<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 NOVEMBER 30, 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 December 31, 1997
Common Stock, par value $.10 per share 115,592,203
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Condensed Consolidated Balance Sheets
November 30, 1997 and May 31, 1997. . . . . . . . . . . . . . . . . 3-4
Condensed Consolidated Statements of Income
Three and Six Months Ended November 30, 1997 and 1996 . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 1997 and 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 . . . . . . . . . . . . . . . . . . . . . . 13-18
PART II. OTHER INFORMATION
Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 19
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
November 30,
1997 May 31,
(Unaudited) 1997
------------- -----------
(In thousands)
Current Assets:
Cash and cash equivalents . . . . . . . . . . $ 193,177 $ 122,023
Receivables, less allowance for doubtful
accounts of $41,439,000 and $36,175,000. . 1,746,587 1,512,939
Spare parts, supplies and fuel. . . . . . . . 351,816 313,337
Deferred income taxes . . . . . . . . . . . . 168,396 149,158
Prepaid expenses and other. . . . . . . . . . 41,608 35,132
----------- ----------
Total current assets . . . . . . . . . . 2,501,584 2,132,589
----------- ----------
Property and Equipment, at Cost (Note 6) . . . . 10,332,684 9,818,936
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . 5,486,146 5,196,856
----------- ----------
Net property and equipment . . . . . . . 4,846,538 4,622,080
----------- ----------
Other Assets:
Goodwill. . . . . . . . . . . . . . . . . . . 357,849 365,327
Equipment deposits and other assets (Note 6). 419,908 505,490
----------- ----------
Total other assets . . . . . . . . . . . 777,757 870,817
----------- ----------
$ 8,125,879 $7,625,486
----------- ----------
----------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' INVESTMENT
November 30,
1997 May 31,
(Unaudited) 1997
------------- -----------
(In thousands)
Current Liabilities:
Current portion of long-term debt (Note 3). . $ 274,545 $ 126,666
Accounts payable. . . . . . . . . . . . . . . 867,555 828,421
Accrued expenses (Note 2) . . . . . . . . . . 1,112,565 1,007,696
----------- ----------
Total current liabilities. . . . . . . . 2,254,665 1,962,783
----------- ----------
Long-Term Debt, Less Current Portion (Note 3). . 1,286,568 1,397,954
----------- ----------
Deferred Income Taxes. . . . . . . . . . . . . . 169,498 159,165
----------- ----------
Other Liabilities. . . . . . . . . . . . . . . . 1,205,616 1,143,070
----------- ----------
Commitments and Contingencies (Notes 6 and 7)
Common Stockholders' Investment (Note 5):
Common Stock, $.10 par value;
400,000,000 shares authorized;
115,174,203 and 114,906,756
shares issued. . . . . . . . . . . . . . . 11,517 11,491
Other . . . . . . . . . . . . . . . . . . . . 3,198,015 2,951,023
----------- ----------
Total common stockholders' investment. . 3,209,532 2,962,514
----------- ----------
$8,125,879 $7,625,486
----------- ----------
----------- ----------
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 Six Months Ended
November 30, November 30,
------------------------- --------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . $ 3,299,159 $ 2,852,369 $ 6,596,377 $ 5,544,681
----------- ----------- ----------- -----------
Operating Expenses:
Salaries and employee benefits. . . . . . . . . . . 1,425,473 1,247,211 2,875,960 2,478,634
Rentals and landing fees. . . . . . . . . . . . . . 316,479 267,209 590,947 520,577
Depreciation and amortization . . . . . . . . . . . 208,925 190,963 411,346 381,172
Fuel. . . . . . . . . . . . . . . . . . . . . . . . 182,383 174,453 356,163 328,000
Maintenance and repairs . . . . . . . . . . . . . . 206,660 188,445 415,120 369,864
Other . . . . . . . . . . . . . . . . . . . . . . . 745,434 599,161 1,468,831 1,151,589
----------- ----------- ----------- ----------
3,085,354 2,667,442 6,118,367 5,229,836
----------- ----------- ----------- ----------
Operating Income . . . . . . . . . . . . . . . . . . . 213,805 184,927 478,010 314,845
----------- ----------- ----------- ----------
Other Income (Expense):
Interest, net . . . . . . . . . . . . . . . . . . . (28,649) (21,275) (54,477) (43,034)
Other, net. . . . . . . . . . . . . . . . . . . . . (647) 16,726 7,971 16,306
----------- ----------- ----------- ----------
(29,296) (4,549) (46,506) (26,728)
----------- ----------- ----------- ----------
Income Before Income Taxes . . . . . . . . . . . . . . 184,509 180,378 431,504 288,117
Income Tax Provision . . . . . . . . . . . . . . . . . 77,494 76,661 181,232 122,450
----------- ----------- ----------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 107,015 $ 103,717 $ 250,272 $ 165,667
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Earnings per Share . . . . . . . . . . . . . . . . . . $ .91 $ .90 $ 2.13 $ 1.44
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Common and Common Equivalent
Shares (Note 5) . . . . . . . . . . . . . . . . . . 117,913 115,132 117,628 115,033
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
November 30,
------------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities. . . . . . . . . . . . $ 514,141 $ 548,701
--------- ---------
Investing Activities:
Purchases of property and equipment, including
deposits on aircraft of $6,392,000 and
$18,894,000. . . . . . . . . . . . . . . . . . . . . . . . (787,803) (739,781)
Proceeds from disposition of property
and equipment:
Sale-leaseback transactions . . . . . . . . . . . . . . 162,900 80,400
Reimbursements of A300 deposits . . . . . . . . . . . . 106,991 63,039
Other dispositions. . . . . . . . . . . . . . . . . . . 8,847 27,054
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . 29,462 25,231
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . (479,603) (544,057)
--------- ---------
Financing Activities:
Proceeds from debt issuances. . . . . . . . . . . . . . . . . 267,105 15,497
Principal payments on debt. . . . . . . . . . . . . . . . . . (234,952) (7,678)
Proceeds from stock issuances . . . . . . . . . . . . . . . . 8,007 6,123
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . (3,544) (312)
--------- ---------
Net cash provided by financing activities. . . . . . . . . . . . 36,616 13,630
--------- ---------
Net increase in cash and cash equivalents. . . . . . . . . . . . 71,154 18,274
Cash and cash equivalents at beginning of period . . . . . . . . 122,023 93,419
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 193,177 $ 111,693
--------- ---------
--------- ---------
Cash payments for:
Interest (net of capitalized interest). . . . . . . . . . . . $ 51,171 $ 45,481
--------- ---------
--------- ---------
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . $ 234,668 $ 101,662
--------- ---------
--------- ---------
Non-cash investing and financing activities:
Fair value of assets surrendered under
exchange agreements (with two airlines). . . . . . . . . . $ 59,718 $ -
Fair value of assets acquired under
exchange agreements. . . . . . . . . . . . . . . . . . . . 47,606 -
--------- ---------
Fair value of assets receivable under
exchange agreements. . . . . . . . . . . . . . . . . . . . $ 12,112 $ -
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
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<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, 1997. 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 November 30, 1997, the consolidated results of their
operations for the three- and six-month periods ended November 30, 1997 and
1996, and their consolidated cash flows for the six-month periods ended November
30, 1997 and 1996. Operating results for the three- and six-month periods ended
November 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending May 31, 1998.
The Company has entered into contracts which are designed to limit its
exposure to fluctuations in jet fuel prices. Under these contracts, the Company
makes (or receives) payments based on the difference between a specified lower
(or upper) limit and the market price of jet fuel, as determined by an index of
spot market prices representing various geographic regions. The difference is
recorded as an increase or decrease in fuel expense.
Certain prior period amounts have been reclassified to conform to the
current presentation.
(2) ACCRUED EXPENSES
November 30,
1997 May 31,
(Unaudited) 1997
------------ ----------
(In thousands)
Compensated absences............. $ 247,345 $ 234,284
Insurance........................ 235,142 207,059
Taxes other than income taxes.... 153,302 143,541
Employee benefits................ 152,309 108,679
Salaries......................... 129,835 101,694
Aircraft overhaul................ 77,142 84,006
Interest......................... 35,895 28,165
Other............................ 81,595 100,268
---------- ----------
$1,112,565 $1,007,696
---------- ----------
---------- ----------
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<PAGE>
(3) LONG-TERM DEBT
November 30,
1997 May 31,
(Unaudited) 1997
------------ ----------
(In thousands)
Unsecured notes payable, interest rates of
6.25% to 10.57%, due through 2098. . . . . $1,172,092 $ 928,525
Unsecured sinking fund debentures, interest
rate of 9.63%, due through 2020. . . . . . 98,495 98,461
Commercial paper, effective interest
rate of 5.75%. . . . . . . . . . . . . . . - 200,904
Capital lease obligations and tax exempt bonds,
due through 2017, interest rates of
5.35% to 8.30% . . . . . . . . . . . . . . 253,425 255,100
Less bond reserves . . . . . . . . . . . . 9,024 11,096
---------- ----------
244,401 244,004
Other debt, interest rates of 9.68% to 9.98%. 46,125 52,726
---------- ----------
1,561,113 1,524,620
Less current portion . . . . . . . . . . . 274,545 126,666
---------- ----------
$1,286,568 $1,397,954
---------- ----------
---------- ----------
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, all
of which was available at November 30, 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.
In July 1997, the Memphis-Shelby County Airport Authority ("MSCAA") issued
$20,105,000 of 5.35% Special Facilities Revenue Bonds. The proceeds of the
bonds in combination with other funds were used to refund outstanding MSCAA
1982A 8.3% bonds on September 2, 1997. The 1997 bonds have a maturity date of
July 1, 2012. The Company is obligated under an operating lease agreement with
MSCAA to pay rentals equal to the principal and interest on the bonds.
In July 1997, the Company issued $250,000,000 of 7.6% unsecured senior
notes due July 1, 2097, under its July 1996 shelf registration with the
Securities and Exchange Commission.
(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 November 30, 1997, none of these shares had been
issued.
(5) COMMON STOCKHOLDERS' INVESTMENT
During the six-month period ended November 30, 1997, 327,450 shares of
common and treasury stock were issued under employee incentive plans at prices
ranging from $17.25 to $52.88 per share. During the same period, the Company
acquired 60,000 shares of its common stock at a cost of $59.07 per share.
On September 29, 1997, the stockholders approved an amendment to the
Company's Restated Certificate of Incorporation to increase the authorized
common stock of the Company from 200,000,000 to 400,000,000 shares.
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<PAGE>
(6) COMMITMENTS
As of November 30, 1997, the Company's purchase commitments for the
remainder of 1998 and annually thereafter under various contracts are as follows
(in thousands):
Aircraft-
Aircraft Related(1) Other(2) Total
-------- ---------- -------- --------
1998 (remainder) $116,900 $242,200 $399,900 $759,000
1999 405,700 245,300 91,400 742,400
2000 369,500 339,600 13,300 722,400
2001 278,000 219,000 - 497,000
2002 38,000 114,700 - 152,700
(1) Primarily aircraft modifications, rotables and spare parts and
engines.
(2) Primarily vehicles, facilities, computers and other equipment.
The Company is committed to purchase 12 Airbus A300s, four Airbus A310s,
one DC10, six MD11s and 50 Ayers ALM 200s to be delivered through 2002.
Deposits and progress payments of $35,300,000 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 53
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 quarter ended November 30, 1997, the Company acquired one Airbus
A300 under an operating lease. This aircraft was included as a purchase
commitment as of May 31, 1997. At the time of delivery, the Company sold its
right to purchase this aircraft to a third party who reimbursed the Company for
its deposit on the aircraft and paid additional consideration. The Company then
entered into an operating lease with the third party who purchased the aircraft
from the manufacturer.
Lease commitments added since May 31, 1997 for the five Airbus A300s and
two MD11s, purchased (in 1997 and 1998) and subsequently sold and leased back,
are as follows (in thousands):
1998 $ 18,500
1999 40,600
2000 40,600
2001 40,600
2002 40,600
Thereafter 850,100
(7) LEGAL PROCEEDINGS
Customers of the Company have filed four separate class-action lawsuits
against the Company generally alleging that the Company has breached its
contract with the plaintiffs in transporting packages shipped by them. These
lawsuits allege that the Company continued to collect a 6.25% federal excise tax
on the
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<PAGE>
transportation of property shipped by air after the tax expired on December 31,
1995, until it was reinstated in August of 1996. 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. Three of those cases were consolidated in Minnesota
Federal District Court. That court stayed the consolidated cases in favor of a
case filed in Circuit Court of Greene County, Alabama. The complaint in the
Alabama case also alleges that the Company continued to collect the excise tax
on the transportation of property shipped by air after the tax expired again on
December 31, 1996.
A fifth case, filed in the Supreme Court of New York, New York County,
containing allegations and requests for relief substantially similar to the
other four cases was dismissed with prejudice on the Company's motion on
September 23, 1997. The Court found that there was no breach of contract and
that the other causes of action were preempted by Federal law. The plaintiffs
have appealed. This case originally alleged that the Company continued to
collect the excise tax on the transportation of property shipped by air after
the tax expired on December 31, 1996. The New York complaint was later amended
to cover the first expiration period of the tax (December 31, 1995 through
August 27, 1996) covered in the original Alabama complaint.
The air transportation excise tax expired on December 31, 1995, was
reenacted by Congress effective August 27, 1996, and expired again on December
31, 1996. The excise tax was then reenacted by Congress effective March 7,
1997. The expiration of the tax relieved the Company of its obligation to pay
the tax during the periods of expiration. The Taxpayer Relief Act of 1997,
signed by President Clinton in August, extended the tax for 10 years through
September 30, 2007.
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.
(8) SUBSEQUENT EVENT
On October 6, 1997, the Company announced it signed a definitive agreement
to acquire Caliber System, Inc. and its subsidiaries (Caliber). The transaction
will be accounted for as a pooling of interests. A new holding company, FDX
Corporation (FDX), will be formed and will exchange 0.8 shares of its common
stock for each share of Caliber stock and one share of its common stock for each
share of Federal Express Corporation stock.
On January 9, 1998, the Caliber shareholders approved the transaction and
on January 12, 1998, the Company's stockholders approved the issuance of FDX
shares in connection with the transaction, which is expected to be completed in
late January 1998.
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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 November 30,
1997, and the related condensed consolidated statements of income for the three-
and six-month periods ended November 30, 1997 and 1996 and the condensed
consolidated statements of cash flows for the six-month periods ended November
30, 1997 and 1996, included herein, as indicated in their report thereon
included on page 12.
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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 November 30, 1997 and the
related condensed consolidated statements of income for the three- and six-month
periods ended November 30, 1997 and 1996 and the condensed consolidated
statements of cash flows for the six-month periods ended November 30, 1997 and
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, 1997 and the related consolidated statements of
income, changes in common stockholders' investment and cash flows for the year
then ended. In our report dated June 30, 1997, 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,
1997 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,
January 12, 1998
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the three months ended November 30, 1997, the Company recorded net
income of $107 million ($.91 per share) on revenues of $3.3 billion compared
with net income of $104 million ($.90 per share) on revenues of $2.9 billion for
the same period in the prior year. For the six months ended November 30, 1997,
the Company recorded net income of $250 million ($2.13 per share) on revenues of
$6.6 billion compared with net income of $166 million ($1.44 per share) on
revenues of $5.5 billion for the same period in the prior year. Operating
profits for the second quarter and year-to-date periods reflect increased
express package volumes and yields, partially offset by the incremental costs of
handling these additional packages.
The year-to-date results of operations include the impact of the Teamsters
strike against United Parcel Service ("UPS") in August 1997. During the 12
operating days of the strike, the Company delivered approximately 800,000
additional U.S. domestic express packages per day. It is difficult to estimate
with precision the impact of this additional volume. However, the Company has
retained a portion of this volume. The Company analytically calculated that the
volume not retained at the end of the first quarter contributed approximately
$150 million in U.S. domestic revenues to that quarter. This additional
revenue, net of applicable variable compensation, income taxes and variable
costs, but not allocated fixed costs, resulted in an estimated additional $.25
to $.30 per share to the first quarter's earnings.
Also in the year-to-date period, the Company realized a net gain of $17
million from the insurance settlement and the release from certain related
liabilities on a leased MD11 aircraft destroyed in an accident in July 1997.
This gain was almost equally divided between operating and non-operating income.
An unrelated expense, which partially offset this gain, was an addition of $9
million to an operating reserve for the disposition of leased B747 aircraft.
These aircraft, which are currently subleased, must undergo certain maintenance
and repairs before the aircraft are transferred to a new lessee. The net effect
of the MD11 gain and the B747 reserve on domestic and international operating
income was immaterial. The combined effect of these aircraft-related items
contributed approximately $.03 per share for the first quarter of 1998, net of
applicable variable compensation and income taxes.
During the prior year's second quarter, domestic operating income included
a $13.5 million pre-tax benefit from the settlement of a Tennessee personal
property tax matter. A $17.1 million gain from an insurance settlement for a
DC10 aircraft destroyed by fire in September 1996 was included in 1997's second
quarter other income.
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<PAGE>
Revenues
The following table shows a comparison of revenues (in millions):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
November 30, November 30,
---------------- Percent ---------------- Percent
1997 1996 Change 1997 1996 Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. domestic express . . . . . . . . . . . . . . $2,266 $1,970 +15 $4,601 $3,878 +19
International Priority (IP) . . . . . . . . . . . 699 585 +19 1,354 1,126 +20
International Express Freight
(IXF) and Airport-to-Airport
(ATA). . . . . . . . . . . . . . . . . . . . . 166 162 + 2 317 299 + 6
Charter, Logistics services
and other. . . . . . . . . . . . . . . . . . . 168 135 +24 324 242 +34
------ ------ ------ ------
$3,299 $2,852 +16 $6,596 $5,545 +19
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The following table shows a comparison of selected express and airfreight
(IXF/ATA) statistics (in thousands, except dollar amounts):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
November 30, November 30,
---------------- Percent ---------------- Percent
1997 1996 Change 1997 1996 Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
U.S. domestic express:
Average daily packages . . . . . . . . . . . . 2,732 2,485 +10 2,712 2,390 +13
Revenue per package. . . . . . . . . . . . . . $13.17 $12.58 + 5 $13.36 $12.78 + 5
IP:
Average daily packages . . . . . . . . . . . . 265 225 +18 256 217 +18
Revenue per package. . . . . . . . . . . . . . $41.89 $41.28 + 1 $41.73 $40.84 + 2
IXF/ATA:
Average daily pounds . . . . . . . . . . . . . 2,984 2,746 + 9 2,816 2,541 +11
Revenue per pound. . . . . . . . . . . . . . . $ .88 $ .94 - 6 $ .89 $ .93 - 4
</TABLE>
The increases in the Company's U.S. domestic package volume for the quarter
and year-to-date periods were primarily due to rapid growth of its deferred
services, including FedEx Express Saver, a three-day deferred service. In
addition, the first quarter volume growth was augmented by incremental volume
resulting from the UPS strike. The majority of the strike-related volume was in
the deferred service category. Yields increased 5% for the quarter and
year-to-date periods largely due to the effects of continuing yield-management
initiatives, including pursuing price increases on low-yielding accounts and
discontinuing unprofitable accounts. Also positively impacting yields was a
substantial rise in average weight per package primarily due to heavier weights
associated with the rapidly growing FedEx Express Saver service. Management
expects total U.S. domestic package volume in 1998 to grow at a rate similar to
that experienced in the past two years. Management believes that U.S. domestic
yields should remain stable year over year during the remainder of 1998 due to
continued effects of yield-management actions and the introduction of
distance-based pricing. Actual results may vary depending on the impact of
competitive pricing changes, including distance-based pricing, customer
responses to yield management initiatives and changing customer demand patterns.
- 14 -
<PAGE>
For the year-to-date period ended November 30, 1996, the expiration of the
air transportation excise tax added $28 million and 1% to U.S. domestic revenues
and yields, respectively. The excise tax expired on December 31, 1995, was
reenacted by Congress effective August 27, 1996, and expired again on December
31, 1996. The Company was not obligated to pay the tax during the periods in
which it was expired. The excise tax was reenacted by Congress effective March
7, 1997, and, in August 1997, it was extended for 10 years through September 30,
2007.
The Company's IP revenues and volumes continued to experience strong growth
during the quarter and year-to-date periods. Yields also increased during these
periods compared to the same periods of the prior year. Management expects
these revenue and volume trends to continue through the remainder of 1998, with
yields remaining relatively constant. Actual IP results will depend on the
impact of international economic conditions, actions by the Company's
competitors, and regulatory conditions for international aviation rights.
The Company's airfreight volumes grew year over year for the quarter and
year-to-date periods, while yields experienced year-over-year declines. IXF
volumes (a space-confirmed, time-definite service) increased 16% and 22% for the
quarter and year-to-date periods, respectively, but yields declined 7% and 6%
for the same periods. ATA volumes (a lower-priced, space-available service)
decreased 4% and 7% for the quarter and year-to-date periods, respectively, with
yields lower by 9% and 7% for the same periods. Management expects airfreight
yields to continue to decline, year over year, through the balance of 1998.
Actual results, however, will depend on the impact of international economic
conditions, actions by the Company's competitors, including capacity
fluctuations, and regulatory conditions for international aviation rights.
Operating Expenses
Salaries and employee benefits rose 14% and 16% for the quarter and
year-to-date periods, respectively, as a result of volume-related growth and
increased provisions under the Company's performance-based, incentive
compensation plans. Also included in the year-to-date expense was a $25 million
special appreciation bonus for U.S. operations employees for their extra efforts
during the UPS strike.
Increases in rentals and landing fees of 18% and 14% for the quarter and
year-to-date periods were primarily due to additional aircraft leased by the
Company. Supplemental leased aircraft were also added to meet the demands of
increased package volume during peak season and to replace an MD11 destroyed in
July. As of November 30, 1997, the Company had 84 wide-bodied aircraft under
operating lease compared with 78 as of November 30, 1996. The year-to-date
expense is net of approximately half of a $17 million net gain resulting from
the destruction of an MD11 aircraft in an accident in July (described above).
Management expects year-over-year increases in lease expense to continue as the
Company enters into additional aircraft rental agreements during 1998 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 rose 5% and 9% for the quarter and year-to-date periods,
respectively, due to increases in gallons consumed (15% and 14% for the quarter
and year-to-date periods, respectively). The quarter and year-to-date increases
in fuel expense included payments made by the Company under contracts which are
designed to limit the Company's exposure to fluctuations in jet fuel prices.
- 15 -
<PAGE>
Effective August 1, 1997, the Company lifted its temporary 2% fuel
surcharge that had been in place on U.S. domestic shipments except FedEx SameDay
service and including Puerto Rico and all U.S. export IP shipments, except those
to the People's Republic of China and Hong Kong. This surcharge was implemented
on February 3, 1997 to mitigate the impact of rising jet fuel prices.
Maintenance and repairs expense increased 10% and 12% for the quarter and
year-to-date periods primarily due to higher year-over-year engine maintenance
on B727, DC10 and A310 aircraft. The first quarter's expense includes most of
an addition to an operating reserve for the disposition of B747 aircraft, as
discussed above. 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, aging fleet and variety of
aircraft types.
Increases in other operating expenses of 24% and 28% for the quarter and
year-to-date periods were primarily due to expenses related to volume growth and
expenses necessitated by additional volume during the UPS strike, including the
transportation of packages by third parties, temporary manpower and uniforms and
supplies. The cost of sales of engine noise reduction kits and computer
programming services also increased year over year.
In 1996, the Company initiated a program to ensure Year-2000 compliance of
the Company's computer systems and applications. This program has included
generating awareness of the Year-2000 issue throughout the Company, inventorying
affected computer systems and applications and developing a plan to modify or
replace these systems and applications. In these activities, the Company
estimates that it has incurred approximately $30 million to date, including
consulting fees, internal staff costs and other expenses. The Company expects
to incur additional expenses at the rate of approximately $8 to $10 million per
quarter through 1999 to be Year-2000 compliant.
Operating Income
The Company's consolidated operating income rose 16% and 52% for the
quarter and year-to-date periods, respectively, from the prior year.
U.S. domestic operating income was $167 million and $408 million for the
quarter and year-to-date periods ending November 30, 1997. Prior year amounts
were $141 million and $267 million for these same periods. Package volume
growth for the quarter and year-to-date periods was 10% and 13%, respectively.
Yield increases (4.7% and 4.5% for the quarter and year-to-date periods,
respectively) partially offset by higher cost per package (4.5% and 2.7% for the
quarter and year-to-date periods, respectively) contributed to the increased
domestic operating income. The second quarter's increase in cost per package
was primarily due to the costs associated with the rapid growth of FedEx Express
Saver volumes, including the transportation of packages by third parties,
increased aircraft usage and linehaul costs. During the second quarter, the
Company also incurred additional expenses with the opening of a regional hub at
Fort Worth Alliance Airport and a small package sort system in Memphis. As
noted above, year-to-date U.S. domestic operating results were significantly
impacted by the UPS strike. Sales of aircraft engine noise reduction kits
contributed an incremental $8 million and $30 million to U.S. domestic operating
income for the quarter and year-to-date periods, respectively. The prior year's
second quarter operating income included a $13.5 million pre-tax benefit from
the settlement of a Tennessee personal property tax matter. U.S. domestic
margins were 7.1% and 8.5% for the quarter and year-to-date periods,
respectively, compared with 6.9% and 6.7% for the same periods in the prior
year.
- 16 -
<PAGE>
The Company's international operating income was $46 million and $70
million for the quarter and year-to-date periods ended November 30, 1997,
respectively. Prior year amounts for these same periods were $44 million and
$48 million, respectively. The increases were attributable to strong growth in
the Company's IP and IXF volumes partially offset by lower airfreight yields,
higher aircraft lease expense and increased provisions for variable
compensation. Also offsetting revenue gains were additional start-up costs for
several new international flights and the net effect of fluctuations in Asian
and Brazilian currencies. International operating margins were 4.9% and 3.8%
for the quarter and year-to-date periods, respectively, compared with 5.4% and
3.1% for the same periods in the prior year.
Other Income and Expense and Income Taxes
Net interest expense rose 35% and 27% for the quarter and year-to-date
periods due to higher debt levels and a lower level of capitalized interest.
Other, net for the year-to-date period ended November 30, 1997, includes a
gain from an insurance settlement for an MD11 aircraft destroyed in an accident
in July 1997. Other, net for the quarter ended November 30, 1996, includes a
$17.1 million gain from an insurance settlement for a DC10 aircraft destroyed by
fire in September 1996.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents totaled $193 million at November 30, 1997, an
increase of $71 million since May 31, 1997. Cash provided from operations was
$514 million compared with $549 million for the same period in the prior year.
The Company has a $1 billion revolving bank credit facility that is generally
used to finance temporary operating cash requirements and to provide support for
the issuance of commercial paper. Management believes that cash flow from
operations, its commercial paper program and the revolving bank credit facility
will adequately meet its working capital needs for the foreseeable future.
Capital Resources
The Company's operations are capital intensive, characterized by
significant investments in aircraft, vehicles, computer and telecommunication
equipment, package handling facilities and sort 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, availability of satisfactory financing and actions of regulatory
authorities.
Capital expenditures for the first six months of 1998 totaled $788 million
and included two MD11s, aircraft modifications, vehicles and ground support
equipment and customer automation and computer equipment. Two MD11s purchased
in February and June 1997 were sold and leased back in June and September 1997,
respectively. In comparison, prior year expenditures totaled $740 million and
included six A310s, one MD11, vehicles and ground support equipment, and
customer automation and computer equipment. In September 1996, the Company sold
and leased back an MD11 acquired in May 1996. For information on the Company's
purchase commitments, see Note 6 of Notes to Condensed Consolidated Financial
Statements.
- 17 -
<PAGE>
In July 1997, $20 million of Memphis-Shelby County Airport Authority
("MSCAA") Special Facilities Revenue Bonds were issued. The proceeds of the
bonds in combination with other funds were used to refund outstanding MSCAA
1982B bonds on September 2, 1997. Also in July 1997, the Company issued $250
million of unsecured senior notes with a maturity date of July 1, 2097, under
the Company's July 1996 shelf registration with the Securities and Exchange
Commission.
Management believes that the capital resources available to the Company
provide flexibility to access the most efficient markets for financing its
capital acquisitions, including aircraft, and are adequate for the Company's
future capital needs.
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.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 7 Legal Proceedings in Part I is hereby incorporated by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of stockholders held on January 12, 1998, the
Company's stockholders approved the issuance of FDX common shares in
connection with the acquisition of Caliber System, Inc. by a vote of
90,785,468 to 307,194 with 155,009 abstentions and broker non-votes. The
stockholders also approved the FDX 1997 Stock Incentive Plan by a vote of
96,914,572 to 2,495,356 with 209,898 abstentions and broker non-votes.
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.
During the quarter ended November 30, 1997, the Registrant filed two
Current Reports on Form 8-K. The first report was dated September 30, 1997 and
filed under Item 7, Financial Statements and Exhibits. The report contained
documents related to 1997-1 Pass Through Certificates.
The second report was dated October 6, 1997 and filed under Item 5, Other
Events. The report contained the Registrant's press release dated October 6,
1997 announcing its definitive agreement to acquire Caliber System, Inc.
- 19 -
<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: January 13, 1998 /s/ MICHAEL W. HILLARD
----------------------------------
MICHAEL W. HILLARD
VICE PRESIDENT & CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
- 20 -
<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 rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding; or
5
<PAGE>
(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 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
6
<PAGE>
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 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.
7
<PAGE>
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.
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.
8
<PAGE>
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
<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 200,000,000
to 400,000,000 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 404,000,000 shares consisting of 4,000,000 shares of
Series Preferred Stock, no par value (herein called the
"Series Preferred Stock"), and 400,000,000 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, this 2nd day of October, 1997.
FEDERAL EXPRESS CORPORATION
BY: /s/ GEORGE W. HEARN
----------------------------------
George W. Hearn
Vice President, Law - Corporate
and Business Transactions
<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 six-month periods ended November 30, 1997 and 1996 were as
follows (in thousands, except per share amounts):
Three Months Six Months
Ended November 30, Ended November 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net income applicable to common
and common equivalent shares . . . . $107,015 $103,717 $250,272 $165,667
-------- -------- -------- --------
-------- -------- -------- --------
Average shares of common stock
outstanding. . . . . . . . . . . . . 115,110 113,958 115,040 113,901
Common Equivalent Shares:
Assumed exercise of outstanding
dilutive options . . . . . . . . . 6,895 5,624 6,947 5,428
Less shares repurchased from
proceeds of assumed exercise
of options . . . . . . . . . . . . (4,092) (4,450) (4,359) (4,296)
-------- -------- -------- --------
Average common and common
equivalent shares . . . . . . . . . 117,913 115,132 117,628 115,033
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share . . . . . . . . . $ .91 $ .90 $ 2.13 $ 1.44
-------- -------- -------- --------
-------- -------- -------- --------
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>
Year Ended May 31,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- ---------- ----------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes. . . . . . . . $203,576 $378,462 $522,084 $ 539,959 $ 628,221
Add back:
Interest expense, net of
capitalized interest. . . . . . . . . 168,762 152,170 130,923 105,449 95,689
Amortization of debt
issuance costs. . . . . . . . . . . . 4,906 2,860 2,493 1,628 1,328
Portion of rent expense
representative of
interest factor . . . . . . . . . . . 262,724 285,261 329,370 386,254 434,846
-------- -------- -------- ---------- ----------
Earnings as adjusted. . . . . . . . . . . $639,968 $818,753 $984,870 $1,033,290 $1,160,084
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
Fixed Charges:
Interest expense, net of
capitalized interest. . . . . . . . . . $168,762 $152,170 $130,923 $ 105,449 $ 95,689
Capitalized interest. . . . . . . . . . . 31,256 29,738 27,381 39,254 39,449
Amortization of debt
issuance costs. . . . . . . . . . . . . 4,906 2,860 2,493 1,628 1,328
Portion of rent expense
representative of
interest factor . . . . . . . . . . . . 262,724 285,261 329,370 386,254 434,846
-------- -------- -------- ---------- ----------
$467,648 $470,029 $490,167 $ 532,585 $ 571,312
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
Ratio of Earnings to Fixed Charges . . . . 1.4 1.7 2.0 1.9 2.0
-------- -------- -------- ---------- ----------
-------- -------- -------- ---------- ----------
<CAPTION>
Six Months Ended
November 30,
-----------------------
1996 1997
-------- --------
<S> <C> <C>
Earnings:
Income before income taxes. . . . . . . . $288,117 $431,504
Add back:
Interest expense, net of
capitalized interest. . . . . . . . . 45,833 58,901
Amortization of debt
issuance costs. . . . . . . . . . . . 666 679
Portion of rent expense
representative of
interest factor . . . . . . . . . . . 211,382 241,347
-------- --------
Earnings as adjusted. . . . . . . . . . . $545,998 $732,431
-------- --------
-------- --------
Fixed Charges:
Interest expense, net of
capitalized interest. . . . . . . . . . $ 45,833 $ 58,901
Capitalized interest. . . . . . . . . . . 19,959 15,955
Amortization of debt
issuance costs. . . . . . . . . . . . . 666 679
Portion of rent expense
representative of
interest factor . . . . . . . . . . . . 211,382 241,347
-------- --------
$277,840 $316,882
-------- --------
-------- --------
Ratio of Earnings to Fixed Charges . . . . 2.0 2.3
-------- --------
-------- --------
</TABLE>
<PAGE>
[ARTHUR ANDERSEN LETTERHEAD]
EXHIBIT 15.1
January 12, 1998
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 November 30, 1997, which includes our report dated January 12,
1998 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
INCOME ON PAGES 3-5 OF THE COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDING
NOVEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 193,177
<SECURITIES> 0
<RECEIVABLES> 1,788,026
<ALLOWANCES> 41,439
<INVENTORY> 351,816
<CURRENT-ASSETS> 2,501,584
<PP&E> 10,332,684
<DEPRECIATION> 5,486,146
<TOTAL-ASSETS> 8,125,879
<CURRENT-LIABILITIES> 2,254,665
<BONDS> 0
0
0
<COMMON> 11,517
<OTHER-SE> 3,198,015
<TOTAL-LIABILITY-AND-EQUITY> 8,125,879
<SALES> 0
<TOTAL-REVENUES> 6,596,377
<CGS> 0
<TOTAL-COSTS> 6,118,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,477
<INCOME-PRETAX> 431,504
<INCOME-TAX> 181,232
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 250,272
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 2.13
</TABLE>
