<PAGE>
- --------------------------------------------------------------------------------
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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, 1997, 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
Memphis, Tennessee 38132
(Address of principal (Zip Code)
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, 1997
Common Stock, par value $.10 per share 114,413,400
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Condensed Consolidated Balance Sheets
February 28, 1997 and May 31, 1996 . . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Income
Three and Nine Months Ended February 28, 1997
and February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
Nine Months Ended February 28, 1997 and
February 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . . . . 7-10
Review of Condensed Consolidated Financial Statements
by Independent Public Accountants. . . . . . . . . . . . . . . . . . 11
Report of Independent Public Accountants . . . . . . . . . . . . . . . 12
Management's Discussion and Analysis of Results of Operations
and Financial Condition. . . . . . . . . . . . . . . . . . . . . . . 13-17
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 18
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
- 2 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 28,
1997 May 31,
(Unaudited) 1996
------------ -----------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 100,341 $ 93,419
Receivables, less allowance for doubtful accounts
of $34,373,000 and $30,809,000. . . . . . . . . . . 1,513,033 1,271,599
Spare parts, supplies and fuel . . . . . . . . . . . 284,568 222,110
Deferred income taxes. . . . . . . . . . . . . . . . 132,279 92,606
Prepaid expenses and other . . . . . . . . . . . . . 45,473 48,527
------------ -----------
Total current assets. . . . . . . . . . . . . . . 2,075,694 1,728,261
------------ -----------
Property and Equipment, at Cost (Note 6) . . . . . . . 9,474,541 8,678,517
Less accumulated depreciation and amortization . . . 5,027,534 4,561,916
------------ -----------
Net property and equipment. . . . . . . . . . . . 4,447,007 4,116,601
------------ -----------
Other Assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . 368,982 380,748
Equipment deposits and other assets (Note 6) . . . . 470,864 473,361
------------ -----------
Total other assets. . . . . . . . . . . . . . . . 839,846 854,109
------------ -----------
$ 7,362,547 $ 6,698,971
------------ -----------
------------ -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
February 28,
1997 May 31,
(Unaudited) 1996
------------ -----------
(In thousands)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt (Note 3) . . . . . $ 11,037 $ 8,009
Accounts payable . . . . . . . . . . . . . . . . . . 832,799 705,532
Accrued expenses (Note 2). . . . . . . . . . . . . . 884,963 904,856
------------ -----------
Total current liabilities.. . . . . . . . . . . . 1,728,799 1,618,397
------------ -----------
Long-Term Debt, Less Current Portion (Note 3). . . . . 1,539,897 1,325,277
------------ -----------
Deferred Income Taxes. . . . . . . . . . . . . . . . . 127,075 64,034
------------ -----------
Other Liabilities. . . . . . . . . . . . . . . . . . . 1,149,636 1,115,124
------------ -----------
Commitments and Contingencies (Notes 6 and 7)
Common Stockholders' Investment (Note 5):
Common Stock, $.10 par value;
200,000,000 shares authorized; 114,198,825 and
56,885,125 shares issued. . . . . . . . . . . . . . 11,420 5,689
Other. . . . . . . . . . . . . . . . . . . . . . . . 2,805,720 2,570,450
------------ -----------
Total common stockholders' investment . . . . . . 2,817,140 2,576,139
------------ -----------
$ 7,362,547 $ 6,698,971
------------ -----------
------------ -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ --------------------------
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . $2,906,819 $2,535,470 $8,451,500 $7,535,876
---------- ---------- ---------- ----------
Operating Expenses:
Salaries and employee benefits . . . 1,298,727 1,164,488 3,777,361 3,433,061
Rentals and landing fees . . . . . . 277,798 251,077 798,375 711,054
Depreciation and amortization. . . . 195,751 182,298 576,923 535,093
Fuel . . . . . . . . . . . . . . . . 189,377 150,377 517,377 420,009
Maintenance and repairs. . . . . . . 176,524 153,704 546,388 440,342
Other. . . . . . . . . . . . . . . . 635,715 555,583 1,787,304 1,598,239
---------- ---------- ---------- ----------
2,773,892 2,457,527 8,003,728 7,137,798
---------- ---------- ---------- ----------
Operating Income . . . . . . . . . . . 132,927 77,943 447,772 398,078
---------- ---------- ---------- ----------
Other Income (Expense):
Interest, net. . . . . . . . . . . . (23,018) (24,871) (66,052) (72,891)
Other, net . . . . . . . . . . . . . (365) (435) 15,941 12,288
---------- ---------- ---------- ----------
(23,383) (25,306) (50,111) (60,603)
---------- ---------- ---------- ----------
Income Before Income Taxes . . . . . . 109,544 52,637 397,661 337,475
Income Tax Provision . . . . . . . . . 46,556 25,481 169,006 145,114
---------- ---------- ---------- ----------
Net Income . . . . . . . . . . . . . . $ 62,988 $ 27,156 $ 228,655 $ 192,361
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per Share . . . . . . . . . . $ .54 $ .24 $ 1.98 $ 1.69
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Common and Common Equivalent
Shares . . . . . . . . . . . . . . . 115,849 114,515 115,305 114,137
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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,February 29,
--------------------------
1997 1996
----------- -----------
(In thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities. . . . . . $ 610,242 $ 596,176
----------- -----------
Investing Activities:
Purchases of property and equipment, including
deposits on aircraft of $25,007,000 and
$59,272,000 . . . . . . . . . . . . . . . . . . . (1,111,085) (1,002,699)
Proceeds from disposition of property
and equipment:
Sale-leaseback transactions . . . . . . . . . . 162,400 95,000
Reimbursements of A300 deposits . . . . . . . . 63,039 101,833
Other dispositions. . . . . . . . . . . . . . . 27,838 25,395
Other, net . . . . . . . . . . . . . . . . . . . . 25,359 (15,339)
----------- -----------
Net cash used in investing activities. . . . . . . . (832,449) (795,810)
----------- -----------
Financing Activities:
Proceeds from debt issuances . . . . . . . . . . . 225,752 17,298
Principal payments on debt . . . . . . . . . . . . (7,761) (89,065)
Proceeds from stock issuances. . . . . . . . . . . 11,450 30,052
Other, net . . . . . . . . . . . . . . . . . . . . (312) (12,244)
----------- -----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . . . 229,129 (53,959)
----------- -----------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . . . . 6,922 (253,593)
Cash and cash equivalents at beginning of period . . 93,419 357,548
----------- -----------
Cash and cash equivalents at end of period . . . . . $ 100,341 $ 103,955
----------- -----------
----------- -----------
Cash payments for:
Interest (net of capitalized interest) . . . . . . $ 54,320 $ 61,704
----------- -----------
----------- -----------
Income taxes . . . . . . . . . . . . . . . . . . . $ 145,669 $ 134,080
----------- -----------
----------- -----------
Non-cash investing and financing activities:
Fair value of assets surrendered under
exchange agreements (with two airlines) . . . . . $ 32,841 $ -
Fair value of assets acquired under
exchange agreements . . . . . . . . . . . . . . . 25,314 -
----------- -----------
Fair value of assets to be received under
exchange agreements . . . . . . . . . . . . . . . $ 7,527 $ -
----------- -----------
----------- -----------
</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 Report 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, 1996. 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, 1997, the consolidated results of their
operations for the three- and nine-month periods ended February 28, 1997 and
February 29, 1996, and their consolidated cash flows for the nine-month periods
ended February 28, 1997 and February 29, 1996. Operating results for the three-
and nine-month periods ended February 28, 1997 are not necessarily indicative of
the results that may be expected for the year ending May 31, 1997.
Certain prior period amounts have been reclassified to conform to the
current presentation.
(2) ACCRUED EXPENSES
February 28,
1997 May 31,
(Unaudited) 1996
----------- ---------
(In thousands)
Compensated absences. . . . . . . . . . . . . $227,947 $211,499
Insurance . . . . . . . . . . . . . . . . . . 212,583 194,209
Taxes other than income taxes . . . . . . . . 120,537 153,905
Salaries. . . . . . . . . . . . . . . . . . . 81,387 78,384
Employee benefits . . . . . . . . . . . . . . 62,540 111,912
Aircraft overhaul . . . . . . . . . . . . . . 73,020 59,343
Interest. . . . . . . . . . . . . . . . . . . 43,506 27,840
Other . . . . . . . . . . . . . . . . . . . . 63,443 67,764
-------- --------
$884,963 $904,856
-------- --------
-------- --------
- 7 -
<PAGE>
(3) LONG-TERM DEBT
<TABLE>
<CAPTION>
February 28,
1997 May 31,
(Unaudited) 1996
----------- ----------
(In thousands)
<S> <C> <C>
Unsecured notes payable, interest rates of
6.25% to 10.57%, due through 2013 . . . . . . . . . $ 928,412 $ 934,181
Unsecured sinking fund debentures, interest
rate of 9.63%, due through 2020 . . . . . . . . . . 98,443 98,392
Commercial paper, effective interest
rate of 5.46% . . . . . . . . . . . . . . . . . . . 225,753 -
Capital lease obligations and tax exempt bonds,
due through 2017, interest rates of
6.75% to 8.30%. . . . . . . . . . . . . . . . . . . 255,100 255,100
Less bond reserves. . . . . . . . . . . . . . . . . 11,096 11,096
---------- ----------
244,004 244,004
Other debt, interest rates of 9.68% to 9.98%. . . . . 54,322 56,709
---------- ----------
1,550,934 1,333,286
Less current portion. . . . . . . . . . . . . . . . 11,037 8,009
---------- ----------
$1,539,897 $1,325,277
---------- ----------
---------- ----------
</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, 2000, of
which $774,247,000 was available at February 28, 1997. 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. Commercial paper borrowings are classified as
long-term based on the Company's ability and intent to refinance such
borrowings.
(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, 1997, none of these shares had been
issued.
(5) COMMON STOCKHOLDERS' INVESTMENT
During the nine-month period ended February 28, 1997, 630,482 shares of
common and treasury stock were issued under employee incentive plans at prices
ranging from $15.28 to $44.63 per share. During the same period, the Company
acquired 26,000 shares of its common stock at a cost of $42.88 per share.
On October 1, 1996, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend, which was paid on November 4, 1996
to stockholders of record on October 15, 1996. All share and per share amounts
have been adjusted to reflect the stock split.
- 8 -
<PAGE>
(6) COMMITMENTS
As of February 28, 1997, the Company's purchase commitments for the
remainder of 1997 and annually thereafter under various contracts are as follows
(in thousands):
Aircraft-
Aircraft Related(1) Other(2) Total
-------- ----------- -------- --------
1997 (remainder) $ 16,600 $116,200 $169,200 $302,000
1998 504,400 221,000 151,200 876,600
1999 406,100 124,700 54,100 584,900
2000 369,500 354,800 13,300 737,600
2001 278,000 162,100 - 440,100
(1) Primarily aircraft modifications, rotables and spare parts and
engines.
(2) Primarily vehicles, facilities, computers and other equipment.
The Company is committed to purchase 17 Airbus A300s, three Airbus A310s,
eight MD11s and 50 Ayers ALM 200s to be delivered through 2002. Deposits and
progress payments of $145,721,000 have been made toward these purchases. The
Company may be required to purchase seven additional MD11s for delivery
beginning no later than 2000 under a put option agreement.
The Company has entered into agreements with two airlines to acquire 50
DC10 aircraft, 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 the Company to purchase up to 29 additional
DC10s along with additional aircraft engines and equipment.
During the nine-month period ended February 28, 1997, the Company acquired
three Airbus A300s under operating leases. These aircraft were included as
purchase commitments as of May 31, 1996. At the time of delivery, the Company
sold its rights to purchase these aircraft to 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.
Lease commitments added since May 31, 1996 for the three Airbus A300s,
three additional MD11s acquired by operating lease and two MD11s purchased
(in 1996 and 1997), sold and leased back are as follows (in thousands):
1997 $ 29,600
1998 55,100
1999 54,700
2000 54,600
2001 55,700
Thereafter 594,400
- 9 -
<PAGE>
(7) LEGAL PROCEEDINGS
In May 1996, a class-action suit was filed by customers of the Company in
the United States District Court for the District of Minnesota. The complaint
generally alleges that the Company breached its contract with the plaintiffs in
transporting packages shipped by them by continuing to collect a 6.25% federal
excise tax on the transportation of property shipped by air after the tax
expired on December 31, 1995. The plaintiffs assert that the benefit to the
Company is believed to be in excess of $30,000,000. The plaintiffs seek
certification as a class action, damages, an injunction to enjoin the Company
from continuing to collect the excise tax referred to above, and an award of
attorneys fees and costs. Other customers of the Company filed two separate
lawsuits, one in California state court during April 1996 and one in Minnesota
state court during June 1996, containing substantially similar allegations and
requests for relief. All three lawsuits have been consolidated in the United
States District Court for the District of Minnesota.
On August 16, 1996, a fourth class-action lawsuit was filed against the
Company in the Circuit Court of Greene County, Alabama. The allegations in this
case are substantially similar to the allegations in the first three lawsuits.
Like the first three cases, the plaintiffs seek certification as a class action,
damages and an award of attorneys fees and costs. In addition, the plaintiffs
in the Alabama case also seek punitive damages against the Company and
prejudgment interest. A conditional order granting nationwide class-action
status has been issued by the Circuit Court in the Alabama case. The
Company's first effort in September to consolidate the Alabama case with the
Minnesota cases in federal court was unsuccessful. In April, the Company
removed the Alabama case to the United States District Court for the Northern
District of Alabama. The plaintiffs have filed a motion opposing this
removal and are seeking to remand the case back to the Alabama Circuit Court.
The Company intends to vigorously defend itself in these cases. No amount
has been reserved for these contingencies.
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.
- 10 -
<PAGE>
REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, has performed a review
of the condensed consolidated balance sheet of the Company as of February 28,
1997, and the related condensed consolidated statements of income for the three-
and nine-month periods ended February 28, 1997 and February 29, 1996 and the
condensed consolidated statements of cash flows for the nine-month periods ended
February 28, 1997 and February 29, 1996, included herein, as indicated in their
report thereon included on page 12.
-11 -
<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, 1997 and the
related condensed consolidated statements of income for the three- and nine-
month periods ended February 28, 1997 and February 29, 1996 and the condensed
consolidated statements of cash flows for the nine-month periods ended
February 28, 1997 and February 29, 1996. 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, 1996 and the related consolidated statements of
income, changes in common stockholders' investment and cash flows for the year
then ended. In our report dated July 1, 1996, 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,
1996 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 13, 1997
- 12 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the three months ended February 28, 1997, the Company recorded net
income of $63 million ($.54 per share) on revenues of $2.9 billion compared
with net income of $27 million ($.24 per share) on revenues of $2.5 billion
for the same period in the prior year. For the nine months ended February
28, 1997, the Company recorded net income of $229 million ($1.98 per share)
on revenues of $8.5 billion compared with net income of $192 million ($1.69
per share) on revenues of $7.5 billion for the same period in the prior year.
Operating results improved, reflecting strong express package volume growth,
stable express revenue per package (yield), increased international
airfreight pounds at slightly lower yields and less severe winter weather,
partially offset by higher jet fuel prices and increased maintenance and
repairs expense.
Revenues
The following table shows a comparison of revenues (in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
February 28, February 29, Percent February 28, February 29, Percent
1997 1996 Change 1997 1996 Change
------------ ------------ ------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. domestic express . . . . . . $2,062 $1,822 +13 % $5,940 $5,337 +11 %
International Priority (IP) . . . 586 490 +20 1,712 1,455 +18
International Express Freight
(IXF) and Airport-to-
Airport (ATA). . . . . . . . . . 150 117 +29 450 420 + 7
Charter, Logistics services
and other. . . . . . . . . . . . 109 106 + 2 350 324 + 8
------ ------ ------ ------
$2,907 $2,535 +15 $8,452 $7,536 +12
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
- 13 -
<PAGE>
The following table shows a comparison of selected express and airfreight
(IXF/ATA) statistics (in thousands, except dollar amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
February 28, February 29, Percent February 28, February 29, Percent
1997 1996 Change 1997 1996 Change
------------ ------------ ------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. domestic express:
Average daily packages. . . . 2,623 2,328 +13 % 2,467 2,218 +11 %
Revenue per package. . . . . . $12.48 $12.42 -- $12.67 $12.60 + 1
IP:
Average daily packages . . . . 226 192 +18 220 187 +17
Revenue per package. . . . . . $41.22 $40.52 + 2 $40.97 $40.64 + 1
IXF/ATA:
Average daily pounds . . . . . 2,474 1,912 +29 2,519 2,124 +19
Revenue per pound. . . . . . . $ .96 $ .97 - 1 $ .94 $ 1.04 -10
</TABLE>
The Company's U.S. domestic yield increased slightly for the quarter and
year-to-date periods including the benefit from the expiration of the air
transportation excise tax and the implementation of a temporary two percent
fuel surcharge (discussed below). Excluding these factors, yields remained
constant due to the effects of continuing yield-management actions, including
systematic review and revision of customer pricing and discounts, an increase
in the list price for FedEx Standard Overnight service in April 1996 and
improved average weight per package. Strong growth in the Company's
lower-yielding products and a reduction in the price for FedEx 2Day service
negatively impacted yields. Management plans to aggressively pursue its
yield-management program during 1997 with the goal of ensuring an appropriate
balance between revenues generated and the cost of providing express
services. Management believes that U.S. domestic yields should remain stable
year over year during the remainder of 1997. Actual results may vary
depending on the impact of a temporary fuel surcharge, competitive pricing
changes, including distance-based pricing, customer responses to yield
management initiatives and changing customer demand patterns.
The air transportation excise tax expired on December 31, 1995, was
reenacted by Congress effective August 27, 1996, and expired again on December
31, 1996. This expiration relieved the Company of its obligation to pay the tax
for these periods. The expiration of the tax contributed $21 million and $49
million to U.S. domestic revenues during the current quarter and year-to-date
periods, respectively, and 1% to U.S. domestic yields for each of these same
periods. In the prior year's third quarter, the expiration of the excise tax
added $19 million and 1% to U.S. domestic revenues and yields, respectively.
The excise tax was reenacted by Congress effective March 7, 1997, and is
scheduled to expire again on September 30, 1997.
- 14 -
<PAGE>
The Company's IP revenues and volumes continued to experience strong growth
during the quarter and year-to-date periods. Yields increased during the
quarter and year-to-date periods compared to the same periods of the prior year.
Management expects these trends to continue through the remainder of 1997.
Actual IP results will depend on the impact of a temporary fuel surcharge,
international economic conditions, actions by the Company's competitors in key
IP markets, and regulatory conditions for international aviation rights.
The Company's airfreight volumes increased year-over-year, while yields
experienced a year-over-year decline. IXF volumes (a space-confirmed, time-
definite service) increased 45% and 32% for the quarter and year-to-date
periods, respectively, but yields declined 3% and 11% for these same periods,
respectively. ATA volumes (a lower-priced, space-available service) increased
8% and 1% for the quarter and year-to-date periods, respectively. Yields were
lower by 1% and 10% for these same periods, respectively. Excess market
capacity continues to exert downward pressure on airfreight yields. Management
expects airfreight yields to continue to decline, year-over-year, through the
balance of the fiscal year. Actual results, however, will depend on the impact
of a temporary fuel surcharge, international economic conditions, actions by the
Company's competitors and regulatory conditions for international aviation
rights.
Operating Expenses
Salaries and employee benefits increased 12% and 10% for the quarter and
year-to-date periods, respectively. These increases are a result of volume-
related growth and increased provisions under the Company's performance-based,
incentive compensation plans.
Rentals and landing fees increased 11% and 12% for the quarter and year-to-
date periods, respectively. These increases are primarily due to additional
leased aircraft in the Company's fleet. As of February 28, 1997, the Company
had 79 wide-bodied aircraft under operating lease compared with 71 as of
February 29, 1996. Management expects year-over-year increases in lease expense
to continue as the Company enters into additional aircraft rental agreements
during 1997 and thereafter. The Company expects to be able to convert its A300
purchase commitments into direct operating leases. (See Note 6 of Notes to
Condensed Consolidated Financial Statements.)
Fuel expense increased 26% and 23% for the quarter and year-to-date
periods, respectively, due to increases in average jet fuel price per gallon
(16% and 15% for the quarter and year-to-date periods, respectively) and gallons
consumed (10% and 8% for the quarter and year-to-date periods, respectively).
The increase in fuel prices accounted for approximately $27 million of the third
quarter's $39 million year-over-year expense increase. The third quarter's
increase in fuel expense includes the benefit of payments received under
contracts which limit the Company's exposure to fluctuations in jet fuel prices.
The increases in average price per gallon were due to higher jet fuel prices.
The 4.3 cents per gallon excise tax on aviation fuel used domestically became
effective October 1, 1995, and contributed to the year-to-date increase in
average price per gallon.
In order to mitigate the impact of the recent increases in jet fuel prices,
the Company implemented fuel surcharges on airfreight shipments, effective
December 1, 1996, for shipments out of Europe. Additionally, the Company
implemented fuel surcharges, effective December 15, for airfreight shipments
originating in the U.S., Latin America and selected Asian countries
- 15 -
<PAGE>
except those to the People's Republic of China and Hong Kong. The Company also
implemented a temporary two percent fuel surcharge, effective February 3, 1997,
on U.S. domestic shipments except FedEx Same Day service and including Puerto
Rico. This surcharge also applies to all U.S. export IP shipments, except those
to the People's Republic of China and Hong Kong.
Maintenance and repairs expense increased 15% and 24% for the quarter and
year-to-date periods, respectively. The increases in the second and third
quarters are due primarily to higher year-over-year engine maintenance on MD11
and A310 aircraft. Partially contributing to the large year-to-date percentage
increase was the unusually low level of expense incurred in the first quarter of
1996. The above increases are consistent with that of recent past periods and
with management's expectations for the remainder of 1997. Management believes
that maintenance and repairs expense will continue a long-term trend of year-
over-year increases for the foreseeable future due to the Company's increasing
fleet size and variety of aircraft types.
Operating Income
The Company's consolidated operating income increased 71% and 12% for the
quarter and year-to-date periods, respectively, from the prior year.
U.S. domestic operating income was $99 million and $366 million for the
quarter and year-to-date periods, respectively. Prior year amounts were $91
million and $354 million for these same periods, respectively. Volume growth
for the quarter and year-to-date periods was 13% and 11%, respectively. Yield
increases (0.5% and 1% for the quarter and year-to-date periods, respectively)
partially offset by cost per package increases (0.2% and 1% for the quarter and
year-to-date periods, respectively) contributed to the increased domestic
operating income. Cost per package increased during these periods due to
increases in aircraft fuel expense, maintenance and repairs expense, aircraft
lease expense and provisions to the Company's performance-based employee
incentive plans. Domestic operating income for the year-to-date period included
a $13.5 million pre-tax benefit from the settlement of a Tennessee personal
property tax matter and an incremental $10 million from the sales of aircraft
engine noise reduction kits. U.S. domestic margins were 4.7% and 6.0% for the
quarter and year-to-date periods, respectively, compared with 4.8% and 6.5% for
these same periods in the prior year.
The Company's international operating income was $34 million and $82
million for the quarter and year-to-date periods ended February 28, 1997. Prior
year amounts for these same periods were an operating loss of $13 million and
operating income of $44 million, respectively. The increases were attributable
to strong growth in the Company's IP services and airfreight volumes partially
offset by lower airfreight yields and increases in aircraft fuel expense.
Higher maintenance and repairs expense in the current year also impacted the
year-to-date operating income. International operating margins for the quarter
and year-to-date periods were 4.3% and 3.5%, respectively, compared with -1.9%
and 2.2% for these same periods in the prior year.
Other Income and Expense and Income Taxes
Other, net for the year-to-date period ended February 28, 1997, includes a
$17.1 million gain from an insurance settlement for a DC10 aircraft destroyed by
fire in September 1996.
- 16 -
<PAGE>
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents totaled $100 million at February 28, 1997, and
increased $7 million since May 31, 1996. Cash provided from operations was
$610 million compared with $596 million for the same period in the prior
year. The Company has a $1 billion revolving bank credit facility (of which
$774 million was available at February 28, 1997) that is generally used to
finance temporary operating cash requirements and to provide support for the
issuance of commercial paper. The reduction in the amount available under
the credit facility was solely attributable to support for the issuance of
commercial paper during the quarter. Management believes that cash flow from
operations, its commercial paper program and the revolving bank credit
facility will adequately meet its working capital needs for the foreseeable
future.
Capital Resources
The Company's operations are capital intensive, characterized by
significant investments in aircraft, vehicles, package handling facilities, sort
equipment, 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 1997 totaled $1.1 billion
and included nine Airbus A310s, two MD11s (one of which was subsequently sold
and leased back), vehicles and ground support equipment and customer automation
and computer equipment. In comparison, prior year expenditures totaled $1.0
billion and included five A310s (one of which, along with two purchased in 1995,
was subsequently sold and leased back), one MD-11 (which was subsequently sold
and leased back), 27 Cessna 208s, deposits on future Airbus A300s, vehicles and
ground support equipment, and customer automation and computer equipment. For
information on the Company's purchase commitments, see Note 6 of Notes to
Condensed Consolidated Financial Statements.
Additional investing activities in the first nine months of 1996 included
the purchase of an all-cargo route authority between the U.S. and China.
Management believes that the capital resources available to the Company,
including the public and private debt markets for leveraged lease financing,
provide flexibility to access the most efficient markets for financing aircraft
acquisitions and are adequate for the Company's future capital needs.
Statements in this "Management's Discussion and Analysis of Results of
Operations and Financial Condition" or made by management of the Company which
contain more than historical information may be considered forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) which are subject to risks and uncertainties. Actual results may
differ materially from those expressed in the forward-looking statements because
of important factors identified in this section.
- 17 -
<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
------- ----------------------
10.1 Fifteenth Supplemental Lease Agreement dated as
of January 1, 1997 between Memphis Shelby County
Airport Authority and the Registrant.
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, 1997.
- 18 -
<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 11, 1997 /s/ MICHAEL W. HILLARD
-----------------------------------
MICHAEL W. HILLARD
VICE PRESIDENT & CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
- 19 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.1 Fifteenth Supplemental Lease Agreement dated as
of January 1, 1997 between Memphis Shelby County
Airport Authority and the Registrant.
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>
EXECUTION COPY
- -------------------------------------------------------------------------------
FIFTEENTH SUPPLEMENTAL LEASE AGREEMENT
BY AND BETWEEN
MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY
AND
FEDERAL EXPRESS CORPORATION
DATED AS OF JANUARY 1, 1997
AMENDING THE CONSOLIDATED AND RESTATED LEASE AGREEMENT DATED AS OF AUGUST 1,
1979 BETWEEN THE MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY AND FEDERAL EXPRESS
CORPORATION.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1 Definitions................................................... 6
2 Granting Leasehold............................................ 6
3 Term; Delivery and Acceptance of Possession.................. 7
4 Rental........................................................ 8
5 Hazardous Substances/Waste.................................... 8
6 Lease Agreement Still in Effect; Provisions Thereof Applicable
to this Fifteenth Supplemental Lease Agreement................ 9
7 Descriptive Headings.......................................... 9
8 Effectiveness of this Fifteenth Supplemental Lease Agreement. 10
9 Execution of Counterparts.................................... 10
10 Notary....................................................... 11
11 Leased Parcel Summary........................................ 12
12 Rental Summary............................................... 14
<PAGE>
FIFTEENTH SUPPLEMENTAL LEASE AGREEMENT
THIS FIFTEENTH SUPPLEMENTAL LEASE AGREEMENT, made and entered into as of
the first day of January, 1997, by and between MEMPHIS-SHELBY COUNTY AIRPORT
AUTHORITY (herein sometimes referred to as "Authority"), a public and
governmental body politic and corporate of the State of Tennessee, and FEDERAL
EXPRESS CORPORATION (herein sometimes referred to as "Tenant"), a corporation
duly organized and existing under the laws of the State of Delaware and
qualified to do business in the State of Tennessee.
W I T N E S S E T H:
WHEREAS, Authority and Tenant on October 3, 1979 entered into a
Consolidated and Restated Lease Agreement dated as of August 1, 1979; and
WHEREAS, Authority and Tenant on April 7, 1981 entered into a First
Supplemental Lease Agreement dated as of April 1, 1981 (the "First Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land, buildings, and equipment to be included in the Project as
defined in the Lease Agreement all as set forth therein (such additional land,
buildings, and equipment being defined therein and hereinafter referred to as
the "1981 Federal Express Project"), all as set forth therein; and
WHEREAS, the Authority and Tenant on May 6, 1982 entered into a Second
Supplemental Lease Agreement dated as of January 1, 1982 (the "Second
Supplemental Lease Agreement") so as to provide for the lease by Tenant from
Authority of additional land to be included in this Project, all as set forth
therein; and
WHEREAS, Authority and Tenant on December 9, 1982 entered into a Third
Supplemental Lease Agreement dated as of November 1, 1982 (the "Third
Supplemental Lease
3
<PAGE>
Agreement") so as to release certain items consisting of buildings and leased
equipment in the 1981 Federal Express Project; and
WHEREAS, Authority and Tenant on September 29, 1983 entered into a Fourth
Supplemental Lease Agreement dated as of July 1, 1983 (the "Fourth Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in the Project, all as set forth therein; and
WHEREAS, Authority and Tenant on April 23, 1984 entered into a Fifth
Supplemental Lease Agreement dated as of February 1, 1984 (the "Fifth
Supplemental Lease Agreement") so as to provide for the lease by Tenant from
Authority of additional land to be included in this Project, all as set forth
therein; and
WHEREAS, Authority and Tenant on November 19, 1984 entered into a Sixth
Supplemental Lease Agreement dated as of April 1, 1984 (the "Sixth Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project, all as set forth therein; and
WHEREAS, Authority and Tenant on November 19, 1984 entered into a Seventh
Supplemental Lease Agreement dated as of June 1, 1984 (the "Seventh Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project, all as set forth therein; and
WHEREAS, Authority and Tenant on November 4, 1988 entered into a Eighth
Supplemental Lease Agreement dated as of July 1, 1988, (the "Eighth Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project, all as set forth therein; and
4
<PAGE>
WHEREAS, Authority and Tenant on July 12, 1989 entered into a Ninth
Supplemental Lease Agreement dated as of June 1, 1989, (the "Ninth Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project, all as set forth therein; and
WHEREAS, Authority and Tenant on October 1, 1991 entered into a Tenth
Supplemental Lease Agreement dated as of October 1, 1991, (the "Tenth
Supplemental Lease Agreement") so as to provide for the lease by Tenant from
Authority of additional land to be included in this Project, all as set forth
therein; and
WHEREAS, Authority and Tenant on July 1, 1994 entered into a Eleventh
Supplemental Lease Agreement dated July 1, 1994, (the "Eleventh Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project, all as set forth therein; and
WHEREAS, Authority and Tenant on July 1, 1993 entered into a Twelfth
Supplemental Lease Agreement dated July 1, 1993, (the "Twelfth Supplemental
Lease Agreement") so as to release a certain parcel of land from the 1981
Federal Express Project as described on Exhibit 1 attached thereto; and
WHEREAS, Authority and Tenant on June 1, 1995 entered into a Thirteenth
Supplemental Lease Agreement dated June 1, 1995, (the "Thirteenth Supplemental
Lease Agreement") so as to provide for the lease by Tenant from Authority of
additional land to be included in this Project and so as to release a certain
parcel of land from the 1981 Federal Express Project, all as set forth therein;
and
WHEREAS, Authority and Tenant on December 1, 1995 entered into a Fourteenth
5
<PAGE>
Supplemental Lease Agreement dated January 1, 1996, (the "Fourteenth
Supplemental Lease Agreement") so as to provide for the lease by Tenant from
Authority of additional land to be included in this Project, all as set forth
therein; and
WHEREAS, the said Consolidated and Restated Lease Agreement dated as of
August 1, 1979, together with the First through the Fourteenth Supplemental
Lease Agreements is herein referred to as the "Lease Agreement"; and
WHEREAS, Authority and Tenant have agreed to further supplement the Lease
Agreement so as to lease to Tenant certain additional land under this Fifteenth
Supplemental Lease Agreement.
NOW THEREFORE, for and in consideration of the mutual promises, covenants
and agreements hereinafter contained to be kept and performed by the parties
hereto and upon the provisions and conditions hereinafter set forth, Authority
and Tenant do hereby covenant and agree, and each for itself does hereby
covenant and agree, as follows:
SECTION 1. DEFINITIONS. Except as otherwise provided herein, and unless
the context shall clearly require otherwise, all words and terms used in this
Fifteenth Supplemental Lease Agreement which are defined in the Lease Agreement,
shall, for all purposes of this Fifteenth Supplemental Lease Agreement, have the
respective meanings given to them in the Lease Agreement.
SECTION 2. GRANTING OF LEASEHOLD. In addition to the lease and demise to
Tenant of the land in the Lease Agreement, the Authority hereby leases and
demises to Tenant, and Tenant hereby takes and hires from Authority, subject to
the provisions and conditions set forth in the Lease Agreement and this
Fifteenth Supplemental Lease Agreement, the additional land
6
<PAGE>
designated as new Lease Parcel 21 which is located on the Memphis-Shelby
County Airport Authority property situated in Memphis, Shelby County,
Tennessee, and being more particularly described as follows:
PARCEL 21
(E. TCHULAHOMA PARKING LOT)
BEING PART OF THE MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY (M.S.C.A.A.)
PROPERTY SITUATED IN MEMPHIS, SHELBY COUNTY, TENNESSEE AND BEING ALL OF
REVISED PARCEL 21 AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
Commencing at a iron pin in the west line of Tchulahoma Road (106' R.O.W.)
at the intersection of said west line with the projected centerline of
Runway 27; thence run N 88DEG. 01'00"W with said centerline, 875.48' and
N 1DEG. 59'00"E perpendicular to said centerline, 2111.31' to the point of
beginning in the east line of said Tchulahoma Road for a northwest corner
of an "18.427" acre tract recorded under Instrument No. P7-2839, Shelby
County Register's Office (S.C.R.O.) and the southeast corner of this
parcel; thence run N 33DEG. 24'36"W with the east line of said Tchulahoma
Road, 57.95' to a point of curvature; thence run northwestwardly with said
east line and with a curve to the right having a radius of 1379.39', along
the arc, (central angle = 35DEG. 05'25", long chord bearing =N 15DEG.
51'53"W, long chord distance = 831.66') an arc distance of 844.80' to the
point of tangency; thence run N 1DEG. 40'50"E continuing with said east
line, 304.98' to a point for the southwest corner of a "20" acre tract and
the northwest corner of this parcel; thence run S 88 16'58"E with the
south line of said "20" acre tract, 796.68' to an iron pipe found for a
northwest corner of said "18.427" acre tract and the northeast corner of
this parcel; thence run S 1DEG. 34'23"W with a west line of said "18.427"
acre tract, 1130.45' to an iron pipe found for an interior corner of said
"18.427" acre tract and the southeast corner of this parcel; thence run
N 89DEG. 55'20"W with a north line of said "18.427" acre tract, 514.98'
to the point of beginning containing 19.134 acres or 833,476 square feet,
more or less.
SECTION 3. TERM; DELIVERY AND ACCEPTANCE OF POSSESSION. The terms of this
Fifteenth Supplemental Lease Agreement shall commence on 12:01 A.M. on January
1, 1997, for the land described as Parcel 21 and shall expire at such time as
the Lease Agreement shall expire, to-wit: August 31, 2012 or upon such earlier
termination, extension or otherwise as provided therein. Authority shall
deliver to Tenant sole and exclusive possession of that portion of the land,
leased hereby as of the date commencement of the term hereof, subject however,
to Authority's right-of-entry set forth in Section 21 of the Lease Agreement.
7
<PAGE>
SECTION 4. RENTAL. In addition and supplemental to the rentals required to
be paid to the Authority pursuant to Section 5 of the Lease Agreement (including
all prior supplement lease agreements), during the term of this Fifteenth
Supplemental Lease Agreement, Tenant shall pay to the Authority in advance on
the first business day of each month $6,778.94 in equal installments beginning
January 1, 1997, a total rental payment of $81,347.26 per year, which the
parties hereto agree is based upon an aggregate of 833,476 square feet of area
at an annual rental rate of ($0.0976) per square foot.
SECTION 5. HAZARDOUS SUBSTANCES/WASTE. Since earlier studies have
identified the possibility that underground hazardous materials may be present
in the northwest portion of Parcel 21, Tenant, at its own expense, agrees to
arrange for a Phase 1 Environmental Survey on the land described as Parcel 21 by
a reputable environmental consultant to determine the existence of Hazardous
Substances. In the event that Hazard Substances are uncovered during excavation
for the construction of a parking lot, and such Hazardous Substances, as defined
herein, shall require special handling and disposal, then Authority shall grant
to Tenant a rent credit equal to the reasonable documented costs paid by Tenant
for the removal and disposal of Hazardous Substance(s) associated with Lease
Parcel 21 exclusively.
The term "HAZARDOUS SUBSTANCES," as used in this Fifteenth Supplemental
Lease Agreement, shall mean (i) any hazardous or toxic substances, materials or
wastes, including, but not limited to, those substances, materials, and wastes
listed in the United States Department of Transportation Hazardous Materials
Table (49 CFR Section 172.101) or by the Environmental Protection Agency as
hazardous substances (40 CFR Part 302) and amendments thereto, (ii) designated
as a "Hazardous Substance" pursuant to Section 311 of the Clean Water Act, 33
8
<PAGE>
U.S.C. Section 1251 et seq. (33 U.S.C. Section 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. Section 1317, (iii) defined as a
"Hazardous Waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq. (42 U.S.C. Section 6903),or (iv)
defined as "Hazardous Substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.Section 9601,
et seq. 42 U.S.C. Section 9601) or any other substances, (including, without
limitation, asbestos and raw materials which include hazardous constituents),
the general, discharge or removal of which or the use of which is restricted,
prohibited or penalized by any "Environmental Law," which term shall mean any
Federal, State or local law, regulation, or ordinance relating to pollution or
protection of the environment.
SECTION 6. LEASE AGREEMENT STILL IN EFFECT; PROVISIONS THEREFORE
APPLICABLE TO THIS SUPPLEMENTAL LEASE AGREEMENT. All of the terms, provisions,
conditions, covenants and agreements of the Lease Agreement, as supplemented,
shall continue in full force and effect as supplemented hereby, and shall be
applicable to each of the provisions of this Fifteenth Supplemental Lease
Agreement during the term hereof with the same force and effect as though the
provisions hereof were set forth in the Lease Agreement.
SECTION 7. DESCRIPTIVE HEADINGS. The descriptive headings of the sections
of this Fifteenth Supplemental Lease Agreement are inserted for convenience of
reference only and do not constitute a part of this Fifteenth Supplemental Lease
Agreement and shall not affect the meaning, construction, interpretation or
effect of this Fifteenth Supplemental Lease Agreement.
SECTION 8. EFFECTIVENESS OF THIS SUPPLEMENTAL LEASE AGREEMENT. This
Fifteenth Supplemental Lease Agreement shall become effective at 12:01 a.m. on
January 1, 1997.
9
<PAGE>
SECTION 9. EXECUTION OF COUNTERPARTS. This Fifteenth Supplemental Lease
Agreement may be simultaneously executed in several counterparts, each of which
shall be an original and all of which shall constitute but one and the same
instrument.
SECTION 10. SUMMARIES. For the convenience of both parties a leased
parcel summary and a rental summary are attached to this lease agreement.
IN WITNESS WHEREOF, THE MEMPHIS-SHELBY COUNTY AIRPORT AUTHORITY AND FEDERAL
EXPRESS CORPORATION have caused this Fifteenth Supplemental Lease Agreement to
be duly executed in their respective behalfs, as of the day and date first above
written.
WITNESS: MEMPHIS-SHELBY COUNTY AIRPORT
AUTHORITY
/s/ R. L. [illegible] BY: /s/ LARRY D. COX
- -------------------------------- ---------------------------------
Title: DIRECTOR OF PROPERTIES TITLE: PRESIDENT
------------------------- -------------------------------
Approved as to Form and Legality:
/s/ R. GRATTAN BROWN JR.
- ---------------------------------------------
R. Grattan Brown, Jr., Attorney for Authority
WITNESS: FEDERAL EXPRESS CORPORATION
/s/ ANN HOFF BY: /s/ GRAHAM R. SMITH
- ----------------------- ------------------------------
Title: Project Coord. TITLE: Vice President
---------------- ---------------------------
10
<PAGE>
(STATE OF TENNESSEE )
(COUNTY OF SHELBY )
On this 4th day of October, 1996, before me appeared LARRY D. COX, to me
personally known, who, being by me duly sworn (or affirmed), did say that he is
the President of the Memphis-Shelby County Airport Authority, the within named
Lessor, and that he as such President, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the Authority by himself as such President.
MY COMMISSION EXPIRES
Feb. 23, 2000 /s/ PAT STANFILL
- -------------------------------- ------------------------------
Notary Public
(seal)
STATE OF TENNESSEE )
COUNTY OF SHELBY )
On this 26 day of Sept., 1996, before me appeared Graham R. Smith, to me
personally known, who, being by me duly sworn (or affirmed), did say that he is
a Vice President of Federal Express Corporation, the within named Lessee, and
that he as such Vice President, being authorized so to do, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the Corporation by himself as such Vice President.
MY COMMISSION EXPIRES
10-1-96 /S/ SANDRA C. WAITS
- --------------------- ---------------------------------------
Notary Public
(seal)
11
<PAGE>
FEDERAL EXPRESS LEASED PARCELS SUMMARY
PARCEL EFFECTIVE
LEASE ACRES SQUARE FEET AGREEMENT DATE
- ----- ----- ----------- --------- ---------
BASE-LEASE
----------
Revised 9 128.469 Consolidated & 08/01/79
Restated
10 1.612 70,200 Consolidated & 08/01/79
Restated
11 1.044 45,359 Consolidated & 08/01/79
Restated
PREVIOUS SUPPLEMENTS
12 2.707 117,915 First 04/01/81
Supplemental
13 6.860 298,830 Second 01/01/82
Supplemental
14 14.586 635,377 Fourth 07/01/83
Supplemental
15 12.689 552,723 Fourth 07/01/83
Supplemental
Rev 16 18.281 (19.685) 796,312 Fifth 02/01/84
Supplemental
Rev 17 119.616 (124.992) 5,210,477 Sixth 04/01/84
Supplemental
18 2.717 118,353 Sixth 04/01/84
Supplemental
19 41.606 1,812,352 Seventh 06/01/84
Supplemental
25 0.435 18,933 Eighth 07/01/88
Supplemental
20 11.275 491,127 Ninth 06/01/89
Supplemental
27 11.192 487,512 Tenth 10/01/91
Supplemental
32 (removed) 22.972 1,000,681 Twelfth 07/01/93
Supplemental
27 A(West) 4.058 176,777 Eleventh 07/01/94
Supplemental
27 B(West) 5.706 248,533 Eleventh 07/01/94
Supplemental
12
<PAGE>
PARCEL EFFECTIVE
LEASE ACRES SQUARE FEET AGREEMENT DATE
- ----- ----- ----------- --------- ---------
Southwest
Ramp 2.350 102,366 Eleventh 07/01/94
Supplemental
33 8.998 391,942 Thirteenth 06/01/95
Supplemental
36 3.050 132,837 Thirteenth 06/01/95
Supplemental
Hangar 8 (removed) 36,946,33 Thirteenth 06/01/95
Supplemental
34 9.951 433,461 Fourteenth 01/01/96
Supplemental
THIS SUPPLEMENT
21 19.134 833,476 Fifteenth 01/01/97
Supplemental
OPTIONS
22 3.521 153,394 Option, Expires 5/31/99
29 3.85 167,706 Option, Expires 9/30/96
ASSIGNMENTS
23 5.923 258,008 Graber Assignment,
Expires 12/31/2000
Invoice FEC
Next Increase 1/1/2001
24 9.964 434,030 Southwide Assignment
Expires 5/14/2013
Invoice FEC
Next Increase 5/15/98
26 9.532 415,213 BICO Assignment,
Expires 7/31/2021
Invoice FEC
Next Increase 8/01/96
28 10.68 465,221 Equitable Life Assignment
Expires 5/14/2013
Invoice FEC
Next Increase 5/15/98
13
<PAGE>
RENTAL - FEDERAL EXPRESS
Effective January 1, 1997
Annual
Category Number of Rental Rate
of Space Square Feet Per Sq. Ft. Annual Rental
- -------- ----------- ------------ -------------
Bldg. T-376 1,240 1.221 $ 1,514.04
Unimproved Ground 6,285,758 0.098 616,004.28
Improved Apron 2,395,802 0.122 292,287.84
Hangar Property 72,092.67 0.903 65,099.68
Hangar Office 28,000 1.465 41,020.00
International Park 8,721,224 0.171 1,491,329.30
Former IRS Facility 2,255,137.24 1,200,000.00
------------- ------ -------------
19,755,253.91 $.1422 $3,707,255.14
BREAKDOWN OF SPACE
Sq. Ft. Sq. Ft.
------- -------
Bldg. T-376 Parcel 4 1,240
- ----------- -----
1,240
Unimproved Ground Parcel 1 130,900
- ----------------- Parcel 2 50,000
Parcel 3 192,400
Parcel 4 32,540
Parcel 6 89,700
Parcel 9 1,167,337
Parcel 19 1,812,362
Parcel 20 491,127
Parcel 27A 176,777
Parcel 27B 248,533
Southwest Ramp 102,366
Parcel 33 391,942
Parcel 36 132,837
Parcel 34 433,461
Parcel 21 833,476
-------
6,285,758
Improved Apron Parcel 1 850,250
- -------------- Parcel 2 226,900
Parcel 7 577,540
Parcel 9 253,600
Parcel 27 487,512
--------
2,395,802
14
<PAGE>
Sq. Ft. Sq. Ft.
------- -------
Hangar Property Parcel 1 44,336
- --------------- Parcel 2 27,756.67
---------
72,092.67
Hangar Office Parcel 1 22,400
- ------------- Parcel 2 5,600
------
28,000
International
Park Parcel 5 24,000
- ------------- Parcel 8 247,254
Parcel 9 1,586,172
Parcel 10 70,200
Parcel 11 45,359
Parcel 12 117,915
Parcel 13 298,830
Parcel 14 556,334
Parcel 15 552,723
Parcel 16 796,312
Parcel 17 4,288,839
Parcel 18 118,353
Parcel 25 18,933
------
8,721,224
Former IRS Facility 2,255,137.24 2,255,137.24
- ------------------- ------------ ------------
TOTAL: 19,755,253.91
15
<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, 1997 and February 29,
1996 were as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
February 28, February 29, February 28, February 29,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income applicable to
common and common equivalent
shares . . . . . . . . . . . . . $ 62,988 $ 27,156 $228,655 $192,361
-------- -------- -------- --------
-------- -------- -------- --------
Average shares of common stock
outstanding. . . . . . . . . . . 114,126 113,421 113,976 112,967
Common Equivalent Shares:
Assumed exercise of
outstanding dilutive
options. . . . . . . . . . . . 7,029 4,926 5,962 5,464
Less shares repurchased from
proceeds of assumed exercise
of options . . . . . . . . . . (5,306) (3,832) (4,633) (4,294)
-------- -------- -------- --------
Average common and common
equivalent shares. . . . . . . . 115,849 114,515 115,305 114,137
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share . . . . . . . . $ .54 $ .24 $ 1.98 $ 1.69
-------- -------- -------- --------
-------- -------- -------- --------
</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 29, February 28,
1992 1993 1994 1995 1996 1996 1997
--------- -------- -------- -------- ---------- ------------ ------------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) before
income taxes. . . . . . . . . . $(146,828) $203,576 $378,462 $522,084 $ 539,959 $337,475 $397,661
Add back:
Interest expense, net of
capitalized interest . . . . . 176,321 168,762 152,170 130,923 105,449 80,128 69,986
Amortization of debt
issuance costs . . . . . . . . 2,570 4,906 2,860 2,493 1,628 1,239 997
Portion of rent expense
representative of
interest factor. . . . . . . . 299,012 262,724 285,261 329,370 386,254 285,789 324,341
--------- -------- -------- -------- ---------- -------- --------
Earnings as adjusted . . . . . . $ 331,075 $639,968 $818,753 $984,870 $1,033,290 $704,631 $792,985
--------- -------- -------- -------- ---------- -------- --------
--------- -------- -------- -------- ---------- -------- --------
Fixed Charges:
Interest expense, net of
capitalized interest. . . . . . $ 176,321 $168,762 $152,170 $130,923 $ 105,449 $ 80,128 $ 69,986
Capitalized interest . . . . . . 26,603 31,256 29,738 27,381 39,254 29,737 29,133
Amortization of debt issuance
costs . . . . . . . . . . . . . 2,570 4,906 2,860 2,493 1,628 1,239 997
Portion of rent expense
representative of interest
factor. . . . . . . . . . . . . 299,012 262,724 285,261 329,370 386,254 285,789 324,341
--------- -------- -------- -------- ---------- -------- --------
$ 504,506 $467,648 $470,029 $490,167 $ 532,585 $396,893 $424,457
--------- -------- -------- -------- ---------- -------- --------
--------- -------- -------- -------- ---------- -------- --------
Ratio of Earnings to Fixed Charges (A) 1.4 1.7 2.0 1.9 1.8 1.9
--------- -------- -------- -------- ---------- -------- --------
--------- -------- -------- -------- ---------- -------- --------
</TABLE>
(A) Earnings were inadequate to cover fixed charges by $173.4 million for the
year ended May 31, 1992.
<PAGE>
EXHIBIT 15.1
March 13, 1997
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, 33-55055, 333-03443, and 333-07691 its Report on Form 10-Q for the
quarter ended February 28, 1997, which includes our report dated March 13, 1997
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
