<PAGE>
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 31, 2000, 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: 1-15829
FEDEX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 62-1721435
(State of incorporation) (I.R.S. Employer
Identification No.)
942 South Shady Grove Road
Memphis, Tennessee 38120
(Address of principal (Zip Code)
executive offices)
(901) 818-7200
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding Shares at September 30, 2000
Common Stock, par value $.10 per share 285,037,989
================================================================================
<PAGE>
FEDEX CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
<S> <C>
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets
August 31, 2000 and May 31, 2000............................. 3-4
Condensed Consolidated Statements of Income
Three Months Ended August 31, 2000 and August 31, 1999....... 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended August 31, 2000 and August 31, 1999....... 6
Notes to Condensed Consolidated Financial Statements........... 7-10
Review of Condensed Consolidated Financial Statements
by Independent Public Accountants............................ 11
Report of Independent Public Accountants....................... 12
ITEM 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 13-20
ITEM 3: Quantitative and Qualitative Disclosures About Market Risk.. 20
PART II. OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders......... 21
ITEM 6: Exhibits and Reports on Form 8-K............................ 21
Signatures..................................................... 22
EXHIBIT INDEX.................................................. E-1
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
AUGUST 31,
2000 MAY 31,
(UNAUDITED) 2000
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current Assets:
Cash and cash equivalents........................$ 176,589 $ 67,959
Receivables, less allowances of
$91,020,000 and $85,972,000.................... 2,588,118 2,547,043
Spare parts, supplies and fuel................... 260,459 255,291
Deferred income taxes............................ 309,373 317,784
Prepaid expenses and other....................... 74,582 96,667
----------- -----------
Total current assets......................... 3,409,121 3,284,744
Property and Equipment, at Cost....................... 15,019,373 14,742,543
Less accumulated depreciation and amortization... 7,902,302 7,659,016
----------- -----------
Net property and equipment................... 7,117,071 7,083,527
Other Assets:
Goodwill......................................... 494,878 500,547
Other............................................ 736,689 658,293
----------- -----------
Total other assets........................... 1,231,567 1,158,840
----------- -----------
$11,757,759 $11,527,111
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
AUGUST 31,
2000 MAY 31,
(UNAUDITED) 2000
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt................$ 23,070 $ 6,537
Accrued salaries and employee benefits........... 671,550 755,747
Accounts payable................................. 1,101,781 1,120,855
Accrued expenses................................. 1,040,491 1,007,887
----------- -----------
Total current liabilities.................... 2,836,892 2,891,026
Long-Term Debt, Less Current Portion.................. 1,894,854 1,776,253
Deferred Income Taxes................................. 306,000 344,613
Other Liabilities..................................... 1,758,451 1,729,976
Commitments (Note 6)
Common Stockholders' Investment:
Common Stock, $.10 par value;
800,000,000 shares authorized, 298,573,387
issued....................................... 29,857 29,857
Additional paid-in capital....................... 1,078,657 1,079,462
Retained earnings ............................... 4,460,782 4,295,041
Treasury stock, at cost; deferred compensation
and other...................................... (572,623) (583,043)
Accumulated other comprehensive income........... (35,111) (36,074)
----------- ----------
Total common stockholders' investment........ 4,961,562 4,785,243
----------- -----------
$11,757,759 $11,527,111
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
AUGUST 31,
---------------------------
2000 1999
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.........................................$4,778,736 $4,319,977
Operating Expenses:
Salaries and employee benefits.............. 1,994,762 1,830,833
Purchased transportation.................... 434,877 390,308
Rentals and landing fees.................... 390,685 366,707
Depreciation and amortization............... 302,697 277,262
Fuel........................................ 249,994 184,460
Maintenance and repairs..................... 310,184 255,269
Other....................................... 784,570 731,331
---------- ----------
4,467,769 4,036,170
---------- ----------
Operating Income................................. 310,967 283,807
Other Income (Expense):
Interest, net............................... (32,793) (20,608)
Other, net.................................. (3,929) (319)
---------- ----------
(36,722) (20,927)
---------- ----------
Income Before Income Taxes....................... 274,245 262,880
Provision for Income Taxes....................... 105,585 103,846
---------- ----------
Net Income.......................................$ 168,660 $ 159,034
========== ==========
Earnings per common share:
Basic.......................................$ 0.59 $ 0.53
========== ==========
Assuming dilution...........................$ 0.58 $ 0.52
========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
AUGUST 31, AUGUST 31,
2000 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net Cash Provided by Operating Activities...........$ 312,188 $ 330,120
Investing Activities:
Purchases of property and equipment............ (340,681) (358,195)
Proceeds from disposition of property
and equipment:
Reimbursements of A300 and MD11 deposits... - 22,377
Other dispositions......................... 7,725 83,448
Other, net..................................... (9,302) (6,259)
----------- -----------
Net cash used in investing activities............... (342,258) (258,629)
Financing Activities:
Proceeds from debt issuances................... 134,828 -
Principal payments on debt..................... (27) (12,532)
Proceeds from stock issuances.................. 3,472 5,631
Other, net..................................... 427 (10,190)
----------- -----------
Net cash provided by (used in) financing activities. 138,700 (17,091)
----------- -----------
Net increase in cash and cash equivalents........... 108,630 54,400
Cash and cash equivalents at beginning of period.... 67,959 325,323
----------- -----------
Cash and cash equivalents at end of period..........$ 176,589 $ 379,723
=========== ===========
Cash payments for:
Interest (net of capitalized interest).........$ 34,619 $ 24,323
=========== ===========
Income taxes...................................$ 111,462 $ 16,961
=========== ===========
Non-cash investing and financing activities:
Fair value of assets surrendered under
exchange agreements (with two airlines)......$ - $ 11,670
Fair value of assets acquired under
exchange agreements.......................... 1,779 9,674
----------- -----------
Fair value of assets surrendered (under) over
fair value of assets acquired................$ (1,779) $ 1,996
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE>
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These interim financial statements of FedEx Corporation (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information, the instructions to Quarterly Report on Form
10-Q and Rule 10-01 of Regulation S-X, and should be read in conjunction with
the Company's Annual Report on Form 10-K for the year ended May 31, 2000.
Accordingly, significant accounting policies and other disclosures normally
provided have been omitted since such items are disclosed therein.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the consolidated financial position of the Company as of August 31, 2000
and the consolidated results of its operations and cash flows for the
three-month periods ended August 31, 2000 and 1999. Operating results for the
three-month period ended August 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending May 31, 2001.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, which is
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. Management has not yet completed its estimate of
the effect of the adoption of this Statement.
The Company has entered into contracts on behalf of its subsidiary Federal
Express Corporation ("FedEx Express") that are designed to limit its exposure
to fluctuations in jet fuel prices. Under these contracts, the Company makes (or
receives) payments based on the difference between a fixed price 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. Under jet fuel hedging contracts, the Company will
receive $26,933,786 for the first quarter of 2001. As of August 31, 2000,
contracts in place to fix the price of jet fuel cover a total notional volume of
272,414,000 gallons through the second quarter of 2002. Based on current market
prices, the fair value of these jet fuel hedging contracts was an asset of
approximately $79,365,000 at August 31, 2000. As of September 26, 2000,
contracts in place to fix the price of jet fuel cover approximately 40% of the
expected jet fuel usage for 2001 and approximately 18% through the third quarter
of 2002.
Certain prior period amounts have been reclassified to conform to the
current presentation.
- 7 -
<PAGE>
(2) COMPREHENSIVE INCOME
The following table provides a reconciliation of net income reported in the
Company's consolidated financial statements to comprehensive income:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AUGUST 31,
-------------------
2000 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Net income............................................ $168,660 $159,034
Other comprehensive income:
Unrealized gain (loss) on available-for-sale
securities, net of deferred taxes of $1,830,000
and deferred tax benefit of $1,572,000............. 2,948 (2,459)
Foreign currency translation adjustments,
net of deferred tax benefit of $1,263,000 and
deferred taxes of $154,000........................ (1,985) 1,169
-------- --------
Comprehensive income................................ $169,623 $157,744
======== ========
</TABLE>
(3) FINANCING ARRANGEMENTS
Commercial paper in the amount of $657,000,000 was outstanding at August
31, 2000. Interest rates on these borrowings approximate 6.7%. The commercial
paper is classified as Long-Term Debt based on the Company's ability and intent
to refinance this instrument with long-term debt.
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 of $200,000,000 through September
30, 2001. Interest rates on borrowings under this agreement are generally
determined by maturities selected and prevailing market conditions. The
commercial paper borrowings, which are backed by unused commitments under the
revolving credit agreement, reduce the amount available under the revolving
credit agreement. At August 31, 2000, $343,000,000 of the commitment amount was
available.
- 8 -
<PAGE>
(4) COMPUTATION OF EARNINGS PER SHARE
The calculation of basic and diluted earnings per share for the three-month
periods ended August 31, 2000 and 1999 was as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AUGUST 31,
-------------------------
2000 1999
-------- --------
<S> <C> <C>
Net income applicable to common
stockholders................................. $168,660 $159,034
======== ========
Weighted-average shares of common stock
outstanding.................................. 284,715 298,170
======== ========
Basic earnings per share........................ $ 0.59 $ 0.53
======== ========
Weighted-average shares of common stock
outstanding.................................. 284,715 298,170
Common equivalent shares:
Assumed exercise of outstanding
dilutive options........................... 14,319 13,207
Less shares repurchased from proceeds
of assumed exercise of options............. (10,309) (7,535)
-------- --------
Weighted-average common and common
equivalent shares........................... 288,725 303,842
======== ========
Earnings per share, assuming dilution.......... $ 0.58 $ 0.52
======== ========
</TABLE>
(5) BUSINESS SEGMENT INFORMATION
FedEx Corporation is a global transportation and logistics provider whose
operations are primarily represented by FedEx Express, the world's largest
express transportation company, and FedEx Ground Package System, Inc. ("FedEx
Ground"), a ground small-package carrier. These operating companies comprise the
Company's reportable segments. Included within "Other" are the operations of
FedEx Global Logistics,Inc., a contract logistics provider; FedEx Custom
Critical,Inc., a critical-shipment carrier; FedEx Trade Networks,Inc., a global
trade services company; and Viking Freight,Inc., a less-than-truckload carrier
operating principally in the western United States. Other also includes certain
unallocated corporate items.
The following table provides a reconciliation of reportable segment
revenues and operating income to the Company's consolidated financial statement
totals (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED AUGUST 31,
-----------------------
2000 1999
---------- ----------
<S> <C> <C>
Revenue
FedEx Express................................$3,915,681 $3,586,806
FedEx Ground................................. 542,813 475,896
Other........................................ 320,242 257,275
---------- ----------
$4,778,736 $4,319,977
========== ==========
Operating income
FedEx Express................................$ 257,728 $ 208,943
FedEx Ground................................. 43,012 50,513
Other........................................ 10,227 24,351
---------- ----------
$ 310,967 $ 283,807
========== ==========
</TABLE>
- 9 -
<PAGE>
(6) COMMITMENTS
As of August 31, 2000, the Company's purchase commitments for the remainder
of 2001 and annually thereafter under various contracts are as follows (in
thousands):
<TABLE>
<CAPTION>
AIRCRAFT-
AIRCRAFT RELATED(1) OTHER(2) TOTAL
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
2001 (remainder) $207,700 $315,900 $353,500 $877,100
2002 235,100 429,500 18,000 682,600
2003 342,400 457,400 8,000 807,800
2004 271,200 417,800 7,600 696,600
2005 256,100 453,700 7,600 717,400
</TABLE>
(1) Primarily aircraft modifications, rotables, spare parts and spare engines.
(2) Primarily vehicles, facilities, computers and other equipment.
FedEx Express is committed to purchase 11 DC10s, 28 MD11s and 75 Ayres ALM
200s to be delivered through 2007. Deposits and progress payments of $7,100,000
have been made toward these purchases.
FedEx Express has entered into agreements with two airlines to acquire 53
DC10 aircraft (49 of which had been received as of August 31, 2000), 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 Express to purchase up to 14 additional DC10s along with
additional aircraft engines and equipment.
- 10 -
<PAGE>
REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, has performed a review
of the condensed consolidated balance sheet of the Company as of August 31,
2000, and the related condensed consolidated statements of income for the
three-month periods ended August 31, 2000 and August 31, 1999 and the condensed
consolidated statements of cash flows for the three-month periods ended August
31, 2000 and August 31, 1999, included herein, as indicated in their report
thereon included on page 12.
- 11 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of FedEx Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
FedEx Corporation (a Delaware corporation) and subsidiaries as of August 31,
2000 and the related condensed consolidated statements of income and cash flows
for the three-month periods ended August 31, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of FedEx
Corporation as of May 31, 2000 and the related consolidated statements of
income, changes in stockholders' investment and comprehensive income and cash
flows for the year then ended. In our report dated June 27, 2000, we expressed
an unqualified opinion on those financial statements, which are not presented
herein. In our opinion, the accompanying condensed consolidated balance sheet as
of May 31, 2000 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Memphis, Tennessee
September 18, 2000
- 12 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Consolidated Results
--------------------------------------------------------------------------------
In millions, except per share amounts
Three months ended August 31:
PERCENT
2000 1999 CHANGE
---- ---- -------
<S> <C> <C> <C>
Revenues $4,779 $4,320 +11
Operating income 311 284 +10
Net income 169 159 + 6
--------------------------------------------------------------------------------
Earnings per diluted share $ 0.58 $ 0.52 +12
================================================================================
</TABLE>
FedEx Corporation (also referred to herein as "FedEx" or the "Company")
results for the first quarter ended August 31, 2000 include double-digit growth
in revenue and earnings per diluted share. Strong volume and revenue per package
(yield) growth on international express packages, improved growth in volumes and
yields on U.S. domestic traffic, as well as continued focus on cost controls,
more than offset higher fuel costs.
In the first quarter, double-digit year-over-year express package volume
growth rates were experienced in the European, Asian and Latin American markets.
Yields also grew a strong 6% on international package shipments, due to a
favorable mix of higher yielding packages and the effects of the Company's fuel
surcharges.
Domestic volumes also experienced improved growth, particularly in
higher-yielding overnight box traffic, as the Company's new sales and marketing
strategies began to show results. The Company's yield management actions,
including a sales focus on higher-yielding business, resulted in higher domestic
express and deferred product yields. The fuel surcharges discussed below also
contributed to the yield improvement. Cost control measures, such as limiting
staffing additions, lowering discretionary spending and increasing employee
productivity, contributed to the quarter's positive operating results. These
actions more than offset increased fuel costs and costs associated with
implementing the Company's new sales and marketing strategy and home delivery
service offering, leading to higher operating income.
Increased fuel prices negatively impacted expenses for the quarter by $55
million, net of the effects of jet fuel hedging contracts. In response to higher
fuel costs, several of our subsidiaries have implemented fuel surcharges. At
Federal Express Corporation ("FedEx Express"), a 4% fuel surcharge has been in
effect since April 1, 2000. The surcharge applies to all shipments tendered
within the United States and all U.S. export shipments, where legally and
contractually permissible. The surcharge was implemented in lieu of a normal
price increase. At FedEx Ground Package System, Inc. ("FedEx Ground"), a 1.25%
fuel surcharge was implemented effective August 7, 2000. We continue to evaluate
whether increased fuel surcharges may be necessary in light of current and
forecasted energy costs. The Company has also entered into jet fuel hedging
contracts through the third quarter of 2002, designed to limit our exposure to
fluctuations in fuel prices. In the first quarter of 2001, FedEx received
approximately $27 million under these contracts.
During 2000, FedEx began a major rebranding and reorganization initiative
that management believes will enable our operating subsidiaries to more
effectively compete collectively while retaining the independent operating
- 13 -
<PAGE>
structure of their business units. The creation of FedEx Corporate Services,
Inc. ("FedEx Services") gives customers a single point of contact for all
express and ground services. The sales, marketing, customer service and most of
the information technology functions of our two largest subsidiaries were
centralized effective June 1, 2000. The reorganization was completed at the
beginning of 2001 and we continue to incur higher costs associated with
retraining our sales force and retooling our automation systems. Also, vehicle
and facilities rebranding costs continue to be incurred in 2001. The rebranding
costs were approximately $5 million for the first quarter of 2001 and are
expected to remain at that level each quarter for the remainder of the fiscal
year.
The FedEx Home Delivery service was launched in March 2000 and volumes in
the first quarter of 2001 were double those in the last quarter of 2000. Volumes
in the second quarter of 2001 are expected to be double those of first quarter
2001. Thereafter, we expect continued increases in volume as new customers are
added and awareness of the service increases. The Company is aggressively
expanding FedEx Home Delivery, which was initially offered to approximately 50%
of the U.S. population. FedEx Home Delivery results negatively affected first
quarter 2001 operating income by approximately $8 million.
Operating income from the sale of hushkits was less than $1 million during
the first quarter of 2001, compared to $15 million in the prior year period.
Sales of this product are expected to be immaterial for the remainder of 2001.
Net interest expense increased 59% from the prior year period, due to
increased commercial paper borrowings, primarily incurred as a result of FedEx's
stock repurchase program and acquisitions completed in 2000. The Company's
effective tax rate for the first quarter of 2001 was 38.5%, compared to 39.5% in
the prior year period. The decline in the effective tax rate is attributable to
a number of factors, none of which is individually significant. We do not expect
significant changes to this rate for the forseeable future.
Actual results for the remainder of 2001 may vary depending upon many
factors, including, but not limited to, general U.S. and international economic
conditions, rates of volume growth in U.S. domestic markets at both of the
Company's principal business segments, the actions of competitors and the spot
prices of aviation and diesel fuel.
REPORTABLE SEGMENTS
The formation of FedEx Services has changed the way certain costs are
captured and allocated between the Company's operating segments. For example,
salaries, wages and benefits, depreciation and other costs for the sales,
marketing and information technology departments previously incurred at FedEx
Express and FedEx Ground are now incurred at FedEx Services and allocated to
other operating segments using various, relevant metrics and are included in the
line item "Intercompany charges" on the accompanying financial summaries of our
reportable segments. Consequently, certain segment expense data presented is not
comparable to prior periods. We believe the total amounts allocated to the
business segments reasonably reflect the cost of providing such services.
- 14 -
<PAGE>
FEDEX EXPRESS
The following table compares revenues and operating income (in millions)
and selected statistics (in thousands, except yield amounts) for the three-month
periods ended August 31:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PERCENT
2000 1999(1) CHANGE
---- ---- ------
<S> <C> <C> <C>
Revenues:
Package:
U.S. overnight box(2) $1,479 $1,380 + 7
U.S. overnight envelope(3) 472 452 + 4
U.S. deferred 618 559 +11
International Priority (IP) 984 819 +20
------ ------
Total package revenue 3,553 3,210 +11
Freight:
U.S. 162 130 +25
International 115 127 - 9
------ ------
Total freight revenue 277 257 + 8
Other 86 120 -28
------ ------
Total revenues $3,916 $3,587 + 9
Operating Expenses:
Salaries and employee benefits 1,595
Purchased transportation 150
Rentals and landing fees 344
Depreciation and amortization 197
Fuel 241
Maintenance and repairs 268
Intercompany charges 327
Other 536
------
Total operating expenses 3,658 3,378 + 8
------ ------
Operating income $ 258 $ 209 +23
====== ======
--------------------------------------------------------------------------------
Package statistics:
Average daily packages:
U.S. overnight box 1,254 1,205 + 4
U.S. overnight envelope 758 748 + 1
U.S. deferred 876 839 + 4
IP 338 297 +14
------ ------
Total Packages 3,226 3,089 + 4
Revenue per package (yield):
U.S. overnight box $ 18.15 $ 17.62 + 3
U.S. overnight envelope 9.59 9.31 + 3
U.S. deferred 10.85 10.25 + 6
IP 44.80 42.42 + 6
Package Composite 16.95 15.99 + 6
Freight statistics:
Average daily pounds:
U.S. 4,369 4,555 - 4
International 2,312 2,505 - 8
------- -------
Total Freight 6,681 7,060 - 5
Revenue per pound (yield):
U.S. $ .57 $ .44 +30
International .76 .78 - 3
Freight Composite .64 .56 +14
</TABLE>
(1) Operating expense detail for the three month period ended August 31, 1999
has been omitted, as this data is not comparable to the three month period
ended August 31, 2000. See "Reportable Segments" above.
(2) The U.S. Overnight Box category includes packages exceeding 8 ounces in
weight.
(3) The U.S. Overnight Envelope category includes envelopes weighing 8 ounces
or less.
================================================================================
- 15 -
<PAGE>
Revenues
Total package revenue increased 11% year over year in the first quarter of
2001, principally due to increases in IP and U.S. overnight box volumes and
yields. Average daily package volume growth rates for U.S. domestic overnight
box and U.S. domestic deferred services each increased more than 4% during the
quarter. We attribute this growth to, among other things, our new sales and
marketing strategies.
Total freight revenue for the first quarter of 2001 increased due to
significantly improved yields in U.S. freight, offset by anticipated declines in
domestic freight volume and international freight volume and yield.
Other revenue included Canadian domestic revenue, charter services,
logistics services, sales of hushkits and other. As expected, hushkit sales were
immaterial in the first quarter of 2001.
Operating Income
Operating income for the first quarter of 2001 increased 23% year over year
despite higher fuel costs. Improved yield, cost containment and productivity
enhancement programs contributed to the increased first quarter of 2001
operating margin, which combined with volume growth led to the strong growth in
operating income. Staffing levels in general and administrative support
functions were held flat, and discretionary spending was reduced. A 29% increase
in average jet fuel price per gallon contributed to a negative impact of
approximately $52 million on first quarter total fuel costs, including the
results of jet fuel hedging contracts entered into to mitigate some of the
increased jet fuel costs. Fuel surcharges implemented during 2000 offset the
increase in fuel costs in the quarter. Maintenance and repairs expense increased
year over year due to the timing of scheduled maintenance.
Year-over-year comparisons were also affected by the reduction in the
contribution from sales of hushkits. Operating profit from these sales was less
than $1 million in the first quarter of 2001, compared to $15 million in the
first quarter of the prior year.
Actual results for the remainder of the year may vary depending on, but not
limited to, the continued successful implementation of our reorganization and
rebranding initiative, the impact of competitive pricing changes, customer
responses to yield management initiatives, the timing and extent of network
refinement, actions by our competitors and jet fuel prices.
- 16 -
<PAGE>
FEDEX GROUND
The following table compares revenues and operating income (in millions)
and selected package statistics (in thousands, except yield amounts) for the
three-month periods ended August 31:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
PERCENT
2000 1999(1) CHANGE
---- ---- -------
<S> <C> <C> <C>
Revenues $543 $476 +14
Operating Expenses:
Salaries and employee benefits 108
Purchased transportation 218
Rentals and landing fees 14
Depreciation and amortization 24
Fuel 1
Maintenance and repairs 16
Intercompany charges 53
Other 66
----
Total operating expenses 500 425 +18
---- ----
Operating income $ 43 $ 51 -16
==== ====
--------------------------------------------------------------------------------
Average daily packages 1,452 1,365 + 6
Revenue per package (yield) $ 5.67 $ 5.53 + 3
</TABLE>
(1) Operating expense detail for the three month period ended August 31, 1999
has been omitted, as this data is not comparable to the three month period
ended August 31, 2000. See "Reportable Segments" above.
================================================================================
Revenues
Revenues for FedEx Ground during the first quarter of 2001 increased 14%
from the prior year period, due to an increase of 6% in the average daily
package volumes, a 3% increase in yield and three additional operating days.
Revenue per operating day during the first quarter of 2001 increased 9% from the
prior year period. Higher yields experienced in the quarter are attributed to
the effects of the February 2000 rate increase and a shift in mix to
higher-yielding packages.
Operating Income
Excluding the FedEx Home Delivery operating loss of $8 million and expenses
of $4 million associated with the rebranding and reorganization initiatives,
operating income for the first quarter of 2001 increased 8% year over year.
Rentals expense increased year over year, primarily due to costs associated with
our FedEx Home Delivery service. Maintenance and repairs increased primarily due
to timing of linehaul maintenance expenses.
The FedEx Home Delivery service, originally offered in March 2000 to
approximately 50% of the U.S. population, is dedicated to meeting the needs of
business-to-consumer shippers. FedEx Ground has announced an aggressive
expansion of this service to achieve service coverage of approximately 80% of
the U.S. population by September 2001. We continue to estimate that FedEx Home
Delivery operating losses will approximate $50 million in 2001, including costs
associated with acceleration of expansion of the service.
Actual results for the remainder of the year may vary depending on a number
of factors including, but not limited to, consumer demand for and satisfaction
with the FedEx Ground product, the service coverage and brand awareness of the
FedEx Ground product, competitive responses, including pricing and capacity
fluctuations, the rate of U.S. domestic economic growth, the extent of FedEx
Ground's ability to penetrate the business-to-consumer electronic commerce
market, and the ability to attract and retain qualified contractors for the
delivery network.
- 17 -
<PAGE>
OTHER OPERATIONS
Other operations include FedEx Global Logistics, Inc. ("FedEx Logistics"),
a contract logistics provider; FedEx Custom Critical, Inc. ("FedEx Custom
Critical"), a critical-shipment carrier; FedEx Trade Networks, Inc. ("FedEx
Trade Networks"), a trade services provider; Viking Freight, Inc. ("Viking"), a
regional less-than-truckload freight carrier operating in the western United
States; and certain unallocated corporate items.
Revenues from other operations during the first quarter of 2001 increased
24% from the prior year period. Excluding the effects of businesses acquired
after August 31, 1999, the increase was 3%, due to higher revenues at Viking and
FedEx Logistics, offset by a slight decline in revenues at FedEx Custom
Critical. Decreased operating income from other operations for the first quarter
of 2001 compared to prior year is due to rebranding and new service development
costs, some softening in the demand for critical shipments in the automotive
sector and, to a lesser extent, unallocated corporate expenses.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents totaled $177 million at August 31, 2000, compared
to $68 million at May 31, 2000. Cash flows from operating activities during the
first quarter of 2001 totaled $312 million, compared to $330 million for the
prior year period.
FedEx's operations are generally capital intensive and generate cash
earnings substantially in excess of reported earnings. The following table
compares certain cash-based earnings measures (in millions, except per share
amounts) for the three month periods ended August 31:
<TABLE>
<CAPTION>
PERCENT
2000 1999 CHANGE
----- ----- ------
<S> <C> <C> <C>
EBITDA (earnings before interest,
taxes, depreciation and amortization) $ 610 $ 561 + 9
Cash earnings per share (net income plus
depreciation and amortization divided by
average common and common equivalent shares) $1.63 $1.44 +13
</TABLE>
The Company currently has a $1.0 billion revolving credit facility that is
generally used to finance temporary operating cash requirements and to provide
support for the issuance of commercial paper. As of August 31, 2000,
approximately $343 million of the credit facility remains available. For more
information regarding the credit facility, see Note 3 of Notes to Condensed
Consolidated Financial Statements.
- 18 -
<PAGE>
We believe that cash flow from operations, our commercial paper program and
revolving bank credit facility will adequately provide for the Company's working
capital needs for the foreseeable future.
Capital Resources
Our operations require 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, but not limited to, 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.
The following table compares capital expenditures (including equivalent
capital, which is defined below) for the three months ended August 31 (in
millions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Aircraft and related equipment $ 79 $114
Facilities and sort equipment 89 89
Information and technology
equipment 92 90
Other equipment 81 65
---- ----
Total capital expenditures 341 358
Equivalent capital, principally
aircraft-related - 243
---- ----
Total $341 $601
==== ====
</TABLE>
We finance a significant amount of our aircraft and certain other equipment
needs using long-term operating leases. The determination to lease versus buy
equipment is a financing decision, and both forms of financing are considered
when evaluating the resources committed for capital. The amount that the Company
would have expended to purchase these assets had it not chosen to obtain their
use through operating leases is considered equivalent capital in the table
above.
While total capital and equivalent capital expenditures during the first
quarter of 2001 were well below the prior year period, we continue to believe
that total capital spending for 2001 will approximate our original estimate
of $2.3 billion. For information on the Company's purchase commitments, see
Note 6 of Notes to Condensed Consolidated Financial Statements.
We believe that the capital resources available to us provide flexibility
to access the most efficient markets for financing capital acquisitions,
including aircraft, and are adequate for FedEx's future capital needs.
Euro Currency Conversion
Since the beginning of the European Union's transition to the euro on
January 1, 1999, our subsidiaries have been prepared to quote rates to
customers, generate billings and accept payments, in both euro and legacy
currencies. The legacy currencies will remain legal tender through December 31,
2001. FedEx 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 our 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.
- 19 -
<PAGE>
* * *
CERTAIN STATEMENTS CONTAINED IN THIS REPORT ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, SUCH AS STATEMENTS RELATING TO MANAGEMENT'S VIEWS WITH RESPECT TO
FUTURE EVENTS AND FINANCIAL PERFORMANCE. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EXPERIENCE OR FROM FUTURE RESULTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. POTENTIAL RISKS AND
UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, ECONOMIC AND COMPETITIVE
CONDITIONS IN THE MARKETS WHERE THE COMPANY OPERATES, CONTINUED INCREASES IN
FUEL COSTS AND THE ABILITY TO MITIGATE THE EFFECTS OF SUCH INCREASES THROUGH
FUEL SURCHARGES AND HEDGING ACTIVITIES, MATCHING CAPACITY TO VOLUME LEVELS AND
OTHER UNCERTAINTIES DETAILED FROM TIME TO TIME IN THE COMPANY'S SECURITIES AND
EXCHANGE COMMISSION FILINGS.
EXCEPT AS OTHERWISE INDICATED, REFERENCES TO YEARS MEANS THE COMPANY'S
FISCAL YEAR ENDING MAY 31, 2001 OR ENDED MAY 31 OF THE YEAR REFERENCED.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk sensitive
instruments and positions since its disclosure in its Annual Report on Form 10-K
for the year ended May 31, 2000. Foreign currency fluctuations during the first
quarter of 2001 did not have a material effect on the results of operations for
the period. Many of the Company's international sales transactions are
denominated in U.S. dollars, which mitigates the impact of foreign currency
fluctuations.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2000 Annual Meeting of Stockholders held on September 25, 2000, the
Company's stockholders elected three Class II Directors to serve for a
three-year term expiring at the 2003 Annual Meeting. The tabulation of votes
with respect to each nominee for office was:
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------------------ ----------- ---------
<S> <C> <C>
Ralph D. DeNunzio 248,411,546 1,693,578
George J. Mitchell 246,872,987 3,232,137
Joshua I. Smith 248,418,750 1,686,374
</TABLE>
The Board of Directors' designation of Arthur Andersen LLP as independent
auditors for the fiscal year ending May 31, 2001 was ratified by the
stockholders by a vote of 248,869,629 for and 406,764 against. There were
828,731 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.1 Extension Agreement dated as of October 2, 2000 to Credit
Agreement dated as of January 15, 1998 among FedEx Corporation,
certain Lenders named therein and Bank One, NA (formerly known as
The First National Bank of Chicago), in its capacity as Agent.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re: Unaudited Interim Financial Statements.
27 Financial Data Schedule (electronic filing only).
</TABLE>
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended August
31, 2000.
- 21 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEDEX CORPORATION
Date: October 9, 2000 /S/ JAMES S. HUDSON
-------------------------------------------
JAMES S. HUDSON
CORPORATE VICE PRESIDENT
STRATEGIC FINANCIAL PLANNING & CONTROL
(PRINCIPAL ACCOUNTING OFFICER)
- 22 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.1 Extension Agreement dated as of October 2, 2000 to Credit Agreement
dated as of January 15, 1998 among FedEx Corporation, certain Lenders
named therein and Bank One, NA (formerly known as The First National
Bank of Chicago), in its capacity as Agent.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re: Unaudited Interim Financial Statements.
27 Financial Data Schedule (electronic filing only).
</TABLE>
E-1
