the tax expired on December 31, 1996. The New York complaint was later
amended to cover the first expiration period of the tax (December 31, 1995
through August 27, 1996) covered in the original Alabama complaint. The
dismissal was affirmed by the appellate court on March 2, 1999. The
plaintiffs are now seeking permission to appeal to the next appellate level.
The air transportation excise tax expired on December 31, 1995, was
reenacted by Congress effective August 27, 1996, and expired again on
December 31, 1996. The excise tax was then reenacted by Congress effective
March 7, 1997. The expiration of the tax relieved FedEx of its obligation to
pay the tax during the periods of expiration. The Taxpayer Relief Act of
1997, signed by President Clinton in August 1997, extended the tax for ten
years through September 30, 2007.
FedEx intends to vigorously defend itself in these cases. No amount has
been reserved for this contingency.
The Company and its subsidiaries are subject to other legal proceedings
and claims that arise in the ordinary course of their business. In the
opinion of management, the aggregate liability, if any, with respect to these
other actions will not materially adversely affect the financial position or
results of operations of the Company.
<PAGE>
NOTE 15: OTHER EVENTS
On October 30, 1998, contract negotiations between FedEx and the FPA
were discontinued. In November, the FPA began actively encouraging its
members to decline overtime work and issued ballots seeking strike
authorization. To avoid service interruptions related to a threatened strike,
the Company and FedEx began strike contingency planning including entering
into agreements for additional third-party air and ground transportation and
establishing special financing arrangements. Subsequently, the FPA agreed to
end all job actions for 60 days and negotiations resumed. Such negotiations
resulted in a five-year collective bargaining agreement that was ratified by
the FPA membership in February 1999 and became effective May 31, 1999. Costs
associated with these contingency plans were approximately $91,000,000. Of
these costs, approximately $81,000,000, primarily the cost of contracts for
supplemental airlift and ground transportation, was included in operating
expenses. The remaining $10,000,000 was included in non-operating expenses
and represents the costs associated with obtaining additional short-term
financing capabilities.
In 1998, FedEx realized a net gain of $17,000,000 from the insurance
settlement and the release from certain related liabilities on a leased MD11
aircraft destroyed in an accident in July 1997. The gain was recorded in
operating and non-operating income in substantially equal amounts.
In 1997, FedEx's operating income included a $15,000,000 pretax benefit
from the settlement of a Tennessee personal property tax matter. Also in
1997, FedEx recorded a $17,100,000 non-operating gain from an insurance
settlement for a DC10 aircraft destroyed by fire in September 1996.
On March 27, 1997, Caliber announced a major restructuring of its Viking
subsidiary. As a result of the restructuring, Viking's southwestern division
(formerly Central Freight Lines Inc.) was sold during the first quarter of
1998 and operations at Viking's midwestern, eastern and northeastern
divisions (formerly Spartan Express, Inc. and Coles Express, Inc.) ceased on
March 27, 1997.
In connection with the restructuring, Viking recorded a pretax asset
impairment charge of $225,000,000 ($175,000,000, net of tax) in 1997 and a
pretax restructuring charge of $85,000,000 ($56,400,000, net of tax) in the
period from January 1, 1997 to May 24, 1997. This restructuring charge is
included in the adjustment to conform Caliber's fiscal year in the
accompanying Consolidated Statements of Changes in Stockholders' Investment
and Comprehensive Income and, therefore, is excluded from the Consolidated
Statements of Income. Components of the $85,000,000 restructuring charge
include asset impairment charges, future lease costs and other contractual
obligations, employee severance and other benefits and other exit costs.
Gains on assets sold in the restructuring of $16,000,000 were recognized in
the third quarter of 1998.
The long-lived asset impairment charge in 1997 of $225,000,000 resulted
from Caliber's assessment of the ongoing value of property and equipment
(primarily real estate and revenue equipment) used in Viking's operations
that was determined to be impaired under SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Accordingly, these assets were written down to fair value in the Company's
May 31, 1997 financial statements. Fair value was based on estimates of
appraised values for real estate and quoted prices for equipment.
Assets held for sale from the restructuring (principally real estate and
revenue equipment) are included in property and equipment in the accompanying
consolidated balance sheet. Caliber completed the sale of substantially all
of the assets to be disposed of during 1999 and 1998. Remaining accrued
restructuring costs at May 31, 1999 of $16,000,000 relate primarily to future
lease obligations and claims.
On November 6, 1995, Caliber announced plans to exit the airfreight
business served by its wholly-owned subsidiary, Roadway Global Air, Inc.
Income from discontinuance of $4,875,000, net of tax, in 1998 included the
favorable settlement of leases and other contractual obligations.
NOTE 16: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
In thousands, except earnings per share Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 (1)
Revenues $4,082,302 $4,209,237 $4,098,418 $4,383,513
Operating income 283,843 336,987 152,038 390,218
Income before income taxes 255,348 312,404 121,269 372,043
Net income 149,379 182,756 77,833 221,365
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Earnings per common share $ .51 $ .62 $ .26 $ .74
Earnings per common share - assuming dilution $ .50 $ .61 $ .26 $ .73
1998 (2)
Revenues $3,866,491 $3,942,018 $3,986,304 $4,077,997
Operating income 303,905 288,949 95,381 322,425
Income before income taxes 284,786 256,719 63,670 294,343
Income from continuing operations 164,777 149,824 12,836 170,718
Net income 164,777 149,824 17,711 170,718
Earnings per common share $ .56 $ .51 $ .06 $ .58
Earnings per common share - assuming dilution $ .55 $ .50 $ .06 $ .57
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Third quarter 1999 results included approximately $91,000,000 of expenses
($54,100,000 net of tax or $.18 per share, assuming dilution) for contingency
plans made by the Company related to the threatened strike by the FPA.
(2) First quarter 1998 included Caliber's results for the 12-week period from
May 25, 1997 to August 16, 1997 consolidated with FedEx's results for the three
months ended August 31, 1997. Second quarter 1998 included Caliber's results for
the 12-week period from August 17, 1997 to November 8, 1997 consolidated with
FedEx's results for the three months ended November 30, 1997. Third quarter 1998
included Caliber's results for the 16-week period from November 9, 1997 to
February 28, 1998 consolidated with FedEx's results for the three months ended
February 28, 1998. Third quarter 1998 results included $88,000,000 of expenses
($80,000,000 net of tax or $.26 per share, assuming dilution) related to the
acquisition of Caliber and the formation of the Company.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of FDX Corporation:
We have audited the accompanying consolidated balance sheets of FDX
Corporation (a Delaware corporation) and subsidiaries as of May 31, 1999 and
1998, and the related consolidated statements of income, changes in
stockholders' investment and comprehensive income and cash flows for each of
the three years in the period ended May 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the consolidated statements of income, stockholders' equity and
cash flows for the year ended December 31, 1996, of Caliber System, Inc., a
company acquired during 1998 in a transaction accounted for as a pooling of
interests, as discussed in Note 1. Such statements are included in the
consolidated financial statements of FDX Corporation for the year ended May
31, 1997, and reflect total revenues of 19% of the related FDX Corporation
consolidated total. These statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to
amounts included for Caliber System, Inc., is based solely upon the report of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report
of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of FDX Corporation as of May 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended May 31, 1999, in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Memphis, Tennessee
June 29, 1999
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
FDX Corporation
<TABLE>
<CAPTION>
Years ended May 31, In thousands,
except per share amounts and Other Operating Data 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $16,773,470 $15,872,810 $14,237,892 $12,721,791 $11,719,596
Operating income 1,163,086 1,010,660 507,002 779,552 756,247
Income from continuing operations before income taxes 1,061,064 899,518 425,865 702,094 693,564
Income from continuing operations 631,333 498,155 196,104 400,186 396,125
Income (loss) from discontinued operations (1) - 4,875 - (119,614) (78,977)
Net income $ 631,333 $ 503,030 $ 196,104 $ 280,572 $ 317,148
PER SHARE DATA (2)
Earnings (loss) per share:
Basic
Continuing operations $ 2.13 $ 1.70 $ .67 $ 1.38 $ 1.38
Discontinued operations (1) - .02 - (.41) (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
$ 2.13 $ 1.72 $ .67 $ .97 $ 1.11
- ---------------------------------------------------------------------------------------------------------------------------------
Assuming dilution
Continuing operations $ 2.10 $ 1.67 $ .67 $ 1.37 $ 1.37
Discontinued operations (1) - .02 - (.41) (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
$ 2.10 $ 1.69 $ .67 $ .96 $ 1.10
- ---------------------------------------------------------------------------------------------------------------------------------
Average shares of common stock 295,983 293,401 291,426 289,390 286,978
Average common and common equivalent shares 300,643 298,408 294,456 291,686 289,002
Cash dividends (3) - - - - -
FINANCIAL POSITION
Property and equipment, net $ 6,559,217 $ 5,935,050 $ 5,470,399 $ 4,973,948 $ 4,421,312
Total assets 10,648,211 9,686,060 9,044,316 8,088,241 7,943,218
Long-term debt, less current portion 1,359,668 1,385,180 1,597,954 1,325,277 1,324,711
Common stockholders' investment 4,663,692 3,961,230 3,501,161 3,312,440 3,260,963
OTHER OPERATING DATA
FedEx
Operating weekdays 256 254 254 256 255
Aircraft fleet 634 613 584 557 496
RPS
Operating weekdays 253 256 254 252 253
Average full-time equivalent employees 156,386 150,823 145,995
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 1 of the Notes to Consolidated Financial Statements for a discussion of
the periods presented.
(1) Discontinued operations include the operations of Roadway Express, Inc., a
wholly-owned subsidiary of Caliber that was distributed to Caliber stockholders
on January 2, 1996, and Roadway Global Air, Inc., a wholly-owned subsidiary of
Caliber, which exited the airfreight business in calendar 1995.
(2) Reflects two-for-one stock splits effected in the form of 100% stock
dividends on November 4, 1996 and May 6, 1999.
(3) Caliber declared dividends of $3,899,000, $28,184,000, $54,706,000, and
$54,620,000 for 1998, 1997, 1996, and 1995, respectively. Caliber declared
additional dividends of $10,883,000 from January 1, 1997 to May 25, 1997, that
are not included in the preceding amounts. FedEx did not pay dividends in the
years shown. FDX does not intend to pay dividends on FDX common stock.
<PAGE>
CORPORATE INFORMATION
STOCK LISTING: The Company's common stock is listed on The New York
Stock Exchange under the ticker symbol FDX.
STOCKHOLDERS: At July 15, 1999, there were 15,431 stockholders of
record.
Market information: Following are high and low closing prices, by
quarter, for FDX Corporation common stock in 1999 and 1998 adjusting for a
two-for-one stock split effected in the form of a 100% stock dividend that
was paid on May 6, 1999 to stockholders of record on April 15, 1999. No cash
dividends have been declared by the Company.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FY 1999
High $33 3/32 $32 7/16 $47 5/8 $61 3/4
Low 25 1/32 22 3/16 33 3/16 45 27/32
- -------------------------------------------------------------------------------------------------------------
FY 1998
High $ 35 $41 9/32 $34 27/32 $37 1/8
Low 26 1/2 30 17/32 28 3/16 30 5/8
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CORPORATE INFORMATION
CORPORATE HEADQUARTERS: 942 South Shady Grove Road, Memphis, Tennessee
38120, (901) 369-3600.
ANNUAL MEETING: The annual meeting of stockholders will be held at Hotel
Le Bristol, 112, rue du Faubourg Saint-Honore, 75008 Paris, France on Monday,
September 27, 1999, at 10:00 a.m. local time.
INQUIRIES: For financial information, contact J.H. Clippard, Jr., Vice
President, Investor Relations, FDX Corporation, 942 South Shady Grove Road,
Memphis, Tennessee 38120, (901) 818-7200. For general information, contact
Shirlee M. Clark, Director, Public Relations, FDX Corporation, 942 South
Shady Grove Road, Memphis, Tennessee 38120, (901) 395-3460.
FORM 10-K: A copy of the Company's Annual Report on Form 10-K (excluding
exhibits), filed with the Securities and Exchange Commission (SEC), is
available free of charge. You will be mailed a copy upon request to J.H.
Clippard, Jr., Vice President, Investor Relations, FDX Corporation, 942 South
Shady Grove Road, Memphis, Tennessee 38120, (901) 818-7200. Company documents
filed electronically with the SEC can also be found on the Internet at the
SEC's Web site (http://www.sec.gov).
AUDITORS: Arthur Andersen LLP, Memphis, Tennessee.
REGISTRAR AND TRANSFER AGENT: Equiserve-First Chicago Trust Division,
Shareholder Services, P.O. Box 2500, Jersey City, New Jersey 07303-2500,
(800) 446-2617 / John H. Ruocco (312) 407-5153. Information on the
DirectServiceTM Investment Program for Shareowners of FDX Corporation may be
obtained by calling (800) 524-3120. This program provides an alternative to
traditional retail brokerage methods of purchasing, holding and selling FDX
common stock.
EQUAL EMPLOYMENT OPPORTUNITY: FDX Corporation is firmly committed to
afford Equal Employment Opportunity to all individuals regardless of age,
sex, race, color, religion, national origin, citizenship, disability, or
status as a Vietnam era or special disabled veteran. We are strongly bound to
this commitment because adherence to Equal Employment Opportunity principles
is the only acceptable way of life. We adhere to those principles not just
because they're the law, but because it's the right thing to do.
SERVICE MARKS: FDXSM and FDX Global Logistics-SM- and logo are service
marks of FDX Corporation. Federal Express,-Registered Trademark-
FedEx,-Registered Trademark- and logo, FedEx Powership,-Registered Trademark-
FedEx Ship,-Registered Trademark- FedEx Same Day,-Registered Trademark- FedEx
interNetShip-Registered Trademark- and FedEx Express Saver-Registered
Trademark-are registered trademarks and service marks of Federal Express
Corporation. Reg. U.S. Pat. & Tm. Off. and in certain foreign countries.
RPS-Registered Trademark-and logo and RPS Multi-Ship-Registered Trademark-
are registered service marks and trademarks of RPS, Inc. Reg. U.S. Pat. & Tm.
Off. Viking Freight-SM- is a service mark of Viking Freight, Inc. Roberts
Express-Registered Trademark- is a registered service mark of Roberts
Express, Inc. Reg. U.S. Pat. & Tm. Off. Powership-Registered Trademark- is
used by FDX Corporation under license from Federal Express Corporation.
<PAGE>
BOARD OF DIRECTORS AND SENIOR OFFICERS
Board of Directors
Robert H. Allen (2)
Private Investor and Managing Partner
Challenge Investment Partners
Investment firm
Robert L. Cox (1)
Partner
Waring Cox
Law firm
Ralph D. DeNunzio (2)
President
Harbor Point Associates, Inc.
Private investment and consulting firm
Judith L. Estrin (1)
Senior Vice President and Chief Technology Officer
Cisco Systems, Inc.
Networking systems company
Philip Greer (1*)
Senior Managing Director
<PAGE>
Weiss, Peck & Greer, L.L.C.
Investment management firm
J.R. Hyde, III (2)
Chairman
Pittco, Inc.
Investment company
Charles T. Manatt (2)
Chairman
Manatt, Phelps & Phillips
Law firm
George J. Mitchell (1)
Special Counsel
Verner, Liipfert, Bernhard, McPherson and Hand
Law firm
Jackson W. Smart, Jr. (2*)
Chairman, Executive Committee
First Commonwealth, Inc.
Managed dental care company
Frederick W. Smith
Chairman, President and Chief Executive Officer
FDX Corporation
Dr. Joshua I. Smith (1)
Chairman, President and Chief Executive Officer
The MAXIMA Corporation
Information and data processing firm
Paul S. Walsh (2)
Chairman, President and Chief Executive Officer
The Pillsbury Company
Consumer food and beverage company
Peter S. Willmott (1)
Chairman and Chief Executive Officer
Willmott Services, Inc.
<PAGE>
Retail and consulting firm
(1)Audit Committee
(2)Compensation Committee
(*)Committee Chairman
Senior Officers
Frederick W. Smith
Chairman, President and Chief Executive Officer
Kenneth R. Masterson
Executive Vice President, General Counsel and Secretary
Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer
T. Michael Glenn
Executive Vice President,
Market Development and Corporate Communications
Dennis H. Jones
Executive Vice President and Chief Information Officer
James S. Hudson
Corporate Vice President and Chief Accounting Officer
Portions of this annual report were printed on recycled paper.
Design by Addison www.addison.com
Information-Intensive
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<PAGE>
FDX Corporation
942 South Shady Grove Road
Memphis, Tennessee 38120
www.fdxcorp.com
<PAGE>
FDX CORPORATION
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
REGISTRATION
---------------
<S> <C>
1. FEDERAL EXPRESS CORPORATION Delaware
I. FEDERAL EXPRESS AVIATION SERVICES, INCORPORATED Delaware
A. Federal Express Aviation Services International, Ltd. Delaware
II. FEDERAL EXPRESS CANADA LTD. Canada
III. FEDERAL EXPRESS INTERNATIONAL, INC. Delaware
A. Dencom Investments Limited Northern Ireland
1. Dencom Freight Holdings Limited Northern Ireland
a. F.E.D.S. (Ireland) Limited Ireland
b. Federal Express (N.I.) Limited Northern Ireland
c. Fedex (Ireland) Limited Ireland
B. Federal Express (Australia) PTY Ltd. Australia
C. Federal Express Europe, Inc. Delaware
1. Federal Express Europe, Inc. & Co., V.O.F./S.N.C. Belgium
2. Federal Express European Services, Inc. Delaware
D. Federal Express Europlex, Inc. Delaware
E. Federal Express Finance P.L.C. United Kingdom
F. Federal Express Holdings, S.A. Delaware
1. Federal Express (Antigua) Limited Antigua
2. Federal Express (Antilles Francaises) S.A.R.L. French West Indies
3. Federal Express (Barbados) Limited Barbados
4. Federal Express (Bermuda) Limited Bermuda
5. Federal Express Cayman Limited Cayman Islands
6. Federal Express (Dominicana) S.A. Dominican Republic
a. Inversiones Geminis, S.A. Dominican Republic
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
REGISTRATION
---------------
<S> <C>
b. Inversiones Piscis, S.A. Dominican Republic
c. Inversiones Sagitario, S.A. Dominican Republic
7. Federal Express Entregas Rapidas, Ltd. Brazil
8. Federal Express (Grenada) Limited Grenada
9. Federal Express (Haiti) S.A. Haiti
10. Federal Express Holdings (Mexico) y Compania S.N.C. de C.V. Mexico
11. Federal Express (Jamaica) Limited Jamaica
12. Federal Express (St. Kitts) Limited St. Kitts
13. Federal Express (St. Lucia) Limited St. Lucia
14. Federal Express (St. Maarten) N.V. Netherland Antilles
a. Federal Express (Aruba) N.V. Netherland Antilles
15. Federal Express (Turks & Caicos) Limited Turks & Caicos Islands
16. Federal Express Virgin Islands, Inc. U.S. Virgin Islands
17. FedEx (Bahamas) Limited Bahamas
G. Federal Express International (France) SNC France
H. Federal Express International Limited United Kingdom
I. Federal Express International Y Compania S.N.C. de C.V. Mexico
J. Federal Express Italy Inc. Delaware
K. Federal Express Japan K.K. Japan
L. Federal Express Limited United Kingdom
M. Federal Express Luxembourg, Inc. Delaware
N. Federal Express Pacific, Inc. Delaware
1. Federal Express Services (M) Sdn. Bhd. Malaysia
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
REGISTRATION
---------------
<S> <C>
2. The Flying Tiger Line, Limited Hong Kong
3. Udara Express Courier Services Sdn. Bhd. Malaysia
O. Federal Express Parcel Services Limited United Kingdom
P. Federal Express (Singapore) PTE, LTD. Singapore
Q. Federal Express (Thailand) Limited Thailand
R. Federal Express (U.K.) Limited United Kingdom
a. Federal Express (U.K.) Pension Trustees Ltd. United Kingdom
S. FedEx (Mauritius) Ltd. Mauritius
T. Fedex (N. I.) Limited Northern Ireland
U. Winchmore Developments Ltd. England
a. Concorde Advertising Limited England
IV. FEDERAL EXPRESS LEASING CORPORATION Delaware
V. FEDEX CUSTOMS BROKERAGE CORPORATION Delaware
VI. FEDEX FSC CORPORATION Barbados
VII. FEDEX PARTNERS, INC. Delaware
VIII. FLYING TIGERS LIMITED New Zealand
IX. THE FLYING TIGER LINE (NZ) LIMITED New Zealand
X. TIGER INTERNATIONAL INSURANCE LTD. Cayman Islands
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
REGISTRATION
---------------
<S> <C>
2. CALIBER SYSTEM, INC. Ohio
I. CALIBER SYSTEM (CANADA), INC. Canada
II. FDX TECHNOLOGY, INC. Ohio
III. ROADWAY GLOBAL AIR, INC. Delaware
A. Roadway Global Air International, Inc. Delaware
1. Roadway Global Air, S.r.L. Italy
IV. ROBERTS EXPRESS, INC. Ohio
A. AutoQuik, Inc. Delaware
B. North Coast Express, Inc. Ohio
C. Roberts Air Freight, Inc. Ohio
D. Roberts Express, BEL Belgium
E. Roberts Express B.V. Netherlands
F. Roberts Express GmbH Germany
G. Roberts Express SARL France
H. Roberts Express, S.L. Spain
I. Roberts Express, S.r.L. Italy
J. Roberts Express UK, Inc. Delaware
K. Third Party Services, Inc. Delaware
L. Transportation Technologies, Inc. Ohio
V. RPS, INC. Delaware
A. RPS, Ltd. Wyoming
B. RPS de Mexico, S.A. de C.V. Mexico
C. RPS Urban Renewal Corporation New Jersey
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION OR
REGISTRATION
---------------
<S> <C>
VI. VIKING FREIGHT, INC. California
A. Bay Cities Diesel Engine Rebuilders, Inc. California
B. Lorena Land Company Texas
C. VFS Forwarding, Inc. California
D. Viking de Mexico, S.A. de C.V. Mexico
3. FDX GLOBAL LOGISTICS, INC. Delaware
I. CALIBER LOGISTICS, INC. Ohio
A. Caliber Dedicated Transportation, Inc. Delaware
B. Caliber Intermodal, Inc. Delaware
C. Caliber Logistics (Canada), Ltd. Ontario
D. Caliber Logistics de Mexico, S.A. de C.V. Mexico
E. Caliber Logistics Europe B.V. Netherlands
1. Caliber Logistics GmbH Germany
2. Caliber Logistics Netherlands B.V. Netherlands
3. Caliber Logistics UK Ltd. United Kingdom
F. Caliber Logistics Healthcare, Inc. Ohio
II. CARIBBEAN TRANSPORTATION SERVICES, INC. Delaware
4. FDX INTERNATIONAL TRANSMISSION CORPORATION Delaware
</TABLE>
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in FDX Corporation's previously filed Form S-3
Registration Statement No. 333-74701 and Form S-8 Registration Statement
Nos. 333-45037 and 333-71065 of our report dated June 29, 1999, included (or
incorporated by reference) in FDX Corporation's Form 10-K for the year ended
May 31, 1999.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
August 10, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the use of our report dated January 23, 1997 (except for Note K,
as to which the date is March 27, 1997) with respect to the consolidated
financial statements of Caliber System, Inc. (not presented separately herein)
for the year ended December 31, 1996 included in this Annual Report (Form 10-K)
of FDX Corporation for the year ended May 31, 1999.
ERNST & YOUNG LLP
Akron, Ohio
August 10, 1999
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, the principal executive officer and a director of
FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby
constitute and appoint Alan B. Graf, Jr. and James S. Hudson, and each of
them, with full power of substitution and resubstitution, his true and lawful
attorneys-in-fact and agents, with full power and authority to execute in the
name and on behalf of the undersigned as such officer and director, the
Corporation's Annual Report on Form 10-K with respect to the Corporation's
fiscal year ended May 31, 1999, and any and all amendments thereto; and
hereby ratifies and confirms all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes may lawfully do or
cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999.
/s/ FREDERICK W. SMITH
-----------------------
Frederick W. Smith
STATE OF TENNESSEE
COUNTY OF SHELBY
I, June Y. Fitzgerald, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Frederick W. Smith, personally known to
me to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ JUNE Y. FITZGERALD
-----------------------
Notary Public
My Commission Expires:
December 1, 2002
- ----------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, the principal financial officer of FDX CORPORATION
(the "Corporation"), a Delaware corporation, does hereby constitute and appoint
Frederick W. Smith and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such officer, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999.
/s/ ALAN B. GRAF, JR.
----------------------
Alan B. Graf, Jr.
STATE OF TENNESSEE
COUNTY OF SHELBY
I, Mary T. Britt, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that Alan B. Graf, Jr., personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ MARY T. BRITT
------------------
Notary Public
My Commission Expires:
April 14, 2001
- --------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, the principal accounting officer of FDX CORPORATION
(the "Corporation"), a Delaware corporation, does hereby constitute and appoint
Frederick W. Smith and Alan B. Graf, Jr., and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such officer, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day June, 1999.
/s/ JAMES S. HUDSON
--------------------
James S. Hudson
STATE OF TENNESSEE
COUNTY OF SHELBY
I, Joyce J. Jones, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that James S. Hudson, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ JOYCE J. JONES
-------------------
Notary Public
My Commission Expires:
July 9, 2002
- ------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of June,
1999.
/s/ ROBERT H. ALLEN
--------------------
Robert H. Allen
STATE OF TEXAS
COUNTY OF HARRIS
I, Earlene L. Barbeau, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Robert H. Allen, personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ EARLENE L. BARBEAU
-----------------------
Notary Public
My Commission Expires:
April 15, 2001
- --------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999.
/s/ ROBERT L. COX
------------------
Robert L. Cox
STATE OF TENNESSEE
COUNTY OF SHELBY
I, Jeri House, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that Robert L. Cox, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ JERI HOUSE
---------------
Notary Public
My Commission Expires:
5-23-2000
- ---------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of June, 1999.
/s/ RALPH D. DENUNZIO
----------------------
Ralph D. DeNunzio
STATE OF NEW YORK
COUNTY OF NEW YORK
I, Bonnie A. Zitofsky, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Ralph D. DeNunzio, personally known to
me to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ BONNIE A. ZITOFSKY
-----------------------
Notary Public
My Commission Expires:
11/30/99
- --------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, her true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of July,
1999.
/s/ JUDITH L. ESTRIN
---------------------
Judith L. Estrin
STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
On July 11, 1999, before me, T. Lopez-Celaya, Notary Public, personally
appeared Judith Estrin, personally known to me to be the person whose name is
subscribed to the within instrument and acknowledged to me that she executed the
same in her authorized capacity, and that by her signature on the instrument the
person or entity upon behalf of which the person acted, executed the instrument.
Witness my hand and official seal.
/s/ T. LOPEZ-CELAYA
--------------------
Notary Public
My Commission Expires:
October 18, 2002
- ----------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of June, 1999.
/s/ PHILIP GREER
-----------------
Philip Greer
STATE OF NEW YORK
COUNTY OF NEW YORK
I, Michael Singer, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that Philip Greer, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ MICHAEL E. SINGER
----------------------
Notary Public
My Commission Expires:
5-8-00
- ------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of June, 1999.
/s/ J. R. HYDE, III
--------------------
J. R. Hyde, III
STATE OF TENNESSEE
COUNTY OF SHELBY
I, Nancy C. Phillips, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that J. R. Hyde, III, personally known to me
to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ NANCY C. PHILLIPS
----------------------
Notary Public
My Commission Expires:
January 12, 2000
- ----------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of June 1999.
/s/ CHARLES T. MANATT
----------------------
Charles T. Manatt
WASHINGTON
DISTRICT OF COLUMBIA
I, Patricia Dunbar, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Charles T. Manatt, personally known to
me to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ PATRICIA DUNBAR
--------------------
Notary Public
My Commission Expires:
January 1, 2000
- ---------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of June,
1999.
/s/ GEORGE J. MITCHELL
-----------------------
George J. Mitchell
WASHINGTON
DISTRICT OF COLUMBIA
I, Ione M. Hartl, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that George J. Mitchell, personally known to me to be
the same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ IONE M. HARTL
------------------
Notary Public
My Commission Expires:
8/14/2000
- ---------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of June, 1999.
/s/ JACKSON W. SMART, JR.
--------------------------
Jackson W. Smart, Jr.
STATE OF ILLINOIS
COUNTY OF COOK
I, Nicole Renea Roberts, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Jackson W. Smart, Jr., personally known
to me to be the same person whose name is subscribed to the foregoing
instrument, appeared before me this day in person, and acknowledged that he
signed and delivered the said instrument as his free and voluntary act, for the
uses and purposes therein set forth.
/s/ NICOLE RENEA ROBERTS
-------------------------
Notary Public
My Commission Expires:
1/13/2001
- ---------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of July, 1999.
/s/ JOSHUA I. SMITH
--------------------
Joshua I. Smith
STATE OF MARYLAND
COUNTY OF MONTGOMERY
I, Edwin G. Sorto, a Notary Public in and for said County, in the aforesaid
State, do hereby certify that Joshua I. Smith, personally known to me to be the
same person whose name is subscribed to the foregoing instrument, appeared
before me this day in person, and acknowledged that he signed and delivered the
said instrument as his free and voluntary act, for the uses and purposes therein
set forth.
/s/ EDWIN G. SORTO
-------------------
Notary Public
My Commission Expires:
November 10, 2001
- -----------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999.
/s/ PAUL S. WALSH
------------------
Paul S. Walsh
STATE OF MINNESOTA
COUNTY OF HENNEPIN
I, Colleen R. Knutson, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Paul S. Walsh, personally known to me to
be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ COLLEEN R. KNUTSON
-----------------------
Notary Public
My Commission Expires:
January 31, 2000
- ----------------
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS:
That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a
Delaware corporation, does hereby constitute and appoint Frederick W. Smith,
Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of
substitution and resubstitution, his true and lawful attorneys-in-fact and
agents, with full power and authority to execute in the name and on behalf of
the undersigned as such Director, the Corporation's Annual Report on Form 10-K
with respect to the Corporation's fiscal year ended May 31, 1999, and any and
all amendments thereto; and hereby ratifies and confirms all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue of these presents.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of June,
1999.
/s/ PETER S. WILLMOTT
----------------------
Peter S. Willmott
STATE OF ILLINOIS
COUNTY OF COOK
I, Rose Marie Erwin, a Notary Public in and for said County, in the
aforesaid State, do hereby certify that Peter S. Willmott, personally known to
me to be the same person whose name is subscribed to the foregoing instrument,
appeared before me this day in person, and acknowledged that he signed and
delivered the said instrument as his free and voluntary act, for the uses and
purposes therein set forth.
/s/ ROSE MARIE ERWIN
---------------------
Notary Public
My Commission Expires:
5/17/2002
- ---------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS ON
PAGES 19 AND 20 OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR
ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-START> JUN-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 325,323
<SECURITIES> 0
<RECEIVABLES> 2,221,471
<ALLOWANCES> 68,305
<INVENTORY> 291,922
<CURRENT-ASSETS> 3,141,028
<PP&E> 13,719,907
<DEPRECIATION> 7,160,690
<TOTAL-ASSETS> 10,648,211
<CURRENT-LIABILITIES> 2,784,757
<BONDS> 1,359,668
0
0
<COMMON> 29,799
<OTHER-SE> 4,633,893
<TOTAL-LIABILITY-AND-EQUITY> 10,648,211
<SALES> 0
<TOTAL-REVENUES> 16,773,470
<CGS> 0
<TOTAL-COSTS> 15,610,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98,191
<INCOME-PRETAX> 1,061,064
<INCOME-TAX> 429,731
<INCOME-CONTINUING> 631,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 631,333
<EPS-BASIC> 2.13<F1>
<EPS-DILUTED> 2.10<F1>
<FN>
<F1>ON MARCH 17, 1999 THE BOARD OF DIRECTORS DECLARED A TWO-FOR-ONE STOCK SPLIT
IN THE FORM OF A 100% STOCK DIVIDEND THAT WAS PAID ON MAY 6, 1999 TO
STOCKHOLDERS OF RECORD ON APRIL 15, 1999. PRIOR FINANCIAL DATA SCHEDULES HAVE
NOT BEEN RESTATED.
</FN>
</TABLE>
<PAGE>
Exhibit 99
Report of Independent Auditors
To the Board of Directors
Caliber System, Inc.
We have audited the consolidated statements of income, shareholders' equity and
cash flows of Caliber System, Inc. and subsidiaries for the year ended December
31, 1996 (not presented separately herein). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Caliber System, Inc. and subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Akron, Ohio
January 23, 1997,
except for Note K, as to which the date is
March 27, 1997
