<PAGE>
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED NOVEMBER 30, 1999, 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
(State of incorporation) 71-0427007
(I.R.S. Employer
2005 Corporate Avenue Identification No.)
Memphis, Tennessee
(Address of principal 38132
executive offices) (Zip Code)
(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 / /
The number of shares of common stock outstanding as of December 31, 1999 was
1,000. The Registrant is a wholly-owned subsidiary of FDX Corporation, and there
is no market for the Registrant's common stock.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT
PERMITTED BY GENERAL INSTRUCTION H(2).
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<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Condensed Consolidated Balance Sheets
November 30, 1999 and May 31, 1999................................................................... 3-4
Condensed Consolidated Statements of Income
Three and Six Months Ended November 30, 1999 and 1998................................................ 5
Condensed Consolidated Statements of Cash Flows
Six Months Ended November 30, 1999 and 1998.......................................................... 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.............................................................................. 13-19
PART II. OTHER INFORMATION
Legal Proceedings......................................................................................... 20
Exhibits and Reports on Form 8-K.......................................................................... 20
EXHIBIT INDEX............................................................................................. E-1
</TABLE>
- 2 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
- ------
<TABLE>
<CAPTION>
November 30,
1999 May 31,
(Unaudited) 1999
----------- -----------
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................................... $ 87,298 $ 88,238
Receivables, less allowances of
$57,384,000 and $45,432,000 ................................................ 1,984,921 1,840,613
Spare parts, supplies and fuel ............................................... 258,329 272,614
Deferred income taxes ........................................................ 251,312 220,709
Prepaid expenses and other ................................................... 75,559 56,241
----------- -----------
Total current assets ..................................................... 2,657,419 2,478,415
Property and Equipment, at Cost ................................................... 12,846,541 12,197,086
Less accumulated depreciation and amortization ............................... 6,851,740 6,454,579
----------- -----------
Net property and equipment ............................................... 5,994,801 5,742,507
Other Assets:
Goodwill ..................................................................... 333,580 339,425
Other ........................................................................ 556,129 555,628
----------- -----------
Total other assets ....................................................... 889,709 895,053
----------- -----------
$ 9,541,929 $ 9,115,975
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND OWNER'S EQUITY
- ------------------------------
<TABLE>
<CAPTION>
November 30,
1999 May 31,
(Unaudited) 1999
----------- -----------
(In thousands)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt ............... $ 7,436 $ 14,938
Accrued salaries and employee benefits .......... 614,360 615,247
Accounts payable ................................ 989,209 983,350
Accrued expenses ................................ 782,503 692,599
Due to parent company ........................... -- 62,720
----------- -----------
Total current liabilities ................... 2,393,508 2,368,854
Long-Term Debt, Less Current Portion ................. 1,154,281 1,159,126
Deferred Income Taxes ................................ 215,958 221,509
Other Liabilities .................................... 1,677,765 1,502,481
Commitments and Contingencies (Notes 3 and 4)
Owner's Equity:
Common Stock, $.10 par value;
1,000 shares authorized, issued and outstanding -- --
Additional paid-in capital ...................... 894,718 894,718
Retained earnings ............................... 3,227,807 2,995,076
Accumulated other comprehensive income .......... (22,108) (25,789)
----------- -----------
Total owner's equity ........................ 4,100,417 3,864,005
----------- -----------
$ 9,541,929 $ 9,115,975
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
---------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Revenues .......................................... $3,736,027 $ 3,482,236 $ 7,322,833 $ 6,899,419
Operating Expenses:
Salaries and employee benefits ............... 1,639,851 1,541,743 3,248,911 3,082,504
Rentals and landing fees ..................... 364,831 328,096 711,573 641,518
Maintenance and repairs ...................... 258,204 218,093 496,485 446,832
Depreciation and amortization ................ 245,124 221,688 487,201 441,888
Fuel ......................................... 217,328 150,855 398,149 297,433
Other ........................................ 799,473 770,822 1,560,355 1,519,233
---------- ----------- ----------- -----------
3,524,811 3,231,297 6,902,674 6,429,408
---------- ----------- ----------- -----------
Operating Income .................................. 211,216 250,939 420,159 470,011
Other Income (Expense):
Interest, net ................................ (19,525) (20,897) (38,549) (42,849)
Other, net ................................... 4,218 (1,729) 3,069 (6,167)
---------- ----------- ----------- -----------
(15,307) (22,626) (35,480) (49,016)
---------- ----------- ----------- -----------
Income Before Income Taxes ........................ 195,909 228,313 384,679 420,995
Provision for Income Taxes ........................ 77,384 94,750 151,948 174,713
---------- ----------- ----------- -----------
Net Income........................................ $ 118,525 $ 133,563 $ 232,731 $ 246,282
========== =========== =========== ===========
</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>
Six Months Ended
November 30,
------------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Net Cash Provided by Operating Activities ......... $ 531,341 $ 799,202
Investing Activities:
Purchases of property and equipment .......... (706,584) (864,283)
Proceeds from disposition of property
and equipment:
Sale-leaseback transactions .............. -- 80,995
Reimbursements of A300 and MD11 deposits . 24,377 25,130
Other dispositions ....................... 139,647 140,878
Other, net ................................... 408 (692)
--------- ---------
Net cash used in investing activities ............. (542,152) (617,972)
Financing Activities:
Principal payments on debt ................... (12,500) (167,668)
Net receipts from (payments to) parent company 22,371 (21,205)
--------- ---------
Net cash provided by (used in) financing activities 9,871 (188,873)
--------- ---------
Net decrease in cash and cash equivalents ......... (940) (7,643)
Cash and cash equivalents at beginning of period .. 88,238 104,606
--------- ---------
Cash and cash equivalents at end of period ........ $ 87,298 $ 96,963
========= =========
Cash payments for:
Interest (net of capitalized interest) ....... $ 40,841 $ 47,561
========= =========
Income taxes ................................. $ 150,948 $ 127,322
========= =========
Non-cash investing and financing activities:
Fair value of assets surrendered under
exchange agreements (with two airlines) .... $ 19,450 $ 26,006
Fair value of assets acquired under
exchange agreements ........................ 18,903 14,300
--------- ---------
Fair value of assets surrendered in
excess of assets acquired .................. $ 547 $ 11,706
========= =========
</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
These interim financial statements of Federal Express Corporation (the
"Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information, the instructions to
Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X, and should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended May 31, 1999. Accordingly, significant accounting policies and
other disclosures normally provided have been omitted since such items are
disclosed therein.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments necessary to
present fairly the consolidated financial position of the Company as of
November 30, 1999 and the consolidated results of its operations for the
three and six-month periods ended November 30, 1999 and 1998, and its
consolidated cash flows for the six-month periods ended November 30, 1999 and
1998. Operating results for the three and six-month periods ended November
30, 1999 are not necessarily indicative of the results that may be expected
for the year ending May 31, 2000.
On May 31, 1999, the Company adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Statement establishes standards for reporting information about operating
segments. The Company is in a single line of business and operates in one
business segment - the worldwide express transportation and distribution of
goods and documents.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which was subsequently
amended by SFAS No. 137 and is now effective for fiscal years beginning after
June 15, 2000. The Statement requires an entity to recognize all derivatives
as either assets or liabilities in the balance sheet and to measure those
instruments at fair value. The impact, if any, on earnings, comprehensive
income and financial position of the adoption of SFAS No. 133 will depend on
the amount, timing and nature of any agreements entered into by the Company.
Management has not yet completed its estimate of the effect of adoption of
this Statement.
FDX Corporation, the Company's parent, has entered into contracts on
behalf of the Company which are designed to limit the Company's exposure to
fluctuations in jet fuel prices. Under these contracts, FDX Corporation makes
(or receives) payments based on the difference between a fixed price and the
market price of jet fuel, as determined by an index of spot market prices
representing various geographic regions. The difference is recorded as an
increase or decrease in fuel expenses. As of early January 2000, contracts in
place to fix the price of jet fuel cover a small percentage of the estimated
gallons of usage for the third quarter of 2000 and approximately 40 percent
of the estimated usage for the fourth quarter of 2000. Through early January
2000, contracts covering 2001 fix the price of approximately one-third of the
estimated requirements for jet fuel.
Certain prior period amounts have been reclassified to conform to the
current presentation.
- 7 -
<PAGE>
(2) COMPREHENSIVE INCOME
The following table provides a reconciliation of net income reported in
the Company's consolidated financial statements to comprehensive income (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income .................... $ 118,525 $ 133,563 $ 232,731 $ 246,282
Other comprehensive income:
Foreign currency translation
adjustments .............. 3,053 22,236 4,413 5,415
Tax effect ................. (577) (3,284) (732) 92
--------- --------- --------- ---------
Net of tax ............... 2,476 18,952 3,681 5,507
--------- --------- --------- ---------
Comprehensive income ... $ 121,001 $ 152,515 $ 236,412 $ 251,789
========= ========= ========= =========
</TABLE>
(3) COMMITMENTS
As of November 30, 1999, the Company's purchase commitments for the
remainder of 2000 and annually thereafter under various contracts are as
follows (in thousands):
<TABLE>
<CAPTION>
Aircraft-
Aircraft Related(1) Other(2) Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
2000 (remainder) $ 11,500 $158,500 $204,400 $374,400
2001 245,800 324,200 77,700 647,700
2002 242,800 337,500 11,400 591,700
2003 439,600 461,300 7,600 908,500
2004 235,200 188,500 7,600 431,300
</TABLE>
(1) Primarily aircraft modifications, rotables, spare parts and spare engines.
(2) Primarily vehicles, facilities, computers and other equipment.
The Company is committed to purchase three DC10s, 30 MD11s and 75 Ayres
ALM 200s to be delivered through 2007. Deposits and progress payments of
$5,717,000 have been made toward these purchases.
The Company has entered into agreements with two airlines to acquire 53
DC10 aircraft (44 of which had been received as of November 30, 1999), spare
parts, aircraft engines and other equipment, and maintenance services in
exchange for a combination of aircraft engine noise reduction kits and cash.
Delivery of these aircraft began in 1997 and will continue through 2001.
Additionally, these airlines may exercise put options through December 31,
2003, requiring FedEx to purchase up to 22 additional DC10s along with
additional aircraft engines and equipment.
During the six-month period ended November 30, 1999, the Company
acquired five A300s and one MD11 under operating leases. These aircraft were
included as purchase commitments as of May 31, 1999. 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.
- 8 -
<PAGE>
Lease commitments added since May 31, 1999 for the five A300s and one
MD11 are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 17,700
2001 33,800
2002 32,500
2003 32,900
2004 34,600
Thereafter 740,400
</TABLE>
(4) LEGAL PROCEEDINGS
There were two separate class-action lawsuits against the Company
generally alleging that the Company breached its contract with the plaintiffs
in transporting packages shipped by them. These lawsuits alleged that the
Company continued to collect a 6.25% federal excise tax on the transportation
of property shipped by air after the excise tax expired on December 31, 1995,
until it was reinstated in August 1996. The plaintiffs sought 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. One case was filed in Circuit Court of Greene
County, Alabama. On October 6, 1999, the Greene County Circuit Court
dismissed all claims against the Company by entering summary judgment. Time
for appeal has expired and this decision is final.
The other case, which was filed in the Supreme Court of New York, New
York County, and contained allegations and requests for relief substantially
similar to the Alabama case, was dismissed with prejudice on the Company's
motion on October 7, 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 appealed the dismissal. 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 dismissal was affirmed by the appellate court on March 2,
1999. On December 20, 1999, the highest appellate court in New York denied
the plaintiffs' request to appeal the dismissal of the excise tax class
action. The plaintiffs may ask for re-argument within thirty days, but the
Company believes it is very unlikely any such request would be granted.
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 1997, extended the
tax for ten years through September 30, 2007.
In the opinion of management, the aggregate liability, if any, with
respect to the above mentioned suits and any other claims arising in the
normal course of business will not materially adversely affect the financial
position or results of operations of the Company.
- 9 -
<PAGE>
(5) RELATED PARTY TRANSACTIONS
As of November 30, 1999, the Company had a receivable balance due from
its parent, FDX Corporation, of $85,308,000. Included in the receivable
amount is an intercompany operating receivable of $26,418,000 included in
Current Assets and $58,890,000 included in Other Assets. The net amount due
from FDX Corporation as of May 31, 1999 was $18,541,000. This amount
comprises an intercompany operating payable of $62,720,000 included in
Current Liabilities and $81,300,000 included in Other Assets. The long-term
amounts primarily represent the net activity from participation in FDX
Corporation's consolidated cash management program.
- 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 November
30, 1999, and the related condensed consolidated statements of income for the
three and six-month periods ended November 30, 1999 and 1998 and the condensed
consolidated statements of cash flows for the six-month periods ended November
30, 1999 and 1998, included herein, as indicated in their report thereon
included on page 12.
- 11 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Federal Express Corporation:
We have reviewed the accompanying condensed consolidated balance sheet
of Federal Express Corporation and subsidiaries as of November 30, 1999 and
the related condensed consolidated statements of income for the three and
six-month periods ended November 30, 1999 and 1998 and the condensed
consolidated statements of cash flows for the six-month periods ended
November 30, 1999 and 1998. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with 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, 1999 and the related consolidated
statements of income, changes in owner's equity and comprehensive income and
cash flows for the year then ended. In our report dated June 29, 1999, 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, 1999 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP
Memphis, Tennessee
December 15, 1999
- 12 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Operating results for the second quarter ended November 30, 1999
continue to reflect higher fuel prices and lower than expected volume growth
in U.S. domestic markets. Strong package volume growth in certain
international markets contributed positively to earnings for the second
quarter and year-to-date periods. Higher fuel costs and recent trends in
domestic and international package volume growth are expected to continue for
the remainder of 2000.
Cost controls to restrain short-term spending combined with productivity
enhancements have been implemented in light of lower volume growth. Also, the
Company's sales force is being realigned to include a greater emphasis on
small and medium-sized customers and to target growth in higher-yielding
packages. Management believes these changes in tandem with other actions
currently under consideration will improve the long-term growth of the
Company's share of the express package market, which has eroded slightly in
the current fiscal year. Certain capital spending projects are also being
delayed; however, the Company plans to continue to make strategic capital
investments in support of its long-term growth goals.
Increased fuel prices negatively affected second quarter operating
income by $54 million and year-to-date operating income by $80 million
compared to the comparable periods in the prior year. In order to offset most
of the effects of substantially higher fuel costs during the second half of
the fiscal year, the Company announced on December 30, 1999 that it would
impose a fuel surcharge of 3% on most U.S. domestic and international
services effective February 1, 2000. The surcharge will apply to all
shipments tendered within the United States and all U.S. export shipments,
where legally and contractually possible. FDX Corporation has also entered
into contracts designed to limit the Company's exposure to further increases
in fuel prices.
Actual results for the remainder of 2000 may vary depending upon many
factors such as economic growth rates, rates of volume growth in the U.S.
domestic markets, the actions of competitors, the spot prices of aviation and
diesel fuel (which have continued to increase in the early part of the
Company's third quarter), the extent to which the Company enters into
contracts designed to limit its exposure to fluctuations in jet fuel prices,
the amount and duration of the fuel surcharge and any other pricing
actions and the impact those actions may have on demand for the Company's
services.
- 13 -
<PAGE>
The following table compares revenues and operating income (in millions)
and selected statistics (in thousands, except yield amounts) for the three- and
six-month periods ended November 30:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Three Months Ended Percent Six Months Ended Percent
1999 1998 Change 1999 1998 Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Package:
U.S. overnight $1,844 $1,777 + 4 $3,677 $3,556 + 3
U.S. deferred 588 558 + 5 1,147 1,102 + 4
International Priority (IP) 881 762 +15 1,699 1,487 +14
------ ------ ------ ------
Total package revenue 3,313 3,097 + 7 6,523 6,145 + 6
Freight:
U.S 144 107 +35 274 207 +32
International 127 139 - 9 253 272 - 7
------ ------ ------ ------
Total freight revenue 271 246 +10 527 479 +10
Other 152 139 +10 273 275 --
------ ------ ------ ------
Total revenues $3,736 $3,482 + 7 $7,323 $6,899 + 6
====== ====== ====== ======
Operating income $ 211 $ 251 -16 $ 420 $ 470 -11
====== ====== ====== ======
Package statistics:
Average daily packages:
U.S. overnight 2,011 1,954 + 3 1,981 1,916 + 4
U.S. deferred 913 895 + 2 876 864 + 1
IP 323 285 +13 310 275 +13
------ ------ ------ ------
Composite 3,247 3,134 + 4 3,167 3,055 + 4
Revenue per package (yield):
U.S. overnight $14.56 $14.44 + 1 $14.50 $14.38 + 1
U.S. deferred 10.22 9.89 + 3 10.24 9.89 + 4
IP 43.31 42.45 + 2 42.88 41.96 + 2
Composite 16.20 15.69 + 3 16.09 15.59 + 3
Freight statistics:
Average daily pounds:
U.S 5,072 4,480 +13 4,810 4,199 +15
International 2,574 2,719 - 5 2,539 2,669 - 5
------ ------ ------ ------
Composite 7,646 7,199 + 6 7,349 6,868 + 7
Revenue per pound (yield):
U.S $ .45 $ .38 +18 $ .45 $ .38 +18
International .78 .81 - 4 .78 .79 - 1
Composite .56 .54 + 4 .56 .54 + 4
=====================================================================================================
</TABLE>
- 14 -
<PAGE>
Revenues
While total revenue increased by 7% in the second quarter and 6% for the
first half of the year, growth rates in U.S. domestic overnight package
volume continued to lag behind the levels that management expected. However,
strong revenue growth in high-yielding IP services, especially in Asia and
Europe, continued in the second quarter and is expected to remain at current
levels for the remainder of the fiscal year. U.S deferred package revenue
growth was near management expectations for the quarter and the year-to-date
periods as management continues to restrict the growth of these
lower-yielding services. List price increases, including an average 2.8%
domestic rate increase in March 1999 and the Company's ongoing
yield-management program also contributed to the slight increase in yields in
the current quarter. In order to stimulate U.S. domestic revenue growth in
higher-yielding package products, FedEx is realigning its sales force. The
changes will include a greater emphasis on small and medium-sized customers
and modifications to the sales incentive program to target higher-yielding
packages. Actual results, however, may vary depending on a number of factors,
including the impact of competitive pricing changes, customer responses to
yield-management initiatives and the fuel surcharge, changing customer demand
patterns, actions by the Company's competitors, regulatory conditions for
aviation rights and economic conditions.
Total freight revenue also continued to increase in the current quarter
and for the year-to-date period due to higher average daily pounds and yields
in U.S. freight, offset by declines in international freight pounds and
yields.
Other revenue included charter services, sales of engine noise reduction
kits, Canadian domestic revenue, logistics services and other.
Operating Income
Operating income declined in the second quarter and year-to-date periods
due to higher fuel costs and lower than expected growth in U.S. package
services. Fuel expenses increased 44% and 34% for the quarter and
year-to-date periods, respectively. For the quarter, average cost per gallon
for aircraft fuel increased 38% and gallons consumed increased 8%. Year to
date, average cost per gallon increased 29% and gallons consumed increased
7%. The Company has entered into contracts designed to limit its exposure to
jet fuel price fluctuations. As of early January 2000, contracts in place to
fix the price of jet fuel cover a small percentage of the estimated gallons
of usage for the third quarter of 2000 and approximately 40% of the estimated
usage for the fourth quarter of 2000. Through early January 2000, contracts
covering 2001 fix the price of approximately one-third of the estimated
requirements for jet fuel.
In order to offset most of the effects of substantially higher fuel
costs during the second half of the fiscal year, FedEx announced on December
30, 1999 that it would impose a fuel surcharge of 3% on most FedEx
U.S. domestic and international services effective February 1, 2000. The
surcharge will apply to all shipments tendered within the United States and
all U.S. export shipments, where legally and contractually possible.
Also, FedEx continues to execute cost containment and productivity
enhancement programs which management believes could reduce anticipated
second half 2000 operating expenses by up to $75 million. These cost
reductions are expected to be achieved by lowering discretionary spending and
limiting staffing additions, but will not affect plans for strategic spending
in support of long-term growth goals. The actual impact of the fuel
surcharge and management's cost containment plans on operating income will
depend on a number
- 15 -
<PAGE>
of factors such as the impact of competitive pricing changes, customer
responses to yield management initiatives, changing customer demand patterns,
actions by FedEx's competitors and general economic conditions.
Rentals and landing fees increased due to an increase in aircraft and
facilities leases entered into based on planned volume growth. Aircraft lease
expense for the quarter and year-to-date periods rose 16% and 15%,
respectively. As of November 30, 1999, the Company had 102 wide-bodied
aircraft under operating lease compared with 93 as of November 30, 1998.
Management expects year-over-year increases in lease expense to continue if
the Company enters into additional aircraft rental agreements during 2000 and
thereafter.
Maintenance and repairs increased 18% in the second quarter and 11% year
to date compared to the prior year periods. Given the Company's increasing
fleet size and age and variety of aircraft types, management believes that
maintenance and repairs expense will continue to increase for the remainder
of 2000. In part, this higher expense will likely be attributed to scheduled
maintenance and repairs expense and a greater number of routine cycle checks
resulting from fleet usage and certain Federal Aviation Administration
directives.
Salaries and employee benefits increased only 6% in the second quarter
and 5% for the year-to-date period as higher costs in connection with the
agreement with the Fedex Pilots Association that became effective May 31,
1999 were offset by improved productivity and lower provisions for incentive
compensation.
Contributions from the sales of engine noise reduction kits declined $14
million for the quarter and $28 million year-to-date. Management expects
similar declines for each of the remaining quarters of the year.
Other Income and Expense and Income Taxes
Other income and expense decreased in both the second quarter and the
year-to-date period, when compared to prior year results, primarily due to
lower debt levels and gains on the sales of equipment. The effective tax rate
for the second quarter and year-to-date periods was 39.5% compared to 41.5%
in the comparable periods in the prior year, reflecting stronger results from
international operations.
FINANCIAL CONDITION
Liquidity
Cash and cash equivalents totaled $87 million at November 30, 1999.
Management believes that cash flow from operations, FDX Corporation's
commercial paper program and the revolving bank credit facility and other
borrowing arrangements will adequately meet the Company's 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
telecommunications equipment, package handling facilities and sort equipment.
The amount and timing of capital additions depend on various factors
including volume growth, domestic and international economic conditions, new
or enhanced services, geographical expansion of services, competition,
availability of satisfactory financing and actions of regulatory authorities.
- 16 -
<PAGE>
Capital expenditures for the first six months of 2000 totaled $707
million and included aircraft, aircraft modifications, vehicles and ground
support equipment, customer automation and computer equipment and facilities.
In 1999 expenditures primarily included one MD11, aircraft modifications,
vehicles and ground support equipment and customer automation and computer
equipment. As a result of lower than expected U.S. domestic volume growth,
the Company has reduced planned capital expenditures for 2000 by $200
million. For information on the Company's purchase commitments, see Note 3 of
Notes to Condensed Consolidated Financial Statements.
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.
Market Risk Sensitive Instruments and Positions
There have been no material changes in the Company's market risk
sensitive instruments and positions since its disclosure in its Annual Report
on Form 10-K for the year ended May 31, 1999.
Euro Currency Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
fixed conversion rates between their existing sovereign currencies ("legacy
currencies") and a single currency called the euro. On January 4, 1999, the
euro began trading on currency exchanges and became available for non-cash
transactions. The legacy currencies will remain legal tender through
December 31, 2001. Beginning January 1, 2002, euro-denominated bills and coins
will be introduced, and by July 1, 2002, legacy currencies will no longer be
legal tender.
The Company established euro task forces to develop and implement euro
conversion plans. The work of the task forces in preparing for the
introduction of the euro and the phasing out of the various legacy currencies
includes numerous facets such as converting information technology systems,
adapting billing and payment systems and modifying processes for preparing
financial reports and records.
Since January 1, 1999, the Company's subsidiaries have been able to
quote rates to customers, generate billings and accept payments, in both euro
and legacy currencies. Based on the work of the Company's euro task forces to
date, the Company believes that the introduction of the euro, any price
transparency brought about by its introduction and the phasing out of the
legacy currencies will not have a material impact on the Company's
consolidated financial position, results of operations or cash flows. Costs
associated with the euro project are being expensed as incurred and are being
funded entirely by internal cash flows.
YEAR 2000 COMPLIANCE
Introduction
The Company relies heavily on sophisticated information technology
("IT") for its business operations. For example, the Company maintains
electronic connections with approximately two million customers via its
proprietary products and technologies. The Company's Year 2000 ("Y2K")
computer compliance issues were, therefore, broad and complex. The Company's
Y2K Project Office, which was established in 1996, coordinates and supports
the Company's continuing Y2K compliance effort. The Company also used a major
international consulting firm to assist in its Y2K program management.
- 17 -
<PAGE>
The Company's Y2K compliance efforts focused on business-critical areas,
including its IT systems, non-IT systems and interfaces with third parties.
Hardware, software, systems, technologies and applications were considered
"business-critical" if a failure either would have had a material adverse
impact on the Company's business, financial condition or results of
operations or would have involved a safety risk to employees or customers. In
the Company's previous filings with the Securities and Exchange Commission on
Form 10-Q and 10-K, extensive descriptions and definitions of
business-critical items were presented.
State of Readiness
Nothing has come to the Company's attention which would cause it to
believe that its Y2K compliance effort was not successful. While the Company
will continue to monitor for Y2K related problems, to date no significant Y2K
issues have been encountered.
Costs to Address Y2K Compliance
Since 1996, the Company has incurred approximately $93 million on Y2K
compliance ($11 million in the first half of 2000), which includes internal
and external software/hardware analysis, repair, vendor and supplier
assessments, risk mitigation planning, and related costs. The Company
continues to monitor its total expected costs associated with Y2K compliance
efforts, and currently expects that it will incur additional total costs of
approximately $9 million on Y2K matters, including depreciation of $5
million. Remaining Y2K expenditures will include project management of the
corporate contingency effort and the command and control center, further
system audit and validation, and project management to ensure compliance of
new systems development. The Company classifies costs as Y2K for reporting
purposes if they remedy only Y2K risks or result in the formulation of
contingency plans and would otherwise be unnecessary in the normal course of
business.
The Company's Y2K compliance effort is being funded entirely by internal
cash flows. For the fiscal year ending May 31, 2000, Y2K expenditures are
expected to be less than 10% of the Company's total IT expense budget.
Although there are opportunity costs to the Company's Y2K compliance effort,
management believes that no significant information technology projects have
been deferred due to this work.
Contingency Planning and Risks
The Company's key contingency plans addressed the activities to be
performed in preparation for and during a Y2K-related failure that could have
an immediate and significant impact on normal operations. Possible failures
were identified and contingency plans were formulated. These plans included
items such as alternative operating locations, alternative procedures for
mission critical functions and procedures for company-wide communications.
These are in addition to the Company's operational contingency plans for the
pick-up, delivery and movement of packages. The Company created a Y2K
contingency command and control center that links to its other operations
command and control centers. Key command and control personnel were on site
commencing December 31, 1999.
Other contingency plans, including those covering vendor and supplier
issues, continue to be in place to minimize Y2K-related risks that vendors
and suppliers might pose if they are behind in their own Y2K efforts.
* * *
- 18 -
<PAGE>
STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION" OR MADE BY MANAGEMENT OF THE COMPANY THAT
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.
- 19 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 4 Legal Proceedings in Part I is hereby incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
3.1 Third Restated Certificate of Incorporation of Federal
Expess Corporation.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
27 Financial Data Schedule (electronic filing only).
</TABLE>
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the quarter ended
November 30, 1999.
- 20 -
<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 12, 2000 /s/ MICHAEL W. HILLARD
-------------------------------
MICHAEL W. HILLARD
VICE PRESIDENT & CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
- 21 -
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Third Restated Certificate of Incorporation of Federal
Expess Corporation.
12.1 Computation of Ratio of Earnings to Fixed Charges.
15.1 Letter re Unaudited Interim Financial Statements.
27 Financial Data Schedule (electronic filing only).
</TABLE>
E-1
<PAGE>
Exhibit 3.1
THIRD 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 Third 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 Third 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 2,000 shares consisting
of 1,000 shares of Series Preferred Stock, no par value (herein called the
"Series Preferred Stock"), and 1,000 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:
1
<PAGE>
A. The designation of the series, which may be by
distinguishing number, letter or title;
B. The number of shares of such series;
C. The dividend 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.
2
<PAGE>
II. COMMON STOCK
All shares of Common Stock shall be identical and shall entitle the
holders thereof to the same rights and privileges.
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:
3
<PAGE>
(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:
(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
4
<PAGE>
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.
(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.
5
<PAGE>
(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
(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
6
<PAGE>
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 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.
7
<PAGE>
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.
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
8
<PAGE>
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.
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.
ARTICLE FOURTEENTH: Any act or transaction by or involving the
Corporation that requires for its adoption under Chapter 251 of the General
Corporation Law of the State of Delaware or this Certificate of Incorporation
the approval of the stockholders of the Corporation shall, pursuant to Section
251(g) of the General Corporation Law of the State of Delaware, require, in
addition, the approval of the stockholders of FDX Corporation (or any successor
by merger), by the same vote as is required by Chapter 251 of the General
Corporation Law of the State of Delaware and/or by this Certificate of
Incorporation.
SECOND: that the Third 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.
9
<PAGE>
IN WITNESS WHEREOF, FEDERAL EXPRESS CORPORATION has caused its corporate
seal to be hereunto affixed and this certificate to be signed by George W.
Hearn, Secretary.
FEDERAL EXPRESS CORPORATION
BY:/s/GEORGE W. HEARN
------------------------
(Corporate Seal) George W. Hearn
Secretary
10
<PAGE>
EXHIBIT 12.1
FEDERAL EXPRESS CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Year Ended May 31, November 30,
---------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income before income taxes ....... $ 522,084 $ 539,959 $ 628,221 $ 735,213 $ 770,700 $ 420,995 $ 384,679
Add back:
Interest expense, net of
capitalized interest ......... 130,923 105,449 95,689 117,726 90,595 45,267 40,407
Amortization of debt
issuance costs ............... 2,493 1,628 1,328 1,339 9,199 406 308
Portion of rent expense
representative of
interest factor .............. 329,370 386,254 434,846 499,823 535,486 263,010 284,268
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings as adjusted ............. $ 984,870 $1,033,290 $1,160,084 $1,354,101 $1,405,980 $ 729,678 $ 709,662
========== ========== ========== ========== ========== ========== ==========
Fixed Charges:
Interest expense, net of
capitalized interest ........... $ 130,923 $ 105,449 $ 95,689 $ 117,726 $ 90,595 $ 45,267 $ 40,407
Capitalized interest ............. 27,381 39,254 39,449 31,443 35,152 19,842 15,362
Amortization of debt
issuance costs ................. 2,493 1,628 1,328 1,339 9,199 406 308
Portion of rent expense
representative of
interest factor ................ 329,370 386,254 434,846 499,823 535,486 263,010 284,268
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 490,167 $ 532,585 $ 571,312 $ 650,331 $ 670,432 $ 328,525 $ 340,345
========== ========== ========== ========== ========== ========== ==========
Ratio of Earnings to Fixed Charges 2.0 1.9 2.0 2.1 2.1 2.2 2.1
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 15.1
December 15, 1999
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, 333-49411 and 333-80001 its
Report on Form 10-Q for the quarter ended November 30, 1999, which includes
our report dated December 15, 1999 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,
/s/ Arthur Andersen LLP
------------------------
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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 87,298
<SECURITIES> 0
<RECEIVABLES> 2,042,305
<ALLOWANCES> 57,384
<INVENTORY> 258,329
<CURRENT-ASSETS> 2,657,419
<PP&E> 12,846,541
<DEPRECIATION> 6,851,740
<TOTAL-ASSETS> 9,541,929
<CURRENT-LIABILITIES> 2,393,508
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,100,417
<TOTAL-LIABILITY-AND-EQUITY> 9,541,929
<SALES> 0
<TOTAL-REVENUES> 7,322,833
<CGS> 0
<TOTAL-COSTS> 6,902,674
<OTHER-EXPENSES> (3,069)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,549
<INCOME-PRETAX> 384,679
<INCOME-TAX> 151,948
<INCOME-CONTINUING> 232,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 232,731
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
