<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED FEBRUARY 28, 1995, 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: 1-7806
FEDERAL EXPRESS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0427007
(State of incorporation) (I.R.S. Employer
Identification No.)
2005 Corporate Avenue 38132
Memphis, Tennessee (Zip Code)
(Address of principal
executive offices)
(901) 369-3600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding Shares at March 31, 1995
Common Stock, par value $.10 per share 56,078,095
- -------------------------------------------------------------------------------
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Condensed Consolidated Balance Sheets
February 28, 1995 and May 31, 1994. . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Operations
Three and Nine Months Ended February 28, 1995 and 1994. . . . . . . 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1995 and 1994. . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7-11
Review of Condensed Consolidated Financial Statements
by Independent Public Accountants . . . . . . . . . . . . . . . . . 12
Report of Independent Public Accountants . . . . . . . . . . . . . . . 13
Management's Discussion and Analysis of Results of Operations
and Financial Condition . . . . . . . . . . . . . . . . . . . . . . 14-20
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 21
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
- 2 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
- ------
February 28,
1995 May 31,
(Unaudited) 1994
------------ -----------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . $ 259,247 $ 392,923
Receivables, less allowance for doubtful accounts
of $33,460,000 and $33,933,000. . . . . . . . . 1,140,831 1,020,511
Spare parts, supplies and fuel. . . . . . . . . . 175,095 173,993
Deferred income taxes . . . . . . . . . . . . . . 112,066 113,035
Prepaid expenses and other. . . . . . . . . . . . 68,731 61,234
------------ -----------
Total current assets. . . . . . . . . . . . . 1,755,970 1,761,696
------------ -----------
Property and Equipment, at Cost (Note 6) . . . . . . 7,396,730 6,890,225
Less accumulated depreciation and amortization. . 3,839,470 3,441,132
------------ -----------
Net property and equipment. . . . . . . . . . 3,557,260 3,449,093
------------ -----------
Other Assets:
Goodwill. . . . . . . . . . . . . . . . . . . . . 400,788 415,178
Equipment deposits and other assets (Note 6). . . 421,696 366,531
------------ -----------
Total other assets. . . . . . . . . . . . . . 822,484 781,709
------------ -----------
$ 6,135,714 $ 5,992,498
------------ -----------
------------ -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------
February 28,
1995 May 31,
(Unaudited) 1994
----------- -----------
(In thousands)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt (Note 3). . . . . . . . $ 80,523 $ 198,180
Accounts payable. . . . . . . . . . . . . . . . . . . . . 546,042 518,849
Accrued expenses (Note 2) . . . . . . . . . . . . . . . . 888,252 819,399
----------- -----------
Total current liabilities . . . . . . . . . . . . . . 1,514,817 1,536,428
----------- -----------
Long-Term Debt, Less Current Portion (Note 3). . . . . . . . 1,449,184 1,632,202
----------- -----------
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . 5,419 3,563
----------- -----------
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . 1,022,434 895,600
----------- -----------
Commitments and Contingencies (Notes 6 and 7)
Common Stockholders' Investment (Note 5):
Common Stock, $.10 par value;
200,000,000 shares authorized; 56,042,794 and
55,885,456 shares issued . . . . . . . . . . . . . . . 5,604 5,589
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 2,138,256 1,919,116
----------- -----------
Total common stockholders' investment . . . . . . . . 2,143,860 1,924,705
----------- -----------
$ 6,135,714 $ 5,992,498
----------- -----------
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
------------------------ --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $2,332,594 $2,077,414 $6,922,486 $6,214,664
---------- ---------- ---------- ----------
Operating Expenses:
Salaries and employee benefits . . . . . . 1,133,199 1,020,574 3,300,882 3,037,454
Rentals and landing fees . . . . . . . . . 211,705 181,516 599,641 520,048
Depreciation and amortization. . . . . . . 165,071 151,976 483,588 445,137
Fuel . . . . . . . . . . . . . . . . . . . 127,491 120,607 372,595 354,419
Maintenance and repairs. . . . . . . . . . 128,111 108,457 397,513 344,250
Other. . . . . . . . . . . . . . . . . . . 469,345 408,967 1,351,234 1,176,414
---------- ---------- ---------- ----------
2,234,922 1,992,097 6,505,453 5,877,722
---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . . . . 97,672 85,317 417,033 336,942
---------- ---------- ---------- ----------
Other Income (Expense):
Interest, net. . . . . . . . . . . . . . . (26,933) (35,132) (90,382) (108,983)
Other, net (Note 8). . . . . . . . . . . . 39,975 7,532 42,450 1,132
---------- ---------- ---------- ----------
13,042 (27,600) (47,932) (107,851)
---------- ---------- ---------- ----------
Income Before Income Taxes . . . . . . . . . 110,714 57,717 369,101 229,091
Income Tax Provision . . . . . . . . . . . . 47,607 26,550 158,713 105,382
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . . . . $ 63,107 $ 31,167 $ 210,388 $ 123,709
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per Share . . . . . . . . . . . . . $ 1.12 $ .55 $ 3.73 $ 2.22
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common and Common Equivalent
Shares (Note 5). . . . . . . . . . . . . . 56,374 56,445 56,458 55,827
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
February 28,
-------------------------
1995 1994
--------- ----------
(In thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities. . . . . . . . . . $ 643,238 $ 459,025
--------- ----------
Investing Activities:
Purchases of property and equipment, including
deposits on aircraft of $85,305,000 and
$87,690,000 . . . . . . . . . . . . . . . . . . . . . . (703,126) (913,560)
Proceeds from disposition of property
and equipment:
Sale-leaseback transactions . . . . . . . . . . . . . -- 581,400
Reimbursements of A300 deposits . . . . . . . . . . . 97,793 --
Other dispositions. . . . . . . . . . . . . . . . . . 59,270 43,554
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 66,309 2,368
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . (479,754) (286,238)
--------- ---------
Financing Activities:
Proceeds from debt issuances . . . . . . . . . . . . . . . 45,460 10,777
Principal payments on debt . . . . . . . . . . . . . . . . (349,511) (156,655)
Proceeds from stock issuances. . . . . . . . . . . . . . . 6,891 49,846
Other, net . . . . . . . . . . . . . . . . . . . . . . . . -- (2,581)
--------- ---------
Net cash used in financing activities. . . . . . . . . . . . (297,160) (98,613)
--------- ---------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . (133,676) 74,174
Cash and cash equivalents at beginning of period . . . . . . 392,923 155,456
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . $ 259,247 $ 229,630
--------- ---------
--------- ---------
Cash Payments for:
Interest (net of capitalized interest) . . . . . . . . . . $ 89,795 $ 95,843
--------- ---------
--------- ---------
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 135,512 $ 102,902
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information, the
instructions to Quarterly Reports on Form 10-Q and Rule 10-01 of Regulation S-X,
and should be read in conjunction with Federal Express Corporation's Annual
Report on Form 10-K for the year ended May 31, 1994. Accordingly, significant
accounting policies and other disclosures normally provided have been omitted
since such items are disclosed therein.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to present
fairly the consolidated financial position of Federal Express Corporation and
subsidiaries as of February 28, 1995, the consolidated results of their
operations for the three- and nine-month periods ended February 28, 1995 and
1994, and their consolidated cash flows for the nine-month periods ended
February 28, 1995 and 1994. Operating results for the three- and nine-month
periods ended February 28, 1995 are not necessarily indicative of the results
that may be expected for the year ending May 31, 1995.
Certain prior period amounts have been reclassified to conform to the
current presentation.
(2) ACCRUED EXPENSES
<TABLE>
<CAPTION>
February 28,
1995 May 31,
(Unaudited) 1994
------------- --------
(In thousands)
<S> <C> <C>
Compensated absences. . . . . . . . . . $189,595 $180,105
Insurance . . . . . . . . . . . . . . . 170,209 156,906
Taxes other than income taxes . . . . . 142,158 130,801
Employee benefits . . . . . . . . . . . 97,612 86,352
Salaries. . . . . . . . . . . . . . . . 66,749 82,563
Aircraft overhaul . . . . . . . . . . . 56,138 50,933
Interest. . . . . . . . . . . . . . . . 50,740 32,374
Federal income taxes. . . . . . . . . . 40,058 34,775
Other . . . . . . . . . . . . . . . . . 74,993 64,590
-------- --------
$888,252 $819,399
-------- --------
-------- --------
</TABLE>
- 7 -
<PAGE>
(3) LONG-TERM DEBT
<TABLE>
<CAPTION>
February 28,
1995 May 31,
(Unaudited) 1994
------------ ----------
(In thousands)
<S> <C> <C>
Unsecured notes payable, interest rates of
6.25% to 10.57%, due through 2013. . . . . . . . . . . . . . . $1,187,295 $1,384,942
Unsecured sinking fund debentures, interest
rate of 9.63%, due through 2020. . . . . . . . . . . . . . . . 98,306 98,254
Capital lease obligations, Memphis-Shelby County
Airport Authority Special Facilities Revenue
Bonds, due through 2013, interest rates of
6.75% to 8.30%, net of bond reserve funds. . . . . . . . . . . 199,004 199,004
Other debt, interest rate of 6.80%. . . . . . . . . . . . . . . . 45,102 148,182
--------- ----------
1,529,707 1,830,382
Less current portion . . . . . . . . . . . . . . . . . . . . . 80,523 198,180
--------- ----------
$1,449,184 $1,632,202
--------- ----------
--------- ----------
</TABLE>
The Company has a revolving credit agreement with domestic and foreign
banks that provides for a commitment of $1,000,000,000 through May 31, 1996, all
of which was available at February 28, 1995. Interest rates on borrowings under
this agreement are generally determined by maturities selected and prevailing
market conditions. 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 the Company's ability and intent
to refinance such borrowings.
In September 1994, the City of Indianapolis issued $45,000,000 of 6.80%
City of Indianapolis Airport Facility Revenue Refunding Bonds to retire the
11.25% Indianapolis Special Facilities Revenue Bonds, Series 1984 which were
originally issued to finance the acquisition, construction and equipping of an
express package sorting hub located at the Indianapolis International Airport
and currently leased to the Company. The Refunding Bonds have a maturity date of
April 1, 2017. See Note 6 Commitments for a discussion of additional
commitments relating to the Company's facilities at the Indianapolis Airport.
In 1993, the Company entered into a $140,000,000 foreign bank facility
which provided term loans for predelivery payments on seven Airbus A300
aircraft. As of February 28, 1995, the outstanding balance under this facility
had been repaid.
- 8 -
<PAGE>
(4) 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 February 28, 1995, none of these shares had been
issued.
(5) COMMON STOCKHOLDERS' INVESTMENT
During the nine-month period ended February 28, 1995, 157,338 shares of
common stock were issued under employee incentive plans at prices ranging from
$30.56 to $62.94 per share. During the same period, 3,750 shares of non-vested
restricted common stock were forfeited. The forfeited shares were recorded as
treasury stock at a cost of $61.75 per share.
On September 26, 1994, the stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
common stock of the Company from 100,000,000 to 200,000,000 shares.
(6) COMMITMENTS
As of February 28, 1995, the Company's purchase commitments for the
remainder of 1995 and annually thereafter under various contracts are as follows
(in thousands):
<TABLE>
<CAPTION>
Aircraft-
Aircraft Related(1) Other(2) Total
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
1995 (remainder) $208,700 $ 21,400 $144,200 $374,300
1996 430,700 73,300 211,000 715,000
1997 225,800 4,200 36,400 266,400
1998 289,100 -- 24,400 313,500
1999 59,800 -- 15,600 75,400
<FN>
(1) Primarily aircraft modifications, rotables, and development and
upgrade of aircraft simulators.
(2) Primarily facilities, vehicles, computers and other equipment.
</TABLE>
The Company is committed to purchase 18 Airbus A300, seven Airbus A310 and
45 Cessna 208B aircraft to be delivered through 1999. At February 28, 1995,
deposits and progress payments of $296,105,000 had been made toward these
purchases. At February 28, 1995, the Company had options to purchase up to 44
additional Airbus A300 aircraft for delivery beginning in 1997.
- 9 -
<PAGE>
During the nine-month period ended February 28, 1995, the Company acquired
five Airbus A300 aircraft under operating leases. These aircraft were included
as purchase commitments as of May 31, 1994. At the time of delivery, the
Company sold its rights to purchase these aircraft to each of five third parties
who reimbursed the Company for its deposits on the aircraft and paid additional
consideration. The Company then entered into operating leases with each of the
third parties who purchased the aircraft from the manufacturer.
In October 1994, the Indianapolis Airport Authority issued $237,755,000 of
7.10% Special Facilities Revenue Bonds, due January 15, 2017, to finance the
acquisition, construction and equipping of express cargo and parcel sorting
facilities. The Company is obligated under an operating lease agreement with
the Indianapolis Airport Authority to pay rentals equal to the principal and
interest on the bonds.
Additional lease commitments for the five Airbus A300 aircraft, two
DC-10-10 aircraft acquired during the period, and the Indianapolis Airport
Authority sorting facilities are as follows (in thousands):
<TABLE>
<S> <C>
1995 $ 3,200
1996 32,600
1997 39,900
1998 45,200
1999 54,900
Thereafter 1,322,800
</TABLE>
(7) LEGAL PROCEEDINGS
The Company has reached a settlement to the shareholder class-action
lawsuit filed in 1990 against it, Frederick W. Smith, Chairman and Chief
Executive Officer, and James L. Barksdale, the Company's former Executive Vice
President and Chief Operating Officer. The settlement was approved on December
21, 1994 and an order dismissing the case with prejudice was entered by the
United States District Court for the Western District of Tennessee. The
deadline for any appeal of the settlement has passed. The settlement was for an
immaterial amount (the Company's portion of which has been recorded in the 1994
financial statements). The Company's insurance carrier will pay a majority of
the settlement amount. Notice of the settlement has been mailed to purchasers
of the Company's common stock affected by the settlement agreement and claims of
the purchasers should be paid in 1995.
The Internal Revenue Service ("IRS") issued an Examination Report on
October 31, 1991 asserting the Company underpaid federal excise taxes for the
calendar quarters ended December 31, 1983 through March 31, 1987. The
Examination Report contains a primary position and a mutually exclusive
alternative position asserting the Company underpaid federal excise taxes by
- 10 -
<PAGE>
$54,000,000 and $26,000,000, respectively. Disagreeing with essentially all of
the proposed adjustments contained in the Examination Report, the Company filed
a Protest on March 16, 1992, which set forth the Company's defenses to both IRS
positions and a claim for refund of overpaid federal excise taxes of
$23,500,000. On March 19, 1993, the IRS issued another Examination Report to
the Company asserting the Company underpaid federal excise taxes by $105,000,000
for the calendar quarters ended June 30, 1987 through March 31, 1991. On June
17, 1993, the Company filed a Protest contesting the March 19 Examination Report
which set forth the Company's defenses to the IRS position and a claim for
refund of overpaid federal excise taxes of $46,500,000. Interest would be
payable on the amount of any refunds by the IRS to the Company or underpaid
federal excise taxes payable by the Company to the IRS at statutorily determined
rates. The interest rates payable by the Company for underpaid taxes are higher
than the rates payable by the IRS on refund amounts.
The Company is vigorously pursuing its Protests administratively with the
IRS Appeals Division. If it is unsuccessful with the IRS Appeals Division, the
Company intends to pursue its position in court. Pending resolution of this
matter, the IRS can be expected to take positions similar to those taken in
their Examination Reports for periods after March 31, 1991.
Given the inherent uncertainties in the excise tax matter, management is
currently unable to predict with certainty the outcome of this matter or the
ultimate effect, if any, its resolution would have on the Company's financial
condition or results of operations. No amount has been reserved for this
contingency.
The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
aggregate liability, if any, with respect to these other actions will not
materially adversely affect the financial position or results of operations of
the Company.
(8) UNUSUAL EVENTS
In January 1995, the Company sold two dedicated warehousing and contract
distribution companies in the United Kingdom. A gain of $35,700,000 was
recorded from the sale.
In November 1994 and February 1995, the Company received distributions of
$5,900,000 and $3,800,000, respectively, from the bankruptcy estate of a firm
engaged by the Company in 1990 to remit payments of employee withholding taxes.
These amounts are a partial recovery of a $32,000,000 loss incurred by the
Company in 1991 that resulted from the firm's failure to remit certain of these
tax payments to appropriate authorities. The Company may receive additional
distributions from the firm's bankruptcy estate depending on the outcome of
preference litigation and other pending bankruptcy matters against the firm.
During the three-month period ended February 28, 1994, the Company sold
several B-727-100 aircraft and engines. A gain of $10,900,000 was recorded from
the sales.
- 11 -
<PAGE>
REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, has performed a review
of the condensed consolidated balance sheet of the Company as of February 28,
1995, and the related condensed consolidated statements of operations for the
three- and nine-month periods ended February 28, 1995 and 1994 and the condensed
consolidated statements of cash flows for the nine-month periods ended
February 28, 1995 and 1994, included herein, as indicated in their report
thereon included on page 13.
- 12 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Federal Express Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Federal Express Corporation and subsidiaries as of February 28, 1995 and the
related condensed consolidated statements of operations for the three- and nine-
month periods ended February 28, 1995 and 1994 and the condensed consolidated
statements of cash flows for the nine-month periods ended February 28, 1995 and
1994. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review
procedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Federal Express Corporation and
subsidiaries as of May 31, 1994 and the related consolidated statements of
operations, changes in common stockholders' investment and cash flows for the
year then ended. In our report dated June 29, 1994, we expressed an unqualified
opinion on those financial statements, which are not presented herein. In our
opinion, the accompanying condensed consolidated balance sheet as of May 31,
1994 is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
Arthur Andersen LLP
Memphis, Tennessee
March 14, 1995
- 13 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company's third quarter and year-to-date consolidated results reflect
significant year-over-year improvement in its international operations and a
continued decline in U.S. domestic profitability. Presented below is a
comparison of third quarter and year-to-date consolidated results (in millions,
except per share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
--------------------------------------
1995 1994 1995 1994
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . $2,333 $2,077 $6,922 $6,215
Operating Income. . . . . . . . . 98 85 417 337
Pre-tax Income. . . . . . . . . . 111 58 369 229
Net Income. . . . . . . . . . . . 63 31 210 124
Earnings per share. . . . . . . . $ 1.12 $ .55 $ 3.73 $ 2.22
</TABLE>
Revenue increases of 12% and 11% for the quarter and year-to-date periods,
respectively, are primarily attributable to volume growth in U.S. domestic and
international express services. Average daily worldwide express package volume
increased 21% and 18% over the prior year's third quarter and year-to-date
periods, respectively. Operating income increases of 14% and 24% for the
quarter and year-to-date periods, respectively, are due to improvements in the
Company's international operations partially offset by decreases in U.S.
domestic profits.
Total operating expenses increased 12% and 11% compared with the prior
year's third quarter and year-to-date periods, respectively. Presented below is
the detail for the year-over-year percentage change in operating expenses:
<TABLE>
<CAPTION>
Percentage Increase
-------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
February 28, February 28,
------------------ -----------------
1995 vs. 1994 1995 VS. 1994
------------- -------------
<S> <C> <C>
Salaries and employee benefits. . . 11% 9%
Rentals and landing fees. . . . . . 17 15
Depreciation and amortization . . . 9 9
Fuel. . . . . . . . . . . . . . . . 6 5
Maintenance and repairs . . . . . . 18 15
Other . . . . . . . . . . . . . . . 15 15
</TABLE>
The increases in salaries and employee benefits are primarily due to
volume-related growth in the Company's U.S. domestic employment levels. In
addition, provisions under the Company's variable incentive compensation plans
have risen, principally reflecting increased earnings in 1995, which for the
third quarter included a significant gain from the sale of certain businesses.
(See Other Income and Expense and Income Taxes for additional information.)
- 14 -
<PAGE>
Higher expense levels for rentals and landing fees are primarily
attributable to an increase in the number of aircraft financed under operating
leases. During 1995, the Company leased five Airbus A300, seven Airbus A310 and
five DC-10 aircraft. Also contributing to the increase are MD-11 aircraft
acquired under operating leases. Last year the Company increased its MD-11
fleet from seven to thirteen aircraft by the beginning of the third quarter.
Additional leases will continue to increase aircraft rental expense for the
remainder of 1995 and 1996. The Company expects to be able to convert its A300
purchase commitments into direct operating leases. (See Note 6 Commitments.)
Maintenance and repairs expense increases are due to increased engine
maintenance on B-727 and MD-11 aircraft. The engines of both aircraft types are
the subject of maintenance directives issued by regulatory agencies. These
directives require the Company to assess and, where applicable, take corrective
action on the aircraft engines. Additionally, the Company's MD-11 fleet has
entered its initial cycle of scheduled engine maintenance. Management expects
year-over-year increases in maintenance and repairs expense to continue for the
remainder of 1995.
Other operating expense increases are generally attributable to volume
growth. Most notable are those expenses related to the transportation of
packages by outside contractors and the use of temporary manpower.
OTHER INCOME AND EXPENSE AND INCOME TAXES
Decreases in net interest expense of 23% and 17% compared with 1994's third
quarter and year-to-date periods are due primarily to lower debt levels.
Other, net for the third quarter includes a pre-tax gain of $35.7 million
from the sale of two dedicated warehousing and distribution companies in the
United Kingdom. This transaction resulted in additional variable compensation
expenses which, when netted against the gain, had an after-tax impact of $.27
per share for the quarter.
Also, the Company received $3.8 million in the quarter and $9.7 million
year-to-date from the bankruptcy estate of a firm engaged by the Company in 1990
to remit employee withholding taxes to appropriate authorities. These payments
are a partial recovery of a $32 million loss recorded by the Company in 1991
caused by the failure of this firm to remit certain taxes. The Company may
receive additional distributions from the firm's bankruptcy estate depending
on the outcome of preference litigation and other pending bankruptcy matters
against the firm.
The prior year's third quarter includes a $10.9 million gain on the sale of
several B-727-100 aircraft and engines.
- 15 -
<PAGE>
The Company's effective tax rate was 43% for the periods ended February 28,
1995, compared with a 46% rate in 1994. During the first quarter of 1995, the
Company implemented a legal restructuring of its Mexico operations. This
restructuring permits the one-time deduction in 1995 of certain items for U.S.
federal income tax purposes that were not deductible in prior years.
U.S. DOMESTIC SERVICES
Operating results and selected statistics for U.S. domestic services are as
follows (dollars in millions, except yields):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
--------------------- --------------------
1995 1994* 1995 1994*
---- ----- ---- -----
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . $1,718 $1,538 $5,049 $4,556
Operating Income. . . . . . . . . . . . . . . 72 104 326 386
Operating Margin. . . . . . . . . . . . . . . 4.2% 6.7% 6.5% 8.5%
Express Package Statistics:
Average daily packages (000s) . . . . . . . 2,232 1,848 2,057 1,753
Revenue per package (yield) . . . . . . . . $12.16 $12.92 $12.67 $13.40
Operating weekdays. . . . . . . . . . . . . . 62 64 190 192
<FN>
* Certain prior period information reflects a reclassification of certain
revenues and volumes to conform to the current year classification of these
services as express package business.
</TABLE>
The Company's U.S. domestic revenues grew 12% and 11% for the quarter and
year-to-date periods, respectively, primarily reflecting volume growth of 21%
and 17% for the same periods. Expenses rose 15% and 13% compared to the same
periods in the prior year. Consequently, operating income and margins have
declined as a result of yield declines exceeding declines in cost per package.
Revenue per package declined 6% and 5% compared with the prior year's third
quarter and year-to-date periods, respectively. Cost per package declined 3%
and 2% compared to these same periods. Also, sales of engine noise reduction
kits contributed an incremental $10 million and $23 million to operating income
for the quarter and year-to-date periods, respectively. In addition, U.S.
domestic operations' predominant share of the additional variable compensation
expenses resulting from the United Kingdom business sale gain significantly
reduced third quarter domestic operating income.
Domestic revenue per package has steadily declined. This decline is
attributable to actions taken in response to competitive pressures prevalent in
the U.S. domestic express market. These actions included offering lower-priced
deferred services and increasing the level of discounting on all services. As a
result, U.S. domestic operations experienced significant year-over-year growth
in volume and, to a lesser extent, revenues. A continued decline in revenue per
package is expected by the Company because of higher growth rates in deferred
services compared with priority services, as well as selective discounting.
- 16 -
<PAGE>
Domestic cost per package has also declined due to the development and
implementation of cost-containment measures by the Company. These measures
include investments in programs designed to reduce unit costs in the long term,
such as enhancements to customer automation systems and pilot training for the
new Airbus aircraft. However, expenditures for these programs, along with other
costs such as maintenance and repairs on B-727 aircraft and expenses related to
outside transportation costs, mitigated the short-term effects of these cost-
containment measures.
Improving U.S. domestic profitability is a primary focus for the Company.
Management is taking steps to reduce the rate of decline in yields and to
continue to reduce unit package costs. The Company implemented yield improvement
initiatives including review and revision of selected customers' discounts and
realignment of discount levels with customers' average daily volume. These
initiatives may result in slower volume growth.
Investments in systems to improve package pick-up, delivery, sorting and
transportation operations are being made to create greater efficiencies in the
ground component of the Company's transportation system. Additionally, the
Company is investing in hub automation, larger load carrying vehicles and
additional drop-off locations. The Company is also acquiring Airbus A300 and
A310 aircraft. Compared to B-727 aircraft, these aircraft have a larger revenue
payload and, with appropriate load factors, have lower unit operating costs for
fuel consumption, maintenance and crew manning. Also, continuing efforts are
directed at improving customer access to the Company's service network including
developing alliances with retail businesses and implementing direct airport
service to new locations.
The Company's strategy for its U.S. domestic operations emphasizes those
actions which management believes will produce the greatest long-term benefit.
Management believes the actions discussed above will, over the long term, slow
the rate of decline in yields and continue to reduce the Company's cost per
package. In the near term, however, competitive activity and changes in
customer demand patterns (such as a continued preference for lower-priced
deferred products over premium-priced express products) are expected to continue
to pressure the Company's U.S. domestic operating profits and margins.
- 17 -
<PAGE>
INTERNATIONAL SERVICES
Operating results and selected package and airfreight statistics for
international operations are as follows (dollars in millions, except yields):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
February 28, February 28,
---------------------- ----------------------
1995 1994* 1995 1994*
------ ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
International Priority Services (IP).. . . . . . . $ 416 $ 332 $1,211 $ 965
International EXPRESSfreight (IXF)
and Airport-to-Airport (ATA)
airfreight services . . . . . . . . . . . . . . 136 109 435 370
International FedEx Logistics
Services, Charter and other . . . . . . . . . . 62 98 227 323
------ ------- ------ -------
614 539 1,873 1,658
------ ------- ------ -------
Operating Income (Loss). . . . . . . . . . . . . . . $ 26 $ (18) $ 91 $ (49)
Operating Margin . . . . . . . . . . . . . . . . . . 4.2% (3.4)% 4.9% (3.0)%
Package and Airfreight Statistics:
Average daily IP packages (000s) . . . . . . . . . 166 130 159 128
Revenue per package (yield). . . . . . . . . . . . $40.52 $ 39.87 $40.14 $39.17
Average daily airfreight pounds (000s) . . . . . . 2,101 1,644 2,170 1,795
Revenue per pound (yield). . . . . . . . . . . . . $ 1.05 $ 1.04 $ 1.05 $ 1.07
<FN>
* Certain prior period information reflects a reclassification of certain
revenues and volumes to conform to the current year classification of these
services as express package or airfreight business.
</TABLE>
The Company's international operating results for the quarter and year-to-
date periods reflect continued year-over-year growth in profitability. Revenues
increased 14% and 13% compared with the prior year's quarter and year-to-date
periods, respectively. Expenses increased 6% and 4% compared with these same
periods. The improvement in profitability is attributable to continued growth
in the Company's International Priority Services and a strong airfreight market.
Revenues, average daily volumes and yields for IP increased 25%, 27% and
2%, respectively, compared with the third quarter of 1994. These same factors
increased 25%, 24% and 2%, respectively, compared with the first nine months of
1994.
Airfreight revenues and average daily volumes increased 24% and 28%,
respectively, compared with the third quarter of 1994 and increased 17% and 21%,
respectively, compared with the first nine months of 1994. Yields increased 1%
and decreased 2% compared with the prior year's third quarter and year-to-date
periods, respectively. Most of the revenue and volume gains are attributable to
growth in the Company's time-definite IXF service. During 1994, pricing actions
narrowed the price differential between ATA, a lower-cost, lower-priority
service, and IXF. Additionally, the Company actively promoted IXF through
marketing and advertising
- 18 -
<PAGE>
efforts. These factors, aided by a favorable airfreight market, contributed to
significant increases in IXF volumes and revenues. IXF average daily volumes
and revenues grew 82% and 70%, respectively, over 1994's third quarter. IXF
volumes and revenues grew 76% and 54%, respectively, over the first nine months
of 1994. Double-digit increases in airfreight revenues and volumes that the
Company has experienced since the fourth quarter of 1994 are dependent upon
continued strong customer demand and available capacity.
The revenue decrease in International FedEx Logistics Services, Charter and
other is primarily due to the sale, effective May 31, 1994, of the Company's
German logistics subsidiary.
Sustained improvement in the Company's international operations is
dependent on continued growth in IP, the Company's ability to manage incremental
costs associated with that growth and system efficiencies. To promote IP
growth, aggressive sales and marketing efforts are targeting time-sensitive
industries to capture new business. Also, the Company has positioned its
international distribution network to benefit from increased volumes associated
with economic growth in certain global markets. To contain costs, management
will monitor customer demand patterns and make changes to its distribution
network to make optimum use of Company resources. Furthermore, through
technological advances that aid in the sorting, routing and delivery of
packages, the Company has the ability to add limited incremental volume without
adding a corresponding amount of incremental cost.
FINANCIAL CONDITION
CAPITAL EXPENDITURES AND RESOURCES
The Company's operations are capital intensive, characterized by
significant investments in aircraft, package handling facilities, sort
equipment, vehicles, and computer and telecommunication equipment. The amount
and timing of capital additions are dependent on various factors including
volume growth, new or enhanced services, geographical expansion of services,
competition and availability of satisfactory financing.
Capital expenditures for the first nine months of 1995 totaled $703 million
and included an Airbus A310 aircraft, five Cessna 208B aircraft, deposits on
future Airbus A300 aircraft, vehicles and ground support equipment, and customer
automation and computer equipment. In comparison, prior year additions totaled
$914 million and included five MD-11 aircraft, three B-727-200 aircraft,
deposits on A300 aircraft, vehicles and ground support equipment, and customer
automation and computer equipment. All of the MD-11 aircraft acquired in 1994,
along with a sixth aircraft acquired in 1993, were subsequently sold and leased
back in 1994.
At February 28, 1995, the Company had commitments aggregating approximately
$1 billion, net of deposits and progress payments of $296 million, for the
acquisition of 18 Airbus A300, seven Airbus A310 and 45 Cessna 208B aircraft
(scheduled for delivery through 1999), aircraft modifications and the
development and upgrade of aircraft simulators. An estimated $230 million will
be expended in
- 19 -
<PAGE>
the remainder of 1995, $504 million in 1996, $230 million in 1997, $289 million
in 1998 and $60 million in 1999, in connection with these commitments. At
February 28, 1995, the Company also had options for up to 44 additional Airbus
A300 aircraft for delivery beginning in 1997. In addition, the Company has
other commitments related to facility and other equipment acquisitions that
approximated $432 million at February 28, 1995. An estimated $144 million of
these commitments will be expended in the remainder of 1995.
The Company has historically financed its capital investments through the
use of lease, debt and equity financing and internally generated cash from
operations. Management's practice in recent years with respect to funding new
aircraft acquisitions has been to finance such aircraft through long-term lease
transactions that qualify as off balance sheet operating leases under applicable
accounting rules. Management has determined that these leases provide economic
benefits favorable to ownership with respect to residual value risk, liquidity
and after-tax cash flows. The Company has been successful in obtaining
investment capital, both U.S. domestic and international, for long-term leases
on acceptable terms. The marketplace for such capital, however, can become
restricted depending on a variety of economic factors beyond the control of the
Company. The Company believes that it will continue to be able to find
financing for its needs on acceptable terms.
In November 1994, the Company filed a shelf registration statement with the
Securities and Exchange Commission relating to $465 million of equipment trust
and pass through certificates. These certificates can be used to finance the
purchase of aircraft or to finance the acquisition of aircraft in leveraged
lease transactions.
Management believes that the capital resources available to the Company
provide the flexibility to access the most efficient market with respect to any
particular aircraft acquisition. Furthermore, these resources afford adequate
capital resources for its future capital needs. These resources include
backstop financing for the 18 Airbus A300 aircraft, $100 million of unsecured
notes available under a June 1992 shelf registration, $465 million of equipment
trust and pass through certificates and public and private debt markets for
leveraged lease financing.
LIQUIDITY AND FINANCIAL POSITION
Cash and cash equivalents totaled $259 million at February 28, 1995, a
decrease of $134 million during the first nine months of 1995. Cash provided
from operations during the first nine months was $643 million compared with $459
million for the same period in the prior year. To finance temporary operating
cash requirements and to provide support for the issuance of commercial paper,
the Company currently has available a $1 billion revolving bank credit facility.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 7 Legal Proceedings in Part I is hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Restated Certificate of Incorporation of Registrant, as amended.
11.1 Statement re Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended February
28, 1995.
- 21 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FEDERAL EXPRESS CORPORATION
(Registrant)
Date: April 13, 1995 /s/ JAMES S. HUDSON
-----------------------------------
JAMES S. HUDSON
VICE PRESIDENT & CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
- 22 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Restated Certificate of Incorporation of Registrant, as amended.
11.1 Statement re Computation of Earnings Per Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
E-1
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION OF
FEDERAL EXPRESS CORPORATION
(Incorporated June 24, 1971)
FEDERAL EXPRESS CORPORATION, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
FIRST: that at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth the Restated Certificate of
Incorporation of the Corporation which declared (i) that such Restatement only
restated and integrated and did not further amend the provisions of the
Corporation's Certificate of Incorporation, as theretofore amended and
supplemented, (ii) that there was no discrepancy between the provisions of the
Certificate of Incorporation, as theretofore amended and supplemented, and the
Restatement, and (iii) that approval of the Restatement by the stockholders of
the Corporation was not required. The resolutions setting forth the adopted
Restatement are as follows:
RESOLVED, that in accordance with Section 245 of the General
Corporation Law of the State of Delaware, there is hereby adopted a
Restatement of the Corporation's Certificate of Incorporation which
(i) restates and integrates and does not further amend the provisions
of the Corporation's Certificate of Incorporation, as heretofore
amended and supplemented, (ii) contains no discrepancies as compared
to the provisions of the Certificate of Incorporation, as heretofore
amended and supplemented, and (iii) need not, and will not, be
submitted to the stockholders of the Corporation for their approval.
FURTHER RESOLVED, that the Certificate of Incorporation is
accordingly restated in its entirety to read as follows:
ARTICLE FIRST: The name of the corporation is FEDERAL EXPRESS CORPORATION.
ARTICLE SECOND: The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 104,000,000 shares consisting of
4,000,000 shares of Series Preferred Stock, no par value (herein called the
"Series Preferred Stock"), and 100,000,000 shares of Common Stock, par value
$0.10 per share (herein called the "Common Stock").
The following is a statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class of
stock of the Corporation:
I. SERIES PREFERRED STOCK
1. CONDITIONS OF ISSUANCE. Series Preferred Stock may be issued from
time to time and in such amounts and for such consideration as may be determined
by the Board of Directors of the Corporation. The designation and relative
rights and preferences of each series, except to the extent such designations
and relative rights and preferences may be required by Delaware law or this
Certificate of Incorporation, shall be such as are fixed by the Board of
Directors and stated in a resolution or resolutions adopted by the Board of
Directors authorizing such series (herein called the "Series Resolution"). A
Series Resolution authorizing any series shall fix:
A. The designation of the series, which may be by
distinguishing number, letter or title;
<PAGE>
B. The number of shares of such series;
C. The divided rate or rates of such shares, the date at which
dividends, if declared, shall be payable, and whether or not such
dividends are to be cumulative, in which case such Series
Resolution shall state the date or dates from which dividends
shall be cumulative;
D. The amounts payable on shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up;
E. The redemption rights and price or prices, if any, for the
shares of such series;
F. The terms and amount of any sinking fund or analogous fund
providing for the purchase or redemption of the shares of such
series, if any;
G. The voting rights, if any, granted to the holders of the
shares of such series in addition to those required by Delaware
law or this Certificate of Incorporation;
H. Whether the shares of such series shall be convertible into
shares of the Corporation's Common Stock or any other class of
the Corporation's capital stock, and if convertible, the
conversion price or prices, any adjustment thereof and any other
terms and conditions upon which such conversion shall be made;
I. Any other rights, preferences, restrictions or conditions
relative to the shares of such
series as may be permitted by Delaware law or this Certificate of
Incorporation.
2. RESTRICTIONS. In no event, so long as any Series Preferred Stock
shall remain outstanding, shall any dividend whatsoever be declared or paid
upon, nor shall any distribution be made upon, Common Stock, other than a
dividend or distribution payable in shares of such Common Stock, nor (without
the written consent of such number of the holders of the outstanding Series
Preferred Stock as shall have been specified in the Series Resolution
authorizing the issuance of such outstanding Series Preferred Stock) shall any
shares of Common Stock be purchased or redeemed by the Corporation, nor shall
any moneys be paid to or made available for a sinking fund for the purchase or
redemption of any Common Stock, unless in each instance full dividends on all
outstanding shares of the Series Preferred Stock for all past dividend periods
shall have been paid and the full dividend on all outstanding shares of the
Series Preferred Stock for the current dividend period shall have been paid or
declared and sufficient funds for the payment thereof set apart and any arrears
in the mandatory redemption of the Series Preferred Stock shall have been made
good.
3. PRIORITY. Series Preferred Stock, with respect to both dividends
and distribution of assets on liquidation, dissolution or winding up, shall rank
prior to the Common Stock.
4. VOTING RIGHTS. Holders of Series Preferred Stock shall have no
right to vote for the election of Directors of the Corporation or on any other
matter unless a vote of such class is required by Delaware law, this Certificate
of Incorporation or a Series Resolution.
5. FILING OF AMENDMENTS. The Board of Directors shall adopt
amendments to this Certificate of Incorporation fixing, with respect to each
series of Series Preferred Stock, the matters described in paragraph 1 of this
Subdivision I.
II. COMMON STOCK
All shares of Common Stock shall be identical and shall entitle the holders
thereof to the same rights and privileges.
2
<PAGE>
1. DIVIDENDS. When and as dividends are declared upon the Common
Stock, whether payable in cash, in property or in shares of stock of the
Corporation, the holders of Common Stock shall be entitled to share equally,
share for share, in such dividends.
2. VOTING RIGHTS. The holders of Common Stock shall have the sole
right to vote for the election of Directors of the Corporation or on any other
matter unless required by Delaware law, this Certificate of Incorporation or a
Series Resolution. The holders of Common Stock shall be entitled to one vote
for each share held.
III. OTHER PROVISIONS
1. No holder of any of the shares of any class or series of stock or
of options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any class or series or
any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of the Corporation of any class or
series, or carrying any right to purchase stock of any class or series, but any
such unissued stock, additional authorized issue of shares of any class or
series of stock or securities convertible into or exchangeable for stock, or
carrying any right to purchase stock, may be issued and disposed of pursuant to
resolution of the Board of Directors to such persons, firms, corporations or
associations, whether such holders or others, and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.
2. Shares of Common Stock may be issued from time to time as the
Board of Directors of the Corporation shall determine and on such terms and for
such consideration as shall be fixed by the Board of Directors.
ARTICLE FIFTH: Certain Business Combinations
1. HIGHER VOTE FOR CERTAIN BUSINESS COMBINATIONS. In addition to
any affirmative vote of holders of a class or series of capital stock of the
Corporation required by law or this Certificate of Incorporation, and except as
otherwise expressly provided in paragraph 2 of this ARTICLE FIFTH, a Business
Combination (as hereinafter defined) with or upon a proposal by a Related Person
(as hereinafter defined) shall require the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of Directors (the
"Voting Stock"). Such affirmative vote shall be required notwithstanding the
fact that no vote may be required or that a lesser percentage may be specified,
by law or in any agreement with any national securities exchange or otherwise.
2. WHEN HIGHER VOTE IS NOT REQUIRED. The provisions of paragraph 1
of this ARTICLE FIFTH shall not be applicable to a particular Business
Combination and such Business Combination shall require only such affirmative
vote as is required by law and other provisions of this Certificate of
Incorporation, if all of the conditions specified in either of the following
paragraphs (A) or (B) are met:
(A) APPROVAL BY DIRECTORS. The Business Combination has been
approved by a majority of the Continuing Directors (as
hereinafter defined).
(B) PRICE AND PROCEDURE CONDITIONS. All of the following
conditions shall have been met:
(1) The aggregate amount of the cash and the Fair Market
Value (as hereinafter defined) as of the date of the
consummation of the Business Combination of consideration
other than cash to be received per share by holders of
Common Stock in such Business Combination shall be at least
equal to the higher of the following:
3
<PAGE>
(i) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealer's fees) paid by the Related Person for any shares of
Common Stock acquired by it (a) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date") or (b) in the transaction in which it became a
Related Person, whichever is higher; or
(ii) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Related Person
became a Related Person (such latter date is referred to in
this ARTICLE FIFTH as the "Determination Date"), whichever
is higher.
(2) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class or series of outstanding Voting Stock shall
be at least equal to the highest of the following (it being intended
that the requirements of this paragraph 2(B)(2) shall be required to
be met with respect to every class of outstanding Voting Stock,
whether or not the Related Person has previously acquired any shares
of a particular class of Voting Stock):
(i) (if applicable) the highest per share price (including
any broker commissions, transfer taxes and soliciting
dealers' fees) paid by the Related Person for any shares of
such class or series of Voting Stock acquired by it (a)
within the two-year period immediately prior to the
Announcement Date or (b) in the transaction in which it
became a Related Person, whichever is higher;
(ii) (if applicable) the highest preferential amount per
share to which the holders of shares of such class or series
of Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation; and
(iii) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(3) The consideration to be received by holders of a particular class
or series of outstanding Voting Stock (including Common Stock) shall
be in cash or in the same form as the Related Person has previously
paid for shares of such class of Voting Stock. If the Related Person
has paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration given for
such class or series of Voting Stock in the Business Combination shall
be either cash or the form used to acquire the largest number of
shares of such class or series of Voting Stock previously acquired by
it.
(4) No Extraordinary Event (as hereinafter defined) shall have
occurred after the Related Person became a Related Person and prior to
the consummation of the Business Combination.
(5) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) is mailed to public stockholders of the Corporation at
least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is
required pursuant to such Act or subsequent provisions).
3. CERTAIN DEFINITIONS. For purposes of this ARTICLE FIFTH:
(A) A "person" shall mean any individual, firm, corporation or
other entity.
4
<PAGE>
(B) The term "Business Combination" shall mean any of the
following transactions, when entered into by the Corporation or a
subsidiary of the Corporation with, or upon a proposal by, a
Related Person or any other corporation (whether or not itself a
Related Person which is, or after such transaction would be, an
Affiliate (as hereinafter defined) of a Related Person:
(1) the merger or consolidation of the Corporation or any
subsidiary of the Corporation; or
(2) the sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one or a series of transactions) of
any assets of the Corporation or any subsidiary of the
Corporation having an aggregate Fair Market Value of
$5,000,000 or more;
(3) the issuance or transfer by the Corporation or any
subsidiary of the Corporation (in one or a series of
transactions) of securities of the Corporation or that
subsidiary having an aggregate Fair Market Value of
$5,000,000 or more; or
(4) the adoption of a plan or proposal for the liquidation
or dissolution of the Corporation; or
(5) the reclassification of securities (including a reverse
stock split), recapitalization, consolidation or any other
transaction (whether or not involving a Related Person)
which has the direct or indirect effect of increasing the
voting power, whether or not then exercisable, of a Related
Person in any class or series of capital stock of the
Corporation or any subsidiary of the Corporation; or
(6) any agreement, contract or other arrangement providing
directly or indirectly for the foregoing.
(C) The term "Related Person" shall mean any person (other than
the Corporation, a subsidiary of the Corporation or any profit
sharing, employee stock ownership or other employee benefit plan
of the Corporation or a subsidiary of the Corporation or any
trustee of or fiduciary with respect to any such plan acting in
such capacity) which:
(1) is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding Voting
Stock; or
(2) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
(3) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question
beneficially owned by any Related Person, if such assignment
or succession shall have occurred in the course of a
transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(D) A person shall be a "beneficial owner" of any Voting Stock:
(1) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns,
directly or indirectly; or
(2) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right
is exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights,
exchange
5
<PAGE>
rights, warrants or options, or otherwise, or (ii) the right to
vote pursuant to any agreement, arrangement or understanding; or
(3) which are beneficially owned, directly or indirectly by
any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
For the purposes of determining whether a person is a Related
Person pursuant to subparagraph (C) of this paragraph 3, the
number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of subparagraph
(D) of this paragraph 3 but shall not include any other shares of
Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(E) The term "Continuing Director" shall mean any member of the
Board of Directors who is not affiliated with a Related Person
and who was a member of the Board of Directors immediately prior
to the time that the Related Person became a Related Person, and
any successor to a Continuing Director who is not affiliated with
the Related Person and is recommended to succeed a Continuing
Director by a majority of Continuing Directors who are then
members of the Board of Directors.
(F) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the
Securities Exchange Act of 1934, as in effect on August 1, 1984.
(G) The term "Extraordinary Event" shall mean, as to any
Business Combination and Related Person, any of the following
events that is not approved by a majority of the Continuing
Directors:
(1) any failure to declare and pay at the regular date
therefor any full quarterly dividend (whether or not
cumulative) on outstanding Preferred or Preference Stock; or
(2) any reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to reflect any
subdivision of the Common Stock); or
(3) any failure to increase the annual rate of dividends
paid on the Common Stock as necessary to reflect any
reclassification, (including any reverse stock split),
recapitalization, reorganization or any similar transaction
that has the effect of reducing the number of outstanding
shares of the Common Stock; or
(4) any Related Person shall become the beneficial owner of
any additional shares of Voting Stock except as part of the
transaction which resulted in such Related Person becoming a
Related Person; or
(5) the receipt by the Related Person, after such Person
has become a Related Person, of a direct or indirect benefit
(except proportionately as a shareholder) from any loans,
advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the
Corporation or any subsidiary of the Corporation, whether in
anticipation of or in connection with the Business
Combination or otherwise.
(H) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange- Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange,
on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no
6
<PAGE>
such quotations are available, the fair market value on the date in
question of a share of such stock as determined by the Board of
Directors in good faith; and (ii) in the case of property other than
cash or stock, the fair market value of such property on the date in
question as determined by the Board of Directors in good faith.
(I) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash
to be received" as used in subparagraphs B(1) and (2) of
paragraph 2 of this ARTICLE FIFTH shall include the shares of
Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
4. POWERS OF THE BOARD OF DIRECTORS. A majority of all Continuing
Directors shall have the power to make all determinations with respect to this
ARTICLE FIFTH, on the basis of information known to them after reasonable
inquiry, including, without limitation, the transactions that are Business
Combinations, the persons who are Related Persons, the number of shares of
Voting Stock owned by any person, the time at which a Related Person becomes a
Related Person and the Fair Market Value of any assets, securities or other
property, and any such determinations of such Directors shall be conclusive and
binding.
5. NO EFFECT ON FIDUCIARY OBLIGATIONS OF RELATED PERSONS. Nothing
contained in this ARTICLE FIFTH shall be construed to relieve any Related Person
from any fiduciary obligation imposed by law.
6. AMENDMENT OR REPEAL. The affirmative vote of the holders of not less
than 80% of the total voting power of the Voting Stock of the Corporation,
voting together as a single class, shall be required in order to amend, repeal
or adopt any provision inconsistent with this ARTICLE FIFTH.
ARTICLE SIXTH: In addition to any affirmative vote of holders of a class or
series of capital stock of the Corporation required by law or this Certificate
of Incorporation, unless the Business Combination (as defined in ARTICLE FIFTH
of this Certificate of Incorporation) has been approved by a majority of the
Continuing Directors (as defined in ARTICLE FIFTH of this Certificate of
Incorporation), a Business Combination with or upon a proposal by a Related
Person (as defined in ARTICLE FIFTH of this Certificate of Incorporation) shall
require the affirmative vote of the holders of not less than a majority of the
Voting Stock (as defined in ARTICLE FIFTH of this Certificate of Incorporation)
beneficially owned by stockholders other than such Related Person. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required or that a lesser percentage may be specified by law or in any agreement
with any national securities exchange or otherwise.
The affirmative vote of the holders, other than the Related Person
proposing the amendment, repeal or adoption of any provision inconsistent with
this ARTICLE SIXTH, of not less than a majority of the Voting Stock of the
Corporation, voting together as a single class, shall be required in order to
amend, repeal or adopt any provision inconsistent with this ARTICLE SIXTH.
ARTICLE SEVENTH: The corporation is to have perpetual existence.
ARTICLE EIGHTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
The Board of Directors shall have power to make, alter, amend and repeal
the By-laws (except so far as the By-laws adopted by the stockholders shall
otherwise provide). Any By-laws made by the Directors under the powers
conferred hereby may be altered, amended or repealed by the Directors or by the
stockholders. Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Sections 5 and 11 of Article II of
the By-laws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 80% of the voting power of all the shares of the Corporation
entitled to vote generally in the election of Directors, voting together as a
single class. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the voting power of all shares of the Corporation entitled to vote
generally in the
7
<PAGE>
election of Directors, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal this ARTICLE
EIGHTH.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The By-laws may provide that in the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
or in the By-laws of the Corporation, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, or amending the
By-laws of the Corporation; and, unless the resolution or By-laws expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with statute, to
sell, lease or exchange all or substantially all of the property and assets of
the Corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, and/or other
securities of, any other corporation or corporations, as its Board of Directors
shall deem expedient and for the best interests of the Corporation.
ARTICLE NINTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE TENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-laws of the Corporation. Elections of
Directors need not be by written ballot unless the By-laws of the Corporation
shall so provide.
8
<PAGE>
ARTICLE ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE TWELFTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80% of the voting power of all shares of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class, shall
be required to alter, amend, adopt any provision inconsistent with or repeal
this ARTICLE TWELFTH.
ARTICLE THIRTEENTH: No Director shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, provided that this ARTICLE THIRTEENTH shall not eliminate or
limit the liability of a Director (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of Title 8 of the Delaware Code or any amendment or
successor provision thereto, or (iv) for any transaction from which the Director
derived an improper personal benefit. This ARTICLE THIRTEENTH shall not
eliminate or limit the liability of a Director for any act or omission occurring
prior to the date when this ARTICLE THIRTEENTH becomes effective. Neither the
amendment nor repeal of this ARTICLE THIRTEENTH, nor the adoption of any
provision of the Restated Certificate of Incorporation inconsistent with this
ARTICLE THIRTEENTH shall eliminate or reduce the effect of this ARTICLE
THIRTEENTH with respect to any matter occurring, or any cause of action, suit or
claim that, but for this ARTICLE THIRTEENTH, would accrue or arise prior to such
amendment, repeal or adoption of an inconsistent provision.
SECOND: that the Restated Certificate of Incorporation effected by this
Certificate was duly authorized at a meeting of the Board of Directors of the
Corporation in accordance with the provisions of Section 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Frederick W.
Smith, its Chairman, President and Chief Executive Officer, and attested by
George W. Hearn, its Assistant Secretary, this 17th day of October, 1988.
FEDERAL EXPRESS CORPORATION
BY: /S/ FREDERICK W. SMITH
------------------------------
(Corporate Seal) Frederick W. Smith
Chairman, President and
Chief Executive Officer
ATTEST:
/S/ GEORGE W. HEARN
- ------------------------------------
George W. Hearn, Assistant Secretary
9
<PAGE>
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION OF
FEDERAL EXPRESS CORPORATION
(Incorporated June 24, 1971)
Federal Express Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
FIRST: That at a meeting of the Board of Directors of the Corporation, the
following resolutions were duly adopted setting forth a proposed amendment to
the Restated Certificate of Incorporation of the Corporation, to increase the
number of authorized shares of common stock of the Corporation from 100,000,000
to 200,000,000 shares:
RESOLVED, that an amendment to the Corporation's Restated Certificate of
Incorporation doubling the number of authorized shares of common stock is
hereby declared to be advisable and that the officers of the Corporation
are hereby directed to submit such amendment to the stockholders of the
Corporation for approval at their next annual meeting; and
FURTHER RESOLVED, that the Restated Certificate of Incorporation of this
Corporation be amended by changing Article Fourth so that, as amended said
Article shall be and read as follows:
ARTICLE FOURTH. The total number of shares of all classes of
stock which the Corporation shall have authority to issue is
204,000,000 shares consisting of 4,000,000 shares of Series
Preferred Stock, no par value (herein called the "Series
Preferred Stock"), and 200,000,000 shares of Common Stock, par
value $.10 per share (herein called the "Common Stock").
FURTHER RESOLVED, that in connection with the foregoing, the officers of
the Corporation be, and each of them hereby is, authorized and directed to
execute and deliver any and all documents and to take such other actions as
they in their discretion, with the advice of counsel, deem to be in the
best interest of the Corporation.
SECOND: That thereafter, at the annual meeting of the stockholders of the
Corporation, duly called and held upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware, the necessary number of
shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused this Certificate
to be signed by George W. Hearn, its Vice President, Law - Corporate and
Business Transactions, and attested by Scott E. Hansen, its Assistant Secretary,
this 20th day of October, 1994.
FEDERAL EXPRESS CORPORATION
BY: /S/ GEORGE W. HEARN
------------------------------------
George W. Hearn
Vice President, Law - Corporate
and Business Transactions
ATTEST:
/S/ SCOTT E. HANSEN
- -------------------------------------
Scott E. Hansen, Assistant Secretary
10
<PAGE>
EXHIBIT 11.1
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Net income applicable to common and common equivalent shares and the
weighted average number of shares used in the calculation of earnings per share
for the three- and nine-month periods ended February 28, 1995 and 1994 were as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended February 28, Ended February 28,
----------------------- -----------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income applicable to common
and common equivalent shares . . . . . . . . . . $ 63,107 $ 31,167 $210,388 $123,709
-------- -------- -------- --------
-------- -------- -------- --------
Average shares of common stock
outstanding. . . . . . . . . . . . . . . . . . . 55,987 55,573 55,945 55,167
Common Equivalent Shares:
Assumed exercise of outstanding
dilutive options . . . . . . . . . . . . . . . 1,733 3,202 2,253 2,846
Less shares repurchased from
proceeds of assumed exercise
of options . . . . . . . . . . . . . . . . . . (1,346) (2,330) (1,740) (2,186)
-------- -------- ------- --------
Average common and common
equivalent shares. . . . . . . . . . . . . . . . 56,374 56,445 56,458 55,827
-------- -------- ------- --------
-------- -------- ------- --------
Earnings per share . . . . . . . . . . . . . . . . $ 1.12 $ .55 $ 3.73 $ 2.22
-------- -------- ------- --------
-------- -------- ------- --------
</TABLE>
The computation of the number of shares repurchased from the proceeds of
the assumed exercise of outstanding dilutive options is based upon the average
market price of the Company's common stock during the periods. Common
equivalent shares are excluded in periods in which their assumed exercise would
have an anti-dilutive effect.
Fully diluted earnings per share are substantially the same as earnings per
share.
<PAGE>
Exhibit 12.1
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended May 31, February 28,
------------------------------------------------------ ------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- --------- -------- -------- -------- -------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before income taxes. . . . . . . . $218,423 $ 40,942 $(146,828) $203,576 $378,462 $229,091 $369,101
Add back: Interest expense, net of
capitalized interest. . . . . . . . 199,237 196,982 176,321 168,762 152,170 115,608 102,182
Amortization of debt
issuance costs. . . . . . . . . . . 2,989 1,634 2,570 4,906 2,860 2,174 1,939
Portion of rent expense
representative of
interest factor . . . . . . . . . . 248,830 292,840 299,012 262,724 285,261 208,942 241,228
-------- -------- --------- -------- -------- -------- --------
Earnings as adjusted . . . . . . . . . . . . . . $669,479 $532,398 $ 331,075 $639,968 $818,753 $555,815 $714,450
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Fixed Charges:
Interest expense, net of
capitalized interest . . . . . . . . . . . . . $199,237 $196,982 $ 176,321 $168,762 $152,170 $115,608 $102,182
Capitalized interest . . . . . . . . . . . . . . 16,986 35,442 26,603 31,256 29,738 23,094 18,499
Amortization of debt issuance costs. . . . . . . 2,989 1,634 2,570 4,906 2,860 2,174 1,939
Portion of rent expense
representative of interest factor. . . . . . . 248,830 292,840 299,012 262,724 285,261 208,942 241,228
-------- -------- --------- -------- -------- -------- --------
$468,042 $526,898 $ 504,506 $467,648 $470,029 $349,818 $363,848
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
Ratio of Earnings to Fixed Charges . . . . . . . 1.4 1.0 (A) 1.4 1.7 1.6 2.0
-------- -------- --------- -------- -------- -------- --------
-------- -------- --------- -------- -------- -------- --------
<FN>
(A) Earnings were inadequate to cover fixed charges by $173.4 million for the
year ended May 31, 1992.
</TABLE>
<PAGE>
EXHIBIT 15.1
March 14, 1995
Federal Express Corporation
2005 Corporate Avenue
Memphis, Tennessee 38132
We are aware that Federal Express Corporation will be incorporating by reference
in its previously filed Registration Statements No. 2-74000, 2-95720, 33-20138,
33-38041, 33-47176, 33-50013, 33-51623, 33-55055 and 33-56569 its Report on
Form 10-Q for the quarter ended February 28, 1995, which includes our report
dated March 14, 1995 covering the unaudited interim financial information
contained therein. Pursuant to Regulation C of the Securities Act of 1933, that
report is not considered part of these registration statements prepared or
certified by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
Arthur Andersen LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheets and condensed consolidated statements of
operations on pages 3-5 of the Company's Form 10 Q for the quarterly period
ended February 28, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 259,247
<SECURITIES> 0
<RECEIVABLES> 1,174,291
<ALLOWANCES> 33,460
<INVENTORY> 175,095
<CURRENT-ASSETS> 1,755,970
<PP&E> 7,396,730
<DEPRECIATION> 3,839,470
<TOTAL-ASSETS> 6,135,714
<CURRENT-LIABILITIES> 1,514,817
<BONDS> 1,449,184
<COMMON> 5,604
0
0
<OTHER-SE> 2,138,256
<TOTAL-LIABILITY-AND-EQUITY> 6,135,714
<SALES> 0
<TOTAL-REVENUES> 6,922,486
<CGS> 0
<TOTAL-COSTS> 6,505,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,382
<INCOME-PRETAX> 369,101
<INCOME-TAX> 158,713
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,388
<EPS-PRIMARY> 3.73
<EPS-DILUTED> 3.73
</TABLE>
