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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, 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 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) 818-7200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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. /X/
As of July 26, 2000, 284,886,605 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 $10.3 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement to be delivered
to shareholders in connection with the 2000 Annual Meeting of Stockholders to
be held on September 25, 2000 are incorporated by reference in response to
Part III of this Report.
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TABLE OF CONTENTS
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PAGE
PART I
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ITEM 1. Business 4
ITEM 2. Properties 23
ITEM 3. Legal Proceedings 27
ITEM 4. Submission of Matters to a Vote of Security Holders 28
Executive Officers of the Registrant 28
PART II
ITEM 5. Market Price for the Registrant's Common Equity
and Related Stockholder Matters 31
ITEM 6. Selected Financial Data 32
ITEM 7. Management's Discussion and Analysis
of Results of Operations and Financial Condition 33
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 44
ITEM 8. Financial Statements and Supplementary Data 45
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 46
PART III
ITEM 10. Directors and Executive Officers of the Registrant 46
ITEM 11. Executive Compensation 46
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 46
ITEM 13. Certain Relationships and Related Transactions 46
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 47
FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - May 31, 2000 and 1999 F-2
Consolidated Statements of Income - Years ended May 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Investment and
Comprehensive Income - Years ended May 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows - Years ended May 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE
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
INTRODUCTION
FedEx Corporation ("FedEx") is a leading global provider of
transportation, e-commerce and supply chain management services. Services
offered by FedEx companies include worldwide express delivery, ground
small-parcel delivery, less-than-truckload freight delivery, global
logistics, supply chain management and customs brokerage, as well as trade
facilitation and electronic commerce solutions. FedEx offers its integrated
business solutions through a portfolio of operating companies, including
- FEDERAL EXPRESS CORPORATION ("FedEx Express"). FedEx Express is our largest
subsidiary and is the world leader in global express distribution, offering
time-certain delivery within 24 to 48 hours among markets that comprise
more than 90% of the world's gross domestic product.
- FEDEX GROUND PACKAGE SYSTEM, INC. ("FedEx Ground"). Formerly known as RPS,
FedEx Ground is North America's second largest provider of
business-to-business money-back guaranteed ground package delivery. FedEx
Ground also provides money-back guaranteed, low-cost residential deliveries
to many major U.S. markets through its new FedEx Home Delivery service.
- FEDEX GLOBAL LOGISTICS, INC. ("FedEx Logistics"). FedEx Logistics offers
complete supply chain solutions by combining worldwide transportation,
information and physical logistics services.
- FEDEX CUSTOM CRITICAL, INC. ("FedEx Custom Critical"). Formerly known as
Roberts Express, FedEx Custom Critical is the world's leading
surface-expedited carrier for time-critical shipments and those requiring
special handling.
- FEDEX TRADE NETWORKS, INC. ("FedEx Trade Networks"). FedEx Trade Networks
provides customs brokerage and trade facilitation solutions, principally
through its Tower Group International, Inc. subsidiary ("Tower").
- VIKING FREIGHT, INC. ("Viking"). Viking is a less-than-truckload freight
carrier operating principally in the western United States.
FedEx was incorporated in Delaware on October 2, 1997 to serve as the
holding company parent of FedEx Express and each of our other operating
companies. Through our holding company, along with our FedEx Corporate
Services, Inc. subsidiary ("FedEx Services"), we are able to provide
strategic direction to, and coordination of, the FedEx portfolio of
companies. We recently formed FedEx Services, principally to combine the
sales, marketing and technology groups of FedEx, FedEx Express and FedEx
Ground, allowing us to provide our customers with a single point of contact
in these areas for easy access to our broad portfolio of services. We believe
that sales and marketing activities, as well as the information systems that
support the extensive automation of our services, are functions that are best
coordinated across subsidiary lines. Through the use of our advanced
information systems which connect the FedEx companies, we make it easy and
convenient for our customers to use the full range of FedEx services.
We believe that seamless information integration is critical in order to
obtain business synergies from multiple operating units. For example, we have
redesigned our Web site, www.fedex.com, as a single point of contact for our
customers to access FedEx Express and FedEx Ground package tracking, customer
service and invoicing information. In addition, we have combined FedEx
Express and FedEx Ground domestic shipping functionality on our FedEx
PowerShipMC proprietary computer system. This permits customers to use the
dedicateD computer installed in their offices and, with a few keystrokes,
switch between FedEx Express and FedEx Ground domestic shipping services. Our
commitment to provide customers with fully integrated shipping solutions is
reflected in the new strategic initiatives we announced in January 2000. As
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described below, these initiatives are intended to, among other things,
provide a convenient single point of access to our customers for their
shipping needs.
We manage our business as a portfolio. As a result, decisions on capital
investment, expansion of delivery and information technology networks, and
service additions or enhancements are based on achieving the highest overall
long-term return on capital. For each one of the FedEx companies, we focus on
making appropriate investments in the technology and transportation assets
necessary to optimize our earnings performance and cash flow.
For financial information concerning FedEx's business segments, refer to
Note 12 of Notes to Consolidated Financial Statements included elsewhere
herein.
Except as otherwise indicated, references to years means the
fiscal year of FedEx ended May 31 of the year referenced.
STRATEGIC INITIATIVES
On January 19, 2000, we announced three important strategic
initiatives designed to strengthen our competitive position and to offer new
and more robust solutions for customers worldwide:
- A new branding strategy to extend the FedEx brand name to most of our
subsidiaries and to the holding company.
- Organizational changes planned to take effect over the first half of
calendar 2000, designed to provide a convenient single point of access to
customers for sales, customer service, billing and automation systems.
- An innovative expansion of FedEx Ground service to the low-cost residential
delivery market, FedEx Home Delivery, began rolling out to many major U.S.
markets in March 2000.
Our strategy is to leverage and extend one of our greatest assets, the
FedEx brand, and to provide our customers with an integrated set of business
solutions. Our customers increasingly want a single solution that can meet
all of their global transportation needs. Our goal is to provide them
convenient access to our powerful collection of express, ground, logistics,
supply chain and trade facilitation solutions.
THE FEDEX BRAND
Immediately following our January 19th announcement, the parent company,
formerly FDX Corporation, was renamed FedEx Corporation. Substantially all of
our global subsidiaries now operate under the highly-recognized and trusted
FedEx brand name.
- Federal Express, the worldwide leader in express transportation, retained
its name but modified its logo to FedEx Express.
- RPS, which specializes in small-package, business-to-business ground
delivery, was renamed FedEx Ground. FedEx Home Delivery, the new
residential delivery service, is provided through FedEx Ground.
- Roberts Express, the leader in the expedited, time-critical delivery
sector, was renamed FedEx Custom Critical.
- FDX Logistics was renamed FedEx Logistics.
We will continue to meet the needs of customers requiring distinct regional
services through Viking, the leading less-than-truckload carrier in the western
U.S., Tower, an international logistics and trade
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information technology company, and Caribbean Transportation Services, an
airfreight forwarder. These companies remain part of FedEx but retain their
individual brand names, as they are well known and respected in the regional
markets where they operate.
FedEx is one of the most trusted and respected brands in the world, and
the FedEx brand name is a powerful sales and marketing tool. While FedEx
Ground and FedEx Custom Critical have established excellent reputations in
their market segments, we believe that bringing them under the FedEx brand
umbrella will accelerate their prospects for growth. For example, research
indicates that many customers are not as familiar with the service
reliability levels at RPS as they are with the FedEx reputation for
reliability. We believe that branding those RPS services with the FedEx name
will increase customer awareness for FedEx Ground and generate additional
business.
ORGANIZATIONAL CHANGES
While each of our subsidiaries will continue to operate independently,
completely focused on the distinct needs of various market segments, we now
provide a single point of access for many customer support functions, such as
customer service, sales and automation. Our sales and marketing organizations
have been combined under FedEx Services to more effectively sell the entire
portfolio of express, ground and e-commerce services. FedEx Services sells
and markets the full portfolio of services offered by our principal
subsidiaries and provides customer-facing solutions that meet customer needs.
FedEx Services also includes substantially all of the information technology
groups from FedEx, FedEx Express and FedEx Ground. The majority of our
e-commerce groups are also part of FedEx Services. By forming a new
subsidiary responsible for sales, marketing, electronic commerce and customer
automation systems, we can fully integrate those vital activities to make our
services more convenient and consistent. We now speak to the customer with
one voice, and provide them with a single access point to our services while
allowing the operating companies to execute the delivery of their services at
the lowest cost with the highest level of service.
These strategic actions are designed to fulfill our two-fold business
philosophy - to operate independently yet compete collectively. We strongly
believe that the optimal way to serve very distinct market segments, such as
express and ground, is to operate highly efficient, independent networks with
different facilities, different cut-off times and different delivery
commitments. Our collective approach also allows customers to select the
right network, for the right place, at the right price through a single point
of access.
Each subsidiary generally serves a separate and distinct sector of the
market. Everything about the companies - the operations, the cost structure,
the policies and the culture - has been designed to serve the unique customer
needs of a particular market segment successfully. Each of the companies is a
service leader for its market segment. We believe combining the operations
would lower the superior service levels we are now able to provide. At the
same time, while we operate separately, we compete collectively by combining
the functions that are related to customer communication and information.
That is where our customers want a single, consistent, convenient point of
access.
In the United States, one of the primary tactics used by our competitors
is to bundle their ground and express services at one packaged price. An
estimated 1.7 million businesses ship both express and ground packages,
accounting for nearly 14 million shipments every day. These "multi-mode"
shippers need one convenient bundled solution, which is why our integrated
sales force has been trained to cross-sell both FedEx Express and FedEx
Ground services. These changes are simply a response to customer preferences
and should strengthen our competitive position in the marketplace.
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FEDEX HOME DELIVERY
In March 2000, FedEx Ground began providing FedEx Home Delivery to
approximately 50% of the U.S. population. This delivery-only service is
dedicated to the needs of businesses specializing in the business-to-consumer
marketplace by providing unique and compelling low-cost service offerings.
This new neighborhood-friendly service is designed to fit the way we live,
work and shop today. With this new service, we provide a money-back
guaranteed, low-cost solution to the rapidly increasing number of businesses
who ship large volumes to residential customers. These customers, in general,
want more economical and convenient home delivery options. Features of this
service include:
- CONVENIENT AND CUSTOMIZED -- FedEx Home Delivery provides customized
delivery options, including delivery by appointment day or evening, with a
money-back guarantee.
- UNIQUE AND EFFICIENT -- FedEx Home Delivery takes advantage of the FedEx
Ground operational network for pickup and package sorting to maintain a low
cost structure.
- DEDICATED TO DELIVERIES -- FedEx Home Delivery is different from the
competition because it is dedicated to the delivery side of the equation.
Hence, it is able to focus on meeting the distinct customer interface
requirements of residential customers.
- A SUPERIOR E-COMMERCE SOLUTION -- This service complements FedEx Ground's
leadership position in the business-to-business e-commerce market - by far
the largest and fastest growing segment of e-commerce. FedEx Home Delivery
gives "e-tailers" an option that combines reliability with cost-effective
ground transportation.
For more information regarding FedEx Home Delivery see "FedEx Ground --
FedEx Home Delivery" elsewhere herein.
FEDEX STRATEGY
Our 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. We believe that operating independent transportation
networks, each focused on its own respective markets, results in optimal
service quality, reliability and profitability from each of our businesses.
All of the FedEx subsidiaries are free to focus exclusively on the market
sectors in which they have the most expertise.
We believe that our strategy is proving successful at producing higher
levels of service quality. In June 2000, two FedEx subsidiaries, FedEx
Express and FedEx Ground were named "Carriers of the Year" by Wal-Mart
Stores, Inc., the nation's leading discount retailer. FedEx Express and FedEx
Ground were honored by Wal-Mart for the second year in a row for exceptional
performance in transportation services in their respective categories,
express and ground small package delivery. Wal-Mart's "Carrier of the Year"
is determined by a transportation services provider's ability to meet the
following rigorous criteria: technology, percentage of accepted and rejected
deliveries, on-time pick-up and delivery, customer service, capacity, quality
assurance, ease-of-doing business and long-term commitment.
Our strategy is also producing improved financial results. For the second
year in a row, we experienced record revenues and earnings per share. During
2000, revenue rose 9% to $18.3 billion, net income increased 9% to $688
million and earnings per share rose 10% to $2.32.
While our subsidiaries operate independently, they compete collectively.
Because they compete
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collectively, FedEx has the flexibility to rapidly tailor customized delivery
and logistics solutions for its customers. As an example, in June 2000
Amazon.com and FedEx teamed up to deliver the highly anticipated fourth Harry
Potter book on the first day that the book became available to the public.
The arrangement, which we believe is the largest distribution event to date
of any single item in e-commerce, used both FedEx Home Delivery and FedEx
Express services to provide special Saturday door-to-door delivery for a
quarter-million orders placed at the Amazon.com website. To deliver the
books, we mobilized more than 9,000 delivery personnel and vehicles from more
than 700 stations covering the continental U.S. and about 100 regularly
scheduled FedEx Express flights.
Our strategy allows us 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. For example, businesses can obtain components from Southeast Asia,
assemble them in Europe 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, we are a major facilitator in this supply chain because of our
global reach, delivery services and information capabilities. During 2000,
our global express network delivered very strong growth, particularly in Asia
and Europe. Revenue from our FedEx Express international business grew 18%
during 2000, including over 20% in the fourth quarter.
RAPID GROWTH OF HIGH-TECH AND HIGH-VALUE-ADDED BUSINESSES
We believe 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 contributes significantly to real
economic growth in the United States and overseas. 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 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. We believe in substituting real-time information to
manage inventory in motion, thereby enabling customers to reduce overhead and
obsolescence, while speeding time-to-market.
FedEx Logistics allows us to take advantage of the move toward faster,
more efficient supply chains. We believe 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 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
exceed the $2.7
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trillion sales mark in 2004. Computers and electronics, already two of
FedEx's largest customer segments, currently account for almost half of this
category, and supply chains are increasingly moving online. While FedEx
expects business-to-business e-commerce to remain the largest e-commerce
segment, FedEx is also leveraging the strength of the FedEx portfolio in the
business-to-consumer market. In March 2000, we began our new FedEx Home
Delivery service through FedEx Ground. This new service provides a money-back
guaranteed, low-cost solution to the rapidly increasing number of businesses,
including e-tailers, who ship large volumes to residential customers.
The following describes in more detail the business of each of our six
principal operating companies:
FEDEX EXPRESS
INTRODUCTION
FedEx Express 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 Express offers
time-certain delivery in 24 to 48 hours to markets that generate 90% of the
world's gross domestic product through door-to-door, customs-cleared service,
with a money-back guarantee. FedEx Express's extensive air route authorities
and transportation infrastructure, combined with its use of leading-edge
information technologies, make FedEx Express the world's largest
express-distribution company, providing fast, reliable service for over 3.3
million shipments each business day. FedEx Express employs more than 149,000
employees and has more than 46,000 drop-off locations, 663 aircraft and
49,000 vehicles in its integrated global network.
DELIVERY SERVICES
DOMESTIC
FedEx Express offers three U.S. overnight delivery services: FedEx First
Overnight, FedEx Priority Overnight and FedEx Standard Overnight. Overnight
document and package service extends to virtually the entire United States
population. FedEx SameDay 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 Express couriers or are dropped off by shippers at
FedEx Express sorting facilities, FedEx World Service Centers, FedEx Drop
Boxes, FedEx ShipSites or FedEx Authorized ShipCenters strategically located
throughout the country. Two U.S. deferred services are available for less
urgent shipments: FedEx 2Day and FedEx Express Saver.
U.S. overnight and second-day services are backed by money-back
guarantees and are primarily used by customers for shipment of time-sensitive
documents and goods, including high-value machines and machine parts,
computer parts, software and consumer items. FedEx Express handles virtually
every shipment from origin to destination.
FedEx Express also offers express freight services 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 Express 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 10:30 a.m.
delivery, next-business-day in many areas of the continental United States,
including Alaska. FedEx 2Day Freight offers noon delivery in 2 business
days in all 50 states. No advance booking is required. FedEx 3Day-SM- Freight
offers 3:00 p.m. delivery within 3 business days in every state
<PAGE>
except Alaska and Hawaii. No advance booking is required.
INTERNATIONAL
FedEx Express offers various international package and document delivery
services and international freight services to 210 countries. These services
include: FedEx-Registered Tradmark- International Next Flight, FedEx
International First-Registered Tradmark-, FedEx International Priority
("IP"), FedEx International Economy, FedEx International Priority
DirectDistribution-SM-, FedEx International Priority Plus, FedEx
International MailService, FedEx International Priority Freight, FedEx
International Economy Freight, FedEx InternationaL Express Freight, FedEx
International Airport-to-Airport-SM-, and the FedEx Expressclear-SM-
Electronic Customs Clearance and FedEx International Broker Select service
feature options.
FedEx Express offers next business day 10:30 a.m. express cargo service
from Asia to the United States. FedEx has a direct flight from Osaka, Japan
to Memphis, Tennessee. The nonstop daily flight cuts transit times across the
Pacific in half for FedEx Express customers -- from 48 to 24 hours -- who
ship from Asia to North America. The FedEx Express IP service is backed by
FedEx Express's money-back guarantee. The flight schedule also enables FedEx
Express to offer its Asian customers later pickup times for connections
through FedEx Express's AsiaOne hub in Subic Bay, the Philippines, to 13
major Asian markets.
International freight and express delivery markets, particularly
outbound from Asia, are growing rapidly. FedEx Express offers the most
comprehensive international freight service in the industry, backed by a
money-back guarantee, real-time tracking and advanced customs clearance. In
June 2000, FedEx Express announced the expansion of its international freight
service to provide more delivery options to more countries. Three new FedEx
International Priority Freight delivery options were made available for
U.S. outbound and inbound shipments beginning July 1: Door to Airport (DTA),
Airport to Airport (ATA) and Airport to Door (ATD). These options were in
addition to the existing Door to Door (DTD) service. FedEx International
Priority Freight and FedEx International Economy Freight now provide
service to five and ten more countries, respectively. FedEx Express's
enhanced international freight services may now be used by customers to
combine pick-up, linehaul and four delivery options to meet their daily
business needs.
In order to capitalize on the rapid traffic growth in Europe and Asia,
FedEx Express announced in June 2000 a significant strengthening of its
global network, with new connections in Europe, Asia, the Middle East and
India. As a result of the network reconfiguration, FedEx Express offers
reduced transit times, later customer pick-ups and earlier deliveries in key
global markets. FedEx Express customers in India are able to get their
products to the East Coast of the U.S. a full business day faster as a result
of the new flights. Companies in southeast Asia doing business in Europe are
now able to take orders from their customers two to three hours later in the
evening, thanks to later cut off times for FedEx Express pick-ups.
In June 1999, the U.S. Department of Transportation ("DOT") announced a
new protocol with the Chinese government permitting FedEx Express to expand
its existing service to China. FedEx Express is currently the only U.S.
all-cargo airline with route authority to serve China, with 10 weekly flights.
FedEx Express is ISO 9001 certified for its global operations. ISO 9001
is currently the most rigorous international standard for Quality Management
and Assurance. These 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 standards.
Detailed information about all of FedEx Express's delivery services can
be found on the FedEx Web site at www.fedex.com. The information on our Web
site, however, does not form part of this Report.
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E-COMMERCE SERVICES
We have played a significant role in three business revolutions that
have influenced the emergence of what is now known as e-commerce. First came
the express revolution. We anticipated the "just-in-time future," which led
to the creation of FedEx and the first integrated air/ground express
transportation network in 1973.
Second came the automation revolution. We have been the leader in
customer automation since 1985, when FedEx Express launched the first
PC-based automated shipping system, named FedEx PowerShip-Registered
Tradmark-. In 1993, FedEx Ground launched MultiShip-Registered Tradmark-, the
first carrier-supplied customer automation system to process packages shipped
by other transportation providers. In 1994, the FedEx Web site, fedex.com,
became the first Web site to offer online package tracking. Two years later,
in 1996, FedEx Express launched FedEx interNetShip-Registered Tradmark-, the
first shipping application for express packages on the Internet. Customers
could now prepare paperwork using formatted screens, print the label on any
laser printer, and electronically request a courier to pick up the package.
The third revolution, the integration revolution, is now underway. We
are empowering businesses with integrated eBusiness and complete supply chain
solutions. Many of our newest eBusiness solutions are directed toward the
rapidly growing small and medium-sized business ("SMB") market. In June 2000,
we announced an alliance with Orbit Commerce, Inc., a leading eBusiness
services platform provider, resulting in the introduction of FedEx eCommerce
Builder on our Web site. This solution provides SMB's with the ability to
build and manage an online store. FedEx eCommerce Builder integrates the core
business processes necessary for SMB's to sell online, including FedEx
shipping and tracking.
We have a comprehensive Internet strategy, driven by our desire for
customer convenience. The focal point of our Internet strategy is our
fedex.com Web site, through which our customers accomplish all of the tasks
they could otherwise accomplish with us by phone or in person. In addition,
we design our e-commerce tools and solutions so that they are easily
integrated into our customers' applications, as well as into third-party
software being developed by the leading e-procurement, systems integration
and enterprise resource planning companies. This is increasingly important
given the growing customer trend toward multi-carrier shipping platforms.
Reflecting our emphasis on e-commerce and information technology, we
have had a lineage of distinguished Chief Information Officers, including
James L. Barksdale, who went on to serve as the President and Chief Executive
Officer of Netscape Communications Corporation, Dennis H. Jones, named by
NETWORK WORLD as "One of the 25 Most Powerful People in Networking" and by PC
WEEK as "One of the Top 10 Toughest CIOs," and current CIO Robert B. Carter,
named as INFOWORLD'S first-ever "Chief Technology Officer of the Year."
E-SHIPPING TOOLS AND SOLUTIONS
We offer e-shipping tools and solutions which give our customers the
power to ship, track and report from their desktops, allowing them to reduce
the time spent preparing shipments and increase efficiency and customer
service levels. These e-shipping tools can also allow customers to centralize
their shipping with back-office solutions. The following e-shipping tools and
solutions are offered by FedEx Express and FedEx Ground:
- FedEx interNetship-Registered Tradmark- - through this Web-based shipping
application, customers can prepare FedEx Express shipping labels and
arrange for pickup or drop-off. Customers can also cancel shipments, track
packages and perform certain other applications for FedEx Express and FedEx
Ground.
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- FedEx Ship-Registered Tradmark- - this software, available to customers who
have a computer, modem and laser printer, delivers point-and-click
addressing, label printing, package tracking and easy preparation of
shipping labels.
- FedEx Tracking-Registered Tradmark- - allows customers to track both FedEx
Express and FedEx Ground packages at one time through the FedEx Web site.
- Drop-off Locator - allows customers to easily find and view maps of FedEx
drop-off locations through the FedEx Web site. Searches can be conducted by
address, city, state or zip code to find one of over 45,000 full-service
and self-service locations worldwide.
- Rate Finder - allows customers to determine the cost of shipping packages
from the U. S. to virtually anywhere in the world through the FedEx Web
site.
FedEx also offers the following hardware-based e-shipping tools,
designed to provide customers with centralized control over their shipping
process and to help them better manage shipping, billing and reporting:
- FedEx PowerShipMC-Registered Tradmark- - this stand-alone hardware system
provides customers with the ability to utilize a single system for use with
FedEx Express, FedEx Ground and other carriers. Customers can use this
system to ship with the carrier of their choice and benefit from increased
operational efficiency, decreased employee training time, enhanced access
to information and better utilization of space.
- FedEx PowerShip-Registered Tradmark- - this stand-alone hardware system
provides customers with a full range of shipping functions, enabling
customers to handle large volumes and to automate their entire shipping
process. FedEx PowerShip-Registered Tradmark- provides package tracking,
produces shipping labels, calculates shipping charges, invoices the
customer daily and produces customized reports.
- FedEx ShipAPI-TM- - allows customers to seamlessly integrate FedEx Express
services by downloading software from the Internet, which will allow them
to connect directly with FedEx Express when placing shipping orders and
scheduling pickup requests.
- FedEx DirectLink-TM- - this software allows customers to electronically
receive, manage and remit FedEx Express invoicing data.
- FedEx NetReturn-Registered Tradmark- - uses a comprehensive Internet-based
returns management system to allow customers to gain better control over
the return inventory process, resulting in lower costs, improved cycle
times and increased customer service levels.
- FedEx EDI Electronic Invoice and Remittance - integrates with customers'
accounts payable systems to allow them to receive FedEx invoice data
electronically, including data regarding domestic and international
shipments, duties and taxes.
PRICING
FedEx Express periodically publishes list prices in its Service Guides
for the majority of its services. In general, during 2000, 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 Express courier or dropped off by the customer at a FedEx Express
location. International rates are based on the type of service provided and
vary with size, weight and destination. FedEx Express offers its customers
volume discounts generally based on actual or potential average daily revenue
produced. Discounts are generally determined by reference to several local
and national revenue bands developed by FedEx Express.
In response to higher fuel costs, FedEx Express implemented a fuel
surcharge of 3% on most U.S. domestic and international services, effective
February 1, 2000. The fuel surcharge was further increased to 4%, effective
April 1, 2000. The surcharge applies to all shipments tendered within the
United States and all U.S. export shipments, where legally and contractually
possible.
<PAGE>
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):
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Package:
U.S. overnight $ 7,537,844 $ 7,185,462 $ 6,810,211
U.S. deferred 2,428,002 2,271,151 2,179,188
International Priority 3,551,593 3,018,828 2,731,140
Freight:
U.S. 566,259 439,855 337,098
International 492,280 530,759 597,861
Other* 492,360 533,222 599,343
----------- ----------- -----------
Total $15,068,338 $13,979,277 $13,254,841
=========== =========== ===========
</TABLE>
-------------------------
*Includes revenues from sales of aircraft engine noise reduction kits,
revenues generated by the specialized services summarized above under
"E-Commerce Services," Canadian domestic revenue and charter services.
OPERATIONS
FedEx Express's global transportation and distribution services are
provided through an extensive worldwide network consisting of numerous
aviation and ground transportation operating rights and authorities, 663
aircraft, approximately 49,000 vehicles, sorting facilities, FedEx World
Service Centers, FedEx Drop Boxes, FedEx ShipSites and ShipCenters and
sophisticated package tracking, billing and communications systems.
FedEx Express's primary sorting facility, the SuperHub located in
Memphis, serves as the center of FedEx Express's multiple hub-and-spoke
system. A second national hub is located in Indianapolis. In addition to
these national hubs, FedEx Express operates regional hubs in Newark, Oakland
and Fort Worth and major metropolitan sorting facilities in Los Angeles and
Chicago. Facilities in Anchorage, Paris and Subic Bay, the Philippines, serve
as sorting facilities for express package and freight traffic moving to and
from Asia, Europe and North America. Additional major sorting and freight
handling facilities are located at Narita Airport in Tokyo, Stansted Airport
outside London and Pearson Airport in Toronto. Facilities in Subic Bay and
Paris are also designed to serve as regional hubs for their respective market
areas.
Throughout its worldwide network, FedEx Express 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 Express 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 Express 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 Express's
<PAGE>
direct presence less economical, Global Service Participants ("GSPs") have
been selected to complete deliveries and to pick up packages.
FedEx Express has an advanced package tracking and billing system, FedEx
COSMOS-Registered Tradmark-, 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 Express's
system. For international shipments, FedEx Express has developed FedEx
Expressclear-SM-, 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.
FUEL SUPPLIES AND COSTS
During 2000, FedEx Express purchased aviation fuel from various
suppliers under contracts which vary in length and which provide for specific
amounts of fuel to be delivered. The fuel represented by these contracts is
purchased at market prices that may fluctuate daily.
As a result of rising fuel prices during 2000, we entered into jet fuel
hedging contracts during the second half of 2000 that are designed to limit
our exposure to fluctuations in jet fuel prices. Under these contracts, we
make (or receive) 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. Under jet fuel
hedging contracts, we received approximately $18 million in 2000. As of May
31, 2000, we had entered into jet fuel hedging contracts for approximately
one-third of FedEx Express's estimated requirements for jet fuel in 2001. The
timing and magnitude of any additional contracts may vary due to availability
and pricing. Notwithstanding our hedging activities, during 2000, fuel costs
increased by $273 million due to higher fuel prices.
The following table sets forth FedEx Express'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>
2000 $723,584 5.1%
1999 467,598 3.6
1998 570,959 4.6
1997 557,533 5.2
1996 461,401 4.8
</TABLE>
In response to higher fuel costs, FedEx Express implemented a fuel
surcharge of 3% on most U.S. domestic and international services, effective
February 1, 2000. The fuel surcharge was increased to 4%, effective April 1,
2000. The surcharge applies to all shipments tendered within the United
States and all U.S. export shipments, where legally and contractually
possible. These fuel surcharges offset the increase in fuel expense during
the fourth quarter of 2000.
Approximately 15% of FedEx Express's requirement for vehicle fuel is
purchased in bulk. The remainder of FedEx Express's requirement is satisfied
by retail purchases with various discounts.
<PAGE>
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 Express'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 Express.
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, ability to track
packages, extent of geographic coverage and reliability. Competitors in these
markets include other package delivery concerns, principally United Parcel
Service, Inc. ("UPS"), Airborne Express, DHL Worldwide Express, passenger
airlines offering express package services, regional express delivery
concerns, airfreight forwarders and the United States Postal Service. FedEx
Express's principal competitors in the international market are DHL Worldwide
Express, UPS, foreign postal authorities such as Deutsche Poste and TNT Post
Group, passenger airlines and all-cargo airlines.
FedEx Express 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 Express 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. Many of FedEx Express's
competitors in the international market, however, are government owned,
controlled, or subsidized carriers which may have greater resources, lower
costs, less profit sensitivity and more favorable operating conditions than
FedEx Express.
EMPLOYEES
FedEx Express is headquartered in Memphis, Tennessee. David J. Bronczek
is the President and Chief Executive Officer of FedEx Express. As of May 31,
2000, FedEx Express employed approximately 96,000 permanent full-time and
53,000 permanent part-time employees, of which approximately 20% are employed
in Memphis. Employees of FedEx Express's international branches and
subsidiaries in the aggregate represent approximately 13% of all employees.
FedEx Express believes its relationship with its employees is excellent.
Since May 31, 1999, FedEx Express and the Fedex Pilots Association
("FPA") have been operating under a five-year collective bargaining agreement
which 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 occur from time to time. Although FedEx Express responds to
these organization attempts, we cannot predict the outcome of these labor
activities or their effect, if any, on FedEx Express or its employees.
FEDEX GROUND
INTRODUCTION
<PAGE>
By focusing on business-to-business customers, maintaining a low cost
structure and efficiently using information technology, FedEx Ground has
become the second-largest ground small-package carrier in the United States.
FedEx Ground 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. FedEx Ground provides ground service to 100% of the United
States population and overnight service to approximately 80% of the United
States population. Through its subsidiary, FedEx Ground Package System, Ltd.,
service is provided to 100% of the Canadian population. Additionally, FedEx
Ground provides service to Mexico through an alliance with Estefeda Mexicana,
S.A. de C.V. FedEx Ground also offers service offshore to Puerto Rico, Alaska
and Hawaii via a ground/air network operation in cooperation with other
transportation providers.
In March 2000, FedEx Ground began providing FedEx Home Delivery to
approximately 50% of the U.S. population. FedEx Home Delivery takes advantage
of the FedEx Ground operational network for pickup and package sorting to
maintain a low cost structure. FedEx Home Delivery is dedicated exclusively
to the delivery side of the business. Hence, it focuses and excels on meeting
the distinct customer interface requirements of residential customers.
FedEx Ground provides other specialized transportation services to meet
specific customer requirements in the small-package market. FedEx Ground
conducts its operations primarily with 9,800 owner-operated vehicles and, in
addition, owns over 10,800 trailers. Competition for high-volume, profitable
business focuses largely on providing competitive pricing and dependable
service. FedEx Ground provides a money-back guarantee on all
business-to-business ground deliveries within the continental United States.
FEDEX HOME DELIVERY
FedEx Home Delivery was created to respond to business-to-consumer
demand for a better ground delivery solution for the residential market.
Recognizing the unique needs of this growing sector, which Forrester
Research, Inc. projects will escalate from $39 billion in 2000 to $184
billion by 2004, FedEx Home Delivery introduced new ideas to
business-to-consumer delivery to help retailers address mounting fulfillment
challenges. This service expansion offers an economical and customized
residential solution to fit the individual needs of customers. FedEx Home
Delivery offers a suite of service options not offered by competitors,
including extended evening delivery, Saturday delivery, and premium services,
such as day-specific, signature and appointment delivery. FedEx Home Delivery
brings an unmatched level of service to residential shippers and their
customers and also offers the only money-back guarantee in the residential
ground delivery market.
In June 2000, due to the response of business-to-consumer shippers and
their customers to the innovative service options FedEx Home Delivery brings
to the residential market, FedEx Ground announced the accelerated expansion
of the FedEx Home Delivery network. Through a two-phase expansion plan, which
began in July 2000, FedEx Ground will open approximately 150 new FedEx Home
Delivery terminals to increase the network's service coverage. FedEx Home
Delivery expects to increase its reach from 50% to 70% of the U.S. population
by March 31, 2001 and to approximately 80% of the U.S. population by
September 2001. Full coverage of the U.S. population is expected to be
achieved by September 2002, more than one year earlier than originally
scheduled.
OPERATIONS
FedEx Ground utilizes advanced automatic sortation technology to
streamline the handling of over 1.4 million daily packages. FedEx Ground also
utilizes software systems and Internet-based applications to
<PAGE>
offer its customers new ways to connect internal package information with
external delivery information. FedEx Ground provides multiple-carrier
shipment tracing and proof-of-delivery signature functionality on the FedEx
Web site (www.fedex.com). For additional information regarding FedEx Ground's
e-shipping tools and solutions, see "FedEx Express - E-Commerce Services."
Like FedEx Express, FedEx Ground utilizes a hub-and-spoke sorting and
distribution system. Its 27 hubs are equipped with sophisticated
package-sortation technology, with average processing speeds of 15,000 to
20,000 packages per hour. In January 1999, FedEx Ground announced its
intention to boost its package-processing capacity by 50% through a
three-year expansion program. Plans included 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. The Chicago and Los Angeles area hubs opened
in 2000, while the New York area hub is scheduled to open in August 2000. The
New York area facility will be the largest in the FedEx Ground network. It
will be 326,000 square feet in size and capable of processing 30,000 packages
per hour - approximately double the processing capacity of the average FedEx
Ground hub. FedEx Ground also expanded existing hubs in Toledo and Denver
during 2000 and expects to complete expansion of its Sacramento hub in 2001.
As of May 31, 2000, FedEx Ground operated 369 facilities in the U.S. and
Canada.
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. FedEx Ground is
still the only ground carrier to operate a fully automated hub network for
greater efficiency and package integrity.
In order to provide the new FedEx Home Delivery service, FedEx Ground is
leveraging its existing pickup operation and hub and linehaul network while
initiating a separate delivery network comprised of distinct terminals and a
separate team of independent contractors. As of May 31, 2000, FedEx Ground
had opened 64 dedicated delivery terminals to support the FedEx Home Delivery
service in 45 metropolitan areas. FedEx Ground plans to add more dedicated
FedEx Home Delivery facilities over the next two years as part of an
aggressive plan to rapidly expand its residential service area.
FedEx Ground is headquartered in Pittsburgh, Pennsylvania. Daniel J.
Sullivan is the President and Chief Executive Officer of FedEx Ground. FedEx
Ground has approximately 35,000 employees and contractors in North America.
FedEx Ground's primary competitors are UPS and the United States Postal
Service.
FEDEX LOGISTICS
FedEx Logistics serves as the holding company for FedEx Supply Chain
Services, Inc. and Caribbean Transportation Services, Inc. FedEx Logistics
specializes in transportation management, logistics and consulting services
that, in keeping with the FedEx brand, are global, time-definite and
information intensive. Joseph C. McCarty is the President and Chief Executive
Officer of FedEx Logistics, which is based in Memphis, Tennessee.
FEDEX SUPPLY CHAIN SERVICES
FedEx Supply Chain Services 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,
<PAGE>
returnable container management, freight bill payment and auditing and other
management services outsourced by its customers.
In May 2000, FedEx Supply Chain Services created a new division, FedEx
eLogistics, to focus on providing businesses with end-to-end electronic
commerce logistics solutions. FedEx eLogistics enables customers to lower
fulfillment costs, decrease cycle time and improve returns management.
An important element in FedEx Supply Chain Services' overall value to
customers is improved information exchange. FedEx Supply Chain Services,
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. FedEx Supply Chain Services manages over 100 major logistics
contracts, 3 million shipments per year and over 6 million square feet of
warehouse space.
Gary D. Gilbert is the President and Chief Executive Officer of FedEx
Supply Chain Services, which is based in Hudson, Ohio. FedEx Supply Chain
Services' European headquarters is located in Leiden, the Netherlands and its
Asian headquarters is located in Singapore. FedEx Supply Chain Services has
approximately 2,900 employees. FedEx Supply Chain Services' primary
competitors are contract logistics providers, including the logistics
divisions of UPS, Ryder System, Inc. and CNF, Inc.
CARIBBEAN TRANSPORTATION SERVICES
Caribbean Transportation Services was acquired by FedEx Logistics in
September 1999 and is a provider of airfreight forwarder services between the
United States, Canada, Puerto Rico and the Dominican Republic, specializing
in arranging the shipment of heavyweight and oversized cargo. Caribbean
Transportation Services provides several delivery options for door-to-door or
airport-to-airport airfreight forwarder services, principally to the medical,
pharmaceutical and technology sectors. Richard A. Faieta is the President and
Chief Executive Officer of Caribbean Transportation Services, which is
headquartered in Greensboro, North Carolina. Caribbean Transportation
Services has approximately 300 employees.
FEDEX CUSTOM CRITICAL
FedEx Custom Critical is the world's largest surface-expedited carrier.
FedEx Custom Critical 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 2,300 vehicles assures
the customer of time-specific service anywhere within the United States and
Canada, as well as within much of Europe, with pickup in less than 90 minutes
within 25 miles of any of FedEx Custom Critical's 242 ExpressCenters.
Customer Link, FedEx Custom Critical'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 FedEx Custom
Critical is more than 15 minutes late, both the shipper and the consignee are
notified. If FedEx Custom Critical is more than two hours late on delivery,
it will refund the customer 25% of the freight charges. If FedEx Custom
Critical is more than four hours late on delivery, it will refund the
customer 50% of the freight charges. In many cases, FedEx Custom Critical
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 15 minutes of FedEx Custom Critical's
time-specific promise.
FedEx Custom Critical's White Glove Services division specializes in
the transport of high value
<PAGE>
products, medical and electronic equipment, tradeshow exhibits,
temperature-sensitive commodities and high-security shipments. FedEx Custom
Critical's CharterAir division provides expedited air solutions to meet
customers' critical delivery times. Express, CharterAir and White Glove
services are also available through FedEx Custom Critical Europe, which is
based in Maastricht, the Netherlands. With continuous monitoring of
shipments, two-way satellite communications and multilingual agents and
drivers, FedEx Custom Critical Europe provides expedited services almost
anywhere in Europe.
FedEx Custom Critical is headquartered in Akron, Ohio. R. Bruce Simpson
is the President of FedEx Custom Critical. FedEx Custom Critical has
approximately 700 employees and 2,100 owner-operators. FedEx Custom
Critical's primary competitors are ConWay NOW, Inc., CTX, Emery Expedite,
Inc., Landstar Express America, Inc., TNT Expedite and Tri-State Expediting
Service, Inc.
<PAGE>
FEDEX TRADE NETWORKS
FedEx Trade Networks, created to serve the needs of customers doing
business globally, serves as the holding company for Tower Group
International, Inc. ("Tower") and World Tariff, Limited ("Worldtariff").
Tower was acquired in February 2000 and is a significant part of our strategy
to provide a full range of international trade services, including customs
brokerage, trade consulting, e-clearance solutions and transportation and
logistics services. Tower is an international logistics and trade information
technology company with approximately 1,600 employees and 63 offices
throughout North America. Tower also provides customs brokerage, warehousing,
freight forwarding and national distribution, duty drawback, trade
consulting, cargo insurance and trade-related seminars. Gerald P. Leary is
the President and Chief Operating Officer of Tower, which is based in
Buffalo, New York.
Worldtariff was acquired in March 2000 and is a publisher of customs
duty and tax information for customs areas worldwide. Worldtariff
continuously collects data from the world's customs authorities, then
simplifies, standardizes and translates it into English. Timely information
from Worldtariff provides for logistics optimization and calculating the
landed cost of international shipments. Scott D. Morse is the President and
Publisher of Worldtariff, which is based in San Francisco, California.
G. Edmond Clark is the President and Chief Executive Officer of FedEx
Trade Networks, which is based in Memphis, Tennessee. FedEx Trade Network's
primary competitors are U.S. based customs brokers and freight forwarders.
VIKING
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 purchased transportation 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. In
addition to reliability and e-commerce services, Viking offers shippers
value-added services such as cross-border service to Canada and Mexico.
With next and second-business day regional freight service, plus direct
ocean service to Alaska and Hawaii, Viking's 5,400 employees handle shipments
through 50 service centers, achieving an award-winning on-time delivery
performance exceeding that of most other LTL carriers. Consistent with its
EZTDBW ("Easy To Do Business With") service philosophy, Viking has created
two customer advisory boards -- one for corporate accounts, the other for
smaller, regional 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 site (www.vikingfreight.com) lets customers
conduct business electronically with convenience and confidence.
In 2000, for the fifth 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 1999," the eighth year Viking has
received this award.
Douglas G. Duncan is the President and Chief Executive Officer of
Viking, which is headquartered in San Jose, California. Viking's primary
regional competitors are ConWay Western Express, Inc., USF Bestway, Inc. and
USF Reddaway Truck Line, Inc.
<PAGE>
SEASONALITY OF BUSINESS
FedEx Express'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 Express's third fiscal quarter and late
summer, being post winter-holiday and summer vacation seasons, have
historically exhibited lower volumes relative to other periods.
The transportation and logistics industry is affected directly by the
state of the overall domestic and international economies. Seasonal
fluctuations affect tonnage, revenues and earnings. Normally, the fall of
each year is the busiest shipping period for FedEx Ground and FedEx Custom
Critical, while the latter part of December, January, June and July of each
year are the slowest periods. For Viking, the fall of each year is the
busiest shipping period and the latter part of December, January and February
of each year are the slowest periods. Shipment levels, operating costs and
earnings can also be adversely affected by inclement weather.
REGULATION
AIR. Under the Federal Aviation Act of 1958, as amended, both the DOT
and the Federal Aviation Administration ("FAA") exercise regulatory authority
over FedEx Express. 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 Express holds various certificates issued
by the DOT, authorizing FedEx Express to engage in U.S. and international air
transportation of property and mail on a worldwide basis. FedEx Express'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 Express 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 Express to operate its aircraft in the most
efficient manner. FedEx Express 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
Express maintains its standards of safety and meets the operational
requirements of the regulations.
FedEx Express participates in the Civil Reserve Air Fleet ("CRAF")
program. Under this program, the Department of Defense may requisition for
military use certain of FedEx Express's wide-bodied aircraft in the event of
a declared need, including a national emergency. FedEx Express 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
Express is entitled to bid on peacetime military cargo charter business.
FedEx Express, together with a consortium of other carriers, currently
contracts with the United States Government for charter flights.
GROUND. The ground transportation performed by FedEx Express is integral to
its air transportation
<PAGE>
services. Prior to January 1996, FedEx Express 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 Express
is registered in those states that require registration.
The operations of FedEx Ground, Viking and FedEx Custom Critical 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, FedEx Express, FedEx Ground,
Viking and FedEx Custom Critical are subject to certain DOT safety
requirements governing interstate operations. In addition, vehicle weight and
dimensions remain subject to both federal and state regulations.
COMMUNICATION. Because of the extensive use of radio and other
communication facilities in its aircraft and ground transportation
operations, FedEx Express is subject to the Federal Communications Commission
Act of 1934, as amended. Additionally, the Federal Communications Commission
regulates and licenses FedEx Express'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 Express's present aircraft fleet is
in compliance with current noise standards of the Federal Aviation
Regulations. FedEx Express'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
Express's aircraft operations in some of the localities where they apply but
do not have a material effect on any of FedEx Express's significant markets.
Congress' passage of the Airport Noise and Capacity Act of 1990 established a
National Noise Policy which enabled FedEx Express to plan for noise reduction
and better respond to local noise constraints. FedEx Express's international
operations are also subject to noise regulations in certain of the countries
in which it operates.
FedEx Express, FedEx Ground, Viking and FedEx Custom Critical 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, these companies are
subject to numerous regulations dealing with underground fuel storage tanks,
hazardous waste handling, vehicle and equipment emissions and the discharge
of effluents from properties and equipment owned or operated by them. Each
company has environmental management programs to ensure compliance with these
regulations.
WORKPLACE. In November 1999, the U.S. Occupational Safety and
Health Administration, or OSHA, proposed regulations to mandate an ergonomics
standard that could require many businesses, including FedEx's operating
companies, to make significant changes in the workplace in order to reduce
the incidence of musculoskeletal disorders such as lower back pain. The
proposal does not specify which workplace changes would be required in order
to comply with the proposed new regulations. We, our competitors and other
affected parties have submitted comments to OSHA challenging the economic and
technical feasibility of the proposed regulations. In July 2000, OSHA
completed public hearings on the proposed regulations and is expected to
release final rules later this year.
<PAGE>
If OSHA adopts the proposed regulations and applies them in the same way
as it attempted unsuccessfully in the past to impose ergonomic measures under
its general authority, we would be required to make extensive changes to the
layout of our sorting facilities and hire a significant number of additional
employees. We believe that the cost of compliance would be substantial and
have a material adverse effect on our business. We expect that our
competitors, along with the rest of American industry, would also incur
substantial compliance costs.
CUSTOMS. Through its FedEx Trade Networks subsidiary, FedEx provides
customs brokerage and freight forwarding services. These activities are
subject to regulation by the U.S. Customs Service (customs brokerage), the
U.S. Federal Maritime Commission (ocean freight forwarding) and the U.S.
Department of Transportation (airfreight forwarding). FedEx's offshore
operations are subject to similar regulation by the regulatory authorities of
the respective foreign jurisdictions.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Report or in documents that we
incorporate by reference 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. Accordingly, a forward-looking
statement is not a prediction of future events or circumstances and those
future events or circumstances may not occur. A forward-looking statement is
usually identified by our use of certain terminology, including "believes,"
"expects," "may," "will," "should," "seeks," "pro forma," "anticipates,"
"intends" or "plans" or by discussions of strategies, intentions or outlook.
Potential risks and uncertainties include, but are not limited to
- Economic conditions in the markets in which we operate, which can affect
demand for our services.
- The costs and complexities associated with the integration of certain of
our sales, marketing, customer service and information technology functions
(see "Strategic Initiatives - Organizational Changes").
- Market acceptance of our new sales, marketing and branding strategies, as
well as our new residential home delivery service (see "Strategic
Initiatives - Organizational Changes").
- Competition from other providers of transportation and logistics services,
including competitive responses to our new initiatives.
- Our ability to adapt to technological change and to compete with new or
improved services offered by our competitors.
- Changes in customer demand patterns, including the impact of technology
developments on demand for our services.
- Increases in aviation and motor fuel prices.
- Our ability to match aircraft, vehicle and sort capacity with customer
volume levels.
- Work stoppages, strikes or slowdowns by our employees.
- Our ability, and that of our principal competitors, to obtain and maintain
aviation rights in important international markets.
- Changes in government regulation, including the adoption by OSHA of its
proposed ergonomics standard (see "Regulation").
- Changes in weather.
- Availability of financing on terms acceptable to us.
- Other uncertainties detailed herein and from time to time in our Securities
and Exchange Commission filings.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
<PAGE>
ITEM 2. PROPERTIES
FEDEX
FedEx does not own any material real properties. FedEx leases two
facilities in the Memphis area for its corporate headquarters and
administrative offices.
FEDEX EXPRESS
FedEx Express'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 Express's aircraft fleet at May 31, 2000 consisted of the
following:
<TABLE>
<CAPTION>
MAXIMUM GROSS
STRUCTURAL PAYLOAD
DESCRIPTION NUMBER (1) (POUNDS PER AIRCRAFT)(2)
----------- ---------- ------------------------
<S> <C> <C>
McDonnell Douglas MD11 30 195,000
McDonnell Douglas DC10-30 22 176,000
McDonnell Douglas DC10-10 69 139,000
Airbus A300-600 36 116,000
Airbus A310-200 41 82,000
Boeing B727-200 95 60,000
Boeing B727-100 66 45,000
Fokker F27-500 24 13,500
Fokker F27-600 8 12,500
Shorts 3-60 11 8,300
Cessna 208B 251 3,400
Cessna 208 10 3,000
--
Total 663
</TABLE>
-------------------------
(1) Except as described in the following sentence, all of our aircraft are
owned. The following aircraft are subject to operating leases: MD11 (29);
DC10-30 (17); DC10-10 (4); A300 (36); A310 (16); B727-200 (13); B727-100
(5); and Shorts 3-60 (11).
(2) Maximum gross structural payload includes revenue payload and container
weight.
- The MD11s are three-engine, wide-bodied aircraft that have a longer range
and larger capacity than DC10s.
- The DC10s are three-engine, wide-bodied aircraft that have been specially
modified to meet FedEx Express's cargo requirements.
- The A300s and A310s are two-engine, wide-bodied aircraft that have a longer
range and more capacity than B727s.
- The B727s are three-engine aircraft configured for cargo service.
- The Shorts 3-60 are turbo-prop aircraft leased by FedEx Express and then
subleased to independent operators, who are contractually obligated to
service selected FedEx Express routes in Europe.
- The Fokker F27 and Cessna 208 turbo-prop aircraft are owned by FedEx
Express and leased to unaffiliated
<PAGE>
operators to support FedEx Express 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 Express "wet leases" 45 smaller piston-engine and
turbo-prop aircraft which feed packages to and from airports served by FedEx
Express'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 Express's wet
lease agreements are for terms not exceeding one year and are generally
cancelable upon 30 days' notice.
At May 31, 2000, FedEx Express operated worldwide approximately 49,000
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, 2000, FedEx Express was committed under various contracts to
purchase 28 MD11s, 13 DC10s (in addition to those discussed below) and 75
Ayres ALM 200 aircraft to be delivered through 2007.
FedEx Express has entered into agreements with two airlines to acquire
53 DC10 aircraft (49 of which have been received as of May 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 11 additional DC10s, along
with additional aircraft engines and equipment.
In April 2000, put options were exercised by an airline requiring FedEx
Express to purchase six DC10s (in addition to those discussed in the
preceding paragraph) for a total purchase price of $26.4 million. Delivery of
the aircraft is expected to be completed by April 2001.
<PAGE>
SORTING AND HANDLING FACILITIES
At May 31, 2000, FedEx Express operated the following sorting and handling
facilities:
<TABLE>
<CAPTION>
SORTING LEASE
SQUARE CAPACITY EXPIRATION
LOCATION ACRES FEET (PER HOUR)(1) 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 56 554,000 142,000 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 54,000 City of Los Angeles 2009
Chicago, Illinois 55 419,000 47,000 City of Chicago 2018
Anchorage, Alaska(2) 42 258,000 14,200 Alaska Department of 2013
Transportation and
Public Facilities
INTERNATIONAL
-------------
Subic Bay, Philippines(3) 18 316,000 16,000 Subic Bay Metropolitan 2007
Authority
Paris, France(4) 87 861,000 48,000 Aeroports de Paris 2029
</TABLE>
------------------------
(1) Documents and packages
(2) Handles international express package and freight shipments to and from
Asia, Europe and North America.
(3) Handles intra-Asia express package and freight shipments.
(4) Handles intra-Europe express package and freight shipments, as well as
international express package and freight shipments to and from Europe.
<PAGE>
FedEx Express's facilities at the Memphis International Airport also
include aircraft hangars, flight training and fuel facilities, administrative
offices and warehouse space. FedEx Express leases these facilities from the
Memphis-Shelby County Airport Authority (the "Authority") under several
leases. The leases cover land, the administrative and sorting buildings,
other facilities, ramps and certain related equipment. FedEx Express 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 Express to maintain and insure the
leased property and to pay all related taxes, assessments and other charges.
The leases are subordinate to, and FedEx Express's rights thereunder could be
affected by, any future lease or agreement between the Authority and the
United States Government.
In addition to the facilities noted above, FedEx Express has major
international sorting and freight handling facilities located at Narita
Airport in Tokyo, Japan, 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 204,000 square foot
facility to be located at Miami International Airport is expected to begin
during 2001.
ADMINISTRATIVE AND OTHER PROPERTIES AND FACILITIES
FedEx Express 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 Express. FedEx
Express also leases approximately 90 facilities in the Memphis area for its
corporate headquarters, warehouse facilities and administrative offices.
FedEx Express 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. Beginning in July 2000, the office
campus will bring together approximately 3,700 employees from more than 100
work groups.
FedEx Express owns or leases 725 facilities for city station operations
in the United States. In addition, 153 city stations are owned or leased
throughout FedEx Express's international network. The majority of these
leases are for terms of five to ten years. City stations serve as the sorting
and distribution center for a particular city or region. FedEx Express
believes that suitable alternative facilities are available in each locale on
satisfactory terms, if necessary.
As of May 31, 2000, FedEx Express owned or leased space for 387 FedEx
World Service Centers in the United States and had placed approximately
34,500 Drop Boxes. FedEx Express also operates stand-alone mini-centers
located on leaseholds in parking lots adjacent to office buildings, shopping
centers and office parks, of which 93 were in service at May 31, 2000. As of
May 31, 2000, FedEx Express also had approximately 10,000 ShipSites and
ShipCenters, which are drop-off locations situated within certain retailers,
such as Staples or Kinkos. Internationally, FedEx Express operates 91 FedEx
World Service Centers and has over 650 FedEx Drop Boxes.
FedEx Services has an office campus in Collierville, Tennessee for its
information technology and telecommunications division.
FEDEX GROUND
As of May 31, 2000, FedEx Ground operated 369 facilities, including 27
hubs. FedEx Ground owns 52
<PAGE>
facilities (23 of which are hubs) and leases 317, generally for terms of
three years or less. The 27 hub facilities are strategically located to cover
the geographic area served by FedEx Ground. These facilities average 131,000
square feet and range in size from 31,000 to 262,000 square feet. FedEx
Ground Package System, Ltd., FedEx Ground's subsidiary operating in Canada,
operates 13 facilities, three of which are hubs.
FedEx Ground's corporate offices and information and data centers are
located in the Pittsburgh, Pennsylvania area in an approximately 350,000
square foot building owned by FedEx Ground. FedEx Ground is expanding its
corporate offices with a 156,000 square foot addition, which is expected to
be completed in 2002.
FEDEX LOGISTICS
FedEx Logistics' corporate headquarters is located in Memphis, Tennessee
in leased facilities. FedEx Supply Chain Services' headquarters is located in
Hudson, Ohio in leased facilities. Caribbean Transportation Services'
headquarters is located in Greensboro, North Carolina in leased facilities.
FEDEX CUSTOM CRITICAL
FedEx Custom Critical's corporate headquarters is located in Akron, Ohio
in owned and leased facilities. FedEx Custom Critical does not use terminal
facilities in its business.
FEDEX TRADE NETWORKS
FedEx Trade Networks' corporate headquarters is located in Memphis,
Tennessee in leased facilities. Tower's corporate headquarters is located in
Buffalo, New York in owned facilities. Tower also has 63 owned and leased
offices throughout North America. Worldtariff's corporate headquarters is
located in San Francisco, California in leased facilities.
VIKING
As of May 31, 2000, Viking operated 50 service centers, 32 of which are
owned. The service centers are strategically located to cover the geographic
area served by Viking. These facilities range in size from 1,800 to 72,000
square feet of office and dock space, and are located on sites ranging from
1.8 to 38.3 acres. Viking's corporate headquarters is located in leased
facilities in San Jose, California.
ITEM 3. LEGAL PROCEEDINGS
In November 1987, The Flying Tiger Line Inc. ("Flying Tigers"), a
company acquired by FedEx Express 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 that
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 Express 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 Express's control, it is impossible
to accurately estimate FedEx Express's potential share of the remaining
<PAGE>
costs, but based on Flying Tigers' relatively insignificant contribution of
waste to the site, FedEx Express believes that its remaining liability will
not be material.
FedEx 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 FedEx'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, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Information regarding executive officers of FedEx 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
------------------- --- --------------
<S> <C> <C>
FREDERICK W. SMITH 55 Chairman, President and Chief Executive Officer of FedEx since January
1971 1998; Chairman of FedEx Express since 1975; Chairman, President and Chief
Executive Officer of FedEx Express from April 1993 to January 1998;
Chief Executive Officer of FedEx Express from 1977 to January 1998;
and President of FedEx Express from June 1971 to February 1975.
ROBERT B. CARTER 41 Executive Vice President and Chief Information Officer of FedEx since June
1993 2000; Corporate Vice President and Chief Technology Officer of FedEx from February
1998 to June 2000; Vice President - Corporate Systems Development
of FedEx Express from September 1993 to February 1998;
Managing Director - Systems Development of FedEx Express from April
1993 to September 1993.
<PAGE>
T. MICHAEL GLENN 44 Executive Vice President - Market Development and Corporate Communications
1985 of FedEx since January 1998; Senior Vice President - Marketing, Customer
Service and Corporate Communications of FedEx Express from June 1994 to
January 1998; Senior Vice President - Marketing and Corporate Communications
of FedEx Express from December 1993 to June 1994; Senior Vice President
-Worldwide Marketing Catalog Services and Corporate Communications of FedEx
Express from June 1993 to December 1993; Senior Vice President - Catalog and
Remail Services of FedEx Express from September 1992 to June 1993;
Vice President - Marketing of FedEx Express from August 1985 to
September 1992; and various management positions in sales and
marketing and senior sales specialist of FedEx Express from 1981 to 1985.
ALAN B. GRAF, JR. 46 Executive Vice President and Chief Financial Officer of FedEx since January
1987 1998; Executive Vice President and Chief Financial Officer of FedEx Express
from February 1996 to January 1998; Senior Vice President and Chief
Financial Officer of FedEx Express from December 1991 to February
1996; Vice President and Treasurer of FedEx Express from August 1987
to December 1991; and various management positions in finance and
a senior financial analyst of FedEx Express from 1980 to 1987.
JAMES S. HUDSON 51 Corporate Vice President - Strategic Financial Planning and Control and
1992 Principal Accounting Officer of FedEx since January 1998; Vice President -
Corporate and Strategic Financial Planning of FedEx Express from
January 1997 to January 1998; Vice President, Controller and Chief
Accounting Officer of FedEx Express from December 1994 to January 1997;
Vice President-Finance - Europe, Africa and Mediterranean of FedEx
Express from July 1992 to December 1994; and various management
positions in finance at FedEx Express from 1974 to 1992.
KENNETH R. MASTERSON 56 Executive Vice President, General Counsel and Secretary of FedEx since
1980 January 1998; Executive Vice President, General Counsel and Secretary of
FedEx Express from February 1996 to January 1998; Senior Vice
President, General Counsel and Secretary of FedEx Express from
September 1993 to February 1996; Senior Vice President and General
Counsel of FedEx Express from February 1981 to September 1993;
and Vice President - Legal of FedEx Express 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 FedEx 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 FedEx or of
any of its subsidiaries.
<PAGE>
KEY EMPLOYEES
The following key employees serve as the Chief Executive Officer of
FedEx Express, FedEx Ground and FedEx Logistics, respectively.
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
---- --- --------------
<S> <C> <C>
DAVID J. BRONCZEK 46 President and Chief Executive Officer of FedEx Express since January 2000;
Executive Vice President and Chief Operating Officer of FedEx Express from
January 1998 to January 2000; Senior Vice President - Europe, Middle East
and Africa of FedEx Express from June 1995 to January 1998; Senior Vice
President - Europe, Africa and Mediterranean of FedEx Express from June
1993 to June 1995; Vice President - Canadian Operations of FedEx Express
from February 1987 to March 1993; and several sales and operations
managerial positions at FedEx Express from 1976 to 1987.
DANIEL J. SULLIVAN 54 President and Chief Executive Officer of FedEx Ground since January 1998;
Chairman, President and Chief Executive Officer of Caliber System, Inc.
("Caliber") from January 1996 to January 1998; Chairman, President and
Chief Executive Officer of Roadway Services, Inc. from October 1995 to
January 1996; President and Chief Executive Officer of Roadway Services,
Inc. from August 1995 to October 1995; President and Chief Operating
Officer of Roadway Services, Inc. from January 1994 to August 1995; Senior
Vice President and President of National Carrier Group of Roadway Services,
Inc. during 1993; Vice President and President - National Carrier Group of
Roadway Services, Inc. during 1992; Vice President and Group Executive of
Roadway Services, Inc. from July 1990 through 1991; and President of RPS
through June 1990.
JOSEPH C. MCCARTY 55 President and Chief Executive Officer of FedEx Logistics since October
1998; Corporate Vice President and Chief Administrative Officer of FedEx
from February 1998 to October 1998; Senior Vice President - Latin America
and Caribbean from October 1995 to February 1998; Senior Vice President -
Asia Pacific from June 1995 to October 1995; Senior Vice President - Asia,
Pacific and Middle East from November 1991 to June 1995; Vice President -
International Legal from March 1987 to November 1991; Vice President -
Properties & Facilities from November 1984 to March 1987; and Vice
President - Legal from February 1983 to November 1984.
</TABLE>
<PAGE>
PART II
ITEM 5. MARKET PRICE FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK PRICE INFORMATION
FedEx's common stock is listed on the New York Stock Exchange under the
symbol "FDX." The following table sets forth, for the periods indicated, the
high and low sale prices per share for the common stock as reported on the
NYSE. The stock prices set forth below give effect to a two-for-one stock
split effected in the form of a stock dividend on May 6, 1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal Year Ended May 31, 1999
First Quarter $33-29/32 $24-11/32
Second Quarter 33-23/32 21-13/16
Third Quarter 49 32-9/32
Fourth Quarter 61-7/8 44-9/16
Fiscal Year Ended May 31, 2000
First Quarter 57-1/8 38-1/2
Second Quarter 47-5/16 34-7/8
Third Quarter 47-15/16 33-3/16
Fourth Quarter 42-7/16 30-9/16
</TABLE>
SHAREHOLDERS
As of July 15, 2000, there were 16,293 holders of record of our common
stock.
DIVIDENDS
No cash dividends have been declared. We have never declared a dividend
on our shares because our policy has been to reinvest earnings in our
businesses.
There are no material restrictions on our ability to declare dividends,
nor are there any material restrictions on the ability of our subsidiaries to
transfer funds to us in the form of cash dividends, loans or advances. See
Note 5 to Notes to Consolidated Financial Statements.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with the acquisition of Worldtariff on March 31, 2000, we
issued 175,644 shares of common stock to the sole shareholder of Worldtariff.
This issuance of securities was made in reliance on the exemption from
registration provided by Section 3(b) of the Securities Act of 1933, as a
transaction by an issuer not involving a public offering. The securities were
acquired by the Worldtariff shareholder for investment and not with a view
toward the resale or distribution of these shares. The offer and sale was
made without any public solicitation and the stock certificate bears a
restrictive legend. No underwriter was involved in the transaction and no
commissions were paid.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial
and operating data for FedEx as of and for the five years ended May 31, 2000.
This information should be read in conjunction with the Consolidated
Financial Statements, Management's Discussion and Analysis of Results of
Operations and Financial Condition and other financial data appearing
elsewhere herein.
<TABLE>
<CAPTION>
In thousands, except per share amounts and YEARS ENDED MAY 31,
------------------------------------------------------------------------------
other operating data 2000 1999 1998 1997 1996
-------------------------------------------------- -------------- --------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $18,256,945 $16,773,470 $15,872,810 $14,237,892 $12,721,791
Operating income (1) 1,221,074 1,163,086 1,010,660 507,002 779,552
Income from continuing operations before
income taxes 1,137,740 1,061,064 899,518 425,865 702,094
Income from continuing operations 688,336 631,333 498,155 196,104 400,186
Income (loss) from discontinued operations (2) - - 4,875 - (119,614)
Net income (1) 688,336 631,333 503,030 196,104 280,572
PER SHARE DATA
Earnings (loss) per share:
Basic:
Continuing operations $2.36 $2.13 $1.70 $.67 $1.38
Discontinued operations (2) - - .02 - (.41)
--------- --------- ------- ------- -------
$2.36 $2.13 $1.72 $.67 $.97
===== ===== ===== ==== ====
Assuming dilution:
Continuing operations $2.32 $2.10 $1.67 $.67 $1.37
Discontinued operations (2) - - .02 - (.41)
--------- --------- ------- ------- -------
$2.32 $2.10 $1.69 $.67 $.96
===== ===== ===== ==== ====
Average shares of common stock 291,727 295,983 293,401 291,426 289,390
Average common and common equivalent
shares 296,326 300,643 298,408 294,456 291,686
Cash dividends (3) - - - - -
FINANCIAL POSITION
Property and equipment, net $7,083,527 $6,559,217 $5,935,050 $5,470,399 $4,973,948
Total assets 11,527,111 10,648,211 9,686,060 9,044,316 8,088,241
Long-term debt, less current portion 1,776,253 1,359,668 1,385,180 1,597,954 1,325,277
Common stockholders' investment 4,785,243 4,663,692 3,961,230 3,501,161 3,312,440
OTHER OPERATING DATA
FedEx Express:
Operating weekdays 257 256 254 254 256
Aircraft fleet 663 634 613 584 557
FedEx Ground:
Operating weekdays 254 253 256 254 252
Average full-time equivalent employees 163,324 156,386 150,823 145,995
</TABLE>
------------------------
(1) In connection with its restructuring, Viking recorded a pretax asset
impairment charge of $225,000,000 ($175,000,000, net of tax) in 1997.
(2) Discontinued operations include the operations of Roadway Express, Inc., a
wholly-owned subsidiary of Caliber, whose shares were 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.
(3) Caliber declared dividends of $3,899,000, $28,184,000 and $54,706,000, for
1998, 1997 and 1996, respectively.
<PAGE>
Caliber declared additional dividends of $10,833,000 from January 1, 1997
to May 25, 1997 that are not included in the preceding amounts. FedEx has
never paid cash dividends on its common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
FedEx Corporation (also referred to herein as "FedEx" or the
"Company") results for 2000 reflect strong international package volume
growth, particularly in Asia and Europe, and improved revenue per package
(yield), which lessened the effect of higher fuel prices. U.S. domestic
package volume growth during 2000 was below that experienced over the past
two years. However, the Company's execution of cost containment and
productivity enhancement programs helped mitigate the impact of the decrease
in U.S. domestic volume growth in 2000.
Increased prices caused fuel expense to increase by $273 million in
2000. In response to higher fuel costs, several of our subsidiaries
implemented fuel surcharges during 2000. At Federal Express Corporation
("FedEx Express"), the Company's largest business segment, a 3% fuel
surcharge on most U.S. domestic and international services was implemented
effective February 1, 2000. Effective April 1, 2000, this surcharge was
increased to 4%. The surcharge applies to all shipments tendered within the
United States and all U.S. export shipments, where legally and contractually
possible. We have also entered into jet fuel hedging contracts designed to
limit our exposure to fluctuations in fuel prices. In 2000, we received
approximately $18 million under these contracts, principally in the fourth
quarter. FedEx Ground Package System, Inc. ("FedEx Ground") also implemented
a 1.25% fuel surcharge on all of its services, effective August 7, 2000, in
response to continued high fuel costs.
During 2000, we began a major rebranding and reorganization initiative
that management believes will enable our operating subsidiaries to compete
collectively while retaining the independent operating structure of their
business units. The new branding strategy extended the FedEx brand name to
three subsidiaries and the Company, formerly FDX Corporation. The
reorganization is designed to enhance revenue growth and improve financial
returns by centralizing the sales, marketing, customer service and most of
the information technology functions of our two largest subsidiaries. Most of
these functions were moved into a new corporate services company called FedEx
Corporate Services, Inc. ("FedEx Services") effective June 1, 2000. We also
launched our FedEx Home Delivery service in March 2000. This service was
initially offered to approximately 50% of the U.S. population. The rebranding
and reorganization actions and FedEx Home Delivery negatively affected 2000
operating income by approximately $40 million.
As expected, operating profit from the sale of engine noise reduction
kits ("hushkits") declined by $50 million in 2000, following a $30 million
decline in 1999.
Operating results for 1999 included $81 million in operating expenses
associated with strike contingency planning during contract negotiations
between FedEx Express and the Fedex Pilots Association ("FPA"). To avoid
service interruptions related to a threatened strike, FedEx began strike
contingency planning, including entering into agreements for additional
third-party air and ground transportation and establishing special financing
arrangements. Negotiations with the FPA ultimately resulted in a five-year
collective bargaining agreement that took effect on May 31, 1999.
<PAGE>
Operating results in 1998 included $88 million of expenses related to
the acquisition of Caliber System, Inc. ("Caliber") and the formation of
FedEx. 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.
Another significant item impacting 1998's results of operations was
the Teamsters strike against United Parcel Service ("UPS") in August 1997.
FedEx 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.
OTHER INCOME AND EXPENSE AND INCOME TAXES
Net interest expense increased 8% for 2000, due to higher average debt
levels, primarily incurred as a result of FedEx's stock repurchase program,
business acquisitions and bond redemptions. For 1999, net interest expense
decreased 21% primarily due to lower debt levels.
Other, net in 2000 included gains of approximately $12 million from an
insurance settlement for a destroyed MD11 aircraft and approximately $11
million from the sale of securities held. In 1999 this category included
approximately $10 million of expenses related to the Company's strike
contingency plans described above, primarily costs associated with a business
interruption credit facility.
FedEx's effective tax rate was 39.5% in 2000, 40.5% in 1999 and 44.6% in
1998. Excluding nonrecurring items from the Caliber acquisition in 1998, the
effective rate would have been 41.5% in 1998. The 39.5% effective tax rate in
2000 was lower than the 1999 effective rate primarily due to stronger results
from international operations. 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 10 of Notes to Consolidated Financial
Statements. For 2001, we expect the effective tax rate will not exceed, and
could possibly be lower than, the 2000 rate. The actual rate, however, will
depend on a number of factors, including the amount and source of operating
income.
OUTLOOK
In 2001, we expect FedEx will realize increased volumes and yields as
a result of the rebranding and reorganization initiative begun in 2000.
Training of the combined sales force was completed in the fourth quarter of
2000 and sales and marketing efforts to cross-sell express and ground
services have begun. While there will be continued front-end costs associated
with increasing the sales force and emphasizing marketing efforts on small
and medium-sized customers, we expect the Company may begin to realize
benefits from this initiative starting as early as the second quarter of
2001. Full integration of the customer service function, expected to be
completed in the second half of 2001, will provide customers with one FedEx
account number and a single point of contact for all express and ground
services. However, there are certain risks and uncertainties associated with
this initiative that could affect its success and FedEx's future financial
performance. Those risks and uncertainties include, but are not limited to,
the complexities and costs associated with integrating the sales and
marketing functions, including the technologies supporting those functions;
market acceptance of the new branding strategy and the combined sales force;
competitive responses to our actions, including those affecting pricing, and
general U.S. and international economic conditions.
We will continue to invest in the expansion of FedEx Home Delivery and have
announced plans to
<PAGE>
accelerate the rollout of this service to achieve service coverage of
approximately 80% of the U.S. population by September 2001. We believe this
service will allow the Company to capture an increased share of the
business-to-consumer shipping market, particularly in retail sales generated
through the Internet. FedEx Home Delivery operating losses are expected to
approximate $50 million in 2001. Actual results for 2001 will depend upon a
number of factors such as consumer demand for and satisfaction with the FedEx
Home Delivery product, competitive responses to the product, the extent of
our ability to penetrate the business-to-consumer electronic commerce market,
and the ability to attract and retain qualified contractors for the delivery
network.
For 2001, fuel costs are expected to remain at levels approaching those
experienced in the second half of 2000. FedEx currently has jet fuel hedges
in place to fix the price of approximately one-third of the anticipated jet
fuel usage for 2001 at FedEx Express who anticipates retaining its fuel
surcharge until such time as fuel costs have declined for a sustained period.
The actual effect of the cost of fuel and our ability to mitigate price
fluctuations through fuel surcharges and the use of jet fuel hedging
contracts is subject to a number of uncertainties, including variability in
the spot price of jet fuel, actions taken by foreign producers of crude oil,
the actions of competitors and others within the transportation industry
regarding fuel surcharges, and general U.S. and international economic
conditions.
<PAGE>
FEDEX EXPRESS
The following table compares revenues and operating income (in millions)
and selected statistics (in thousands, except dollar amounts) for the years
ended May 31:
<TABLE>
<CAPTION>
PERCENT CHANGE
----------------
2000/ 1999/
2000 1999 1998 1999 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Package:
U.S. overnight ................. $ 7,538 $ 7,185 $ 6,810 + 5 + 6
U.S. deferred .................. 2,428 2,271 2,179 + 7 + 4
International Priority (IP) .... 3,552 3,019 2,731 +18 +11
------- ------- -------
Total package revenue ........ 13,518 12,475 11,720 + 8 + 6
Freight:
U.S ............................ 566 440 337 +29 +30
International .................. 492 531 598 -7 -11
------- ------- -------
Total freight revenue ........ 1,058 971 935 + 9 + 4
Other .............................. 492 533 600 -8 -11
------- ------- -------
Total revenues ............... $15,068 $13,979 $13,255 + 8 + 5
======= ======= =======
Operating income ...................... $ 900 $ 871 $ 837 + 3 + 4
======= ======= =======
Package:
Average daily packages:
U.S. overnight ................. 2,020 1,957 1,886 + 3 + 4
U.S. deferred .................. 916 894 872 + 3 + 3
IP ............................. 319 282 259 +13 + 9
------- ------- -------
Total packages ............... 3,255 3,133 3,017 + 4 + 4
Revenue per package (yield):
U.S. overnight ................. $ 14.52 $ 14.34 $ 14.22 + 1 + 1
U.S. deferred .................. 10.31 9.93 9.84 + 4 + 1
IP ............................. 43.36 41.87 41.45 + 4 + 1
Composite .................... 16.16 15.56 15.30 + 4 + 2
Freight:
Average daily pounds:
U.S ............................ 4,693 4,332 3,356 + 8 +29
International .................. 2,420 2,633 2,770 -8 -5
------- ------- -------
Total freight ................ 7,113 6,965 6,126 + 2 +14
Revenue per pound (yield):
U.S ............................ $ .47 $ .40 $ .40 +18 --
International .................. .79 .79 .85 -- -7
Composite .................... .58 .54 .60 + 7 -10
</TABLE>
<PAGE>
REVENUES
In 2000, total package revenue for FedEx Express increased 8%,
principally due to increases in international package volume and yield. List
price increases, including an average 2.8% domestic rate increase in March
1999, the fuel surcharges implemented in the second half of the year, an
ongoing yield management program and a slight increase in average weight per
package, all contributed to the increases in yields in 2000. While growth in
U.S. domestic package volume was lower than anticipated, the higher-yielding
IP services experienced strong growth, particularly in Asia and Europe.
Total freight revenue increased in 2000 due to higher average daily
pounds and improved yields in U.S. freight, offset by declines in
international freight pounds.
In 1999, FedEx Express 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
package were the primary factors in revenue growth. List price increases and
other yield-management actions contributed to the yield improvement in 1999.
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 affected by weakness in Asian markets, especially in U.S. outbound
traffic destined for that region.
Other revenue included Canadian domestic revenue, charter services,
logistics services, sales of hushkits and other. Revenue from hushkit sales
has continued to decline over the past three years and is expected to be
negligible hereafter.
OPERATING INCOME
Operating income increased 3% in 2000 despite higher fuel costs and
costs associated with the corporate realignment and reorganization of the
sales, marketing and information technology functions. A 48% increase in
average fuel price per gallon had a negative impact of approximately $260
million on 2000 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
fourth quarter. As anticipated, maintenance and repairs increased in 2000 due
to the timing of scheduled maintenance and a greater number of routine cycle
checks resulting from fleet usage and certain Federal Aviation Administration
directives.
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 costs. An increase in average daily packages also
contributed to the improvement in operating income. In 1998, fuel expense
included amounts paid by FedEx Express under jet fuel hedging contracts that
were designed to mitigate some of the increased jet fuel costs. Lower
international freight yield, rising expenses associated
<PAGE>
with international expansion and foreign currency fluctuations along with
expenses of $14 million related to the acquisition of Caliber negatively
affected 1998 results. Operating income for 1998 increased approximately $50
million related to the UPS strike. Proceeds from a 2% temporary fuel
surcharge on U.S. domestic shipments through August 1, 1997 also had a
favorable impact.
Year-over-year comparisons were also affected by fluctuations in the
contribution from sales of hushkits. Operating profit from these sales
declined $50 million in 2000 and $30 million in 1999.
OUTLOOK
We believe U.S. overnight package volumes for FedEx Express will grow
in 2001 at rates higher than those experienced in 2000, with second half
growth rates exceeding those in the first half of 2001. We believe U.S.
deferred package volume growth rates at FedEx Express will be lower in 2001
as we implement the strategy of shifting a portion of these shipments to
FedEx Ground. Improved domestic yields associated with the new sales
initiatives are also expected in 2001. We expect IP package volume growth
rates to remain strong in 2001. Freight pounds are expected to continue to
increase in 2001, with increases in the U.S. partially offset by continued
declines in international freight, as it is replaced by higher-yielding
priority packages.
FedEx Express also plans to continue cost containment and productivity
enhancement programs in 2001. By lowering discretionary spending and limiting
staffing additions, we expect to align controllable costs with business
growth; however, these actions will not affect plans for strategic spending
in support of long-term growth goals.
FedEx Express 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.
Actual results may vary depending on the 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,
including capacity fluctuations, jet fuel prices, regulatory conditions for
aviation rights and the rate of domestic and international economic growth.
In the past three years, the FedEx Express worldwide aircraft fleet
has increased, resulting in a corresponding rise in maintenance expense.
While we expect a predictable pattern of aircraft maintenance and repairs
expense, unanticipated maintenance events will occasionally disrupt this
pattern, resulting in periodic fluctuations in maintenance and repairs
expense.
FedEx Express's operating income from the sales of hushkits, which
peaked in 1998 and declined in 1999 and 2000, is expected to become
insignificant in 2001.
<PAGE>
FEDEX GROUND
The following table compares revenues and operating income (in millions)
and selected package statistics (in thousands, except dollar amounts) for the
years ended May 31:
<TABLE>
<CAPTION>
PERCENT CHANGE
--------------
2000/ 1999/
2000 1999 1998 1999 1998
---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C>
Revenues $2,033 $1,878 $1,711 + 8 +10
Operating income $ 226 $ 231 $ 171 - 2 +35
Average daily packages 1,442 1,385 1,326 + 4 + 4
Revenue per package (yield) $ 5.55 $ 5.36 $ 5.04 + 4 + 6
</TABLE>
REVENUES
Revenues for FedEx Ground increased 8% in 2000, while average daily
packages increased 4% and yields increased 4%. The increase in yields is due
to a 2.3% price increase, which was effective in February 1999 and a slight
increase in the mix of higher yielding packages.
In 1999, FedEx Ground's revenue increased due to improving yields and
steady volume growth. Yields were positively impacted by rate increases of
2.3% and 3.7% in February 1999 and 1998, respectively. During 1999, FedEx
Ground recognized a year-to-date, one-time benefit of approximately $6
million to align its estimation methodology for in-transit revenue with that
of our other operating subsidiaries. Year-to-date package yield was increased
by $.02 because of this one-time adjustment.
Results for 1998 included incremental volume associated with the UPS
strike. Excluding this incremental volume, average daily packages increased
6% for 1999.
OPERATING INCOME
Operating income for 2000 reflects higher operating costs, due
primarily to increases in capacity and technology, as well as the effects of
FedEx Home Delivery and the rebranding and reorganization initiatives.
Depreciation expense increased 20% in 2000 as new terminal facilities were
opened late in 1999 and throughout the first half of 2000. In March 2000,
FedEx Ground launched its new service, FedEx Home Delivery. This new service
is dedicated to meeting the needs of business-to-consumer shippers.
Currently, this service is available for approximately 50% of the U.S.
population. An operating loss of $19 million was incurred by the home
delivery service in 2000.
Operating income increased in 1999 due to increased volume and
yield-management actions. Results for 1998 contained approximately $6 million
of incremental operating income associated with the UPS strike.
<PAGE>
OUTLOOK
FedEx Ground continues to expand capacity in order to accommodate
volume growth, while maintaining or improving yields. FedEx Ground opened two
additional hub facilities in 2000 and will continue to expand
package processing capacity to meet its growth plans. Package volume and
yields are expected to increase in 2001 as the results of the new rebranding
and reorganization effort are realized.
FedEx Ground plans to accelerate its expansion of the home delivery
service to reach approximately 80% of the U.S. population by September 2001
and full U.S. coverage by September 2002. We expect to incur operating losses
on the FedEx Ground home delivery service of approximately $50 million in
2001, including costs associated with the acceleration of the expansion of
the service.
Actual results may vary depending on a number of factors, such as
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.
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
Revenues from other operations increased 26% in 2000. Excluding the
effects of businesses acquired in 2000, the increase was 15% compared with 1%
in 1999, due to substantially higher revenues at FedEx Custom Critical
combined with double-digit revenue growth at Viking. Revenue growth for 1999
reflects an increase at FedEx Custom Critical, offset by modest decreases at
Viking and FedEx Logistics.
OPERATING INCOME
Increased operating income for 2000 is due to strong earnings at
Viking and continued earnings growth at FedEx Custom Critical. Results for
2000 also include a $10 million favorable adjustment related to estimated
future lease costs from the Viking restructuring. Operating income for 1999
reflected improved performances at FedEx Custom Critical, offset by a decline
at FedEx Logistics.
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.
<PAGE>
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $68 million at May 31, 2000,
compared to $325 million at May 31, 1999. Cash flows from operating
activities during 2000 totaled $1.6 billion, compared to $1.8 billion for
1999 and $1.6 billion for 1998.
FedEx's operations have generated increased cash earnings over the
past three years. The following table compares cash earnings (in billions,
except per share amounts) for the years ended May 31:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
EBITDA (earnings before interest, taxes,
depreciation and amortization) $ 2.4 $2.2 $ 2.0
Cash earnings per share (net income
plus depreciation and amortization divided
by average common and common
equivalent shares) $6.22 $5.54 $4.92
</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 May 31, 2000,
approximately $478 million of the credit facility remains available. For more
information regarding the credit facility, see Note 5 of Notes to
Consolidated Financial Statements.
During 2000, FedEx acquired three businesses for approximately $264
million, primarily in cash. These purchases were funded from operations and
borrowings under our commercial paper program.
On September 27, 1999, the Company's Board of Directors approved a
plan that authorized the purchase of up to 15 million, or approximately 5%,
of FedEx's outstanding shares of common stock. We completed the purchase of
15 million shares at an average cost of $39.75 per share. The purchase of
these shares was funded principally through the issuance of commercial paper.
Shares held in treasury will be used for general corporate purposes.
FedEx Express redeemed $100 million of 9.625% unsecured sinking fund
debentures on March 1, 2000. The bond redemption was financed with commercial
paper borrowings.
In 1999, FedEx filed a $1 billion shelf registration statement with
the Securities and Exchange Commission ("SEC"), indicating that we may issue
up to that amount in one or more offerings of either unsecured debt
securities, preferred stock or common stock, or a combination of such
instruments. The Company may, at its option, direct FedEx Express to issue
guarantees of the debt securities.
We believe that cash flow from operations, our commercial paper
program and revolving bank credit facility will adequately meet the Company's
working capital needs for the foreseeable future.
CAPITAL RESOURCES
FedEx'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
<PAGE>
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 years ended May 31 (in
millions):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Aircraft and related equipment $ 469 $ 606
Facilities and sort equipment 437 466
Information and technology
equipment 378 366
Other equipment 343 332
------ ------
Total capital expenditures 1,627 1,770
Equivalent capital, principally
aircraft-related 365 561
------ ------
Total $1,992 $2,331
====== ======
</TABLE>
FedEx finances a significant amount of its aircraft and certain other
equipment needs using long-term operating leases. We believe 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 capital expenditures
over the past two years have been reduced based on lower than expected U.S.
domestic volume growth at FedEx Express, we plan to continue to make
strategic capital investments in support of our long-term growth goals. For
2001, we expect capital spending, including equivalent capital, to
approximate $2.3 billion. For information on the Company's purchase
commitments, see Note 14 of Notes to Consolidated Financial Statements.
We have historically financed our capital investments through the use
of lease, debt and equity financing in addition to the use of internally
generated cash from operations. Generally, our 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. We have
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 Express's aircraft acquisitions when we determine that it best
meets FedEx Express's needs. FedEx Express 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 5 of Notes to Consolidated Financial Statements for additional
information concerning the Company's debt 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, which were delivered in 2000. In June
1998, approximately $833 million of pass-through certificates were issued to
finance or refinance the debt portion of FedEx Express's leveraged operating
leases related to eight A300 and five MD11 aircraft, which were delivered in
2000. The pass-through certificates are not direct obligations of, or
guaranteed by, the Company or FedEx Express, but amounts payable by FedEx
Express under the leveraged operating leases are sufficient to pay the
principal of and interest on the certificates. In June 2000, FedEx Express
filed a shelf registration with the SEC, indicating that it may issue up to
$450 million in pass-
<PAGE>
through certificates in one or more offerings to finance or refinance
leveraged operating aircraft leases.
We believe that the capital resources available to us provide
flexibility to access the most efficient markets for financing its capital
acquisitions, including aircraft, and are adequate for FedEx's future capital
needs.
DEFERRED TAX ASSETS
At May 31, 2000, the Company had a net cumulative deferred tax
liability of $27 million, consisting of $884 million of deferred tax assets
and $911 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
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.
YEAR 2000 COMPLIANCE
FedEx's operating subsidiaries rely heavily on sophisticated
information technology for their business operations. Our Year 2000 ("Y2K")
computer compliance issues were, therefore, broad and complex. Nothing has
come to the Company's attention that would cause it to believe that its Y2K
compliance effort was not successful.
Since 1996, FedEx has incurred approximately $115 million on Y2K
compliance ($22 million in 2000), which was funded by internal cash flows. We
do not expect to incur any material additional Y2K-related costs. We
classified costs as Y2K for reporting purposes if they remedied only Y2K
risks or resulted in the formulation of contingency plans and would otherwise
have been unnecessary in the normal course of business. For 2000, Y2K
expenditures were less than 10% of the Company's total information technology
expense budget. We believe that no significant information technology
projects were deferred due to our Y2K compliance effort.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
FedEx currently has market risk sensitive instruments related to
interest rates; however, there is no significant exposure to changing
interest rates on our long-term debt because the interest rates are fixed. As
disclosed in Note 5 of Notes to Consolidated Financial Statements, FedEx has
outstanding unsecured long-term debt exclusive of capital leases of $1.1
billion and $1.2 billion at May 31, 2000 and 1999, respectively. 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 $54 million as of May 31, 2000 ($45 million as of
May 31, 1999). The underlying fair values of our long-term debt were
estimated based on quoted market prices or on the current rates offered for
debt with similar terms and maturities. FedEx does not use derivative
financial instruments to manage interest rate risk.
FedEx's earnings are affected by fluctuations in the value of the U.S.
dollar, as compared with foreign currencies, as a result of transactions in
foreign markets. At May 31, 2000, 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 $52 million for the year ending May 31, 2001 (the comparable
amount in the prior year was $25 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. FedEx'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.
FedEx has entered into jet fuel hedging contracts on behalf of its
subsidiary FedEx Express, 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 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. Market risk for jet fuel is estimated
as the potential decrease in earnings resulting from a hypothetical 10%
increase in jet fuel prices applied to projected 2001 usage and amounts to
approximately $49 million, net of hedging settlements, as of May 31, 2000.
There were no such jet fuel hedging contracts at May 31, 1999. As of May 31,
2000, jet fuel hedging contracts cover approximately one-third of the
estimated usage in 2001. See Notes 2 and 14 of Notes to Consolidated
Financial Statements for accounting policy and additional information
regarding jet fuel hedging contracts.
FedEx does not purchase or hold any derivative financial instruments
for trading purposes.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this Report:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Report of Independent Public Accountants ............................................................... F-1
Consolidated Balance Sheets - May 31, 2000 and 1999..................................................... F-2
Consolidated Statements of Income - Years ended May 31, 2000, 1999 and 1998............................. F-4
Consolidated Statements of Changes in Stockholders' Investment and
Comprehensive Income - Years ended May 31, 2000, 1999 and 1998................................... F-5
Consolidated Statements of Cash Flows - Years ended May 31, 2000, 1999 and 1998......................... F-6
Notes to Consolidated Financial Statements.............................................................. F-7
</TABLE>
<PAGE>
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 Board of Directors will be
presented in FedEx's Definitive Proxy Statement for its 2000 Annual Meeting
of Stockholders which will be held on September 25, 2000 and is incorporated
herein by reference. Information regarding executive officers of FedEx 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.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be presented in
FedEx's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders which will be held on September 25, 2000 and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be presented in FedEx's Definitive Proxy Statement for
its 2000 Annual Meeting of Stockholders which will be held on September 25,
2000 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding related party transactions will be presented in
FedEx's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders which will be held on September 25, 2000 and is incorporated
herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The consolidated financial statements required by this item are listed
in Item 8, "Financial Statements and Supplementary Data" herein and are
included on pages F-1 to F-25 herein.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule is filed with this Report:
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<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 herein.
3. EXHIBITS
Exhibits 3.1, 3.2, 10.1 through 10.61, 12, 21, 23, 24 and 27 are being
filed in connection with this Report or incorporated herein by reference.
The Exhibit Index on pages E-1 through E-7 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 fiscal
year ended May 31, 2000.
<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.
FEDEX CORPORATION
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
------------------------- Chairman, President and
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 2, 2000
--------------------------- Strategic Financial Planning
James S. Hudson and Control
(PRINCIPAL ACCOUNTING OFFICER)
/s/ ROBERT H. ALLEN *
--------------------------- Director
Robert H. Allen
/s/ JAMES L. BARKSDALE *
--------------------------- Director
James L. Barksdale
/s/ ROBERT L. COX *
--------------------------- Director
Robert L. Cox
/s/ RALPH D. DENUNZIO *
--------------------------- Director
Ralph D. DeNunzio
</TABLE>
<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/ SHIRLEY ANN JACKSON *
---------------------------- Director
Shirley Ann Jackson
/s/ GEORGE J. MITCHELL *
---------------------------- Director
George J. Mitchell
/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 2, 2000
----------------------
James S. Hudson
Attorney-in-Fact
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of FedEx Corporation:
We have audited the accompanying consolidated balance sheets of FedEx
Corporation (a Delaware corporation) and subsidiaries as of May 31, 2000 and
1999, 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, 2000. These financial statements
are the responsibility of FedEx's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of FedEx Corporation
as of May 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended May 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ARTHUR ANDERSEN LLP
----------------------
Arthur Andersen LLP
Memphis, Tennessee
June 27, 2000
F-1
<PAGE>
FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
May 31,
------------------------------------
2000 1999
-------------- --------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 67,959 $ 325,323
Receivables, less allowances of $85,972,000
and $68,305,000 2,547,043 2,153,166
Spare parts, supplies and fuel 255,291 291,922
Deferred income taxes 317,784 290,721
Prepaid expenses and other 96,667 79,896
-------------- -------------
Total current assets 3,284,744 3,141,028
PROPERTY AND EQUIPMENT, AT COST
Flight equipment 4,960,204 4,556,747
Package handling and ground support equipment and vehicles 4,270,596 3,858,788
Computer and electronic equipment 2,416,666 2,363,637
Other 3,095,077 2,940,735
-------------- -------------
14,742,543 13,719,907
Less accumulated depreciation and amortization 7,659,016 7,160,690
-------------- -------------
Net property and equipment 7,083,527 6,559,217
OTHER ASSETS
Goodwill 500,547 344,002
Equipment deposits and other assets 658,293 603,964
-------------- -------------
Total other assets 1,158,840 947,966
-------------- -------------
$ 11,527,111 $ 10,648,211
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
FEDEX CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
May 31,
----------------------------------
2000 1999
--------------- ---------------
(In thousands)
<S> <C> <C>
Current Liabilities
Current portion of long-term debt $ 6,537 $ 14,938
Accrued salaries and employee benefits 755,747 740,492
Accounts payable 1,120,855 1,133,952
Accrued expenses 1,007,887 895,375
---------- ----------
Total current liabilities 2,891,026 2,784,757
Long-Term Debt, Less Current Portion 1,776,253 1,359,668
Deferred Income Taxes 344,613 293,462
Other Liabilities 1,729,976 1,546,632
Commitments and Contingencies (Notes 6, 14 and 15)
COMMON STOCKHOLDERS' INVESTMENT
Common stock, $.10 par value; 800,000,000 shares authorized;
298,573,387 and 297,987,200 shares issued 29,857 29,799
Additional paid-in capital 1,079,462 1,061,312
Retained earnings 4,295,041 3,615,797
Accumulated other comprehensive income (36,074) (24,688)
---------- ----------
5,368,286 4,682,220
Less treasury stock, at cost and deferred compensation 583,043 18,528
---------- ----------
Total common stockholders' investment 4,785,243 4,663,692
---------- ----------
$11,527,111 $10,648,211
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended May 31,
--------------------------------------------------
2000 1999 1998
------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES $18,256,945 $16,773,470 $15,872,810
OPERATING EXPENSES
Salaries and employee benefits 7,597,964 7,087,728 6,647,140
Purchased transportation 1,674,854 1,537,785 1,481,590
Rentals and landing fees 1,538,713 1,396,694 1,304,296
Depreciation and amortization 1,154,863 1,035,118 963,732
Maintenance and repairs 1,101,424 958,873 874,400
Fuel 918,513 604,929 726,776
Other 3,049,540 2,989,257 2,864,216
----------- ----------- -----------
17,035,871 15,610,384 14,862,150
----------- ----------- -----------
OPERATING INCOME 1,221,074 1,163,086 1,010,660
OTHER INCOME (EXPENSE)
Interest, net (106,060) (98,191) (124,413)
Other, net 22,726 (3,831) 13,271
----------- ----------- -----------
(83,334) (102,022) (111,142)
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 1,137,740 1,061,064 899,518
PROVISION FOR INCOME TAXES 449,404 429,731 401,363
----------- ----------- -----------
INCOME FROM CONTINUING OPERATIONS 688,336 631,333 498,155
----------- ----------- -----------
INCOME FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES -- -- 4,875
----------- ----------- -----------
NET INCOME $ 688,336 $ 631,333 $ 503,030
=========== =========== ===========
EARNINGS PER COMMON SHARE
Continuing operations $ 2.36 $ 2.13 $ 1.70
Discontinued operations -- -- .02
------------ ------------ ------------
$ 2.36 $ 2.13 $ 1.72
============ ============ ============
EARNINGS PER COMMON SHARE -
ASSUMING DILUTION
Continuing operations $ 2.32 $ 2.10 $ 1.67
Discontinued operations -- -- .02
------------ ------------ ------------
$ 2.32 $ 2.10 $ 1.69
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury Deferred
Stock Capital Earnings Income Stock Compensation Total
------ ---------- -------- ------------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
(In thousands, except shares)
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 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 FedEx
Corporation in the form of a 100%
stock dividend (148,931,996 shares) 14,890 -- (14,890) -- -- -- --
Issuance of 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
Net income -- -- 688,336 -- -- -- 688,336
Foreign currency translation
adjustment, net of deferred
tax benefit of $1,881 -- -- -- (9,021) -- -- (9,021)
Unrealized loss on available-for-sale
securities, net of deferred tax
benefit of $1,513 -- -- -- (2,365) -- -- (2,365)
-----------
TOTAL COMPREHENSIVE INCOME 676,950
Purchase of treasury stock -- -- -- -- (606,506) -- (606,506)
Forfeiture of restricted stock -- -- -- -- (790) 845 55
Issuance of stock under employee
incentive plans and other
(1,715,585 shares) 58 18,150 (9,092) -- 44,483 (14,725) 38,874
Amortization of deferred compensation -- -- -- -- -- 12,178 12,178
----------- --------- ----------- --------- --------- --------- -----------
BALANCE AT MAY 31, 2000 $ 29,857 $1,079,462 $ 4,295,041 $ (36,074) $(564,094) $ (18,949) $ 4,785,243
=========== ========== =========== ========= ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
FEDEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended May 31,
-----------------------------------------------------
2000 1999 1998
-------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 688,336 $ 631,333 $ 498,155
Adjustments to reconcile income from continuing operations
to cash provided by operating activities:
Depreciation and amortization 1,154,863 1,035,118 963,732
Provision for uncollectible accounts 71,107 55,649 72,700
Deferred income taxes and other noncash items (7,363) (34,037) 29,570
Gain from disposals of property and equipment (17,068) (2,330) (7,188)
Changes in operating assets and liabilities, net of
businesses acquired:
Increase in receivables (404,511) (294,121) (267,367)
Decrease (increase) in other current assets 70,720 (155,720) (102,203)
Increase in accounts payable
and other operating liabilities 107,543 555,565 450,836
Other, net (38,385) (19,337) (32,963)
----------- ----------- -----------
Cash provided by operating activities 1,625,242 1,772,120 1,605,272
INVESTING ACTIVITIES
Purchases of property and equipment, including
deposits on aircraft of $1,500,000, $1,200,000 and $70,359,000 (1,627,418) (1,769,946) (1,880,173)
Proceeds from dispositions of property and equipment:
Sale-leaseback transactions -- 80,995 322,852
Reimbursements of A300 and MD11 deposits 24,377 67,269 106,991
Other dispositions 165,397 195,641 162,672
Acquisitions of businesses (257,095) -- --
Other, net (13,378) (22,716) (471)
----------- ----------- -----------
Cash used in investing activities (1,708,117) (1,448,757) (1,288,129)
FINANCING ACTIVITIES
Principal payments on debt (115,090) (269,367) (533,502)
Proceeds from debt issuances 517,664 -- 267,105
Proceeds from stock issuances 15,523 49,932 33,925
Dividends paid -- -- (7,793)
Purchase of treasury stock (606,506) (8,168) (7,049)
Other, net 13,920 (2) 110
----------- ----------- -----------
Cash used in financing activities (174,489) (227,605) (247,204)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
Cash (used in) provided by continuing operations (257,364) 95,758 69,939
Cash used in discontinued operations -- -- (1,735)
Balance at beginning of year 325,323 229,565 161,361
----------- ----------- -----------
Balance at end of year $ 67,959 $ 325,323 $ 229,565
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
FEDEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
On January 19, 2000, new branding strategy was announced that resulted in
name changes of the holding company and certain operating companies to
include the FedEx brand name. The name of the holding company was changed
from FDX Corporation to FedEx Corporation ("FedEx") and the following
operating subsidiaries' names were changed:
<TABLE>
<CAPTION>
Former Name New Name Brand Name
------------------------------------ ------------------------------------------- ---------------------------
<S> <C> <C>
RPS, Inc. FedEx Ground Package System, Inc. FedEx Ground
FDX Logistics FedEx Global Logistics, Inc. FedEx Logistics
Roberts Express FedEx Custom Critical, Inc. FedEx Custom Critical
</TABLE>
The names of Federal Express Corporation ("FedEx Express") and Viking Freight,
Inc. ("Viking") did not change.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of FedEx 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 equipment 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:
Flight equipment 5 to 20 years
Package handling and ground support equipment and vehicles 3 to 30 years
Computer and electronic equipment 3 to 10 years
Other 2 to 30 years
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 10 years.
For income tax purposes, depreciation is generally computed using accelerated
methods.
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, 2000
and 1999, were deferred gains of $533,371,000 and $429,488,000, respectively.
F-7
<PAGE>
DEFERRED LEASE OBLIGATIONS. While certain of FedEx'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, 2000 and 1999, were $354,566,000 and $321,248,000,
respectively, representing the cumulative difference between rent expense and
rent payments.
SELF-INSURANCE ACCRUALS. FedEx 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, 2000 and 1999, were $324,869,000 and
$282,889,000, respectively, representing the long-term portion of
self-insurance accruals for FedEx's workers' compensation and vehicle
liabilities.
CAPITALIZED INTEREST. Interest on funds used to finance the acquisition and
modification of aircraft, construction of certain facilities, and development
of certain software up to the date the asset is placed in service is
capitalized and included in the cost of the asset. Capitalized interest was
$34,823,000, $38,880,000 and $33,009,000 for 2000, 1999 and 1998,
respectively.
ADVERTISING. Advertising costs are generally expensed as incurred and are
included in other operating expenses. Advertising expenses were $221,511,000,
$202,104,000 and $183,253,000 in 2000, 1999 and 1998, 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 $15,116,000,
$12,399,000 and $11,283,000 in 2000, 1999 and 1998, respectively.
MARKETABLE SECURITIES. FedEx'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 generally ranging from 15 to 40 years. Accumulated amortization
was $165,624,000 and $157,106,000 at May 31, 2000 and 1999, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS. FedEx reviews long-lived assets for
impairment when circumstances indicate the carrying value of an asset may not
be recoverable. If an impairment exists, an adjustment is made to write the
asset down to its fair value, and a loss is recorded as the difference
between the carrying value and fair value.
FOREIGN CURRENCY TRANSLATION. Translation gains and losses of FedEx'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. FedEx uses the liability
method to account for income taxes, which requires deferred taxes to be
recorded
F-8
<PAGE>
at the statutory rate expected to be in effect when the taxes are paid.
FedEx 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 at the balance sheet date.
RECENT PRONOUNCEMENTS. Statement of Financial Accounting Standards ("SFAS")
No. 133, "Accounting for Derivative Instruments and Hedging Activities," was
issued in June 1998, was subsequently amended by SFAS No. 137, and is now
effective for fiscal years beginning after June 15, 2000 (2002 for FedEx).
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 of the adoption of SFAS No. 133, if any, on
earnings, comprehensive income and financial position will depend on the
amount, timing and nature of any agreements entered into by FedEx. As of May
31, 2000, FedEx has not adopted the provisions of SFAS No. 133.
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," was issued in June 2000, and amends SFAS No. 133. SFAS
No. 138 must be adopted concurrently with FedEx's adoption of SFAS No. 133.
FedEx does not believe the amendment will affect its implementation of SFAS
No. 133.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform to the 2000 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.
F-9
<PAGE>
NOTE 3: BUSINESS COMBINATION AND ACQUISITIONS
On January 27, 1998, FedEx Express became a wholly-owned subsidiary of FedEx
Corporation in connection with the acquisition of Caliber System, Inc.
("Caliber"). The acquisition was accounted for as a pooling of interests.
FedEx Corporation exchanged 0.8 shares of its common stock for each share of
Caliber common stock. Each share of FedEx Express's common stock was
automatically converted into one share of FedEx Corporation common stock.
On September 10, 1999, FedEx Logistics acquired the assets of GeoLogistics
Air Services, Inc., an airfreight forwarder servicing freight shipments
between the United States and Puerto Rico, for approximately $116,000,000 in
cash. This business operates under the name Caribbean Transportation
Services, Inc. The excess of purchase price over the estimated fair value of
the net assets acquired ($103,000,000) has been recorded as goodwill and is
being amortized ratably over 15 years.
On February 29, 2000, FedEx acquired the common stock of Tower Group
International, a leader in the business of providing international customs
clearance services, for approximately $140,000,000 in cash. This business is
operating as a subsidiary of FedEx Trade Networks, Inc. ("FedEx Trade
Networks"). The excess of purchase price over the estimated fair value of the
net assets acquired ($30,000,000) has been recorded as goodwill and is being
amortized ratably over 25 years.
On March 31, 2000, FedEx acquired the common stock of World Tariff, Limited,
a premier source of customs duty and tax information around the globe, for
approximately $8,400,000 in cash and stock. This business is operating as a
subsidiary of FedEx Trade Networks. The excess of purchase price over the
estimated fair value of the net assets acquired ($8,300,000) has been
recorded as goodwill and is being amortized ratably over 25 years.
The operating results of these acquired companies are included in the
operations of FedEx from the date of acquisition. Pro forma results including
these acquisitions would not differ materially from reported results in any
of the periods presented.
NOTE 4: 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,
-----------------------------
2000 1999
------------ ----------
(In thousands)
<S> <C> <C>
Salaries $ 216,705 $ 216,647
Employee benefits 225,192 236,741
Compensated absences 313,850 287,104
----------- ---------
Total accrued salaries and employee benefits $ 755,747 $ 740,492
=========== =========
Insurance $ 363,899 $ 345,804
Taxes other than income taxes 237,342 225,378
Other 406,646 324,193
----------- ---------
Total accrued expenses $ 1,007,887 $ 895,375
=========== =========
</TABLE>
F-10
<PAGE>
NOTE 5: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
May 31,
---------------------------
2000 1999
------- -----------
(In thousands)
<S> <C> <C>
Unsecured debt, interest rates of 7.60% to 10.57%,
due through 2098 $ 975,862 $ 988,120
Unsecured sinking fund debentures, interest rate of 9.63%,
originally due through 2020, called during 2000 -- 98,598
Commercial paper, effective interest rate of 6.73% 521,031 --
Capital lease obligations and tax exempt bonds,
interest rates of 5.35% to 7.88%, due through 2017 253,569 253,425
Less bond reserves 9,024 9,024
---------- ----------
244,545 244,401
Other debt, interest rates of 9.68% to 11.12% 41,352 43,487
---------- ----------
1,782,790 $1,374,606
Less current portion 6,537 14,938
---------- ----------
$1,776,253 $1,359,668
========== ==========
</TABLE>
FedEx 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 October 13,
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 FedEx's operations or its ability to pay dividends. As of May 31, 2000,
approximately $2,093,000,000 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. Borrowings under this credit agreement
and commercial paper borrowings are classified as long-term based on FedEx's
ability and intent to refinance such borrowings. At May 31, 2000, $478,000,000
of the $1,000,000,000 commitment amount was available.
Unsecured sinking fund debentures in the amount of $100,000,000, originally due
through 2020, were redeemed by FedEx Express on March 1, 2000. Other income
(expense) includes a charge of approximately $6,000,000, which represents
premiums paid to the holders of the bonds retired and the write-off of the
related unamortized deferred finance charges and discount.
The components of unsecured debt were as follows:
<TABLE>
<CAPTION>
May 31,
---------------------------
2000 1999
---------- ---------
(In thousands)
<S> <C> <C>
Senior debt, interest rates of 7.80% to 9.88%, due through 2013 $ 673,970 $ 673,779
Bonds, interest rate of 7.60%, due in 2098 239,382 239,376
Medium term notes, interest rates of 9.95% to 10.57%, due through 2007 62,510 74,965
---------- ---------
$ 975,862 $ 988,120
========== =========
</TABLE>
Of the senior debt outstanding at May 31, 2000 and 1999, $200,000,000 was
issued by Caliber. On April 28, 2000, FedEx assumed all obligations relating
to the notes, including restrictive covenants limiting the
F-11
<PAGE>
ability of FedEx and its subsidiaries to incur liens on assets and enter into
leasing transactions. These notes mature on August 1, 2006 and bear interest
at 7.80%.
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 Express to pay
rentals and loan payments, respectively, equal to the principal and interest
due on the bonds.
Scheduled annual principal maturities of long-term debt for the five years
subsequent to May 31, 2000, are as follows: $6,500,000 in 2001; $202,600,000
in 2002; $6,100,000 in 2003; $25,100,000 in 2004; and $5,500,000 in 2005.
FedEx's long-term debt, exclusive of capital leases, had carrying values of
$1,063,000,000 and $1,178,000,000 at May 31, 2000 and 1999, respectively,
compared with fair values of approximately $1,055,000,000 and $1,250,000,000
at those dates. The estimated fair values were determined based on quoted
market prices or on the current rates offered for debt with similar terms and
maturities.
NOTE 6: LEASE COMMITMENTS
FedEx 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,
----------------------------
2000 1999
---------- ----------
(In thousands)
<S> <C> <C>
Package handling and ground support equipment and vehicles $ 226,580 $ 245,041
Facilities 134,442 134,442
Computer and electronic equipment and other 6,852 6,496
---------- ----------
367,874 385,979
Less accumulated amortization 260,526 268,696
---------- ----------
$ 107,348 $ 117,283
========== ==========
</TABLE>
Rent expense under operating leases for the years ended May 31 was as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------- -----------
(In thousands)
<S> <C> <C> <C>
Minimum rentals $ 1,298,821 $ 1,246,259 $ 1,135,567
Contingent rentals 98,755 59,839 60,925
----------- ----------- -----------
$ 1,397,576 $ 1,306,098 $ 1,196,492
=========== =========== ===========
</TABLE>
Contingent rentals are based on hours flown under supplemental aircraft
leases.
A summary of future minimum lease payments under capital leases and
noncancellable operating leases (principally aircraft and facilities) with an
initial or remaining term in excess of one year at May 31, 2000 is as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In thousands)
<S> <C> <C>
2001 $ 15,195 $ 1,258,109
2002 15,174 1,087,035
2003 15,024 990,125
2004 14,894 926,290
2005 14,828 877,701
Thereafter 287,673 9,263,996
-------- ------------
$362,788 $ 14,403,256
======== ============
</TABLE>
At May 31, 2000, the present value of future minimum lease payments for
capital lease obligations, including certain tax exempt bonds, was $200,259,000.
FedEx Express 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, FedEx or FedEx Express.
NOTE 7: 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, 2000, none of these shares
had been issued.
NOTE 8: COMMON STOCKHOLDERS' INVESTMENT
STOCK COMPENSATION PLANS
At May 31, 2000, FedEx had options and awards outstanding under stock-based
compensation plans described below. As of May 31, 2000, there were 25,210,811
shares of common stock reserved for issuance under these plans. The Board of
Directors has authorized repurchase of FedEx's common stock necessary for
grants under its restricted stock plans. As of May 31, 2000, 13,418,185 of
the 27,688,302 total shares repurchased by FedEx at an average cost of $27.42
(including the 15,000,000 shares repurchased under the current year stock
repurchase program, see Note 9) had been reissued under the above-mentioned
plans.
FedEx 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 $12,178,000, $8,928,000 and $5,817,000 for 2000, 1999 and
1998, respectively. If compensation cost for FedEx's stock-based compensation
plans had been determined under SFAS No. 123, "Accounting for Stock-Based
Compensation," FedEx's net income and earnings per share would have been the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Net income:
As reported $688,336 $631,333 $503,030
Pro forma 659,601 609,960 489,556
Earnings per share, assuming dilution:
As reported $ 2.32 $ 2.10 $ 1.69
Pro forma 2.23 2.03 1.64
</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 FedEx after May 31, 1995, and because
options vest over several years and additional grants could be made.
FIXED STOCK OPTION PLANS
Under the provisions of FedEx's stock incentive plans, options may be granted
to certain key employees (and, under the 1997 plan, to directors who are not
employees of FedEx) to purchase shares of common stock of FedEx at a price
not less than its fair market value at the date of grant. Options granted
have a
F-13
<PAGE>
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 eight years. At May 31,
2000, there were 9,714,810 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>
2000 1999 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 30% 25% 25%
Risk-free interest rate 5.6% - 6.8% 4.2% - 5.6% 5.4% - 6.5%
Expected lives 2.5 - 9.5 years 2.5 - 5.5 years 2.5 - 6.5 years
</TABLE>
The following table summarizes information about FedEx's fixed stock option
plans for the years ended May 31:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------- ------------------------ -----------------------
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 13,399,532 $23.11 13,388,452 $19.74 13,523,460 $17.09
Granted 3,218,450 50.79 3,377,500 31.80 2,485,544 28.20
Exercised (1,232,699) 18.81 (3,135,640) 17.86 (2,336,984) 13.45
Forfeited (374,632) 33.81 (230,780) 26.59 (283,568) 19.51
------------ ---------- ----------
Outstanding at
end of year 15,010,651 29.12 13,399,532 23.11 13,388,452 19.74
============ ========== ==========
Exercisable at
end of year 5,781,855 21.44 4,404,146 18.57 5,349,626 16.92
</TABLE>
The weighted-average fair value of options granted during the year was $16.63,
$9.12 and $8.25 for the years ended May 31, 2000, 1999 and 1998, respectively.
F-14
<PAGE>
The following table summarizes information about fixed stock options outstanding
at May 31, 2000:
<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>
$ 8.63 - $10.91 281,246 1.2 years $ 9.73 281,246 $ 9.73
12.00 - 16.50 2,095,522 3.9 years 15.48 1,649,622 15.51
17.50 - 25.19 4,523,806 5.7 years 20.16 2,139,188 20.65
26.44 - 37.25 5,068,127 7.7 years 30.61 1,655,299 29.73
38.69 - 55.94 3,041,950 9.2 years 51.15 56,500 40.07
---------- ----------
8.63 - 55.94 15,010,651 6.7 years 29.12 5,781,855 21.44
========== =========
</TABLE>
RESTRICTED STOCK PLANS
Under the terms of FedEx's Restricted Stock Plans, shares of FedEx'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 FedEx'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
restricted stock awards for the years ended May 31:
<TABLE>
<CAPTION>
2000 1999 1998
------------------------- --------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Fair Value Shares Fair Value Shares Fair Value
---------- ------------ ---------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Awarded 283,750 $51.90 252,000 $32.71 240,000 $32.99
Forfeited 20,000 37.71 16,900 44.38 28,000 34.94
</TABLE>
At May 31, 2000, there were 485,350 shares available for future awards under
these plans.
F-15
<PAGE>
NOTE 9: 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>
2000 1999 1998
---------- ---------- -----------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Income from continuing operations $ 688,336 $ 631,333 $ 498,155
Income from discontinued operations - - 4,875
---------- ---------- ----------
Net income applicable to common stockholders $ 688,336 $ 631,333 $ 503,030
========== ========== ==========
Average shares of common stock outstanding 291,727 295,983 293,401
Basic earnings per share:
Continuing operations $ 2.36 $ 2.13 $ 1.70
Discontinued operations - - .02
---------- ---------- ----------
$ 2.36 $ 2.13 $ 1.72
========== ========== ==========
Average shares of common stock outstanding 291,727 295,983 293,401
Common equivalent shares:
Assumed exercise of outstanding dilutive options 12,735 13,090 13,849
Less shares repurchased from proceeds
of assumed exercise of options (8,136) (8,430) (8,842)
---------- ---------- ----------
Average common and common equivalent shares 296,326 300,643 298,408
========== ========== ==========
Earnings per share, assuming dilution:
Continuing operations $ 2.32 $ 2.10 $ 1.67
Discontinued operations - - .02
---------- ---------- ----------
$ 2.32 $ 2.10 $ 1.69
========== ========== ==========
</TABLE>
In September 1999, FedEx's Board of Directors approved a plan that authorized
the purchase of up to 15,000,000, or approximately 5%, of FedEx's outstanding
shares of common stock. FedEx completed its purchases under the plan in 2000
at an average cost of $39.75 per share. As of May 31, 2000, FedEx had
14,128,998 shares in treasury for general corporate purposes.
NOTE 10: INCOME TAXES
The components of the provision for income taxes for the years ended May 31 were
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Current provision:
Domestic
Federal $ 365,137 $ 385,164 $ 267,471
State and local 48,837 49,918 32,839
Foreign 39,844 22,730 36,543
---------- ---------- ----------
453,818 457,812 336,853
---------- ---------- ----------
Deferred provision (credit):
Domestic
Federal (3,444) (21,773) 56,408
State and local 469 (4,437) 7,860
Foreign (1,439) (1,871) 242
---------- ---------- ----------
(4,414) (28,081) 64,510
---------- ---------- ----------
$ 449,404 $ 429,731 $ 401,363
========== ========== ==========
</TABLE>
F-16
<PAGE>
Income taxes have been provided for foreign operations based upon the various
tax laws and rates of the countries in which FedEx's operations are
conducted. There is no direct relationship between FedEx's overall foreign
income tax provision and foreign pretax book income due to the different
methods of taxation used by countries throughout the world. In 1998, FedEx
entities in foreign locations reported a net foreign pretax loss of
$98,000,000, comprising foreign pretax income of $208,000,000 and foreign
pretax losses of $306,000,000.
A reconciliation of the statutory federal income tax rate to FedEx's
effective income tax rate for the years ended May 31 is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
--------- --------- ---------
<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 2.8 2.7
Nonrecurring item (1998 Caliber acquisition) -- -- 3.1
Other, net 1.7 2.7 3.8
-------- -------- --------
Effective tax rate 39.5% 40.5% 44.6%
======= ======= =======
Effective tax rate (excluding
nonrecurring item) 39.5% 40.5% 41.5%
======= ======= =======
</TABLE>
The significant components of deferred tax assets and liabilities as of May 31
were as follows:
<TABLE>
<CAPTION>
2000 1999
------------------------------ ---------------------------------
(In thousands)
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
---------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
Property, equipment and leases $206,239 $686,547 $122,515 $608,719
Employee benefits 207,297 127,784 198,750 79,374
Self-insurance accruals 245,923 -- 228,020 --
Other 224,615 96,572 233,331 97,264
--------- ---------- --------- ----------
$884,074 $910,903 $782,616 $785,357
======== ======== ======== ========
</TABLE>
NOTE 11: EMPLOYEE BENEFIT PLANS
PENSION PLANS. FedEx sponsors defined benefit pension plans covering a majority
of employees. The largest plans cover certain U.S. employees age 21 and over,
with at least one year of service, and provide benefits based on average
earnings and years of service. Plan funding is actuarially determined, and is
F-17
<PAGE>
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
FedEx's pension plans were enhanced, principally in connection with the
ratification on February 4, 1999, of a collective bargaining agreement
between FedEx Express and the Fedex Pilots Association ("FPA"). These benefit
enhancements are reflected in the funded status of the plans at May 31, 2000
and 1999, but did not materially affect pension cost in either year.
POSTRETIREMENT HEALTH CARE PLANS. FedEx Express 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 Express U.S. employees become eligible for these benefits at age 55
and older, if they have permanent, continuous service with FedEx Express 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. FedEx
Ground offers similar benefits to its eligible retirees.
F-18
<PAGE>
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, 2000 and a statement of the
funded status as of May 31, 2000 and 1999:
<TABLE>
<CAPTION>
Postretirement
Pension Plans Health Care Plans
--------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
----------------------------
Benefit obligation at beginning of year $4,385,519 $4,121,795 $ 246,186 $ 217,027
Service cost 337,780 331,005 26,450 23,676
Interest cost 336,143 288,221 19,579 16,962
Amendments, benefit enhancements
and acquisitions 12,853 125,145 1,420 1,681
Actuarial gain (510,132) (427,179) (28,607) (7,402)
Plan participant contributions -- -- 1,112 679
Foreign currency exchange rate changes (618) 3,112 -- --
Benefits paid (67,800) (56,580) (9,133) (6,437)
---------- ---------- ---------- ----------
Benefit obligation at end of year $4,493,745 $4,385,519 $ 257,007 $ 246,186
========== ========== ========== ==========
CHANGE IN PLAN ASSETS
---------------------
Fair value of plan assets at
beginning of year $4,952,431 $4,434,870 $ -- $ --
Actual return on plan assets 630,706 451,738 -- --
Foreign currency exchange rate changes (5,192) (1,283) -- --
Company contributions 217,271 123,686 8,021 5,758
Plan participant contributions -- -- 1,112 679
Benefits paid (67,800) (56,580) (9,133) (6,437)
---------- ---------- ---------- ----------
Fair value of plan assets at end of year $5,727,416 $4,952,431 $ -- $ --
========== ========== ========== ==========
FUNDED STATUS OF THE PLANS $1,233,671 $ 566,912 $ (257,007) $ (246,186)
--------------------------
Unrecognized actuarial gain (1,173,903) (595,238) (49,286) (20,809)
Unrecognized prior service cost 121,697 132,116 254 291
Unrecognized transition amount (10,529) (11,852) -- --
---------- ---------- ---------- ----------
Prepaid (accrued) benefit cost $ 170,936 $ 91,938 $(306,039) $(266,704)
=========== ========== ========= =========
Amounts Recognized in the
Balance Sheet at May 31:
------------------------
Prepaid benefit cost $ 302,935 $ 188,423 $ -- $ --
Accrued benefit liability (131,999) (96,485) (306,039) (266,704)
Minimum pension liability (12,662) (86,000) -- --
Intangible asset 12,662 86,000 -- --
---------- ---------- ---------- ---------
Prepaid (accrued) benefit cost $ 170,936 $ 91,938 $ (306,039) $(266,704)
=========== =========== ========== =========
</TABLE>
F-19
<PAGE>
Net periodic benefit cost for the years ended May 31 was as follows:
<TABLE>
<CAPTION>
Postretirement
Pension Plans Health Care Plans
------------------------------------ -----------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost $337,780 $331,005 $250,753 $26,450 $23,676 $18,385
Interest cost 336,143 288,221 245,697 19,579 16,962 14,767
Expected return on plan assets (546,169) (483,709) (377,421) -- -- --
Net amortization and deferral 5,977 (1,948) (2,304) (93) (211) (709)
-------- -------- -------- ------- ------- -------
$133,731 $133,569 $116,725 $45,936 $40,427 $32,443
======== ======== ======== ======= ======= =======
</TABLE>
WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS
<TABLE>
<CAPTION>
2000 1999 1998 2000 1999 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 8.5% 7.5% 7.0% 8.3% 7.3% 7.2%
Rate of increase in future
compensation levels 5.0 4.6 4.6 - - -
Expected long-term rate of
return on assets 10.9 10.9 10.3 - - -
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $177,900,000, $126,300,000 and $2,700,000,
respectively, as of May 31, 2000, and $201,700,000, $172,800,000 and $2,600,000,
respectively, as of May 31, 1999. The minimum pension liability and
corresponding intangible asset recognized in the balance sheet at May 31, 1999,
relate principally to the collective bargaining agreement between FedEx Express
and the FPA. During 2000, FedEx obtained the necessary approvals to fund a
substantial portion of these benefits in the qualified pension plan, and the
minimum liability and related intangible asset have been reduced accordingly.
FedEx Express's future medical benefit costs were estimated to increase at an
annual rate of 8.5% during 2001, decreasing to an annual growth rate of 6.3% in
2006 and thereafter. Future dental benefit costs were estimated to increase at
an annual rate of 7.5% during 2001, decreasing to an annual growth rate of 6.3%
in 2006 and thereafter. FedEx Express'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. A 1% change in these
annual trend rates would not have a significant impact on the accumulated
postretirement benefit obligation at May 31, 2000, or 2000 benefit expense.
Claims are paid as incurred.
PROFIT SHARING PLANS. The profit sharing plans cover a majority of U.S.
employees age 21 and over, with at least one year of service with FedEx 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 $125,300,000 in 2000, $137,500,000 in 1999 and $124,700,000
in 1998. Included in these expense amounts are cash distributions made directly
to employees of $39,100,000, $46,800,000 and $43,100,000 in 2000, 1999 and 1998,
respectively.
NOTE 12: BUSINESS SEGMENT INFORMATION
FedEx Corporation is a global transportation and logistics provider primarily
composed of FedEx
F-20
<PAGE>
Express, the world's largest express transportation company, and FedEx
Ground, a ground small-package carrier. Other operating companies included in
the FedEx Corporation portfolio are FedEx Logistics, a contract logistics
provider; FedEx Custom Critical, a critical-shipment carrier; FedEx Trade
Networks, a global trade services company; and Viking, a regional
less-than-truckload freight carrier operating principally in the western
United States. Other also includes certain unallocated corporate items.
FedEx has determined its reportable operating segments to be FedEx Express
and FedEx Ground, both of which operate in single lines of business. FedEx
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 FedEx's
consolidated financial statement totals:
<TABLE>
<CAPTION>
FedEx FedEx Consolidated
Express Ground Other Total
------------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
REVENUES
--------
2000 $15,068,338 $2,032,570 $1,156,037 $18,256,945
1999 13,979,277 1,878,107 916,086 16,773,470
1998 13,254,841 1,710,882 907,087 15,872,810
DEPRECIATION AND AMORTIZATION
-----------------------------
2000 $ 997,735 $ 99,140 $ 57,988 $ 1,154,863
1999 912,002 82,640 40,476 1,035,118
1998 844,606 79,835 39,291 963,732
OPERATING INCOME
----------------
2000 $ 899,610 $ 225,812 $ 95,652 $ 1,221,074
1999 871,476(1) 231,010 60,600 1,163,086
1998 836,733 171,203 2,724(2) 1,010,660
SEGMENT ASSETS
--------------
2000 $ 9,740,539 $1,057,519 $ 729,053 $ 11,527,111
1999 9,115,975 896,723 635,513 10,648,211
</TABLE>
(1) Includes $81,000,000 of strike contingency costs. See Note 16.
(2) Includes $74,000,000 of merger expenses.
The following table provides a reconciliation of reportable segment capital
expenditures to FedEx's consolidated totals for the years ended May 31:
<TABLE>
<CAPTION>
FedEx FedEx Consolidated
Express Ground Other Total
----------- ------------ ------- -------------
(In thousands)
<S> <C> <C> <C> <C>
2000 $1,330,904 $244,073 $52,441 $1,627,418
1999 1,550,161 179,969 39,816 1,769,946
1998 1,761,963 78,041 40,169 1,880,173
</TABLE>
F-21
<PAGE>
The following table presents FedEx's revenue by service type and geographic
information for the years ended or as of May 31:
REVENUE BY SERVICE TYPE
-----------------------
<TABLE>
<CAPTION>
2000 1999 1998
--------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
FedEx Express:
Package:
U.S. overnight $ 7,537,844 $ 7,185,462 $ 6,810,211
U.S. deferred 2,428,002 2,271,151 2,179,188
International priority 3,551,593 3,018,828 2,731,140
Freight:
U.S. 566,259 439,855 337,098
International 492,280 530,759 597,861
Other 492,360 533,222 599,343
-------------- -------------- --------------
Total FedEx Express 15,068,338 13,979,277 13,254,841
FedEx Ground 2,032,570 1,878,107 1,710,882
Other 1,156,037 916,086 907,087
------------- -------------- --------------
$ 18,256,945 $ 16,773,470 $ 15,872,810
============= ============== ==============
GEOGRAPHIC INFORMATION (1)
--------------------------
Revenues:
U.S. $ 13,804,849 $ 12,910,107 $ 12,231,537
International 4,452,096 3,863,363 3,641,273
------------- ------------- -------------
$18,256,945 $ 16,773,470 $ 15,872,810
============= ============= =============
Long-lived assets:
U.S. $ 7,224,219 $ 6,506,424
International 1,018,148 1,000,759
------------- -------------
$ 8,242,367 $ 7,507,183
============ ============
</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 13: SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense and income taxes for the years ended May 31 was
as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Interest (net of capitalized interest) $ 124,964 $114,326 $130,250
Income taxes 354,614 437,340 355,563
</TABLE>
Noncash investing and financing activities for the years ended May 31 were as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Fair value of assets surrendered under exchange
agreements (with two airlines) $19,450 $48,248 $90,428
Fair value of assets acquired under
exchange agreements 28,018 34,580 78,148
-------- -------- --------
Fair value of assets surrendered (under) over
</TABLE>
F-22
<PAGE>
<TABLE>
<S> <C> <C> <C>
fair value of assets acquired $ (8,568) $ 13,668 $ 12,280
========= ======== ========
Fair value of treasury stock issued in business
acquisition $ 6,817 $ -- $ --
======== ========= ========
</TABLE>
NOTE 14: COMMITMENTS AND CONTINGENCIES
FedEx's annual purchase commitments under various contracts as of May 31, 2000,
were as follows (in thousands):
<TABLE>
<CAPTION>
Aircraft-
Aircraft Related (1) Other (2) Total
-------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
2001 $222,500 $427,600 $376,300 $1,026,400
2002 252,000 381,300 18,300 651,600
2003 441,700 456,900 7,600 906,200
2004 235,000 446,500 7,600 689,100
2005 165,400 452,200 7,600 625,200
</TABLE>
(1) Primarily aircraft modifications, rotables, spare parts and spare engines.
(2) Primarily facilities, vehicles, computer and other equipment.
At May 31, 2000, FedEx Express was committed to purchase 28 MD11s, 13 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
$7,100,000 have been made toward these purchases.
FedEx Express has agreements with two airlines to acquire 53 DC10 aircraft
(49 of which had been received as of May 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 11 additional DC10s along with additional
aircraft engines and equipment.
In April 2000, put options were exercised by an airline requiring FedEx
Express to purchase six DC10s (in addition to those discussed in the
preceding paragraph) for a total purchase price of $26,400,000. Delivery of
the aircraft is expected to be completed by April 2001.
In January 1999, put options were exercised by an airline requiring FedEx
Express to purchase six DC10s (in addition to those discussed above) for a
total purchase price of $21,150,000. Delivery of five of the aircraft was
completed by August 1999, and the commitment to purchase the sixth aircraft
has been cancelled.
FedEx has entered into jet fuel hedging contracts on behalf of its subsidiary
FedEx Express, which are designed to limit its exposure to fluctuations in
jet fuel prices. Under these jet fuel hedging contracts, FedEx 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, FedEx
received $18,512,000 in 2000 and made payments of $28,764,000 in 1998. There
was no jet fuel hedging activity in 1999. As of May 31, 2000, contracts in
place to fix the price of jet fuel cover a total notional volume of
352,822,000 gallons or approximately one-third of the estimated usage in
2001. Based on current market prices, the fair value of these jet fuel
hedging contracts, which have no carrying value, was an asset of
approximately $51,060,000 at May 31, 2000. There were no such jet fuel
hedging contracts in place at May 31, 1999.
F-23
<PAGE>
NOTE 15: LEGAL PROCEEDINGS
FedEx and its subsidiaries are subject to 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 actions will not
materially adversely affect FedEx's financial position or results of
operations.
NOTE 16: OTHER EVENTS
In 2000, FedEx Express recorded nonoperating gains of approximately
$11,000,000 from the sale of securities and approximately $12,000,000 from
the insurance settlement for a leased MD11 destroyed in October 1999.
To avoid service interruptions related to a threatened strike by the FPA in
November 1998, FedEx and FedEx Express implemented strike contingency plans
including entering into agreements for additional third-party air and ground
transportation and establishing special financing arrangements. Subsequently,
a five-year collective bargaining agreement 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 nonoperating expenses and
represents the costs associated with obtaining additional short-term
financing capabilities.
In 1998, FedEx Express 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 nonoperating income in substantially equal amounts.
FedEx incurred $88,000,000 of merger expenses related to the acquisition of
Caliber and the formation of FedEx in 1998, primarily investment banking fees
and payments to members of Caliber's management in accordance with
pre-existing management retention agreements. There are no remaining accrued
costs at May 31, 2000 related to the merger.
On March 27, 1997, Caliber announced a major restructuring of its Viking
subsidiary. In connection with the restructuring, Viking recorded 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
included 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 and estimates, primarily for future lease costs,
were revised in 2000 resulting in a favorable adjustment of approximately
$10,000,000. There are no remaining accrued restructuring costs at May 31,
2000.
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.
F-24
<PAGE>
NOTE 17: SUMMARY OF QUARTERLY OPERATING RESULTS (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ---------- -------- ---------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C>
2000
----
Revenues $4,319,977 $4,570,104 $4,518,057 $4,848,807
Operating income 283,807 304,535 206,472 426,260
Income before income taxes 262,880 282,928 186,998 404,934
Net income 159,034 171,183 113,128 244,991
Earnings per common share .53 .58 .39 .86
Earnings per common share -
assuming dilution .52 .57 .39 .85
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
Earnings per common share .51 .62 .26 .74
Earnings per common share -
assuming dilution .50 .61 .26 .73
</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 FedEx related to the threatened strike by the FPA.
F-25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To FedEx Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of FedEx Corporation included in this Form
10-K, and have issued our report thereon dated June 27, 2000. 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
FedEx Corporation'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 27, 2000
S-1
<PAGE>
SCHEDULE II
FEDEX CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MAY 31, 2000,
1999 AND 1998
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
----------------------
Balance Charged Charged Balance
At To To At
Beginning Costs and Other End Of
Description of Year Expenses Accounts Deductions Year
----------- --------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Accounts
Receivable Allowances
---------------------
2000............................. $68,305 $84,165 $19,553 (A) $ 86,051 (B) $85,972
======= ======= ======= ======== =======
1999............................. $61,409 $71,704 $ 2,769 (A) $ 67,577 (B) $68,305
======= ======= ======= ======== =======
1998............................ $86,154 $95,634 $ -- $120,379 (B) $61,409
======= ======= ======= ======== =======
Viking
Restructuring Reserve
---------------------
2000 $16,039 $(9,528) (C) $(5,536) (A) $ 975 (D) $ --
======= ======= ======= ======== =======
1999 $18,857 $ -- $ -- $ 2,818 (D) $16,039
======= ======= ======= ======== =======
1998......................... $64,342 $ -- $ -- $ 45,485 (D) $18,857
======= ======= ======= ======== =======
Reserve Related to
Merger of FedEx
Express and Caliber
--------------------
2000 $15,646 $(4,568) (C) $(3,554) (A) $ 7,524 (D) $ --
======= ======= ======= ======== =======
1999 $27,274 $ -- $ -- $ 11,628 (D) $15,646
======= ======= ======= ======== =======
1998......................... $ -- $88,000 $ -- $ 60,726 (D) $27,274
======= ======= ======= ======== =======
</TABLE>
(A) Reclassifications and reserves assumed in connection with acquisitions.
(B) Uncollectible accounts written off, net of recoveries.
(C) Change in estimate, credited to operations.
(D) Amounts paid and charged to reserve.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
-------- ------------------------
<S> <C>
*3.1 Amended and Restated Certificate of Incorporation of FedEx, as
amended.
3.2 Amended and Restated By-laws of FedEx (Filed as Exhibit 3.2 to
Amendment No. 1 to FedEx's Registration Statement on Form S-4,
Commission File No. 333-39483, and incorporated herein by
reference.)
10.1 Consolidated and Restated Lease Agreement dated as of August 1, 1979
between the Memphis-Shelby County Airport Authority (the
"Authority") and FedEx Express. (Refiled as Exhibit 10.12 to FedEx
Express's FY90 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.2 First Supplemental Lease Agreement dated as of April 1, 1981 between
the Authority and FedEx Express. (Filed as Exhibit 10.13 to FedEx
Express's FY92 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.3 Second Supplemental Lease Agreement dated as of May 1, 1982 between
the Authority and FedEx Express. (Refiled as Exhibit 10.14 to FedEx
Express's FY93 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.4 Third Supplemental Lease Agreement dated November 1, 1982 between
the Authority and FedEx Express. (Filed as Exhibit 28.22 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.5 Fourth Supplemental Lease Agreement dated July 1, 1983 between the
Authority and FedEx Express. (Filed as Exhibit 28.23 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.6 Fifth Supplemental Lease Agreement dated February 1, 1984 between
the Authority and FedEx Express. (Filed as Exhibit 28.24 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.7 Sixth Supplemental Lease Agreement dated April 1, 1984 between the
Authority and FedEx Express. (Filed as Exhibit 28.25 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.8 Seventh Supplemental Lease Agreement dated June 1, 1984 between the
Authority and FedEx Express. (Filed as Exhibit 28.26 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.9 Eighth Supplemental Lease Agreement dated July 1, 1988 between the
Authority and FedEx Express. (Filed as Exhibit 28.27 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.10 Ninth Supplemental Lease Agreement dated July 12, 1989 between the
Authority and FedEx Express. (Filed as Exhibit 28.28 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.11 Tenth Supplemental Lease Agreement dated October 1, 1991 between the
Authority and FedEx Express. (Filed as Exhibit 28.29 to FedEx
Express's FY93 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.12 Eleventh Supplemental Lease Agreement dated as of July 1, 1994
between the Authority and FedEx Express. (Filed as Exhibit 10.21 to
FedEx Express's FY96 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.13 Twelfth Supplemental Lease Agreement dated July 1, 1993 between the
Authority and FedEx Express. (Filed as Exhibit 10.23 to FedEx
Express's FY93 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.14 Thirteenth Supplemental Lease Agreement dated as of June 1, 1995
between the Authority and FedEx Express. (Filed as Exhibit 10.23 to
FedEx Express's FY96 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.15 Fourteenth Supplemental Lease Agreement dated as of January 1, 1996
between the Authority and FedEx Express. (Filed as Exhibit 10.24 to
FedEx Express's FY96 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.16 Fifteenth Supplemental Lease Agreement dated as of January 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.1 to
FedEx Express's FY97 Third Quarter Report on Form 10-Q, and
incorporated herein by reference.)
10.17 Sixteenth Supplemental Lease Agreement dated as of April 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.28 to
FedEx Express's FY97 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.18 Seventeenth Supplemental Lease Agreement dated as of May 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.29 to
FedEx Express's FY97 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.19 Eighteenth Supplemental Lease Agreement dated as of July 1, 1997
between the Authority and FedEx Express. (Filed as Exhibit 10.2 to
FedEx Express's FY98 First Quarter Report on Form 10-Q, and
incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.20 Nineteenth Supplemental Lease Agreement dated as of September 1,
1998 between the Authority and FedEx Express. (Filed as Exhibit
10.1 to FedEx Express's FY99 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.)
*10.21 Twentieth Supplemental Lease Agreement dated as of April 1, 2000
between the Authority and FedEx Express.
*10.22 Twenty-First Supplemental Lease Agreement dated as of May 15, 2000
between the Authority and FedEx Express.
10.23 Second Special Facility Supplemental Lease Agreement dated as of
November 1, 1982 between the Authority and FedEx Express. (Filed as
Exhibit 10.26 to FedEx Express's FY93 Annual Report on Form 10-K,
and incorporated herein by reference.)
10.24 Third Special Facility Supplemental Lease Agreement dated as of
December 1, 1984 between the Authority and FedEx Express. (Refiled
as Exhibit 10.25 to FedEx Express's FY95 Annual Report on Form 10-K,
and incorporated herein by reference.)
10.25 Fourth Special Facility Supplemental Lease Agreement dated as of
July 1, 1992 between the Authority and FedEx Express. (Filed as
Exhibit 10.20 to FedEx Express's FY92 Annual Report on Form 10-K,
and incorporated herein by reference.)
10.26 Fifth Special Facility Supplemental Lease Agreement dated as of July
1, 1997 between the Authority and FedEx Express. (Filed as Exhibit
10.35 to FedEx Express's FY97 Annual Report on Form 10-K, and
incorporated herein by reference.)
10.27 Special Facility Lease Agreement dated as of July 1, 1993 between
the Authority and FedEx Express. (Filed as Exhibit 10.29 to FedEx
Express's FY93 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.28 Special Facility Ground Lease Agreement dated as of July 1, 1993
between the Authority and FedEx Express. (Filed as Exhibit 10.30 to
FedEx Express's FY93 Annual Report on Form 10-K, and incorporated
herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.29 Sales Agreement dated April 7, 1995 between FedEx Express 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
Express's FY95 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.30 Amendment No. 1, dated September 19, 1996, to Sales Agreement dated
April 7, 1995 between FedEx Express and American Airlines, Inc.
(Filed as Exhibit 10.93 to FedEx Express's FY97 Annual Report on
Form 10-K, and incorporated herein by reference.)
10.31 Amendments dated March 19, 1998 and January 1999, amending the Sales
Agreement dated April 7, 1995, between American Airlines, Inc. and
FedEx Express. 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 Express's FY99 Third Quarter
Report on Form 10-Q, and incorporated herein by reference.)
10.32 Modification Services Agreement dated September 16, 1996 between
McDonnell Douglas Corporation and FedEx Express. 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 Express's FY97 Second Quarter Report on Form 10-Q, and
incorporated herein by reference.)
10.33 Letter Agreement No. 3 dated July 15, 1997, amending the
Modification Services Agreement dated September 16, 1996, between
McDonnell Douglas and FedEx Express. 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 Express's FY98 First Quarter Report on Form 10-Q, and
incorporated herein by reference.)
10.34 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 Express. 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 Express's
FY98 Second Quarter Report on Form 10-Q, and incorporated herein by
reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.35 Letter Agreement No. 9 dated January 27, 1999, amending the
Modification Services Agreement dated September 16, 1996, between
McDonnell Douglas Corporation and FedEx Express. 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 Express's
FY99 Third Quarter Report on Form 10-Q, and incorporated herein by
reference.)
10.36 Amendment No. 1 dated January 22, 1999, amending the Modification
Services Agreement dated September 16, 1996, between McDonnell
Douglas Corporation and FedEx Express. 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 Express's FY99 Third
Quarter Report on Form 10-Q, and incorporated herein by reference.)
*10.37 Letter Agreement Nos. 8, 11, 13, 14 and 15 dated January 14,
2000, January 14, 2000, December 1, 1999, November 18, 1999 and
October 30, 1999, respectively, amending the Modification
Services Agreement dated September 16, 1996, between McDonnell
Douglas Corporation and FedEx Express. Confidential treatment
has been requested for confidential commercial and financial
information, pursuant to Rule 24b-2 under the Securities Exchange
Act of 1934, as amended.
10.38 Credit Agreement dated January 15, 1998 among FedEx and The First
National Bank of Chicago, individually and as agent, and certain
lenders. (Filed as Exhibit 10.1 to FedEx's FY98 Third Quarter Report
on Form 10-Q, and incorporated herein by reference.)
10.39 Amendment No. 1 dated as of December 10, 1998 to Credit Agreement
dated as of January 15, 1998 among FedEx, The First National Bank of
Chicago, as Agent, and certain Lenders. (Filed as Exhibit 10.2 to
FedEx's FY99 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
10.40 Extension Agreement dated as of October 15, 1999 to Credit Agreement
dated as of January 15, 1998 among FedEx, The First National Bank of
Chicago, as Agent, and certain Lenders. (Filed as Exhibit 10.1 to
FedEx's FY00 Second Quarter Report on Form 10-Q, and incorporated
herein by reference.)
FedEx is not filing any other instruments evidencing any
indebtedness because the total amount of securities authorized under
any single such instrument does not exceed 10%of the total assets of
FedEx and its subsidiaries on a consolidated basis. Copies of such
instruments will be furnished to the Securities and Exchange
Commission upon request.
10.41 1987 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1987 Stock Incentive Plan, as amended. (Filed as an
exhibit to FedEx Express's Registration Statement No. 33-20138 on
Form S-8 and incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.42 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 Express's FY90 Annual Report on Form 10-K, and
incorporated herein by reference.)
10.43 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 Express'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 Express's FY94 Annual
Report on Form 10-K, and incorporated herein by reference.)
10.44 Amendment to FedEx Express's 1980, 1983, 1984, 1987 and 1989 Stock
Incentive Plans. (Filed as Exhibit 10.27 to FedEx Express's FY90
Annual Report on Form 10-K, and incorporated herein by
reference.)
10.45 Amendment to FedEx Express's 1983, 1984, 1987, 1989 and 1993 Stock
Incentive Plans. (Filed as Exhibit 10.63 to FedEx Express's FY94
Annual Report on Form 10-K, and incorporated herein by
reference.)
10.46 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 Express's FY95 Definitive Proxy
Statement, and incorporated herein by reference, and the form of
stock option agreement was filed as Exhibit 99.2 to FedEx Express's
Registration Statement No. 333-03443 on Form S-8, and incorporated
herein by reference.)
10.47 Amendment to FedEx Express's 1980, 1983, 1984, 1987, 1989, 1993 and
1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to FedEx
Express's FY97 Annual Report on Form 10-K, and incorporated herein
by reference.)
10.48 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 FedEx'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 Express's Registration Statement No. 333-03443 on Form S-8,
and incorporated herein by reference.)
10.49 Amendment to 1997 Stock Incentive Plan. (Filed as Exhibit A to
FedEx's FY98 Definitive Proxy Statement, and incorporated herein by
reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.50 1999 Stock Incentive Plan and Form of Stock Option Agreement
pursuant to 1999 Stock Incentive Plan. (1999 Stock Incentive Plan
was filed as Exhibit 4.3 to FedEx's Registration Statement No.
333-34934 on Form S-8, and incorporated herein by reference, and the
form of stock option agreement was filed as Exhibit 4.4 to FedEx's
Registration Statement No. 333-34934 on Form S-8, and incorporated
herein by reference.)
10.51 1986 Restricted Stock Plan and Form of Restricted Stock Agreement
pursuant to 1986 Restricted Stock Plan. (Filed as Exhibit 10.28 to
FedEx Express's FY90 Annual Report on Form 10-K, and incorporated
herein by reference.)
10.52 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 Express's FY95 Definitive Proxy
Statement, and incorporated herein by reference, and the Form of
Restricted Stock Agreement was filed as Exhibit 10.80 to FedEx
Express's FY96 Annual Report on Form 10-K, Commission File No.
1-7806, and incorporated herein by reference.)
10.53 1997 Restricted Stock Plan and Form of Restricted Stock Agreement
pursuant to 1997 Restricted Stock Plan. (Filed as Exhibit 10.82 to
FedEx Express's FY97 Annual Report on Form 10-K, and incorporated
herein by reference.)
*10.54 FedEx Express's Retirement Parity Pension Plan, as amended and
restated effective June 1, 1999.
*10.55 Description of Management Performance Bonus Plan.
*10.56 Description of Long-Term Performance Bonus Plan.
10.57 FedEx's Retirement Plan for Outside Directors. (Filed as Exhibit
10.85 to FedEx Express's FY97 Annual Report on Form 10-K, and
incorporated herein by reference.)
10.58 First Amendment to FedEx's Retirement Plan for Outside Directors.
(Filed as Exhibit 10.86 to FedEx Express's FY97 Annual Report on
Form 10-K, and incorporated herein by reference.)
10.59 FedEx's Amended and Restated Retirement Plan for Outside Directors.
(Filed as Exhibit 10.87 to FedEx Express's FY97 Annual Report on
Form 10-K, and incorporated herein by reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
*10.60 Form of Management Retention Agreement, dated May 2000, entered
into between FedEx and each of Frederick W. Smith, Robert B.
Carter, T. Michael Glenn, Alan B. Graf, Jr. and Kenneth R.
Masterson.
*10.61 Consulting Agreement, dated as of July 14, 2000, by and between
FedEx and Dennis H. Jones.
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*12 Statement re Computation of Ratio of Earnings to Fixed Charges.
*21 Subsidiaries of Registrant.
*23 Consent of Independent Public Accountants.
*24 Powers of Attorney.
*27 Financial Data Schedule (electronic filing only).
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*Filed herewith.
