FEDEX CORP
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED August 31, 2010
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM
TO
Commission File Number: 1-15829
FEDEX CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware
(State or other jurisdiction of incorporation or organization) |
62-1721435
(I.R.S. Employer Identification No.) |
|
| 942 South Shady Grove Road | ||
| Memphis, Tennessee | 38120 | |
| (Address of principal executive offices) | (ZIP Code) |
(901) 818-7500
(Registrant’s telephone number, including area code)
(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 þ No o
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes þ No o
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date.
|
Common Stock
Common Stock, par value $0.10 per share |
Outstanding Shares at
September 15, 2010
314,641,838 |
FEDEX CORPORATION
INDEX
- 2 -
Table of Contents
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
(IN MILLIONS)
| August 31, | ||||||||
| 2010 | May 31, | |||||||
| (Unaudited) | 2010 | |||||||
|
ASSETS
|
||||||||
|
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 1,709 | $ | 1,952 | ||||
|
Receivables, less allowances of $173 and $166
|
4,135 | 4,163 | ||||||
|
Spare parts, supplies and fuel, less
allowances of $165 and $170
|
377 | 389 | ||||||
|
Deferred income taxes
|
529 | 529 | ||||||
|
Prepaid expenses and other
|
286 | 251 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current assets
|
7,036 | 7,284 | ||||||
|
|
||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
31,773 | 31,302 | ||||||
|
Less accumulated depreciation and amortization
|
17,094 | 16,917 | ||||||
|
|
||||||||
|
|
||||||||
|
Net property and equipment
|
14,679 | 14,385 | ||||||
|
|
||||||||
|
OTHER LONG-TERM ASSETS
|
||||||||
|
|
||||||||
|
Goodwill
|
2,211 | 2,200 | ||||||
|
Other assets
|
1,286 | 1,033 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term assets
|
3,497 | 3,233 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 25,212 | $ | 24,902 | ||||
|
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
Table of Contents
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
(IN MILLIONS, EXCEPT SHARE DATA)
| August 31, | ||||||||
| 2010 | May 31, | |||||||
| (Unaudited) | 2010 | |||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||
|
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Current portion of long-term debt
|
$ | 251 | $ | 262 | ||||
|
Accrued salaries and employee benefits
|
1,081 | 1,146 | ||||||
|
Accounts payable
|
1,423 | 1,522 | ||||||
|
Accrued expenses
|
1,786 | 1,715 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current liabilities
|
4,541 | 4,645 | ||||||
|
|
||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,668 | 1,668 | ||||||
|
|
||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||
|
Deferred income taxes
|
902 | 891 | ||||||
|
Pension, postretirement healthcare
and other benefit obligations
|
1,693 | 1,705 | ||||||
|
Self-insurance accruals
|
960 | 960 | ||||||
|
Deferred lease obligations
|
828 | 804 | ||||||
|
Deferred gains, principally related to
aircraft transactions
|
263 | 267 | ||||||
|
Other liabilities
|
152 | 151 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term liabilities
|
4,798 | 4,778 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES
|
||||||||
|
|
||||||||
|
COMMON STOCKHOLDERS’ INVESTMENT
|
||||||||
|
Common stock, $0.10 par value; 800 million shares
authorized; 315 million shares issued as of August 31, 2010
and 314 million shares issued as of May 31, 2010
|
31 | 31 | ||||||
|
Additional paid-in capital
|
2,302 | 2,261 | ||||||
|
Retained earnings
|
14,270 | 13,966 | ||||||
|
Accumulated other comprehensive loss
|
(2,386 | ) | (2,440 | ) | ||||
|
Treasury stock, at cost
|
(12 | ) | (7 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total common stockholders’ investment
|
14,205 | 13,811 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 25,212 | $ | 24,902 | ||||
|
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
Table of Contents
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended | ||||||||
| August 31, | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
REVENUES
|
$ | 9,457 | $ | 8,009 | ||||
|
|
||||||||
|
OPERATING EXPENSES:
|
||||||||
|
Salaries and employee benefits
|
3,803 | 3,377 | ||||||
|
Purchased transportation
|
1,327 | 1,054 | ||||||
|
Rentals and landing fees
|
601 | 578 | ||||||
|
Depreciation and amortization
|
479 | 495 | ||||||
|
Fuel
|
887 | 666 | ||||||
|
Maintenance and repairs
|
517 | 401 | ||||||
|
Other
|
1,215 | 1,123 | ||||||
|
|
||||||||
|
|
8,829 | 7,694 | ||||||
|
|
||||||||
|
|
||||||||
|
OPERATING INCOME
|
628 | 315 | ||||||
|
|
||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||
|
Interest, net
|
(18 | ) | (18 | ) | ||||
|
Other, net
|
(7 | ) | (3 | ) | ||||
|
|
||||||||
|
|
(25 | ) | (21 | ) | ||||
|
|
||||||||
|
|
||||||||
|
INCOME BEFORE INCOME TAXES
|
603 | 294 | ||||||
|
|
||||||||
|
PROVISION FOR INCOME TAXES
|
223 | 113 | ||||||
|
|
||||||||
|
|
||||||||
|
NET INCOME
|
$ | 380 | $ | 181 | ||||
|
|
||||||||
|
|
||||||||
|
EARNINGS PER COMMON SHARE:
|
||||||||
|
Basic
|
$ | 1.21 | $ | 0.58 | ||||
|
|
||||||||
|
|
||||||||
|
Diluted
|
$ | 1.20 | $ | 0.58 | ||||
|
|
||||||||
|
|
||||||||
|
DIVIDENDS DECLARED PER COMMON SHARE
|
$ | 0.24 | $ | 0.22 | ||||
|
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 5 -
Table of Contents
FEDEX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
(UNAUDITED)
(IN MILLIONS)
| Three Months Ended | ||||||||
| August 31, | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Operating Activities:
|
||||||||
|
Net income
|
$ | 380 | $ | 181 | ||||
|
Adjustments to reconcile net income to cash
provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
479 | 495 | ||||||
|
Provision for uncollectible accounts
|
31 | 35 | ||||||
|
Stock-based compensation
|
34 | 35 | ||||||
|
Deferred income taxes and other noncash items
|
33 | 52 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Receivables
|
38 | (52 | ) | |||||
|
Other assets
|
(30 | ) | 242 | |||||
|
Accounts payable and other liabilities
|
(160 | ) | (135 | ) | ||||
|
Other, net
|
(9 | ) | 45 | |||||
|
|
||||||||
|
|
||||||||
|
Cash provided by operating activities
|
796 | 898 | ||||||
|
|
||||||||
|
Investing Activities:
|
||||||||
|
Capital expenditures
|
(1,012 | ) | (880 | ) | ||||
|
Proceeds from asset dispositions and other
|
3 | 26 | ||||||
|
|
||||||||
|
|
||||||||
|
Cash used in investing activities
|
(1,009 | ) | (854 | ) | ||||
|
|
||||||||
|
Financing Activities:
|
||||||||
|
Principal payments on debt
|
(12 | ) | (508 | ) | ||||
|
Proceeds from stock issuances
|
8 | 7 | ||||||
|
Excess tax benefit on the exercise of stock options
|
1 | 1 | ||||||
|
Dividends paid
|
(38 | ) | (34 | ) | ||||
|
Other, net
|
— | (16 | ) | |||||
|
|
||||||||
|
|
||||||||
|
Cash used in financing activities
|
(41 | ) | (550 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Effect of exchange rate changes on cash
|
11 | 3 | ||||||
|
|
||||||||
|
Net decrease in cash and cash equivalents
|
(243 | ) | (503 | ) | ||||
|
Cash and cash equivalents at beginning of period
|
1,952 | 2,292 | ||||||
|
|
||||||||
|
|
||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,709 | $ | 1,789 | ||||
|
|
||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 6 -
Table of Contents
FEDEX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(UNAUDITED)
(1)
General
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
These interim financial statements of FedEx
Corporation (“FedEx”) have been prepared in accordance with accounting principles generally
accepted in the United States and Securities and Exchange Commission (“SEC”) instructions for
interim financial information, and should be read in conjunction with our Annual Report on Form
10-K (“Annual Report”) for the year ended May 31, 2010. 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 (including normal recurring adjustments) necessary to present
fairly our financial position as of August 31, 2010, and the results of our operations and cash
flows for the three-month periods ended August 31, 2010 and 2009. Operating results for the
three-month period ended August 31, 2010 are not necessarily indicative of the results that may be
expected for the year ending May 31, 2011.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2011 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior
year.
EMPLOYEES UNDER COLLECTIVE BARGAINING ARRANGEMENTS.
The pilots of Federal Express Corporation
(“FedEx Express”), which represent a small number of FedEx Express total employees, are employed
under a collective bargaining agreement. The current agreement will become amendable on October
31, 2010. In accordance with applicable labor law, we will continue to operate under our current
agreement while we negotiate with our pilots. We cannot estimate the financial impact, if any, the
results of these negotiations may have on our future results of operations.
STOCK-BASED COMPENSATION.
We have two types of equity-based compensation: stock options and
restricted stock. The key terms of the stock option and restricted stock awards granted under our
incentive stock plans and all financial disclosures about these programs are set forth in our
Annual Report.
Our total stock-based compensation expense was immaterial ($34 million for the three months ended
August 31, 2010 and $35 million for the three months ended August 31, 2009). Therefore, additional
disclosures related to stock-based compensation have been excluded from this quarterly report.
DIVIDENDS DECLARED PER COMMON SHARE.
On August 23, 2010, our Board of Directors declared a
dividend of $0.12 per share of common stock. The dividend will be paid on October 1, 2010 to
stockholders of record as of the close of business on September 10, 2010. Each quarterly dividend
payment is subject to review and approval by our Board of Directors, and we evaluate our dividend
payment amount on an annual basis at the end of each fiscal year.
- 7 -
Table of Contents
(2)
Comprehensive Income
The following table provides a reconciliation of net income reported in our financial statements to
comprehensive income for the three-month periods ended August 31 (in millions):
| 2010 | 2009 | |||||||
|
|
||||||||
|
Net income
|
$ | 380 | $ | 181 | ||||
|
Other comprehensive income:
|
||||||||
|
Foreign currency translation adjustments, net of
tax of $6 in 2010 and $8 in 2009
|
28 | 9 | ||||||
|
Amortization of unrealized pension actuarial
gains/losses, net of tax of $15 in 2010
|
26 | 1 | ||||||
|
|
||||||||
|
|
||||||||
|
Comprehensive income
|
$ | 434 | $ | 191 | ||||
|
|
||||||||
(3)
Financing Arrangements
We have a shelf registration statement filed with the SEC that allows us to sell, in one or more
future offerings, any combination of our unsecured debt securities and common stock.
A $1 billion revolving credit facility is available to finance our operations and other cash flow
needs and to provide support for the issuance of commercial paper. The revolving credit agreement
expires in July 2012. The agreement contains a financial covenant, which requires us to maintain a
leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus
six times our last four fiscal quarters’ rentals and landing fees) to capital (adjusted debt plus
total common stockholders’ investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.5 at August 31, 2010. We are in compliance with this and all other
restrictive covenants of our revolving credit agreement and do not expect the covenants to affect
our operations, including our liquidity or borrowing capacity. As of August 31, 2010, no
commercial paper was outstanding and the entire $1 billion under the revolving credit facility was
available for future borrowings.
Long-term debt, exclusive of capital leases, had a carrying value of $1.8 billion compared with an
estimated fair value of $2.2 billion at August 31, 2010, and $1.8 billion compared with an
estimated fair value of $2.1 billion at May 31, 2010. The estimated fair values were determined
based on quoted market prices or on the current rates offered for debt with similar terms and
maturities.
- 8 -
Table of Contents
(4)
Computation of Earnings Per Share
The calculation of basic and diluted earnings per common share for the three-month periods ended
August 31 was as follows (in millions, except per share amounts):
| 2010 | 2009 | |||||||
|
Basic earnings per common share:
|
||||||||
|
Net earnings allocable to common shares
|
$ | 379 | $ | 180 | ||||
|
Weighted-average common shares
|
314 | 312 | ||||||
|
|
||||||||
|
Basic earnings per common share
|
$ | 1.21 | $ | 0.58 | ||||
|
|
||||||||
|
|
||||||||
|
Diluted earnings per common share:
|
||||||||
|
Net earnings allocable to common shares
|
$ | 379 | $ | 180 | ||||
|
|
||||||||
|
|
||||||||
|
Weighted-average common shares
|
314 | 312 | ||||||
|
Dilutive effect of share-based awards
|
1 | — | ||||||
|
|
||||||||
|
Weighted-average diluted shares
|
315 | 312 | ||||||
|
Diluted earnings per common share
|
$ | 1.20 | $ | 0.58 | ||||
|
|
||||||||
|
|
||||||||
|
Anti-dilutive options excluded from diluted
earnings per common share
|
11.4 | 17.5 | ||||||
|
|
||||||||
(5)
Retirement Plans
We sponsor programs that provide retirement benefits to most of our employees. These programs
include defined benefit pension plans, defined contribution plans and postretirement healthcare
plans. Key terms of our retirement plans are provided in our Annual Report. Our retirement plans
costs for the three-month periods ended August 31 were as follows (in millions):
| 2010 | 2009 | |||||||
|
U.S. domestic and international pension plans
|
$ | 141 | $ | 75 | ||||
|
U.S. domestic and international defined contribution plans
|
54 | 22 | ||||||
|
Postretirement healthcare plans
|
15 | 11 | ||||||
|
|
||||||||
|
|
$ | 210 | $ | 108 | ||||
|
|
||||||||
The three-month period ended August 31, 2010 reflects higher retirement plans costs due to a
significantly lower discount rate used to measure our benefit obligations at our May 31, 2010
measurement date and higher expenses for our 401(k) plans due to the partial reinstatement of the
company-matching contributions on January 1, 2010. In July 2010, we announced that we are planning
to fully restore the company match for all of our 401(k) plans effective January 1, 2011.
Net periodic benefit cost of the pension and postretirement healthcare plans for the three-month
periods ended August 31 included the following components (in millions):
| Postretirement | ||||||||||||||||
| Pension Plans | Healthcare Plans | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Service cost
|
$ | 130 | $ | 104 | $ | 8 | $ | 6 | ||||||||
|
Interest cost
|
224 | 206 | 8 | 8 | ||||||||||||
|
Expected return on plan assets
|
(265 | ) | (239 | ) | — | — | ||||||||||
|
Recognized actuarial losses (gains) and other
|
52 | 4 | (1 | ) | (3 | ) | ||||||||||
|
|
||||||||||||||||
|
|
$ | 141 | $ | 75 | $ | 15 | $ | 11 | ||||||||
|
|
||||||||||||||||
- 9 -
Table of Contents
We made $118 million in tax-deductible contributions to our tax-qualified U.S. domestic pension
plans (“U.S. Retirement Plans”) during the first quarter of 2011 and no contributions during the
first quarter of 2010. In 2010, we contributed an aggregate of $848 million to these plans. Our
U.S. Retirement Plans have ample funds to meet expected benefit payments. Amounts contributed in
excess of the minimum required have resulted in a credit balance for funding purposes, which can be
used to meet minimum contribution requirements in future years. For the remainder of 2011, we
anticipate making required contributions to our U.S. Retirement Plans totaling approximately $400
million, a reduction from 2010 due to the use of a portion of our credit balance.
(6)
Business Segment Information
We provide a broad portfolio of transportation, e-commerce and business services through companies
competing collectively, operating independently and managed collaboratively under the respected
FedEx brand. Our primary operating companies include Federal Express Corporation (“FedEx
Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc.
(“FedEx Ground”), a leading provider of small-package ground delivery services; and the FedEx
Freight LTL Group, which comprises the FedEx Freight and FedEx National LTL businesses of FedEx
Freight Corporation, a leading U.S. provider of less-than-truckload (“LTL”) freight services.
Our reportable segments include the following businesses:
|
FedEx Express Segment
|
FedEx Express (express transportation) | |
|
|
FedEx Trade Networks (global trade services) | |
|
|
FedEx SupplyChain Systems (logistics services) | |
|
|
||
|
FedEx Ground Segment
|
FedEx Ground (small-package ground delivery) | |
|
|
FedEx SmartPost (small-parcel consolidator) | |
|
|
||
|
FedEx Freight Segment
|
FedEx Freight LTL Group: | |
|
|
FedEx Freight (fast-transit LTL freight transportation) | |
|
|
FedEx National LTL (economical LTL freight transportation) | |
|
|
FedEx Custom Critical (time-critical transportation) | |
|
|
||
|
FedEx Services Segment
|
FedEx Services (sales, marketing and information technology functions) | |
|
|
FedEx Office and Print Services, Inc. (“FedEx Office”) (document and business services and package acceptance) | |
|
|
FedEx Customer Information Services (“FCIS”) (customer service, billings and collections) |
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FCIS, which is responsible for customer service, billings and collections for U.S.
customers of our major business units; and FedEx Office, which provides an array of document and
business services and retail access to our customers for our package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating our transportation
businesses in the results of those segments. Within the FedEx Services segment allocation, the net
operating results of FedEx Office are allocated to FedEx Express and FedEx Ground. We review and
evaluate the performance of our transportation segments based on operating income (inclusive of
FedEx Services segment allocations). For the FedEx Services segment, performance is
evaluated based on the impact of its total allocated net operating costs on our transportation
segments. The allocations of net operating costs are based on metrics such as relative revenues or
estimated services provided. We believe these allocations approximate the net cost of providing
these functions.
- 10 -
Table of Contents
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial
summaries of our transportation segments in Management’s Discussion and Analysis of Operations and
Financial Condition (“MD&A”) reflects the allocations from the FedEx Services segment to the
respective transportation segments. The “Intercompany charges” caption also includes charges and
credits for administrative services provided between operating companies and certain other costs
such as corporate management fees related to services received for general corporate oversight,
including executive officers and certain legal and finance functions. We believe these allocations
approximate the net cost of providing these functions.
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in the consolidated results and are not separately identified
in the following segment information because the amounts are not material.
The following table provides a reconciliation of reportable segment revenues and operating income
to our condensed consolidated financial statement totals for the three-month periods ended August
31 (in millions):
| Three Months Ended | ||||||||
| 2010 | 2009 | |||||||
|
Revenues
|
||||||||
|
FedEx Express segment
|
$ | 5,912 | $ | 4,924 | ||||
|
FedEx Ground segment
|
1,961 | 1,730 | ||||||
|
FedEx Freight segment
|
1,258 | 982 | ||||||
|
FedEx Services segment
|
415 | 451 | ||||||
|
Other and eliminations
|
(89 | ) | (78 | ) | ||||
|
|
||||||||
|
|
$ | 9,457 | $ | 8,009 | ||||
|
|
||||||||
|
Operating Income (Loss)
|
||||||||
|
FedEx Express segment
|
$ | 357 | $ | 104 | ||||
|
FedEx Ground segment
|
287 | 209 | ||||||
|
FedEx Freight segment
|
(16 | ) | 2 | |||||
|
|
||||||||
|
|
$ | 628 | $ | 315 | ||||
|
|
||||||||
- 11 -
Table of Contents
(7)
Commitments
As of August 31, 2010, our purchase commitments under various contracts for the remainder of 2011
and annually thereafter were as follows (in millions):
| Aircraft- | ||||||||||||||||
| Aircraft (1) | Related (2) | Other (3) | Total | |||||||||||||
|
|
||||||||||||||||
|
2011 (remainder)
|
$ | 543 | $ | 62 | $ | 686 | $ | 1,291 | ||||||||
|
2012
|
839 | 10 | 178 | 1,027 | ||||||||||||
|
2013
|
622 | 19 | 77 | 718 | ||||||||||||
|
2014
|
480 | — | 15 | 495 | ||||||||||||
|
2015
|
493 | — | 12 | 505 | ||||||||||||
|
Thereafter
|
1,431 | — | 143 | 1,574 | ||||||||||||
| (1) | Our obligation to purchase 15 of these aircraft (Boeing 777 Freighters, or B777Fs) is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as amended. Also, subsequent to August 31, 2010, we entered into an agreement to acquire one MD11 aircraft and expect to take delivery of this aircraft in 2011. This aircraft is not included in the table above. | |
| (2) | Primarily aircraft modifications. | |
| (3) | Primarily vehicles, facilities, advertising and promotions contracts, and for the remainder of 2011, a total of $400 million of quarterly contributions to our U.S. Retirement Plans. |
The amounts reflected in the table above for purchase commitments represent noncancellable
agreements to purchase goods or services. Commitments to purchase aircraft in passenger
configuration do not include the attendant costs to modify these aircraft for cargo transport
unless we have entered into noncancellable commitments to modify such aircraft. Open purchase
orders that are cancelable are not considered unconditional purchase obligations for financial
reporting purposes and are not included in the table above.
We had $640 million in deposits and progress payments as of August 31, 2010 (an increase of $203
million from May 31, 2010) on aircraft purchases and other planned aircraft-related transactions.
These deposits are classified in the “Other assets” caption of our condensed consolidated balance
sheets. In addition to our commitment to purchase B777Fs, our aircraft purchase commitments
include the Boeing 757 (“B757”) in passenger configuration, which will require additional costs to
modify for cargo transport. Aircraft and aircraft-related contracts are subject to price
escalations. The following table is a summary of the number and type of aircraft we are committed
to purchase as of August 31, 2010, with the year of expected delivery:
| B777F | B757 | Total (1) | ||||||||||
|
|
||||||||||||
|
2011 (remainder)
|
4 | 10 | 14 | |||||||||
|
2012
|
5 | 8 | 13 | |||||||||
|
2013
|
5 | — | 5 | |||||||||
|
2014
|
3 | — | 3 | |||||||||
|
2015
|
3 | — | 3 | |||||||||
|
Thereafter
|
10 | — | 10 | |||||||||
|
|
||||||||||||
|
Total
|
30 | 18 | 48 | |||||||||
|
|
||||||||||||
| (1) | Our obligation to purchase 15 of these aircraft (B777Fs) is conditioned upon there being no event that causes FedEx Express or its employees not to be covered by the Railway Labor Act of 1926, as amended. Also, subsequent to August 31, 2010, we entered into an agreement to acquire one MD11 aircraft and expect to take delivery of this aircraft in 2011. This aircraft is not included in the table above. |
- 12 -
Table of Contents
A summary of future minimum lease payments under capital leases and noncancelable operating leases
with an initial or remaining term in excess of one year at August 31, 2010 is as follows (in
millions):
| Operating Leases | ||||||||||||||||
| Aircraft | Total | |||||||||||||||
| Capital | and Related | Facilities | Operating | |||||||||||||
| Leases | Equipment | and Other | Leases | |||||||||||||
|
|
||||||||||||||||
|
2011 (remainder)
|
$ | 6 | $ | 427 | $ | 962 | $ | 1,389 | ||||||||
|
2012
|
8 | 504 | 1,146 | 1,650 | ||||||||||||
|
2013
|
119 | 499 | 986 | 1,485 | ||||||||||||
|
2014
|
2 | 473 | 842 | 1,315 | ||||||||||||
|
2015
|
1 | 455 | 771 | 1,226 | ||||||||||||
|
Thereafter
|
14 | 2,003 | 5,072 | 7,075 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
150 | $ | 4,361 | $ | 9,779 | $ | 14,140 | |||||||||
|
|
||||||||||||||||
|
Less amount representing interest
|
21 | |||||||||||||||
|
|
||||||||||||||||
|
Present value of net minimum lease
payments
|
$ | 129 | ||||||||||||||
|
|
||||||||||||||||
While certain of our lease agreements contain covenants governing the use of the leased assets
or require us to maintain certain levels of insurance, none of our lease agreements include
material financial covenants or limitations.
(8)
Contingencies
Wage-and-Hour.
We are a defendant in a number of lawsuits containing various class-action
allegations of wage-and-hour violations. The plaintiffs in these lawsuits allege, among other
things, that they were forced to work “off the clock,” were not paid overtime or were not provided
work breaks or other benefits. The complaints generally seek unspecified monetary damages,
injunctive relief, or both. The following describes the wage-and-hour matters that have been
certified as class actions.
In September 2008, in
Tidd v. Adecco USA, Kelly Services and FedEx Ground
, a Massachusetts federal
court conditionally certified a class limited to individuals who were employed by two temporary
employment agencies and who worked as temporary pick-up-and-delivery drivers for FedEx Ground in
the New England region within the past three years. Potential claimants must voluntarily “opt in”
to the lawsuit in order to be considered part of the class. In addition, in the same opinion, the
court granted summary judgment in favor of FedEx Ground with respect to the plaintiffs’ claims for
unpaid overtime wages. The court has since granted judgment in favor of the other two defendants
with respect to the overtime claims. Accordingly, the conditionally certified class of plaintiffs
is now limited to a claim of failure to pay regular wages due under the federal Fair Labor
Standards Act.
In April 2009, in
Bibo v. FedEx Express
, a California federal court granted class certification,
certifying several subclasses of FedEx Express couriers in California from April 14, 2006 (the date
of the settlement of the
Foster
class action) to the present. The plaintiffs allege that FedEx
Express violated California wage-and-hour laws after the date of the
Foster
settlement. In
particular, the plaintiffs allege, among other things, that they were forced to work “off the
clock” and were not provided with required meal breaks or split-shift premiums. We asked the U.S.
Court of Appeals for the Ninth Circuit to accept a discretionary appeal of the class certification
order, but the court refused to accept it at this time.
In September 2009, in
Taylor v. FedEx Freight
, a California state court granted class
certification, certifying a class of all current and former drivers employed by FedEx Freight in
California who performed linehaul services since June 2003. The plaintiffs allege, among other
things, that they were forced to work “off the clock” and were
not provided with required rest or meal breaks. In May 2010, we filed a notice to remove this
matter to federal court in California.
- 13 -
Table of Contents
These class certification rulings do not address whether we will ultimately be held liable. We
have denied any liability and intend to vigorously defend ourselves in these wage-and-hour
lawsuits. Given the nature and status of these lawsuits, we cannot yet determine the amount or a
reasonable range of potential loss, if any. However, we do not believe that any loss is probable
in these lawsuits.
Independent Contractor — Lawsuits and State Administrative Proceedings.
FedEx Ground is involved
in numerous class-action lawsuits (including 30 that are certified as class actions), individual
lawsuits and state tax and other administrative proceedings that claim that the company’s
owner-operators should be treated as employees, rather than independent contractors.
Most of the class-action lawsuits have been consolidated for administration of the pre-trial
proceedings by a single federal court, the U.S. District Court for the Northern District of
Indiana. With the exception of more recently filed cases that have been or will be transferred to
the multidistrict litigation, discovery on class certification and classification issues is now
complete. Thus far, the multidistrict litigation court has granted class certification in 28 cases
and denied it in 14 cases, and has issued two rulings on the classification issue (
i.e.,
independent contractor vs. employee):
| • | In May 2010, in an Illinois case in which class certification had been denied, the court granted the three named plaintiffs’ motion for summary judgment on their claim under the Illinois wage law, holding that the three plaintiffs were employees under that law. There have not yet been any rulings on the plaintiffs’ motion for summary judgment on the remaining claims in that case. The classification issue is state-law specific and varies from state to state and from law to law within each state. Accordingly, the court’s ruling in the Illinois case is not binding authority for any of the remaining claims in that case or for any of the other cases pending in the multidistrict litigation. |
| • | In August 2010, in a Kansas case in which class certification had been granted, the court granted FedEx Ground’s motion for summary judgment on the state law claims, holding that the plaintiffs were independent contractors as a matter of law (the court had previously dismissed without prejudice the nationwide class claim under the Employee Retirement Income Security Act of 1974 based on the plaintiff’s failure to exhaust administrative remedies). In the same order, the court asked the parties to submit briefs in all 27 of the other multidistrict litigation cases that are certified as class actions (and in which motions for summary judgment on the classification issue are still pending), explaining how the court’s reasoning in the Kansas case applied to those cases. |
In January 2008, one of the contractor-model lawsuits that is not part of the multidistrict
litigation,
Anfinson v. FedEx Ground
, was certified as a class action by a Washington state court.
The plaintiffs in
Anfinson
represent a class of single-route, pickup-and-delivery owner-operators
in Washington from December 21, 2001 through December 31, 2005 and allege that the class members
should be reimbursed as employees for their uniform expenses and should receive overtime pay. In
March 2009, a jury trial in the
Anfinson
case was held, and the jury returned a verdict in favor of
FedEx Ground, finding that all 320 class members were independent contractors, not employees. The
plaintiffs have appealed the verdict.
In August 2010, another one of the contractor-model lawsuits that is not part of the multidistrict
litigation,
Rascon v. FedEx Ground
, was certified as a class action by a Colorado state court. The
plaintiff in
Rascon
represents a class of single-route, pickup-and-delivery owner-operators in
Colorado who drove vehicles weighing less than 10,001 pounds at any time from August 27, 2005
through the present. The lawsuit seeks unpaid overtime compensation, and related penalties and
attorneys’ fees and costs, under Colorado law. We have filed an application for appeal challenging
this class certification decision.
- 14 -
Table of Contents
The other contractor-model purported class actions that are not part of the multidistrict
litigation are not as far along procedurally as
Anfinson
and
Rascon
, and many of the lawsuits are
currently stayed pending further developments in the multidistrict litigation.
Adverse determinations in these matters could, among other things, entitle certain of our
contractors and their drivers to the reimbursement of certain expenses and to the benefit of
wage-and-hour laws and result in employment and withholding tax and benefit liability for FedEx
Ground, and could result in changes to the independent contractor status of FedEx Ground’s
owner-operators. We believe that FedEx Ground’s owner-operators are properly classified as
independent contractors and that FedEx Ground is not an employer of the drivers of the company’s
independent contractors. Given the nature and status of these lawsuits, we cannot yet determine
the amount or a reasonable range of potential loss, if any, but it is reasonably possible that such
potential loss or such changes to the independent contractor status of FedEx Ground’s
owner-operators could be material. However, we do not believe that a material loss is probable in
any of these matters.
ATA Airlines.
ATA Airlines has sued FedEx Express in Indiana federal court alleging, among other
things, that we breached a contract by not including ATA on our 2009 Civil Reserve Air Fleet
(CRAF)/Air Mobility Command (AMC) team, which provides cargo and passenger service to the U.S.
military. After being advised that it would not be a part of the 2009 team, ATA ceased operations
and filed for bankruptcy. ATA has alleged damages of $94 million, including lost profits and
aircraft acquisition costs. We have denied any liability and contend that ATA has suffered no
damages. In April 2010, the court granted our motion for partial judgment on the pleadings and
dismissed all of ATA’s claims except for the breach of contract claim. In June 2010, the court
denied our motion for summary judgment on the breach of contract claim, so that claim is still
pending. Trial is currently scheduled for October 2010, and we still do not believe that any
material loss is probable.
Other.
FedEx and its subsidiaries are subject to other legal proceedings that arise in the
ordinary course of their business. In the opinion of management, the aggregate liability, if any,
with respect to these other actions will not have a material adverse effect on our financial
position, results of operations or cash flows.
(9)
Supplemental Cash Flow Information
The following table presents supplemental cash flow information for the three-month periods ended
August 31 (in millions):
| 2010 | 2009 | |||||||
|
Cash payments for:
|
||||||||
|
Interest (net of capitalized interest)
|
$ | 54 | $ | 70 | ||||
|
|
||||||||
|
|
||||||||
|
Income taxes
|
$ | 73 | $ | 50 | ||||
|
Income tax refunds received
|
(1 | ) | (263 | ) | ||||
|
|
||||||||
|
Cash tax payments, net
|
$ | 72 | $ | (213 | ) | |||
|
|
||||||||
(10)
Condensed Consolidating Financial Statements
We are required to present condensed consolidating financial information in order for the
subsidiary guarantors (other than FedEx Express) of our public debt to continue to be exempt
from reporting under the Securities Exchange Act of 1934.
- 15 -
Table of Contents
The guarantor subsidiaries, which are wholly owned by FedEx, guarantee $1.2 billion of our debt.
The guarantees are full and unconditional and joint and several. Our guarantor subsidiaries
were not determined using geographic, service line or other similar criteria, and as a result,
the “Guarantor” and “Non-Guarantor” columns each include portions of our domestic and
international operations. Accordingly, this basis of presentation is not intended to present
our financial condition, results of operations or cash flows for any purpose other than to
comply with the specific requirements for subsidiary guarantor reporting. Condensed
consolidating financial statements for our guarantor subsidiaries and non-guarantor subsidiaries
are presented in the following tables (in millions):
CONDENSED CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
August 31, 2010
(UNAUDITED)
August 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,107 | $ | 234 | $ | 429 | $ | (61 | ) | $ | 1,709 | |||||||||
|
Receivables, less allowances
|
1 | 3,369 | 809 | (44 | ) | 4,135 | ||||||||||||||
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances
|
13 | 597 | 53 | — | 663 | |||||||||||||||
|
Deferred income taxes
|
— | 491 | 38 | — | 529 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
1,121 | 4,691 | 1,329 | (105 | ) | 7,036 | ||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
23 | 29,531 | 2,219 | — | 31,773 | |||||||||||||||
|
Less accumulated depreciation and amortization
|
18 | 15,944 | 1,132 | — | 17,094 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net property and equipment
|
5 | 13,587 | 1,087 | — | 14,679 | |||||||||||||||
|
|
||||||||||||||||||||
|
INTERCOMPANY RECEIVABLE
|
— | — | 1,085 | (1,085 | ) | — | ||||||||||||||
|
GOODWILL
|
— | 1,551 | 660 | — | 2,211 | |||||||||||||||
|
INVESTMENT IN SUBSIDIARIES
|
14,259 | 2,705 | — | (16,964 | ) | — | ||||||||||||||
|
OTHER ASSETS
|
1,513 | 1,055 | 98 | (1,380 | ) | 1,286 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,898 | $ | 23,589 | $ | 4,259 | $ | (19,534 | ) | $ | 25,212 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Current portion of long-term debt
|
$ | 250 | $ | 1 | $ | — | $ | — | $ | 251 | ||||||||||
|
Accrued salaries and employee benefits
|
36 | 904 | 141 | — | 1,081 | |||||||||||||||
|
Accounts payable
|
38 | 1,118 | 372 | (105 | ) | 1,423 | ||||||||||||||
|
Accrued expenses
|
169 | 1,445 | 172 | — | 1,786 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
493 | 3,468 | 685 | (105 | ) | 4,541 | ||||||||||||||
|
|
||||||||||||||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,000 | 668 | — | — | 1,668 | |||||||||||||||
|
INTERCOMPANY PAYABLE
|
380 | 705 | — | (1,085 | ) | — | ||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||||||||||||||
|
Deferred income taxes
|
— | 2,252 | 30 | (1,380 | ) | 902 | ||||||||||||||
|
Other liabilities
|
820 | 2,942 | 134 | — | 3,896 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other long-term liabilities
|
820 | 5,194 | 164 | (1,380 | ) | 4,798 | ||||||||||||||
|
|
||||||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT
|
14,205 | 13,554 | 3,410 | (16,964 | ) | 14,205 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,898 | $ | 23,589 | $ | 4,259 | $ | (19,534 | ) | $ | 25,212 | |||||||||
|
|
||||||||||||||||||||
- 16 -
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEETS
May 31, 2010
May 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,310 | $ | 258 | $ | 443 | $ | (59 | ) | $ | 1,952 | |||||||||
|
Receivables, less allowances
|
1 | 3,425 | 782 | (45 | ) | 4,163 | ||||||||||||||
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances
|
5 | 581 | 54 | — | 640 | |||||||||||||||
|
Deferred income taxes
|
— | 492 | 37 | — | 529 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
1,316 | 4,756 | 1,316 | (104 | ) | 7,284 | ||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
23 | 29,193 | 2,086 | — | 31,302 | |||||||||||||||
|
Less accumulated depreciation and amortization
|
18 | 15,801 | 1,098 | — | 16,917 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net property and equipment
|
5 | 13,392 | 988 | — | 14,385 | |||||||||||||||
|
|
||||||||||||||||||||
|
INTERCOMPANY RECEIVABLE
|
— | — | 1,132 | (1,132 | ) | — | ||||||||||||||
|
GOODWILL
|
— | 1,551 | 649 | — | 2,200 | |||||||||||||||
|
INVESTMENT IN SUBSIDIARIES
|
13,850 | 2,619 | — | (16,469 | ) | — | ||||||||||||||
|
OTHER ASSETS
|
1,527 | 801 | 99 | (1,394 | ) | 1,033 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,698 | $ | 23,119 | $ | 4,184 | $ | (19,099 | ) | $ | 24,902 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Current portion of long-term debt
|
$ | 250 | $ | 12 | $ | — | $ | — | $ | 262 | ||||||||||
|
Accrued salaries and employee benefits
|
36 | 955 | 155 | — | 1,146 | |||||||||||||||
|
Accounts payable
|
8 | 1,196 | 422 | (104 | ) | 1,522 | ||||||||||||||
|
Accrued expenses
|
47 | 1,488 | 180 | — | 1,715 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
341 | 3,651 | 757 | (104 | ) | 4,645 | ||||||||||||||
|
|
||||||||||||||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,000 | 668 | — | — | 1,668 | |||||||||||||||
|
INTERCOMPANY PAYABLE
|
702 | 430 | — | (1,132 | ) | — | ||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||||||||||||||
|
Deferred income taxes
|
— | 2,253 | 32 | (1,394 | ) | 891 | ||||||||||||||
|
Other liabilities
|
844 | 2,921 | 122 | — | 3,887 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other long-term liabilities
|
844 | 5,174 | 154 | (1,394 | ) | 4,778 | ||||||||||||||
|
|
||||||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT
|
13,811 | 13,196 | 3,273 | (16,469 | ) | 13,811 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 16,698 | $ | 23,119 | $ | 4,184 | $ | (19,099 | ) | $ | 24,902 | |||||||||
|
|
||||||||||||||||||||
- 17 -
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended August 31, 2010
(UNAUDITED)
Three Months Ended August 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 7,893 | $ | 1,646 | $ | (82 | ) | $ | 9,457 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
38 | 3,249 | 516 | — | 3,803 | |||||||||||||||
|
Purchased transportation
|
— | 920 | 432 | (25 | ) | 1,327 | ||||||||||||||
|
Rentals and landing fees
|
1 | 537 | 64 | (1 | ) | 601 | ||||||||||||||
|
Depreciation and amortization
|
— | 432 | 47 | — | 479 | |||||||||||||||
|
Fuel
|
— | 841 | 46 | — | 887 | |||||||||||||||
|
Maintenance and repairs
|
— | 483 | 34 | — | 517 | |||||||||||||||
|
Intercompany charges, net
|
(71 | ) | (92 | ) | 163 | — | — | |||||||||||||
|
Other
|
32 | 986 | 253 | (56 | ) | 1,215 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 7,356 | 1,555 | (82 | ) | 8,829 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 537 | 91 | — | 628 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
380 | 26 | — | (406 | ) | — | ||||||||||||||
|
Interest, net
|
(24 | ) | 8 | (2 | ) | — | (18 | ) | ||||||||||||
|
Intercompany charges, net
|
27 | (35 | ) | 8 | — | — | ||||||||||||||
|
Other, net
|
(3 | ) | (4 | ) | — | — | (7 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
380 | 532 | 97 | (406 | ) | 603 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 196 | 27 | — | 223 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 380 | $ | 336 | $ | 70 | $ | (406 | ) | $ | 380 | |||||||||
|
|
||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended August 31, 2009
(UNAUDITED)
Three Months Ended August 31, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 6,851 | $ | 1,228 | $ | (70 | ) | $ | 8,009 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
23 | 2,893 | 461 | — | 3,377 | |||||||||||||||
|
Purchased transportation
|
— | 796 | 271 | (13 | ) | 1,054 | ||||||||||||||
|
Rentals and landing fees
|
1 | 520 | 58 | (1 | ) | 578 | ||||||||||||||
|
Depreciation and amortization
|
— | 438 | 57 | — | 495 | |||||||||||||||
|
Fuel
|
— | 631 | 35 | — | 666 | |||||||||||||||
|
Maintenance and repairs
|
— | 372 | 29 | — | 401 | |||||||||||||||
|
Intercompany charges, net
|
(47 | ) | 27 | 20 | — | — | ||||||||||||||
|
Other
|
23 | 930 | 226 | (56 | ) | 1,123 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 6,607 | 1,157 | (70 | ) | 7,694 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 244 | 71 | — | 315 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
181 | 34 | — | (215 | ) | — | ||||||||||||||
|
Interest, net
|
(29 | ) | 14 | (3 | ) | — | (18 | ) | ||||||||||||
|
Intercompany charges, net
|
31 | (39 | ) | 8 | — | — | ||||||||||||||
|
Other, net
|
(2 | ) | — | (1 | ) | — | (3 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
181 | 253 | 75 | (215 | ) | 294 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 88 | 25 | — | 113 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 181 | $ | 165 | $ | 50 | $ | (215 | ) | $ | 181 | |||||||||
|
|
||||||||||||||||||||
- 18 -
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended August 31, 2010
(UNAUDITED)
Three Months Ended August 31, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | 19 | $ | 701 | $ | 78 | $ | (2 | ) | $ | 796 | |||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
— | (978 | ) | (34 | ) | — | (1,012 | ) | ||||||||||||
|
Proceeds from asset dispositions and other
|
— | 2 | 1 | — | 3 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
— | (976 | ) | (33 | ) | — | (1,009 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
(193 | ) | 211 | (18 | ) | — | — | |||||||||||||
|
Payment on loan between subsidiaries
|
— | 40 | (40 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 4 | (4 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
— | (12 | ) | — | — | (12 | ) | |||||||||||||
|
Proceeds from stock issuances
|
8 | — | — | — | 8 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
1 | — | — | — | 1 | |||||||||||||||
|
Dividends paid
|
(38 | ) | — | — | — | (38 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(222 | ) | 243 | (62 | ) | — | (41 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | 8 | 3 | — | 11 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net decrease in cash and cash equivalents
|
(203 | ) | (24 | ) | (14 | ) | (2 | ) | (243 | ) | ||||||||||
|
Cash and cash equivalents at beginning of period
|
1,310 | 258 | 443 | (59 | ) | 1,952 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,107 | $ | 234 | $ | 429 | $ | (61 | ) | $ | 1,709 | |||||||||
|
|
||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended August 31, 2009
(UNAUDITED)
Three Months Ended August 31, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | 164 | $ | 527 | $ | 218 | $ | (11 | ) | $ | 898 | |||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
— | (841 | ) | (39 | ) | — | (880 | ) | ||||||||||||
|
Proceeds from asset dispositions and other
|
— | 26 | — | — | 26 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
— | (815 | ) | (39 | ) | — | (854 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
(61 | ) | 200 | (139 | ) | — | — | |||||||||||||
|
Payment on loan between subsidiaries
|
— | 35 | (35 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 36 | (36 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
(500 | ) | (8 | ) | — | — | (508 | ) | ||||||||||||
|
Proceeds from stock issuances
|
7 | — | — | — | 7 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
1 | — | — | — | 1 | |||||||||||||||
|
Dividends paid
|
(34 | ) | — | — | — | (34 | ) | |||||||||||||
|
Other, net
|
(16 | ) | — | — | — | (16 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(603 | ) | 263 | (210 | ) | — | (550 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | 1 | 2 | — | 3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net decrease in cash and cash equivalents
|
(439 | ) | (24 | ) | (29 | ) | (11 | ) | (503 | ) | ||||||||||
|
Cash and cash equivalents at beginning of period
|
1,768 | 272 | 304 | (52 | ) | 2,292 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,329 | $ | 248 | $ | 275 | $ | (63 | ) | $ | 1,789 | |||||||||
|
|
||||||||||||||||||||
- 19 -
Table of Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
FedEx Corporation
FedEx Corporation
We have reviewed the condensed consolidated balance sheet of FedEx Corporation as of August 31,
2010, and the related condensed consolidated statements of income for the three-month periods ended
August 31, 2010 and 2009 and the condensed consolidated statements of cash flows for the
three-month periods ended August 31, 2010 and 2009. These financial statements are the
responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards
of the Public Company Accounting Oversight Board, 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
condensed consolidated financial statements referred to above for them to be in conformity with
U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of FedEx Corporation as of May 31,
2010, and the related consolidated statements of income, changes in stockholders’ investment and
comprehensive income, and cash flows for the year then ended not presented herein, and in our
report dated July 15, 2010, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of May 31, 2010, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ Ernst & Young LLP
Memphis, Tennessee
September 17, 2010
September 17, 2010
- 20 -
Table of Contents
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial
Condition
GENERAL
The following Management’s Discussion and Analysis of Results of Operations and Financial Condition
(“MD&A”) describes the principal factors affecting the results of operations, liquidity, capital
resources, contractual cash obligations and critical accounting estimates of FedEx Corporation
(“FedEx”). This discussion should be read in conjunction with the accompanying quarterly unaudited
condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended
May 31, 2010 (“Annual Report”). Our Annual Report includes additional information about our
significant accounting policies, practices and the transactions that underlie our financial
results, as well as a detailed discussion of the most significant risks and uncertainties
associated with our financial condition and operating results.
We provide a broad portfolio of transportation, e-commerce and business services through companies
competing collectively, operating independently and managed collaboratively, under the respected
FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”),
the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx
Ground”), a leading provider of small-package ground delivery services; and the FedEx Freight LTL
Group, which comprises the FedEx Freight and FedEx National LTL businesses of FedEx Freight
Corporation, a leading U.S. provider of less-than-truckload (“LTL”) freight services. These
companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx
Services”), form the core of our reportable segments. Our FedEx Services segment provides sales,
marketing, information technology and customer service support to our transportation segments. In
addition, the FedEx Services segment provides customers with retail access to FedEx Express and
FedEx Ground shipping services through FedEx Office and Print Services, Inc. (“FedEx Office”). See
“Reportable Segments” for further discussion.
The key indicators necessary to understand our operating results include:
| • | the overall customer demand for our various services; |
| • | the volumes of transportation services provided through our networks, primarily measured by our average daily volume and shipment weight; |
| • | the mix of services purchased by our customers; |
| • | the prices we obtain for our services, primarily measured by yield (revenue per package or pound or revenue per hundredweight for LTL freight shipments); |
| • | our ability to manage our cost structure (capital expenditures and operating expenses) to match shifting volume levels; and |
| • | the timing and amount of fluctuations in fuel prices and our ability to recover incremental fuel costs through our fuel surcharges. |
The majority of our operating expenses are directly impacted by revenue and volume levels.
Accordingly, we expect these operating expenses to fluctuate on a year-over-year basis consistent
with the change in revenues and volumes. Therefore, the discussion of operating expense captions
focuses on the key drivers and trends impacting expenses other than changes in revenues and volume.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2011 or
ended May 31 of the year referenced and comparisons are to the corresponding period of the prior
year. References to our transportation segments include, collectively, our FedEx Express, FedEx
Ground and FedEx Freight segments.
- 21 -
Table of Contents
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table compares summary operating results (dollars in millions,
except per share amounts) for the three-month periods ended August 31:
| Percent | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
|
Revenues
|
$ | 9,457 | $ | 8,009 | 18 | |||||||
|
|
||||||||||||
|
Operating income
|
628 | 315 | 99 | |||||||||
|
|
||||||||||||
|
Operating margin
|
6.6 | % | 3.9 | % | 270 | bp | ||||||
|
|
||||||||||||
|
Net income
|
$ | 380 | $ | 181 | 110 | |||||||
|
|
||||||||||||
|
|
||||||||||||
|
Diluted earnings per share
|
$ | 1.20 | $ | 0.58 | 107 | |||||||
|
|
||||||||||||
The following table shows changes in revenues and operating income by reportable segment for the
three-month periods ended August 31, 2010 compared to August 31, 2009 (dollars in millions):
| Revenues | Operating Income | |||||||||||||||
| Dollar | Percent | Dollar | Percent | |||||||||||||
| Change | Change | Change | Change | |||||||||||||
|
|
||||||||||||||||
|
FedEx Express segment
|
$ | 988 | 20 | $ | 253 | 243 | ||||||||||
|
FedEx Ground segment
|
231 | 13 | 78 | 37 | ||||||||||||
|
FedEx Freight segment
|
276 | 28 | (18 | ) | (900 | ) | ||||||||||
|
FedEx Services segment
|
(36 | ) | (8 | ) | — | — | ||||||||||
|
Other and eliminations
|
(11 | ) | NM | — | — | |||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
|
$ | 1,448 | 18 | $ | 313 | 99 | ||||||||||
|
|
||||||||||||||||
Overview
Our results for the first
quarter of 2011 reflect strong demand for our services
driven by improved global economic conditions, which began in the second half of 2010 and continued
into the first quarter of 2011. This increased demand produced a significant increase in revenues
and earnings for the first quarter of 2011. Our revenue growth was driven by higher volumes across
all of our transportation segments, particularly in FedEx International Priority (“IP”) package
shipments at FedEx Express. Yield improvements were principally due to higher fuel surcharges and
increased package weights at FedEx Express and higher fuel surcharges at FedEx Ground. The net
impact of changes in fuel surcharges and fuel prices had a positive impact on our earnings in the
first quarter of 2011. The significant increase in earnings in the first quarter of 2011 was
achieved despite increased salaries and benefits costs, as we reinstated numerous compensation
programs that were eliminated during the recession and incurred higher pension and health care
costs, as well as higher maintenance expenses. Our results also include an operating loss at the
FedEx Freight segment, as the LTL freight market remains highly competitive due to excess capacity.
During 2010, we implemented plans to improve pricing in our LTL businesses and the performance of
this segment is beginning to stabilize, as its yields improved 4% from the fourth quarter of 2010.
- 22 -
Table of Contents
The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group show selected
volume trends (in thousands) over the five most recent quarters:
| (1) | Package statistics do not include the operations of FedEx SmartPost. |
- 23 -
Table of Contents
The following graphs for FedEx Express, FedEx Ground and the FedEx Freight LTL Group show selected
yield trends over the five most recent quarters:
| (1) | Package statistics do not include the operations of FedEx SmartPost. |
Revenue
Revenues increased 18% during the first quarter of 2011 primarily due to volume increases across
all of our transportation segments and yield increases at the FedEx Express and FedEx Ground
segments. At FedEx Express, IP package volume increased 19% led by volume growth in Asia, while
U.S. domestic package yields increased 7% in the first quarter of 2011 primarily due to higher fuel
surcharges. At the FedEx Ground segment, market share gains resulted in a 7% increase in volumes
at FedEx Ground and a 9% increase at FedEx SmartPost during the first quarter of 2011.
Additionally, yields increased 5% at FedEx Ground and 19% at FedEx SmartPost in the first quarter
of 2011. At the FedEx Freight segment, discounted pricing drove an increase in average daily LTL
freight shipments, but also resulted in year-over-year yield declines during the first quarter of
2011.
- 24 -
Table of Contents
Operating Income
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a
percent of revenue for the three-month periods ended August 31:
| Percent of Revenue (1) | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
$ | 3,803 | $ | 3,377 | 40.2 | % | 42.2 | % | ||||||||
|
Purchased transportation
|
1,327 | 1,054 | 14.0 | 13.2 | ||||||||||||
|
Rentals and landing fees
|
601 | 578 | 6.4 | 7.2 | ||||||||||||
|
Depreciation and amortization
|
479 | 495 | 5.1 | 6.2 | ||||||||||||
|
Fuel
|
887 | 666 | 9.4 | 8.3 | ||||||||||||
|
Maintenance and repairs
|
517 | 401 | 5.5 | 5.0 | ||||||||||||
|
Other
|
1,215 | 1,123 | 12.8 | 14.0 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
$ | 8,829 | $ | 7,694 | 93.4 | 96.1 | ||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating margin
|
6.6 | % | 3.9 | % | ||||||||||||
|
|
||||||||||||||||
| (1) | Given the fixed-cost structure of our transportation networks, the year-over-year comparison of our operating expenses as a percentage of revenue has been affected by a number of factors, including changes in fuel surcharges and economic conditions. Collectively, these factors have distorted the comparability of certain of our operating expense captions on a relative basis. |
Operating income and operating margin increased in the first quarter of 2011 as a result of
volume increases in our package businesses, particularly higher-margin IP package and freight
services. Increases in U.S. domestic package yields at FedEx Express and the FedEx Ground segment
also contributed to the earnings increase. Operating expenses include volume-related increases,
particularly in salaries and wages, purchased transportation costs and aircraft maintenance
expenses. The reinstatement of several employee compensation programs and higher pension and
medical costs also increased costs for the quarter. An operating loss for the first quarter of
2011 at the FedEx Freight segment due to discounted pricing for our LTL freight services partially
offset the earnings increase.
Maintenance and repairs expense increased 29% in the first quarter of 2011 primarily due to an
increase in aircraft maintenance events as a result of timing and higher utilization of our fleet.
Purchased transportation costs increased 26% in the first quarter of 2011 due to volume growth at
all of our transportation segments, as well as higher rates paid to our independent contractors at
FedEx Ground. Salaries and employee benefits increased 13% in the first quarter of 2011 due to
volume-related increases in labor hours, increases in pension and medical costs, the reinstatement
of merit salary increases and the partial reinstatement of 401(k) company-matching contributions
effective January 1, 2010. In addition, our improving performance has resulted in higher accruals
under our variable compensation programs.
- 25 -
Table of Contents
The following graph for our transportation segments shows our average cost of jet and vehicle fuel
per gallon for the five most recent quarters:
Fuel expense increased 33% during the first quarter of 2011 due to increases in the average price
per gallon of fuel and fuel consumption driven by volume increases. Fuel surcharges more than
offset incremental fuel costs for the first quarter of 2011, based on a static analysis of the
impact to operating income of year-over-year changes in fuel prices compared to changes in fuel
surcharges.
Our analysis considers the estimated impact of the reduction in fuel surcharges included in the
base rates charged for FedEx Express services. However, this analysis does not consider the
negative effects that fuel surcharge levels may have on our business, including reduced demand and
shifts by our customers to lower-yielding services. While fluctuations in fuel surcharge rates can
be significant from period to period, fuel surcharges represent one of the many individual
components of our pricing structure that impact our overall revenue and yield. Additional
components include the mix of services purchased, the base price and extra service charges we
obtain for these services and the level of pricing discounts offered. In order to provide
information about the impact of fuel surcharges on the trend in revenue and yield growth, we have
included the comparative fuel surcharge rates in effect for the first quarter of 2011 and 2010 in
the accompanying discussions of each of our transportation segments.
Income Taxes
Our effective tax rate was 37.0% for the first quarter of 2011 and 38.5% for the first quarter of
2010. Our lower effective tax rate in the first quarter of 2011 was driven by the benefit derived
from increases in international earnings, which are generally taxed at lower rates than in the U.S.
For the remainder of 2011, we expect the effective tax rate to be
36.0% to 37.0%. The actual
rate, however, will depend on a number of factors, including the amount and source of operating
income.
As of August 31, 2010, there were no material changes to our liabilities for unrecognized tax
benefits from May 31, 2010. The Internal Revenue Service is currently auditing our 2007 through
2009 consolidated U.S. income tax returns.
We file income tax returns in the U.S. and various U.S. states and foreign jurisdictions. It is
reasonably possible that certain U.S. federal, U.S. state and foreign jurisdiction income tax
return proceedings will be completed during the next 12 months and could result in a change in our
balance of unrecognized tax benefits. An estimate of the range of the change cannot be made at
this time. The expected impact of any changes would not be material to our consolidated financial
statements.
- 26 -
Table of Contents
Outlook
We expect continued growth in revenue and earnings in the second quarter of 2011, as the global
economy continues to grow and yields improve due to our yield management initiatives. Our
expectations are based on a continued recovery in global economic conditions, slower but sustained
economic growth in the U.S. and fuel prices remaining at current forecasted levels. However, our
anticipated earnings growth in 2011 will be dampened by costs associated with the reinstatement of
employee compensation and benefit programs, such as 401(k) company-matching contributions,
increased pension and medical expenses and higher aircraft maintenance and purchased transportation
expenses.
In
September 2010, we announced the combination of our FedEx
Freight and FedEx National LTL operations. This action, which will be
effective January 30, 2011, will increase efficiencies and reduce operational costs.
Additionally, it will provide customers both priority or economy LTL freight services across all
lengths of haul from one integrated company. This change, along with our ongoing yield management
initiatives, is expected to substantially improve the profitability
of the FedEx Freight segment in 2012.
The estimated cost of this program is $150 to $200 million, primarily related to charges that will
be recorded in the second and third quarters of 2011. These charges will include severance costs
associated with personnel reductions, lease terminations and certain
non-cash charges. The net cash effect from the one-time cost of these
actions is expected to be immaterial over time due to anticipated proceeds from
asset sales. As a result of this combination, we expect to reduce our headcount by approximately 1,700
full-time employees and close approximately 100 facilities.
For the remainder of 2011, we will continue to make strategic investments in Boeing 777 Freighter
(“B777F”) and Boeing 757 (“B757”) aircraft, which are substantially more fuel-efficient per unit
than the aircraft types they are replacing. We are committed to investing in critical long-term
strategic projects focused on enhancing and broadening our service offerings to position us for
stronger growth as global economic conditions continue to improve. For additional details on key
2011 capital projects, refer to the Liquidity Outlook section of this MD&A.
All of our businesses operate in a competitive pricing environment, exacerbated by continuing
volatile fuel prices, which impact our fuel surcharge levels. Historically, our fuel surcharges
have largely offset incremental fuel costs; however, volatility in fuel costs may impact earnings
because adjustments to our fuel surcharges lag changes in actual fuel prices paid. Therefore, the
trailing impact of adjustments to our fuel surcharges can significantly affect our earnings either
positively or negatively in the short-term.
As described in Note 8 of the accompanying unaudited condensed consolidated financial statements
and the “Independent Contractor Matters” section of our FedEx Ground segment MD&A, we are involved
in a number of lawsuits and other proceedings that challenge the status of FedEx Ground’s
owner-operators as independent contractors. FedEx Ground anticipates continuing changes to its
relationships with its contractors. The nature, timing and amount of any changes are dependent on
the outcome of numerous future events. We cannot reasonably estimate the potential impact of any
such changes or a meaningful range of potential outcomes, although they could be material.
However, we do not believe that any such changes will impair our ability to operate and profitably
grow our FedEx Ground business.
See “Forward-Looking Statements” for a discussion of these and other potential risks and
uncertainties that could materially affect our future performance.
NEW ACCOUNTING GUIDANCE
New accounting rules and disclosure requirements can significantly impact our reported results and
the comparability of our financial statements. We believe that there is no new accounting guidance
adopted but not yet effective that is relevant to the readers of our financial statements.
However, there are numerous new proposals under development which, if and when enacted, may have a
significant impact on our financial reporting.
- 27 -
Table of Contents
REPORTABLE SEGMENTS
FedEx Express, FedEx Ground and the FedEx Freight LTL Group represent our major service lines and,
along with FedEx Services, form the core of our reportable segments. Our reportable segments
include the following businesses:
|
FedEx Express Segment
|
FedEx Express (express transportation)
FedEx Trade Networks (global trade services) FedEx SupplyChain Systems (logistics services) |
|
|
|
||
|
FedEx Ground Segment
|
FedEx Ground (small-package ground delivery)
FedEx SmartPost (small-parcel consolidator) |
|
|
|
||
|
FedEx Freight Segment
|
FedEx Freight LTL Group:
FedEx Freight (fast-transit LTL freight transportation)
FedEx National LTL (economical LTL freight transportation)
FedEx Custom Critical (time-critical transportation)
|
|
|
|
||
|
FedEx Services Segment
|
FedEx Services (sales, marketing and information technology functions)
FedEx Office (document and business services and package acceptance) FedEx Customer Information Services (“FCIS”) (customer service, billings and collections) |
FEDEX SERVICES SEGMENT
The FedEx Services segment operates combined sales, marketing, administrative and information
technology functions in shared services operations that support our transportation businesses and
allow us to obtain synergies from the combination of these functions. The FedEx Services segment
includes: FedEx Services, which provides sales, marketing and information technology support to our
other companies; FCIS, which is responsible for customer service, billings and collections for U.S.
customers of our major business units; and FedEx Office, which provides an array of document and
business services and retail access to our customers for our package transportation businesses.
The FedEx Services segment provides direct and indirect support to our transportation businesses
and we allocate all of the net operating costs of the FedEx Services segment (including the net
operating results of FedEx Office) to reflect the full cost of operating our transportation
businesses in the results of those segments. Within the FedEx Services segment allocation, the net
operating results of FedEx Office are allocated to FedEx Express and FedEx Ground. We review and
evaluate the performance of our transportation segments based on operating income (inclusive of
FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated
based on the impact of its total allocated net operating costs on our transportation segments. The
allocations of net operating costs are based on metrics such as relative revenues or estimated
services provided. We believe these allocations approximate the net cost of providing these
functions.
The operating expenses line item “Intercompany charges” on the accompanying unaudited financial
summaries of our transportation segments reflects the allocations from the FedEx Services segment
to the respective transportation segments. The “Intercompany charges” caption also includes
charges and credits for administrative services provided between operating companies and certain
other costs such as corporate management fees related to services received for general corporate
oversight, including executive officers and certain legal and finance functions. We believe these
allocations approximate the net cost of providing these functions.
- 28 -
Table of Contents
Effective August 1, 2009, approximately 3,600 employees (predominantly from the FedEx Freight
segment) were transferred to entities within the FedEx Services segment. This internal
reorganization further centralized most customer support functions, such as sales, customer service
and information technology, into our shared services organizations. While the reorganization had
no impact on the net operating results of any of our transportation segments, the net intercompany
charges to our FedEx Freight segment increased significantly with corresponding decreases to other
expense captions, such as salaries and employee benefits. The impact of this internal
reorganization to the expense captions in our other segments was immaterial.
FedEx Services segment revenues, which reflect the operations of only FedEx Office as of September
1, 2009, decreased 8% during the first quarter of 2011 due to the realignment of FedEx SupplyChain
Systems into the FedEx Express segment effective September 1, 2009 and revenue declines at FedEx
Office.
OTHER INTERSEGMENT TRANSACTIONS
Certain FedEx operating companies provide transportation and related services for other FedEx
companies outside their reportable segment. Billings for such services are based on negotiated
rates, which we believe approximate fair value, and are reflected as revenues of the billing
segment. These rates are adjusted from time to time based on market conditions. Such intersegment
revenues and expenses are eliminated in the consolidated results and are not separately identified
in the following segment information because the amounts are not material.
- 29 -
Table of Contents
FEDEX EXPRESS SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) for the three-month periods
ended August 31:
| Percent | ||||||||||||||||||||
| 2010 | 2009 | Change | ||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Package:
|
||||||||||||||||||||
|
U.S. overnight box
|
$ | 1,491 | $ | 1,331 | 12 | |||||||||||||||
|
U.S. overnight envelope
|
432 | 408 | 6 | |||||||||||||||||
|
U.S. deferred
|
661 | 601 | 10 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Total U.S. domestic package revenue
|
2,584 | 2,340 | 10 | |||||||||||||||||
|
|
||||||||||||||||||||
|
International priority
|
1,974 | 1,594 | 24 | |||||||||||||||||
|
International domestic
(1)
|
148 | 134 | 10 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Total package revenue
|
4,706 | 4,068 | 16 | |||||||||||||||||
|
Freight:
|
||||||||||||||||||||
|
U.S.
|
523 | 449 | 16 | |||||||||||||||||
|
International priority
|
406 | 260 | 56 | |||||||||||||||||
|
International airfreight
|
70 | 61 | 15 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Total freight revenue
|
999 | 770 | 30 | Percent of Revenue (3) | ||||||||||||||||
|
Other
(2)
|
207 | 86 | 141 | 2010 | 2009 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total revenues
|
5,912 | 4,924 | 20 | 100.0 | % | 100.0 | % | |||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
2,258 | 2,043 | 11 | 38.2 | 41.5 | |||||||||||||||
|
Purchased transportation
|
369 | 255 | 45 | 6.2 | 5.2 | |||||||||||||||
|
Rentals and landing fees
|
403 | 385 | 5 | 6.8 | 7.8 | |||||||||||||||
|
Depreciation and amortization
|
255 | 252 | 1 | 4.3 | 5.1 | |||||||||||||||
|
Fuel
|
754 | 571 | 32 | 12.8 | 11.6 | |||||||||||||||
|
Maintenance and repairs
|
352 | 261 | 35 | 6.0 | 5.3 | |||||||||||||||
|
Intercompany charges
|
513 | 469 | 9 | 8.7 | 9.5 | |||||||||||||||
|
Other
|
651 | 584 | 11 | 11.0 | 11.9 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
5,555 | 4,820 | 15 | 94.0 | % | 97.9 | % | |||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
$ | 357 | $ | 104 | 243 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
6.0 | % | 2.1 | % | 390 | bp | ||||||||||||||
| (1) | International domestic revenues include our international intra-country domestic express operations. | |
| (2) | Other revenues include FedEx Trade Networks and, beginning in the second quarter of 2010, FedEx SupplyChain Systems. | |
| (3) | Given the fixed-cost structure of our transportation networks, the year-over-year comparison of our operating expenses as a percentage of revenue has been affected by a number of factors, including changes in fuel surcharges and economic conditions. Collectively, these factors have distorted the comparability of certain of our operating expense captions on a relative basis. |
- 30 -
Table of Contents
The following table compares selected statistics (in thousands, except yield amounts) for the
three-month periods ended August 31:
| Percent | ||||||||||||
| 2010 | 2009 | Change | ||||||||||
|
Package Statistics
(1)
|
||||||||||||
|
Average daily package volume (ADV):
|
||||||||||||
|
U.S. overnight box
|
1,168 | 1,128 | 4 | |||||||||
|
U.S. overnight envelope
|
624 | 617 | 1 | |||||||||
|
U.S. deferred
|
846 | 823 | 3 | |||||||||
|
|
||||||||||||
|
Total U.S. domestic ADV
|
2,638 | 2,568 | 3 | |||||||||
|
|
||||||||||||
|
International priority
|
566 | 475 | 19 | |||||||||
|
International domestic
(2)
|
323 | 293 | 10 | |||||||||
|
|
||||||||||||
|
Total ADV
|
3,527 | 3,336 | 6 | |||||||||
|
|
||||||||||||
|
Revenue per package (yield):
|
||||||||||||
|
U.S. overnight box
|
$ | 19.65 | $ | 18.16 | 8 | |||||||
|
U.S. overnight envelope
|
10.64 | 10.17 | 5 | |||||||||
|
U.S. deferred
|
12.01 | 11.23 | 7 | |||||||||
|
U.S. domestic composite
|
15.07 | 14.02 | 7 | |||||||||
|
International priority
|
53.70 | 51.61 | 4 | |||||||||
|
International domestic
(2)
|
7.04 | 7.05 | — | |||||||||
|
Composite package yield
|
20.52 | 18.76 | 9 | |||||||||
|
Freight Statistics
(1)
|
||||||||||||
|
Average daily freight pounds:
|
||||||||||||
|
U.S.
|
6,908 | 6,584 | 5 | |||||||||
|
International priority
|
3,027 | 2,142 | 41 | |||||||||
|
International airfreight
|
1,240 | 1,297 | (4 | ) | ||||||||
|
|
||||||||||||
|
Total average daily freight pounds
|
11,175 | 10,023 | 11 | |||||||||
|
|
||||||||||||
|
Revenue per pound (yield):
|
||||||||||||
|
U.S.
|
$ | 1.16 | $ | 1.05 | 10 | |||||||
|
International priority
|
2.06 | 1.87 | 10 | |||||||||
|
International airfreight
|
0.87 | 0.72 | 21 | |||||||||
|
Composite freight yield
|
1.38 | 1.18 | 17 | |||||||||
| (1) | Package and freight statistics include only the operations of FedEx Express. | |
| (2) | International domestic statistics include our international intra-country domestic express operations. |
FedEx Express Segment Revenues
FedEx Express segment revenues increased 20% in the first quarter of 2011 due to a 19% increase in
IP package volume, particularly from Asia, higher U.S. domestic package yields primarily driven by
an increase in fuel surcharges and a 41% increase in IP freight
volumes. Growth in IP freight volume was driven by exports from Latin
America, Asia and the U.S. Composite package and freight yield increased in the first
quarter of 2011 primarily due to higher fuel surcharges and package weights. In addition to higher
fuel surcharges and package weights, U.S. domestic package yield increased in the first quarter of
2011 due to a higher rate per pound. The increase in IP package yield was partially offset by a
lower rate per pound and unfavorable exchange rates.
- 31 -
Table of Contents
Our fuel surcharges are indexed to the spot price for jet fuel. Using this index, the U.S.
domestic and outbound fuel surcharge and the international fuel surcharges ranged as follows for
the three-month periods ended August 31:
| 2010 | 2009 | |||||||
|
|
||||||||
|
U.S. Domestic and Outbound Fuel
Surcharge:
|
||||||||
|
Low
|
7.50 | % | 1.00 | % | ||||
|
High
|
10.00 | 6.50 | ||||||
|
Weighted-average
|
8.50 | 3.29 | ||||||
|
|
||||||||
|
International Fuel Surcharges:
|
||||||||
|
Low
|
7.50 | 1.00 | ||||||
|
High
|
14.00 | 12.00 | ||||||
|
Weighted-average
|
11.08 | 7.30 | ||||||
FedEx Express Segment Operating Income
FedEx Express segment operating income and operating margin increased during the first quarter of
2011 due to volume and yield growth, particularly in higher-margin IP
package and freight services, along with a benefit from the net impact
of higher fuel surcharges.
Purchased transportation costs increased 45% in the first quarter of 2011 due to costs associated
with the expansion of our freight forwarding business at FedEx Trade Networks and IP package and
freight volume growth. Maintenance and repairs expense increased 35% in the first quarter of 2011
primarily due to an increase in aircraft maintenance expense as a result of timing of maintenance
events and higher utilization of our fleet. Salaries and employee benefits expense increased 11%
in the first quarter of 2011 due to volume-related increases in labor hours, higher pension and
medical costs, and the reinstatement of several employee compensation programs, including higher
variable incentive compensation, merit salary increases and 401(k) company-matching contributions.
Fuel costs increased 32% during the first quarter of 2011 due to increases in the average price per
gallon of fuel and fuel consumption driven by volume increases. Based on a static analysis of the
net impact of year-over-year changes in fuel prices compared to year-over-year changes in fuel
surcharges, fuel had a positive impact to operating income in the first quarter of 2011. This
analysis considers the estimated impact of the reduction in fuel surcharges included in the base
rates charged for FedEx Express services.
- 32 -
Table of Contents
FEDEX GROUND SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating income and operating margin (dollars in millions) and selected package
statistics (in thousands, except yield amounts) for the three-month periods ended August 31:
| Percent | Percent of Revenue | |||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | ||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
FedEx Ground
|
$ | 1,839 | $ | 1,637 | 12 | |||||||||||||||
|
FedEx SmartPost
|
122 | 93 | 31 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Total revenues
|
1,961 | 1,730 | 13 | 100.0 | % | 100.0 | % | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
307 | 282 | 9 | 15.6 | 16.3 | |||||||||||||||
|
Purchased transportation
|
782 | 693 | 13 | 39.9 | 40.1 | |||||||||||||||
|
Rentals
|
62 | 58 | 7 | 3.2 | 3.3 | |||||||||||||||
|
Depreciation and amortization
|
82 | 85 | (4 | ) | 4.2 | 4.9 | ||||||||||||||
|
Fuel
|
1 | 1 | — | 0.1 | 0.1 | |||||||||||||||
|
Maintenance and repairs
|
44 | 38 | 16 | 2.2 | 2.2 | |||||||||||||||
|
Intercompany charges
|
221 | 184 | 20 | 11.3 | 10.6 | |||||||||||||||
|
Other
|
175 | 180 | (3 | ) | 8.9 | 10.4 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
1,674 | 1,521 | 10 | 85.4 | % | 87.9 | % | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating income
|
$ | 287 | $ | 209 | 37 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
14.6 | % | 12.1 | % | 250 | bp | ||||||||||||||
|
|
||||||||||||||||||||
|
Average daily package volume
|
||||||||||||||||||||
|
FedEx Ground
|
3,534 | 3,311 | 7 | |||||||||||||||||
|
FedEx SmartPost
|
1,100 | 1,009 | 9 | |||||||||||||||||
|
|
||||||||||||||||||||
|
Revenue per package (yield)
|
||||||||||||||||||||
|
FedEx Ground
|
$ | 7.99 | $ | 7.60 | 5 | |||||||||||||||
|
FedEx SmartPost
|
$ | 1.68 | $ | 1.41 | 19 | |||||||||||||||
FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 13% during the first quarter of 2011 due to yield and
volume growth at both FedEx Ground and FedEx SmartPost.
FedEx Ground average daily volume increased during the first quarter of 2011 due to market share
gains resulting from continued growth in our commercial business and our FedEx Home Delivery
service. Yield improvement at FedEx Ground during the first quarter of 2011 was primarily due to
higher fuel surcharges and increased package weight.
FedEx SmartPost volumes grew 9% during the first quarter of 2011 as a result of gains in market
share and the introduction of new service offerings. Yields at FedEx SmartPost increased 19%
during the first quarter of 2011 primarily due to lower postage costs as a result of increased
deliveries to United States Postal Service (“USPS”) final destination facilities and higher fuel
surcharges. FedEx SmartPost yield represents the amount charged to customers net of postage paid
to the USPS.
- 33 -
Table of Contents
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway
average prices for a gallon of diesel fuel, as published by the Department of Energy. Our fuel
surcharge ranged as follows for the three-month periods ended August 31:
| 2010 | 2009 | |||||||
|
Low
|
5.50 | % | 2.75 | % | ||||
|
High
|
6.00 | 3.50 | ||||||
|
Weighted-average
|
5.83 | 3.00 | ||||||
FedEx Ground Segment Operating Income
FedEx Ground segment operating income and operating margin increased during the first quarter of
2011 due to yield and package volume growth, the net impact of higher fuel surcharges and lower
self-insurance expenses. Purchased transportation costs increased 13% during the first quarter of
2011 primarily as a result of volume growth and higher fuel rates paid to our independent
contractors. The increase in salaries and employee benefits expense during the first quarter of
2011 was primarily due to increased staffing at FedEx Ground and FedEx SmartPost to support volume
growth and higher accruals under variable incentive compensation programs. Intercompany charges
increased 20% in the first quarter of 2011 primarily due to higher allocated information technology
costs.
Independent Contractor Matters
FedEx Ground relies on owner-operators to conduct its linehaul and pickup-and-delivery operations,
as the use of independent contractors is well suited to the needs of the ground delivery business
and its customers. Although FedEx Ground believes its relationship with independent contractors is
generally excellent, the company is involved in numerous lawsuits and other proceedings (such as
state tax audits or other administrative challenges) where the classification of the contractors is
at issue. For a description of these proceedings, see Note 8 of the accompanying unaudited
condensed consolidated financial statements.
FedEx Ground has made changes to its relationships with contractors that, among other things,
provide incentives for improved service and enhanced regulatory and other compliance by the
contractors. For a description of these changes, see our Annual Report.
We anticipate continuing changes to FedEx Ground’s relationships with its contractors, the nature,
timing and amount of which are dependent on the outcome of numerous future events. We do not
believe that any of these changes will impair our ability to operate and profitably grow our FedEx
Ground business.
- 34 -
Table of Contents
FEDEX FREIGHT SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating (loss)/income and operating margin (dollars in millions) and selected statistics
for the three-month periods ended August 31:
| Percent | Percent of Revenue (2) | |||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | ||||||||||||||||
|
Revenues
|
$ | 1,258 | $ | 982 | 28 | 100.0 | % | 100.0 | % | |||||||||||
|
Operating expenses:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
600 | 507 | 18 | 47.7 | 51.6 | |||||||||||||||
|
Purchased transportation
|
204 | 118 | 73 | 16.2 | 12.0 | |||||||||||||||
|
Rentals
|
34 | 29 | 17 | 2.7 | 2.9 | |||||||||||||||
|
Depreciation and amortization
|
48 | 55 | (13 | ) | 3.8 | 5.6 | ||||||||||||||
|
Fuel
|
131 | 94 | 39 | 10.4 | 9.6 | |||||||||||||||
|
Maintenance and repairs
|
46 | 34 | 35 | 3.7 | 3.5 | |||||||||||||||
|
Intercompany charges
(1)
|
109 | 52 | 110 | 8.7 | 5.3 | |||||||||||||||
|
Other
|
102 | 91 | 12 | 8.1 | 9.3 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total operating expenses
|
1,274 | 980 | 30 | 101.3 | % | 99.8 | % | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating (loss)/income
|
$ | (16 | ) | $ | 2 | (900 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Operating margin
|
(1.3 | )% | 0.2 | % | (150 | )bp | ||||||||||||||
|
|
||||||||||||||||||||
|
Average daily LTL shipments (in thousands)
|
91.8 | 71.4 | 29 | |||||||||||||||||
|
Weight per LTL shipment (lbs)
|
1,134 | 1,109 | 2 | |||||||||||||||||
|
LTL yield (revenue per hundredweight)
|
$ | 17.32 | $ | 17.87 | (3 | ) | ||||||||||||||
| (1) | Certain functions were transferred from the FedEx Freight segment to FedEx Services and FCIS effective August 1, 2009. For 2010, the costs associated with these functions, previously a direct charge, were allocated to the FedEx Freight segment through intercompany allocations. | |
| (2) | Given the fixed-cost structure of our transportation networks, the year-over-year comparison of our operating expenses as a percentage of revenue has been affected by a number of factors, including changes in fuel surcharges and economic conditions. Collectively, these factors have distorted the comparability of certain of our operating expense captions on a relative basis. |
FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 28% during the first quarter of 2011 as a result of higher
average daily LTL shipments, partially offset by lower LTL yield. The LTL freight market remains
highly competitive due to excess capacity. Discounted pricing drove an increase in average daily
LTL shipments of 29%, but also resulted in yield declines of 3% during the first quarter of 2011.
However, yields increased 4% from the fourth quarter of 2010 as a result of our ongoing yield
management programs, which include more disciplined contract pricing and reviews of
lower-performing accounts for rate adjustments.
The indexed LTL fuel surcharge is based on the average of the national U.S. on-highway average
prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed LTL fuel
surcharge ranged as follows for the three-month periods ended August 31:
| 2010 | 2009 | |||||||
|
Low
|
15.10 | % | 10.80 | % | ||||
|
High
|
15.60 | 13.10 | ||||||
|
Weighted-average
|
15.40 | 12.40 | ||||||
- 35 -
Table of Contents
FedEx Freight Segment Operating (Loss)/Income
Discounted pricing for our LTL freight services resulted in a loss in the first quarter of 2011.
Additionally, we incurred higher volume-related costs in the first
quarter of 2011, including a 73% increase in purchased transportation costs.
Salaries and employee benefits expense increased 18% primarily due to increased staffing driven by
higher shipment volumes and the reinstatement of several employee compensation programs, including
401(k) company-matching contributions, variable incentive compensation and merit increases. Fuel
costs increased 39% during the first quarter of 2011 due to a higher average price per gallon of
diesel fuel and increased fuel consumption as a result of higher shipment volumes. Based on a
static analysis of the net impact of year-over-year changes in fuel prices compared to
year-over-year changes in fuel surcharges, fuel had a positive impact to operating income in the
first quarter of 2011. Maintenance and repairs expense increased 35% primarily due to higher
shipment volumes. Rent expense increased 17% in the first quarter of 2011 due to an increase in
equipment rentals driven by higher shipment volumes. Higher intercompany charges reflect the
transfer of sales and customer service employees from the FedEx Freight segment to FedEx Services
entities in August 2009.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $1.7 billion at August 31, 2010, compared to $2 billion at May 31, 2010.
The following table provides a summary of our cash flows for the three-month periods ended August 31 (in
millions):
| 2010 | 2009 | |||||||
|
Operating activities:
|
||||||||
|
Net income
|
$ | 380 | $ | 181 | ||||
|
Noncash charges and credits
|
577 | 617 | ||||||
|
Changes in assets and liabilities
|
(161 | ) | 100 | |||||
|
|
||||||||
|
Cash provided by operating activities
|
796 | 898 | ||||||
|
|
||||||||
|
|
||||||||
|
Investing activities:
|
||||||||
|
Capital expenditures
|
(1,012 | ) | (880 | ) | ||||
|
Proceeds from asset dispositions and other
|
3 | 26 | ||||||
|
|
||||||||
|
Cash used in investing activities
|
(1,009 | ) | (854 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Financing activities:
|
||||||||
|
Principal payments on debt
|
(12 | ) | (508 | ) | ||||
|
Proceeds from stock issuances
|
8 | 7 | ||||||
|
Dividends paid
|
(38 | ) | (34 | ) | ||||
|
Other
|
1 | (15 | ) | |||||
|
|
||||||||
|
Cash used in financing activities
|
(41 | ) | (550 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Effect of exchange rate changes on cash
|
11 | 3 | ||||||
|
|
||||||||
|
|
||||||||
|
Net decrease in cash and cash equivalents
|
$ | (243 | ) | $ | (503 | ) | ||
|
|
||||||||
Cash Provided by Operating Activities.
Despite the significant increase in earnings, cash flows
from operating activities decreased $102 million in the first quarter of 2011 primarily due to the
receipt of income tax refunds of $213 million in 2010 and income tax payments of $72 million in
2011. In addition, we made tax-deductible contributions of $118 million to our U.S. domestic
pension plans (“U.S. Retirement Plans”) during the first quarter of 2011. We made no contributions
to our U.S. Retirement Plans during the first quarter of 2010.
- 36 -
Table of Contents
Cash Used in Investing Activities
. Capital expenditures during the three months of 2011 were
higher primarily due to increased spending at FedEx Express for aircraft. See “Capital Resources”
for a discussion of capital expenditures during 2011 and 2010.
Debt Financing Activities
. We have a shelf registration statement filed with the SEC that allows
us to sell, in one or more future offerings, any combination of our unsecured debt securities and
common stock. During the first quarter of 2010, we repaid our $500 million 5.50% notes that
matured on August 15, 2009.
A $1 billion revolving credit facility is available to finance our operations and other cash flow
needs and to provide support for the issuance of commercial paper. The revolving credit agreement
expires in July 2012. The agreement contains a financial covenant, which requires us to maintain a
leverage ratio of adjusted debt (long-term debt, including the current portion of such debt, plus
six times our last four fiscal quarters’ rentals and landing fees) to capital (adjusted debt plus
total common stockholders’ investment) that does not exceed 0.7 to 1.0. Our leverage ratio of
adjusted debt to capital was 0.5 at August 31, 2010. We are in compliance with this and all other
restrictive covenants of our revolving credit agreement and do not expect the covenants to affect
our operations, including our liquidity or borrowing capacity. As of August 31, 2010, no
commercial paper was outstanding and the entire $1 billion under the revolving credit facility was
available for future borrowings.
Dividends.
We paid cash dividends of $38 million in the first quarter of 2011 and $34 million in
the first quarter of 2010. On June 7, 2010, our Board of Directors declared a quarterly dividend
of $0.12 per share of common stock. The dividend was paid on July 1, 2010 to stockholders of
record as of the close of business on June 17, 2010. On August 23, 2010, our Board of Directors
declared a dividend of $0.12 per share of common stock. The dividend will be paid on October 1,
2010, to stockholders of record as of the close of business on September 10, 2010. Each quarterly
dividend payment is subject to review and approval by our Board of Directors, and we evaluate our
dividend payment amount on an annual basis at the end of each fiscal year.
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft,
vehicles, technology, facilities, package-handling and sort equipment. The amount and timing of
capital additions depend on various factors, including pre-existing contractual commitments,
anticipated volume growth, domestic and international economic conditions, new or enhanced
services, geographical expansion of services, availability of satisfactory financing and actions of
regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the
three-month periods ended August 31 (in millions):
| Dollar | Percent | |||||||||||||||
| 2010 | 2009 | Change | Change | |||||||||||||
|
Aircraft and related equipment
|
$ | 747 | $ | 555 | $ | 192 | 35 | |||||||||
|
Facilities and sort equipment
|
70 | 186 | (116 | ) | (62 | ) | ||||||||||
|
Information and technology investments
|
71 | 56 | 15 | 27 | ||||||||||||
|
Vehicles
|
104 | 56 | 48 | 86 | ||||||||||||
|
Other equipment
|
20 | 27 | (7 | ) | (26 | ) | ||||||||||
|
|
||||||||||||||||
|
Total capital expenditures
|
$ | 1,012 | $ | 880 | $ | 132 | 15 | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
FedEx Express segment
|
844 | 641 | 203 | 32 | ||||||||||||
|
FedEx Ground segment
|
72 | 111 | (39 | ) | (35 | ) | ||||||||||
|
FedEx Freight segment
|
32 | 67 | (35 | ) | (52 | ) | ||||||||||
|
FedEx Services segment
|
64 | 61 | 3 | 5 | ||||||||||||
|
|
||||||||||||||||
|
Total capital expenditures
|
$ | 1,012 | $ | 880 | $ | 132 | 15 | |||||||||
|
|
||||||||||||||||
- 37 -
Table of Contents
Capital expenditures during the first quarter of 2011 were higher than the prior-year period
primarily due to increased spending at FedEx Express for aircraft and related equipment (described
below) and increased spending at FedEx Express for vehicles. Aircraft and related equipment
purchases at FedEx Express during the first quarter of 2011 included the delivery of two new
B777Fs.
LIQUIDITY OUTLOOK
We believe that our existing cash and cash equivalents, cash flow from operations, and available
financing sources are adequate to meet our liquidity needs, including working capital, capital
expenditure requirements and debt payment obligations. Although we expect higher capital
expenditures in 2011, we anticipate that our cash flow from operations will be sufficient to fund
these expenditures. Historically, we have been successful in obtaining unsecured financing, from
both domestic and international sources, although the marketplace for such investment capital can
become restricted depending on a variety of economic factors.
Our capital expenditures are expected to be approximately $3.5 billion in 2011 and include spending
for aircraft and related equipment at FedEx Express, network expansion at FedEx Ground and revenue
equipment at the FedEx Freight segment. We invested $747 million in aircraft and aircraft-related
equipment in the first quarter of 2011 and expect to invest an
additional $1.2 billion for aircraft
and aircraft-related equipment during the remainder of 2011. Aircraft-related capital outlays
include the new B777Fs and the B757s, which are substantially more fuel-efficient per unit than the
aircraft types they are replacing. Also, subsequent to
August 31, 2010, we entered into an agreement to acquire one
MD11 aircraft and expect to take delivery of this aircraft in 2011. These aircraft-related capital expenditures are necessary to
achieve significant long-term operating savings and to support projected long-term international
volume growth. Our ability to delay the timing of these aircraft-related expenditures is limited
without incurring significant costs to modify existing purchase agreements.
In September 2010, we made $40 million in required contributions to our U.S. Retirement Plans. Our
U.S. Retirement Plans have ample funds to meet expected benefit payments. For 2011, we have
approximately $360 million in remaining required contributions to our U.S. Retirement Plans.
Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB and commercial paper
rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has assigned us a
senior unsecured debt credit rating of Baa2 and commercial paper rating of P-2 and a ratings
outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our
commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial
paper market. If our senior unsecured debt credit ratings drop below investment grade, our access
to financing may become limited.
- 38 -
Table of Contents
CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of August 31, 2010.
Certain of these contractual obligations are reflected in our balance sheet, while others are
disclosed as future obligations under accounting principles generally accepted in the United
States. Except for the current portion of long-term debt and capital lease obligations, this table
does not include amounts already recorded in our balance sheet as current liabilities at August 31,
2010. We have certain contingent liabilities that are not accrued in our balance sheet in
accordance with accounting principles generally accepted in the United States. These contingent
liabilities are not included in the table below. We have other long-term liabilities reflected in
our balance sheet, including deferred income taxes, qualified and nonqualified pension and
postretirement healthcare plan liabilities and other self-insurance accruals. The payment
obligations associated with these liabilities are not reflected in the table below due to the
absence of scheduled maturities. Accordingly, this table is not meant to represent a forecast of
our total cash expenditures for any of the periods presented.
| Payments Due by Fiscal Year (Undiscounted) | ||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| 2011 (1) | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||||||||||
|
Operating leases
|
$ | 1,389 | $ | 1,650 | $ | 1,485 | $ | 1,315 | $ | 1,226 | $ | 7,075 | $ | 14,140 | ||||||||||||||
|
Non-capital purchase obligations and other
|
168 | 176 | 77 | 15 | 12 | 143 | 591 | |||||||||||||||||||||
|
Interest on long-term debt
|
84 | 125 | 98 | 97 | 78 | 1,737 | 2,219 | |||||||||||||||||||||
|
Quarterly contributions to our U.S. Retirement
Plans
|
400 | — | — | — | — | — | 400 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investing activities:
|
||||||||||||||||||||||||||||
|
Aircraft and
aircraft-related capital commitments
(2)
|
605 | 849 | 641 | 480 | 493 | 1,431 | 4,499 | |||||||||||||||||||||
|
Other capital purchase obligations
|
119 | 2 | — | — | — | — | 121 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Financing activities:
|
||||||||||||||||||||||||||||
|
Debt
|
250 | — | 300 | 250 | — | 990 | 1,790 | |||||||||||||||||||||
|
Capital lease obligations
|
6 | 8 | 119 | 2 | 1 | 14 | 150 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 3,021 | $ | 2,810 | $ | 2,720 | $ | 2,159 | $ | 1,810 | $ | 11,390 | $ | 23,910 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
| (1) | Cash obligations for the remainder of 2011. | |
| (2) | Subsequent to August 31, 2010, we entered into an agreement to acquire one MD11 aircraft and expect to take delivery of this aircraft in 2011. This aircraft is not included in the table above. |
Operating Activities
The amounts reflected in the table above for operating leases represent future minimum lease
payments under noncancelable operating leases (principally aircraft and facilities) with an initial
or remaining term in excess of one year at August 31, 2010.
Included in the table above within the caption entitled “Non-capital purchase obligations and
other” is our estimate of the current portion of the liability ($1 million) for uncertain tax
positions and amounts for purchase obligations that represent noncancelable agreements to purchase
goods or services that are not capital related. Such contracts include those for printing and
advertising and promotions contracts. Open purchase orders that are cancelable are not considered
unconditional purchase obligations for financial reporting purposes and are not included in the
table above. See Note 7 of the accompanying unaudited condensed consolidated financial statements
for more information. We cannot reasonably estimate the timing of the long-term payments or the
amount by which the liability for uncertain tax positions will increase or decrease over time;
therefore, the long-term portion of the liability for uncertain tax positions ($83 million) is
excluded from the table.
The amounts reflected in the table above for interest on long-term debt represent future interest
payments due on our long-term debt, all of which are fixed rate.
Included in the table above are anticipated quarterly contributions to our U.S. Retirement Plans
totaling approximately $400 million for the remainder of 2011 ($40 million of which was paid in
September 2010).
- 39 -
Table of Contents
Investing Activities
The amounts reflected in the table above for capital purchase obligations represent noncancelable
agreements to purchase capital-related equipment. Such contracts include those for certain
purchases of aircraft, aircraft modifications, vehicles, facilities, computers and other equipment
contracts. Open purchase orders that are cancelable are not considered unconditional purchase
obligations for financial reporting purposes and are not included in the table above. See Note 7
of the accompanying unaudited condensed consolidated financial statements for more information.
Financing Activities
The amounts reflected in the table above for long-term debt represent future scheduled payments on
our long-term debt. For the remainder of 2011, we have scheduled debt payments of $256 million,
which includes $250 million of principal payments on our 7.25% unsecured notes maturing in February
2011, and principal and interest payments on capital leases.
Additional information on amounts included within the operating, investing and financing activities
captions in the table above can be found in our Annual Report.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted
in the United States requires management to make significant judgments and estimates to develop
amounts reflected and disclosed in the financial statements. In many cases, there are alternative
policies or estimation techniques that could be used. We maintain a thorough process to review the
application of our accounting policies and to evaluate the appropriateness of the many estimates
that are required to prepare the financial statements of a complex, global corporation. However,
even under optimal circumstances, estimates routinely require adjustment based on changing
circumstances and new or better information.
GOODWILL.
Goodwill is reviewed at least annually for impairment by comparing the fair value of each
reporting unit with its carrying value (including attributable goodwill). Fair value for our
reporting units is determined incorporating market participant considerations and management’s
assumptions on revenue growth rates, operating margins, expected capital expenditures and discount
rates. Goodwill is tested for impairment between annual tests whenever events or circumstances
make it more likely than not that the fair value of a reporting unit has fallen below its carrying
value. We do not believe there has been any change of events or circumstances that would indicate
that a reevaluation of the goodwill of our reporting units is required as of August 31, 2010, nor
do we believe the goodwill of our reporting units is at risk of failing impairment testing.
Information regarding our critical accounting estimates can be found in our Annual Report,
including Note 1 to the financial statements therein. Management has discussed the development and
selection of these critical accounting estimates with the Audit Committee of our Board of Directors
and with our independent registered public accounting firm.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in “Outlook,”
“Liquidity,” “Liquidity Outlook,” “Contractual Cash Obligations” and “Critical Accounting
Estimates,” and the “General,” “Retirement Plans,” and “Contingencies” notes to the consolidated
financial statements, are “forward-looking” statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash
flows, plans, objectives, future performance and business. Forward-looking statements include
those preceded by, followed by or that include the words “may,” “could,” “would,” “should,”
“believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or
similar expressions. These forward-looking statements involve risks and uncertainties. Actual
results may differ materially from those contemplated (expressed or implied) by such
forward-looking statements, because of, among other things, potential risks and uncertainties, such
as:
| • | economic conditions in the global markets in which we operate; |
| • | the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
- 40 -
Table of Contents
| • | damage to our reputation or loss of brand equity; |
| • | disruptions to the Internet or our technology infrastructure, including those impacting our computer systems and Web site, which can adversely affect shipment levels; |
| • | the price and availability of jet and vehicle fuel; |
| • | the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our market share; |
| • | our ability to manage our cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels; |
| • | our ability to effectively operate, integrate, leverage and grow acquired businesses, and to continue to support the value we allocate to these acquired businesses, including their goodwill; |
| • | any impacts on our businesses resulting from new domestic or international government laws and regulation, including regulatory actions affecting global aviation rights, increased air cargo and other security or safety requirements, and tax, accounting, trade (such as protectionist measures enacted in response to weak economic conditions), labor (such as card-check legislation or changes to the Railway Labor Act affecting FedEx Express employees), environmental (such as climate change legislation) or postal rules; |
| • | changes in foreign currency exchange rates, especially in the euro, Chinese yuan, Canadian dollar, British pound and Japanese yen, which can affect our sales levels and foreign currency sales prices; |
| • | the impact of costs related to (i) challenges to the status of FedEx Ground’s owner-operators as independent contractors, rather than employees, and (ii) any related changes to our relationship with these owner-operators; |
| • | any liability resulting from and the costs of defending against class-action litigation, such as wage-and-hour and discrimination and retaliation claims, and any other legal proceedings; |
| • | our ability to maintain good relationships with our employees and prevent attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility; |
| • | increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
| • | significant changes in the volumes of shipments transported through our networks, customer demand for our various services or the prices we obtain for our services; |
| • | market acceptance of our new service and growth initiatives; |
| • | the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information technology redundancy and complexity throughout the organization; |
| • | adverse weather conditions or natural disasters, such as earthquakes, volcanoes, and hurricanes, which can disrupt our electrical service, damage our property, disrupt our operations, increase our fuel costs and adversely affect our shipment levels; |
| • | widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
- 41 -
Table of Contents
| • | availability of financing on terms acceptable to us and our ability to maintain our current credit ratings, especially given the capital intensity of our operations; |
| • | the outcome of negotiations to reach a new collective bargaining agreement with the union that represents the pilots of FedEx Express; and |
| • | other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q. |
As a result of these and other factors, no assurance can be given as to our future results and
achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of
future events or circumstances, and those future events or circumstances may not occur. You should
not place undue reliance on forward-looking statements, which speak only as of the date on which
they are made. We undertake no obligation to update or alter any forward-looking statements,
whether as a result of new information, future events or otherwise.
- 42 -
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of August 31, 2010, there had been no material changes in our market risk sensitive instruments
and positions since our disclosures in our Annual Report. The principal foreign currency exchange
rate risks to which we are exposed are in the euro, Chinese yuan, Canadian dollar, British pound
and Japanese yen. Historically, our exposure to foreign currency fluctuations has been more
significant with respect to our revenues rather than our expenses, as a significant portion of our
expenses are denominated in U.S. dollars, such as aircraft and fuel expenses. During the first
three months of 2011, the U.S. dollar has weakened relative to the currencies of the foreign
countries in which we operate as compared to May 31, 2010; however, this weakening did not have a
material effect on our results of operations.
While we have market risk for changes in the price of jet and vehicle fuel, this risk is largely
mitigated by our variable fuel surcharges. However, our fuel surcharges for FedEx Express and
FedEx Ground have a timing lag of approximately six to eight weeks before they are adjusted for
changes in fuel prices. Our fuel surcharge index also allows fuel prices to fluctuate
approximately 2% for FedEx Express and approximately 5% for FedEx Ground before an adjustment to
the fuel surcharge occurs. Therefore, our operating income may be affected should the spot price
of fuel suddenly change by a significant amount or change by amounts that do not result in an
adjustment in our fuel surcharges.
Item 4. Controls and Procedures
The management of FedEx, with the participation of our principal executive and financial officers,
has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the
information required to be disclosed in our filings under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms, including ensuring that such information is
accumulated and communicated to FedEx management as appropriate to allow timely decisions regarding
required disclosure. Based on such evaluation, our principal executive and financial officers have
concluded that such disclosure controls and procedures were effective as of August 31, 2010 (the
end of the period covered by this Quarterly Report on Form 10-Q).
During our fiscal quarter ended August 31, 2010, no change occurred in our internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
- 43 -
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of all material pending legal proceedings, see Note 8 of the accompanying
condensed consolidated financial statements.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in our Annual Report (under the
heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and
Financial Condition”) in response to Part I, Item 1A of Form 10-K.
Item 6. Exhibits
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.1 |
Supplemental Agreement No. 9 dated as of June 18, 2010, Supplemental Agreement No. 10 dated
as of June 18, 2010, Supplemental Agreement No. 11 (and related side letter) dated as of
August 19, 2010, and Supplemental Agreement No. 13 (and related side letter) dated as of August 27,
2010, each amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006
between The Boeing Company and Federal Express Corporation. Confidential treatment has been
requested for confidential commercial and financial information, pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934, as amended.
|
|||
|
|
||||
| 10.2 |
Letter
Agreement dated August 30, 2010, amending the Transportation
Agreement dated July 31, 2006 between the United States Postal
Service and Federal Express Corporation. Confidential treatment has
been requested for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.
|
|||
|
|
||||
| 12.1 |
Computation of Ratio of Earnings to Fixed Charges.
|
|||
|
|
||||
| 15.1 |
Letter re: Unaudited Interim Financial Statements.
|
|||
|
|
||||
| 31.1 |
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|||
|
|
||||
| 31.2 |
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|||
|
|
||||
| 32.1 |
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 32.2 |
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 101.1 |
Interactive Data Files.
|
|||
- 44 -
Table of Contents
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.
|
FEDEX CORPORATION
|
||||
| Date: September 17, 2010 | /s/ JOHN L. MERINO | |||
| JOHN L. MERINO | ||||
| CORPORATE VICE PRESIDENT AND PRINCIPAL ACCOUNTING OFFICER | ||||
- 45 -
Table of Contents
EXHIBIT INDEX
| Exhibit | ||||
| Number | Description of Exhibit | |||
|
|
||||
| 10.1 |
Supplemental Agreement No. 9 dated as of June 18, 2010, Supplemental Agreement No. 10 dated
as of June 18, 2010, Supplemental Agreement No. 11 (and related side letter) dated as of
August 19, 2010, and Supplemental Agreement No. 13 (and related side letter) dated as of August 27,
2010, each amending the Boeing 777 Freighter Purchase Agreement dated as of November 7, 2006
between The Boeing Company and Federal Express Corporation. Confidential treatment has been
requested for confidential commercial and financial information, pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934, as amended.
|
|||
|
|
||||
| 10.2 |
Letter
Agreement dated August 30, 2010, amending the Transportation
Agreement dated July 31, 2006 between the United States Postal
Service and Federal Express Corporation. Confidential treatment has
been requested for confidential commercial and financial information,
pursuant to Rule 24b-2 under the Securities Exchange Act of
1934, as amended.
|
|||
|
|
||||
| 12.1 |
Computation of Ratio of Earnings to Fixed Charges.
|
|||
|
|
||||
| 15.1 |
Letter re: Unaudited Interim Financial Statements.
|
|||
|
|
||||
| 31.1 |
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|||
|
|
||||
| 31.2 |
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under
the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|||
|
|
||||
| 32.1 |
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 32.2 |
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|||
|
|
||||
| 101.1 |
Interactive Data Files.
|
|||
E-1
TABLE OF CONTENTS
Item 2. Management S Discussion and Analysis Of Results Of Operations and Financial ConditionprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II. Other InformationprintItem 1. Legal ProceedingsprintItem 1A. Risk FactorsprintItem 6. Exhibitsprint