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 November 30, 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 | 62-1721435 | |
| (State or other jurisdiction of incorporation or organization) | (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
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
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date.
| Common Stock | Outstanding Shares at December 15, 2010 | |
| Common Stock, par value $0.10 per share | 315,020,546 |
FEDEX CORPORATION
INDEX
2
Table of Contents
FEDEX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
| November 30, | ||||||||
| 2010 | May 31, | |||||||
| (Unaudited) | 2010 | |||||||
|
ASSETS
|
||||||||
|
CURRENT ASSETS
|
||||||||
|
Cash and cash equivalents
|
$ | 1,877 | $ | 1,952 | ||||
|
Receivables, less allowances of $172 and $166
|
4,279 | 4,163 | ||||||
|
Spare parts, supplies and fuel, less
allowances of $165 and $170
|
400 | 389 | ||||||
|
Deferred income taxes
|
540 | 529 | ||||||
|
Prepaid expenses and other
|
302 | 251 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current assets
|
7,398 | 7,284 | ||||||
|
|
||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
32,720 | 31,302 | ||||||
|
Less accumulated depreciation and amortization
|
17,454 | 16,917 | ||||||
|
|
||||||||
|
|
||||||||
|
Net property and equipment
|
15,266 | 14,385 | ||||||
|
|
||||||||
|
OTHER LONG-TERM ASSETS
|
||||||||
|
Goodwill
|
2,224 | 2,200 | ||||||
|
Other assets
|
1,205 | 1,033 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term assets
|
3,429 | 3,233 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 26,093 | $ | 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)
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
| November 30, | ||||||||
| 2010 | May 31, | |||||||
| (Unaudited) | 2010 | |||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||
|
CURRENT LIABILITIES
|
||||||||
|
Current portion of long-term debt
|
$ | 251 | $ | 262 | ||||
|
Accrued salaries and employee benefits
|
1,231 | 1,146 | ||||||
|
Accounts payable
|
1,561 | 1,522 | ||||||
|
Accrued expenses
|
1,820 | 1,715 | ||||||
|
|
||||||||
|
|
||||||||
|
Total current liabilities
|
4,863 | 4,645 | ||||||
|
|
||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,667 | 1,668 | ||||||
|
|
||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||
|
Deferred income taxes
|
976 | 891 | ||||||
|
Pension, postretirement healthcare
and other benefit obligations
|
1,731 | 1,705 | ||||||
|
Self-insurance accruals
|
969 | 960 | ||||||
|
Deferred lease obligations
|
913 | 804 | ||||||
|
Deferred gains, principally related to
aircraft transactions
|
257 | 267 | ||||||
|
Other liabilities
|
156 | 151 | ||||||
|
|
||||||||
|
|
||||||||
|
Total other long-term liabilities
|
5,002 | 4,778 | ||||||
|
|
||||||||
|
COMMITMENTS AND CONTINGENCIES
|
||||||||
|
|
||||||||
|
COMMON STOCKHOLDERS’ INVESTMENT
|
||||||||
|
Common stock, $0.10 par value; 800 million shares
authorized; 315 million shares issued as of
November 30, 2010
and 314 million shares issued as of May 31, 2010
|
31 | 31 | ||||||
|
Additional paid-in capital
|
2,343 | 2,261 | ||||||
|
Retained earnings
|
14,515 | 13,966 | ||||||
|
Accumulated other comprehensive loss
|
(2,316 | ) | (2,440 | ) | ||||
|
Treasury stock, at cost
|
(12 | ) | (7 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Total common stockholders’ investment
|
14,561 | 13,811 | ||||||
|
|
||||||||
|
|
||||||||
|
|
$ | 26,093 | $ | 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)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
| Three Months Ended | Six Months Ended | |||||||||||||||
| November 30, | November 30, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
|
||||||||||||||||
|
REVENUES
|
$ | 9,632 | $ | 8,596 | $ | 19,089 | $ | 16,605 | ||||||||
|
|
||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||
|
Salaries and employee benefits
|
3,779 | 3,424 | 7,582 | 6,801 | ||||||||||||
|
Purchased transportation
|
1,390 | 1,155 | 2,717 | 2,209 | ||||||||||||
|
Rentals and landing fees
|
628 | 593 | 1,229 | 1,171 | ||||||||||||
|
Depreciation and amortization
|
502 | 487 | 981 | 982 | ||||||||||||
|
Fuel
|
938 | 744 | 1,825 | 1,410 | ||||||||||||
|
Maintenance and repairs
|
473 | 410 | 990 | 811 | ||||||||||||
|
Impairment and other charges
|
67 | — | 67 | — | ||||||||||||
|
Other
|
1,386 | 1,212 | 2,601 | 2,335 | ||||||||||||
|
|
||||||||||||||||
|
|
9,163 | 8,025 | 17,992 | 15,719 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
OPERATING INCOME
|
469 | 571 | 1,097 | 886 | ||||||||||||
|
|
||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||
|
Interest, net
|
(23 | ) | (15 | ) | (41 | ) | (33 | ) | ||||||||
|
Other, net
|
(9 | ) | (9 | ) | (16 | ) | (12 | ) | ||||||||
|
|
||||||||||||||||
|
|
(32 | ) | (24 | ) | (57 | ) | (45 | ) | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
437 | 547 | 1,040 | 841 | ||||||||||||
|
|
||||||||||||||||
|
PROVISION FOR INCOME TAXES
|
154 | 202 | 377 | 315 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
NET INCOME
|
$ | 283 | $ | 345 | $ | 663 | $ | 526 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
EARNINGS PER COMMON SHARE:
|
||||||||||||||||
|
Basic
|
$ | 0.90 | $ | 1.10 | $ | 2.11 | $ | 1.68 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Diluted
|
$ | 0.89 | $ | 1.10 | $ | 2.09 | $ | 1.68 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
DIVIDENDS DECLARED PER COMMON SHARE
|
$ | 0.12 | $ | 0.11 | $ | 0.36 | $ | 0.33 | ||||||||
|
|
||||||||||||||||
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)
| Six Months Ended | ||||||||
| November 30, | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Operating Activities:
|
||||||||
|
Net income
|
$ | 663 | $ | 526 | ||||
|
Adjustments to reconcile net income to cash
provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
981 | 982 | ||||||
|
Provision for uncollectible accounts
|
66 | 68 | ||||||
|
Stock-based compensation
|
56 | 58 | ||||||
|
Deferred income taxes and other noncash items
|
140 | 50 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Receivables
|
(79 | ) | (408 | ) | ||||
|
Other assets
|
(53 | ) | 240 | |||||
|
Accounts payable and other liabilities
|
253 | 304 | ||||||
|
Other, net
|
(16 | ) | (463 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Cash provided by operating activities
|
2,011 | 1,357 | ||||||
|
|
||||||||
|
Investing Activities:
|
||||||||
|
Capital expenditures
|
(2,059 | ) | (1,549 | ) | ||||
|
Proceeds from asset dispositions and other
|
7 | 33 | ||||||
|
|
||||||||
|
|
||||||||
|
Cash used in investing activities
|
(2,052 | ) | (1,516 | ) | ||||
|
|
||||||||
|
Financing Activities:
|
||||||||
|
Principal payments on debt
|
(12 | ) | (625 | ) | ||||
|
Proceeds from stock issuances
|
25 | 24 | ||||||
|
Excess tax benefit on the exercise of stock options
|
4 | 5 | ||||||
|
Dividends paid
|
(76 | ) | (69 | ) | ||||
|
Other, net
|
— | (16 | ) | |||||
|
|
||||||||
|
|
||||||||
|
Cash used in financing activities
|
(59 | ) | (681 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Effect of exchange rate changes on cash
|
25 | 13 | ||||||
|
|
||||||||
|
Net decrease in cash and cash equivalents
|
(75 | ) | (827 | ) | ||||
|
Cash and cash equivalents at beginning of period
|
1,952 | 2,292 | ||||||
|
|
||||||||
|
|
||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,877 | $ | 1,465 | ||||
|
|
||||||||
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 because 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 November 30, 2010, the results of our operations for the three-
and six-month periods ended November 30, 2010 and 2009 and cash flows for the six-month periods
ended November 30, 2010 and 2009. Operating results for the three- and six-month periods ended
November 30, 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 that became 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. Contract negotiations with the pilots’ union began in August 2010 and
are ongoing. We cannot estimate the financial impact, if any, that the results of these
negotiations may have on our future results of operations.
BUSINESS ACQUISITIONS.
On November 2, 2010, FedEx Express entered into
an agreement to acquire the logistics, distribution and express businesses of AFL Pvt.
Ltd. and its affiliate, Unifreight India Pvt. Ltd. Additionally, on
December 15, 2010, FedEx
entered into an agreement to acquire Servicios Nacionales Mupa, SA
de CV (MultiPack), a Mexican
domestic express package delivery company. Once completed, these
acquisitions will give us more robust
domestic transportation and related capabilities in these important
global markets. These acquisitions will be
funded with cash from operations and are expected to be completed during 2011, subject to customary closing conditions.
The financial results of the acquired businesses will be included in the FedEx Express segment from the date of acquisition
and will be immaterial to our 2011 results.
BUSINESS REALIGNMENT.
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, reduce operational costs and provide customers both priority and economy
less-than-truckload (“LTL”)
freight services across all lengths of haul from one integrated company. The estimated cost of
this program is now expected to be $140 to $170 million, down from our initial forecast. The
actions to combine these operations began in the second quarter of 2011 and resulted in $86 million
of costs incurred during the quarter. Of these costs, $67 million primarily relate to accrued
severance expenses and impairment charges on assets to be sold, which were recorded in the
“Impairment and other charges” caption of the condensed consolidated income statement. In
addition, we recorded $14 million in accelerated depreciation expense due to a change in the
estimated useful life of certain assets impacted by the combination of these operations. No
amounts recorded related to severance accruals were paid during the quarter and these amounts will
be paid during the third quarter of 2011 following the combination of these operations. The cash
outlays related to these actions are immaterial and the estimates recorded are not subject to any
material risk of change.
7
Table of Contents
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 stock-based compensation expense was $22 million for the three-month period ended November 30,
2010 and $56 million for the six-month period ended November 30, 2010. Our stock-based
compensation expense was $23 million for the three-month period ended November 30, 2009 and $58
million for the six-month period ended November 30, 2009. Due to its immateriality, additional
disclosures related to stock-based compensation have been excluded from this quarterly report.
DIVIDENDS DECLARED PER COMMON SHARE.
On November 8, 2010, our Board of Directors declared a
dividend of $0.12 per share of common stock. The dividend was paid on December 17, 2010 to
stockholders of record as of the close of business on November 22, 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.
(2)
Comprehensive Income
The following table provides a reconciliation of net income reported in our financial statements to
comprehensive income for the periods ended November 30 (in millions):
| Three Months Ended | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Net income
|
$ | 283 | $ | 345 | ||||
|
Other comprehensive income:
|
||||||||
|
Foreign currency translation adjustments, net of
tax of $11 in 2010 and $3 in 2009
|
44 | 28 | ||||||
|
Amortization of unrealized pension actuarial
gains/losses, net of tax of $15
in 2010 and $1 in 2009
|
26 | 1 | ||||||
|
|
||||||||
|
|
||||||||
|
Comprehensive income
|
$ | 353 | $ | 374 | ||||
|
|
||||||||
| Six Months Ended | ||||||||
| 2010 | 2009 | |||||||
|
|
||||||||
|
Net income
|
$ | 663 | $ | 526 | ||||
|
Other comprehensive income:
|
||||||||
|
Foreign currency translation adjustments, net of
tax of $17 in 2010 and $11 in 2009
|
72 | 37 | ||||||
|
Amortization of unrealized pension actuarial
gains/losses, net of tax of $31
in 2010 and $1 in 2009
|
52 | 2 | ||||||
|
|
||||||||
|
|
||||||||
|
Comprehensive income
|
$ | 787 | $ | 565 | ||||
|
|
||||||||
(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.
8
Table of Contents
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. As
of November 30, 2010, no commercial paper was outstanding, and the entire $1 billion under the
revolving credit facility was available for future borrowings. 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 November 30,
2010. We are in compliance with this covenant 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.
Long-term debt, exclusive of capital leases, had a carrying value of $1.8 billion compared with an
estimated fair value of $2.1 billion at November 30, 2010 and 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.
(4)
Computation of Earnings Per Share
The calculation of basic and diluted earnings per common share for the periods ended November 30
was as follows (in millions, except per share amounts):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Basic earnings per common share:
|
||||||||||||||||
|
Net earnings allocable to common shares
|
$ | 282 | $ | 345 | $ | 661 | $ | 525 | ||||||||
|
Weighted-average common shares
|
314 | 312 | 314 | 312 | ||||||||||||
|
|
||||||||||||||||
|
Basic earnings per common share
|
$ | 0.90 | $ | 1.10 | $ | 2.11 | $ | 1.68 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Diluted earnings per common share:
|
||||||||||||||||
|
Net earnings allocable to common shares
|
$ | 282 | $ | 345 | $ | 661 | $ | 525 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Weighted-average common shares
|
314 | 312 | 314 | 312 | ||||||||||||
|
Dilutive effect of share-based awards
|
2 | 2 | 2 | 1 | ||||||||||||
|
|
||||||||||||||||
|
Weighted-average diluted shares
|
316 | 314 | 316 | 313 | ||||||||||||
|
Diluted earnings per common share
|
$ | 0.89 | $ | 1.10 | $ | 2.09 | $ | 1.68 | ||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Anti-dilutive options excluded from diluted
earnings per common share
|
11.2 | 9.5 | 11.3 | 13.5 | ||||||||||||
|
|
||||||||||||||||
(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 periods ended November 30 were as follows (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
U.S. domestic and international pension plans
|
$ | 134 | $ | 76 | $ | 275 | $ | 151 | ||||||||
|
U.S. domestic and international defined contribution
plans
|
51 | 23 | 105 | 45 | ||||||||||||
|
Postretirement healthcare plans
|
15 | 10 | 30 | 21 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 200 | $ | 109 | $ | 410 | $ | 217 | ||||||||
|
|
||||||||||||||||
9
Table of Contents
The three- and six-month periods ended November 30, 2010 reflect 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. We will 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 periods ended
November 30 included the following components (in millions):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Pension Plans
|
||||||||||||||||
|
Service cost
|
$ | 130 | $ | 104 | $ | 260 | $ | 208 | ||||||||
|
Interest cost
|
225 | 205 | 449 | 411 | ||||||||||||
|
Expected return on plan assets
|
(265 | ) | (238 | ) | (530 | ) | (477 | ) | ||||||||
|
Recognized actuarial losses and other
|
44 | 5 | 96 | 9 | ||||||||||||
|
|
||||||||||||||||
|
|
$ | 134 | $ | 76 | $ | 275 | $ | 151 | ||||||||
|
|
||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Postretirement Healthcare Plans
|
||||||||||||||||
|
Service cost
|
$ | 7 | $ | 6 | $ | 15 | $ | 12 | ||||||||
|
Interest cost
|
9 | 7 | 17 | 15 | ||||||||||||
|
Recognized actuarial gains and other
|
(1 | ) | (3 | ) | (2 | ) | (6 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | 15 | $ | 10 | $ | 30 | $ | 21 | ||||||||
|
|
||||||||||||||||
Contributions to our tax-qualified U.S. domestic pension plans (“U.S. Retirement Plans”) for the
six-month periods ended November 30 were as follows (in millions):
| 2010 | 2009 | |||||||
|
Required
|
$ | 158 | $ | 118 | ||||
|
Voluntary
|
— | 495 | ||||||
|
|
||||||||
|
|
$ | 158 | $ | 613 | ||||
|
|
||||||||
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 $322 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 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
LTL freight services.
10
Table of Contents
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
Corporate Services, Inc. (“FedEx Services”) (sales, marketing and information technology functions)
|
|
|
FedEx Office and Print Services, Inc. (“FedEx Office”) (document and business services and package acceptance)
|
||
|
FedEx TechConnect, formerly FedEx Customer Information Services (customer service, technical support, 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; FedEx TechConnect, 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.
Effective December 1, 2010, FedEx Customer Information Services was renamed FedEx TechConnect to
better reflect our goal of providing integrated customer-service solutions and revenue systems. In
addition to the existing functions performed, FedEx TechConnect will also offer technical support
and repair services for non-FedEx equipment, such as computers, scanners, printers and handheld
devices, thereby broadening our portfolio of business services.
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 in Management’s Discussion and Analysis of Operations and
Financial Condition 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.
11
Table of Contents
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 our 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 income statement totals for the periods ended November 30 (in
millions):
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Revenues
|
||||||||||||||||
|
FedEx Express segment
|
$ | 5,992 | $ | 5,314 | $ | 11,904 | $ | 10,238 | ||||||||
|
FedEx Ground segment
|
2,077 | 1,837 | 4,038 | 3,567 | ||||||||||||
|
FedEx Freight segment
|
1,221 | 1,068 | 2,479 | 2,050 | ||||||||||||
|
FedEx Services segment
|
434 | 465 | 849 | 916 | ||||||||||||
|
Other and eliminations
|
(92 | ) | (88 | ) | (181 | ) | (166 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | 9,632 | $ | 8,596 | $ | 19,089 | $ | 16,605 | ||||||||
|
|
||||||||||||||||
|
Operating Income (Loss)
|
||||||||||||||||
|
FedEx Express segment
|
$ | 264 | $ | 345 | $ | 621 | $ | 449 | ||||||||
|
FedEx Ground segment
|
296 | 238 | 583 | 447 | ||||||||||||
|
FedEx Freight segment
|
(91 | ) | (12 | ) | (107 | ) | (10 | ) | ||||||||
|
|
||||||||||||||||
|
|
$ | 469 | $ | 571 | $ | 1,097 | $ | 886 | ||||||||
|
|
||||||||||||||||
(7)
Commitments
As of November 30, 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)
|
$ | 186 | $ | 156 | $ | 459 | $ | 801 | ||||||||
|
2012
|
986 | 4 | 183 | 1,173 | ||||||||||||
|
2013
|
724 | — | 83 | 807 | ||||||||||||
|
2014
|
480 | — | 20 | 500 | ||||||||||||
|
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 to no longer be covered by the Railway Labor Act of 1926, as amended. | |
| (2) | Primarily aircraft modifications. | |
| (3) | Primarily vehicles, facilities, advertising and promotions contracts, and for the remainder of 2011, a total of $322 million of quarterly contributions to our U.S. Retirement Plans. |
The amounts reflected in the table above for purchase commitments represent noncancelable
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 noncancelable
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.
12
Table of Contents
We had $610 million in deposits and progress payments as of November 30, 2010 (an increase of $173
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 November 30, 2010, with the year of expected delivery:
| B777F (1) | B757 | Total | ||||||||||
|
|
||||||||||||
|
2011 (remainder)
|
1 | 9 | 10 | |||||||||
|
2012
|
6 | 9 | 15 | |||||||||
|
2013
|
6 | — | 6 | |||||||||
|
2014
|
3 | — | 3 | |||||||||
|
2015
|
3 | — | 3 | |||||||||
|
Thereafter
|
10 | — | 10 | |||||||||
|
|
||||||||||||
|
Total
|
29 | 18 | 47 | |||||||||
|
|
||||||||||||
| (1) | Our obligation to purchase 15 of these B777F aircraft is conditioned upon there being no event that causes FedEx Express or its employees to no longer be covered by the Railway Labor Act of 1926, as amended. |
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 November 30, 2010 is as follows (in
millions):
| Operating Leases | ||||||||||||||||
| Aircraft | Total | |||||||||||||||
| Capital | and Related | Facilities | Operating | |||||||||||||
| Leases | Equipment | and Other | Leases | |||||||||||||
|
|
||||||||||||||||
|
2011 (remainder)
|
$ | 4 | $ | 393 | $ | 659 | $ | 1,052 | ||||||||
|
2012
|
8 | 504 | 1,199 | 1,703 | ||||||||||||
|
2013
|
119 | 499 | 1,042 | 1,541 | ||||||||||||
|
2014
|
2 | 473 | 887 | 1,360 | ||||||||||||
|
2015
|
2 | 455 | 807 | 1,262 | ||||||||||||
|
Thereafter
|
14 | 2,003 | 5,292 | 7,295 | ||||||||||||
|
|
||||||||||||||||
|
Total
|
149 | $ | 4,327 | $ | 9,886 | $ | 14,213 | |||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Less amount representing interest
|
20 | |||||||||||||||
|
|
||||||||||||||||
|
Present value of net minimum lease
payments
|
$ | 129 | ||||||||||||||
|
|
||||||||||||||||
(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.
13
Table of Contents
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 minimum wage 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. The U.S. Court of
Appeals for the Ninth Circuit has refused to accept a discretionary appeal of the class
certification order 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. The case has been removed to federal court in California, and trial is currently
scheduled for July 2011.
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 have been 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 were consolidated for
administration of the pre-trial proceedings
by a single federal court, the U.S. District Court for the Northern
District of Indiana. The multidistrict litigation court granted class
certification in 28 cases and denied it in 14 cases.
On December 13, 2010, the court entered an opinion and order
addressing all outstanding motions for summary judgment on the status of the owner-operators
(i.e., independent contractor vs. employee). In sum, the court has now granted FedEx Ground’s motions for summary
judgment and entered judgment in favor of FedEx Ground on all claims in 19 of the 28 multidistrict litigation cases
that had been certified as class actions, finding that the owner-operators in those cases were contractors as a matter of
the law of the following states: Alabama, Arizona, Florida, Georgia, Indiana, Kansas (the court’s previous dismissal without
prejudice of the nationwide class claim under the Employee Retirement Income Security Act of 1974 based on the plaintiffs’ failure
to exhaust administrative remedies has been appealed), Louisiana, Maryland, Minnesota, New Jersey, New York,
North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, West Virginia and Wisconsin.
In the other nine certified class actions in the multidistrict litigation,
the court ruled in favor of FedEx Ground on some of the claims and against FedEx Ground on at least one claim in three of the
cases (filed in Kentucky, Nevada and New Hampshire) and then remanded all nine cases back to district court in the following states
for resolution of the remaining claims: Arkansas, California, Kentucky, Nevada, New Hampshire, Ohio, Oregon (two certified classes)
and Texas.
14
Table of Contents
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. Our applications for appeal challenging this class
certification decision have been rejected.
Other contractor-model cases that are not or are no
longer part of the multidistrict litigation are in varying stages of litigation.
With respect to the state administrative proceedings relating to the classification of FedEx
Ground’s owner-operators as independent contractors, during the
second quarter of 2011, the attorneys general in New York and
Kentucky each filed lawsuits against FedEx
Ground challenging the validity of the contractor model.
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.
In October 2010, a jury returned a verdict in favor of ATA Airlines in its lawsuit
against FedEx Express and awarded damages of $66 million. The suit was filed in Indiana federal
court and alleged that we had 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. While we do not agree with the verdict or the amount of damages awarded and are
appealing the matter, accounting standards require accrual of the $66 million loss.
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.
15
Table of Contents
(9)
Supplemental Cash Flow Information
The following table presents supplemental cash flow information for the six-month periods ended
November 30 (in millions):
| 2010 | 2009 | |||||||
|
Cash payments for:
|
||||||||
|
Interest (net of capitalized interest)
|
$ | 45 | $ | 46 | ||||
|
|
||||||||
|
|
||||||||
|
Income taxes
|
$ | 340 | $ | 113 | ||||
|
Income tax refunds received
|
(11 | ) | (275 | ) | ||||
|
|
||||||||
|
Cash tax payments, net
|
$ | 329 | $ | (162 | ) | |||
|
|
||||||||
(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.
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):
16
Table of Contents
CONDENSED CONSOLIDATING BALANCE SHEETS
(UNAUDITED)
November 30, 2010
(UNAUDITED)
November 30, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
CURRENT ASSETS
|
||||||||||||||||||||
|
Cash and cash equivalents
|
$ | 1,162 | $ | 268 | $ | 503 | $ | (56 | ) | $ | 1,877 | |||||||||
|
Receivables, less allowances
|
2 | 3,435 | 880 | (38 | ) | 4,279 | ||||||||||||||
|
Spare parts, supplies, fuel, prepaid expenses
and other, less allowances
|
43 | 611 | 48 | — | 702 | |||||||||||||||
|
Deferred income taxes
|
— | 507 | 47 | (14 | ) | 540 | ||||||||||||||
|
|
||||||||||||||||||||
|
Total current assets
|
1,207 | 4,821 | 1,478 | (108 | ) | 7,398 | ||||||||||||||
|
|
||||||||||||||||||||
|
PROPERTY AND EQUIPMENT, AT COST
|
24 | 30,389 | 2,307 | — | 32,720 | |||||||||||||||
|
Less accumulated depreciation and amortization
|
18 | 16,239 | 1,197 | — | 17,454 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net property and equipment
|
6 | 14,150 | 1,110 | — | 15,266 | |||||||||||||||
|
|
||||||||||||||||||||
|
INTERCOMPANY RECEIVABLE
|
— | — | 1,087 | (1,087 | ) | — | ||||||||||||||
|
GOODWILL
|
— | 1,552 | 672 | — | 2,224 | |||||||||||||||
|
INVESTMENT IN SUBSIDIARIES
|
14,586 | 2,768 | — | (17,354 | ) | — | ||||||||||||||
|
OTHER ASSETS
|
1,496 | 980 | 94 | (1,365 | ) | 1,205 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 17,295 | $ | 24,271 | $ | 4,441 | $ | (19,914 | ) | $ | 26,093 | |||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
LIABILITIES AND STOCKHOLDERS’ INVESTMENT
|
||||||||||||||||||||
|
CURRENT LIABILITIES
|
||||||||||||||||||||
|
Current portion of long-term debt
|
$ | 250 | $ | 1 | $ | — | $ | — | $ | 251 | ||||||||||
|
Accrued salaries and employee benefits
|
41 | 1,010 | 180 | — | 1,231 | |||||||||||||||
|
Accounts payable
|
43 | 1,216 | 396 | (94 | ) | 1,561 | ||||||||||||||
|
Accrued expenses
|
75 | 1,530 | 215 | — | 1,820 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total current liabilities
|
409 | 3,757 | 791 | (94 | ) | 4,863 | ||||||||||||||
|
|
||||||||||||||||||||
|
LONG-TERM DEBT, LESS CURRENT PORTION
|
1,000 | 667 | — | — | 1,667 | |||||||||||||||
|
INTERCOMPANY PAYABLE
|
499 | 588 | — | (1,087 | ) | — | ||||||||||||||
|
OTHER LONG-TERM LIABILITIES
|
||||||||||||||||||||
|
Deferred income taxes
|
— | 2,355 | — | (1,379 | ) | 976 | ||||||||||||||
|
Other liabilities
|
826 | 3,055 | 145 | — | 4,026 | |||||||||||||||
|
|
||||||||||||||||||||
|
Total other long-term liabilities
|
826 | 5,410 | 145 | (1,379 | ) | 5,002 | ||||||||||||||
|
|
||||||||||||||||||||
|
STOCKHOLDERS’ INVESTMENT
|
14,561 | 13,849 | 3,505 | (17,354 | ) | 14,561 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
|
$ | 17,295 | $ | 24,271 | $ | 4,441 | $ | (19,914 | ) | $ | 26,093 | |||||||||
|
|
||||||||||||||||||||
17
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 | |||||||||
|
|
||||||||||||||||||||
18
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended November 30, 2010
(UNAUDITED)
Three Months Ended November 30, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 8,002 | $ | 1,718 | $ | (88 | ) | $ | 9,632 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
26 | 3,216 | 537 | — | 3,779 | |||||||||||||||
|
Purchased transportation
|
— | 970 | 447 | (27 | ) | 1,390 | ||||||||||||||
|
Rentals and landing fees
|
1 | 564 | 64 | (1 | ) | 628 | ||||||||||||||
|
Depreciation and amortization
|
— | 443 | 59 | — | 502 | |||||||||||||||
|
Fuel
|
— | 891 | 47 | — | 938 | |||||||||||||||
|
Maintenance and repairs
|
— | 440 | 33 | — | 473 | |||||||||||||||
|
Impairment and other charges
|
— | 17 | 50 | — | 67 | |||||||||||||||
|
Intercompany charges, net
|
(58 | ) | (80 | ) | 138 | — | — | |||||||||||||
|
Other
|
31 | 1,137 | 278 | (60 | ) | 1,386 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 7,598 | 1,653 | (88 | ) | 9,163 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 404 | 65 | — | 469 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
283 | 23 | — | (306 | ) | — | ||||||||||||||
|
Interest, net
|
(23 | ) | 1 | (1 | ) | — | (23 | ) | ||||||||||||
|
Intercompany charges, net
|
28 | (34 | ) | 6 | — | — | ||||||||||||||
|
Other, net
|
(5 | ) | (3 | ) | (1 | ) | — | (9 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
283 | 391 | 69 | (306 | ) | 437 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 138 | 16 | — | 154 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 283 | $ | 253 | $ | 53 | $ | (306 | ) | $ | 283 | |||||||||
|
|
||||||||||||||||||||
19
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended November 30, 2009
(UNAUDITED)
Three Months Ended November 30, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 7,240 | $ | 1,442 | $ | (86 | ) | $ | 8,596 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
26 | 2,935 | 463 | — | 3,424 | |||||||||||||||
|
Purchased transportation
|
— | 837 | 341 | (23 | ) | 1,155 | ||||||||||||||
|
Rentals and landing fees
|
1 | 534 | 58 | — | 593 | |||||||||||||||
|
Depreciation and amortization
|
1 | 436 | 50 | — | 487 | |||||||||||||||
|
Fuel
|
— | 707 | 37 | — | 744 | |||||||||||||||
|
Maintenance and repairs
|
— | 379 | 31 | — | 410 | |||||||||||||||
|
Intercompany charges, net
|
(53 | ) | (56 | ) | 109 | — | — | |||||||||||||
|
Other
|
25 | 995 | 255 | (63 | ) | 1,212 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 6,767 | 1,344 | (86 | ) | 8,025 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 473 | 98 | — | 571 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
345 | 42 | — | (387 | ) | — | ||||||||||||||
|
Interest, net
|
(23 | ) | 12 | (4 | ) | — | (15 | ) | ||||||||||||
|
Intercompany charges, net
|
28 | (36 | ) | 8 | — | — | ||||||||||||||
|
Other, net
|
(5 | ) | (4 | ) | — | — | (9 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
345 | 487 | 102 | (387 | ) | 547 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 167 | 35 | — | 202 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 345 | $ | 320 | $ | 67 | $ | (387 | ) | $ | 345 | |||||||||
|
|
||||||||||||||||||||
20
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended November 30, 2010
(UNAUDITED)
Six Months Ended November 30, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 15,895 | $ | 3,364 | $ | (170 | ) | $ | 19,089 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
64 | 6,465 | 1,053 | — | 7,582 | |||||||||||||||
|
Purchased transportation
|
— | 1,890 | 879 | (52 | ) | 2,717 | ||||||||||||||
|
Rentals and landing fees
|
2 | 1,101 | 128 | (2 | ) | 1,229 | ||||||||||||||
|
Depreciation and amortization
|
— | 875 | 106 | — | 981 | |||||||||||||||
|
Fuel
|
— | 1,732 | 93 | — | 1,825 | |||||||||||||||
|
Maintenance and repairs
|
— | 923 | 67 | — | 990 | |||||||||||||||
|
Impairment and other charges
|
— | 17 | 50 | — | 67 | |||||||||||||||
|
Intercompany charges, net
|
(129 | ) | (172 | ) | 301 | — | — | |||||||||||||
|
Other
|
63 | 2,123 | 531 | (116 | ) | 2,601 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 14,954 | 3,208 | (170 | ) | 17,992 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 941 | 156 | — | 1,097 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
663 | 49 | — | (712 | ) | — | ||||||||||||||
|
Interest, net
|
(47 | ) | 9 | (3 | ) | — | (41 | ) | ||||||||||||
|
Intercompany charges, net
|
55 | (69 | ) | 14 | — | — | ||||||||||||||
|
Other, net
|
(8 | ) | (7 | ) | (1 | ) | — | (16 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
663 | 923 | 166 | (712 | ) | 1,040 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 334 | 43 | — | 377 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 663 | $ | 589 | $ | 123 | $ | (712 | ) | $ | 663 | |||||||||
|
|
||||||||||||||||||||
21
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended November 30, 2009
(UNAUDITED)
Six Months Ended November 30, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
REVENUES
|
$ | — | $ | 14,091 | $ | 2,670 | $ | (156 | ) | $ | 16,605 | |||||||||
|
|
||||||||||||||||||||
|
OPERATING EXPENSES:
|
||||||||||||||||||||
|
Salaries and employee benefits
|
49 | 5,828 | 924 | — | 6,801 | |||||||||||||||
|
Purchased transportation
|
— | 1,633 | 612 | (36 | ) | 2,209 | ||||||||||||||
|
Rentals and landing fees
|
2 | 1,054 | 116 | (1 | ) | 1,171 | ||||||||||||||
|
Depreciation and amortization
|
1 | 874 | 107 | — | 982 | |||||||||||||||
|
Fuel
|
— | 1,338 | 72 | — | 1,410 | |||||||||||||||
|
Maintenance and repairs
|
— | 751 | 60 | — | 811 | |||||||||||||||
|
Intercompany charges, net
|
(100 | ) | (29 | ) | 129 | — | — | |||||||||||||
|
Other
|
48 | 1,925 | 481 | (119 | ) | 2,335 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
— | 13,374 | 2,501 | (156 | ) | 15,719 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
OPERATING INCOME
|
— | 717 | 169 | — | 886 | |||||||||||||||
|
|
||||||||||||||||||||
|
OTHER INCOME (EXPENSE):
|
||||||||||||||||||||
|
Equity in earnings of subsidiaries
|
526 | 76 | — | (602 | ) | — | ||||||||||||||
|
Interest, net
|
(52 | ) | 26 | (7 | ) | — | (33 | ) | ||||||||||||
|
Intercompany charges, net
|
59 | (75 | ) | 16 | — | — | ||||||||||||||
|
Other, net
|
(7 | ) | (4 | ) | (1 | ) | — | (12 | ) | |||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
INCOME BEFORE INCOME TAXES
|
526 | 740 | 177 | (602 | ) | 841 | ||||||||||||||
|
|
||||||||||||||||||||
|
Provision for income taxes
|
— | 255 | 60 | — | 315 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
NET INCOME
|
$ | 526 | $ | 485 | $ | 117 | $ | (602 | ) | $ | 526 | |||||||||
|
|
||||||||||||||||||||
22
Table of Contents
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended November 30, 2010
(UNAUDITED)
Six Months Ended November 30, 2010
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | (6 | ) | $ | 1,755 | $ | 259 | $ | 3 | $ | 2,011 | |||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
(1 | ) | (1,968 | ) | (90 | ) | — | (2,059 | ) | |||||||||||
|
Proceeds from asset dispositions and other
|
— | 6 | 1 | — | 7 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
(1 | ) | (1,962 | ) | (89 | ) | — | (2,052 | ) | |||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
(94 | ) | 100 | (6 | ) | — | — | |||||||||||||
|
Payment on loan between subsidiaries
|
— | 113 | (113 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 5 | (5 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
— | (12 | ) | — | — | (12 | ) | |||||||||||||
|
Proceeds from stock issuances
|
25 | — | — | — | 25 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
4 | — | — | — | 4 | |||||||||||||||
|
Dividends paid
|
(76 | ) | — | — | — | (76 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(141 | ) | 206 | (124 | ) | — | (59 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | 11 | 14 | — | 25 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(148 | ) | 10 | 60 | 3 | (75 | ) | |||||||||||||
|
Cash and cash equivalents at beginning of period
|
1,310 | 258 | 443 | (59 | ) | 1,952 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 1,162 | $ | 268 | $ | 503 | $ | (56 | ) | $ | 1,877 | |||||||||
|
|
||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended November 30, 2009
(UNAUDITED)
Six Months Ended November 30, 2009
| Guarantor | Non-guarantor | |||||||||||||||||||
| Parent | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
|
|
||||||||||||||||||||
|
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
|
$ | (333 | ) | $ | 1,373 | $ | 353 | $ | (36 | ) | $ | 1,357 | ||||||||
|
|
||||||||||||||||||||
|
INVESTING ACTIVITIES
|
||||||||||||||||||||
|
Capital expenditures
|
— | (1,446 | ) | (103 | ) | — | (1,549 | ) | ||||||||||||
|
Proceeds from asset dispositions and other
|
— | 32 | 1 | — | 33 | |||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH USED IN INVESTING ACTIVITIES
|
— | (1,414 | ) | (102 | ) | — | (1,516 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
FINANCING ACTIVITIES
|
||||||||||||||||||||
|
Net transfers from (to) Parent
|
54 | 55 | (109 | ) | — | — | ||||||||||||||
|
Payment on loan between subsidiaries
|
— | 35 | (35 | ) | — | — | ||||||||||||||
|
Intercompany dividends
|
— | 70 | (70 | ) | — | — | ||||||||||||||
|
Principal payments on debt
|
(500 | ) | (125 | ) | — | — | (625 | ) | ||||||||||||
|
Proceeds from stock issuances
|
24 | — | — | — | 24 | |||||||||||||||
|
Excess tax benefit on the exercise of stock options
|
5 | — | — | — | 5 | |||||||||||||||
|
Dividends paid
|
(69 | ) | — | — | — | (69 | ) | |||||||||||||
|
Other, net
|
(16 | ) | — | — | — | (16 | ) | |||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
|
(502 | ) | 35 | (214 | ) | — | (681 | ) | ||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Effect of exchange rate changes on cash
|
— | 6 | 7 | — | 13 | |||||||||||||||
|
|
||||||||||||||||||||
|
Net (decrease) increase in cash and cash equivalents
|
(835 | ) | — | 44 | (36 | ) | (827 | ) | ||||||||||||
|
Cash and cash equivalents at beginning of period
|
1,768 | 272 | 304 | (52 | ) | 2,292 | ||||||||||||||
|
|
||||||||||||||||||||
|
|
||||||||||||||||||||
|
Cash and cash equivalents at end of period
|
$ | 933 | $ | 272 | $ | 348 | $ | (88 | ) | $ | 1,465 | |||||||||
|
|
||||||||||||||||||||
23
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 November 30,
2010, and the related condensed consolidated statements of income for the three-month and six-month
periods ended November 30, 2010 and 2009 and the condensed consolidated statements of cash flows
for the six-month periods ended November 30, 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
December 17, 2010
December 17, 2010
24
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.
25
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- and six-month periods ended November 30:
| Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Revenues
|
$ | 9,632 | $ | 8,596 | 12 | $ | 19,089 | $ | 16,605 | 15 | ||||||||||||||
|
Operating income
|
469 | 571 | (18 | ) | 1,097 | 886 | 24 | |||||||||||||||||
|
Operating margin
|
4.9 | % | 6.6 | % | (170 | )bp | 5.7 | % | 5.3 | % | 40 | bp | ||||||||||||
|
Net income
|
$ | 283 | $ | 345 | (18 | ) | $ | 663 | $ | 526 | 26 | |||||||||||||
|
Diluted earnings
per share
|
$ | 0.89 | $ | 1.10 | (19 | ) | $ | 2.09 | $ | 1.68 | 24 | |||||||||||||
The following table shows changes in revenues and operating income by reportable segment for the three- and six-month periods ended November 30,
2010 compared to November 30, 2009 (dollars in millions):
| Change in | Percent change in | |||||||||||||||||||||||||||||||
| Change in | Percent change in | Operating Income | Operating Income | |||||||||||||||||||||||||||||
| Revenues | Revenue | (Loss) | (Loss) | |||||||||||||||||||||||||||||
| Three | Six | Three | Six | Three | Six | Three | Six | |||||||||||||||||||||||||
| Months | Months | Months | Months | Months | Months | Months | Months | |||||||||||||||||||||||||
| Ended | Ended | Ended | Ended | Ended | Ended | Ended | Ended | |||||||||||||||||||||||||
|
FedEx Express
segment
|
$ | 678 | $ | 1,666 | 13 | 16 | $ | (81 | ) | $ | 172 | (23 | ) | 38 | ||||||||||||||||||
|
FedEx Ground
segment
|
240 | 471 | 13 | 13 | 58 | 136 | 24 | 30 | ||||||||||||||||||||||||
|
FedEx Freight
segment
|
153 | 429 | 14 | 21 | (79 | ) | (97 | ) | (658 | ) | (970 | ) | ||||||||||||||||||||
|
FedEx Services
segment
|
(31 | ) | (67 | ) | (7 | ) | (7 | ) | — | — | — | — | ||||||||||||||||||||
|
Other and
eliminations
|
(4 | ) | (15 | ) | NM | NM | — | — | — | — | ||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
|
|
$ | 1,036 | $ | 2,484 | 12 | 15 | $ | (102 | ) | $ | 211 | (18 | ) | 24 | ||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
Overview
Despite continued growth in revenue driven by solid demand and yield improvements in our
transportation segments, operating income and operating margin decreased in the second quarter of
2011. Two special charges incurred during the quarter and higher operating expenses significantly
impacted earnings.
Our
second quarter 2011 results included $86 million in costs related to the previously announced
combination of our FedEx Freight and FedEx National LTL operations (discussed below) and a $66
million reserve associated with an adverse jury decision in the ATA Airlines lawsuit against FedEx
Express. The net impact on second quarter earnings of these two charges was $0.27 per diluted
share after considering the effect of variable incentive compensation accruals. In addition, our
prior year second quarter results included a $54 million benefit from plan design changes to a self
insurance program at FedEx Express from a remeasurement of the plan liabilities. The net benefit
of this credit to last year’s second quarter earnings per diluted share was $0.05 after considering
the effect of variable incentive compensation accruals.
26
Table of Contents
In addition to the above charges, our 2011 second quarter earnings were negatively impacted by
higher compensation and benefits due to reinstatement of compensation programs curtailed during the
recession and
higher pension costs. Higher maintenance and repairs expenses also reduced our earnings in the
second quarter of 2011. A positive year-over-year net benefit from changes in fuel surcharges and
fuel prices partially offset the impact of these items on our second quarter earnings.
Our revenues increased for the second quarter and first half of 2011 due to higher volumes across
all of our transportation segments, particularly in FedEx International Priority (“IP”) package
shipments at FedEx Express. FedEx Express U.S. domestic package and FedEx Ground yields improved
during the second quarter and first half of 2011 due to higher package rates and fuel surcharges.
FedEx Express IP package yields improved during the second quarter and first half of 2011 due to higher
package weights and fuel surcharges.
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,
reduce operational costs and provide customers both priority and economy LTL freight services
across all lengths of haul from one integrated company. The estimated cost of this program is now
expected to be $140 to $170 million, down from our initial forecast. The actions to combine these
operations began in the second quarter of 2011 and resulted in $86 million of costs incurred during
the quarter. Of these costs, $67 million primarily relate to accrued severance expenses and
impairment charges on assets to be sold, which were recorded in the “Impairment and other charges”
caption of the condensed consolidated income statement. In addition, we recorded $14 million in
accelerated depreciation expense due to a change in the estimated useful life of certain assets
impacted by the combination of these operations.
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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. |
28
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 12% during the second quarter of 2011 and 15% for the first half of 2011 due to
volume and yield increases across all of our transportation segments. At FedEx Express, IP package
volume increased 11% in the second quarter of 2011 and 15% in the first half of 2011 led by growth
in Asia, while U.S. domestic package yields increased 5% in the second quarter of 2011 and 6% in
the first half of 2011 primarily due to a higher rate per pound and higher fuel surcharges. At the
FedEx Ground segment, revenues increased 13% for the second quarter and first half of 2011 due to
volume and yield growth at both FedEx Ground and FedEx SmartPost. Revenues at FedEx Freight
increased 14% during the second quarter of 2011 and 21% for the first half of 2011 driven by growth
in average daily LTL shipments and higher yield. Our ongoing yield management plan to improve
pricing in our LTL businesses had a positive impact during the quarter, as the performance of the
FedEx Freight segment is continuing to stabilize, with yields increasing 7% year over year in the
second quarter of 2011 and improving 5% from the first quarter of 2011.
29
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- and six-month periods ended November 30:
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
$ | 3,779 | $ | 3,424 | $ | 7,582 | $ | 6,801 | ||||||||
|
Purchased transportation
|
1,390 | 1,155 | 2,717 | 2,209 | ||||||||||||
|
Rentals and landing fees
|
628 | 593 | 1,229 | 1,171 | ||||||||||||
|
Depreciation and amortization
|
502 | 487 | 981 | 982 | ||||||||||||
|
Fuel
|
938 | 744 | 1,825 | 1,410 | ||||||||||||
|
Maintenance and repairs
|
473 | 410 | 990 | 811 | ||||||||||||
|
Impairment and other charges
(1)
|
67 | — | 67 | — | ||||||||||||
|
Other
|
1,386 | 1,212 | 2,601 | 2,335 | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
$ | 9,163 | $ | 8,025 | $ | 17,992 | $ | 15,719 | ||||||||
|
|
||||||||||||||||
| (1) | Represents charges associated with the combination of FedEx Freight and FedEx National LTL operations, which will be effective January 30, 2011. |
| Percent of Revenue | Percent of Revenue | |||||||||||||||
|
Three
Months Ended 2010 |
Three
Months Ended 2009 |
Six Months Ended 2010 |
Six Months Ended 2009 |
|||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
39.2 | % | 39.8 | % | 39.7 | % | 41.0 | % | ||||||||
|
Purchased transportation
|
14.4 | 13.4 | 14.2 | 13.3 | ||||||||||||
|
Rentals and landing fees
|
6.5 | 6.9 | 6.4 | 7.0 | ||||||||||||
|
Depreciation and amortization
|
5.2 | 5.7 | 5.2 | 5.9 | ||||||||||||
|
Fuel
|
9.8 | 8.7 | 9.6 | 8.5 | ||||||||||||
|
Maintenance and repairs
|
4.9 | 4.8 | 5.2 | 4.9 | ||||||||||||
|
Impairment and other charges
|
0.7 | — | 0.4 | — | ||||||||||||
|
Other
|
14.4 | 14.1 | 13.6 | 14.1 | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
95.1 | 93.4 | 94.3 | 94.7 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating margin
|
4.9 | % | 6.6 | % | 5.7 | % | 5.3 | % | ||||||||
|
|
||||||||||||||||
Operating income and operating margin declined for the second quarter of 2011 due to the charges
described above, as well as higher salaries and employee benefits. Operating income and operating
margin increased for the first half of 2011, as increased revenues more than offset the higher
expenses noted below.
Salaries and employee benefits increased 10% in the second quarter and 11% in the first half of
2011 due to the reinstatement of merit salary increases, increases in pension costs, the partial
reinstatement of 401(k) company-matching contributions effective January 1, 2010 and increases in
variable incentive compensation. Purchased transportation costs increased 20% in the second
quarter of 2011 and 23% in the first half 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. Maintenance
and repairs expense increased 15% in the second quarter of 2011 and 22% in the first half of 2011
primarily due to an increase in aircraft maintenance events as a result of timing and higher
utilization of our fleet driven by increased volumes.
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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 26% during the second quarter of 2011 and 29% for the first half 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 second quarter and
first half 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 second quarter and first half of
2011 and 2010 in the accompanying discussions of each of our transportation segments.
Income Taxes
Our effective tax rate was 35.3% for the second quarter of 2011 and 36.3% for the first half of
2011, compared with 36.9% for the second quarter of 2010 and 37.4% for the first half of 2010. Our
lower effective tax rates in the second quarter and first half of 2011 were driven primarily 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 November 30, 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.
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Business Acquisitions
On November 2, 2010, FedEx Express entered into an agreement to acquire the logistics,
distribution and express businesses of AFL Pvt. Ltd. and its
affiliate, Unifreight India Pvt. Ltd. Additionally, on December 15,
2010, FedEx entered into an agreement to acquire Servicios Nacionales
Mupa, SA de CV (MultiPack), a Mexican domestic express package
delivery company. Once completed, these acquisitions will give us more robust domestic transportation and
related capabilities in these important global markets. These acquisitions will be funded with cash from operations and are expected to be completed during 2011,
subject to customary closing conditions. The financial results of the acquired businesses will be
included in the FedEx Express segment from the date of acquisition and will be immaterial to our
2011 results.
Outlook
We anticipate volume growth at FedEx Express and FedEx Ground and positive yield trends across our
transportation segments during the second half of 2011. Our on-going yield improvement activities,
including general rate increases and changes to our dimensional weight pricing, will continue to be
a major focus in the second half of 2011. However, as we continue to take actions to improve
yields within our FedEx Freight segment, we expect that
segment’s volume growth to moderate as we transition lower
yielding volumes out of our LTL network. We expect revenue growth to be partially offset by cost
increases associated with higher aircraft maintenance, increased pension costs and continued
investments in our employees, as we complete the reinstatement of compensation and benefit programs
curtailed during the recession. We will also incur additional charges associated with our
realignment of the FedEx Freight segment. Our expectations are based on a continued recovery in
global economic conditions, moderate near-term growth in the U.S. and stable fuel prices.
For the remainder of 2011, we will continue to make strategic investments in aircraft, including
the Boeing 777 Freighter (“B777F”) and Boeing 757 (“B757”) aircraft, which are substantially more
fuel-efficient per unit than the aircraft types that 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.
The pilots of FedEx Express, which represent a small number of FedEx Express total employees, are
employed under a collective bargaining agreement that became 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. Contract negotiations with the pilots’ union began in August 2010
and are ongoing. We cannot estimate the financial impact, if any, that the results of these
negotiations may have on our future results of operations.
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.
32
Table of Contents
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.
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 TechConnect, formerly FedEx Customer Information Services
(customer service, technical support, 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; FedEx TechConnect, 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.
Effective December 1, 2010, FedEx Customer Information Services was renamed FedEx TechConnect to
better reflect our goal of providing integrated customer-service solutions and revenue systems. In
addition to the existing functions performed, FedEx TechConnect will also offer technical support and
repair services for non-FedEx equipment, such as computers, scanners, printers and handheld
devices, thereby broadening our portfolio of business services.
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.
33
Table of Contents
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.
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.
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 our consolidated results and are not separately identified
in the following segment information because the amounts are not material.
34
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- and six-month
periods ended November 30:
| Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||
|
Package:
|
||||||||||||||||||||||||
|
U.S. overnight box
|
$ | 1,489 | $ | 1,372 | 9 | $ | 2,980 | $ | 2,703 | 10 | ||||||||||||||
|
U.S. overnight envelope
|
416 | 395 | 5 | 848 | 803 | 6 | ||||||||||||||||||
|
U.S. deferred
|
666 | 626 | 6 | 1,327 | 1,227 | 8 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total U.S. domestic package revenue
|
2,571 | 2,393 | 7 | 5,155 | 4,733 | 9 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
International priority
|
2,009 | 1,763 | 14 | 3,983 | 3,357 | 19 | ||||||||||||||||||
|
International domestic
(1)
|
165 | 151 | 9 | 313 | 285 | 10 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total package revenue
|
4,745 | 4,307 | 10 | 9,451 | 8,375 | 13 | ||||||||||||||||||
|
Freight:
|
||||||||||||||||||||||||
|
U.S.
|
530 | 490 | 8 | 1,053 | 939 | 12 | ||||||||||||||||||
|
International priority
|
435 | 321 | 36 | 841 | 581 | 45 | ||||||||||||||||||
|
International airfreight
|
69 | 63 | 10 | 139 | 124 | 12 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total freight revenue
|
1,034 | 874 | 18 | 2,033 | 1,644 | 24 | ||||||||||||||||||
|
Other
(2)
|
213 | 133 | 60 | 420 | 219 | 92 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total revenues
|
5,992 | 5,314 | 13 | 11,904 | 10,238 | 16 | ||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Salaries and employee benefits
|
2,253 | 2,036 | 11 | 4,511 | 4,079 | 11 | ||||||||||||||||||
|
Purchased transportation
|
388 | 283 | 37 | 757 | 538 | 41 | ||||||||||||||||||
|
Rentals and landing fees
|
427 | 396 | 8 | 830 | 781 | 6 | ||||||||||||||||||
|
Depreciation and amortization
|
265 | 251 | 6 | 520 | 503 | 3 | ||||||||||||||||||
|
Fuel
|
802 | 638 | 26 | 1,556 | 1,209 | 29 | ||||||||||||||||||
|
Maintenance and repairs
|
320 | 267 | 20 | 672 | 528 | 27 | ||||||||||||||||||
|
Intercompany charges
|
512 | 470 | 9 | 1,025 | 939 | 9 | ||||||||||||||||||
|
Other
|
761 | 628 | 21 | 1,412 | 1,212 | 17 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total operating expenses
|
5,728 | 4,969 | 15 | 11,283 | 9,789 | 15 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating income
|
$ | 264 | $ | 345 | (23 | ) | $ | 621 | $ | 449 | 38 | |||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating margin
|
4.4 | % | 6.5 | % | (210 | )bp | 5.2 | % | 4.4 | % | 80 | 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. |
| Percent of Revenue | Percent of Revenue | |||||||||||||||
| Three | Three | Six | Six | |||||||||||||
| Months | Months | Months | Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
37.6 | % | 38.3 | % | 37.9 | % | 39.8 | % | ||||||||
|
Purchased transportation
|
6.5 | 5.3 | 6.3 | 5.3 | ||||||||||||
|
Rentals and landing fees
|
7.1 | 7.5 | 7.0 | 7.6 | ||||||||||||
|
Depreciation and amortization
|
4.4 | 4.7 | 4.4 | 4.9 | ||||||||||||
|
Fuel
|
13.4 | 12.0 | 13.1 | 11.8 | ||||||||||||
|
Maintenance and repairs
|
5.3 | 5.0 | 5.6 | 5.2 | ||||||||||||
|
Intercompany charges
|
8.6 | 8.9 | 8.6 | 9.2 | ||||||||||||
|
Other
|
12.7 | 11.8 | 11.9 | 11.8 | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
95.6 | 93.5 | 94.8 | 95.6 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating margin
|
4.4 | % | 6.5 | % | 5.2 | % | 4.4 | % | ||||||||
|
|
||||||||||||||||
35
Table of Contents
The following table compares selected statistics (in thousands, except yield amounts) for the
three- and six-month periods ended November 30:
| Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Package Statistics
(1)
|
||||||||||||||||||||||||
|
Average daily package volume (ADV):
|
||||||||||||||||||||||||
|
U.S. overnight box
|
1,196 | 1,154 | 4 | 1,182 | 1,141 | 4 | ||||||||||||||||||
|
U.S. overnight envelope
|
626 | 606 | 3 | 625 | 611 | 2 | ||||||||||||||||||
|
U.S. deferred
|
865 | 858 | 1 | 855 | 840 | 2 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total U.S. domestic ADV
|
2,687 | 2,618 | 3 | 2,662 | 2,592 | 3 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
International priority
|
585 | 529 | 11 | 575 | 502 | 15 | ||||||||||||||||||
|
International domestic
(2)
|
354 | 338 | 5 | 339 | 315 | 8 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total ADV
|
3,626 | 3,485 | 4 | 3,576 | 3,409 | 5 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Revenue per package (yield):
|
||||||||||||||||||||||||
|
U.S. overnight box
|
$ | 19.75 | $ | 18.87 | 5 | $ | 19.70 | $ | 18.51 | 6 | ||||||||||||||
|
U.S. overnight envelope
|
10.54 | 10.36 | 2 | 10.59 | 10.27 | 3 | ||||||||||||||||||
|
U.S. deferred
|
12.24 | 11.58 | 6 | 12.12 | 11.40 | 6 | ||||||||||||||||||
|
U.S. domestic composite
|
15.19 | 14.51 | 5 | 15.13 | 14.26 | 6 | ||||||||||||||||||
|
International priority
|
54.54 | 52.88 | 3 | 54.12 | 52.27 | 4 | ||||||||||||||||||
|
International domestic
(2)
|
7.39 | 7.09 | 4 | 7.22 | 7.07 | 2 | ||||||||||||||||||
|
Composite package yield
|
20.77 | 19.62 | 6 | 20.65 | 19.19 | 8 | ||||||||||||||||||
|
Freight Statistics
(1)
|
||||||||||||||||||||||||
|
Average daily freight pounds:
|
||||||||||||||||||||||||
|
U.S.
|
7,459 | 7,193 | 4 | 7,179 | 6,883 | 4 | ||||||||||||||||||
|
International priority
|
3,320 | 2,571 | 29 | 3,171 | 2,353 | 35 | ||||||||||||||||||
|
International airfreight
|
1,243 | 1,207 | 3 | 1,242 | 1,253 | (1 | ) | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total average daily freight pounds
|
12,022 | 10,971 | 10 | 11,592 | 10,489 | 11 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Revenue per pound (yield):
|
||||||||||||||||||||||||
|
U.S.
|
$ | 1.13 | $ | 1.08 | 5 | $ | 1.15 | $ | 1.07 | 7 | ||||||||||||||
|
International priority
|
2.08 | 1.98 | 5 | 2.07 | 1.93 | 7 | ||||||||||||||||||
|
International airfreight
|
0.88 | 0.83 | 6 | 0.87 | 0.77 | 13 | ||||||||||||||||||
|
Composite freight yield
|
1.36 | 1.26 | 8 | 1.37 | 1.22 | 12 | ||||||||||||||||||
| (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 13% in the second quarter of 2011 and 16% in the first
half of 2011 primarily due to an increase in IP package and freight volume, as well as higher U.S.
domestic package and IP yields. IP package volume increased in the second quarter and first half
of 2011 primarily due to exports from Asia. IP freight volume increased in the second quarter of
2011 primarily due to exports from Europe and Asia and during the first half of 2011 primarily due
to exports from Asia.
For the second quarter of 2011, U.S. domestic package yields increased due to a higher rate per
pound, higher fuel surcharges and increased package weights. IP package yields increased due to
increased package weights and higher fuel surcharges.
The increase in U.S. domestic package yields in the first half of 2011 was due to higher fuel
surcharges, as well as a higher rate per pound and increased package weights. IP package yields
increased in the first half of 2011 due to increased package weights and higher fuel surcharges,
partially offset by a lower rate per pound.
36
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- and six-month periods ended November 30:
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
U.S. Domestic and Outbound Fuel
Surcharge:
|
||||||||||||||||
|
Low
|
7.00 | % | 5.50 | % | 7.00 | % | 1.00 | % | ||||||||
|
High
|
8.50 | 7.50 | 10.00 | 7.50 | ||||||||||||
|
Weighted-average
|
7.82 | 6.35 | 8.17 | 4.81 | ||||||||||||
|
International Fuel Surcharges:
|
||||||||||||||||
|
Low
|
7.00 | 5.50 | 7.00 | 1.00 | ||||||||||||
|
High
|
13.50 | 12.50 | 14.00 | 12.50 | ||||||||||||
|
Weighted-average
|
10.59 | 9.57 | 10.83 | 8.50 | ||||||||||||
On September 29, 2010, we announced a 5.9% average list price increase effective January 3, 2011,
on FedEx Express U.S. domestic and U.S. outbound express package and freight shipments and made
various changes to other surcharges, while we lowered our fuel surcharge index by two percentage
points. In addition, FedEx Express will implement a change to the dimensional weight volumetric
divisor for U.S. domestic services. In September 2009, we announced a 5.9% average list price
increase effective January 4, 2010 on FedEx Express U.S. domestic and U.S. outbound express package
and freight shipments and made various changes to other surcharges, while we lowered our fuel
surcharge index by two percentage points. Furthermore, in connection with these changes, the
structure of the FedEx Express fuel surcharge table was modified.
FedEx Express Segment Operating Income
FedEx Express segment operating income and operating margin decreased during the second quarter of
2011. The year-over-year comparison of the results was impacted by a $66 million legal reserve
associated with the ATA Airlines lawsuit (see Note 8 of the
accompanying condensed consolidated financial statements) recorded during the second quarter of 2011, and the
inclusion in the second quarter of 2010 of a benefit of $54 million for plan design changes to a
self-insurance program, which required a remeasurement of the plan liabilities. The combination of
these two items significantly impacted year-over-year operating margin comparisons. In addition,
the reinstatement of certain employee compensation programs, increased aircraft maintenance costs
and higher pension expenses offset the benefit of increased revenues and the positive net impact of
higher fuel surcharges.
FedEx Express segment operating income and operating margin increased in the first half of 2011 as
a result of 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. However, the first half was
also negatively impacted by the higher expenses noted above.
Salaries and employee benefits expense increased 11% in both the second quarter of 2011 and first
half of 2011 due to volume-related increases in labor hours, higher pension costs, and the
reinstatement of several employee compensation programs, including higher variable incentive
compensation, merit salary increases and 401(k) company-matching contributions. Purchased
transportation costs increased 37% in the second quarter of 2011 and 41% in the first half 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 20%
in the second quarter of 2011 and 27% in the first half of 2011 primarily due to an increase in
aircraft maintenance expenses as a result of timing of maintenance events and higher utilization of
our fleet driven by increased volumes. Intercompany charges increased 9% in the second quarter and
first half of 2011 primarily due to higher marketing and sales costs.
Fuel costs increased 26% in the second quarter of 2011 and 29% in the first half 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 on operating income in both
the second quarter and first half of 2011. This analysis considers the estimated impact of the
reduction in fuel surcharges included in the base rates charged for FedEx Express services.
37
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- and six-month periods ended November
30:
| Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||||||
|
FedEx Ground
|
$ | 1,916 | $ | 1,712 | 12 | $ | 3,755 | $ | 3,349 | 12 | ||||||||||||||
|
FedEx SmartPost
|
161 | 125 | 29 | 283 | 218 | 30 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total revenues
|
2,077 | 1,837 | 13 | 4,038 | 3,567 | 13 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Salaries and employee benefits
|
318 | 288 | 10 | 625 | 570 | 10 | ||||||||||||||||||
|
Purchased transportation
|
845 | 733 | 15 | 1,627 | 1,426 | 14 | ||||||||||||||||||
|
Rentals
|
67 | 63 | 6 | 129 | 121 | 7 | ||||||||||||||||||
|
Depreciation and amortization
|
83 | 83 | — | 165 | 168 | (2 | ) | |||||||||||||||||
|
Fuel
|
3 | 2 | NM | 4 | 3 | NM | ||||||||||||||||||
|
Maintenance and repairs
|
42 | 40 | 5 | 86 | 78 | 10 | ||||||||||||||||||
|
Intercompany charges
|
227 | 196 | 16 | 448 | 380 | 18 | ||||||||||||||||||
|
Other
|
196 | 194 | 1 | 371 | 374 | (1 | ) | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total operating expenses
|
1,781 | 1,599 | 11 | 3,455 | 3,120 | 11 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating income
|
$ | 296 | $ | 238 | 24 | $ | 583 | $ | 447 | 30 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating margin
|
14.3 | % | 13.0 | % | 130 | bp | 14.4 | % | 12.5 | % | 190 | bp | ||||||||||||
|
|
||||||||||||||||||||||||
|
Average daily package volume
|
||||||||||||||||||||||||
|
FedEx Ground
|
3,843 | 3,602 | 7 | 3,686 | 3,454 | 7 | ||||||||||||||||||
|
FedEx SmartPost
|
1,484 | 1,265 | 17 | 1,287 | 1,135 | 13 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Revenue per package (yield)
|
||||||||||||||||||||||||
|
FedEx Ground
|
$ | 7.89 | $ | 7.54 | 5 | $ | 7.94 | $ | 7.56 | 5 | ||||||||||||||
|
FedEx SmartPost
|
$ | 1.72 | $ | 1.57 | 10 | $ | 1.70 | $ | 1.50 | 13 | ||||||||||||||
| Percent of Revenue | Percent of Revenue | |||||||||||||||
| Three | Three | Six | Six | |||||||||||||
| Months | Months | Months | Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
15.3 | % | 15.7 | % | 15.5 | % | 16.0 | % | ||||||||
|
Purchased transportation
|
40.7 | 39.9 | 40.3 | 40.0 | ||||||||||||
|
Rentals
|
3.2 | 3.4 | 3.2 | 3.4 | ||||||||||||
|
Depreciation and amortization
|
4.0 | 4.5 | 4.1 | 4.7 | ||||||||||||
|
Fuel
|
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||
|
Maintenance and repairs
|
2.0 | 2.2 | 2.1 | 2.2 | ||||||||||||
|
Intercompany charges
|
10.9 | 10.7 | 11.1 | 10.6 | ||||||||||||
|
Other
|
9.5 | 10.5 | 9.2 | 10.5 | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
85.7 | 87.0 | 85.6 | 87.5 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating margin
|
14.3 | % | 13.0 | % | 14.4 | % | 12.5 | % | ||||||||
|
|
||||||||||||||||
38
Table of Contents
FedEx Ground Segment Revenues
FedEx Ground segment revenues increased 13% in the second quarter and first half of 2011 due to
volume and yield growth at both FedEx Ground and FedEx SmartPost.
FedEx Ground average daily volume increased during the second quarter of 2011 and first half 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 second quarter and first
half of 2011 was primarily due to higher fuel surcharges, rate increases and higher extra service
revenue.
FedEx SmartPost volumes grew 17% during the second quarter of 2011 and 13% in the first half of
2011 as a result of growth in e-commerce, gains in market share and the introduction of new service
offerings. Yields at FedEx SmartPost increased 10% during the second quarter of 2011 and 13% in
the first half 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.
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- and six-month periods ended November 30:
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Low
|
5.50 | % | 3.75 | % | 5.50 | % | 2.75 | % | ||||||||
|
High
|
6.00 | 4.00 | 6.00 | 4.00 | ||||||||||||
|
Weighted-average
|
5.66 | 3.92 | 5.74 | 3.47 | ||||||||||||
On December 3, 2010, we announced a 4.9% average list price increase effective January 3, 2011 for
FedEx Ground and FedEx Home Delivery services. The full average rate increase of 5.9% will be partially
offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel
surcharge by one percentage point. FedEx Ground will make additional changes to dimensional weight
charges and surcharges, and FedEx SmartPost rates will also increase.
In December 2009, we
announced a 4.9% average list price increase and made various changes to other surcharges,
including modifying the fuel surcharge table, effective January 4, 2010 on FedEx Ground shipments.
FedEx Ground Segment Operating Income
FedEx Ground segment operating income and operating margin increased during the second quarter and
first half of 2011 due to volume and yield growth. Purchased transportation costs increased 15%
during the second quarter and 14% in the first half of 2011 primarily as a result of volume growth
and higher rates paid to our independent contractors. The increase in salaries and employee
benefits expense during the second quarter and first half 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 in the second quarter and
first half 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.
39
Table of Contents
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.
FEDEX FREIGHT SEGMENT
The following tables compare revenues, operating expenses, operating expenses as a percent of
revenue, operating loss and operating margin (dollars in millions) and selected statistics for the
three- and six-month periods ended November 30:
| Three Months Ended | Percent | Six Months Ended | Percent | |||||||||||||||||||||
| 2010 | 2009 | Change | 2010 | 2009 | Change | |||||||||||||||||||
|
Revenues
|
$ | 1,221 | $ | 1,068 | 14 | $ | 2,479 | $ | 2,050 | 21 | ||||||||||||||
|
Operating expenses:
|
||||||||||||||||||||||||
|
Salaries and employee benefits
|
584 | 513 | 14 | 1,184 | 1,020 | 16 | ||||||||||||||||||
|
Purchased transportation
|
185 | 168 | 10 | 389 | 286 | 36 | ||||||||||||||||||
|
Rentals
|
31 | 27 | 15 | 65 | 56 | 16 | ||||||||||||||||||
|
Depreciation and amortization
|
62 | 46 | 35 | 110 | 101 | 9 | ||||||||||||||||||
|
Fuel
|
133 | 104 | 28 | 264 | 198 | 33 | ||||||||||||||||||
|
Maintenance and repairs
|
45 | 35 | 29 | 91 | 69 | 32 | ||||||||||||||||||
|
Impairment
and other charges
(1)
|
67 | — | NM | 67 | — | NM | ||||||||||||||||||
|
Intercompany charges
(2)
|
108 | 98 | 10 | 217 | 150 | 45 | ||||||||||||||||||
|
Other
|
97 | 89 | 9 | 199 | 180 | 11 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total operating expenses
|
1,312 | 1,080 | 21 | 2,586 | 2,060 | 26 | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating loss
|
$ | (91 | ) | $ | (12 | ) | (658 | ) | $ | (107 | ) | $ | (10 | ) | (970 | ) | ||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Operating margin
|
(7.5 | %) | (1.1 | %) | (640 | )bp | (4.3 | %) | (0.5 | %) | (380 | )bp | ||||||||||||
|
|
||||||||||||||||||||||||
|
Average daily LTL shipments (in thousands)
|
89.4 | 82.9 | 8 | 90.6 | 77.0 | 18 | ||||||||||||||||||
|
Weight per LTL shipment (lbs)
|
1,115 | 1,128 | (1 | ) | 1,125 | 1,119 | 1 | |||||||||||||||||
|
LTL yield (revenue per hundredweight)
|
$ | 18.27 | $ | 17.09 | 7 | $ | 17.77 | $ | 17.45 | 2 | ||||||||||||||
| (1) | Includes severance, impairment and other charges associated with the combination of FedEx Freight and FedEx National LTL operations, which will be effective January 30, 2011. | |
| (2) | Certain functions were transferred from the FedEx Freight segment to FedEx Services and FedEx TechConnect 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. |
40
Table of Contents
| Percent of Revenue | Percent of Revenue | |||||||||||||||
| Three | Three | Six | Six | |||||||||||||
| Months | Months | Months | Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Operating expenses:
|
||||||||||||||||
|
Salaries and employee benefits
|
47.8 | % | 48.0 | % | 47.8 | % | 49.8 | % | ||||||||
|
Purchased transportation
|
15.2 | 15.7 | 15.7 | 13.9 | ||||||||||||
|
Rentals
|
2.5 | 2.5 | 2.6 | 2.7 | ||||||||||||
|
Depreciation and amortization
|
5.1 | 4.3 | 4.4 | 4.9 | ||||||||||||
|
Fuel
|
10.9 | 9.8 | 10.6 | 9.7 | ||||||||||||
|
Maintenance and repairs
|
3.7 | 3.3 | 3.7 | 3.4 | ||||||||||||
|
Impairment and other charges
(1)
|
5.5 | — | 2.7 | — | ||||||||||||
|
Intercompany charges
(2)
|
8.9 | 9.2 | 8.8 | 7.3 | ||||||||||||
|
Other
|
7.9 | 8.3 | 8.0 | 8.8 | ||||||||||||
|
|
||||||||||||||||
|
Total operating expenses
|
107.5 | 101.1 | 104.3 | 100.5 | ||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
Operating margin
|
(7.5) | % | (1.1) | % | (4.3) | % | (0.5) | % | ||||||||
|
|
||||||||||||||||
| (1) | Includes charges associated with the combination of FedEx Freight and FedEx National LTL operations, which will be effective January 30, 2011. | |
| (2) | Certain functions were transferred from the FedEx Freight segment to FedEx Services and FedEx TechConnect 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. |
FedEx Freight Segment Revenues
FedEx Freight segment revenues increased 14% during the second quarter of 2011 and 21% in the first
half of 2011 as a result of higher average daily LTL shipments and higher LTL yield. Discounted
pricing in contracts signed during the second half of fiscal 2010 led to an increase in average
daily LTL shipments of 8% for the second quarter of 2011 and 18% for the first half of 2011.
Yields increased during the second quarter and first half of 2011 as a result of our yield
management programs, which include more disciplined contract pricing and reviews of
lower-performing accounts for rate adjustments. Yields increased 7% year over year in the second
quarter of 2011 and improved 5% from the first quarter of 2011.
On
November 1, 2010, we implemented a 6.9% general rate increase for FedEx Freight and FedEx
National LTL shipments. 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- and six-month periods
ended November 30:
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Low
|
15.30 | % | 12.50 | % | 15.10 | % | 10.80 | % | ||||||||
|
High
|
16.40 | 14.20 | 16.40 | 14.20 | ||||||||||||
|
Weighted-average
|
15.80 | 13.40 | 15.60 | 12.90 | ||||||||||||
FedEx Freight Segment Operating Loss
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,
reduce operational costs and provide customers both priority and economy LTL freight services
across all lengths of haul from one integrated company. The estimated cost of this program is now
expected to be $140 to $170 million, down from our initial forecast. The actions to combine these
operations began in the second quarter of 2011 and resulted in $86 million of costs incurred during
the quarter. Of these costs, $67 million primarily relates to accrued severance expenses
and impairment charges on assets to be sold, which were recorded in the “Impairment and other
charges” caption of the condensed consolidated income statement. In addition, we recorded $14
million in accelerated depreciation expense due to a change in the estimated useful life of certain
assets impacted by the combination of these operations.
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Salaries and employee benefits increased 14% during the second quarter of 2011 and 16% in the first
half of 2011 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 salary increases. Purchased transportation costs
increased 10% during the second quarter of 2011 and 36% in the first half of 2011 to support higher
shipment volumes. Fuel costs increased 28% during the second quarter of 2011 and 33% in the first
half 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 on operating income in the second quarter of 2011. Maintenance and repairs
expense increased 29% in the second quarter of 2011 and 32% in the first half of 2011 primarily due
to higher shipment volumes. Also, higher intercompany charges in the first half of 2011 reflect
the transfer of sales and customer service employees from the FedEx Freight segment entities in
August 2009.
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $1.9 billion at November 30, 2010, compared to $2 billion at May 31, 2010.
The following table provides a summary of our cash flows for the
six-month periods ended November 30 (in
millions):
| 2010 | 2009 | |||||||
|
Operating activities:
|
||||||||
|
Net income
|
$ | 663 | $ | 526 | ||||
|
Noncash charges and credits
|
1,243 | 1,158 | ||||||
|
Changes in assets and liabilities
|
105 | (327 | ) | |||||
|
|
||||||||
|
Cash provided by operating activities
|
2,011 | 1,357 | ||||||
|
|
||||||||
|
|
||||||||
|
Investing activities:
|
||||||||
|
Capital expenditures
|
(2,059 | ) | (1,549 | ) | ||||
|
Proceeds from asset dispositions and other
|
7 | 33 | ||||||
|
|
||||||||
|
Cash used in investing activities
|
(2,052 | ) | (1,516 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Financing activities:
|
||||||||
|
Principal payments on debt
|
(12 | ) | (625 | ) | ||||
|
Proceeds from stock issuances
|
25 | 24 | ||||||
|
Dividends paid
|
(76 | ) | (69 | ) | ||||
|
Other
|
4 | (11 | ) | |||||
|
|
||||||||
|
Cash used in financing activities
|
(59 | ) | (681 | ) | ||||
|
|
||||||||
|
|
||||||||
|
Effect of exchange rate changes on cash
|
25 | 13 | ||||||
|
|
||||||||
|
|
||||||||
|
Net decrease in cash and cash equivalents
|
$ | (75 | ) | $ | (827 | ) | ||
|
|
||||||||
Our cash flows from operating activities increased $654 million in the first half of 2011 primarily
due to lower pension contributions and increased earnings in 2011. We made contributions of $158 million to our U.S. domestic pension plans (“U.S. Retirement Plans”) during
the first half of 2011 and contributions of $613 million to our tax-qualified U.S. Retirement
Plans during the first half of 2010. Capital expenditures
during the first half of 2011 were higher primarily due to increased spending at FedEx Express for
aircraft, as described in the “Capital Resources” discussion below. During the first six months of
2010, we repaid our $500 million 5.50% notes that matured on August 15, 2009.
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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 segments for the
three- and six-month periods ended November 30 (in millions):
| Percent Change | ||||||||||||||||||||||||
| 2010/2009 | ||||||||||||||||||||||||
| Three Months Ended | Six Months Ended | Three Months | Six Months | |||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | Ended | Ended | |||||||||||||||||||
|
Aircraft and related equipment
|
$ | 660 | $ | 303 | $ | 1,407 | $ | 859 | 118 | 64 | ||||||||||||||
|
Facilities and sort equipment
|
133 | 167 | 203 | 353 | (20 | ) | (42 | ) | ||||||||||||||||
|
Information and technology investments
|
124 | 59 | 196 | 115 | 110 | 70 | ||||||||||||||||||
|
Vehicles
|
92 | 106 | 195 | 162 | (13 | ) | 20 | |||||||||||||||||
|
Other equipment
|
38 | 33 | 58 | 60 | 15 | (3 | ) | |||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total capital expenditures
|
$ | 1,047 | $ | 668 | $ | 2,059 | $ | 1,549 | 57 | 33 | ||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
FedEx Express segment
|
760 | 377 | 1,604 | 1,019 | 102 | 57 | ||||||||||||||||||
|
FedEx Ground segment
|
119 | 105 | 191 | 216 | 13 | (12 | ) | |||||||||||||||||
|
FedEx Freight segment
|
59 | 106 | 91 | 172 | (44 | ) | (47 | ) | ||||||||||||||||
|
FedEx Services segment
|
108 | 80 | 172 | 142 | 35 | 21 | ||||||||||||||||||
|
Other and eliminations
|
1 | — | 1 | — | — | — | ||||||||||||||||||
|
|
||||||||||||||||||||||||
|
Total capital expenditures
|
$ | 1,047 | $ | 668 | $ | 2,059 | $ | 1,549 | 57 | 33 | ||||||||||||||
|
|
||||||||||||||||||||||||
Capital expenditures during the first half of 2011 were higher than the prior-year period primarily
due to increased spending at FedEx Express for aircraft and related equipment and at FedEx Services
for information technology investments. Aircraft and related equipment purchases at FedEx
Express during the first half of 2011 included the delivery of five 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.
We have a
shelf registration statement filed with the Securities and Exchange
Commission (“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. As of November 30, 2010, no commercial paper was outstanding and the entire $1 billion
under the revolving credit facility was available for future borrowings. 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.
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The revolving credit 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 November 30, 2010. We are in compliance with this covenant 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.
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 $1.4 billion in aircraft and aircraft-related
equipment in the first half of 2011 and expect to invest
approximately $625 million 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. 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. Although we expect
higher capital expenditures in 2011, we anticipate that our cash flow from operations will be
sufficient to fund these expenditures.
As noted above, we made tax-deductible contributions of $158 million to our U.S. Retirement Plans
during the first half of 2011. Our U.S. Retirement Plans have ample funds to meet expected
benefits payments. For 2011, we have $322 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, a commercial paper
rating of A-2 and a ratings outlook of “stable.” Moody’s Investors Service has reaffirmed our
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.
CONTRACTUAL CASH OBLIGATIONS
The following table sets forth a summary of our contractual cash obligations as of November 30,
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 U.S.
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 November 30, 2010.
We have certain contingent liabilities that are not accrued in our balance sheet in accordance with
accounting principles generally accepted in the U.S. 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.
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| Payments Due by Fiscal Year (Undiscounted) | ||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| 2011 (1) | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | ||||||||||||||||||||||
|
Operating activities:
|
||||||||||||||||||||||||||||
|
Operating leases
|
$ | 1,052 | $ | 1,703 | $ | 1,541 | $ | 1,360 | $ | 1,262 | $ | 7,295 | $ | 14,213 | ||||||||||||||
|
Non-capital purchase obligations and other
|
101 | 183 | 83 | 20 | 12 | 143 | 542 | |||||||||||||||||||||
|
Interest on long-term debt
|
72 | 126 | 98 | 97 | 78 | 1,737 | 2,208 | |||||||||||||||||||||
|
Quarterly contributions to our U.S. Retirement
Plans
|
322 | — | — | — | — | — | 322 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Investing activities:
|
||||||||||||||||||||||||||||
|
Aircraft and aircraft-related capital commitments
|
342 | 990 | 724 | 480 | 493 | 1,431 | 4,460 | |||||||||||||||||||||
|
Other capital purchase obligations
|
37 | — | — | — | — | — | 37 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Financing activities:
|
||||||||||||||||||||||||||||
|
Debt
|
250 | — | 300 | 250 | — | 989 | 1,789 | |||||||||||||||||||||
|
Capital lease obligations
|
4 | 8 | 119 | 2 | 2 | 14 | 149 | |||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||
|
Total
|
$ | 2,180 | $ | 3,010 | $ | 2,865 | $ | 2,209 | $ | 1,847 | $ | 11,609 | $ | 23,720 | ||||||||||||||
|
|
||||||||||||||||||||||||||||
| (1) | Cash obligations for the remainder of 2011. |
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 November 30, 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 ($79 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.
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.
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Table of Contents
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 $254 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 U.S. 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 by 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 November 30, 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 U.S. 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; |
46
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| • | 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; |
47
Table of Contents
| • | widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
| • | 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.
48
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of November 30, 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 half 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 November 30, 2010 (the
end of the period covered by this Quarterly Report on Form 10-Q).
During our fiscal quarter ended November 30, 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.
49
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
Increased
pilot safety requirements could impose substantial costs on FedEx
Express.
The Federal Aviation Administration, in
September 2010, proposed rules that would significantly reduce the maximum number of hours on duty
and increase the minimum amount of rest time for our pilots, and thus require us to hire additional
pilots and modify certain of our aircraft. It is reasonably possible that these rules, if enacted
as currently drafted, or other future flight safety requirements could impose material costs on
us.
Otherwise, 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.
50
Table of Contents
Item 6. Exhibits
| Exhibit | |||
| Number | Description of Exhibit | ||
|
|
|||
|
10.1
|
Compensation Arrangements with Outside Directors. | ||
|
|
|||
|
10.2
|
Supplemental Agreement No. 12 (and related side letter) dated as of September 3, 2010, Supplemental Agreement No. 14 (and related side letter) dated as of October 25, 2010, and Supplemental Agreement No. 15 (and related side letter) dated as of October 29, 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. | ||
|
|
|||
|
10.3
|
Amendment dated November 22, 2010 to 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. | ||
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
FEDEX CORPORATION
|
||||
| Date: December 17, 2010 | /s/ JOHN L. MERINO | |||
| JOHN L. MERINO | ||||
| CORPORATE VICE PRESIDENT AND PRINCIPAL ACCOUNTING OFFICER | ||||
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Table of Contents
EXHIBIT INDEX
| Exhibit | |||
| Number | Description of Exhibit | ||
|
|
|||
|
10.1
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Compensation Arrangements with Outside Directors. | ||
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10.2
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Supplemental Agreement No. 12 (and related side letter) dated as of September 3, 2010, Supplemental Agreement No. 14 (and related side letter) dated as of October 25, 2010, and Supplemental Agreement No. 15 (and related side letter) dated as of October 29, 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. | ||
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10.3
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Amendment dated November 22, 2010 to 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. | ||
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12.1
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Computation of Ratio of Earnings to Fixed Charges. | ||
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15.1
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Letter re: Unaudited Interim Financial Statements. | ||
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31.1
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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. | ||
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31.2
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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. | ||
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32.1
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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. | ||
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32.2
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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. | ||
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101.1
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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