-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tk+Xy4o45TNN7Mbxn0qYbry19QLgb81QKqvfl7sfif12jHztoep1UOdJ86FC7SPs W5HYXIblFFuYuw/HcfrK7g== 0001047469-99-032609.txt : 19990817 0001047469-99-032609.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032609 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FDX CORP CENTRAL INDEX KEY: 0001048911 STANDARD INDUSTRIAL CLASSIFICATION: AIR COURIER SERVICES [4513] IRS NUMBER: 621721435 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-39483 FILM NUMBER: 99693916 BUSINESS ADDRESS: STREET 1: 942 SOUTH SHADY GROVE ROAD CITY: MEMPHIS STATE: TN ZIP: 38120- BUSINESS PHONE: 9013693600 MAIL ADDRESS: STREET 1: 6075 POPLAR AVENUE CITY: MEMPHIS STATE: TN ZIP: 38119 10-K 1 FORM 10-K - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MAY 31, 1999. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________ TO _________________. COMMISSION FILE NUMBER 333-39483 FDX CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 62-1721435 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 942 SOUTH SHADY GROVE ROAD, MEMPHIS, TENNESSEE 38120 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 369-3600 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $.10 per share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / As of August 2, 1999, 298,256,834 shares of the Registrant's Common Stock were outstanding and the aggregate market value of the voting stock held by non-affiliates of the Registrant (based on the closing sale price of such stock on the New York Stock Exchange) was approximately $12,396,388,225. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Stockholders for the fiscal year ended May 31, 1999 are incorporated by reference into Parts I, II and IV. Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held September 27, 1999 are incorporated by reference into Part III. - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ TABLE OF CONTENTS
PAGE ---- PART I ITEM 1. Business....................................................... 1 ITEM 2. Properties..................................................... 17 ITEM 3. Legal Proceedings.............................................. 21 ITEM 4. Submission of Matters to a Vote of Security Holders............ 22 Executive Officers of the Registrant........................... 23 PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 25 ITEM 6. Selected Financial Data........................................ 25 ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition........................... 25 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk .... 25 ITEM 8. Financial Statements and Supplementary Data.................... 26 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 26 PART III ITEM 10. Directors and Executive Officers of the Registrant............. 26 ITEM 11. Executive Compensation......................................... 26 ITEM 12. Security Ownership of Certain Beneficial Owners and Management............................................... 26 ITEM 13. Certain Relationships and Related Transactions................. 26 PART IV ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................................... 27 FINANCIAL STATEMENT SCHEDULE INDEX Report of Independent Public Accountants on Financial Statement Schedule S-1 SCHEDULE II Valuation and Qualifying Accounts........................... S-2 EXHIBIT INDEX............................................................ E-1
PART I ITEM 1. BUSINESS FDX CORPORATION INTRODUCTION FDX Corporation ("FDX" or the "Company") was incorporated in Delaware on October 2, 1997. The Company is a $17 billion global transportation and logistics enterprise that offers customers a one-stop source for global shipping, logistics and supply chain solutions. Services offered by FDX companies include worldwide express delivery, ground small-parcel delivery, less-than-truckload freight delivery and global logistics, supply chain management and electronic commerce solutions. These services are offered through a portfolio of operating companies: Federal Express Corporation, the Company's largest subsidiary ("FedEx"), RPS, Inc. ("RPS"), Viking Freight, Inc. ("Viking"), Roberts Express, Inc. ("Roberts Express") and Caliber Logistics, Inc. ("Caliber Logistics"), a wholly-owned subsidiary of FDX Global Logistics, Inc. ("FDX Global Logistics"). Each FDX company competes in a separate, well-defined segment of the total transportation and logistics market. FedEx is the world leader in global express distribution, offering time-certain delivery within 24-48 hours among markets that comprise more than 90 percent of the world's gross domestic product. RPS is North America's second largest provider of business-to-business guaranteed ground package delivery. Viking is a less-than-truckload freight carrier operating principally in the western United States. Roberts Express is the world's leading surface-expedited carrier for time-critical shipments requiring special handling. FDX Global Logistics offers complete supply chain solutions by combining worldwide transportation, information and physical logistics services. For financial information concerning the Company's business segments, refer to Note 11 of Notes to Consolidated Financial Statements contained in the Company's Annual Report to Stockholders for the fiscal year ended May 31, 1999, which Note is incorporated herein by reference. PURPOSE OF FDX The purpose of FDX is to provide strategic direction to, and coordination of, the FDX portfolio of companies. FDX believes that certain sales and marketing activities, financial planning and reporting, legal and regulatory compliance, communications and information systems development are functions that are best coordinated across subsidiary lines. The Company intends to use advanced information systems to connect the FDX companies. These aligned information systems are being designed to make it easy and convenient for customers to use the full range of FDX services. FDX believes that seamless information integration is critical in order to obtain business synergies from multiple operating units. For example, in the Company's fiscal year ended May 31, 1999, the Company combined FedEx and RPS domestic shipping functionality on the FDX PowerShip-Registered Trademark- and RPS Multi-Ship-Registered Trademark- proprietary computer networks. This permits customers to use the dedicated computer installed in their offices and, with a few keystrokes, switch between FedEx and RPS domestic shipping services. The Company manages the business as a portfolio. As a result, decisions on capital investment, expansion of delivery and information technology networks, and service additions or enhancements are based on achieving the highest overall return on capital. For each one of the FDX companies, the Company's management focuses on making appropriate investments in the technology and transportation assets necessary to optimize FDX's earnings performance and cash flow. FDX STRATEGY FDX's strategy is to have focused operating companies that excel in each segment of the transportation and logistics marketplace, from price-sensitive to service-sensitive, and to create synergies across companies through coordinated sales and marketing programs enhanced by state-of-the-art information technology. FDX believes that operating independent delivery networks, each focused on its own respective markets, results in optimal service quality, reliability and profitability from each of the Company's businesses. All of the FDX subsidiaries are free to focus exclusively on the market segments in which they have the most expertise. The Company believes that its strategy is proving to be successful. In the Company's fiscal year ended May 31, 1999, the Company's two largest operating companies--FedEx and RPS--each set new records for service levels and financial results. Service levels improved due to the fact that each company concentrated on providing its customers with the best service for its particular market segment. Profitability improved, in part, because of the Company's ability to steer traffic to the operating company which can best provide the required service on the most cost-efficient basis. The Company has selected its strategy in order to capitalize on four trends shaping the emerging "Network Economy": GLOBAL SOURCING AND SELLING As the world's economy becomes more fully integrated, and as barriers and borders to trade continue to decrease, companies are sourcing and selling globally. They obtain components from Southeast Asia, assemble them in Latin America and sell them in the United States. This, in turn, has opened multiple legs of transportation on both the in-bound "sourcing" side as well as the out-bound "selling" side. With customers in 210 countries, FDX is a major facilitator in this supply chain because of its global reach, express services and information capabilities. RAPID GROWTH OF HIGH-TECH AND HIGH-VALUE-ADDED BUSINESSES FDX believes that the high-tech and high-value-added goods sector will continue to experience strong growth as a percentage of total economic activity. Information technology alone now contributes more than one-third of real economic growth in the United States. In 1997, the high-tech electronics industry was both the largest U.S. exporter and the largest U.S. importer. U.S. exports of high-tech goods has risen 96% since 1990. The high-value-added sector, however, is broader, including pharmaceuticals, automotive, electronics, aviation and other goods with high value per pound. ACCELERATION OF THE SUPPLY CHAIN The third major trend affecting the "Network Economy" is the increase of fast-cycle logistics. Companies of varying sizes, particularly in industries experiencing rapid obsolescence, are increasing productivity, efficiency and profitability through sharply increased supply chain velocity. A supply 2 chain is the series of transportation and information exchanges required to convert raw materials into finished, delivered goods. Managing inventory at rest is unprofitable. Warehouses, for example, are expensive ways to ensure the availability of goods. FDX believes in substituting real-time information to manage inventory in motion, thereby enabling customers to reduce overhead and obsolescence while speeding time-to-market. To take advantage of the move toward faster, more efficient supply chains, in October 1998, the Company created FDX Global Logistics. The Company believes that the future of logistics will not be in brick-and-mortar warehouses, but in providing information-intensive services that increase the value, visibility and velocity of the goods in customers' supply chains. RAPID GROWTH OF BUSINESS-TO-BUSINESS E-COMMERCE While there has been significant press recently about the expected growth of consumer purchases over the Internet, the business-to-business e-commerce marketplace is substantially larger than the business-to-consumer e-commerce marketplace. Business-to-business e-commerce is estimated to be over $100 billion in sales in 1999 and to exceed the trillion sales mark by 2003. Computers and electronics--already two of the Company's largest customer segments--account for almost half of this category, and supply chains are increasingly moving online. While FDX expects business-to-business e-commerce to remain the largest e-commerce segment, the Company is also leveraging the strength of the FDX portfolio in the business-to-consumer market. The Company plans to continue handling the "time-sensitive" side of residential deliveries, particularly for higher-value goods, through its FedEx subsidiary. In addition, RPS is testing a new "service-sensitive" residential delivery service to expand the Company's mix of transportation and logistics solutions and to open opportunities for additional Internet retail business. Depending on the results of the Pittsburgh, Pennsylvania metropolitan-area test program, FDX believes it can roll out a business-to-consumer RPS delivery service by Spring 2000. See "RPS, Inc.--Recent Developments." While the "Network Economy" is global, high-tech, fast-cycle and networked through e-commerce, and FDX management believes that the Company's global portfolio of services, technology and information is well configured to the dynamics of this new economy, the Company's actual results may vary depending upon such important factors as the impact of competitive pricing changes, customer responses to yield management initiatives, changing customer demand patterns, the timing and extent of network refinement, actions by the Company's competitors, including capacity fluctuations, regulatory conditions for aviation rights, and changing U.S. domestic and international economic conditions. 3 The following describes in more detail the business of each of the five FDX operating companies: FEDERAL EXPRESS CORPORATION INTRODUCTION FedEx began operations in 1973. On January 27, 1998, FedEx became a wholly-owned subsidiary of the Company. FedEx invented express distribution in 1973 and remains the industry leader, providing rapid, reliable, time-definite delivery of documents, packages and freight to 210 countries. FedEx connects areas of the world that generate 90 percent of the world's gross domestic product through door-to-door, customs-cleared service, with a money-back guarantee. FedEx's extensive air route authorities and transportation infrastructure, combined with its use of leading-edge information technologies, make FedEx the world's largest express-distribution company, providing fast, reliable service for over three million shipments each business day. FedEx employs more than 141,000 employees and has more than 44,000 drop-off locations, 637 aircraft and 46,000 vehicles in its integrated global network. FedEx is ISO 9001 certified for its global operations. ISO 9001 is currently the most rigorous international standard for Quality Management and Assurance. FedEx is the only express transportation company to receive worldwide certification of its systems. The ISO 9000 quality standards were developed by the International Organization for Standardization in Geneva, Switzerland to promote and facilitate international trade. More than 90 countries, including European Union members, the United States and Japan, recognize ISO 9000. RECENT DEVELOPMENTS NETSCAPE PORTAL AGREEMENT In April 1999, FDX and Netscape-Registered Trademark- Communications Corporation, a subsidiary of America Online, Inc., established a multi-year strategic agreement to offer businesses and consumers a convenient one-stop portfolio of delivery services on Netscape's fast-growing Internet portal, Netscape Netcenter-TM-. FedEx announced that it will license Netscape's customized Internet portal service, Custom Netcenter-TM-, to create a FedEx Internet package shipping portal. The alliance benefits businesses and consumers by simplifying e-commerce transactions with streamlined shipping for online purchases, personalized package status tracking and the future integration of these features with the Netscape Communicator-TM- Internet browser. The companies offer these features through a new Netcenter service called the Delivery Center and through a FedEx portal customized to user requirements. The agreement showcases the strength of FedEx's shipping services and related information to the 13 million Netcenter users. Among the services that are expected to be available in 1999-2000: - FEDEX SHIPPING SERVICES FOR ALL NETCENTER E-COMMERCE TRANSACTIONS-- FedEx will be the pre-selected carrier on Netscape-Registered Trademark- Store for purchases made on the Netcenter-Registered Trademark- General Store and Software Depot - FEDEX CUSTOM NETCENTER--this shipping-focused, FedEx Internet portal will be built using Netscape's Custom Netcenter-TM- service and will combine Netcenter content with FedEx services 4 - DELIVERY CENTER-TM- -- a standalone program accessible from the Netcenter portal where customers can track packages, ship FedEx packages online with FedEx interNetShip-Registered Trademark-, get shipping rates, locate package drop off points and access the latest information on FedEx and RPS services - MY NETSCAPE DELIVERY CHANNEL-TM- -- to enable customers that customize their personal start page on the web to include FedEx and RPS services they use often such as tracking, FedEx interNetShip, rate finder and drop-off locator - NETSCAPE ADDRESS BOOK-TM- INTEGRATION -- this new service will be available as part of the Netscape Contact address book and will allow consumers to easily print shipping labels from their address book contact lists The first Netscape services scheduled to be available are expected to be the Delivery Center and the My Netscape Delivery Channel. Netscape, Netscape Navigator and the Netscape "N" and Ship's Wheel logos are registered trademarks of Netscape Communications Corporation in the United States and in other countries. Netscape Netcenter, Netscape Custom Netcenter, Netscape Communicator, Netscape Delivery Center, Netcenter General Store, Netcenter Software Depot, My Netscape Delivery Channel and Netscape Address Book are also trademarks of Netscape Communications Corporation, which may be registered in other countries. FEDEX U.S. EXPRESS FREIGHT SERVICES In March 1999, FedEx expanded its express freight services offering to handle the needs of the time-definite freight market, which is growing at almost twice the rate of the non-time-definite market. FedEx offers customers the option of one, two or three business day service backed by two money-back guarantees. Shipments must be 151 lbs. - 2,200 lbs, and be forkliftable, stackable, banded and shrinkwrapped. FedEx 1Day-SM- Freight offers noon delivery, next-business-day in most areas of the continental United States, including Alaska. FedEx 2Day Freight-Registered Trademark- offers 4:30 p.m. delivery in 2 business days in all 50 states. No advance booking is required. FedEx 3Day-SM- Freight offers 4:30 p.m. delivery within 3 business days in every state except Alaska and Hawaii. No advance booking is required. EXPANDED CHINESE ROUTE AUTHORITY In June 1999, the U.S. Department of Transportation ("DOT") announced a new protocol with the Chinese government permitting FedEx to expand its existing service to China. FedEx is the only U.S. all-cargo airline with route authority to serve China. DOT announced that FedEx would receive four new weekly flights immediately and two additional flights beginning April 2000. The Company believes that these rights will be increasingly valuable as the Asian economic recovery progresses. 5 ENHANCED WEB-BASED SOLUTIONS Throughout 1999, FedEx continued to enhance its Internet-based solutions for customers. In February 1999, the company upgraded its online tracking application so that FedEx customers may query and receive package status information for up to 25 shipments simultaneously and forward the detailed tracking results to up to three e-mail addresses. Also, a simplified feature now enables users to enter only the tracking number instead of the ship date and destination data previously required. Users in Japan, France, Italy, Germany, the Netherlands and Portuguese and Spanish-speaking countries in Latin America can obtain package status information in their native languages. FedEx maintains electronic connections with approximately two million customers via FedEx Powership-Registered Trademark-, FedEx Ship-Registered Trademark- and FedEx interNetShip-Registered Trademark-. Approximately 70% of the company's shipments are initiated electronically. FedEx's goal is to move this toward 100%. FEDEX SERVICES Detailed information about all of FedEx's services can be found on FedEx's Internet web site at WWW.FEDEX.COM. FedEx offers three U.S. overnight delivery services: FedEx First Overnight-Registered Trademark-, FedEx Priority Overnight-Registered Trademark- and FedEx Standard Overnight-Registered Trademark-. Overnight document and package service extends to virtually the entire United States population. FedEx SameDay-Registered Trademark- service is for urgent shipments up to 70 pounds to virtually any U.S. destination. Packages and documents are either picked up from shippers by FedEx couriers or are dropped off by shippers at FedEx facilities, FedEx World Service Centers-Registered Trademark-, FedEx-Registered Trademark- Drop Boxes, FedEx ShipSites-Registered Trademark- or FedEx Authorized ShipCenters-Registered Trademark- strategically located throughout the country. Two U.S. deferred services are available for less urgent shipments: FedEx 2Day-Registered Trademark- and FedEx Express Saver-Registered Trademark-. FedEx 1Day-SM- Freight, FedEx 2Day Freight-Registered Trademark- and FedEx 3Day-SM- Freight are described above in "FedEx U.S. Express Freight Services". U.S. overnight and second-day services are primarily used by customers for shipment of time-sensitive documents and goods, high-value machines and machine parts, computer parts, software and consumer items from manufacturers, distributors and retailers and to retailers, manufacturers and consumers. FedEx employees handle virtually every shipment from origin to destination. In addition to the services discussed above, FedEx offers various international package and document delivery services and international freight services, including: FedEx-Registered Trademark- International Next Flight, FedEx International First-Registered Trademark-, FedEx International Priority-Registered Trademark- ("IP"), FedEx International Economy-Registered Trademark-, FedEx International Priority DirectDistribution-Registered Trademark-, FedEx International Priority Plus-Registered Trademark-, FedEx International MailService-Registered Trademark-, FedEx International Priority-Registered Trademark- Freight, FedEx International Economy-Registered Trademark- Freight, FedEx International Express Freight-Registered Trademark-, FedEx International Airport-to-Airport-SM-, FedEx Expressclear-SM- Electronic Customs Clearance, and FedEx International Broker Select-Registered Trademark-. FedEx offers next business day 10:30 a.m. express cargo service from Asia to the United States. The company has a direct flight from Osaka, Japan to Memphis, Tennessee. The nonstop daily flight cuts transit times across the Pacific in half for FedEx customers -- from 48 to 24 hours -- who ship from Asia to North America. The FedEx IP service is backed by FedEx's money-back guarantee. The flight schedule also enables the company to offer its Asian customers later pickup times for connections through the company's AsiaOne-Registered Trademark- hub in Subic Bay, The Philippines, to 13 major Asian markets. 6 CHARTER SERVICES AND CRAF PARTICIPATION FedEx offers commercial and military charter services which supplement the utilization of aircraft capacity when not needed in FedEx's scheduled operations. In addition to providing these charter services, FedEx participates in the Civil Reserve Air Fleet ("CRAF") program. Under this program, the Department of Defense may requisition for military use certain of FedEx's wide-bodied aircraft in the event of a declared need, including a national emergency. FedEx is compensated for the operation of any aircraft requisitioned under the CRAF program at standard contract rates established each year in the normal course of awarding contracts. Through its participation in the CRAF program, FedEx is entitled to bid on peacetime military cargo charter business. FedEx, together with a consortium of other carriers, currently contracts with the United States Government for charter flights. FedEx offers commercial and military charter services which supplement the utilization of aircraft capacity when not needed in FedEx's scheduled operations. During fiscal 1999, revenues from charter operations accounted for approximately 0.7% of FedEx's total revenues and approximately 0.7% and 0.6% of total revenues during fiscal 1998 and 1997, respectively. ELECTRONIC COMMERCE AND CUSTOMER SERVICES Electronic Commerce and Customer Services ("ECCS"), formerly Logistics and Electronic Commerce, combines the FedEx customer service, customer automation and retail automation organizations with the FedEx customer technology organization. ECCS focuses on markets in which delivering high-speed, time-definite, information-intensive solutions provide significant customer value. In 1999, ECCS further expanded its information systems focus to solutions that enable customers to do business electronically -- ranging from order-entry to after-sales support. The combination of these electronic commerce capabilities and FedEx's global transportation and information network allow FedEx's customers to create or redesign their supply chains to reduce cost and improve service to their customers. ECCS offers FedEx customers several services as well as customer automation. FedEx interNetShip-SM- provides shipment processing capability within the United States on the World Wide Web. From FedEx's Web site (WWW.FEDEX.COM), shippers can retrieve precise details on the status of their shipments any time of day from anywhere in the world. FedEx also offers FedEx Ship-Registered Trademark- software, free of charge, that can be used on a personal computer. FedEx Ship allows customers to generate plain-paper airbills on a laser printer, track shipment status, order FedEx pickups and maintain a database of shipping addresses and activity using modems and their own personal computers. FedEx PowerShip-Registered Trademark- 2, is a stand-alone automated shipping system that provides package tracking, produces shipping labels, calculates shipping charges, invoices the customer daily and produces customized reports. For customers that ship 100 or more packages a day, FedEx offers FedEx PowerShip Plus-Registered Trademark- software, that performs the same functions as FedEx PowerShip 2 but can be integrated with the customer's own computer systems for customer service, accounting, inventory control and financial analysis purposes. FedEx PowerShip PassPort-Registered Trademark- is an automated shipping system that is automatically updated with FedEx's system information, such as routing codes and rates. FedEx PowerShip 3-Registered Trademark- enables customers who ship as few as three packages per day to enjoy the advantage of automated shipping. FedEx offers supply chain management tools such as FedEx Express Bridge-TM- for SAP R/3 and FedEx Net Return (which improves product returns from customers by putting the process online). FedEx Direct Link-TM- allows customers to receive and manage all of their FedEx invoicing data electronically. 7 Additional options include FedEx Ship API-TM- and FedEx Track API.-TM- FedEx Ship API streamlines a customer's online shipping process by integrating FedEx's shipping templates and tools into the customer's Web site or corporate information system. FedEx Ship API connects the customer directly to FedEx when placing shipping orders and scheduling pickup requests. FedEx Track API enables the customer's employees to track FedEx packages without ever leaving the customer's Web site or corporate information system. PRICING FedEx periodically publishes list prices in its Service Guides for the majority of its services. In general, during fiscal 1999, U.S. shipping rates were based on the service selected, destination zone, weight, size, any ancillary service charge and whether or not the shipment was picked up by a FedEx courier or dropped off by the customer at a FedEx location. International rates are based on the type of service provided and vary with size, weight and destination. FedEx offers its customers volume discounts generally based on actual or potential average daily revenue produced. Discounts are determined by reference to several local and national revenue bands developed by FedEx. Effective March 15, 1999, FedEx increased list rates an average of 2.8% for shipments within the U.S. Rates for most shipments from the U.S. to most of the 211 countries served by the company's global network remained the same. SERVICE REVENUES The following table shows the amount of revenues generated for each class of service offered for the fiscal years ended May 31 (amounts in thousands):
1999 1998 1997 ---- ---- ---- Package: U.S. overnight $ 7,185,462 $ 6,810,211 $ 6,243,790 U.S. deferred 2,271,151 2,179,188 1,621,647 International Priority 3,018,828 2,731,140 2,351,092 Freight: U.S. 439,855 337,098 207,729 International 530,759 597,861 604,472 Other* 533,222 599,343 491,020 ----------- ----------- ----------- Total $13,979,277 $13,254,841 $11,519,750 ----------- ----------- ----------- ----------- ----------- -----------
- ---------- * Includes revenues from sales of aircraft engine noise reduction kits, revenues generated by the specialized services summarized above under "Electronic Commerce and Customer Services," Canadian domestic revenue and charter services. 8 SEASONALITY OF BUSINESS FedEx's express package business and freight business are both seasonal in nature. Historically, the U.S. package business experiences an increase in late November and December. International business, particularly in the Asia to U.S. market, peaks in October and November due to U.S. holiday sales. The latter part of FedEx's third fiscal quarter and late summer, being post winter-holiday and summer vacation seasons, have historically exhibited lower volumes relative to other periods. OPERATIONS FedEx's global transportation and distribution services are provided through an extensive worldwide network consisting of numerous aviation and ground transportation operating rights and authorities, 637 aircraft, approximately 46,000 vehicles, sorting facilities, FedEx World Service Centers, FedEx Drop Boxes, FedEx ShipSites, FedEx Authorized ShipCenters and sophisticated package tracking, billing and communications systems. FedEx's primary sorting facility, the SuperHub located in Memphis, serves as the center of FedEx's multiple hub-and-spoke system. A second national hub is located in Indianapolis. In addition to these national hubs, FedEx operates regional hubs in Newark, Oakland and Fort Worth and major metropolitan sorting facilities in Los Angeles and Chicago. Facilities in Anchorage, Alaska and Subic Bay, The Philippines, serve as sorting facilities for express package and freight traffic moving to and from Asia, Europe and North America. Major sorting and freight handling facilities are located at Narita Airport in Tokyo, Charles de Gaulle Airport in Paris, Stansted Airport outside London and Pearson Airport in Toronto. Facilities in Subic Bay and Charles de Gaulle Airport are also designed to serve as regional hubs for their respective market areas. Throughout its worldwide network, FedEx operates city stations and employs a staff of customer service agents, cargo handlers and couriers who pick up and deliver shipments in the station's service area. In some cities, FedEx operates FedEx World Service Centers which are staffed, store-front facilities located in high-traffic, high-density areas. Unmanned FedEx Drop Boxes provide customers the opportunity to drop off packages at locations in office buildings, shopping centers and corporate or industrial parks. FedEx has also formed alliances with certain retailers to extend this customer convenience network to drop-off sites in retail stores. In international regions where low package traffic makes FedEx's direct presence less economical, Global Service Participants ("GSP") have been selected to complete deliveries. FedEx has an advanced package tracking and billing system, FedEx COSMOS-Registered Trademark-, that utilizes hand-held electronic scanning equipment and computer terminals. This system provides proof of delivery information, an electronically reproduced airbill for the customer and information regarding the location of a package within FedEx's system. For international shipments, FedEx has developed FedEx Expressclear, a worldwide electronic customs clearance system, which speeds up customs clearance by allowing customs agents in destination countries to review information about shipments before they arrive. 9 FUEL SUPPLIES AND COSTS During fiscal 1999, FedEx purchased aviation fuel from various suppliers under contracts which vary in length from 12 to 36 months and which provide for specific amounts of fuel to be delivered. The fuel represented by these contracts is purchased at market prices which may fluctuate daily. Management believes that, barring a substantial disruption in supplies of crude oil, these agreements will ensure the availability of an adequate supply of fuel for FedEx's needs for the immediate future. However, a substantial reduction of oil supplies from oil producing regions or refining capacity, or other events causing a substantial reduction in the supply of aviation fuel, could have a significant adverse effect on FedEx. In past years, FedEx has entered into contracts which are designed to limit its exposure to fluctuations in jet fuel prices. Under these contracts, FedEx makes (or receives) payments based on the difference between a specified lower (or upper) limit and the market price of jet fuel, as determined by an index of spot market prices representing various geographic regions. The difference is recorded as an increase or decrease in fuel expense. FedEx hedges its exposure to jet fuel price market risk only on a conservative, limited basis. At May 31, 1998, all such contracts had expired. Under jet fuel contracts, FedEx made payments of $28,764,000 in 1998 and received $15,162,000 (net of payments) in 1997. FedEx may enter into fuel hedging contracts in 2000. The timing and magnitude of such contracts may vary due to availability and pricing. The following table sets forth FedEx's costs for aviation fuel and its percentage of total operating expense for the previous five fiscal years:
TOTAL COST PERCENTAGE OF TOTAL FISCAL YEAR (IN THOUSANDS) OPERATING EXPENSE ----------- -------------- ------------------- 1999 $467,598 3.6% 1998 570,959 4.6 1997 557,533 5.2 1996 461,401 4.8 1995 394,225 4.5
Approximately 15% of FedEx's requirement for vehicle fuel is purchased in bulk. The remainder of FedEx's requirement is satisfied by retail purchases with various discounts. The percentage of total operating expense for vehicle fuel purchases for each of the last five fiscal years has not exceeded 1.5%. COMPETITION The express package and freight markets are both highly competitive and sensitive to price and service. The ability to compete effectively depends upon price, frequency and capacity of scheduled service, extent of geographic coverage and reliability. Competitors in these markets include other express package concerns, principally United Parcel Service of America, Inc. ("UPS"), Airborne Express, DHL Worldwide Express, passenger airlines offering package express services, regional express delivery concerns, airfreight forwarders and the United States Postal Service. FedEx's principal competitors in the international market are UPS, foreign national air carriers, foreign postal authorities such as Deutsche Poste and TNT Post Group, United States passenger airlines and all-cargo airlines. 10 FedEx currently holds certificates of authority to serve more foreign countries than any other United States all-cargo air carrier and its extensive, scheduled international route system allows it to offer single-carrier service to many points not offered by its principal all-cargo competitors. This international route system, combined with an integrated air and ground network, enables FedEx to offer international customers more extensive single-carrier service to a greater number of U.S. domestic points than can be provided currently by competitors. However, many of FedEx's competitors in the international market are government owned, controlled, or subsidized carriers which may have greater resources, lower costs, less profit sensitivity and more favorable operating conditions than FedEx. REGULATION AIR Under the Federal Aviation Act of 1958, as amended, both DOT and the Federal Aviation Administration ("FAA") exercise regulatory authority over FedEx. The DOT's authority relates primarily to economic aspects of air transportation. The DOT's jurisdiction extends to aviation route authority and to other regulatory matters, including the transfer of route authority between carriers. FedEx holds various certificates issued by the DOT, authorizing FedEx to engage in U.S. and international air transportation of property and mail on a worldwide basis. FedEx's international authority permits it to carry cargo and mail from several points in its U.S. route system to numerous points throughout the world. The DOT regulates international routes and practices and is authorized to investigate and take action against discriminatory treatment of United States air carriers abroad. The right of a United States carrier to serve foreign points is subject to the DOT's approval and generally requires a bilateral agreement between the United States and the foreign government. The carrier must then be granted the permission of such foreign government to provide specific flights and services. The regulatory environment for global aviation rights may from time to time impair the ability of FedEx to operate its air network in the most efficient manner. The FAA's regulatory authority relates primarily to safety and operational aspects of air transportation, including aircraft standards and maintenance, personnel and ground facilities, which may from time to time affect the ability of FedEx to operate its aircraft in the most efficient manner. FedEx holds an operating certificate granted by the FAA pursuant to Part 121 of the Federal Aviation Regulations. This certificate is of unlimited duration and remains in effect so long as FedEx maintains its standards of safety and meets the operational requirements of the regulations. GROUND The ground transportation performed by FedEx is integral to its air transportation services. Prior to January 1996, FedEx conducted its interstate motor carrier operations pursuant to common and contract carrier authorities issued by the Interstate Commerce Commission ("ICC"). The ICC Termination Act of 1995 abolished the ICC and transferred responsibility for interstate motor carrier registration to the DOT. The enactment of the Federal Aviation Administration Authorization Act of 1994 abrogated the authority of states to regulate the rates, routes or services of intermodal all-cargo air carriers and most motor carriers. States may now only exercise jurisdiction over safety and insurance. FedEx is registered in those states that require registration. 11 COMMUNICATION Because of the extensive use of radio and other communication facilities in its aircraft and ground transportation operations, FedEx is subject to the Federal Communications Commission Act of 1934, as amended. Additionally, the Federal Communications Commission regulates and licenses FedEx's activities pertaining to satellite communications. ENVIRONMENTAL Pursuant to the Federal Aviation Act, the FAA, with the assistance of the Environmental Protection Agency, is authorized to establish standards governing aircraft noise. FedEx's present aircraft fleet is in compliance with current noise standards of the Federal Aviation Regulations. FedEx's aircraft are also subject to, and are in compliance with, the regulations governing engine emissions. In addition to federal regulation of aircraft noise, certain airport operators have local noise regulations which limit aircraft operations by type of aircraft and time of day. These regulations have had a restrictive effect on FedEx's aircraft operations in some of the localities where they apply but do not have a material effect on any of FedEx's significant markets. Congress' passage of the Airport Noise and Capacity Act of 1990 established a National Noise Policy which enabled FedEx to plan for noise reduction and better respond to local noise constraints. Certain regulations under the Clean Water Act, the Clean Air Act and the Resource Conservation and Recovery Act impact FedEx's operations. In addition to the matters discussed above, FedEx is most directly affected by regulations pertaining to underground storage tanks, hazardous waste handling, vehicle and equipment emissions and the discharge of effluents from properties and equipment owned or operated by FedEx. EMPLOYEES FedEx is headquartered in Memphis, Tennessee. Theodore L. Weise is the President and Chief Executive Officer of the company. At June 30, 1999, FedEx employed approximately 88,000 permanent full-time and 50,000 permanent part-time employees, of which approximately 21% are employed in Memphis. Employees of FedEx's international branches and subsidiaries in the aggregate represent approximately 12% of all employees. FedEx believes its relationship with its employees is excellent. On February 4, 1999, FedEx and the Fedex Pilots Association ("FPA") announced that the union's membership had ratified a five-year collective bargaining agreement to take effect on May 31, 1999, bringing the negotiating process to a successful conclusion. The agreement provides, in part, for a 17% pay increase over the term of the contract (3.4% average annual increase), enhanced retirement benefits, direct pilot input on scheduling issues, and limits on types of trips scheduled during certain times of the day. Attempts by other labor organizations to organize certain other groups of employees have been initiated. Although FedEx is responding to these organization attempts, it cannot predict the outcome of these labor activities or their effect, if any, on FedEx or its employees. 12 RPS, INC. INTRODUCTION By focusing on high-volume business-to-business customers, maintaining a low cost structure and efficiently using information technology, RPS has become the second-largest ground small-package carrier in the United States. RPS serves customers in the small-package market in North America, focusing primarily on the business-to-business delivery of packages weighing up to 150 pounds. RPS provides ground service to 100% of the United States population and overnight service to 74% of the United States population. Through its subsidiary, RPS, Ltd., service is provided to 100% of the Canadian population. Additionally, RPS provides service to Mexico through an alliance with Estefeda Mexicana, S.A. de C.V. RPS also offers service offshore to Puerto Rico, Alaska and Hawaii via a ground/air network operation in cooperation with other transportation providers. RPS provides other specialized transportation services to meet specific customer requirements in the small-package market. RPS conducts its operations primarily with 8,700 owner-operated vehicles and, in addition, owns over 10,000 trailers. Competition for high-volume, profitable business focuses largely on providing competitive pricing and dependable service. Beginning July 1998, RPS initiated a money-back guarantee on all business-to-business ground deliveries within the continental United States. RPS utilizes advanced automatic sortation technology to streamline the handling of approximately 1.4 million daily packages. RPS also utilizes software systems and Internet-based applications to offer its customers new ways to connect internal package information with external delivery information. In 1998, RPS added multiple-carrier shipment tracing and proof-of-delivery signature functionality to its Web site (WWW.SHIPRPS.COM). Like FedEx, RPS utilizes a hub-and-spoke sorting and distribution system. Its 27 hubs are equipped with the most sophisticated package-sortation technology in the industry, with average processing speeds of 15,000 to 20,000 packages per hour. Using overhead laser scanners, hub conveyors electronically guide packages to their appropriate destination chute, where they are loaded for transport to their destination terminals for local delivery. RPS is still the only ground carrier to operate a fully automated sortation system for greater efficiency and package integrity. RPS is headquartered in Pittsburgh, Pennsylvania. Daniel J. Sullivan is the President and Chief Executive Officer of the company. RPS has more than 31,000 employees and contractors in North America. RPS' primary competitors are UPS (non-express services) and the United States Postal Service. RECENT DEVELOPMENTS In July 1999, RPS began piloting a new package delivery service targeted to businesses that ship to residential addresses. Depending on the results of the pilot, the company believes it can roll out a business-to-residential service as early as spring 2000. RPS intends to leverage its existing pickup operation and automated hub and linehaul network while initiating a separate delivery network comprised of distinct terminals and a separate team of independent contractors. The test involves the delivery of packages to residences in the Pittsburgh, Pennsylvania metropolitan area. The company will release further details of its new service once the results of the prototype service are fully analyzed. 13 In January 1999, RPS announced its intention to boost its package-processing capacity by 50% through a three-year expansion program. Plans include the opening of three new state-of-the-art distribution hubs that will support key metropolitan markets in New York, Chicago and Los Angeles, as well as the relocation and expansion of more than 50 local terminals over the next three years. RPS plans to invest $500 million in this three year expansion. The Company recently opened a 195,000 square-foot distribution hub in Rialto, CA, and a similar 153,000 square-foot facility in Champaign, IL. These new facilities will, as do all RPS hubs, use computerized package-sortation systems to ensure maximum productivity and efficiency. RPS' third new hub will support the company's plans to expand service within the New York metropolitan area. Scheduled to open in the summer of 2000, the Woodbridge, NJ facility will be the largest in the RPS network. It will be 329,000 square feet in size and capable of processing 30,000 packages per hour - approximately double the processing capacity of the average RPS hub. By the end of 1999, the company also will expand existing hubs in Toledo, OH, Denver, CO and Sacramento, CA. Also planned for completion by mid-2000 are the relocations and expansions of more than 15 pick-up and delivery terminals, including facilities in Albany, NY, Long Island, NY, Baltimore, MD, Beltsville, MD (serving Washington, D.C.), Norfolk, VA, Pittsburgh, PA, Cincinnati, OH, Detroit, MI, Carol Stream, IL (serving the Chicago metro area), Dallas, TX and Burbank, CA. VIKING FREIGHT, INC. Viking specializes in one- and two-day less-than-truckload (LTL) service throughout the western United States. Service is also available to Alaska and Hawaii via alliances with ocean freight companies. Viking's management focuses on achieving high levels of on-time delivery, easy-to-use information technology and responsive customer service. With next- and second-business day regional freight service, plus direct ocean service to Alaska and Hawaii, Viking's 4,800 employees handle approximately 13,000 shipments per day, achieving an award-winning on-time delivery performance exceeding that of most other LTL carriers. Consistent with its EZTDBW-Registered Trademark- ("Easy To Do Business With") service philosophy, Viking has created two customer advisory boards -- one for corporate accounts, the other for smaller shippers -- to better anticipate and meet customers' needs. Viking has enhanced its customer service and today responds to most inquiries within seconds. Viking's Web sites (WWW.VIKINGFREIGHT.COM AND WWW.EZTDBW.COM) let customers conduct business electronically with convenience and confidence. In 1999, for the fourth time in the twelve year history of the award, NASSTRAC named Viking its regional LTL carrier of the year. In addition, readers of LOGISTICS MANAGEMENT AND DISTRIBUTION magazine voted to award Viking the "QUEST FOR QUALITY AWARD FOR 1998," the eighth year Viking has received this award. Viking is headquartered in San Jose, California. Douglas G. Duncan is the President and Chief Executive Officer of the company. Viking's primary regional competitors are ConWay Western Express, Inc., USF Bestway, Inc. and USF Reddaway Truck Line, Inc. Viking also competes with other regional and long-haul carriers. 14 ROBERTS EXPRESS, INC. Roberts Express is the world's largest surface-expedited carrier. Roberts Express offers one service: time-specific, non-stop, door-to-door delivery for critical shipments anytime, anywhere. Each shipper has exclusive vehicle usage, eliminating freight handling since operations are free from freight consolidation. A network of over 2,200 vehicles assures the customer of time-specific service anywhere within the United States and Canada, with pickup in less than ninety minutes within twenty-five miles of any of Roberts Express's 223 ExpressCenters. CUSTOMER LINK, Roberts Express's integrated two-way satellite communications system, enables the customer to immediately trace his shipment to determine its status and to-the-minute delivery time. Service is available 24 hours a day, 365 days a year, including weekends and holidays, at no extra cost. If at any time during transport Roberts Express is more than 15 minutes late, both the shipper and the consignee are notified. If Roberts Express is more than two hours late on delivery, the company will refund the customer 25% of the freight charges. If Roberts Express is more than four hours late on delivery, the company will refund the customer 50% of the freight charges. In many cases, Roberts Express offers (with guaranteed delivery times) a faster and less expensive alternative to heavyweight airfreight. More than 96% of shipments are delivered to the customer within fifteen minutes of Roberts Express's time-specific promise. Roberts' White Glove Services -Registered Trademark- division specializes in the transport of high value products, medical and electronic equipment, tradeshow exhibits, temperature-sensitive commodities and high-security shipments. Roberts CharterAir -Registered Trademark- division uses Roberts Express and White Glove vehicles and brokered aircraft on a non-scheduled, exclusive use point-to-point basis to provide a door-to-door guaranteed emergency "air-taxi" service. Express and Air Charter services are available through Roberts Europe. Command operations are located in Mastricht, The Netherlands. With continuous monitoring of shipments, two-way satellite communications and multilingual agents and drivers, Roberts Europe provides expedited services almost anywhere in Europe. In March 1999, the company introduced Roberts Express Point-to-Point service, a faster alternative to conventional airfreight service. Point-to-Point utilizes Roberts Express vehicles and scheduled air freighters to provide early next-day delivery of critical heavyweight airfreight anywhere in the continental U.S. The new service is also available to and from Canada and Europe. Point-to-point service is quicker than ground expedited transportation for distances greater than 1,500 miles and is less expensive than exclusive-use air charters. Roberts Express is headquartered in Akron, Ohio. R. Bruce Simpson is the President of the company. Roberts Express has approximately 600 employees and 1,700 owner-operators. Daily volume approximates 1,000 shipments. The company's primary competitors are ConWay NOW, Inc., CTX, Emery Expedite, Inc., Landstar Express America, Inc., TNT Expedite and Tri-State Expediting Service, Inc. FDX GLOBAL LOGISTICS, INC. FDX Global Logistics was incorporated in Delaware on November 2, 1998 and serves as the holding company for Caliber Logistics, the operating company. Caliber Logistics is a contract logistics provider to targeted industries with expertise across the entire supply chain, from inbound materials management through distribution to the final consumer. Services provided include global transportation management, dedicated transportation, warehouse operations and management, finished goods distribution, just-in-time logistics programs, customer order processing, returnable container management, freight bill payment and auditing and other management services outsourced by its customers. 15 An important element in Caliber Logistics' overall value to customers is improved information exchange. Caliber Logistics' transportation management programs use advanced electronic data interchanges to speed communications between customers and their suppliers. Faster communication translates into more cost-effective logistics and competitive advantages. Caliber Logistics manages over 100 logistics contracts, three million shipments per year and over six million square feet of warehouse space. FDX Global Logistics headquarters is located in Memphis, Tennessee. Caliber Logistics headquarters is located in Hudson, Ohio. Caliber Logistics European headquarters is located in Leiden, The Netherlands. Joseph C. McCarty is the President and Chief Executive Officer of FDX Global Logistics. Caliber Logistics, the operating company, has approximately 2,800 employees and 600 owner-operators. RECENT DEVELOPMENTS On August 6, 1999, FDX Global Logistics announced the signing of an agreement to acquire, for approximately $116 million in cash, substantially all the assets of Geologistics Air Services, Inc. ("GLAS"). The acquisition is subject to the approval of the U.S. Government and to the satisfaction of certain conditions by GLAS and the company. The acquisition is expected to close in the fall of 1999. FDX Global Logistics intends to operate GLAS through a newly-formed, wholly-owned subsidiary, Caribbean Transportation Services, Inc., a Delaware corporation ("CTS"). GLAS, a provider of airfreight forwarder services between the United States, Puerto Rico and the Dominican Republic, specializes in arranging the shipment of heavyweight and oversized cargo. GLAS provides airfreight forwarder services to the medical, pharmaceutical and technology sectors. GLAS is headquartered in Greensboro, North Carolina. Richard A. Faieta, President and Chief Executive Officer of GLAS, will serve as President and Chief Executive Officer of CTS. RPS, VIKING, ROBERTS EXPRESS - REGULATION Prior to January 1996, RPS, Viking and Roberts Express conducted their operations pursuant to common and contract carrier authorities issued by the ICC. The ICC Termination Act of 1995 abolished the ICC and transferred responsibility for interstate motor carrier registration to the DOT. The operations of RPS, Viking and Roberts Express in interstate commerce are currently regulated by the DOT and the Federal Highway Administration, which retain limited oversight authority over motor carriers. Federal legislation has been enacted that preempted regulation by the states of rates and service in intrastate freight transportation. Like other interstate motor carriers, RPS, Viking and Roberts Express are subject to certain DOT safety requirements governing interstate operations. In addition, vehicle weight and dimensions remain subject to both federal and state regulations. RPS, Viking and Roberts Express are subject to federal, state and local environmental laws and regulations relating to, among other things, contingency planning for spills of petroleum products and the disposal of waste oil. Additionally, RPS, Viking and Roberts Express are subject to numerous regulations dealing with underground fuel storage tanks and each company has environmental management programs to conform with these regulations. 16 RPS, VIKING, ROBERTS EXPRESS - SEASONALITY The transportation and logistics industry is affected directly by the state of the overall economy. Seasonal fluctuations affect tonnage, revenues and earnings. Normally, the fall of each year is the busiest shipping period for each of the three companies; the latter part of December, January, June and July of each year are the slowest periods. Shipment levels, operating costs and earnings can also be adversely affected by inclement weather. ITEM 2. PROPERTIES FDX CORPORATION The Company does not own any real property. The Company leases two facilities in the Memphis area for its corporate headquarters and administrative offices. FEDERAL EXPRESS CORPORATION FedEx's principal owned or leased properties include its aircraft, vehicles, national, regional and metropolitan sorting facilities, administration buildings, FedEx World Service Centers, FedEx Drop Boxes and data processing and telecommunications equipment. AIRCRAFT AND VEHICLES FedEx's aircraft fleet at June 30, 1999 consisted of the following:
MAXIMUM GROSS STRUCTURAL PAYLOAD DESCRIPTION NUMBER (POUNDS PER AIRCRAFT)* - ----------- ------ ---------------------- McDonnell Douglas MD11 29** 198,500 McDonnell Douglas DC10-30 22** 172,000 McDonnell Douglas DC10-10 59** 142,000 Airbus A300-600 32** 117,700 Airbus A310-200 39** 74,200 Boeing B727-200 95** 59,500 Boeing B727-100 68** 38,000 Fokker F27-500 24 14,000 Fokker F27-600 8 12,500 Cessna 208B 251 3,500 Cessna 208 10 3,000 --- Total 637
- ---------- * Maximum gross structural payload includes revenue payload and container weight. ** 29 MD11, 17 DC10-30, four DC10-10, 32 A300, 16 A310, 13 B727-200 and five B727-100 aircraft are subject to operating leases. 17 The A300s and A310s are two-engine, wide-bodied aircraft which have a longer range and more capacity than B727s. The MD11s are three-engine, wide-bodied aircraft which have a longer range and larger capacity than DC10s. The DC10s are three-engine, wide-bodied aircraft which have been specially modified to meet FedEx's cargo requirements. The B727s are three-engine aircraft configured for cargo service. FedEx's Fokker F27 and Cessna 208 turbo-prop aircraft are owned by FedEx and leased to unaffiliated operators to support FedEx operations in areas where demand does not justify use of a larger aircraft. An inventory of spare engines and parts is maintained for each aircraft type. In addition, FedEx "wet leases" approximately 21 smaller piston-engine and turbo-prop aircraft which feed packages to and from airports served by FedEx's larger jet aircraft. The wet lease agreements call for the owner-lessor to provide flight crews, insurance and maintenance, as well as fuel and other supplies required to operate the aircraft. FedEx's wet lease agreements are for terms not exceeding one year and are generally cancellable upon 30 days' notice. At June 30, 1999, FedEx operated worldwide approximately 46,000 ground transport vehicles, including pick-up and delivery vans, larger trucks called container transport vehicles and over-the-road tractors and trailers. AIRCRAFT PURCHASE COMMITMENTS At May 31, 1999, FedEx was committed under various contracts to purchase five Airbus A300s, 31 MD11s, six DC10s (in addition to those discussed in the following paragraph) and 75 Ayres ALM 200 aircraft to be delivered through 2007. FedEx has entered into agreements with two airlines to acquire 53 DC10 aircraft (39 of which have been received as of May 31, 1999), spare parts, aircraft engines and other equipment, and maintenance services in exchange for a combination of aircraft engine noise reduction kits and cash. Delivery of these aircraft began in 1997 and will continue through 2001. Additionally, these airlines may exercise put options through December 31, 2003, requiring FedEx to purchase up to 20 additional DC10s along with additional aircraft engines and equipment. In January 1999, put options were exercised by an airline requiring FedEx to purchase nine DC10s (in addition to the 53 discussed immediately above) for a total purchase price of $29,700,000. Delivery of the aircraft began in March 1999 and is expected to be completed by January 2000. 18 SORTING AND HANDLING FACILITIES At July 1, 1999, FedEx operated the following sorting and handling facilities:
SORTING LEASE SQUARE CAPACITY EXPIRATION LOCATION ACRES FEET (PER HOUR)* LESSOR YEAR -------- ----- ------ ----------- ------ ---------- NATIONAL Memphis, Tennessee 479 3,074,440 465,000 Memphis-Shelby County 2012 Airport Authority Indianapolis, Indiana 120 645,000 175,000 Indianapolis Airport 2016 Authority REGIONAL Fort Worth, Texas 168 641,000 74,000 Fort Worth Alliance 2014 Airport Authority Newark, New Jersey 56 503,800 142,000 Port Authority of New 2010 York and New Jersey Oakland, California 66 320,000 47,500 City of Oakland 2011 METROPOLITAN Los Angeles, California 25 305,000 53,000 City of Los Angeles 2009 Chicago, Illinois 55 419,000 47,000 City of Chicago 2018 Anchorage, Alaska+ 42 258,000 14,200 Alaska Department of 2013 Transportation and Public Facilities INTERNATIONAL Subic Bay, 18 300,000 16,000 Subic Bay Metropolitan 2002 The Philippines++ Authority
- ---------- * Documents and packages + Handles international express package and freight shipments to and from Asia, Europe and North America. ++ Handles intra-Asia express package and freight shipments. FedEx's facilities at the Memphis International Airport also consist of aircraft hangars, flight training and fuel facilities, administrative offices and warehouse space. FedEx leases these facilities from the Memphis-Shelby County Airport Authority under several leases. The leases cover land, the administrative and sorting buildings, other facilities, ramps and certain related equipment. FedEx has the option to purchase certain equipment (but not buildings or improvements to real estate) leased under such leases at the end of the lease term for a nominal sum. The leases obligate FedEx to maintain and insure the leased property and to pay all related taxes, assessments and other charges. The leases are subordinate to, and FedEx's rights thereunder could be affected by, any future lease or agreement between the Authority and the United States Government. 19 In addition to the facilities noted above, FedEx has major international sorting and freight handling facilities located at Narita Airport in Tokyo, Japan, Charles de Gaulle Airport in Paris, France, Stansted Airport outside London, England and Pearson Airport in Toronto, Canada. New, larger facilities were opened in 1998 at the new Chek Lap Kok airport in Hong Kong, CKS International Airport in Taiwan and Dubai, United Arab Emirates. Construction on a 189,000 square foot facility to be located at Miami International Airport is expected to begin in late 1999 or early 2000. CHARLES DE GAULLE EUROPEAN REGIONAL HUB FedEx currently leases approximately 108,000 square feet from Aeroports de Paris ("ADP") for FedEx's European sort facility. FedEx expects its new European regional hub facility located at Charles de Gaulle Airport, Roissy (Paris), France to be operational in early September 1999. The facility will be 861,325 square feet located in 14 different buildings. FedEx will lease the space from ADP. The lease term commences on the first day of operations of the new facility and terminates 30 years later. The sort capacity in phase one of the facility is expected to be 48,000 packages and documents per hour. As of July 30, 1999, FedEx is in the operational testing and training phase of the new facility. The first day of operations is scheduled to be September 6, 1999. The aircraft ramp is in place and FedEx expects that the facility will be ready to accept aircraft on September 6. FedEx is required to give ADP two months' prior notice when the company will move out of the existing leased facility and terminate the lease. The company has not yet given ADP such notice because FedEx may need to keep some of the existing leased space. As of July 30, 1999, FedEx plans to retain approximately half of the present area or about 54,000 square feet for heavyweight airfreight operations, ECCS operations (principally warehousing operations) and for FedEx's GSPs. ADMINISTRATIVE AND OTHER PROPERTIES AND FACILITIES FedEx has facilities housing administrative and technical operations on approximately 200 acres adjacent to the Memphis International Airport. Of the seven buildings located on this site, four are subject to long-term leases, and the other three are owned by FedEx. FedEx also leases approximately 90 facilities in the Memphis area for its corporate headquarters, warehouse facilities and administrative offices. FedEx has opened an office campus in Collierville, Tennessee for its information technology and telecommunications division, and is building a headquarters office campus in East Shelby County, Tennessee. The headquarters campus, which will comprise nine separate buildings with more than 1.1 million square feet of space, is designed to consolidate many administrative and training functions currently spread throughout the Memphis metropolitan area. When completed by late fall of 2001, the office campus will bring together approximately 3,700 employees from more than 100 work groups. FedEx owns 14 and leases 711 facilities for city station operations in the United States. In addition, 151 city stations are owned or leased throughout FedEx's international network. The majority of these leases are for terms of five to ten years. FedEx believes that suitable alternative facilities are available in each locale on satisfactory terms, if necessary. As of July 1, 1999, FedEx leased space for 372 FedEx World Service Centers in the United States and had placed approximately 34,066 Drop Boxes. FedEx also owns stand-alone mini-centers located on leaseholds in parking lots adjacent to office buildings, shopping centers and office parks of which 114 were operating at July 1, 1999. Internationally, FedEx leases space for 43 FedEx World Service Centers and has approximately 973 FedEx Drop Boxes. 20 FedEx leases central processing units and most of the disk drives, printers and terminals used for data processing. Owned equipment consists primarily of Digitally Assisted Dispatch Systems ("DADS") terminals used in communications between dispatchers and couriers, computerized routing, tracing and billing equipment used by customers and mobile radios used in FedEx's vehicles. FedEx also leases space on C-Band and Ku-Band satellite transponders for use in its telecommunications network. RPS, INC. As of June 30, 1999, RPS operated 369 facilities, including 27 hubs. Fifty-four of the facilities, 23 of which are hubs, are owned; 315 facilities are leased, generally for terms of three years or less. Thirteen of the facilities, three of which are hubs, are operated by RPS, Ltd., RPS' subsidiary operating in Canada. The 27 hub facilities are strategically located to cover the geographic area served by RPS. These facilities average 111,000 square feet and range in size from 33,000 to 315,000 square feet. RPS' corporate offices and information and data centers are located in the Pittsburgh, Pennsylvania area in an approximately 350,000 square foot building owned by RPS. VIKING FREIGHT, INC. As of June 30, 1999, Viking operated 50 terminals, 35 of which are owned. The terminals are strategically located to cover the geographic area served by Viking. These facilities range in size from 1,800 to 72,650 square feet of office and dock space, and are located on sites ranging from 1.8 to 22.0 acres. The company's corporate headquarters is located in leased facilities in San Jose, California. ROBERTS EXPRESS, INC. Roberts Express's corporate headquarters is located in Akron, Ohio in owned facilities. Roberts does not use terminal facilities in its business. FDX GLOBAL LOGISTICS, INC. FDX Global Logistics' corporate headquarters is located in Memphis, Tennessee in leased facilities. Caliber Logistics' headquarters is located in Hudson, Ohio in leased facilities. ITEM 3. LEGAL PROCEEDINGS FEDERAL EXPRESS CORPORATION There are two separate class-action lawsuits against FedEx generally alleging that FedEx has breached its contract with the plaintiffs in transporting packages shipped by them. These lawsuits allege that FedEx continued to collect a 6.25% federal excise tax on the transportation of property shipped by air after the tax expired on December 31, 1995, until it was reinstated in August 1996. The plaintiffs seek certification as a class action, damages, an injunction to enjoin FedEx from continuing to collect the excise tax referred to above, and an award of attorneys' fees and costs. One case was filed in Circuit Court of Greene County, Alabama. 21 The other case, which was filed in the Supreme Court of New York, New York County, and contained allegations and requests for relief substantially similar to the Alabama case, was dismissed with prejudice on FedEx's motion on October 7, 1997. The Court found that there was no breach of contract and that the other causes of action were preempted by federal law. The plaintiffs appealed the dismissal. This case originally alleged that FedEx continued to collect the excise tax on the transportation of property shipped by air after the tax expired on December 31, 1996. The New York complaint was later amended to cover the first expiration period of the tax (December 31, 1995 through August 27, 1996) covered in the original Alabama complaint. The dismissal was affirmed by the appellate court on March 2, 1999. The plaintiffs are now seeking permission to appeal to the next appellate level. The air transportation excise tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. The excise tax was then reenacted by Congress effective March 7, 1997. The expiration of the tax relieved FedEx of its obligation to pay the tax during the periods of expiration. The Taxpayer Relief Act of 1997, signed by President Clinton in August 1997, extended the tax for ten years through September 30, 2007. FedEx intends to vigorously defend itself in this case. No amount has been reserved for this contingency. In November 1987, The Flying Tiger Line Inc. ("Flying Tigers"), a company acquired by FedEx in 1989, received a notice from the United States Environmental Protection Agency ("EPA") identifying Flying Tigers as a potentially responsible party ("PRP") in connection with a "Superfund" site located in Monterey Park, California. The site is a 190-acre landfill which operated from 1948 through 1984. In June 1985, the EPA began a remedial investigation of the site to identify the extent of contamination. The EPA estimates that approximately 0.1% of the waste disposed at the site is attributable to Flying Tigers. Flying Tigers participated in a partial settlement relating to remedial actions for management of contamination and site control. Partial consent decrees were entered in the United States District Court for the Central District of California in 1989 and 1992 which provided, in part, for payments of $109,000 and $230,000, respectively, by Flying Tigers and FedEx to the partial-settlement escrow account. All outstanding issues are not expected to be resolved for several years. Due to several variables which are beyond FedEx's control, it is impossible to accurately estimate FedEx's potential share of the remaining costs, but based on Flying Tigers' relatively insignificant contribution of waste to the site, FedEx believes that its remaining liability will not be material. THE COMPANY The Company and its subsidiaries are subject to other legal proceedings and claims 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 materially adversely affect the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended May 31, 1999. 22 EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding executive officers of the Company is as follows (included herein pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K):
OFFICER, YEAR FIRST ELECTED AS OFFICER AGE POSITIONS HELD WITH COMPANY ------------------- --- --------------------------- FREDERICK W. SMITH 54 Chairman, President and Chief 1971 Executive Officer of the Company since January 1998; Chairman of FedEx since 1975; Chairman, President and Chief Executive Officer of FedEx from April 1993 to January 1998; Chief Executive Officer of FedEx from 1977 to January 1998; and President of FedEx from June 1971 to February 1975. T. MICHAEL GLENN 43 Executive Vice President - Market 1985 Development and Corporate Communications of the Company since January 1998; Senior Vice President - Marketing, Customer Service and Corporate Communications of FedEx from June 1994 to January 1998; Senior Vice President - Marketing and Corporate Communications of FedEx from December 1993 to June 1994; Senior Vice President - Worldwide Marketing Catalog Services and Corporate Communications of FedEx from June 1993 to December 1993; Senior Vice President - Catalog and Remail Services of FedEx from September 1992 to June 1993; Vice President - Marketing of FedEx from August 1985 to September 1992; and various management positions in sales and marketing and senior sales specialist of FedEx from 1981 to 1985. ALAN B. GRAF, JR. 45 Executive Vice President and Chief 1987 Financial Officer of the Company since January 1998; Executive Vice President and Chief Financial Officer of FedEx from February 1996 to January 1998; Senior Vice President and Chief Financial Officer of FedEx from December 1991 to February 1996; Vice President and Treasurer of FedEx from August 1987 to December 1991; and various management positions in finance and a senior financial analyst of FedEx from 1980 to 1987.
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OFFICER, YEAR FIRST ELECTED AS OFFICER AGE POSITIONS HELD WITH COMPANY ------------------- --- --------------------------- JAMES S. HUDSON 50 Corporate Vice President - Strategic 1992 Financial Planning and Control and Principal Accounting Officer since January 1998; Vice President - Corporate Financial Planning and Control of FedEx from January 1997 to January 1998; Vice President, Controller and Chief Accounting Officer of FedEx from December 1994 to January 1997; Vice President-Finance - Europe, Africa and Mediterranean of FedEx from July 1992 to December 1994; and various management positions in finance at FedEx from 1974 to 1992. DENNIS H. JONES 47 Executive Vice President and Chief 1986 Information Officer of the Company since January 1998; Senior Vice President and Chief Information Officer of FedEx from December 1991 to January 1998; Vice President - Customer Automation and Invoicing of FedEx from December 1986 to December 1991; and various management positions in finance and a financial analyst of FedEx from 1975 to 1986. KENNETH R. MASTERSON 55 Executive Vice President, General 1980 Counsel and Secretary of the Company since January 1998; Executive Vice President, General Counsel and Secretary of FedEx from February 1996 to January 1998; Senior Vice President, General Counsel and Secretary of FedEx from September 1993 to February 1996; Senior Vice President and General Counsel of FedEx from February 1981 to September 1993; and Vice President - Legal of FedEx from January 1980 to February 1981.
Officers are elected by, and serve at the discretion of, the Board of Directors. There is no arrangement or understanding between any officer and any person, other than a director or executive officer of the Company or of any of its subsidiaries acting in his or her official capacity, pursuant to which any officer was selected. There are no family relationships between any executive officer and any other executive officer or director of the Company or of any of its subsidiaries. There has been no event involving any executive officer under any bankruptcy act, criminal proceeding, judgment or injunction during the past five years. 24 PART II Information for Items 5 through 8 of this Report appears in the Company's 1999 Annual Report to Stockholders as indicated in the following table and is incorporated herein by reference. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information regarding stock listing, market information and stockholders is contained in the Corporate Information section of the Company's 1999 Annual Report to Stockholders, on page 40 under the headings, "Stock listing," "Stockholders" and "Market information" and is incorporated herein by reference. As of August 2, 1999, the closing price of the Company's common stock on the New York Stock Exchange was $44.75 per share. No cash dividends have been declared. The Company has never declared a dividend on its shares because its policy has been to reinvest earnings in the Company's businesses. There are no material restrictions on the Company's ability to declare dividends, nor are there any material restrictions on the ability of the Company's subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances. See Note 4 to Notes to Consolidated Financial Statements set forth in the Company's 1999 Annual Report to Stockholders, which Note is incorporated herein by reference.
PAGE IN ANNUAL REPORT TO STOCKHOLDERS --------------------- ITEM 6. SELECTED FINANCIAL DATA Selected Consolidated Financial Data................. 39 See Management's Discussion and Analysis of Results of Operations and Financial Condition set forth in the Company's 1999 Annual Report to Stockholders for a discussion of factors such as accounting changes, business combinations or dispositions of business operations that may materially affect the comparability of the information reflected in selected financial data. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.... 9 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 14, 15 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Statements of Income......................... 19 Consolidated Balance Sheets............................... 20 Consolidated Statements of Cash Flows..................... 21 Consolidated Statements of Changes in Stockholders' Investment and Comprehensive Income....... 22 Notes to Consolidated Financial Statements................ 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding members of the Company's Board of Directors is presented in sections "Stock Ownership - Directors and Executive Officers," "Election of Directors," "Meetings and Committees," "Compensation of Directors," and "Transactions with Management and Others and Compensation Committee Interlocks and Insider Participation" on pages 6, 8 through 12 and on page 21 of the Definitive Proxy Statement for the Company's 1999 Annual Meeting of Stockholders which will be held September 27, 1999 and is incorporated herein by reference. Information regarding executive officers of the Company is included above in Part I of this Form 10-K under the caption "Executive Officers of the Registrant" pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General Instruction G(3) of Form 10-K. Information for Items 11 through 13 of this Report appears in the Definitive Proxy Statement for the Company's 1999 Annual Meeting of Stockholders to be held on September 27, 1999, as indicated in the following table and is incorporated herein by reference.
PAGE IN PROXY STATEMENT ------------- ITEM 11. EXECUTIVE COMPENSATION Compensation Information................................... 13 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Stock Ownership - Directors and Executive Officers......... 2 Stock Ownership - Significant Stockholders................. 2 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with Management and Others and Compensation Committee Interlocks and Insider Participation......... 21
26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS The consolidated financial statements of the Company, together with the Notes to Consolidated Financial Statements, and the report thereon of Arthur Andersen LLP, dated June 29, 1999, are presented on pages 19 through 38 of the Company's 1999 Annual Report to Stockholders and are incorporated herein by reference. The Report of Independent Auditors on the consolidated statements of income, shareholders' equity and cash flows of Caliber System, Inc. (not presented separately herein) for the year ended December 31, 1996 is included as Exhibit 99 to this Report. With the exception of the aforementioned information and the information incorporated by reference in Items 1, 5, 6, 7, 7A and 8 hereof, the Company's 1999 Annual Report to Stockholders is not to be deemed as filed as part of this Report.
2. FINANCIAL STATEMENT SCHEDULE PAGE NUMBER IN FORM 10-K ------------ Report of Independent Public Accountants on Financial Statement Schedule..................................................... S-1 Schedule II - Valuation and Qualifying Accounts................ S-2
All other financial statement schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements, or the notes thereto, contained in the Company's 1999 Annual Report to Stockholders and incorporated herein by reference. 3. EXHIBITS Exhibits 3.1, 3.2, 4.1 through 4.28, 10.1 through 10.105, 12, 13, 21, 23.1, 23.2, 24, 27 and 99 are being filed in connection with this Report and incorporated herein by reference. The Exhibit Index on pages E-1 through E-15 is incorporated herein by reference. (b) REPORTS ON FORM 8-K No reports were filed on Form 8-K for the fourth quarter of the Company's fiscal year. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. FDX CORPORATION (Registrant) BY: /s/ JAMES S. HUDSON ----------------------------------- James S. Hudson Corporate Vice President - Strategic Financial Planning and Control (PRINCIPAL ACCOUNTING OFFICER) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ FREDERICK W. SMITH* Chairman, President and - --------------------------- Chief Executive Officer Frederick W. Smith and Director (PRINCIPAL EXECUTIVE OFFICER) /s/ ALAN B. GRAF, JR.* Executive Vice President and - --------------------------- Chief Financial Officer Alan B. Graf, Jr. (PRINCIPAL FINANCIAL OFFICER) /s/ JAMES S. HUDSON Corporate Vice President - August 16, 1999 - --------------------------- Strategic Financial Planning James S. Hudson and Control (PRINCIPAL ACCOUNTING OFFICER) /s/ ROBERT H. ALLEN * Director - --------------------------- Robert H. Allen /s/ ROBERT L. COX * Director - --------------------------- Robert L. Cox /s/ RALPH D. DENUNZIO * Director - --------------------------- Ralph D. DeNunzio
28
SIGNATURE CAPACITY DATE --------- -------- ---- /s/ JUDITH L. ESTRIN * Director - --------------------------- Judith L. Estrin /s/ PHILIP GREER * Director - --------------------------- Philip Greer /s/ J. R. HYDE, III * Director - --------------------------- J. R. Hyde, III /s/ CHARLES T. MANATT * Director - --------------------------- Charles T. Manatt /s/ GEORGE J. MITCHELL * Director - --------------------------- George J. Mitchell /s/ JACKSON W. SMART, JR.* Director - --------------------------- Jackson W. Smart, Jr. /s/ JOSHUA I. SMITH * Director - --------------------------- Joshua I. Smith /s/ PAUL S. WALSH* Director - --------------------------- Paul S. Walsh /s/ PETER S. WILLMOTT * Director - --------------------------- Peter S. Willmott *By: /s/ JAMES S. HUDSON August 16, 1999 ------------------- James S. Hudson Attorney-in-Fact
29 S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To FDX Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in FDX Corporation's 1999 Annual Report to Stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated June 29, 1999. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The financial statement schedule on page S-2 is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The financial statement schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /S / ARTHUR ANDERSEN LLP ---------------------------------- ARTHUR ANDERSEN LLP Memphis, Tennessee, June 29, 1999 S-2 SCHEDULE II FDX CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED MAY 31,1999, 1998 AND 1997 (In thousands)
ADDITIONS ------------------------ BALANCE BALANCE AT CHARGED TO CHARGED TO AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR - ----------- ---------- ---------- ----------- ----------- ------- Accounts Receivable Allowances - --------------------- 1999............... $61,409 $71,704 $2,769 (A) $ 67,577 (B) $68,305 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- 1998 (1)........... $86,154 $95,634 $ -- $120,379 (B) $61,409 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- 1997 (2)........... $43,395 $76,150 $ -- $ 51,415 (B) $68,130 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- Viking Restructuring Reserve - --------------------- 1999............... $18,857 $ -- $ -- $ 2,818 (C) $16,039 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- 1998 (1)........... $64,342 $ -- $ -- $ 45,485 (C) $18,857 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- Reserve Related to Merger of FedEx and Caliber - ------------------ 1999............... $27,274 $ -- $ -- $ 11,628 (C) $15,646 ------- ------- ------ -------- ------- ------- ------- ------ -------- ------- 1998 (1)........... $ -- $88,000 $ -- $ 60,726 (C) $27,274 ------- ------- ------ -------- ------- ------- ------- ------ -------- -------
(A) Reclassifications. (B) Uncollectible accounts written off, net of recoveries. (C) Amounts paid and charged to reserve. (1) Period comprises Caliber's 53-week period from May 25, 1997 to May 31, 1998 consolidated with FedEx's year ended May 31, 1998. (2) Period comprises Caliber's calendar year ended December 31, 1996 consolidated with FedEx's year ended May 31, 1997. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 3.1 Amended and Restated Certificate of Incorporation of Registrant (Filed as Exhibit 3.1 to Amendment No. 1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-39483, and incorporated herein by reference.) 3.2 Amended and Restated By-laws of Registrant (Filed as Exhibit 3.2 to Amendment No. 1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-39483, and incorporated herein by reference.) 4.1 Indenture dated as of May 15, 1989 between FedEx and BONY relating to FedEx's unsecured debt securities. (Filed as an exhibit to FedEx's Registration Statement No. 33-28796 on Form S-3 and incorporated herein by reference.) 4.2 Supplemental Indenture No. 2 dated as of August 11, 1989 between FedEx and BONY. (Filed as Exhibit 4.2 to FedEx's Registration Statement No. 33-30415 on Form S-3 and incorporated herein by reference.) E-1 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.3 Supplemental Indenture No. 3 dated as of October 15, 1989 between FedEx and BONY relating to FedEx's 9 5/8% Sinking Fund Debentures due October 15, 2019. (Filed as Exhibit 4.2 to FedEx's Current Report on Form 8-K dated October 16, 1989, Commission File No. 1-7806, and incorporated herein by reference.) 4.4 Supplemental Indenture No. 5 dated as of August 15, 1990 between FedEx and BONY. (Filed as Exhibit 4(c) to FedEx's Current Report on Form 8-K dated August 28, 1990, Commission File No. 1-7806, and incorporated herein by reference.) 4.5 Indenture dated May 15, 1989 including Supplemental Indenture Nos. 2, 3 and 5 dated as described above, between FedEx and BONY, relating to FedEx's Medium-Term Notes, Series B, the last of which is due August 15, 2006, FedEx's 9 7/8% Notes due April 1, 2002, FedEx's 9.65% Notes due June 15, 2012. (Filed as described above.) 4.6 Form of Fixed Rate Medium-Term Note, Series B, the last of which is due August 15, 2006. (Filed as Exhibit 4.4 to FedEx's Registration Statement No. 33-40018 on Form S-3 and incorporated herein by reference.) 4.7 Form of Floating Rate Medium-Term Note, Series B, the last of which is due August 15, 2006. (Filed as Exhibit 4.5 to FedEx's Registration Statement No. 33-40018 on Form S-3 and incorporated herein by reference.) 4.8 Form of 9 7/8% Note due April 1, 2002. (Filed as Exhibit 4.1 to FedEx's Current Report on Form 8-K dated March 23, 1992, Commission File No. 1-7806, and incorporated herein by reference.) 4.9 Form of 9.65% Note due June 15, 2012. (Filed as Exhibit 4.1 to FedEx's Current Report on Form 8-K dated June 18, 1992, Commission File No. 1-7806, and incorporated herein by reference.) 4.10 Indenture dated as of July 1, 1996 between FedEx and The First National Bank of Chicago, as Trustee, relating to FedEx's unsecured debt securities. (Filed as Exhibit 4.14 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 4.11 Supplemental Indenture No. 1 dated as of July 1, 1997 between FedEx and The First National Bank of Chicago relating to FedEx's 7.60% Notes due July 1, 2097. (Filed as Exhibit 4.1 to FedEx's Current Report on Form 8-K dated July 7, 1997, Commission File No. 1-7806, and incorporated herein by reference.) 4.12 Form of 7.60% Note due July 1, 2097. (Filed as Exhibit 4.2 to FedEx's Current Report on Form 8-K dated July 7, 1997, Commission File No. 1-7806, and incorporated herein by reference.) E-2 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.13 Pass Through Trust Agreement dated as of February 1, 1993, as amended and restated as of October 1, 1995, between FedEx and BONY, as Pass Through Trustee, relating to FedEx's 1993 Pass Through Certificates, Series A1, A2, B1, B2, C1 and C2, 1995 Pass Through Certificates, Series A1, A2, B1, B2 and B3 and 1996 Pass Through Certificates, Series A1 and A2. (Filed as Exhibit 4.a.1 to FedEx's Current Report on Form 8-K dated October 26, 1995, Commission File No. 1-7806, and incorporated herein by reference.) 4.14 Form of 8.04% and 8.76% 1993 Pass Through Certificates, Series A1 and A2 due November 22, 2007 and May 22, 2015, respectively. (Filed as Exhibit 4(a)(2) to FedEx's Current Report on Form 8-K dated February 4, 1993, Commission File No. 1-7806, and incorporated herein by reference.) 4.15 Form of 6.68% and 7.63% 1993 Pass Through Certificates, Series B1 and B2 due January 1, 2008 and January 1, 2015, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated September 23, 1993, Commission File No. 1-7806, and incorporated herein by reference.) 4.16 Form of 7.15% and 7.96% 1993 Pass Through Certificates, Series C1 and C2 due September 28, 2012 and March 28, 2017, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated December 2, 1993, Commission File No. 1-7806, and incorporated herein by reference.) 4.17 Form of 7.63% and 8.06% 1995 Pass Through Certificates, Series A1 and A2 due January 5, 2014 and January 5, 2016, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated August 16, 1995, Commission File No. 1-7806, and incorporated herein by reference.) 4.18 Form of 6.05%, 7.11% and 7.58% 1995 Pass Through Certificates, Series B1, B2 and B3 due March 19, 1996, January 2, 2014 and July 2, 2019, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated October 26, 1995, Commission File No. 1-7806, and incorporated herein by reference.) 4.19 Form of 7.85% and 8.17% 1996 Pass Through Certificates, Series A1 and A2 due January 30, 2015 and January 30, 2018, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated June 5, 1996, Commission File No. 1-7806, and incorporated herein by reference.) 4.20 Pass Through Trust Agreement dated as of March 1, 1994 between FedEx and BONY, as Pass Through Trustee, relating to FedEx's 1994 Pass Through Certificates, Series A310-A1, A310-A2 and A310-A3. (Filed as Exhibit 4.a.1 to FedEx's Current Report on Form 8-K dated March 16, 1994, Commission File No. 1-7806, and incorporated herein by reference.) 4.21 Form of 7.53%, 7.89% and 8.40% 1994 Pass Through Certificates, Series A310-A1, A310-A2 and A310-A3 due September 23, 2006, September 23, 2008 and March 23, 2010, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated March 16, 1994, Commission File No. 1-7806, and incorporated herein by reference.) E-3 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 4.22 Pass Through Trust Agreement dated as of June 1, 1996 between FedEx and State Street Bank and Trust Company, as Pass Through Trustee, relating to FedEx's 1996 Pass Through Certificates, Series B1 and B2. (Filed as Exhibit 4(a)(1) to FedEx's Registration Statement No. 333-07691 on Form S-3 and incorporated herein by reference.) 4.23 Form of 7.39% and 7.84% 1996 Pass Through Certificates, Series B1 and B2 due January 30, 2013 and January 30, 2018, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated October 17, 1996, Commission File No. 1-7806, and incorporated herein by reference.) 4.24 Pass Through Trust Agreement dated as of May 1, 1997 between FedEx and First Security Bank, National Association, as Pass Through Trustee. (Filed as Exhibit 4.a.3 to FedEx's Form 8-K dated May 12, 1997, Commission File No. 1-7806, and incorporated herein by reference.) 4.25 Form of 7.50%, 7.52% and 7.65% 1997-1 Pass Through Certificates, Class A, B and C due January 15, 2018, January 15, 2018 and January 15, 2014, respectively. (Filed as Exhibit 4.a.2 to FedEx's Current Report on Form 8-K dated May 22, 1997, Commission File No. 1-7806, and incorporated herein by reference.) 4.26 Form of 6.72%, 6.845% and 7.02% 1998-1 Pass Through Certificates, Class A, B and C due January 15, 2022, January 15, 2019 and January 15, 2016, respectively. (Filed as Exhibit 4.a.3 to FedEx's Current Report on Form 8-K dated June 30, 1998, Commission File No. 1-7806, and incorporated herein by reference.) 4.27 Pass Through Trust Agreement dated as of June 1, 1999 between FedEx and the Bank of New York, as Pass Through Trustee. (Filed as Exhibit 4(a)(1) to FedEx's Registration Statement No. 333-80001 on Form S-3 and incorporated herein by reference.) 4.28 Form of 7.65%, 7.90% and 8.25% 1999-1 Pass Through Certificates Class A, B and C due January 15,2023, January 15, 2020 and January 15, 2019, respectively. (Filed as Exhibit 4(a)(2) to FedEx's Registration Statement No. 333-80001 on Form S-3 and incorporated herein by reference.) 10.1 Indenture dated as of August 1, 1979 between the Memphis-Shelby County Airport Authority (the "Authority") and BONY, as Trustee. (Refiled as Exhibit 10.1 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.2 Second Supplemental Indenture dated as of May 1, 1982 between the Authority and BONY. (Refiled as Exhibit 10.2 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.3 Third Supplemental Indenture dated as of November 1, 1982 between the Authority and BONY. (Refiled as Exhibit 10.3 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.4 Fourth Supplemental Indenture dated as of December 1, 1984 between the Authority and BONY relating to 7 7/8% Special Facilities Revenue Bonds, Series 1984 due September 1, 2009. (Refiled as Exhibit 10.4 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-4 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.5 Fifth Supplemental Indenture dated as of July 1, 1992 between the Authority and BONY relating to 6 3/4% Special Facilities Revenue Bonds, Refunding Series 1992 due September 1, 2012. (Filed as Exhibit 10.5 to FedEx's FY92 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.6 Sixth Supplemental Indenture dated as of July 1, 1997 between the Authority and BONY relating to 5.35% Special Facilities Revenue Bonds, Refunding Series 1997 due September 1, 2012. (Filed as Exhibit 10.6 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.7 Guaranty dated as of August 1, 1979 from FedEx to BONY. (Refiled as Exhibit 10.5 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.8 Reaffirmation of Guaranty dated as of May 1, 1982 from FedEx to BONY. (Refiled as Exhibit 10.7 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.9 Reaffirmation of Guaranty dated as of December 1, 1984 from FedEx to BONY relating to Special Facilities Revenue Bonds, Series 1984. (Refiled as Exhibit 10.10 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.10 Reaffirmation of Guaranty dated as of July 30, 1992 from FedEx to BONY relating to Special Facilities Revenue Bonds, Refunding Series 1992. (Filed as Exhibit 10.11 to FedEx's FY92 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.11 Reaffirmation of Guaranty dated as of July 1, 1997 from FedEx to BONY relating to Special Facilities Revenue Bonds, Refunding Series 1997. (Filed as Exhibit 10.11 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.12 Consolidated and Restated Lease Agreement dated as of August 1, 1979 between the Authority and FedEx. (Refiled as Exhibit 10.12 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.13 First Supplemental Lease Agreement dated as of April 1, 1981 between the Authority and FedEx. (Filed as Exhibit 10.13 to FedEx's FY92 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.14 Second Supplemental Lease Agreement dated as of May 1, 1982 between the Authority and FedEx. (Refiled as Exhibit 10.14 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-5 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.15 Third Supplemental Lease Agreement dated November 1, 1982 between the Authority and FedEx. (Filed as Exhibit 28.22 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.16 Fourth Supplemental Lease Agreement dated July 1, 1983 between the Authority and FedEx. (Filed as Exhibit 28.23 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.17 Fifth Supplemental Lease Agreement dated February 1, 1984 between the Authority and FedEx. (Filed as Exhibit 28.24 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.18 Sixth Supplemental Lease Agreement dated April 1, 1984 between the Authority and FedEx. (Filed as Exhibit 28.25 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.19 Seventh Supplemental Lease Agreement dated June 1, 1984 between the Authority and FedEx. (Filed as Exhibit 28.26 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.20 Eighth Supplemental Lease Agreement dated July 1, 1988 between the Authority and FedEx. (Filed as Exhibit 28.27 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.21 Ninth Supplemental Lease Agreement dated July 12, 1989 between the Authority and FedEx. (Filed as Exhibit 28.28 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.22 Tenth Supplemental Lease Agreement dated October 1, 1991 between the Authority and FedEx. (Filed as Exhibit 28.29 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.23 Eleventh Supplemental Lease Agreement dated as of July 1, 1994 between the Authority and FedEx. (Filed as Exhibit 10.21 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.24 Twelfth Supplemental Lease Agreement dated July 1, 1993 between the Authority and FedEx. (Filed as Exhibit 10.23 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.25 Thirteenth Supplemental Lease Agreement dated as of June 1, 1995 between the Authority and FedEx. (Filed as Exhibit 10.23 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-6 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.26 Fourteenth Supplemental Lease Agreement dated as of January 1, 1996 between the Authority and FedEx. (Filed as Exhibit 10.24 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.27 Fifteenth Supplemental Lease Agreement dated as of January 1, 1997 between the Authority and FedEx. (Filed as Exhibit 10.1 to FedEx's FY97 Third Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.28 Sixteenth Supplemental Lease Agreement dated as of April 1, 1997 between the Authority and FedEx (Filed as Exhibit 10.28 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.29 Seventeenth Supplemental Lease Agreement dated as of May 1, 1997 between the Authority and FedEx. (Filed as Exhibit 10.29 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.30 Special Facility Lease Agreement dated as of August 1, 1979 between the Authority and FedEx. (Refiled as Exhibit 10.15 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.31 First Special Facility Supplemental Lease Agreement dated as of May 1, 1982 between the Authority and FedEx. (Filed as Exhibit 10.25 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.32 Second Special Facility Supplemental Lease Agreement dated as of November 1, 1982 between the Authority and FedEx. (Filed as Exhibit 10.26 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.33 Third Special Facility Supplemental Lease Agreement dated as of December 1, 1984 between the Authority and FedEx. (Refiled as Exhibit 10.25 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.34 Fourth Special Facility Supplemental Lease Agreement dated as of July 1, 1992 between the Authority and FedEx. (Filed as Exhibit 10.20 to FedEx's FY92 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.35 Fifth Special Facility Supplemental Lease Agreement dated as of July 1, 1997 between the Authority and FedEx. (Filed as Exhibit 10.35 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.36 Special Facility Lease Agreement dated as of July 1, 1993 between the Authority and FedEx. (Filed as Exhibit 10.29 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-7 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.37 Special Facility Ground Lease Agreement dated as of July 1, 1993 between the Authority and FedEx. (Filed as Exhibit 10.30 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.38 Indenture dated as of July 1, 1993 between the Authority and BONY, as Trustee, relating to 6.20% Special Facility Revenue Bonds, Series 1993, due July 1, 2014. (Filed as Exhibit 10.31 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.39 Guaranty dated as of July 1, 1993 from FedEx to BONY relating to 6.20% Special Facility Revenue Bonds, Series 1993. (Filed as Exhibit 10.32 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.40 Lease Agreement dated as of May 7, 1985 between the City of Oakland and FedEx. (Filed as Exhibit 28.5 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.41 Affirmative Action Agreement dated as of May 14, 1985, to Lease Agreement dated May 7, 1985, between the City of Oakland and FedEx. (Filed as Exhibit 28.6 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.42 First Supplemental Agreement dated August 5, 1986, to Lease Agreement dated May 7, 1985, between the City of Oakland and FedEx. (Filed as Exhibit 28.7 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.43 Second Supplemental Agreement dated February 17, 1987, to Lease Agreement dated May 7, 1985, between the City of Oakland and FedEx. (Filed as Exhibit 28.8 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.44 Third Supplemental Agreement dated February 1989, to Lease Agreement dated May 7, 1985, between the City of Oakland and FedEx. (Filed as Exhibit 28.9 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.45 Amendment dated August 1, 1989, to Lease Agreement dated May 7, 1985, between the City of Oakland and FedEx. (Refiled as Exhibit 10.40 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.46 Lease and First Right of Refusal Agreement dated July 22, 1988 between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.10 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) E-8 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.47 Development Agreement dated July 22, 1988, to Lease and First Right of Refusal Agreement dated July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.11 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.48 Supplement No. 1 dated May 19, 1989, to Development Agreement dated July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.12 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.49 Supplement No. 1 dated July 19, 1989, to Lease and First Right of Refusal Agreement dated July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.13 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.50 Right-of-Way Agreement dated September 19, 1989, to Lease and First Right of Refusal Agreement dated July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.14 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.51 Supplement No. 2 dated April 23, 1991, to Lease and First Right of Refusal Agreement dated July 22, 1988, between the State of Alaska, Department of Transportation and Public Facilities and FedEx. (Filed as Exhibit 28.15 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.52 Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 28.16 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.53 Supplement No. 1 dated October 1, 1983 to Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 28.17 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.54 Supplement No. 2 dated September 1, 1985 to Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 28.18 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.55 Supplement No. 3 dated June 1, 1992 to Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 28.19 to FedEx's FY93 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) E-9 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.56 Supplement No. 4 dated March 1, 1993 to Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 10.51 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.57 Supplement No. 5 dated February 1, 1994 to Lease Agreement dated October 1, 1983 between The Port Authority of New York and New Jersey and FedEx. (Filed as Exhibit 10.52 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.58 Amended and Restated Land Lease Agreement dated August 1993 between FedEx and the Indianapolis Airport Authority. (Filed as Exhibit 10.52 to FedEx's FY94 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.59 Indenture dated as of September 1, 1993 between the City of Indianapolis, Indiana and NBD Bank, N.A., as Trustee, relating to the City of Indianapolis Airport Facility Revenue Refunding Bonds, Series 1994, due April 1, 2017. (Filed as Exhibit 10.1 to FedEx's FY94 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.60 Loan Agreement between the City of Indianapolis and FedEx. (Filed as Exhibit 10.2 to FedEx's FY94 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.61 Form of Promissory Note to the City of Indianapolis. (Filed as Exhibit 10.3 to FedEx's FY94 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.62 Indenture dated as of October 1, 1994 between the Indianapolis Airport Authority and NBD Bank, N. A., as Trustee, relating to 7.10% Special Facilities Revenue Bonds, Series 1994 due January 15, 2017. (Filed as Exhibit 10.1 to FedEx's FY95 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.63 Guaranty dated as of October 1, 1994 from FedEx to NBD Bank, N.A. relating to 7.10% Special Facilities Revenue Bonds, Series 1994 due January 15, 2017. (Filed as Exhibit 10.2 to FedEx's FY95 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.64 Land and Special Facilities Lease Agreement dated as of October 1, 1994 between FedEx and the Indianapolis Airport Authority relating to 7.10% Special Facilities Revenue Bonds, Series 1994 due January 15, 2017. (Filed as Exhibit 10.3 to FedEx's FY95 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.)
E-10
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.65 Lease Agreement dated October 9, 1994 between FedEx and Subic Bay Metropolitan Authority. (Filed as Exhibit 10.62 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.66 Indenture dated as of April 1, 1996 between Alliance Airport Authority, Inc. and The First National Bank of Chicago, as Trustee, relating to AllianceAirport Authority, Inc. Special Facilities Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021. (Filed as Exhibit 10.66 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.67 Guaranty dated as of April 1, 1996 from Registrant to The First National Bank of Chicago relating to AllianceAirport Authority, Inc. Special Facilities Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021. (Filed as Exhibit 10.67 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.68 Land and Special Facilities Lease Agreement dated as of April 1, 1996 between FedEx and AllianceAirport Authority, Inc. relating to AllianceAirport Authority, Inc. Special Facilities Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021. (Filed as Exhibit 10.68 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.69 Assignment and Assumption Agreement dated April 10, 1996 between AllianceAirport Authority, Inc. and the City of Fort Worth, Texas relating to AllianceAirport Authority, Inc. Special Facilities Revenue Bonds, Series 1996 (Federal Express Corporation Project) due April 1, 2021. (Filed as Exhibit 10.69 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.70 1980 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1980 Stock Incentive Plan, as amended. (Filed as Exhibit 10.59 to FedEx's FY93 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.71 1983 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1983 Stock Incentive Plan, as amended. (Filed as an exhibit to FedEx's Registration Statement No. 2-95720 on Form S-8 and incorporated herein by reference.) 10.72 1984 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1984 Stock Incentive Plan, as amended. (Filed as an exhibit to FedEx's Registration Statement No. 2-95720 on Form S-8 and incorporated herein by reference.) 10.73 1987 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1987 Stock Incentive Plan, as amended. (Filed as an exhibit to FedEx's Registration Statement No. 33-20138 on Form S-8 and incorporated herein by reference.) E-11 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.74 1989 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1989 Stock Incentive Plan, as amended. (Filed as Exhibit 10.26 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.75 1993 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1993 Stock Incentive Plan, as amended. (1993 Stock Incentive Plan was filed as Exhibit A to FedEx's FY93 Definitive Proxy Statement, Commission File No. 1-7806, and incorporated herein by reference, and the form of stock option agreement was filed as Exhibit 10.61 to FedEx's FY94 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.76 Amendment to FedEx's 1980, 1983, 1984, 1987 and 1989 Stock Incentive Plans. (Filed as Exhibit 10.27 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.77 Amendment to FedEx's 1983, 1984, 1987, 1989 and 1993 Stock Incentive Plans. (Filed as Exhibit 10.63 to FedEx's FY94 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.78 1995 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1995 Stock Incentive Plan. (1995 Stock Incentive Plan was filed as Exhibit A to FedEx's FY95 Definitive Proxy Statement, Commission File No. 1-7806, and incorporated herein by reference, and the form of stock option agreement was filed as Exhibit 99.2 to FedEx's Registration Statement No. 333-03443 on Form S-8, and incorporated herein by reference.) 10.79 Amendment to FedEx's 1980, 1983, 1984, 1987, 1989, 1993 and 1995 Stock Incentive Plans. (Filed as Exhibit 10.79 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.80 1997 Stock Incentive Plan and Form of Stock Option Agreement pursuant to 1997 Stock Incentive Plan. (1997 Stock Incentive Plan was filed as Annex E to Joint Proxy Statement/Prospectus contained in Amendment No. 1 to Registrant's Registration Statement on Form S-4, Commission File No. 333-39483, and incorporated herein by reference, and the form of stock option agreement was filed as Exhibit 99.2 to FedEx's Registration Statement No. 333-03443 on Form S-8, and incorporated herein by reference.) 10.81 1986 Restricted Stock Plan and Form of Restricted Stock Agreement pursuant to 1986 Restricted Stock Plan. (Filed as Exhibit 10.28 to FedEx's FY90 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.82 1995 Restricted Stock Plan and Form of Restricted Stock Agreement pursuant to 1995 Restricted Stock Plan. (1995 Restricted Stock Plan filed as Exhibit B to FedEx's FY95 Definitive Proxy Statement, Commission File No. 1-7806, and incorporated herein by reference, and the Form of Restricted Stock Agreement was filed as Exhibit 10.80 to FedEx's FY96 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-12 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.83 1997 Restricted Stock Plan and Form of Restricted Stock Agreement pursuant to 1997 Restricted Stock Plan. (Filed as Exhibit 10.82 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.84 Amendment to 1997 Stock Incentive Plan (Filed as Exhibit A to Registrant's FY98 Definitive Proxy Statement, Commission File No. 333-39483, and incorporated herein by reference.) 10.85 FedEx's Amended and Restated Retirement Parity Pension Plan. (Filed as Exhibit 10.83 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.86 Management Performance Bonus Plan. (Description of the performance bonus plan contained in the Definitive Proxy Statement for Registrant's 1999 Annual Meeting of Stockholders, under the heading "Report on Executive Compensation of the Compensation Committee of the Board of Directors" is incorporated herein by reference.) 10.87 Long-Term Performance Bonus Plan. (A description of each long-term performance bonus plan is contained in the Definitive Proxy Statement for Registrant's 1999 Annual Meeting of Stockholders, under the heading "Long-Term Incentive Plans - Awards in Last Fiscal Year" and is incorporated herein by reference.) 10.88 Purchase Agreement between AVSA and FedEx for purchase of Airbus A300 aircraft. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (Filed as Exhibit 10.36 to FedEx's FY91 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.89 Amendment Nos. 1 through 4 to Purchase Agreement dated July 3, 1991 between AVSA and FedEx. Confidential treatment has been granted for confidential commercial and financial information contained in this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibits 10.1 through 10.5 to FedEx's FY97 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.90 Sales Agreement dated April 7, 1995 between FedEx and American Airlines, Inc. for the purchase of MD11 aircraft. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. (Filed as Exhibit 10.79 to FedEx's FY95 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.91 Amendment No. 1, dated September 19, 1996, to Sales Agreement dated April 7, 1995 between FedEx and American Airlines, Inc. (Filed as Exhibit 10.93 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-13 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.92 Modification Services Agreement dated September 16, 1996 between McDonnell Douglas Corporation and FedEx. Confidential treatment has been granted for confidential commercial and financial information contained in this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.6 to FedEx's FY97 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.93 Letter Agreement No. 3 dated July 15, 1997, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas and FedEx. Confidential treatment has been granted for confidential commercial and financial information contained in this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.1 to FedEx's FY98 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.94 Letter Agreement Nos. 5-7 dated January 12, 1998, March 16, 1998 and February 26, 1998, respectively, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and FedEx. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibits 10.1 through 10.3 to FedEx's FY98 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.95 Aircraft Sales Agreement dated as of April 21, 1998 between Flightlease, Ltd. and FedEx. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.94 to Registrant's FY98 Annual Report on Form 10-K, Commission File No. 333-39483, and incorporated herein by reference.) 10.96 Credit Agreement dated January 15, 1998 among Registrant and The First National Bank of Chicago, individually and as agent, and certain lenders. (Filed as Exhibit 10.1 to Registrant's FY98 Third Quarter Report on Form 10-Q, Commission File No. 333-39483, and incorporated herein by reference.) 10.97 Amendment No. 1 dated as of December 10, 1998 to Credit Agreement dated as of January 15, 1998 among Registrant, The First National Bank of Chicago, as Agent, and certain Lenders. (Filed as Exhibit 10.2 to Registrant's FY99 Second Quarter Report on Form 10-Q, Commision File No. 333-39483, and incorporated herein by reference.) 10.98 Registrant's Retirement Plan for Outside Directors. (Filed as Exhibit 10.85 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.99 First Amendment to Registrant's Retirement Plan for Outside Directors. (Filed as Exhibit 10.86 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) 10.100 Registrant's Amended and Restated Retirement Plan for Outside Directors. (Filed as Exhibit 10.87 to FedEx's FY97 Annual Report on Form 10-K, Commission File No. 1-7806, and incorporated herein by reference.) E-14 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 10.101 Eighteenth Supplemental Lease Agreement dated as of July 1, 1997, between the Authority and FedEx. (Filed as Exhibit 10.2 to FedEx's FY98 First Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.102 Nineteenth Supplemental Lease Agreement dated as of September 1, 1998, between the Authority and FedEx. (Filed as Exhibit 10.1 to FedEx's FY99 Second Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.103 Amendments dated March 19, 1998 and January, 1999, amending the Sales Agreement dated April 7, 1995, between American Airlines, Inc. and FedEx. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibits 10.1 and 10.2, to FedEx's FY99 Third Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.104 Letter Agreement No. 9 dated January 27, 1999, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and FedEx. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.3 to FedEx's FY99 Third Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 10.105 Amendment No. 1 dated January 22, 1999, amending the Modification Services Agreement dated September 16, 1996, between McDonnell Douglas Corporation and FedEx. Confidential treatment has been granted for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (Filed as Exhibit 10.4 to FedEx's FY99 Third Quarter Report on Form 10-Q, Commission File No. 1-7806, and incorporated herein by reference.) 12 Statement re Computation of Ratio of Earnings to Fixed Charges. 13 Registrant's Annual Report to Stockholders for the fiscal year ended May 31, 1999. 21 Subsidiaries of Registrant. 23.1 Consent of Independent Public Accountants. 23.2 Consent of Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. E-15 EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------- ---------------------- 99 Report of Independent Auditors.
E-16 EX-12 2 EXHIBIT 12 Exhibit 12
FDX CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) Year Ended May 31, ------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 ------------ ------------ --------- --------- ------------ (In thousands, except ratios) Earnings: Income before income taxes........... $ 693,564 $ 702,094 $425,865 $ 899,518 $ 1,061,064 Add back: Interest expense, net of capitalized interest........... 130,923 109,249 110,080 135,696 110,590 Amortization of debt issuance costs...... 2,493 1,628 1,328 1,481 9,249 Portion of rent expense representative of interest factor................ 333,971 393,775 439,729 508,325 570,789 ----------- ---------- --------- --------- ------------- Earnings as adjusted................. $1,160,951 $1,206,746 $977,002 $1,545,020 $ 1,751,692 ----------- ---------- --------- --------- ------------- ----------- ---------- --------- --------- ------------- Fixed Charges: Interest expense, net of capitalized interest........... $ 130,923 $ 109,249 $110,080 $ 135,696 $ 110,590 Capitalized interest.............. 27,381 44,654 45,717 33,009 38,880 Amortization of debt issuance costs................. 2,493 1,628 1,328 1,481 9,249 Portion of rent expense representative of interest factor......................... 333,971 393,775 439,729 508,325 570,789 ----------- ---------- --------- --------- ------------- $ 494,768 $ 549,306 $596,854 $ 678,511 $ 729,508 ----------- ---------- --------- --------- ------------- ----------- ---------- --------- --------- ------------- Ratio of Earnings to Fixed Charges 2.3 2.2 1.6 2.3 2.4 ----------- ---------- --------- --------- ------------- ----------- ---------- --------- --------- -------------
EX-13 3 EXHIBIT 13 FDX CORPORATION 1999 ANNUAL REPORT Global Connectivity Reliable Fast-Cycle Integrated E-Commerce High-Tech Networked DELIVERING SUPERIOR TRANSPORTATION, LOGISTICS, AND E-COMMERCE SOLUTIONS WORLDWIDE FDX is a unique holding company that provides strategic direction for FedEx, RPS and the other FDX operating companies. A $17 billion global transportation and logistics enterprise, FDX offers a diverse portfolio of solutions at all levels of the supply chain. Services offered by FDX companies include worldwide express delivery, ground small-package delivery, less-than-truckload freight delivery, and global logistics and electronic commerce solutions. FDX COMPANIES AT A GLANCE FedEx, the world leader in global express distribution, offering time-certain delivery within 24 to 48 hours among markets that generate more than 90% of the world's gross domestic product. RPS, North America's second-largest provider of business-to-business ground small-package delivery. Roberts Express, the world's leading surface-expedited carrier for nonstop, time-critical and special-handling shipments. FDX Global Logistics, a leader in providing customized, integrated logistics solutions worldwide. Viking Freight, the foremost less-than-truckload freight carrier in the western United States. FDX Corporation Employees and Contractors: 190,000 Headquarters: Memphis, Tennessee Stock Symbol: FDX Online: www.fdxcorp.com MISSION AND VALUES FDX will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related information services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FDX will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards. FINANCIAL HIGHLIGHTS
In thousands, except earnings per share 1999 1998 Percent Change OPERATING RESULTS Revenues $16,773,470 $15,872,810 + 6 Operating income 1,163,086 1,010,660 +15 Operating margin 6.9% 6.4% Net income 631,333 503,030 +26 Earnings per share, assuming dilution (1) $2.10 $1.69 +24 Earnings per share, excluding non-recurring items, assuming dilution (1)(2) $2.28 $1.95 +17 Average common and common equivalent shares (1) 300,643 298,408 + 1 FINANCIAL POSITION Total assets $10,648,211 $ 9,686,060 +10 Long-term debt 1,374,606 1,642,709 -16 Common stockholders' investment 4,663,692 3,961,230 +18
REVENUES (in billions)
97 $14.2 98 $15.9 99 $16.8
EARNINGS PER SHARE (1)
97 $0.67 98 $1.69 99 $2.10
EARNINGS PER SHARE EXCLUDING NON-RECURRING ITEMS (1)(2)
97 $1.26 98 $1.95 99 $2.28
DEBT TO TOTAL CAPITALIZATION
97 33.0% 98 29.3% 99 22.8%
RETURN ON AVERAGE EQUITY
97 5.8% 98 13.5% 99 14.6%
(1) Reflects the two-for-one stock split effected in the form of a 100% stock dividend on May 6, 1999. (2) Non-recurring items include a charge of $91 million ($54 million net of tax or $.18 per share, assuming dilution) in 1999 related to strike contingency planning, a charge of $88 million ($80 million net of tax or $.26 per share, assuming dilution) in 1998 related to the acquisition of Caliber System, Inc., and a charge of $225 million ($175 million net of tax or $.59 per share, assuming dilution) in 1997 related to the restructuring of Viking Freight, Inc. operations. DEAR FELLOW SHAREOWNERS In our first full year of consolidated operations, FDX Corporation turned in a record performance in three very important areas. First, we increased shareowner value by growing profits, expanding margins, and strengthening our balance sheet. Second, we enhanced our service offerings to help our customers create a competitive advantage in today's global marketplace-providing innovative, technology-enabled supply chain solutions along with e-commerce connectivity. Third, we continued our commitment to a "people culture" that recognizes and rewards the above-and-beyond efforts of our FDX employees and contractors. During the past year, we also faced many challenges. Some were external, such as managing through the Asian economic crisis. Others were internal, including contract negotiations with the Fedex Pilots Association that required costly strike contingency plans before we reached a five-year agreement. In some cases, these challenges required extraordinary efforts that may have deterred us from reaching some goals as quickly as we would have liked. Still, the FDX network turned challenge into opportunity as we proved that we deliver far more than packages. We deliver results. FINANCIAL SUMMARY: FDX Results for Shareowners In FY99, FDX exercised strong financial discipline to increase net income and earnings per share at rates surpassing our solid revenue growth. Revenue increased 6% to a record $16.8 billion. Net income jumped 26% to $631 million, reflecting package volume growth as well as excellent cost controls and aggressive yield-management programs. Earnings per share rose to a record $2.10. FDX market value increased 73%, which led to our second two-for-one stock split in the past three years. As our results indicate, in FY99 FDX continued to deliver exceptional shareowner value. PORTFOLIO MANAGEMENT: FDX Solutions for Customers When I reported to you last year, I emphasized the following twofold strategy to capitalize on our broad range of service offerings: 1. Independently, each FDX operating company would remain focused on a distinct market segment in order to operate in the most efficient and profitable manner possible. 2. Collectively, we would create synergies across companies through coordinated sales and marketing programs linked by state-of-the-art information technology. This strategy has paid off handsomely since FDX was created 18 months ago. In FY99, our two largest operating companies-FedEx and RPS-each set new records for service levels and financial results. Independently, that's an outstanding accomplishment. But collectively, these results confirm that the whole certainly is greater than the sum of its parts. Across every operating company, the entire FDX team is working together to provide the total solutions that our customers demand and deserve. Operating Independently Each FDX company competes in a separate, well-defined segment of the total transportation and logistics market. FedEx-one of the most recognized business-to-business brands in the world-is the leader in virtually every segment of the information-intensive express transportation market. RPS offers cost-effective, guaranteed ground package delivery, utilizing state-of-the-art sortation and scanning technology. Viking Freight is the less-than-truckload leader in the western United States, providing reliable, on-time regional freight service. Roberts Express-which created the expedited delivery market-provides the fast response and special handling required to meet our customers' service-critical needs. FDX Global Logistics offers one-stop shopping for complete supply chain solutions by combining transportation, information, and physical logistics services. At FDX, we also view these individual companies through a collective lens. While each company is focused on meeting distinct market needs, our customers have a lot in common. They want an easy, convenient way to connect to the high-tech, high-speed global marketplace. And it's our responsibility to help them choose the right FDX network at the right time, with the right price. Sharing Collective Strengths Leveraging cross-company synergies allows FDX to deliver meaningful customer benefits in two very important areas. Customer Benefit #1: Coordinated sales and marketing programs are introducing our customers to FDX "sister companies" that they haven't done business with before. FDX has created a new collaborative sales group, called Worldwide Services, to provide complete supply chain solutions to our larger customers when those solutions require the involvement of more than one FDX company. Worldwide Services has already delivered incremental revenue and helped strengthen customer relationships. In response to market demand, we have recently expanded this group's responsibilities and have extended our cooperative sales strategy. Quite frankly, our customers have responded even more enthusiastically than we had expected when given the opportunity to buy across the FDX portfolio. Customer Benefit #2: Information integration is making it easier for our customers to do business with FDX. When it comes to managing synergies across businesses, we've found that seamless information integration is a critical component. In the past year, we combined FedEx and RPS domestic shipping functionality on our FDX PowerShip-Registered Trademark- and RPS Multi-Ship-Registered Trademark- proprietary computer networks. Now, customers can sit at the dedicated computer installed in their offices and-with just a few keystrokes-switch between FedEx and RPS domestic shipping. In addition to improving our proprietary systems, we have also upgraded the functionality on our Web sites and concluded an agreement with Netscape Netcenter, providing access to FedEx and RPS online services for more than 13 million users. Going forward, we expect FDX technology to enhance a range of customer-related activities, including customer automation, tracking, and management reports. BUSINESS TRENDS: The FDX Global View As FDX continues to pursue its twofold strategy for portfolio management, we are realizing our vision for a high-tech marketplace that requires fast, global reach-the same vision that drove the birth of Federal Express and the modern air/ground express delivery industry in the early 1970s. Today, FDX is uniquely positioned to take advantage of four major trends that are shaping what many now call the Network Economy. Providing Fast, Global Reach As the world's economy becomes more fully integrated-and as barriers and borders continue to come down-it just makes good economic sense to source and sell globally. That, in turn, has opened multiple legs of transportation on both the inbound "sourcing" side as well as the outbound "selling" side of virtually every multinational business. But this past year has tested many global companies, including FDX, which serves 210 countries principally through the FedEx system. Despite the softness in Pacific markets-a trend that only recently seems to be reversing itself-the FedEx international door-to-door express business still grew in FY99, though at less than its recent rate. This continued growth is due, in part, to the flexibility of the FedEx global network-the ability to reconfigure our system or simply to reroute existing flights in order to take advantage of favorable market trends. But in a "business without borders" environment, the true challenge is to create a framework for global commerce. As the world`s largest express carrier, Federal Express supports an open aviation regime, which we see as the best way to ensure free and fair trade in the air cargo industry in the 21st century. In FY99, a new bilateral agreement was reached with China, doubling the frequencies available to U.S. carriers. FedEx remains the only U.S. all-express carrier with authority to fly to and from China. As we continue to work toward true "open skies" all around the world, FDX will also work aggressively toward other global issues, such as streamlined customs clearance procedures. Serving and Served by High Tech The second major global trend is the increase in the high-tech, high value-added sector as a percentage of total economic activity. Information technology alone now contributes more than one-third of real economic growth in the United States. But the high-value-added sector is much broader, including pharmaceuticals, automotive, electronics, aviation and other goods with high value per pound. Over the past 50 years, the weight of the nation's economic output has barely changed while the value has increased fivefold. As part of the new supply chain model, FDX is both a transporter and user of high-tech and high-value goods. We supply the transportation, information, and logistics solutions that help companies like Cisco, Dell, and Sun Microsystems do business more effectively. But we are also a customer of information technology goods. FDX spent nearly $1.5 billion last year to strengthen our superior technology capabilities and to attract the best and the brightest people. Speeding the Supply Chain The third influence is the increase in fast-cycle logistics as companies of all sizes discover the power of supply chain velocity. It's not just doing business faster; it's doing business smarter by replacing inventory with information. After all, a warehouse is just an expensive place to put something so you know that you have it. That's managing inventory at rest. Instead, if you can substitute real-time information to manage inventory in motion, you can dramatically reduce overhead and obsolescence while speeding time to market. To take advantage of the move toward faster, more efficient supply chains, last October we created FDX Global Logistics. We believe that the future of logistics will not be in brick-and-mortar warehouses, but in the kind of information-intensive services that have been a hallmark of FedEx and now FDX. Our operating companies are helping customers move from managing inventory at rest to managing inventory in motion, providing the added value, visibility, and velocity that companies need to succeed. Conducting Business Electronically Finally, perhaps the best way to minimize time and distance is through electronic commerce in general and the Internet in particular. FedEx was a pioneer in electronic commerce long before the Internet was opened for commercial use. In 1987, we launched the original FedEx PowerShip-Registered Trademark- network of proprietary computers, allowing customers to process their shipments electronically. In 1996, we added FedEx interNetShip-Registered Trademark- to our popular Web site at www.fedex.com, becoming the first company with true Internet shipping capabilities. In fact, FedEx interNetShip recently received the prestigious Computerworld Smithsonian Award for its innovative use of technology. Today, with a combination of FedEx PowerShip computers, FedEx Ship-Registered Trademark- software, and FedEx interNetShip, more than two-thirds of U.S. domestic shipping transactions are handled electronically. As far as two million FedEx customers are concerned, it doesn't matter whether they use a designated computer terminal, proprietary software, or the Internet. It's all about convenience, accessibility, and connectivity. Overall, the Internet has done for e-commerce what Henry Ford did for the automobile: It's taken a luxury for a few and turned it into an affordable tool for many. The Internet has opened e-commerce to companies of all sizes and has created a new global business channel for selling products and delivering digital information. When calculating the Internet's full potential, however, it's important to break away from the "buy-it.com" mentality in the popular press and look at the much larger business-to-business sector, which is more than 10 times the size of the business-to-consumer market. Business-to-business e-commerce is estimated to top $100 billion in sales this year and exceed the trillion-dollar sales mark by 2003. Computers and electronics-already two of our largest customer segments-account for almost half of this category, and supply chains are increasingly moving online. That's why we call business-to-business the "sweet spot" of e-commerce, and why we view these electronic customer connections as an incremental and diversified source of revenue for FDX. While business-to-business e-commerce will be-by far-the largest segment, we are also leveraging the strength of the FDX portfolio in the business-to-home market. FedEx will continue to handle the "time-sensitive" side of residential deliveries, particularly for higher-value goods. But we are also testing a new "service-sensitive" RPS residential delivery service to expand our comprehensive mix of transportation and logistics solutions-and to open the door for additional Internet retail business. Depending on the results of the Pittsburgh-area test program, we could roll out a business-to-residential RPS delivery service as early as next spring. Connecting the Network Economy The new economy is global, high-tech, fast-cycle, and networked through e-commerce-four trends that are coming together to change the way we all live and work. People will increasingly have the ability to communicate and transact business anywhere, any time as we move from mass production to mass customization. At FDX, our worldwide transportation network connects our customers to the global marketplace. Our information network connects our customers with their customers and with their supply chain alliances. But in the new economy, there's one more essential network. CORPORATE CULTURE: The FDX Commitment Trucks and airplanes can't go anywhere without people. Computers still can't rule the world alone. Even in this Network Economy-or perhaps especially in this Network Economy-the essential ingredient is the human network: people who keep the entrepreneurial spirit alive. I believe FDX has the best people network anywhere, with more than 190,000 employees and contractors who will do "absolutely, positively" whatever it takes to serve our customers. In the past year, our companies have received more than their share of accolades, consistently ranking as one of the best places to work by publications such as Fortune and Working Mother. But I believe the true measure of our people is found in the thousands of stories that play out every day, all around the world-whether it's a driver who springs into action to save the life of a stranger trapped in a wrecked car, a courier who drives 200 miles out of her way on Christmas Eve to deliver medicine to a sick child, or an employee who decides to walk 15 miles to work, in the middle of the night with snow and ice on the ground, when his regular ride falls through. Our people are the faces of FDX, and I believe that our company has a very special bond with our employees, our customers, and our shareowners. To each of you, FDX makes a corporate commitment. To FDX teammates, we thank you for your unwavering commitment to our customers, and we pledge to strengthen our mutual opportunities. Our companies are great places to work because you make them that way. To FDX customers, we pledge to help you succeed in the fast-changing global marketplace. Independently, FDX companies will provide the transportation, information, and e-commerce solutions you need for superior supply chain performance. Collectively, we will make it easier for you to buy across the entire spectrum of FDX services, and we will leverage technology to do so. To FDX shareowners, we pledge to continue our focus on increasing shareowner value. Our five-year goals call for annual earnings growth in the 12% to 15% range and return on equity at or above 20%. We expect to achieve these results by growing our business, improving operating margins, and making more efficient use of capital. Our FY99 performance was a great start for our new company, but I believe the best is yet to come. FDX has built superior physical, virtual, and people networks not just to prepare for change, but to shape change on a global scale: to change the way we all connect with each other in the new Network Economy. Frederick W. Smith Chairman, President and Chief Executive Officer The FDX network turned challenge into opportunity as we proved that we deliver far more than packages. We deliver results. These results confirm that the whole certainly is greater than the sum of its parts. Across every operating company, the entire FDX team is working together to provide the total solutions that our customers demand and deserve. Our customers want an easy, convenient way to connect to the high-tech, high-speed global marketplace. And it's our responsibility to help them choose the right FDX network at the right time, with the right price. Now, customers can sit at the dedicated computer installed in their offices and-with just a few keystrokes-switch between FedEx and RPS domestic shipping. FedEx remains the only U.S. all-express carrier with authority to fly to and from China. FDX spent nearly $1.5 billion last year to strengthen our superior technology capabilities and to attract the best and the brightest people. Our operating companies are helping customers move from managing inventory at rest to managing inventory in motion, providing the added value, visibility, and velocity that companies need to succeed. With a combination of FedEx PowerShip computers, FedEx Ship software, and FedEx interNetShip, more than two-thirds of U.S. domestic shipping transactions are handled electronically. We are also testing a new "service-sensitive" RPS residential delivery service to expand our comprehensive mix of transportation and logistics solutions--and to open the door for additional Internet retail business. FDX has the best people network anywhere, with more than 190,000 employees and contractors who will do "absolutely, positively" whatever it takes to serve our customers. MESSAGE FROM THE CHIEF FINANCIAL OFFICER FDX Corporation posted a strong financial performance in FY99. We successfully executed our portfolio management strategy of independently operating our FDX subsidiaries to be more competitive in their distinct market segments, while we exploited sales and marketing synergies across the FDX portfolio, utilizing world-class information and technology systems. With this new strategy, FDX achieved record revenue of $16.8 billion in FY99 while net income rose 26% to $631 million and earnings per share increased 24% to $2.10. Along with the earnings growth, FDX made significant progress in other important financial measures: 1. Increased profit margins. The FDX operating margin improved to 7.4% from 6.9% last year, excluding non-recurring pilot contingency costs and merger expenses. This improvement was the result of proactive efforts to grow higher margin services-including RPS ground, FedEx international express and FedEx domestic boxes-faster than lower-margin FedEx deferred services, while increasing yields, improving productivity and service levels, and controlling costs. 2. Stable capital expenditures. While we continued to improve the competitiveness, capacity and efficiency of the FDX physical and virtual networks, we kept capital spending basically flat versus FY98. Now that the core FedEx global network is in place, we are slowing the spending on FedEx infrastructure and investing in the most profitable growth opportunities across the entire spectrum of the FDX organization. For example, we announced a $500 million multi-year investment as part of our plan to double RPS capacity and increase RPS revenue approximately 15% annually over the next five years. 3. Stronger balance sheet. FDX reduced debt and continued to improve debt to total capitalization to 23% this year from 29% in FY98. Similarly, debt to total capitalization, including aircraft leases, followed its downward trend, dropping to 53% from 57% the previous year. 4. Improved returns and cash flow. With the actions enumerated above, we improved our return on investment and made genuine progress toward becoming cash flow positive. These are key strategic objectives, and we anticipate continued progress in FY00. As we move into FY00, we believe that our diverse global network, portfolio management strategy, world-class information and technology systems, and strong balance sheet uniquely position FDX to succeed in today's global marketplace. We remain dedicated to growing revenues, enhancing margins, stabilizing capital expenditures, providing greater returns, strengthening our balance sheet, improving cash flow-and enhancing shareowner value. Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FDX Corporation RESULTS OF OPERATIONS Effective May 31, 1999, FDX Corporation (together with its subsidiaries, the "Company") adopted Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information." Under the guidelines provided in this Statement, the Company determined its reportable operating segments to be Federal Express Corporation ("FedEx") and RPS, Inc. ("RPS"). For additional information on the Company's operating segments, see Note 11 of Notes to Consolidated Financial Statements. CONSOLIDATED RESULTS Current year results reflect package volume growth and improved revenue per package (yield) at both FedEx and RPS and lower fuel costs. Results of operations included various non-recurring items which affected reported earnings of $631 million in 1999 ($2.10 per share, assuming dilution), $503 million in 1998 ($1.69 per share, assuming dilution) and $196 million in 1997 ($.67 per share, assuming dilution) as discussed below. On October 30, 1998, contract negotiations between FedEx and the Fedex Pilots Association ("FPA") were discontinued. In November, the FPA began actively encouraging its members to decline all overtime work and issued ballots seeking strike authorization. To avoid service interruptions related to a threatened strike, the Company and FedEx began strike contingency planning, including entering into agreements for additional third-party air and ground transportation and establishing special financing arrangements. Subsequently, the FPA agreed to end all job actions for 60 days and negotiations resumed. Such negotiations resulted in a five-year collective bargaining agreement that was ratified by the FPA membership in February 1999 and took effect on May 31, 1999. Costs associated with these contingency plans, including contracts for supplemental airlift and ground transportation and a business interruption credit facility, reduced the third quarter's pre-tax earnings by approximately $91 million. Excluding these costs, earnings per share, assuming dilution, was approximately $2.28 for 1999. Effective June 1, 1998, the Company adopted a new accounting standard that requires certain costs of software developed or obtained for internal use to be capitalized. Pre-tax income for 1999 increased $41 million as a result of the adoption of this standard. Results in 1998 included $88 million ($80 million, after taxes) of expenses related to the acquisition of Caliber System, Inc. ("Caliber") and the formation of the Company. These expenses were primarily investment banking fees and payments to members of Caliber's management in accordance with pre-existing management retention agreements. Excluding these expenses, consolidated net income for 1998 was $583 million, or $1.95 per share, assuming dilution. Another significant item impacting 1998's results of operations was the Teamsters strike against United Parcel Service ("UPS") in August 1997. The Company analytically calculated that the volume not retained at the end of the first quarter of 1998 contributed approximately $170 million in revenues and approximately $.12 additional earnings per share. In 1998, Viking Freight, Inc. ("Viking") recognized a $16 million pre-tax gain from the sale of certain assets in its restructuring, which was announced by Caliber on March 27, 1997. Under the restructuring plan, operations at Viking's midwestern, eastern and northeastern divisions ceased on March 27, 1997, and Viking's southwestern division operated through June 1997 and was subsequently sold. Viking continues to operate in the western United States. In connection with the restructuring, Viking recorded a non-cash asset impairment charge of $225 million in December 1996. Excluding the after-tax effect of this charge, consolidated net income for 1997 was $371 million, or $1.26 per share, assuming dilution. OTHER INCOME AND EXPENSE AND INCOME TAXES Net interest expense decreased 21% for 1999, primarily due to lower debt levels. For 1998, net interest expense increased 19% primarily due to lower levels of capitalized interest. Interest is capitalized during the modification of certain aircraft from passenger to freighter configuration and the construction of certain facilities. Other net expense in 1999 included approximately $10 million related to FedEx's strike contingency plans described above, primarily costs associated with a business interruption credit facility. Other, net for 1998 included a gain of approximately $8 million from an insurance settlement for an MD11 aircraft destroyed in an accident in July 1997. In 1997 other, net included a $17 million gain from an insurance settlement for a DC10 aircraft destroyed by fire in September 1996. The Company's effective tax rate was 40.5% in 1999, 44.6% in 1998 and 53.9% in 1997. Excluding non-recurring items from the Caliber acquisition in 1998 and the Viking restructuring in 1997, the effective rate would have been 41.5% in 1998 and 43.0% in 1997. The 40.5% effective tax rate in 1999 was lower than the 41.5% effective tax rate (excluding non-recurring items) in 1998 primarily due to the combination of stronger results from international operations and lower worldwide income taxes on foreign earnings. Generally, the effective tax rate exceeds the statutory U.S. federal tax rate because of state income taxes and other factors as identified in Note 9 of Notes to Consolidated Financial Statements. For 2000, management expects the effective tax rate will not exceed, and could possibly be lower than, the 1999 rate. The actual rate, however, will depend on a number of factors, including the amount and source of operating income. FEDERAL EXPRESS CORPORATION The following table compares revenues and operating income (in millions) and selected statistics (in thousands, except dollar amounts) for FedEx for the years ended May 31:
Percent Change 1999/ 1998/ 1999 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------- Revenues: Package: U.S. overnight $ 7,185 $ 6,810 $ 6,244 + 6 + 9 U.S. deferred 2,271 2,179 1,622 + 4 + 34 International Priority (IP) 3,019 2,731 2,351 +11 + 16 - ------------------------------------------------------------------------------ Total package revenue 12,475 11,720 10,217 + 6 + 15 Freight: U.S 440 337 208 +30 + 62 International 531 598 604 -11 - 1 - ------------------------------------------------------------------------------ Total freight revenue 971 935 812 + 4 + 15 Other 533 600 491 -11 + 22 - ------------------------------------------------------------------------------ Total revenues $13,979 $13,255 $11,520 + 5 + 15 - ----------------------------------------------------------------------------------------------------------- Operating income $ 871 $ 837 $ 699 + 4 + 20 - ----------------------------------------------------------------------------------------------------------- Package: Average daily packages: U.S. overnight 1,957 1,886 1,809 + 4 + 4 U.S. deferred 894 872 675 + 3 + 29 IP 282 259 226 + 9 + 15 - ------------------------------------------------------------------------------ Composite 3,133 3,017 2,710 + 4 + 11 Revenue per package (yield): U.S. overnight $ 14.34 $ 14.22 $ 13.59 + 1 + 5 U.S. deferred 9.93 9.84 9.45 + 1 + 4 IP 41.87 41.45 40.91 + 1 + 1 Composite 15.56 15.30 14.84 + 2 + 3 Freight: Average daily pounds: U.S 4,332 3,356 1,594 +29 +111 International 2,633 2,770 2,542 - 5 + 9 - ------------------------------------------------------------------------------ Composite 6,965 6,126 4,136 +14 + 48 Revenue per pound (yield): U.S $ .40 $ 40 $ .51 - - 22 International .79 .85 .94 - 7 - 10 Composite .54 .60 .77 -10 - 22 - -----------------------------------------------------------------------------------------------------------
REVENUES In 1999, FedEx experienced increased volume and slightly improved yields in its U.S. overnight, U.S. deferred and IP services. Growth in higher-priced U.S. overnight and IP services and higher average weight per package were the primary factors in revenue growth. List price increases and other yield-management actions contributed to the yield improvement in 1999. FedEx, through enhanced technology, has also improved its ability to capture incremental revenue based upon certain package characteristics, such as weight and package dimensions. The U.S. deferred package growth rate declined in 1999 in large part due to specific management actions to restrict growth of these lower-yielding services. IP package volume and international freight pounds and yield were negatively impacted by weakness in Asian markets, especially in U.S. outbound traffic destined for that region. In 1998, package revenue increased on a year-over-year basis primarily due to rapid growth of U.S. deferred services, including FedEx Express Saver.-Registered Trademark- This growth was augmented by incremental UPS strike-related volume, the majority of which was in the deferred service category. The increase in yield was largely a result of yield-management actions, such as a 3% to 4% price increase targeted to list price and standard discount matrix customers for U.S. packages effective February 15, 1998. The expiration of the air cargo transportation excise tax added approximately $50 million to revenue in 1997. The tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. FedEx was not obligated to pay the tax during the periods in which it was expired. The excise tax was reenacted by Congress effective March 7, 1997, and, in August 1997 it was extended for 10 years through September 30, 2007. Other revenue included sales of engine noise reduction kits, logistics services, Canadian domestic revenue, charter services and other. OPERATING INCOME Operating income increased in 1999 compared to 1998 in spite of $81 million in strike contingency costs in 1999 and continued weakness in Asian markets. Lower fuel prices and cost controls, including adjustments in network expansion and aircraft deployment plans, contributed to improved results. A decline in average jet fuel price per gallon of 23% was partially offset by an increase in gallons consumed of 6%. Although international freight pounds and revenue per pound continued to decline in 1999, higher yielding IP volume continued to grow, utilizing capacity otherwise occupied by freight. In 1998, operating income improved as package yield increased at a higher rate than cost per package. An increase in average daily packages also contributed to the improvement in operating income. Fuel expense in 1998 rose slightly due to an increase in gallons consumed of 13%, largely offset by a decrease in average jet fuel price per gallon of 10%. In 1998, fuel expense included amounts paid by FedEx under contracts that were designed to limit FedEx's exposure to fluctuations in jet fuel prices. Lower international freight yield, rising expenses associated with international expansion and foreign currency fluctuations negatively affected 1998 results. Operating income for 1998 included approximately $50 million related to the UPS strike as well as proceeds from a 2% temporary fuel surcharge on U.S. domestic shipments through August 1, 1997. Also included in 1998 were $14 million of expenses related to the acquisition of Caliber. Operating income for 1997 included the effects of the 2% temporary fuel surcharge and additional revenue due to the expiration of the air cargo transportation excise tax. In 1997, fuel expense included amounts received and paid by FedEx under contracts which were designed to limit FedEx's exposure to fluctuations in jet fuel prices. Operating margins were 6.2% (6.8% excluding the strike contingency costs), 6.3% (5.9% excluding the aforementioned 1998 items) and 6.1% (5.2% excluding the aforementioned 1997 items) in 1999, 1998 and 1997, respectively. Year-over-year comparisons were also affected by fluctuations in the contribution from sales of engine noise reduction kits. Profit from these sales declined $30 million in 1999 after increasing $40 million in 1998. OUTLOOK FedEx will continue to manage yields with the goal of ensuring an appropriate balance between revenues generated and the cost of providing services. Management expects its yield-management actions, including a 2.8% domestic rate increase implemented in March 1999, to support yield increases in 2000. Management believes package volumes in the U.S. will grow in 2000 at rates slightly below those experienced in 1999, with the growth rate accelerating for IP services. Freight pounds are expected to continue to increase in 2000, with increases in the U.S. partially offset by continued declines in international freight. Freight yield is expected to decline in 2000 for both U.S. and international shipments. Actual results, however, may vary depending on the impact of competitive pricing changes, customer responses to yield-management initiatives, changing customer demand patterns, the timing and extent of network refinement, actions by FedEx's competitors, including capacity fluctuations, regulatory conditions for aviation rights and economic conditions. FedEx will continue to use the flexibility of its global network infrastructure by reconfiguring its system and flights to meet market demands. While long-term profitability is expected to improve, incremental costs incurred during periods of strategic expansion and varying economic conditions can affect short-term operating results. Salaries and employee benefits costs have risen over the past three years, generally consistent with revenues. Management will continue its cost control efforts, but expects salaries and employee benefits to continue to increase as a result of volume growth and the incremental costs of the collective bargaining agreement with the FPA that became effective May 31, 1999. In the past three years, FedEx's worldwide aircraft fleet has increased resulting in a corresponding rise in maintenance expense. FedEx expects a predictable pattern of aircraft maintenance and repairs expense. However, unanticipated maintenance events will occasionally disrupt this pattern, resulting in periodic fluctuations in maintenance and repairs expense. Given FedEx's increasing fleet size, aging fleet and variety of aircraft types, management believes that maintenance and repairs expense will continue a trend of year-over-year increases for the foreseeable future. In addition, management expects scheduled maintenance and repairs expense for B727 engines and for other aircraft to increase in 2000 due to a greater number of routine cycle checks resulting from fleet usage and certain Federal Aviation Administration directives. FedEx's operating income from the sales of engine noise reduction kits peaked in 1998, and is expected to decline approximately $60 million year over year in 2000 and to become insignificant by 2001. Actual results may differ depending primarily on the impact of actions by FedEx's competitors and regulatory conditions. FedEx may enter into contracts in 2000 designed to limit its exposure to fluctuations in jet fuel prices. The timing and magnitude of such contracts may vary due to their availability and pricing. RPS, INC. RPS's revenue and operating income increased in 1999 and 1998. Package volume and revenue per package also increased each year. The following table compares revenues and operating income (in millions) and selected package statistics (in thousands, except dollar amounts) for RPS for the years ended May 31:
Percent Change 1999/ 1998/ 1999 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------- Revenues $1,878 $1,711 $1,347 +10 +27 - -------------------------------------------------------------------------------------------- Operating income $ 231 $ 171 $ 138 +35 +24 - -------------------------------------------------------------------------------------------- Average daily packages 1,385 1,326 1,067 + 4 +24 Revenue per package (yield) $ 5.36 $ 5.04 $ 4.96 + 6 + 2 - --------------------------------------------------------------------------------------------
REVENUES In 1999, RPS's revenue increased due to improving yield and steady volume growth. Yield was positively impacted by rate increases of 2.3% and 3.7% in February 1999 and 1998, respectively. During 1999, RPS recognized a year-to-date, one-time benefit of approximately $6 million to align its estimation methodology for in-transit revenue with that of the Company's other operating subsidiaries. Year-to-date package yield was increased by $.02 because of this one-time adjustment. The prior year included incremental volume associated with the UPS strike. Excluding this incremental volume, average daily packages increased 6% and 23% for 1999 and 1998, respectively. OPERATING INCOME Operating income increased in 1999 due to increased volume and yield-management actions. The increase in operating income for 1998 resulted from package volume growth and the positive effect of the UPS strike. Results for 1998 contained approximately $6 million of incremental operating income during the 12 days of the UPS strike. Operating margins were 12.3%, 10.0% and 10.3% in 1999, 1998 and 1997, respectively. OUTLOOK In 2000, RPS will focus on volume and revenue growth, cost controls, and service quality. Package processing capacity will be expanded to meet growth goals. RPS will continue its yield improvement efforts. However, actual results will depend on the impact of competitive pricing changes, customer responses to yield-management initiatives and changing customer demand patterns. RPS is testing new delivery services to residential areas. Depending on the results of the test, RPS will determine when and to what extent, if any, these services are to be offered. If the new residential services are implemented, there will be additional start-up and capital costs associated with the implementation. OTHER OPERATIONS Other operations include Viking, a regional less-than-truckload freight carrier operating in the western United States; Roberts Express, Inc. ("Roberts"), a critical-shipment carrier; FDX Global Logistics, Inc. ("Logistics"), a contract logistics provider; and certain unallocated corporate charges. REVENUES Revenues from other operations increased 1% and decreased 34% in 1999 and 1998, respectively. Revenue growth for 1999 reflects an increase at Roberts, offset by modest decreases at Viking and Logistics. The decline in 1998 was primarily attributable to the Viking restructuring in March 1997 in which operations at four of five divisions were terminated by June 1997. See "Results of Operations - Consolidated Results" for additional information on the Viking restructuring. OPERATING INCOME Operating income from other operations reflected improved performance at Roberts in 1999, offset by a decline at Logistics. Viking's 1999 performance also improved over 1998 operating income exclusive of a $16 million pre-tax gain in 1998 on the sale of assets as a result of Viking's restructuring. In 1997, Viking recorded an asset impairment charge of $225 million ($175 million, after taxes) associated with its restructuring. Operating income in 1998 includes $74 million in expenses, which were not allocated to operating segments, for merger costs associated with the acquisition of Caliber. These expenses were primarily investment banking fees and payments to members of Caliber's management in accordance with pre-existing management retention agreements. In addition, in 1998 Caliber recorded approximately $5 million of income, net of tax, from discontinued operations relating to the exiting of the airfreight business by one of Caliber's subsidiaries in 1995. FINANCIAL CONDITION LIQUIDITY Cash and cash equivalents totaled $325 million at May 31, 1999, an increase of $96 million compared with increases of $69 million and $33 million in 1998 and 1997, respectively. Cash provided from operations during 1999 was $1.8 billion compared with $1.6 billion and $1.1 billion in 1998 and 1997, respectively. The Company currently has available a $1.0 billion revolving bank credit facility that is generally used to finance temporary operating cash requirements and to provide support for the issuance of commercial paper. Management believes that cash flow from operations, its commercial paper program and the revolving bank credit facility will adequately meet its working capital needs for the foreseeable future. CAPITAL RESOURCES The Company's operations are capital intensive, characterized by significant investments in aircraft, vehicles, computer and telecommunications equipment, package handling facilities and sort equipment. The amount and timing of capital additions depend on various factors including volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, competition, availability of satisfactory financing and actions of regulatory authorities. Capital expenditures for 1999 totaled $1.8 billion and included aircraft modifications, facilities, customer automation and computer equipment, vehicles and ground support equipment and one MD11 aircraft (which was subsequently sold and leased back). In comparison, 1998 expenditures totaled $1.9 billion and included three MD11 aircraft (which were subsequently sold and leased back), four A310 aircraft, aircraft modifications, customer automation and computer equipment, facilities and vehicles and ground support equipment. For information on the Company's purchase commitments, see Note 13 of Notes to Consolidated Financial Statements. The Company has historically financed its capital investments through the use of lease, debt and equity financing in addition to the use of internally generated cash from operations. Generally, management's practice in recent years with respect to funding new wide-bodied aircraft acquisitions has been to finance such aircraft through long-term lease transactions that qualify as off-balance sheet operating leases under applicable accounting rules. Management has determined that these operating leases have provided economic benefits favorable to ownership with respect to market values, liquidity and after-tax cash flows. In the future, other forms of secured financing may be pursued to finance FedEx's aircraft acquisitions when management determines that it best meets FedEx's needs. FedEx has been successful in obtaining investment capital, both domestic and international, for long-term leases on terms acceptable to it although the marketplace for such capital can become restricted depending on a variety of economic factors beyond its control. See Note 4 of Notes to Consolidated Financial Statements for additional information concerning the Company's debt and credit facilities. In July 1999, approximately $231 million of pass through certificates were issued to finance or refinance the debt portion of leveraged operating leases related to four A300 aircraft to be delivered through October 1999. In June 1998, approximately $833 million of pass through certificates were issued to finance or refinance the debt portion of FedEx's leveraged operating leases related to eight A300 and five MD11 aircraft to be delivered through the summer of 1999. The pass through certificates are not direct obligations of, or guaranteed by, the Company or FedEx, but amounts payable by FedEx under the leveraged operating leases are sufficient to pay the principal of and interest on the certificates. Management believes that the capital resources available to the Company provide flexibility to access the most efficient markets for financing its capital acquisitions, including aircraft, and are adequate for the Company's future capital needs. MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS The Company currently has market risk sensitive instruments related to interest rates. As disclosed in Note 4 of Notes to Consolidated Financial Statements, the Company has outstanding unsecured long-term debt, exclusive of capital leases of $1.2 billion and $1.4 billion at May 31, 1999 and 1998, respectively. The Company does not have significant exposure to changing interest rates on its long-term debt because the interest rates are fixed. Market risk for fixed-rate long-term debt is estimated as the potential decrease in fair value resulting from a hypothetical 10% increase in interest rates and amounts to approximately $45 million as of May 31, 1999 ($55 million as of May 31, 1998). The underlying fair values of the Company's long-term debt were estimated based on quoted market prices or on the current rates offered for debt with similar terms and maturities. The Company does not currently use derivative financial instruments to manage interest rate risk. The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, as a result of transactions in foreign markets. At May 31, 1999, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's transactions are denominated would result in a decrease in operating income of approximately $25 million for the year ending May 31, 2000 (the comparable amount in the prior year was $15 million). This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting reported operating results, changes in exchange rates also affect the volume of sales or the foreign currency sales price as competitors' services become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. In 1998 and 1997, FedEx entered into contracts that were designed to limit its exposure to fluctuations in jet fuel prices. FedEx hedges its exposure to jet fuel price market risk only on a conservative, limited basis. No such contracts were outstanding as of May 31, 1998, nor were any entered into during 1999. Management may enter into similar contracts in 2000, the timing and magnitude of which may vary due to the availability and pricing of such contracts. See Notes 2 and 13 of Notes to Consolidated Financial Statements for accounting policies regarding derivative instruments and additional information regarding jet fuel contracts. The Company does not purchase or hold any derivative financial instruments for trading purposes. DEFERRED TAX ASSETS At May 31, 1999, the Company had a net cumulative deferred tax liability of $3 million consisting of $735 million of deferred tax assets and $738 million of deferred tax liabilities. The reversals of deferred tax assets in future periods will be offset by similar amounts of deferred tax liabilities. EURO CURRENCY CONVERSION On January 1, 1999, 11 of the 15 member countries of the European Union fixed conversion rates between their existing sovereign currencies ("legacy currencies") and a single currency called the euro. On January 4, 1999, the euro began trading on currency exchanges and became available for non-cash transactions. The legacy currencies will remain legal tender through December 31, 2001. Beginning January 1, 2002, euro-denominated bills and coins will be introduced, and by July 1, 2002, legacy currencies will no longer be legal tender. The Company established euro task forces to develop and implement euro conversion plans. The work of the task forces in preparing for the introduction of the euro and the phasing out of the various legacy currencies includes numerous facets such as converting information technology systems, adapting billing and payment systems and modifying processes for preparing financial reports and records. Since January 1, 1999, the Company's subsidiaries have been prepared to quote rates to customers, generate billings and accept payments, in both euros and legacy currencies. Based on the work of the Company's euro task forces to date, the Company believes that the introduction of the euro, any price transparency brought about by its introduction and the phasing out of the legacy currencies will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Costs associated with the euro project are being expensed as incurred and are being funded entirely by internal cash flows. YEAR 2000 COMPLIANCE INTRODUCTION The Company's operating subsidiaries rely heavily on sophisticated information technology ("IT") for their business operations. For example, FedEx maintains electronic connections with approximately two million customers via its proprietary products and technologies. The Company's Year 2000 ("Y2K") computer compliance issues are, therefore, broad and complex. The FedEx Y2K Project Office, which was established in 1996, coordinates and supports FedEx's Y2K compliance effort. The Company has also engaged a major international consulting firm to assist its subsidiaries in their Y2K program management. The Company's Y2K compliance efforts are focused on business-critical items. Hardware, software, systems, technologies and applications are considered "business-critical" if a failure would either have a material adverse impact on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. STATE OF READINESS Generally, the Company believes that FedEx's Y2K compliance effort is on schedule. The Company's other operating subsidiaries are substantially on schedule. IT SYSTEMS FedEx's compliance effort for all business-critical infrastructure and applications software (collectively, "IT Systems") is substantially complete. FedEx has inventoried all IT Systems. Assessment/design (researching the compliance status and determining the impact of, and renovation requirements for, the IT Systems) and renovation (making IT Systems compliant) are substantially complete. Testing, which involves validating compliance, is also substantially complete. Within IT Systems, certification of application software, which involves FedEx's independent, internal review to verify whether the appropriate testing process has occurred, is approximately 98% complete. Noncompliant applications as of May 31, 1999 include systems dependent upon external government or vendor interfaces and are expected to be compliant by September 1, 1999. However, contingency plans will be in place to help mitigate any negative impact of the noncompliance of such systems. Within IT Systems, certification of the operating system software and program product software (collectively, "infrastructure") at FedEx is substantially complete. FedEx's IT Systems compliance effort is targeted to be 100% complete by September 1, 1999. The Company's other operating subsidiaries have completed the inventory and assessment phases relating to business-critical IT Systems. The remaining phases relating to IT Systems are under way. The IT Systems compliance effort of the Company's other operating subsidiaries is targeted to be 100% complete by November 1, 1999. NON-IT SYSTEMS FedEx's Y2K program relating to business-critical purchased hardware and software, customized software applications, facilities/equipment and other embedded chip systems (collectively, "Non-IT Systems") is 98% complete. The inventory and assessment phases relating to the Non-IT Systems of the Company's other operating subsidiaries are targeted for completion by July 31, 1999, with the remaining phases targeted for completion by November 1, 1999. FedEx has established several definitions for compliance related to Non-IT Systems. For air infrastructure components (such as airports and air traffic systems), FedEx defines compliant to mean that these components are being aggressively assessed and that approved processes are in place to monitor their evolving status and develop specific operational contingency plans. For business-critical suppliers and affiliates, FedEx defines compliant to mean that the suppliers and affiliates have been assessed, and a contingency plan has been developed as necessary. For the automated shipping solutions offered to customers, FedEx defines compliant to mean that FedEx has made available a compliant version of the associated shipping solution. A customer may choose to remain on a noncompliant version of software if the customer is willing to assume the associated risks and there are no potentially unfavorable impacts on FedEx's internal systems. The implementation of Y2K-compliant automated shipping solutions by customers, particularly where development is required by the customer, will likely continue through December 31, 1999 and beyond. FedEx will continue to test the combinations of features, functionality and methods of use contained in its shipping solutions through December 31, 1999 and will make changes as required. For electronic interfaces with customers and suppliers, FedEx defines compliant to mean that it has made compliant transaction sets available and has made systems modifications that enable FedEx to translate noncompliant versions that mitigate the potential impact to FedEx's internal systems. Y2K INTERFACES WITH MATERIAL THIRD PARTIES The Company's operating subsidiaries are making concerted efforts to understand the Y2K status of third parties (including, among others, domestic and international government agencies, customs bureaus, U.S. and international airports and air traffic control systems, customers, independent contractors, vendors and suppliers) whose Y2K standing could either have a material adverse effect on the Company's business, financial condition or results of operations or involve a safety risk to employees or customers. All of the Company's operating subsidiaries are actively encouraging Y2K compliance on the part of third parties and are developing contingency plans in the event of their Y2K noncompliance. In conjunction with the International Air Transport Association (IATA) and the Air Transport Association of America (ATA), FedEx is involved in a global and industry-wide effort to understand the Y2K compliance status of airports, air traffic systems, customs clearance and other U.S. and international government agencies, and common vendors and suppliers. FedEx has developed contingency plans to minimize the impact of Y2K issues on its air operations. Contingency plans will be implemented, as necessary, to mitigate the impact of Y2K problems that might arise during the transition into 2000. FedEx's vendor and product compliance program includes the following tasks: assessing vendor compliance status; product testing; tracking vendor compliance progress; developing contingency plans, including identifying alternate suppliers, as needed; addressing contract language; replacing, renovating or upgrading parts; requesting presentations from vendors or making on-site assessments, as required; and sending questionnaires. Failure to respond to these questionnaires results in further mail or phone correspondence, contingency plan development and/or vendor/product replacement. The Company's other operating subsidiaries are developing a supply chain dependency model to assess the risk levels associated with the Y2K noncompliance of material third parties. TESTING FedEx's Y2K testing effort includes functional testing of remedial measures and regression testing to validate that changes have not altered existing functionality. FedEx's test plans include sections that define the scope of the testing effort, roles and responsibilities of test participants, the test approach planned, software, hardware and data requirements, and test environments/techniques to be used as well as other sections defining the test effort. System functionality for future date accuracy is being verified and documented. FedEx uses an independent, internal process to verify that the appropriate testing process has occurred. A separate homogenous Y2K mainframe environment has been created to test operating system software and program products software. The Y2K mainframe environment is designed to accomplish future date "end-to-end" testing of the larger applications and to validate interface communications between applications. COSTS TO ADDRESS Y2K COMPLIANCE Since 1996, the Company has incurred approximately $93 million on Y2K compliance ($43 million in 1999), which includes internal and external software/hardware analysis, repair, vendor and supplier assessments, risk mitigation planning, and related costs. The Company continues to monitor its total expected costs associated with Y2K compliance efforts, and currently expects that it will incur additional total costs of approximately $35 million, including depreciation of $10 million. Remaining Y2K expenditures will include project management of the corporate contingency effort and the command and control center, further system audit and validation, and project management to ensure compliance of new systems development. The Company classifies costs as Y2K for reporting purposes if they remedy only Y2K risks or result in the formulation of contingency plans and would otherwise be unnecessary in the normal course of business. The Company's Y2K compliance effort is being funded entirely by internal cash flows. For the fiscal year ended May 31, 1999, Y2K expenditures were less than 10% of the Company's total IT expense budget. Although there are opportunity costs to the Company's Y2K compliance effort, management believes that no significant information technology projects have been deferred due to this work. CONTINGENCY PLANNING AND RISKS FedEx's key contingency plans were completed by January 31, 1999. These plans address the activities to be performed in preparation for and during a Y2K-related failure that could have an immediate and significant impact on normal operations. A Y2K-related failure could include, but is not limited to, power outages, system or equipment failures, erroneous data, loss of communications and failure of a supplier or vendor. The contingency plans include, among other things, items such as pre-arranging alternative operating locations, replacing non-Y2K compliant suppliers and vendors, using back-up systems equipment and stockpiling additional inventory and supplies. They also outline alternative procedures, including manual ones, that can be performed in order to carry out mission-critical functions and trouble-shooting procedures the IT organization can follow to bring internal systems and equipment back into operation after a Y2K-related failure. The plans also establish procedures for company-wide communications. These are in addition to the Company's operational contingency plans for the pick-up, delivery and movement of packages. FedEx has created a Y2K contingency command and control center that will link to its other operations command and control centers. Key personnel will be on call beginning November 1999 and on site by December 31, 1999. FedEx's goal for completing all other contingency plans is September 30, 1999. Plans covering vendor and supplier issues are substantially complete. These plans are in place to minimize Y2K-related risks that a vendor and supplier might pose if they are behind in their own Y2K efforts. As of May 31, 1999, FedEx had substantially completed the development of its testing plans. Testing will include structured walk-throughs, mock drills and simulations and is expected to be completed by October 31, 1999. The Company's other operating subsidiaries have substantially completed their business-critical Y2K contingency plans and are currently formulating other contingency plans for non-business-critical Y2K compliance issues. Although the cost of developing contingency plans is included in the total project costs described above, the cost of implementing any necessary contingency plans is not known at this time. Due to the general uncertainty inherent in the Company's Y2K compliance, mainly resulting from the Company's dependence upon the Y2K compliance of the government agencies and third-party suppliers, vendors and customers with whom the Company deals, the Company believes that there is no single most reasonably likely worst case scenario. However, the Company believes that a most reasonably likely worst case scenario could include, but is not limited to, the following situations: delivery delays and the related re-routing costs due to the lack of readiness of airports and air traffic systems, principally outside the United States; the inability to serve certain customers or geographic areas due to their lack of compliance or lack of readiness of customs bureaus in various countries and business continuance capabilities of suppliers, vendors, customers and independent contractors, including third-party pick-up and delivery providers on whom the Company relies in some international locations; and service delays or failures associated with the global utilities and telecommunications infrastructure. The Company's Y2K program, including related contingency planning, is designed to substantially lessen the possibility of significant interruptions of normal operations. Despite its efforts to date, the Company may still incur substantial expenditures or experience significant delays in delivering its services as Y2K problems, both domestic and international, become known. Noncompliant systems of vendors, suppliers, customers and other third parties could also adversely affect the Company. While costs related to the lack of Y2K compliance of third parties, business interruptions, litigation and other liabilities related to Y2K issues could materially and adversely affect the Company's business, results of operations and financial condition, the Company expects its Y2K compliance efforts to reduce significantly the Company's level of uncertainty about the impact of Y2K issues affecting both its IT Systems and Non-IT Systems. STATEMENTS IN THIS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION" OR MADE BY MANAGEMENT OF THE COMPANY THAT CONTAIN MORE THAN HISTORICAL INFORMATION MAY BE CONSIDERED FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995), WHICH ARE SUBJECT TO RISKS AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS BECAUSE OF IMPORTANT FACTORS IDENTIFIED IN THIS SECTION. CONSOLIDATED STATEMENTS OF INCOME FDX Corporation
Years ended May 31 In thousands, except Earnings Per Share 1999 1998 1997 - ----------------------------------------------------------------------------------------------- REVENUES $16,773,470 $15,872,810 $14,237,892 - ----------------------------------------------------------------------------------------------- OPERATING EXPENSES Salaries and employee benefits 7,087,728 6,647,140 6,150,247 Purchased transportation 1,537,785 1,481,590 1,252,901 Rentals and landing fees 1,396,694 1,304,296 1,138,690 Depreciation and amortization 1,035,118 963,732 928,833 Maintenance and repairs 958,873 874,400 773,765 Fuel 604,929 726,776 734,722 Merger expenses - 88,000 - Restructuring and impairment charges (credits) - (16,000) 225,036 Other 2,989,257 2,792,216 2,526,696 - ----------------------------------------------------------------------------------------------- 15,610,384 14,862,150 13,730,890 - ----------------------------------------------------------------------------------------------- OPERATING INCOME 1,163,086 1,010,660 507,002 - ----------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE) Interest, net (98,191) (124,413) (104,195) Other, net (3,831) 13,271 23,058 - ----------------------------------------------------------------------------------------------- (102,022) (111,142) (81,137) - ----------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 1,061,064 899,518 425,865 PROVISION FOR INCOME TAXES 429,731 401,363 229,761 - ----------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 631,333 498,155 196,104 - ----------------------------------------------------------------------------------------------- INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES - 4,875 - - ----------------------------------------------------------------------------------------------- NET INCOME $ 631,333 $ 503,030 $ 196,104 - ----------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE Continuing operations $ 2.13 $ 1.70 $ .67 Discontinued operations - .02 - - ----------------------------------------------------------------------------------------------- $ 2.13 $ 1.72 $ .67 - ----------------------------------------------------------------------------------------------- EARNINGS PER COMMON SHARE -- ASSUMING DILUTION Continuing operations $ 2.10 $ 1.67 $ .67 Discontinued operations - .02 - - ----------------------------------------------------------------------------------------------- $ 2.10 $ 1.69 $ .67 - -----------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED BALANCE SHEETS FDX Corporation
May 31 In thousands 1999 1998 - ----------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 325,323 $ 229,565 Receivables, less allowances of $68,305 and $61,409 2,153,166 1,943,423 Spare parts, supplies and fuel 291,922 364,714 Deferred income taxes 290,721 232,790 Prepaid expenses and other 79,896 109,640 - ----------------------------------------------------------------------------------------------- Total current assets 3,141,028 2,880,132 - ----------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, AT COST Flight equipment 4,556,747 4,056,541 Package handling and ground support equipment and vehicles 3,858,788 3,425,279 Computer and electronic equipment 2,363,637 2,162,624 Other 2,940,735 2,819,430 - ----------------------------------------------------------------------------------------------- 13,719,907 12,463,874 Less accumulated depreciation and amortization 7,160,690 6,528,824 - ----------------------------------------------------------------------------------------------- Net property and equipment 6,559,217 5,935,050 - ----------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill 344,002 356,272 Equipment deposits and other assets 603,964 514,606 - ----------------------------------------------------------------------------------------------- Total other assets 947,966 870,878 - ----------------------------------------------------------------------------------------------- $10,648,211 $ 9,686,060 - ----------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' INVESTMENT CURRENT LIABILITIES Current portion of long-term debt $ 14,938 $ 257,529 Accrued salaries and employee benefits 740,492 611,750 Accounts payable 1,133,952 1,145,410 Accrued expenses 895,375 789,150 - ----------------------------------------------------------------------------------------------- Total current liabilities 2,784,757 2,803,839 - ----------------------------------------------------------------------------------------------- LONG-TERM DEBT, LESS CURRENT PORTION 1,359,668 1,385,180 - ----------------------------------------------------------------------------------------------- DEFERRED INCOME TAXES 293,462 274,147 - ----------------------------------------------------------------------------------------------- OTHER LIABILITIES 1,546,632 1,261,664 - ----------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (Notes 5, 13 and 14) COMMON STOCKHOLDERS' INVESTMENT Common stock, $.10 par value; 400,000 shares authorized; 297,987 and 147,411 shares issued 29,799 14,741 Additional paid-in capital 1,061,312 992,821 Retained earnings 3,615,797 2,999,354 Accumulated other comprehensive income (24,688) (27,277) - ----------------------------------------------------------------------------------------------- 4,682,220 3,979,639 Less treasury stock, at cost, and deferred compensation 18,528 18,409 - ----------------------------------------------------------------------------------------------- Total common stockholders' investment 4,663,692 3,961,230 - ----------------------------------------------------------------------------------------------- $10,648,211 $ 9,686,060 - -----------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. CONSOLIDATED STATEMENTS OF CASH FLOWS FDX Corporation
Years ended May 31 In thousands 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Income from continuing operations $ 631,333 $ 498,155 $ 196,104 Adjustments to reconcile income from continuing operations to cash provided by operating activities: Depreciation and amortization 1,035,118 963,732 928,833 Provision for uncollectible accounts 55,649 72,700 40,634 Deferred income taxes and other non-cash items (34,037) 45,570 (9,610) Restructuring and impairment charges (credits) - (16,000) 225,036 Gain from disposals of property and equipment (2,330) (7,188) (20,143) Changes in assets and liabilities, net of effects from disposition of business: Increase in receivables (294,121) (267,367) (426,357) Increase in other current assets (155,720) (102,203) (443,799) Increase in accounts payable and other operating liabilities 555,565 450,836 647,780 Other, net (19,337) (32,963) (29,300) - ------------------------------------------------------------------------------------------------------------- Cash provided by operating activities 1,772,120 1,605,272 1,109,178 - ------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchases of property and equipment, including deposits on aircraft of $1,200, $70,359 and $26,107 (1,769,946) (1,880,173) (1,762,979) Proceeds from dispositions of property and equipment: Sale-leaseback transactions 80,995 322,852 162,400 Reimbursements of A300 and MD11 deposits 67,269 106,991 63,039 Other dispositions 195,641 162,672 62,991 Net receipts from (advances to) discontinued operations - 1,735 (2,527) Other, net (22,716) (2,206) 1,044 - ------------------------------------------------------------------------------------------------------------- Cash used in investing activities (1,448,757) (1,288,129) (1,476,032) - ------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Principal payments on debt (269,367) (533,502) (9,670) Proceeds from debt issuances - 267,105 433,404 Proceeds from stock issuances 49,932 33,925 31,013 Dividends paid - (7,793) (34,825) Other, net (8,170) (6,939) (9,741) - ------------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities (227,605) (247,204) 410,181 - ------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS Cash provided by continuing operations 95,758 69,939 43,327 Cash used in discontinued operations - (1,735) (10,802) Balance at beginning of year 229,565 161,361 128,327 - ------------------------------------------------------------------------------------------------------------- Balance at end of year $ 325,323 $ 229,565 $ 160,852 - -------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME FDX Corporation
Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Deferred In thousands, except shares Stock Capital Earnings Income Stock Compensation Total - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT MAY 31, 1996 $ 8,960 $ 903,086 $2,456,271 $ 7,110 $(51,722) $(11,265) $3,312,440 Net income - - 196,104 - - - 196,104 Foreign currency translation adjustment, net of deferred taxes of $756 - - - (4,091) - - (4,091) ---------- TOTAL COMPREHENSIVE INCOME 192,013 Cash dividends declared by Caliber System, Inc. - - (28,184) - - - (28,184) Purchase of treasury stock - - - - (15,057) - (15,057) Forfeiture of restricted stock - - - - (803) 720 (83) Two-for-one stock split by Federal Express Corporation in the form of a 100% stock dividend (56,994,074 shares) 5,699 - (5,699) - - - - Issuance of common and treasury stock under employee incentive plans (1,336,116 shares) 103 34,892 - - 12,100 (10,484) 36,611 Amortization of deferred compensation - - - - - 3,421 3,421 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT MAY 31, 1997 14,762 937,978 2,618,492 3,019 (55,482) (17,608) 3,501,161 Net income - - 503,030 - - - 503,030 Foreign currency translation adjustment, net of deferred tax benefit of $2,793 - - - (30,296) - - (30,296) ---------- TOTAL COMPREHENSIVE INCOME 472,734 Adjustment to conform Caliber System, Inc.'s fiscal year - 492 (51,795) - (1,765) - (53,068) Cash dividends declared by Caliber System, Inc. - - (3,899) - - - (3,899) Purchase of treasury stock - - - - (7,049) - (7,049) Forfeiture of restricted stock - - - - (979) 586 (393) Issuance of common and treasury stock under employee incentive plans (1,466,895 shares) 135 54,195 - - 7,918 (7,204) 55,044 Cancellation of Caliber System, Inc. treasury stock (156) 156 (66,474) - 57,357 - (9,117) Amortization of deferred compensation - - - - - 5,817 5,817 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT MAY 31, 1998 14,741 992,821 2,999,354 (27,277) - (18,409) 3,961,230 Net income - - 631,333 - - - 631,333 Foreign currency translation adjustment, net of deferred tax benefit of $959 - - - (611) - - (611) Unrealized gain on available-for-sale securities, net of deferred taxes of $2,100 - - - 3,200 - - 3,200 ---------- TOTAL COMPREHENSIVE INCOME 633,922 Purchase of treasury stock - - - - (8,168) - (8,168) Forfeiture of restricted stock - - - - (1,196) 507 (689) Two-for-one stock split by FDX Corporation in the form of a 100% stock dividend (148,931,996 shares) 14,890 - (14,890) - - - - Issuance of common and treasury stock under employee incentive plans (1,770,626 shares) 168 68,491 - - 8,083 (8,273) 68,469 Amortization of deferred compensation - - - - - 8,928 8,928 - ---------------------------------------------------------------------------------------------------------------------------------- BALANCE AT MAY 31, 1999 $29,799 $1,061,312 $3,615,797 $(24,688) $ (1,281) $(17,247) $4,663,692 - ----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FDX Corporation NOTE 1: BUSINESS COMBINATION AND BASIS OF PRESENTATION On March 17, 1999, the Board of Directors declared a two-for-one stock split in the form of a 100% stock dividend that was paid on May 6, 1999 to stockholders of record on April 15, 1999. All per share amounts have been adjusted to reflect the stock split. On January 27, 1998, Federal Express Corporation ("FedEx") and Caliber System, Inc. ("Caliber") became wholly-owned subsidiaries of a newly formed holding company, FDX Corporation (together with its subsidiaries, the "Company"). In this transaction, which was accounted for as a pooling of interests, Caliber stockholders received 0.8 shares of the Company's common stock for each share of Caliber common stock. Each share of FedEx common stock was automatically converted into one share of the Company's common stock. There were approximately 146,800,000 of $0.10 par value shares so issued or converted. The accompanying financial statements include the financial position and results of operations for both FedEx and Caliber for all periods presented. The Company operates on four, three-month quarters with a fiscal year ending May 31. Prior to becoming a subsidiary of the Company, Caliber operated on a 13 four-week period calendar ending December 31, with 12 weeks in each of the first three quarters and 16 weeks in the fourth quarter. The Company's consolidated results of operations and cash flows for the year ended May 31, 1998 comprise Caliber's 53-week period from May 25, 1997 to May 31, 1998 consolidated with FedEx's year ended May 31, 1998. For years prior to 1998, the Company's consolidated results of operations, cash flows and financial position comprise Caliber's information for the calendar year ending just prior to the Company's fiscal year end consolidated with FedEx's information for that fiscal year. Due to the different fiscal year ends, Caliber's results for the 20-week period from January 1, 1997 to May 24, 1997 are not included in the financial statements for 1998 or 1997. For this period, Caliber had revenues of $1,028,119,000, operating expenses of $1,083,898,000, a net loss of $40,912,000, dividends declared of $10,883,000 and other changes, net, in common stockholders' investment of $1,273,000. Accordingly, an adjustment was included in the Company's Consolidated Statements of Changes in Stockholders' Investment and Comprehensive Income for the year ended May 31, 1998 to reflect this activity. In 1998, the Company incurred $88,000,000 of expenses related to the acquisition of Caliber and the formation of the Company, primarily investment banking fees and payments to members of Caliber's management in accordance with pre-existing management retention agreements. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of FDX Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. PROPERTY AND EQUIPMENT. Expenditures for major additions, improvements, flight equipment modifications, and certain overhaul costs are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of property and equipment disposed of are removed from the related accounts, and any gain or loss is reflected in the results of operations. For financial reporting purposes, depreciation and amortization of property and equipment is provided on a straight-line basis over the asset's service life or related lease term as follows: - ----------------------------------------------------------------------------- Flight equipment 5 to 20 years Package handling and ground support equipment and vehicles 5 to 30 years Computer and electronic equipment 3 to 10 years Other 2 to 30 years - -----------------------------------------------------------------------------
Aircraft airframes and engines are assigned residual values ranging from 10% to 20% of asset cost. All other property and equipment have no material residual values. Vehicles are depreciated on a straight-line basis over five to ten years. For income tax purposes, depreciation is generally computed using accelerated methods. DEFERRED GAINS. Gains on the sale and leaseback of aircraft and other property and equipment are deferred and amortized over the life of the lease as a reduction of rent expense. Included in other liabilities at May 31, 1999 and 1998, were deferred gains of $429,488,000 and $338,119,000, respectively. DEFERRED LEASE OBLIGATIONS. While certain of the Company's aircraft and facility leases contain fluctuating or escalating payments, the related rent expense is recorded on a straight-line basis over the lease term. Included in other liabilities at May 31, 1999 and 1998, were $321,248,000 and $324,203,000, respectively, representing the cumulative difference between rent expense and rent payments. SELF-INSURANCE ACCRUALS. The Company is self-insured up to certain levels for workers' compensation, employee health care and vehicle liabilities. Accruals are based on the actuarially estimated undiscounted cost of claims. Included in other liabilities at May 31, 1999 and 1998, were $282,889,000 and $277,696,000, respectively, representing the long-term portion of self-insurance accruals for the Company's workers' compensation and vehicle liabilities. CAPITALIZED INTEREST. Interest on funds used to finance the acquisition and modification of aircraft and construction of certain facilities up to the date the asset is placed in service is capitalized and included in the cost of the asset. Capitalized interest was $38,880,000, $33,009,000, and $45,717,000 for 1999, 1998 and 1997, respectively. ADVERTISING. Advertising costs are generally expensed as incurred and are included in other operating expenses. Advertising expenses were $202,104,000, $183,253,000 and $162,337,000 for 1999, 1998 and 1997, respectively. CASH EQUIVALENTS. Cash equivalents in excess of current operating requirements are invested in short-term, interest-bearing instruments with maturities of three months or less at the date of purchase and are stated at cost, which approximates market value. Interest income was $12,399,000, $11,283,000,and $5,885,000 in 1999, 1998 and 1997, respectively. MARKETABLE SECURITIES. The Company's marketable securities are available-for-sale securities and are reported at fair value. Unrealized gains and losses are reported, net of related deferred income taxes, as a component of accumulated other comprehensive income within common stockholders' investment. SPARE PARTS, SUPPLIES AND FUEL. Spare parts are stated principally at weighted-average cost; supplies and fuel are stated principally at standard cost, which approximates actual cost on a first-in, first-out basis. Neither method values inventory in excess of current replacement cost. GOODWILL. Goodwill is the excess of the purchase price over the fair value of net assets of businesses acquired. It is amortized on a straight-line basis over periods ranging up to 40 years. Accumulated amortization was $157,106,000 and $144,580,000 at May 31, 1999 and 1998, respectively. FOREIGN CURRENCY TRANSLATION. Translation gains and losses of the Company's foreign operations that use local currencies as the functional currency are accumulated and reported, net of related deferred income taxes, as a component of accumulated other comprehensive income within common stockholders' investment. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in the results of operations. INCOME TAXES. Deferred income taxes are provided for the tax effect of temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. The Company uses the liability method to account for income taxes, which requires deferred taxes to be recorded at the statutory rate expected to be in effect when the taxes are paid. The Company has not provided for U.S. federal income taxes on its foreign subsidiaries' earnings deemed to be permanently reinvested. Quantification of the deferred tax liability, if any, associated with permanently reinvested earnings is not practicable. REVENUE RECOGNITION. Revenue is recorded based on the percentage of service completed for shipments in transit at the balance sheet date. EARNINGS PER SHARE. In accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," basic earnings per share is computed by dividing net income by the number of weighted-average common shares outstanding during the year. Earnings per share, assuming dilution, is computed by dividing net income by the number of weighted-average common shares and common stock equivalents outstanding during the year (see Note 8). RECENT PRONOUNCEMENTS. The Company adopted SFAS No. 130, "Reporting Comprehensive Income," during the first quarter of 1999. This Statement requires that foreign currency translation and unrealized gains or losses on the Company's available-for-sale securities be included in other comprehensive income and that the accumulated balance of other comprehensive income be separately displayed. Prior year information has been restated to conform to the requirements of the Statement. On June 1, 1998, the Company adopted Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Pre-tax income for 1999 increased by $41,000,000 as a result of the adoption of this standard. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was subsequently amended by SFAS No. 137 and is now effective for fiscal years beginning after June 15, 2000. The Statement requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and to measure those instruments at fair value. The impact, if any, on earnings, comprehensive income and financial position of the adoption of SFAS No. 133 will depend on the amount, timing and nature of any agreements entered into by the Company. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants released SOP 98-5 requiring that start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal years beginning after December 31, 1998. This SOP will not have a material impact on the Company's operations. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform to the 1999 presentation. USE OF ESTIMATES. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: ACCRUED SALARIES AND EMPLOYEE BENEFITS AND ACCRUED EXPENSES The components of accrued salaries and employee benefits and accrued expenses were as follows:
May 31 In thousands 1999 1998 - ------------------------------------------------------------------------------------------------- Salaries $158,846 $143,876 Employee benefits 282,325 189,324 Compensated absences 299,321 278,550 - ------------------------------------------------------------------------------------------------- Total accrued salaries and employee benefits $740,492 $611,750 - ------------------------------------------------------------------------------------------------- Insurance $345,804 $292,905 Taxes other than income taxes 225,378 190,046 Other 324,193 306,199 - ------------------------------------------------------------------------------------------------- Total accrued expenses $895,375 $789,150 - -------------------------------------------------------------------------------------------------
NOTE 4: LONG-TERM DEBT AND OTHER FINANCING ARRANGEMENTS
May 31 In thousands 1999 1998 - ---------------------------------------------------------------------------------------------------- Unsecured debt, interest rates of 7.60% to 10.57%, due through 2098 $ 988,120 $1,253,770 - ---------------------------------------------------------------------------------------------------- Unsecured sinking fund debentures, interest rate of 9.63%, due through 2020 98,598 98,529 - ---------------------------------------------------------------------------------------------------- Capital lease obligations and tax exempt bonds, interest rates of 5.35% to 7.88%, due through 2017 253,425 253,425 Less bond reserves 9,024 9,024 - ---------------------------------------------------------------------------------------------------- 244,401 244,401 - ---------------------------------------------------------------------------------------------------- Other debt, interest rates of 9.68% to 9.98% 43,487 46,009 - ---------------------------------------------------------------------------------------------------- 1,374,606 1,642,709 Less current portion 14,938 257,529 - ---------------------------------------------------------------------------------------------------- $1,359,668 $1,385,180 - ----------------------------------------------------------------------------------------------------
The Company has a $1,000,000,000 revolving credit agreement with domestic and foreign banks. The revolving credit agreement comprises two parts. The first part provides for a commitment of $800,000,000 through January 27, 2003. The second part provides for a 364-day commitment for $200,000,000 through January 14, 2000. Interest rates on borrowings under this agreement are generally determined by maturities selected and prevailing market conditions. The agreement contains certain covenants and restrictions, none of which are expected to significantly affect the Company's operations or its ability to pay dividends. As of May 31, 1999, approximately $1,588,000,000 was available for the payment of dividends under the restrictive covenant of the agreement. Commercial paper borrowings are backed by unused commitments under this revolving credit agreement and reduce the amount available under the agreement. At May 31, 1999, all of the $1,000,000,000 commitment amount was available. The components of unsecured debt were as follows:
May 31 In thousands 1999 1998 - ------------------------------------------------------------------------------------------------- Senior debt, interest rates of 7.80% to 9.88%, due through 2013 $673,779 $ 773,532 Bonds, interest rate of 7.60%, due in 2098 239,376 249,344 Medium term notes, interest rates of 9.95% to 10.57%, due through 2007 74,965 230,894 - ------------------------------------------------------------------------------------------------- $988,120 $1,253,770 - -------------------------------------------------------------------------------------------------
Of the senior debt outstanding at May 31, 1999 and 1998, $200,000,000 was issued by Caliber. The Caliber notes mature on August 1, 2006 and bear interest at 7.80%. The notes contain restrictive covenants limiting the ability of Caliber and its subsidiaries to incur liens on assets and enter into leasing transactions. Tax exempt bonds were issued by the Memphis-Shelby County Airport Authority ("MSCAA") and the City of Indianapolis. Lease agreements with the MSCAA and a loan agreement with the City of Indianapolis covering the facilities and equipment financed with the bond proceeds obligate FedEx to pay rentals and loan payments, respectively, equal to principal and interest due on the bonds. Scheduled annual principal maturities of long-term debt for the five years subsequent to May 31, 1999, are as follows: $14,900,000 in 2000; $11,500,000 in 2001; $207,100,000 in 2002; $11,100,000 in 2003; and $30,100,000 in 2004. The Company's long-term debt, exclusive of capital leases, had carrying values of $1,178,000,000 and $1,446,000,000 at May 31, 1999 and 1998, respectively, compared with fair values of approximately $1,250,000,000 and $1,597,000,000 at those dates. The estimated fair values were determined based on quoted market prices or on current rates offered for debt with similar terms and maturities. NOTE 5: LEASE COMMITMENTS The Company utilizes certain aircraft, land, facilities and equipment under capital and operating leases that expire at various dates through 2027. In addition, supplemental aircraft are leased under agreements that generally provide for cancellation upon 30 days' notice. The components of property and equipment recorded under capital leases were as follows:
May 31 In thousands 1999 1998 - ------------------------------------------------------------------------------------------------- Package handling and ground support equipment and vehicles $245,041 $261,985 Facilities 134,442 134,442 Computer and electronic equipment and other 6,496 6,518 - ------------------------------------------------------------------------------------------------- 385,979 402,945 - ------------------------------------------------------------------------------------------------- Less accumulated amortization 268,696 274,494 - ------------------------------------------------------------------------------------------------- $117,283 $128,451 - -------------------------------------------------------------------------------------------------
Rent expense under operating leases for the years ended May 31 was as follows:
In thousands 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Minimum rentals $1,246,259 $1,135,567 $ 986,758 Contingent rentals 59,839 60,925 57,806 - ------------------------------------------------------------------------------------------------- $1,306,098 $1,196,492 $1,044,564 - -------------------------------------------------------------------------------------------------
Contingent rentals are based on hours flown under supplemental aircraft leases. A summary of future minimum lease payments under capital leases and non-cancellable operating leases (principally aircraft and facilities) with an initial or remaining term in excess of one year at May 31, 1999 is as follows:
In thousands Capital Operating Leases Leases - ------------------------------------------------------------------------------------------------- 2000 $ 15,023 $ 1,011,957 2001 15,023 933,339 2002 15,023 876,055 2003 15,023 809,770 2004 14,894 764,550 Thereafter 302,502 8,717,952 - ------------------------------------------------------------------------------------------------- $377,488 $13,113,623 - -------------------------------------------------------------------------------------------------
At May 31, 1999, the present value of future minimum lease payments for capital lease obligations including certain tax exempt bonds was $200,077,000. FedEx makes payments under certain leveraged operating leases that are sufficient to pay principal and interest on certain pass through certificates. The pass through certificates are not direct obligations of, or guaranteed by, the Company or FedEx. NOTE 6: PREFERRED STOCK The Certificate of Incorporation authorizes the Board of Directors, at its discretion, to issue up to 4,000,000 shares of Series Preferred Stock. The stock is issuable in series, which may vary as to certain rights and preferences, and has no par value. As of May 31, 1999, none of these shares had been issued. NOTE 7: COMMON STOCKHOLDERS' INVESTMENT STOCK COMPENSATION PLANS At May 31, 1999, the Company had options and awards outstanding under stock-based compensation plans described below. As of May 31, 1999, there were 16,712,860 shares of common stock reserved for issuance under these plans. The Board of Directors has authorized repurchase of the Company's common stock necessary for grants under its restricted stock plans. As of May 31, 1999, a total of 12,479,946 shares at an average cost of $12.23 per share had been purchased and reissued under the above-mentioned plans. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations to measure compensation expense for its plans. Compensation cost for the restricted stock plans was $8,928,000, $5,817,000 and $3,421,000 for 1999, 1998 and 1997, respectively. If compensation cost for the Company's stock-based compensation plans had been determined under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been the pro forma amounts indicated below:
In thousands, except per share data 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Net Income: As reported $631,333 $503,030 $196,104 Pro forma 609,960 489,556 187,624 Earnings per share, assuming dilution: As reported $ 2.10 $ 1.69 $ .67 Pro forma $ 2.03 $ 1.64 $ .64 - -------------------------------------------------------------------------------------------------
The pro forma disclosures, applying SFAS No. 123, are not likely to be representative of pro forma disclosures for future years. The pro forma effect is not expected to be fully reflected until 2002 since SFAS No. 123 is applicable to options granted by the Company after May 31, 1995, and because options vest over several years and additional grants could be made. FIXED STOCK OPTION PLANS Under the provisions of the Company's stock incentive plans, options may be granted to certain key employees (and, under the 1997 plan, to directors who are not employees of the Company) to purchase shares of common stock of the Company at a price not less than its fair market value at the date of grant. Options granted have a maximum term of 10 years. Vesting requirements are determined at the discretion of the Compensation Committee of the Board of Directors. Presently, option vesting periods range from one to seven years. At May 31, 1999, there were 2,564,228 shares available for future grants under these plans. Beginning with the grants made on or after June 1, 1995, the fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions for each option grant:
1999 1998 1997 - ----------------------------------------------------------------------------------- Dividend yield 0% 0% 0% Expected volatility 25% 25% 25% Risk-free interest rate 4.2%-5.6% 5.4%-6.5% 5.8%-6.9% Expected lives 2.5-5.5 years 2.5-6.5 years 2.5-8.5 years - -----------------------------------------------------------------------------------
The following table summarizes information about the Company's fixed stock option plans for the years ended May 31:
1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - ------------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 13,388,452 $19.74 13,523,460 $17.09 12,888,356 $15.76 Granted 3,377,500 31.80 2,485,544 28.20 3,401,064 20.02 Exercised (3,135,640) 17.86 (2,336,984) 13.45 (2,273,006) 13.65 Forfeited (230,780) 26.59 (283,568) 19.51 (536,060) 17.99 ---------- ---------- ---------- Outstanding at end of year 13,399,532 23.11 13,388,452 19.74 13,480,354 17.10 ---------- ---------- ---------- Exercisable at end of year 4,404,146 18.57 5,349,626 16.92 4,530,298 13.92 - -------------------------------------------------------------------------------------------------------------------------
The weighted-average fair value of options granted during the year was $9.12, $8.25 and $8.12 for the years ended May 31, 1999, 1998 and 1997, respectively. The following table summarizes information about fixed stock options outstanding at May 31, 1999:
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Range of Number Remaining Exercise Number Exercise Exercise Prices Outstanding Contractual Life Price Exercisable Price - ---------------------------------------------------------------------------------------------------------------- $ 7.64-$11.28 380,234 2.2 years $ 9.74 380,234 $ 9.74 11.56 - 16.50 2,633,758 4.5 years 15.30 1,752,758 15.27 17.50 - 25.19 4,996,172 6.6 years 20.20 1,733,194 20.53 26.44 - 36.94 5,317,368 8.7 years 30.42 488,460 28.23 39.88 - 48.44 72,000 8.5 years 40.48 49,500 39.88 ---------- --------- 7.64 - 48.44 13,399,532 6.9 years 23.11 4,404,146 18.57 - ----------------------------------------------------------------------------------------------------------------
RESTRICTED STOCK PLANS Under the terms of the Company's Restricted Stock Plans, shares of the Company's common stock are awarded to key employees. All restrictions on the shares expire over periods varying from two to five years from their date of award. Shares are valued at the market price of the Company's common stock at the date of award. Compensation related to these plans is recorded as a reduction of common stockholders' investment and is being amortized to expense as restrictions on such shares expire. The following table summarizes information about awards under the principal restricted stock plans for the years ended May 31:
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted- Average Average Average Shares Fair Value Shares Fair Value Shares Fair Value - -------------------------------------------------------------------------------------------------------------------------- Awarded 252,000 $32.71 240,000 $32.99 403,800 $25.97 Forfeited 16,900 44.38 28,000 34.94 36,000 20.02 - --------------------------------------------------------------------------------------------------------------------------
At May 31, 1999, there were 749,100 shares available for future awards under these plans. NOTE 8: COMPUTATION OF EARNINGS PER SHARE The calculation of basic earnings per share and earnings per share, assuming dilution, for the years ended May 31 was as follows:
In thousands, except per share amounts: 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Income from continuing operations $631,333 $498,155 $196,104 Income from discontinued operations - 4,875 - - -------------------------------------------------------------------------------------------------------------------------- Net income applicable to common stockholders $631,333 $503,030 $196,104 - -------------------------------------------------------------------------------------------------------------------------- Average shares of common stock outstanding 295,983 293,401 291,426 Basic earnings per share: Continuing operations $ 2.13 $ 1.70 $ .67 Discontinued operations - .02 - - -------------------------------------------------------------------------------------------------------------------------- $ 2.13 $ 1.72 $ .67 - -------------------------------------------------------------------------------------------------------------------------- Average shares of common stock outstanding 295,983 293,401 291,426 Common equivalent shares: Assumed exercise of outstanding dilutive options 13,090 13,849 12,200 Less shares repurchased from proceeds of assumed exercise of options (8,430) (8,842) (9,170) Average common and common equivalent shares 300,643 298,408 294,456 Earnings per share, assuming dilution: Continuing operations $ 2.10 $ 1.67 $ .67 Discontinued operations - .02 - - -------------------------------------------------------------------------------------------------------------------------- $ 2.10 $ 1.69 $ .67 - --------------------------------------------------------------------------------------------------------------------------
NOTE 9: INCOME TAXES The components of the provision for income taxes for the years ended May 31 were as follows:
In thousands 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Current provision: Domestic Federal $385,164 $267,471 $153,244 State and local 49,918 32,839 29,344 Foreign 22,730 36,543 44,165 - -------------------------------------------------------------------------------------------------------------------------- 457,812 336,853 226,753 - -------------------------------------------------------------------------------------------------------------------------- Deferred provision (credit): Domestic Federal (21,773) 56,408 577 State and local (4,437) 7,860 95 Foreign (1,871) 242 2,336 - -------------------------------------------------------------------------------------------------------------------------- (28,081) 64,510 3,008 - -------------------------------------------------------------------------------------------------------------------------- $429,731 $401,363 $229,761 - --------------------------------------------------------------------------------------------------------------------------
The Company's operations included the following pre-tax income (loss) with respect to entities in foreign locations for the years ended May 31:
In thousands 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Entities with pre-tax income $ 256,000 $ 208,000 $ 205,000 Entities with pre-tax losses (296,000) (306,000) (191,000) - -------------------------------------------------------------------------------------------------------------------------- $ (40,000) $ (98,000) $ 14,000 - --------------------------------------------------------------------------------------------------------------------------
Income taxes have been provided for foreign operations based upon the various tax laws and rates of the countries in which the Company's operations are conducted. There is no direct relationship between the Company's overall foreign income tax provision and foreign pre-tax book income due to the different methods of taxation used by countries throughout the world. A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate for the years ended May 31 is as follows:
1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- Statutory U.S. income tax rate 35.0% 35.0% 35.0% Increase resulting from: State and local income taxes, net of federal benefit 2.8 2.7 2.9 Non-recurring items (1998 Caliber acquisition, 1997 Viking restructuring) - 3.1 10.9 Other, net 2.7 3.8 5.1 - -------------------------------------------------------------------------------------------------------------------------- Effective tax rate 40.5% 44.6% 53.9% - -------------------------------------------------------------------------------------------------------------------------- Effective tax rate (excluding non-recurring items) 40.5% 41.5% 43.0% - --------------------------------------------------------------------------------------------------------------------------
The significant components of deferred tax assets and liabilities as of May 31 were as follows:
In thousands 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities - -------------------------------------------------------------------------------------------------------------------------- Depreciation $ - $608,719 $ - $523,843 Deferred gains on sales of assets 122,515 - 86,053 - Employee benefits 151,559 32,183 126,513 22,595 Self-insurance accruals 228,020 - 204,303 - Other 233,331 97,264 183,941 95,729 - -------------------------------------------------------------------------------------------------------------------------- $735,425 $738,166 $600,810 $642,167 - --------------------------------------------------------------------------------------------------------------------------
NOTE 10: EMPLOYEE BENEFIT PLANS The Company sponsors defined benefit pension plans and postretirement health care plans. The Company has adopted SFAS No. 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits," which changes the presentation of information about pension and other postretirement benefit plans. Disclosures for prior years have been restated. PENSION PLANS. The defined benefit pension plans cover substantially all employees. The largest plans cover U.S. employees age 21 and over, with at least one year of service and provide benefits based on final average earnings and years of service. Plan funding is actuarially determined, and is also subject to certain tax law limitations. International defined benefit pension plans provide benefits primarily based on final earnings and years of service and are funded in accordance with local laws and income tax regulations. Plan assets consist primarily of marketable equity securities and fixed income instruments. During 1999 benefits provided under certain of the Company's pension plans were enhanced, principally in connection with the ratification on February 4, 1999 of a collective bargaining agreement between FedEx and the Fedex Pilots Association ("FPA"). These benefit enhancements are reflected in the funded status of the plans at May 31, 1999 but did not materially affect pension cost in 1999. POSTRETIREMENT HEALTH CARE PLANS. FedEx offers medical and dental coverage to eligible U.S. retirees and their eligible dependents. Vision coverage is provided for retirees, but not their dependents. Substantially all FedEx U.S. employees become eligible for these benefits at age 55 and older, if they have permanent, continuous service with FedEx of at least 10 years after attainment of age 45 if hired prior to January 1, 1988, or at least 20 years after attainment of age 35 if hired on or after January 1, 1988. Life insurance benefits are provided only to retirees of the former Tiger International, Inc. who retired prior to acquisition. RPS, Inc. ("RPS") offers similar benefits to its eligible retirees. The following table provides a reconciliation of the changes in the pension and postretirement health care plans' benefit obligations and fair value of assets over the two-year period ended May 31, 1999, and a statement of the funded status as of May 31, 1999 and 1998:
Postretirement In thousands Pension Plans Health Care Plans - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $4,121,795 $3,142,168 $ 217,027 $ 174,503 Service cost 331,005 250,753 23,676 18,385 Interest cost 288,221 245,697 16,962 14,767 Amendments and benefit enhancements 125,145 - 1,681 40 Actuarial (gain) loss (426,863) 543,071 (7,402) 14,292 Plan participant contributions - - 679 818 Foreign currency exchange rate changes 2,796 (10,174) - - Benefits paid (56,580) (49,720) (6,437) (5,778) - -------------------------------------------------------------------------------------------------------------------------- Benefit obligation at end of year $4,385,519 $4,121,795 $ 246,186 $ 217,027 - -------------------------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $4,434,870 $3,632,684 $ - $ - Actual return on plan assets 451,738 766,148 - - Foreign currency exchange rate changes (1,283) (786) - - Company contributions 123,686 86,544 5,758 4,960 Plan participant contributions - - 679 818 Benefits paid (56,580) (49,720) (6,437) (5,778) - -------------------------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $4,952,431 $4,434,870 $ - $ - - -------------------------------------------------------------------------------------------------------------------------- FUNDED STATUS OF THE PLANS $ 566,912 $ 313,075 $(246,186) $(217,027) Unrecognized actuarial (gain) loss (595,238) (197,366) (20,809) (13,531) Unrecognized prior service (benefit) cost 132,116 5,757 291 (1,477) Unrecognized transition amount (11,852) (13,197) - - - -------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 91,938 $ 108,269 $(266,704) $(232,035) - -------------------------------------------------------------------------------------------------------------------------- AMOUNTS RECOGNIZED IN THE BALANCE SHEET AT MAY 31: Prepaid benefit cost $ 188,423 $ 184,547 $ - $ - Accrued benefit liability (96,485) (76,278) (266,704) (232,035) Minimum pension liability (86,000) (847) - - Intangible asset 86,000 847 - - - -------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 91,938 $ 108,269 $(266,704) $(232,035) - --------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost for the years ended May 31 was as follows:
In thousands Pension Plans Postretirement Health Care Plans - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Service cost $ 331,005 $ 250,753 $246,443 $23,676 $18,385 $17,830 Interest cost 288,221 245,697 221,975 16,962 14,767 13,663 Expected return on plan assets (483,709) (377,421) (334,475) - - - Net amortization and deferral (1,948) (2,304) 12,547 (211) (709) (252) - ------------------------------------------------------------------------------------------------------------------------------ $ 133,569 $ 116,725 $146,490 $40,427 $32,443 $31,241 - ------------------------------------------------------------------------------------------------------------------------------ WEIGHTED-AVERAGE ACTUARIAL ASSUMPTIONS 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Discount rate 7.5% 7.0% 8.0% 7.3% 7.2% 7.8% Rate of increase in future compensation levels 4.6 4.6 5.4 - - - Expected long-term rate of return on assets 10.9 10.3 10.3 - - - - ------------------------------------------------------------------------------------------------------------------------------
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were $201,700,000, $172,800,000 and $2,600,000, respectively, as of May 31, 1999, and $91,100,000, $66,700,000 and $1,900,000, respectively, as of May 31, 1998. The minimum pension liability and corresponding intangible asset recognized in the balance sheet at May 31, 1999 relate to the collective bargaining agreement between FedEx and the FPA. FedEx's future medical benefit costs were estimated to increase at an annual rate of 9.0% during 2000, decreasing to an annual growth rate of 5.25% in 2008 and thereafter. Future dental benefit costs were estimated to increase at an annual rate of 7.75% during 2000, decreasing to an annual growth rate of 5.25% in 2010 and thereafter. FedEx's cost is capped at 150% of the 1993 employer cost and, therefore, will not be subject to medical and dental trends after the capped cost is attained, projected to be in 2001. Caliber's health care costs were estimated to increase at an annual rate of 7.9% during 2000, decreasing to an annual growth rate of 5.25% in 2006 and thereafter. A 1% change in these annual trend rates would not have a significant impact on the accumulated postretirement benefit obligation of the Company at May 31, 1999, or 1999 benefit expense. The Company pays claims as incurred. PROFIT SHARING PLANS. The profit sharing plans cover substantially all U.S. employees age 21 and over, with at least one year of service with the Company as of the contribution date. The plans provide for discretionary employer contributions which are determined annually by the Board of Directors. Profit sharing expense was $137,500,000 in 1999, $124,700,000 in 1998 and $107,400,000 in 1997. Included in these expense amounts are cash distributions made directly to employees of $46,800,000, $43,100,000 and $28,600,000 in 1999, 1998 and 1997, respectively. NOTE 11: BUSINESS SEGMENT INFORMATION The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective May 31, 1999. The Statement establishes standards for reporting information about operating segments. Operating segments, as defined, are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision-maker in allocating resources and assessing performance. FDX is a global transportation and logistics provider primarily composed of FedEx, the world's largest express transportation company, and RPS, a business-to-business ground small-package carrier. Other operating companies included in the FDX portfolio are Viking Freight, Inc. ("Viking"), a less-than-truckload carrier operating principally in the western United States; Roberts Express, Inc., a critical-shipment carrier; and FDX Global Logistics, Inc., a contract logistics provider. Other also includes certain unallocated corporate charges. Based on the guidelines provided in SFAS No. 131, the Company determined its reportable operating segments to be FedEx and RPS, both of which operate in single lines of business. The Company evaluates financial performance based on operating income. The following table provides a reconciliation of reportable segment revenues, depreciation and amortization, operating income and segment assets to the Company's consolidated financial statement totals:
Consolidated In thousands FedEx RPS Other Total - -------------------------------------------------------------------------------------------------------------------------- Revenues 1999 $13,979,277 $1,878,107 $ 916,086 $16,773,470 1998 13,254,841 1,710,882 907,087 15,872,810 1997 11,519,750 1,346,803 1,371,339 (1) 14,237,892 Depreciation and Amortization 1999 $ 912,002 $ 82,640 $ 40,476 $ 1,035,118 1998 844,606 79,835 39,291 963,732 1997 777,374 69,857 81,602 928,833 Operating Income (Loss) 1999 $ 871,476(2) $ 231,010 $ 60,600 $ 1,163,086 1998 836,733 171,203 2,724 (3) 1,010,660 1997 699,042 138,112 (330,152)(4) 507,002 Segment Assets 1999 $ 9,115,975 $ 896,723 $ 635,513 $10,648,211 1998 8,433,106 846,139 406,815 9,686,060 - --------------------------------------------------------------------------------------------------------------------------
(1) Includes revenue of certain Viking divisions that were subsequently sold. See Note 15. (2) Includes $81,000,000 of FedEx strike contingency costs. See Note 15. (3) Includes $74,000,000 of merger expenses. See Note 1. (4) Includes a $225,000,000 charge related to the Viking restructuring. See Note 15. The following table provides a reconciliation of reportable segment capital expenditures to the Company's consolidated totals for the years ended May 31:
Consolidated In thousands FedEx RPS Other Total - -------------------------------------------------------------------------------------------------------------------------- 1999 $1,550,161 $179,969 $ 39,816 $1,769,946 1998 1,761,963 78,041 40,169 1,880,173 1997 1,470,592 152,836 139,551 1,762,979 - --------------------------------------------------------------------------------------------------------------------------
The following table presents the Company's revenue by service type and geographic information for the years ended or as of May 31:
In thousands 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Revenue by Service type FedEx: Package: U.S. overnight $ 7,185,462 $6,810,211 $6,243,790 U.S. deferred 2,271,151 2,179,188 1,621,647 International Priority 3,018,828 2,731,140 2,351,092 Freight: U.S. 439,855 337,098 207,729 International 530,759 597,861 604,472 Other 533,222 599,343 491,020 - -------------------------------------------------------------------------------------------------------- Total FedEx 13,979,277 13,254,841 11,519,750 RPS 1,878,107 1,710,882 1,346,803 Other 916,086 907,087 1,371,339 - -------------------------------------------------------------------------------------------------------- $16,773,470 $15,872,810 $14,237,892 Geographic Information(1) Revenues U.S. $12,910,107 $12,231,537 $11,001,733 International 3,863,363 3,641,273 3,236,159 - -------------------------------------------------------------------------------------------------------- $16,773,470 $15,872,810 $14,237,892 Long-lived Assets U.S. $ 6,506,424 $ 5,817,111 International 1,000,759 988,817 - -------------------------------------------------------------------------------------------------------- $ 7,507,183 $ 6,805,928 - --------------------------------------------------------------------------------------------------------
(1) Generally, international revenue includes shipments that either originate in or are destined to locations outside the United States. Long-lived assets include property and equipment, goodwill and other long-term assets. Flight equipment is allocated between geographic areas based on usage. NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest expense and income taxes for the years ended May 31 was as follows:
In thousands 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Interest (net of capitalized interest) $114,326 $130,250 $108,828 Income taxes 437,340 355,563 195,253 - --------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities for the years ended May 31 were as follows:
In thousands 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Fair value of assets surrendered under exchange agreements (with two airlines) $48,248 $90,428 $62,018 Fair value of assets acquired under exchange agreements 34,580 78,148 46,662 Fair value of assets surrendered in excess of assets acquired 13,668 12,280 15,356 - --------------------------------------------------------------------------------------------------------
NOTE 13: COMMITMENTS AND CONTINGENCIES The Company's annual purchase commitments under various contracts as of May 31, 1999, were as follows:
Aircraft- In thousands Aircraft Related(1) Other(2) Total - -------------------------------------------------------------------------------------------------------------------------- 2000 $431,400 $329,700 $528,000 $1,289,100 2001 310,300 626,300 78,200 1,014,800 2002 316,900 229,200 8,500 554,600 2003 381,500 193,600 - 575,100 2004 200,800 7,800 - 208,600 - --------------------------------------------------------------------------------------------------------------------------
(1) Primarily aircraft modifications, rotables, spare parts and spare engines. (2) Facilities, vehicles, computer and other equipment. At May 31, 1999, FedEx was committed to purchase five A300s, 31 MD11s, six DC10s (in addition to those discussed in the following paragraph) and 75 Ayres ALM 200s to be delivered through 2007. Deposits and progress payments of $27,407,000 have been made toward these purchases. FedEx has agreements with two airlines to acquire 53 DC10 aircraft (39 of which had been received as of May 31, 1999), spare parts, aircraft engines and other equipment, and maintenance services in exchange for a combination of aircraft noise reduction kits and cash. Delivery of these aircraft began in 1997 and will continue through 2001. Additionally, these airlines may exercise put options through December 31, 2003, requiring FedEx to purchase up to 20 additional DC10s along with additional aircraft engines and equipment. In January 1999, put options were exercised by an airline requiring FedEx to purchase nine DC10s (in addition to those discussed in the preceding paragraph) for a total purchase price of $29,700,000. Delivery of the aircraft began in March 1999 and is expected to be completed by January 2000. FedEx entered into contracts in previous years which were designed to limit its exposure to fluctuations in jet fuel prices. Under these contracts, FedEx made (or received) payments based on the difference between a specified lower (or upper) limit and the market price of jet fuel, as determined by an index of spot market prices representing various geographic regions. The difference was recorded as an increase or decrease in fuel expense. At May 31, 1998, all such contracts had expired. Under jet fuel contracts, FedEx made payments of $28,764,000 in 1998 and received $15,162,000 (net of payments) in 1997. NOTE 14: LEGAL PROCEEDINGS There are two separate class-action lawsuits against FedEx generally alleging that FedEx has breached its contract with the plaintiffs in transporting packages shipped by them. These lawsuits allege that FedEx continued to collect a 6.25% federal excise tax on the transportation of property shipped by air after the tax expired on December 31, 1995, until it was reinstated in August 1996. The plaintiffs seek certification as a class action, damages, an injunction to enjoin FedEx from continuing to collect the excise tax referred to above, and an award of attorneys' fees and costs. One case was filed in Circuit Court of Greene County, Alabama. The other case, which was filed in the Supreme Court of New York, New York County, and contained allegations and requests for relief substantially similar to the Alabama case, was dismissed with prejudice on FedEx's motion on October 7, 1997. The Court found that there was no breach of contract and that the other causes of action were preempted by federal law. The plaintiffs appealed the dismissal. This case originally alleged that FedEx continued to collect the excise tax on the transportation of property shipped by air after the tax expired on December 31, 1996. The New York complaint was later amended to cover the first expiration period of the tax (December 31, 1995 through August 27, 1996) covered in the original Alabama complaint. The dismissal was affirmed by the appellate court on March 2, 1999. The plaintiffs are now seeking permission to appeal to the next appellate level. The air transportation excise tax expired on December 31, 1995, was reenacted by Congress effective August 27, 1996, and expired again on December 31, 1996. The excise tax was then reenacted by Congress effective March 7, 1997. The expiration of the tax relieved FedEx of its obligation to pay the tax during the periods of expiration. The Taxpayer Relief Act of 1997, signed by President Clinton in August 1997, extended the tax for ten years through September 30, 2007. FedEx intends to vigorously defend itself in these cases. No amount has been reserved for this contingency. The Company and its subsidiaries are subject to other legal proceedings and claims 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 materially adversely affect the financial position or results of operations of the Company. NOTE 15: OTHER EVENTS On October 30, 1998, contract negotiations between FedEx and the FPA were discontinued. In November, the FPA began actively encouraging its members to decline overtime work and issued ballots seeking strike authorization. To avoid service interruptions related to a threatened strike, the Company and FedEx began strike contingency planning including entering into agreements for additional third-party air and ground transportation and establishing special financing arrangements. Subsequently, the FPA agreed to end all job actions for 60 days and negotiations resumed. Such negotiations resulted in a five-year collective bargaining agreement that was ratified by the FPA membership in February 1999 and became effective May 31, 1999. Costs associated with these contingency plans were approximately $91,000,000. Of these costs, approximately $81,000,000, primarily the cost of contracts for supplemental airlift and ground transportation, was included in operating expenses. The remaining $10,000,000 was included in non-operating expenses and represents the costs associated with obtaining additional short-term financing capabilities. In 1998, FedEx realized a net gain of $17,000,000 from the insurance settlement and the release from certain related liabilities on a leased MD11 aircraft destroyed in an accident in July 1997. The gain was recorded in operating and non-operating income in substantially equal amounts. In 1997, FedEx's operating income included a $15,000,000 pretax benefit from the settlement of a Tennessee personal property tax matter. Also in 1997, FedEx recorded a $17,100,000 non-operating gain from an insurance settlement for a DC10 aircraft destroyed by fire in September 1996. On March 27, 1997, Caliber announced a major restructuring of its Viking subsidiary. As a result of the restructuring, Viking's southwestern division (formerly Central Freight Lines Inc.) was sold during the first quarter of 1998 and operations at Viking's midwestern, eastern and northeastern divisions (formerly Spartan Express, Inc. and Coles Express, Inc.) ceased on March 27, 1997. In connection with the restructuring, Viking recorded a pretax asset impairment charge of $225,000,000 ($175,000,000, net of tax) in 1997 and a pretax restructuring charge of $85,000,000 ($56,400,000, net of tax) in the period from January 1, 1997 to May 24, 1997. This restructuring charge is included in the adjustment to conform Caliber's fiscal year in the accompanying Consolidated Statements of Changes in Stockholders' Investment and Comprehensive Income and, therefore, is excluded from the Consolidated Statements of Income. Components of the $85,000,000 restructuring charge include asset impairment charges, future lease costs and other contractual obligations, employee severance and other benefits and other exit costs. Gains on assets sold in the restructuring of $16,000,000 were recognized in the third quarter of 1998. The long-lived asset impairment charge in 1997 of $225,000,000 resulted from Caliber's assessment of the ongoing value of property and equipment (primarily real estate and revenue equipment) used in Viking's operations that was determined to be impaired under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accordingly, these assets were written down to fair value in the Company's May 31, 1997 financial statements. Fair value was based on estimates of appraised values for real estate and quoted prices for equipment. Assets held for sale from the restructuring (principally real estate and revenue equipment) are included in property and equipment in the accompanying consolidated balance sheet. Caliber completed the sale of substantially all of the assets to be disposed of during 1999 and 1998. Remaining accrued restructuring costs at May 31, 1999 of $16,000,000 relate primarily to future lease obligations and claims. On November 6, 1995, Caliber announced plans to exit the airfreight business served by its wholly-owned subsidiary, Roadway Global Air, Inc. Income from discontinuance of $4,875,000, net of tax, in 1998 included the favorable settlement of leases and other contractual obligations. NOTE 16: SUMMARY OF QUARTERLY OPERATING RESULTS (UNAUDITED)
First Second Third Fourth In thousands, except earnings per share Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------------------------------- 1999 (1) Revenues $4,082,302 $4,209,237 $4,098,418 $4,383,513 Operating income 283,843 336,987 152,038 390,218 Income before income taxes 255,348 312,404 121,269 372,043 Net income 149,379 182,756 77,833 221,365
Earnings per common share $ .51 $ .62 $ .26 $ .74 Earnings per common share - assuming dilution $ .50 $ .61 $ .26 $ .73 1998 (2) Revenues $3,866,491 $3,942,018 $3,986,304 $4,077,997 Operating income 303,905 288,949 95,381 322,425 Income before income taxes 284,786 256,719 63,670 294,343 Income from continuing operations 164,777 149,824 12,836 170,718 Net income 164,777 149,824 17,711 170,718 Earnings per common share $ .56 $ .51 $ .06 $ .58 Earnings per common share - assuming dilution $ .55 $ .50 $ .06 $ .57 - --------------------------------------------------------------------------------------------------------------------------
(1) Third quarter 1999 results included approximately $91,000,000 of expenses ($54,100,000 net of tax or $.18 per share, assuming dilution) for contingency plans made by the Company related to the threatened strike by the FPA. (2) First quarter 1998 included Caliber's results for the 12-week period from May 25, 1997 to August 16, 1997 consolidated with FedEx's results for the three months ended August 31, 1997. Second quarter 1998 included Caliber's results for the 12-week period from August 17, 1997 to November 8, 1997 consolidated with FedEx's results for the three months ended November 30, 1997. Third quarter 1998 included Caliber's results for the 16-week period from November 9, 1997 to February 28, 1998 consolidated with FedEx's results for the three months ended February 28, 1998. Third quarter 1998 results included $88,000,000 of expenses ($80,000,000 net of tax or $.26 per share, assuming dilution) related to the acquisition of Caliber and the formation of the Company. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of FDX Corporation: We have audited the accompanying consolidated balance sheets of FDX Corporation (a Delaware corporation) and subsidiaries as of May 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' investment and comprehensive income and cash flows for each of the three years in the period ended May 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated statements of income, stockholders' equity and cash flows for the year ended December 31, 1996, of Caliber System, Inc., a company acquired during 1998 in a transaction accounted for as a pooling of interests, as discussed in Note 1. Such statements are included in the consolidated financial statements of FDX Corporation for the year ended May 31, 1997, and reflect total revenues of 19% of the related FDX Corporation consolidated total. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for Caliber System, Inc., is based solely upon the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of FDX Corporation as of May 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1999, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Memphis, Tennessee June 29, 1999 SELECTED CONSOLIDATED FINANCIAL DATA FDX Corporation
Years ended May 31, In thousands, except per share amounts and Other Operating Data 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Revenues $16,773,470 $15,872,810 $14,237,892 $12,721,791 $11,719,596 Operating income 1,163,086 1,010,660 507,002 779,552 756,247 Income from continuing operations before income taxes 1,061,064 899,518 425,865 702,094 693,564 Income from continuing operations 631,333 498,155 196,104 400,186 396,125 Income (loss) from discontinued operations (1) - 4,875 - (119,614) (78,977) Net income $ 631,333 $ 503,030 $ 196,104 $ 280,572 $ 317,148 PER SHARE DATA (2) Earnings (loss) per share: Basic Continuing operations $ 2.13 $ 1.70 $ .67 $ 1.38 $ 1.38 Discontinued operations (1) - .02 - (.41) (.27) - --------------------------------------------------------------------------------------------------------------------------------- $ 2.13 $ 1.72 $ .67 $ .97 $ 1.11 - --------------------------------------------------------------------------------------------------------------------------------- Assuming dilution Continuing operations $ 2.10 $ 1.67 $ .67 $ 1.37 $ 1.37 Discontinued operations (1) - .02 - (.41) (.27) - --------------------------------------------------------------------------------------------------------------------------------- $ 2.10 $ 1.69 $ .67 $ .96 $ 1.10 - --------------------------------------------------------------------------------------------------------------------------------- Average shares of common stock 295,983 293,401 291,426 289,390 286,978 Average common and common equivalent shares 300,643 298,408 294,456 291,686 289,002 Cash dividends (3) - - - - - FINANCIAL POSITION Property and equipment, net $ 6,559,217 $ 5,935,050 $ 5,470,399 $ 4,973,948 $ 4,421,312 Total assets 10,648,211 9,686,060 9,044,316 8,088,241 7,943,218 Long-term debt, less current portion 1,359,668 1,385,180 1,597,954 1,325,277 1,324,711 Common stockholders' investment 4,663,692 3,961,230 3,501,161 3,312,440 3,260,963 OTHER OPERATING DATA FedEx Operating weekdays 256 254 254 256 255 Aircraft fleet 634 613 584 557 496 RPS Operating weekdays 253 256 254 252 253 Average full-time equivalent employees 156,386 150,823 145,995 - ---------------------------------------------------------------------------------------------------------------------------------
See Note 1 of the Notes to Consolidated Financial Statements for a discussion of the periods presented. (1) Discontinued operations include the operations of Roadway Express, Inc., a wholly-owned subsidiary of Caliber that was distributed to Caliber stockholders on January 2, 1996, and Roadway Global Air, Inc., a wholly-owned subsidiary of Caliber, which exited the airfreight business in calendar 1995. (2) Reflects two-for-one stock splits effected in the form of 100% stock dividends on November 4, 1996 and May 6, 1999. (3) Caliber declared dividends of $3,899,000, $28,184,000, $54,706,000, and $54,620,000 for 1998, 1997, 1996, and 1995, respectively. Caliber declared additional dividends of $10,883,000 from January 1, 1997 to May 25, 1997, that are not included in the preceding amounts. FedEx did not pay dividends in the years shown. FDX does not intend to pay dividends on FDX common stock. CORPORATE INFORMATION STOCK LISTING: The Company's common stock is listed on The New York Stock Exchange under the ticker symbol FDX. STOCKHOLDERS: At July 15, 1999, there were 15,431 stockholders of record. Market information: Following are high and low closing prices, by quarter, for FDX Corporation common stock in 1999 and 1998 adjusting for a two-for-one stock split effected in the form of a 100% stock dividend that was paid on May 6, 1999 to stockholders of record on April 15, 1999. No cash dividends have been declared by the Company.
First Second Third Fourth Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------- FY 1999 High $33 3/32 $32 7/16 $47 5/8 $61 3/4 Low 25 1/32 22 3/16 33 3/16 45 27/32 - ------------------------------------------------------------------------------------------------------------- FY 1998 High $ 35 $41 9/32 $34 27/32 $37 1/8 Low 26 1/2 30 17/32 28 3/16 30 5/8 - -------------------------------------------------------------------------------------------------------------
CORPORATE INFORMATION CORPORATE HEADQUARTERS: 942 South Shady Grove Road, Memphis, Tennessee 38120, (901) 369-3600. ANNUAL MEETING: The annual meeting of stockholders will be held at Hotel Le Bristol, 112, rue du Faubourg Saint-Honore, 75008 Paris, France on Monday, September 27, 1999, at 10:00 a.m. local time. INQUIRIES: For financial information, contact J.H. Clippard, Jr., Vice President, Investor Relations, FDX Corporation, 942 South Shady Grove Road, Memphis, Tennessee 38120, (901) 818-7200. For general information, contact Shirlee M. Clark, Director, Public Relations, FDX Corporation, 942 South Shady Grove Road, Memphis, Tennessee 38120, (901) 395-3460. FORM 10-K: A copy of the Company's Annual Report on Form 10-K (excluding exhibits), filed with the Securities and Exchange Commission (SEC), is available free of charge. You will be mailed a copy upon request to J.H. Clippard, Jr., Vice President, Investor Relations, FDX Corporation, 942 South Shady Grove Road, Memphis, Tennessee 38120, (901) 818-7200. Company documents filed electronically with the SEC can also be found on the Internet at the SEC's Web site (http://www.sec.gov). AUDITORS: Arthur Andersen LLP, Memphis, Tennessee. REGISTRAR AND TRANSFER AGENT: Equiserve-First Chicago Trust Division, Shareholder Services, P.O. Box 2500, Jersey City, New Jersey 07303-2500, (800) 446-2617 / John H. Ruocco (312) 407-5153. Information on the DirectServiceTM Investment Program for Shareowners of FDX Corporation may be obtained by calling (800) 524-3120. This program provides an alternative to traditional retail brokerage methods of purchasing, holding and selling FDX common stock. EQUAL EMPLOYMENT OPPORTUNITY: FDX Corporation is firmly committed to afford Equal Employment Opportunity to all individuals regardless of age, sex, race, color, religion, national origin, citizenship, disability, or status as a Vietnam era or special disabled veteran. We are strongly bound to this commitment because adherence to Equal Employment Opportunity principles is the only acceptable way of life. We adhere to those principles not just because they're the law, but because it's the right thing to do. SERVICE MARKS: FDXSM and FDX Global Logistics-SM- and logo are service marks of FDX Corporation. Federal Express,-Registered Trademark- FedEx,-Registered Trademark- and logo, FedEx Powership,-Registered Trademark- FedEx Ship,-Registered Trademark- FedEx Same Day,-Registered Trademark- FedEx interNetShip-Registered Trademark- and FedEx Express Saver-Registered Trademark-are registered trademarks and service marks of Federal Express Corporation. Reg. U.S. Pat. & Tm. Off. and in certain foreign countries. RPS-Registered Trademark-and logo and RPS Multi-Ship-Registered Trademark- are registered service marks and trademarks of RPS, Inc. Reg. U.S. Pat. & Tm. Off. Viking Freight-SM- is a service mark of Viking Freight, Inc. Roberts Express-Registered Trademark- is a registered service mark of Roberts Express, Inc. Reg. U.S. Pat. & Tm. Off. Powership-Registered Trademark- is used by FDX Corporation under license from Federal Express Corporation. BOARD OF DIRECTORS AND SENIOR OFFICERS Board of Directors Robert H. Allen (2) Private Investor and Managing Partner Challenge Investment Partners Investment firm Robert L. Cox (1) Partner Waring Cox Law firm Ralph D. DeNunzio (2) President Harbor Point Associates, Inc. Private investment and consulting firm Judith L. Estrin (1) Senior Vice President and Chief Technology Officer Cisco Systems, Inc. Networking systems company Philip Greer (1*) Senior Managing Director Weiss, Peck & Greer, L.L.C. Investment management firm J.R. Hyde, III (2) Chairman Pittco, Inc. Investment company Charles T. Manatt (2) Chairman Manatt, Phelps & Phillips Law firm George J. Mitchell (1) Special Counsel Verner, Liipfert, Bernhard, McPherson and Hand Law firm Jackson W. Smart, Jr. (2*) Chairman, Executive Committee First Commonwealth, Inc. Managed dental care company Frederick W. Smith Chairman, President and Chief Executive Officer FDX Corporation Dr. Joshua I. Smith (1) Chairman, President and Chief Executive Officer The MAXIMA Corporation Information and data processing firm Paul S. Walsh (2) Chairman, President and Chief Executive Officer The Pillsbury Company Consumer food and beverage company Peter S. Willmott (1) Chairman and Chief Executive Officer Willmott Services, Inc. Retail and consulting firm (1)Audit Committee (2)Compensation Committee (*)Committee Chairman Senior Officers Frederick W. Smith Chairman, President and Chief Executive Officer Kenneth R. Masterson Executive Vice President, General Counsel and Secretary Alan B. Graf, Jr. Executive Vice President and Chief Financial Officer T. Michael Glenn Executive Vice President, Market Development and Corporate Communications Dennis H. Jones Executive Vice President and Chief Information Officer James S. Hudson Corporate Vice President and Chief Accounting Officer Portions of this annual report were printed on recycled paper. Design by Addison www.addison.com Information-Intensive Supply Chain Innovation Velocity Visibility Value-Added Real-Time FDX Corporation 942 South Shady Grove Road Memphis, Tennessee 38120 www.fdxcorp.com EX-21 4 EXHIBIT 21 FDX CORPORATION
JURISDICTION OF ORGANIZATION OR REGISTRATION --------------- 1. FEDERAL EXPRESS CORPORATION Delaware I. FEDERAL EXPRESS AVIATION SERVICES, INCORPORATED Delaware A. Federal Express Aviation Services International, Ltd. Delaware II. FEDERAL EXPRESS CANADA LTD. Canada III. FEDERAL EXPRESS INTERNATIONAL, INC. Delaware A. Dencom Investments Limited Northern Ireland 1. Dencom Freight Holdings Limited Northern Ireland a. F.E.D.S. (Ireland) Limited Ireland b. Federal Express (N.I.) Limited Northern Ireland c. Fedex (Ireland) Limited Ireland B. Federal Express (Australia) PTY Ltd. Australia C. Federal Express Europe, Inc. Delaware 1. Federal Express Europe, Inc. & Co., V.O.F./S.N.C. Belgium 2. Federal Express European Services, Inc. Delaware D. Federal Express Europlex, Inc. Delaware E. Federal Express Finance P.L.C. United Kingdom F. Federal Express Holdings, S.A. Delaware 1. Federal Express (Antigua) Limited Antigua 2. Federal Express (Antilles Francaises) S.A.R.L. French West Indies 3. Federal Express (Barbados) Limited Barbados 4. Federal Express (Bermuda) Limited Bermuda 5. Federal Express Cayman Limited Cayman Islands 6. Federal Express (Dominicana) S.A. Dominican Republic a. Inversiones Geminis, S.A. Dominican Republic
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JURISDICTION OF ORGANIZATION OR REGISTRATION --------------- b. Inversiones Piscis, S.A. Dominican Republic c. Inversiones Sagitario, S.A. Dominican Republic 7. Federal Express Entregas Rapidas, Ltd. Brazil 8. Federal Express (Grenada) Limited Grenada 9. Federal Express (Haiti) S.A. Haiti 10. Federal Express Holdings (Mexico) y Compania S.N.C. de C.V. Mexico 11. Federal Express (Jamaica) Limited Jamaica 12. Federal Express (St. Kitts) Limited St. Kitts 13. Federal Express (St. Lucia) Limited St. Lucia 14. Federal Express (St. Maarten) N.V. Netherland Antilles a. Federal Express (Aruba) N.V. Netherland Antilles 15. Federal Express (Turks & Caicos) Limited Turks & Caicos Islands 16. Federal Express Virgin Islands, Inc. U.S. Virgin Islands 17. FedEx (Bahamas) Limited Bahamas G. Federal Express International (France) SNC France H. Federal Express International Limited United Kingdom I. Federal Express International Y Compania S.N.C. de C.V. Mexico J. Federal Express Italy Inc. Delaware K. Federal Express Japan K.K. Japan L. Federal Express Limited United Kingdom M. Federal Express Luxembourg, Inc. Delaware N. Federal Express Pacific, Inc. Delaware 1. Federal Express Services (M) Sdn. Bhd. Malaysia
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JURISDICTION OF ORGANIZATION OR REGISTRATION --------------- 2. The Flying Tiger Line, Limited Hong Kong 3. Udara Express Courier Services Sdn. Bhd. Malaysia O. Federal Express Parcel Services Limited United Kingdom P. Federal Express (Singapore) PTE, LTD. Singapore Q. Federal Express (Thailand) Limited Thailand R. Federal Express (U.K.) Limited United Kingdom a. Federal Express (U.K.) Pension Trustees Ltd. United Kingdom S. FedEx (Mauritius) Ltd. Mauritius T. Fedex (N. I.) Limited Northern Ireland U. Winchmore Developments Ltd. England a. Concorde Advertising Limited England IV. FEDERAL EXPRESS LEASING CORPORATION Delaware V. FEDEX CUSTOMS BROKERAGE CORPORATION Delaware VI. FEDEX FSC CORPORATION Barbados VII. FEDEX PARTNERS, INC. Delaware VIII. FLYING TIGERS LIMITED New Zealand IX. THE FLYING TIGER LINE (NZ) LIMITED New Zealand X. TIGER INTERNATIONAL INSURANCE LTD. Cayman Islands
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JURISDICTION OF ORGANIZATION OR REGISTRATION --------------- 2. CALIBER SYSTEM, INC. Ohio I. CALIBER SYSTEM (CANADA), INC. Canada II. FDX TECHNOLOGY, INC. Ohio III. ROADWAY GLOBAL AIR, INC. Delaware A. Roadway Global Air International, Inc. Delaware 1. Roadway Global Air, S.r.L. Italy IV. ROBERTS EXPRESS, INC. Ohio A. AutoQuik, Inc. Delaware B. North Coast Express, Inc. Ohio C. Roberts Air Freight, Inc. Ohio D. Roberts Express, BEL Belgium E. Roberts Express B.V. Netherlands F. Roberts Express GmbH Germany G. Roberts Express SARL France H. Roberts Express, S.L. Spain I. Roberts Express, S.r.L. Italy J. Roberts Express UK, Inc. Delaware K. Third Party Services, Inc. Delaware L. Transportation Technologies, Inc. Ohio V. RPS, INC. Delaware A. RPS, Ltd. Wyoming B. RPS de Mexico, S.A. de C.V. Mexico C. RPS Urban Renewal Corporation New Jersey
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JURISDICTION OF ORGANIZATION OR REGISTRATION --------------- VI. VIKING FREIGHT, INC. California A. Bay Cities Diesel Engine Rebuilders, Inc. California B. Lorena Land Company Texas C. VFS Forwarding, Inc. California D. Viking de Mexico, S.A. de C.V. Mexico 3. FDX GLOBAL LOGISTICS, INC. Delaware I. CALIBER LOGISTICS, INC. Ohio A. Caliber Dedicated Transportation, Inc. Delaware B. Caliber Intermodal, Inc. Delaware C. Caliber Logistics (Canada), Ltd. Ontario D. Caliber Logistics de Mexico, S.A. de C.V. Mexico E. Caliber Logistics Europe B.V. Netherlands 1. Caliber Logistics GmbH Germany 2. Caliber Logistics Netherlands B.V. Netherlands 3. Caliber Logistics UK Ltd. United Kingdom F. Caliber Logistics Healthcare, Inc. Ohio II. CARIBBEAN TRANSPORTATION SERVICES, INC. Delaware 4. FDX INTERNATIONAL TRANSMISSION CORPORATION Delaware
-5- EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in FDX Corporation's previously filed Form S-3 Registration Statement No. 333-74701 and Form S-8 Registration Statement Nos. 333-45037 and 333-71065 of our report dated June 29, 1999, included (or incorporated by reference) in FDX Corporation's Form 10-K for the year ended May 31, 1999. ARTHUR ANDERSEN LLP Memphis, Tennessee August 10, 1999 EX-23.2 6 EXHIBIT 23.2 Exhibit 23.2 Consent of Independent Auditors We consent to the use of our report dated January 23, 1997 (except for Note K, as to which the date is March 27, 1997) with respect to the consolidated financial statements of Caliber System, Inc. (not presented separately herein) for the year ended December 31, 1996 included in this Annual Report (Form 10-K) of FDX Corporation for the year ended May 31, 1999. ERNST & YOUNG LLP Akron, Ohio August 10, 1999 EX-24 7 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, the principal executive officer and a director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such officer and director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999. /s/ FREDERICK W. SMITH ----------------------- Frederick W. Smith STATE OF TENNESSEE COUNTY OF SHELBY I, June Y. Fitzgerald, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Frederick W. Smith, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ JUNE Y. FITZGERALD ----------------------- Notary Public My Commission Expires: December 1, 2002 - ---------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, the principal financial officer of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such officer, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999. /s/ ALAN B. GRAF, JR. ---------------------- Alan B. Graf, Jr. STATE OF TENNESSEE COUNTY OF SHELBY I, Mary T. Britt, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Alan B. Graf, Jr., personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ MARY T. BRITT ------------------ Notary Public My Commission Expires: April 14, 2001 - -------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, the principal accounting officer of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith and Alan B. Graf, Jr., and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such officer, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 8th day June, 1999. /s/ JAMES S. HUDSON -------------------- James S. Hudson STATE OF TENNESSEE COUNTY OF SHELBY I, Joyce J. Jones, a Notary Public in and for said County, in the aforesaid State, do hereby certify that James S. Hudson, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ JOYCE J. JONES ------------------- Notary Public My Commission Expires: July 9, 2002 - ------------ POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 18th day of June, 1999. /s/ ROBERT H. ALLEN -------------------- Robert H. Allen STATE OF TEXAS COUNTY OF HARRIS I, Earlene L. Barbeau, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Robert H. Allen, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ EARLENE L. BARBEAU ----------------------- Notary Public My Commission Expires: April 15, 2001 - -------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999. /s/ ROBERT L. COX ------------------ Robert L. Cox STATE OF TENNESSEE COUNTY OF SHELBY I, Jeri House, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Robert L. Cox, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ JERI HOUSE --------------- Notary Public My Commission Expires: 5-23-2000 - --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 3rd day of June, 1999. /s/ RALPH D. DENUNZIO ---------------------- Ralph D. DeNunzio STATE OF NEW YORK COUNTY OF NEW YORK I, Bonnie A. Zitofsky, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Ralph D. DeNunzio, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ BONNIE A. ZITOFSKY ----------------------- Notary Public My Commission Expires: 11/30/99 - -------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, her true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of July, 1999. /s/ JUDITH L. ESTRIN --------------------- Judith L. Estrin STATE OF CALIFORNIA COUNTY OF SANTA CLARA On July 11, 1999, before me, T. Lopez-Celaya, Notary Public, personally appeared Judith Estrin, personally known to me to be the person whose name is subscribed to the within instrument and acknowledged to me that she executed the same in her authorized capacity, and that by her signature on the instrument the person or entity upon behalf of which the person acted, executed the instrument. Witness my hand and official seal. /s/ T. LOPEZ-CELAYA -------------------- Notary Public My Commission Expires: October 18, 2002 - ---------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of June, 1999. /s/ PHILIP GREER ----------------- Philip Greer STATE OF NEW YORK COUNTY OF NEW YORK I, Michael Singer, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Philip Greer, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ MICHAEL E. SINGER ---------------------- Notary Public My Commission Expires: 5-8-00 - ------ POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of June, 1999. /s/ J. R. HYDE, III -------------------- J. R. Hyde, III STATE OF TENNESSEE COUNTY OF SHELBY I, Nancy C. Phillips, a Notary Public in and for said County, in the aforesaid State, do hereby certify that J. R. Hyde, III, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ NANCY C. PHILLIPS ---------------------- Notary Public My Commission Expires: January 12, 2000 - ---------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of June 1999. /s/ CHARLES T. MANATT ---------------------- Charles T. Manatt WASHINGTON DISTRICT OF COLUMBIA I, Patricia Dunbar, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Charles T. Manatt, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ PATRICIA DUNBAR -------------------- Notary Public My Commission Expires: January 1, 2000 - --------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of June, 1999. /s/ GEORGE J. MITCHELL ----------------------- George J. Mitchell WASHINGTON DISTRICT OF COLUMBIA I, Ione M. Hartl, a Notary Public in and for said County, in the aforesaid State, do hereby certify that George J. Mitchell, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ IONE M. HARTL ------------------ Notary Public My Commission Expires: 8/14/2000 - --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of June, 1999. /s/ JACKSON W. SMART, JR. -------------------------- Jackson W. Smart, Jr. STATE OF ILLINOIS COUNTY OF COOK I, Nicole Renea Roberts, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Jackson W. Smart, Jr., personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ NICOLE RENEA ROBERTS ------------------------- Notary Public My Commission Expires: 1/13/2001 - --------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of July, 1999. /s/ JOSHUA I. SMITH -------------------- Joshua I. Smith STATE OF MARYLAND COUNTY OF MONTGOMERY I, Edwin G. Sorto, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Joshua I. Smith, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ EDWIN G. SORTO ------------------- Notary Public My Commission Expires: November 10, 2001 - ----------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June, 1999. /s/ PAUL S. WALSH ------------------ Paul S. Walsh STATE OF MINNESOTA COUNTY OF HENNEPIN I, Colleen R. Knutson, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Paul S. Walsh, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ COLLEEN R. KNUTSON ----------------------- Notary Public My Commission Expires: January 31, 2000 - ---------------- POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS: That the undersigned, a Director of FDX CORPORATION (the "Corporation"), a Delaware corporation, does hereby constitute and appoint Frederick W. Smith, Alan B. Graf, Jr. and James S. Hudson, and each of them, with full power of substitution and resubstitution, his true and lawful attorneys-in-fact and agents, with full power and authority to execute in the name and on behalf of the undersigned as such Director, the Corporation's Annual Report on Form 10-K with respect to the Corporation's fiscal year ended May 31, 1999, and any and all amendments thereto; and hereby ratifies and confirms all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes may lawfully do or cause to be done by virtue of these presents. IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of June, 1999. /s/ PETER S. WILLMOTT ---------------------- Peter S. Willmott STATE OF ILLINOIS COUNTY OF COOK I, Rose Marie Erwin, a Notary Public in and for said County, in the aforesaid State, do hereby certify that Peter S. Willmott, personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person, and acknowledged that he signed and delivered the said instrument as his free and voluntary act, for the uses and purposes therein set forth. /s/ ROSE MARIE ERWIN --------------------- Notary Public My Commission Expires: 5/17/2002 - --------- EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS ON PAGES 19 AND 20 OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED MAY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR MAY-31-1999 JUN-01-1998 MAY-31-1999 325,323 0 2,221,471 68,305 291,922 3,141,028 13,719,907 7,160,690 10,648,211 2,784,757 1,359,668 0 0 29,799 4,633,893 10,648,211 0 16,773,470 0 15,610,384 0 0 98,191 1,061,064 429,731 631,333 0 0 0 631,333 2.13 2.10 ON MARCH 17, 1999 THE BOARD OF DIRECTORS DECLARED A TWO-FOR-ONE STOCK SPLIT IN THE FORM OF A 100% STOCK DIVIDEND THAT WAS PAID ON MAY 6, 1999 TO STOCKHOLDERS OF RECORD ON APRIL 15, 1999. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED.
EX-99 9 EXHIBIT 99 Exhibit 99 Report of Independent Auditors To the Board of Directors Caliber System, Inc. We have audited the consolidated statements of income, shareholders' equity and cash flows of Caliber System, Inc. and subsidiaries for the year ended December 31, 1996 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Caliber System, Inc. and subsidiaries for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Akron, Ohio January 23, 1997, except for Note K, as to which the date is March 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----